HIBERNIA REIT PLC HALF YEARLY FINANCIAL REPORT
Transparency directive : regulatory news
|
Hibernia REIT plc (HBRN)
HALF YEARLY FINANCIAL REPORTFor the six months ended 30 September 2020
17 November 2020
Rent collection rates reflecting strong tenant base As at 16 November 2020, contracted rent received or on agreed payment terms was as follows:
60% of our contracted rent roll is from technology companies or state entitiesFurther growth in distributable income Annual contracted rent of €66.5m at Sep-20, up 1% since Mar-20, and office WAULT of 6.2yrs, down 3%
Diluted IFRS loss per share of 5.0 cent from negative revaluation movements in the period (Sep-19: profit of 3.7 cent) EPRA EPS5 of 3.3 cent, up 17.6% on last year due to leases signed in prior periods (Sep-19: 2.8 cent) Interim DPS of 2.0 cent declared, up 14.3% on prior year (Sep-19: 1.75 cent)Modest decline in portfolio value, primarily coming in the first quarter of our financial year Portfolio value of €1,420.9m, down 3.8%[3] in the period (Mar-20: €1,465.2m)
Six-month Total Property Return[4] of -1.7% vs MSCI Ireland Property All Assets Index (excl. Hibernia) of -1.6% Per RICS guidance, C&W has included a material uncertainty statement in its September 2020 valuations of our commercial properties (residential properties not included) EPRA NTA per share5 of 171.9 cent, down 4.1% in the period (Mar-20: 179.2 cent)Very robust balance sheet with no maturities until December 2023 giving substantial flexibility and investment capacity Net debt of €265.3m, LTV5 of 18.7% (Mar-20: €241.4m, LTV 16.5%) Weighted average debt maturity of 3.8 years (Mar-20: 4.4 years) Cash and undrawn facilities of €130m, €103m net of committed expenditure (March 2020: €154m and €136m) €25m share buyback programme launched in Aug-20
Committed office developments near completion; major pipeline schemes ready to start in near term Two office schemes on track to complete in early 2021, delivering 62,500 sq. ft. of Grade A office space (38% pre-let) Major office developments fully planning approved and ready to start in next 12-26 months; all have low break-evens
Continuing focus on sustainability, one of our key strategic priorities Real-time energy consumption monitoring system installed and operating in our managed in-place offices Received third successive EPRA Gold Award for the quality of our ESG disclosures Submissions made to GRESB and, for the first time, CDP: results are expected shortly
Kevin Nowlan, Chief Executive Officer of Hibernia, said: "Despite the challenging environment in the six months to September 2020 we have made significant progress with our strategic priorities and our business performed well, delivering further growth in distributable income and recording only a modest decline in portfolio value. "Our leverage is amongst the lowest in the pan-European REIT universe, and this balance sheet strength gives us substantial capacity and strategic flexibility for value-enhancing investment opportunities. We have completed the €25m share buyback programme launched in August 2020, which has proved a highly accretive use of capital. "With the final grant of planning for our redevelopment of Clanwilliam Court, we now have planning permission for the three main office projects in our development pipeline, all of which have low break-even rents and all of which we can start in the next 12 - 26 months. These schemes will deliver 539,000 sq. ft. of Grade A offices in the traditional core of Dublin at relatively low capital costs per buildable square foot. "Until there is a clear pathway for workers to return to their offices in meaningful numbers we expect Dublin office vacancy rates to continue to rise and rents to remain under pressure. In our view the pandemic is accelerating pre-existing changes in working patterns, such as more remote working, a greater focus on collaborative spaces in offices, increased emphasis on employee wellness and office buildings' sustainability credentials. This is something we had been factoring into our building designs already, as can be seen in the Windmill Quarter. As the pandemic has continued we believe the importance of offices for employee collaboration, creativity and culture has become increasingly apparent and we remain positive about the long-term prospects for well-configured, prime offices in Dublin's city centre."
Contacts: Hibernia REIT plc +353 (0)1 536 9100 Kevin Nowlan, Chief Executive Officer Murray ConsultantsDoug Keatinge: +353 86 037 4163, dkeatinge@murraygroup.ie About Hibernia REIT plcHibernia REIT plc is an Irish Real Estate Investment Trust ("REIT"), listed on Euronext Dublin and the London Stock Exchange. Hibernia owns and develops property and specialises in Dublin city centre offices. Results presentation detailsWe are using a different provider than in previous years, so please note the following: if you think you will want to ask a question at the end, you must register for the phone call as you will not be able to do this from the webcast. There is a slight time lag between the audio call and the webcast, so best to watch/listen to the latter so that the slides will be in sync with the audio, and then switch back to the phone if you want to ask a question. Webcast URL: https://www.investis-live.com/hibernia-reit/5f9ab797b690c910007b3d9c/helv
Disclaimer Market review General economyThe six months ended 30 September 2020 witnessed a decline in global economic output at a speed unprecedented in peacetime due to the rapid spread of COVID-19 and the precautionary measures governments imposed in response. Having started the year expecting global GDP growth of 3.3%, the IMF is now projecting a 4.4% contraction in 2020, weaker again than the 3.0% contraction it was estimating in May 2020. A strong recovery is still expected in 2021, with the IMF forecasting global GDP growth of 5.2%, leaving global GDP approximately 6.5pp lower than in its pre-COVID projections of January 2020 but still 0.6pp ahead of 2019 GDP. Ireland will also see a fall in output in 2020, although official expectations have improved recently. GDP is now forecast to decline 2.5% in 2020 and grow 1.4% in 2021, compared to GDP forecasts in April 2020 of a 10.5% reduction in 2020 and a 5.8% increase in 2021 (source: Department of Finance "DoF"). According to Goodbody, a GDP decline of 2.5% in 2020 would make Ireland one of the best-performing economies in the developed world. This outperformance is largely due to the significant positive contribution to output from the multinational sector. Modified Domestic Demand, which is often considered a more appropriate gauge of the domestic economy as it strips out distortions caused by aircraft leasing and R&D from the multinational sector, is expected to fall by 6.5% this year (-15.1% previously) and grow by 3.9% in 2021 (+7.8% previously) (source: DoF). However, the positive spill over from the multinational sector to the Irish labour market is relatively modest and employment expectations have weakened, with the cumulative fall in employment now expected to be 8.0% vs a fall of 4.0% anticipated in April 2020 and the COVID-adjusted unemployment rate is expected to average 10.7% in 2021 vs 9.7% previously (source: Goodbody, DoF). This illustrates the K-shaped trajectory of the Irish economy at present, with domestic service sectors continuing to suffer due to the government restrictions while the multinational sector, which is largely export focussed, performs well (source: Goodbody). Ireland continues to offer significant support to the labour market through pandemic payments and wage subsidy schemes: the standard measure of monthly unemployment was 7.3% in October 2020, while the COVID-19 adjusted measure of unemployment was 20.2%, if all claimants of the Pandemic Unemployment Payment ("PUP") were classified as unemployed (source: CSO). Much of this emergency support is going to the hospitality and retail sectors, with office-based employment less impacted thus far. Given the level of government support and the enforced increase in personal savings caused by the restrictions, the economic recovery, when it comes, is likely to be rapid. In addition to COVID-19 the other key risk for the Irish economy in the near term is the terms under which the UK and EU trade after the expiry of the Brexit transition period on 31 December 2020. The Central Bank of Ireland ("CBI") estimates that a move to World Trade Organization rules could reduce the growth rate of the Irish economy by 2pp in 2021, relative to a scenario where a free trade agreement is concluded. Irish property market overviewAs we noted on page 17 of our 2020 Annual Report, the structural changes that have occurred in Ireland's property market since 2007 should give it much greater resilience. From 2001 to 2008, 100% of investment spend on Irish property was from domestic investors, many of them developers, private individuals or syndicates, and much of it was debt funded. By comparison, since 2013 ownership has shifted towards a more diverse investor base. Many of these are institutional investors seeking long-term income, with Irish investors only accounting for 20% of the €11.3bn invested in the past seven years (source: Knight Frank), and debt is generally a smaller proportion of the funding mix. As well as these structural changes, the Dublin office market itself entered the COVID-19 crisis with much healthier fundamentals than it had prior to the Global Financial Crisis in 2008, due in part to the limited speculative development funding available this cycle. While prime headline quoting rents in March 2020 and 2008 were both in excess of €60psf, the Dublin office vacancy rate in March 2020 was 6.5% versus 12.3% in March 2008. And the unlet office space under construction totalled 3.0m sq. ft. (6.9% of existing stock) in March 2020 versus 4.6m sq. ft. (14.9% of existing stock) in March 2008 (source: Knight Frank, Property Market Analysis). Irish property investment marketInvestment volumes in the first nine months of 2020 totalled €1.8bn, down 40% on the same period last year when volumes were €3.0bn, with overseas investors accounting for 74% of volumes (2019: 66%). After a relatively strong first quarter of 2020 in which volumes were €0.7bn, they fell to €0.4bn in the second quarter as the impact of COVID-19 was felt. In the third quarter there was a pick-up in activity with volumes amounting to €0.7bn, though with new restrictions introduced in Ireland in October 2020 due to the "second wave" of COVID-19 infections, transaction activity may be disrupted further. The residential and office sectors have dominated, accounting for 82% of volumes in the nine-month period, up from 74% during the same period in 2019 (source: Knight Frank). Activity in the multi-family residential sector remains robust, particularly since the pandemic started, and the sector comprises 35% of overall volumes year to date (a similar proportion to 2019). By comparison, from the onset of the COVID-19 pandemic in Ireland in March 2020 until 30 September 2020, there were only three notable office transactions: Bishop's Square, 2 Burlington Road and 30-33 Molesworth Street, all of which are located in the CBD and were sold at yields around 4% (see further details in the tables below). Since the end of September 2020 office investment activity has picked up, with Baggot Plaza and Fitzwilliam 28, two more CBD offices, both transacting at yields around 4%. The relative lack of transactional evidence in the office sector has created challenges in assessing the market value of office assets. That said, CBRE reports that the continued low interest rate environment, coupled with substantial unallocated capital positions, means that there is considerable investor liquidity available to deploy into prime Irish property and there has been good underlying demand for the office investment opportunities that have arisen in recent months. Top 5 office investment transactions (9 months to September 2020)
Source: Knight Frank. Top 5 Private Rental Sector ("PRS") investment transactions (9 months to September 2020)
Source: Knight Frank. In the six months to 30 September 2020 the MSCI Ireland Property All Assets Index (the "Index") delivered a total return of -1.6%, excluding Hibernia (September 2019: 3.0%). Over this period the "Other" sector (which includes PRS) has been the top performer in the Index, with a total return of 2.9%, followed by the Industrial sector at 2.6% (September 2019: 2.4% and 2.9%, respectively). Offices delivered a total return of 0.5% (September 2019: 3.5%), incorporating an income return of 2.1% and a capital return of -1.6%. Prime office yields remained broadly constant at 4.0% as at 30 September 2020 (source: Knight Frank). Dublin office occupational marketFollowing 3.3m sq. ft. of take-up in 2019, the strong momentum continued into 2020 with take-up of 0.8m sq. ft. recorded in the first quarter, the second largest opening quarter ever (Q1 2019: 1.4m sq. ft.) (source: Knight Frank). However, the second and third quarters of 2020 have been a challenging period for the occupational market due to the COVID-19 restrictions and weak economic conditions, with sentiment not helped when Google announced in September 2020 that it had terminated discussions to lease 200,000 sq. ft. in the Sorting Office in the South Docks. In the six months to September 2020 take-up amounted to 0.3m sq. ft. (Q2: <0.1m sq. ft.; Q3: >0.2m sq. ft.) compared to 0.7m sq. ft. for the same period last year. The total for the first nine months of 2020 was 1.1m sq. ft. (2019: 2.1m sq. ft) with 53% of take-up in the city centre (2019: 52%) and 82% from the technology, media and telecommunications ("TMT") and pharma/medical sectors (2019: 47%), both of which have a high proportion of multinational companies (source: Knight Frank). While large lettings (>100k sq. ft.) have become a regular feature of the Irish office market over recent years there have been no individual lettings of greater than 50,000 sq. ft. since Q1 2020, an indication of the hesitancy amongst occupiers to commit to significant new leases at present. Our active demand tracker, run in conjunction with Cushman & Wakefield, saw a c. 30% fall in active demand between the end of February 2020 and the end of September 2020 to a figure of 2.3m sq. ft. (September 2019: 4.1m sq. ft.). CBRE reports that there was approximately 0.4m sq. ft. reserved at the end of September 2020 though it is uncertain how much will convert into leasing activity by the end of the calendar year. Indeed, despite recent positive news on vaccine development we believe it is unlikely we will see a significant recovery in occupier demand until there is a clear pathway for workers to return to offices in meaningful numbers. Top 10 office lettings (9 months to September 2020)
Source: Knight Frank. The overall Dublin office vacancy rate (which includes "shadow" or "grey" space) increased to 8.9% at 30 September 2020 from 6.5% at 31 March 2020 (September 2019: 6.8%) and the Grade A vacancy rate in the city centre, where all of Hibernia's office portfolio is located, was 9.1% at 30 September 2020, up from 5.9% at 31 March 2020 (September 2019: 6.0%) (source: Knight Frank). Of the 2.4pp increase in overall Dublin office vacancy, 1.5pp related to 0.7m sq. ft. from un-let new buildings completing and 0.7pp related to 0.3m sq. ft. of grey space coming back into the market as tenants offered surplus space for sub-leasing: the remaining 0.2pp came from lease expiries. Most of the main Dublin agents have now marked down their headline prime Dublin office rent assumptions by mid-single digit percentages from the pre-COVID levels above €60psf and increased tenant incentives have been assumed in some cases, though the impact of this may not have been fully recognised in property valuations in the market at 30 September 2020. Given the current uncertainty and economic conditions we believe the risk remains to the downside for rental values in Dublin at present. Office development pipelineThe table below sets out our expectations for upcoming supply in Dublin's city centre and for the whole of Dublin by calendar year. We currently expect 7.1m sq. ft. of gross new space to be delivered between 2020 and 2023 for the whole of Dublin (1.1m sq. ft. already completed), of which 76% will be in the city centre. 43% of office stock under construction in Dublin has been let or reserved (47% in the city centre), meaning there is 3.0m sq. ft. under construction but not yet let (2.2m sq. ft. in the city centre) (source: Knight Frank/Hibernia). Since we last reported in May 2020, the expected supply between 2020 and 2023 is down 0.3m sq. ft. (5%) in the city centre and 0.5m sq. ft. (7%) for the whole of Dublin due to projects being delayed and/or postponed.
Source: Knight Frank/Hibernia. The current economic uncertainty is likely to make securing project-specific debt funding for speculative office development even more challenging than it has been in recent years and as a result, as we move into 2021, we may see more schemes being delayed or postponed, particularly those where construction has not yet commenced. Residential sectorPrior to COVID-19, increases in the number of new home completions in Ireland in 2020 and 2021 were forecast. However, due to the various restrictions put in place in response to the pandemic, including a shut-down of most construction sites for a period earlier in the year, expectations have reduced. 8,000 units were completed in the first half of 2020, which represented a decline of 9% on the same period last year and 20,000 units are expected to be delivered in 2020, a fall of 8% on 2019 (source: Goodbody). This will be the first year-on-year decline since 2012, putting Ireland even further behind the estimated natural demographic demand for at least 34,000 units per annum (source: CBI). Data from the CSO show that Dublin accounted for 30% of all Irish delivery in the first half of 2020, broadly in line with the 33% in the same period last year. Similarly, when combined with the commuter counties around Dublin, the Greater Dublin Area ("GDA") accounted for 51% of Irish completions in the first half of 2020 (H1 2019: 55%) (source: CSO). Within the GDA, houses accounted for 70% of completions and apartments for 30% in H1 2020 which compares to 79% houses and 21% apartments in the same period last year. While this represents an increase in the proportion of apartments being built, it is still at odds with the aspirations of the Ireland 2040 plan for compact urban growth. Furthermore, at 21% of total completions, apartment building in Ireland is running at the lowest level of any EU member state, with the average being 59% (source: European Commission). In June 2020 the new Irish Government (a three-party coalition) put forward its programme for government which made a number of pledges that the state will play a more active role in the provision of housing in Ireland alongside various supports for private home ownership. The Government aims to increase the total social housing stock by 50,000 units over the next five years and it will focus on newly built homes (source: DoF). While a significant demand/supply imbalance is likely to persist, the commitment to increasing the supply of housing is welcome. Viability and affordability issues remain prevalent in the private sector, particularly in Dublin, so it is likely that the ongoing delivery of apartments will depend on continued demand from PRS investors. Goodbody estimates that 80% of the apartments delivered are being purchased by PRS investors. The latest housing data for Ireland suggest that residential prices are holding up but transaction volumes remain significantly below the same period one year ago. Nationally, residential property prices have been broadly flat for almost two years and so far this trend has not been disrupted by the pandemic. Dublin continues to underperform, with prices down 1.5% year-on-year, relative to the very modest growth outside the capital of 0.3% year-on-year (source: Goodbody). Knight Frank estimates that there continues to be €3bn of capital looking to deploy into the residential sector in Ireland, with several new entrants amongst the many European investors already focussing on investing in the Irish market at present. This is likely to keep prime yields in the sector stable at 3.75-4%.
Business review COVID-19 update and outlook We have adapted our head office to provide a safe working environment for staff and any visitors in the current circumstances. In accordance with public health guidance, our head office staff have been working from home since mid-March 2020, with occasional visits to the office when necessary to perform their duties. We have recently introduced an allowance to assist our staff with the purchase of office and IT equipment that they may require to work from home in an ergonomically efficient and safe manner. While working from home is less appealing for most of us than working in the office, with its benefits of daily professional and social interaction that we previously took for granted, nonetheless the transition to remote working has been smooth, assisted by our cloud-based IT systems. Maintaining our collaborative, team culture and ensuring staff welfare has been a key priority of the last few months: along with regular video calls within departments, we have a weekly all-hands video call to keep our staff up-to-date with the activities of all our departments. In addition, we have held a number of virtual social events. All our managed buildings have remained accessible by tenants as required. At the start of the crisis we appointed one of our team to oversee our COVID-19 response and we have developed an individual plan for each building. This has been discussed with tenants and covers access control, physical distancing measures, additional cleaning, sanitising and signage. Most construction sites in Ireland, including 2 Cumberland Place, were shut down from late March to mid-May 2020. Since then work on site has continued with appropriate precautionary measures: this has caused some practical challenges for our contractors at 2 Cumberland Place but is not expected to materially affect the completion date of the project or costs (see development section below for further details). Looking at the Dublin office market as a whole, the crisis has caused many potential occupiers to postpone or cancel their plans to take space in the near term and while recent news on vaccine development has been positive, it is hard to envisage there being a significant recovery in demand until there is a clear pathway for workers to return to their offices in meaningful numbers (please see the market update section above for more details). It is difficult to discern trends amongst our existing office tenants regarding their expectations on their longer-term workspace requirements at present and indeed it is likely that many of them do not know at this stage. In our view, the COVID-19 pandemic is accelerating changes in working patterns that were already happening, such as more remote working, a greater focus on collaborative workspace within offices, increased importance placed on employee wellness and buildings' sustainability credentials. This is something we had been factoring into our building designs already, as can be seen in the Windmill Quarter. As the crisis continues we believe the importance of offices for employee collaboration, creativity and team culture is becoming increasingly apparent and we continue to be positive about the long-term prospects for well-configured, prime offices in Dublin's city centre. As such our strategy remains to own and deliver high quality offices in Dublin's city centre. In the Dublin residential rental market, tenant demand remains strong, other than at the top-end (>€2,250 per month for a two-bed apartment) where interest has softened. As noted in the market update above, demand for housing in Dublin outstrips supply and it is unlikely this will change any time soon given demographics and supply challenges. Our focus within the residential sector continues to be on delivering new supply in the medium term. Progress against strategic priorities for FY21 We are making good progress with the strategic priorities outlined in the 2020 Annual Report, and we summarise this in the table below.
Disposals and acquisitions Given the public health-related restrictions and associated market conditions, it was a quiet six-month period for investment activity across the Irish property market. We made no disposals (H1 2020: none) and invested €3.8m in two smaller acquisitions, both of which are adjacent to existing Hibernia assets and are "bolt-on" in nature (H1 2020: €17.6m). We continue to review opportunities though we will be disciplined in pursuing these, assessing them against investment in the material development opportunities within our portfolio (see development section below for more details).
Portfolio overview At 30 September 2020 the investment property portfolio consisted of 37 assets valued at €1,420.9m (March 2020: 36 assets valued at €1,465.2m) which can be categorised as follows:
Note: Per RICS and SCSI guidance, C&W have highlighted material uncertainty in their Sep-20 valuations due to COVID-19. This applies to all assets other than our residential assets (Mar-20: all assets including residential).
Note: differences in summation of totals in above table are due to rounding.
The key statistics of our office portfolio, which comprised 81% of our overall investment property portfolio by value at 30 September 2020 and 85% by contracted rent (March 2020: 82% and 88%, respectively), are set out below. The WAULT to break/expiry of our completed developments (the majority of our office income) is over 8.5 years. By comparison, our acquired office assets have a WAULT to break or expiry of just over three years with those assets in our near term development pipeline (primarily Marine House, Clanwilliam Court and Harcourt Square) having a WAULT of under two years: this is to facilitate future redevelopment activity.
Since 31 March 2020 Group contracted rent has increased by €0.8m (+1%) to €66.5m, with the main driver being the pre-let to 3M in 2 Cumberland Place, which outweighed the loss of income from the expiry of some leases in Marine House. The vacancy rate of the in-place office portfolio, which was 7% by lettable area in March 2020, remained 7% at 30 September 2020, excluding Marine House and Clanwilliam Court which we expect to redevelop in the near term: including these two assets it rose to 10% at 30 September 2020. For further details on the vacant space and the increase in contracted rent, please refer to the asset management section below and for further details on our plans for Marine House and Clanwilliam Court please see the development section below. At 30 September 2020 our ten largest tenants, all of which are large, multinational companies or government/state entities, accounted for 55% of our contracted portfolio rent of €66.5m. By sector, technology and government/state entities accounted for 60% of contracted portfolio rent (please see the selected portfolio information on pages 17 to 18). The composition of our tenant base, in particular the amount of large, well-capitalised technology companies and government/state entities gives us comfort regarding its resilience and as noted elsewhere in this document, our rent collection statistics have remained strong during the COVID-19 crisis.
Portfolio performance In the six months ended 30 September 2020 the portfolio value decreased €56.3m, or 3.8% on a like-for-like basis (i.e. excluding acquisitions, disposals and capital expenditure). The majority (€47.2m) of the valuation decline came in the quarter ended June 2020 (Q1 FY21) as the initial impact of COVID-19 was reflected.
Note: At Sep-20, 50 City Quay was undergoing a substantial refurbishment and so it was moved from South Docks to Dublin CBD Office Developments. *Note: In the Mar-20 valuation C&W included a material uncertainty clause for all assets valued, in line with RICS guidance. This is intended to indicate that less certainty and a higher degree of caution should be ascribed to the valuations than would normally be the case due to the impact of COVID-19. In the Sep-20 valuation C&W removed the material uncertainty clause for assets within the "Dublin residential" group. The valuation movements in the office portfolio in the six-month period were mainly driven by the following:
The largest individual valuation movements by value in the six-month period were:
Developments and refurbishments As previously announced, Gerard Doherty succeeded Mark Pollard as Director of Development following Mark's retirement at the end of June 2020: Mark continues to work with us on a part-time basis. Capital expenditure on developments in the period was €8m (September 2019: €9m) and related almost entirely to 2 Cumberland Place, our main active development. In August 2020 work started at 50 City Quay, a small refurbishment project in the Windmill Quarter. Both active schemes are expected to be completed by early 2021 and will deliver a total of 62,500 sq. ft. of Grade A office space, 38% of which is pre-let. In the period we also received a final grant of planning for the redevelopment of Clanwilliam Court. This means the three major office schemes in our development pipeline now have full planning permission to deliver 539,000 sq. ft. of Grade A office space, starting in early 2022 (Marine House & Clanwilliam Court) and early 2023 (Harcourt Square). Committed development schemesConstruction is nearing completion at 2 Cumberland Place, with delivery expected in January 2021. 24,000 sq. ft. in the 58,000 sq. ft. building was pre-let to 3M Digital Science Community Ltd, a subsidiary of 3M Company, in April 2020. The health protocols brought in since work on sites in Ireland was allowed to restart in May 2020 have presented some logistical challenges for the contractors but no material delays or cost overruns are expected and work has been able to continue since the re-introduction of the highest level of COVID-19 restrictions in Ireland in October 2020. In August 2020 work commenced on the refurbishment of 50 City Quay. The 4,500 sq. ft. office building is situated in the Windmill Quarter, adjacent to 1SJRQ and faces the River Liffey. The development work is expected to complete in January 2021. Please see further details on the schemes below:
Development pipelineWe have received a final grant of planning from An Bord Pleanála, the planning appeals board, for the 152,000 sq. ft. redevelopment of Clanwilliam Court after Dublin City Council's initial planning approval was the subject of a third party appeal. This means we have planning permission now for the three main office projects in our current development pipeline, Marine House, Clanwilliam Court and Harcourt Square. Together these schemes can deliver 539,000 sq. ft. of Grade A office space in Dublin's Traditional Core, a net increase of nearly 283,000 sq. ft. and a 25% increase in the size of our current in-place office portfolio. We are also assessing the longer-term redevelopment potential of certain other assets within the portfolio. We can start the redevelopment of Marine House and Clanwilliam Court from early 2022 when the existing leases expire (i.e. in a little over 12 months' time) and we can start the redevelopment of Harcourt Square from early 2023 (i.e. in a little over 24 months' time). All three schemes should be profitable under most market conditions: based on the planning approvals we have in place, the valuations of the three properties at 30 September 2020 (which include the present value of the income remaining on the leases) equate to aggregate capital values of €303[5] per buildable sq. ft. and the estimated capital expenditure required to deliver the schemes is €550 per buildable sq. ft., an all-in cost of €853 per buildable sq. ft.[6]. We continue to hold 154.3 acres of land with potential for mixed-use development schemes in the longer term: re-zoning will be necessary in all cases and consequently the timing of any future developments remains uncertain at present.
Asset management Net capital expenditure on maintenance items amounted to €0.6m in the financial period or €0.4m net of refunds (2019: €0.3m). Contracted rent increased by €0.8m (1%) to €66.5m (March 2020: €65.7m) as a result of:
Some other key statistics at 30 September 2020:
Summary of letting activity in the periodOffices:
Industrial:
Residential:
Summary of letting activity since period endOffices:
Key asset management transactions by property
Key in-place office properties with vacancy at period endAs noted above, the in-place office portfolio vacancy rate at 31 March 2020 was 7% and it remained at this level at 30 September 2020, excluding Marine House and Clanwilliam Court, where leases are being run down to facilitate their redevelopment in the near term. Including Marine House and Clanwilliam Court the office vacancy rate at 30 September 2020 was 10%. The main office investment assets with vacancy are:
Future rent reviews, break options and lease expiriesThe table below summarises upcoming rent reviews and lease expiries by financial year, as well as setting out the ERVs for this space, as at 30 September 2020. As noted in the footnote below, only a relatively small amount of income, €5.7m, is subject to break options over the next five years.
Note: The table above shows upcoming rent reviews and expiries: break options amount to an additional €5.7m over the period to Mar-25. 1. €9.0m of this income is capped & collared at next review and a further €4.0m is subject to upward only rent review provisions.
Sustainability Improving our sustainability performance is a key strategic priority. In the three years to December 2019, we achieved a reduction of over 25% in greenhouse gas emissions intensity from landlord-obtained utilities in our managed offices on a like-for-like basis and a reduction of over 20% on an absolute basis. Neil Menzies joined us as full-time Sustainability Manager in January 2020 and since then we have installed a system to enable us to monitor the energy consumption of the managed areas of our office buildings in real-time. We expect this will help us to reduce our greenhouse gas emissions intensity further. In the period we received our third successive EPRA Gold Award for the quality of our sustainability performance disclosures. We also submitted our GRESB 2020 Assessment and, for the first time, a climate change questionnaire to CDP: we expect the results of both submissions shortly. Along with improving the operating efficiency of our assets our major area of focus at present is on assessing pathways towards net zero carbon emissions and considering the disclosure recommendations of the TCFD.
Financial review
1. An alternative performance measure ("APM"). The Group uses a number of such financial measures to describe its performance, which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see Supplementary Information at the end of this report.
The key drivers of the 7.3 cent decrease in EPRA NTA per share since 31 March 2020, were:
EPRA earnings were €22.4m, up 16.4% compared with the first six months of the prior financial year due to:
The Group recorded an after tax loss of €34.2m in the period, a reduction of 234.2% over the same period last year, due to revaluation losses on the investment property portfolio of €56.9m (2019: revaluation gain of €6.3m).
Funding position Group leverage target: our through-cycle target remains a loan to value ratio of 20-30%. The Group's debt funding is fully unsecured and comprises a revolving credit facility ("RCF") and private placement notes. The weighted average maturity of the Group's debt at 30 September 2020 was 3.8 years (March 2020: 4.4 years) and no debt is due before December 2023. Please see the table below for further details.
At 30 September 2020, net debt was €265.3m (March 2020: €241.4m), equating to an LTV of 18.7% (March 2020: 16.5%). The main capital expenditure items increasing the net debt in the period were development expenditure of €8.4m, gross acquisition expenditure of €3.8m and the share buyback of €9.0m (see further details elsewhere in this report). Cash and undrawn facilities at 30 September 2020 amounted to €130m or €103m, net of committed expenditure (March 2020: €154m and €136m, respectively). Assuming full investment of the available facilities in property, the LTV, based on market values at 30 September 2020, would be c. 26%. The Group has significant headroom on the financial covenants on its borrowings: the table below outlines the principal financial covenants and the headroom above each as at 30 September 2020.
Interest rate hedging Group hedging policy: to ensure the majority of the interest rate risk on drawn debt balances is fixed or hedged. At 30 September 2020 the Group had €75m of fixed coupon private placement notes (2019: €75m) and the interest rate risk on the RCF drawings of €213m (2019: €167m) was mitigated by hedging instruments covering €125m of notional exposure (2019: €225m) as set out below. This means 59% of the interest rate risk on the RCF drawings was hedged (2019: 135%) and 69% of the Group's overall interest rate risk on its debt was fixed or hedged (2019: 124%). The "over-hedged" position at 30 September 2019 was a short-term effect that ceased in November 2019 and gave no additional financial risk to the Group.
Capital management In August 2020, given the prevailing share price, we announced a €25m share buyback programme to complete the return to shareholders of the proceeds of the sale of 77 Sir John Rogerson's Quay which started with the €25m share buyback programme undertaken in 2019. At 30 September 2020 8.1m shares had been repurchased and cancelled for aggregate consideration of €9.0m, an average purchase price per share of €1.11. On 16 November 2020 the €25m share buyback programme was completed, at which point 23.1m shares had been repurchased and cancelled at an average purchase price per share of €1.08. The buyback programme was accretive to EPRA NTAPS and EPRA EPS and the effects of this will be seen particularly in the second half of the current financial year and beyond.
Rent collection Our tenants are important stakeholders in our business and we have been working closely with them to offer support, where needed, in the current circumstances. Commercial tenants[7]As can be seen from the table below, our commercial rent collection has remained strong in recent quarters. At 16 November 2020, 95% of rent due for the quarter ending December 2020 had been received, or 98.5% including monthly rent not yet due.
*Due to be paid in full by July 2021
Residential tenants[8]At close of business on 16 November 2020, 98% of the rent due for the month of November had been received and the occupancy rate in our residential units was 96%. At the same point in September and October, respectively, 97% and 99% of that month's contracted rent had been received and the occupancy rate was 95% in both cases. We have now received over 99% of September rent and over 99% of October rent.
Dividend Group dividend policy: to distribute 85-90% of rental profits via dividends each financial year, in compliance with the requirement of the Irish REIT legislation to distribute at least 85%. The interim dividend in a financial year will usually be 30-50% of the total ordinary dividends paid in respect of the prior financial year. The Board has declared an interim dividend of 2.0 cent per share, to be paid on 28 January 2021 to shareholders on the register on 8 January 2021. The interim dividend has been increased 14.3% on prior year (2019: 1.75 cent) following the continued growth in rental profits and represents 61% of EPRA EPS for the period and 42% of the total dividends paid in respect of the prior financial year of 4.75 cent per share. The whole dividend will be a Property Income Distribution in respect of the Group's property rental business, as defined under the Irish REIT legislation. Hibernia's Dividend Reinvestment Plan ("DRiP") is available to shareholders and allows them to instruct Link, the Group's registrar, to reinvest the cash dividends paid by Hibernia in the purchase of existing ordinary shares in the Company. The terms and conditions of the DRiP and information on how to apply are available on the Group's website.
Selected portfolio information 1. Summary EPRA measures
Note: These EPRA measures are APMs. EPRA has introduced new net asset value measures for reporting periods starting after 1 January 2020. Please see Supplementary Information at the end of this report for further details.
2. Top 10 tenants by contracted rent and % of contracted rent roll1
1. Includes net residential rents and excludes income from joint arrangement with Iconic Offices in Clanwilliam Court. 3. Contracted rent by tenant type
4. In-place office contracted rent and WAULT progression
1. Excl. arrangement with Iconic Offices at Block 1, Clanwilliam. 2. To earlier of break or expiry. 3. By net lettable office area. Office area only (i.e. excl. retail, basement, gym, Townhall etc.). 4. Excl vacancy in near term development properties - i.e. Marine and Clanwilliam. Including these the vacancy rate would be 10%.
PRINCIPAL RISKS AND UNCERTAINTIES There are a number of risks and uncertainties which could have a significant impact on the Group's performance and may cause actual results to differ materially from expected results. These risks are reviewed and updated regularly and mitigated through a combination of internal controls, risk management and insurance cover. The Group's risk management framework is described on pages 38 to 41 of the 2020 Annual Report while the principal risks and uncertainties for the Group are set out on pages 42 to 50. These are substantially unchanged since the publication of the 2020 Annual Report and the Group does not expect any significant changes for the remaining six months of the financial year. These risks and uncertainties are summarised, together with a short update where relevant, below. COVID-19 pandemic: Multiple potential impacts across the business A detailed discussion of the impact of the COVID-19 pandemic and our response to it can be found on page 15 of the 2020 Annual Report and an update is provided on page 6 of this Half Yearly Financial Report. The Group's balance sheet remains robust (LTV at 30 September 2020: 18.7%) and its rental income has been resilient to date: however while recent news on possible vaccines is promising, a high degree of uncertainty still exists as to the duration of the COVID-19 pandemic and its ultimate effects and therefore this risk remains a key focus of the Group. Strategic risk: Inappropriate business strategy We continue to monitor our strategy in light of economic trends, global developments and potential changes in occupier behaviour post COVID-19. At present most of our tenants are primarily focused on the near-term operational challenges COVID-19 has caused but when the pandemic subsides, they are likely to start considering their longer-term occupational requirements. Our view, as expressed in this Half Yearly Financial Report and in the 2020 Annual Report, is that the pandemic is accelerating pre-existing changes in working patterns, such as more remote working, a greater focus on collaborative workspace within offices and the increased importance being placed on employee wellness and buildings' sustainability credentials. We also believe the crisis is emphasising the importance of offices for employee collaboration, creativity and team culture and we continue to be positive about the long-term prospects for well-configured, prime offices in Dublin's city centre and for residential rental properties. As such, we consider strategic risks to be in line with those at 31 March 2020 and do not expect an increase in the second half of the financial year. Climate change risk: Failure to respond appropriately and sufficiently to climate change These risks are unchanged and are expected to remain so for the rest of the financial year. As expected, the Government announced an increase in carbon taxes in Budget 2021 in October 2020. Improving the Group's sustainability performance is one of our key strategic priorities: we have installed a real time energy consumption monitoring system across our managed in-place office portfolio to help reduce our greenhouse gas intensity. We recently received an EPRA Gold Award for the quality of our sustainability disclosures in 2020 (the third successive year) and expect to receive the results of our GRESB submission shortly. We made our first submission to the CDP benchmark in August 2020. We are also continuing to assess pathways towards net zero carbon emissions and considering the disclosure recommendations of the TCFD. Market risks: Weakening economy / Negative impacts from political actions and/or trends nationally and internationally These risks remain broadly unchanged. COVID-19 has caused a slowdown in economic activity around the world unprecedented in peacetime and the pace and timing of any recovery is unclear, both in Ireland and internationally. Until there is a clear pathway for workers to return to their offices in meaningful numbers, which is likely to coincide with a broader economic recovery, we do not expect to see a significant recovery in the Dublin office market. The outcome of the negotiations between the UK and EU regarding a trade deal when the transitional arrangements expire remains uncertain and could cause economic damage to Ireland in the short term, even if the UK's exit from the EU may be beneficial for the Dublin office market in the longer term. To date government and central bank actions in most countries, including Ireland, have focused on providing stimuli to counteract the economic shock caused by the public health measures introduced. At some point authorities may start raising tax rates to support the increased public spending the crisis has necessitated. In addition, international tax reforms in future could impact Ireland's attractiveness as a destination for foreign direct investment.
Investment risk: Inappropriate concentration on assets, locations, tenants or tenant sectors These risks are unchanged. The Group's portfolio, all of which is located in Dublin, was worth €1.4 billion at 30 September 2020 (March 2020: €1.5 billion), with 85% comprising city centre offices, 12% residential units and the remaining 3% industrial properties and land (March 2020: 85% offices, 11% residential units, 4% industrial properties and land). The largest asset represents 11% of the portfolio by value (March 2020: 11%). The Group's top 10 tenants account for 53% of gross contracted rent (March 2020: 54%), the technology sector and state entities account for 60% of gross contracted rent and the single largest tenant is HubSpot, which accounts for 15% of gross contracted rent (March 2020: 57% and 16%, respectively). Development risks: Poor or mistimed execution of development projects / Contractor or sub-contractor default These risks also remain unchanged. At 30 September 2020 we had two committed schemes, totalling 62,500 sq. ft. of offices of which 24,000 sq. ft. is pre-let. (March 2020: One committed scheme totalling 59,000 sq. ft., none let). The remaining committed capital expenditure on these schemes amounts to €9m and both are due to complete before the end of the current financial year. The Group's development pipeline is flexible and plans for individual properties can be changed to reflect prevailing economic circumstances. Regulatory, tax and political risk: Management of tax and changes to tax status or environment These risks remain largely unchanged and there were no material changes to property taxes or the REIT regime announced as part of Budget 2021 in October 2020. Compliance with the REIT legislation is monitored by the Board on a quarterly basis and there have been no breaches in the period. Operations risks: Disruption from external event / Cyber-attack or threat / Loss or shortage of staff to execute our business plan or failure to motivate staff / Reputational damage No significant incidents have occurred since the start of the period and no material change in these risks is expected for the rest of the financial year. The Group's head office has been specially adapted to provide a safe working environment but staff continue to work at home where possible. Maintaining our collaborative and team culture, IT security and staff welfare have been key foci. The Group is maintaining a heightened focus on cyber security given increased remote working due to COVID-19. See page 6 for an update in relation to the impacts and implications of COVID-19 for Hibernia's business. Asset management risk: Poor asset management This risk remains stable and there are no significant changes expected for the remainder of the financial year. We continue to engage with tenants and ensure health and safety measures are in place to deal with the risk of COVID-19 in the workplace. Achieving high environmental and wellness standards is a priority and we believe it is becoming increasingly important in attracting tenants and investors. Rent collection statistics remain strong (see page 16 for more detail) but we are maintaining a "tenant credit risk" register to identify any potential issues early. Finance risk: Inappropriate capital structure or lack of funds for investment The Group's financial leverage remains modest: at 30 September 2020 the LTV was 18.7% (March 2020: 16.5%) and the Group had available cash and undrawn facilities totalling €130m, or €103m net of committed expenditure (March 2020: €154m or €136m, respectively). The Group has no debt maturities falling due until December 2023 and has sufficient headroom on all its financial covenants to enable it to weather significant falls in asset values and a prolonged economic downturn. Directors' Responsibilities Statement The Directors are responsible for preparing the Half Yearly Financial Report in accordance with IAS 34 Interim Financial Reporting as issued by the IASB and adopted by the EU; the Transparency (Directive 2004/109/EC) Regulations 2007 and the Central Bank (Investment Market Conduct) Rules 2019. Each of the Directors, whose names appear on page 56 of this Half Yearly Financial Report, confirms that, to the best of his/her knowledge, the condensed consolidated financial statements in the Half Yearly Financial Report have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union ("EU"), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the half yearly management report herein contains a fair review of the information required by Disclosure and Transparency Rules of the Central Bank of Ireland, namely:
Signed on behalf of the Board
Kevin Nowlan Thomas Edwards-Moss Chief Executive Officer Chief Financial Officer 16 November 2020 INDEPENDENT REVIEW REPORT TO HIBERNIA REIT PLC We have been engaged by the company to review the interim financial information included in the Half Yearly Financial Report for the six months ended 30 September 2020 which comprises the condensed consolidated statement of financial position as at 30 September 2020 and the related condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows, and the related notes for the six-month period then ended ("interim financial information"). We have read the other information contained in the Half Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial information. This report is made solely to the company in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ("ISRE 2410") issued by the International Auditing and Assurance Standards Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this review report, or for the conclusions we have formed. Director's responsibilities The Half Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Yearly Financial Report which includes the interim financial information, in accordance with International Accounting Standard 34 as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007 and the Central Bank (Investment Market Conduct) Rules 2019. As disclosed in note 2, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The interim financial information included in this Half Year Financial Report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the interim financial information in the Half Yearly Financial Report based on our review. Scope of review We conducted our review in accordance with ISRE 2410. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the interim financial information in the Half Yearly Financial Report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007 and the Central Bank (Investment Market Conduct) Rules 2019.
Christian MacManus For and on behalf of Deloitte Ireland LLP Chartered Accountants and Statutory Audit Firm Deloitte & Touche House, Earlsfort Terrace, Dublin 2 Date: 16 November 2020 Condensed consolidated income statement For the six months ended 30 September 2020
Condensed consolidated statement of comprehensive income For the six months ended 30 September 2020
Condensed consolidated statement of financial position As at 30 September 2020
Condensed consolidated statement of cash flows For the six months ended 30 September 2020
The condensed consolidated statement of cashflows including comparative information has been presented here using the direct approach under IFRS 7 Statement of cashflows. Previously the indirect approach has been presented. Further details on this change can be found in note 2.a. Condensed consolidated statement of changes in equity For the six months ended 30 September 2020
Notes to the condensed consolidated financial statements Section 1 - GeneralThe accounting conventions and accounting policies employed in the preparation of these condensed consolidated financial statements are consistent with those employed in the preparation of the most recent annual consolidated financial statements in respect of the year ended 31 March 2020 as described in the 2020 Annual Report and referenced in this document as appropriate except as noted below. 1. General InformationHibernia REIT plc (the "Company"), registered number 531267, together with its subsidiaries and associated undertakings (the "Group"), is engaged in property investment and development (primarily office) in the Dublin market with a view to maximising its shareholders' returns. The Company is a public limited company and is incorporated and domiciled in Ireland. The address of the Company's registered office is 1WML, Windmill Lane, Dublin, D02 F206, Ireland. The ordinary shares of the Company are listed on the primary listing segment of the Official List of Euronext Dublin (formerly the Irish Stock Exchange) (the "Irish Official List") and the premium listing segment of the Official List of the UK Listing Authority (the "UK Official List" and, together with the Irish Official List, the "Official Lists") and are traded on the regulated markets for listed securities of Euronext Dublin and the London Stock Exchange plc. 2. Basis of preparation2.a Statement of compliance and basis of preparation The consolidated annual financial statements of the Hibernia REIT plc have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU, which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"). IFRS as adopted by the EU differ in certain respects from IFRS as issued by the IASB. These condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the EU, the Transparency (Directive 2004/109/EC) Regulations 2007, and the Central Bank (Investment Market Conduct) Rules 2019. The interim figures for the six months ended 30 September 2020 are unaudited but have been reviewed by the independent auditor, Deloitte Ireland LLP , whose report is set out on page 21 of this Half Yearly Financial Report. The summary financial statements for the year ended 31 March 2020 that are presented in the condensed consolidated financial statements represent an abbreviated version of the full financial statements for that year on which the independent auditor, Deloitte Ireland LLP, issued an unqualified audit report. The half yearly financial statements herein are non-statutory financial statements for the purposes of the Companies Act 2014. The Group has decided to adopt the direct approach in preparing the consolidated statement of cashflows in its next Annual Report in place of the indirect approach which has been used until now. The condensed consolidated cashflow statement in these condensed consolidated financial statements is therefore presented on this basis. The comparatives have also been presented in line with this approach. The Group has chosen to make this accounting policy change in order to provide more relevant and reliable information for readers of the financial statements. The main impact of this form of presentation is to present the Group's operating cashflows in a clearer and more useful way, with no need for reconciliation to arrive at the major operating cashflows, such as cash received from rental income. No other amendments to presentation are included as this change does not impact net asset values, profitability or any other financial disclosures. Apart from the change in presentation above, the Group has made no other amendments to its accounting policies nor has the Group early adopted any forthcoming IASB standards (note 3). The consolidated financial statements of the Group for the year ended 31 March 2020 ("the 2020 Annual Report") are available upon request from the Company Secretary or from www.hiberniareit.com. The financial statements for the financial year ended 31 March 2020 have been filed in the Companies Registration Office. These condensed consolidated financial statements were approved for issue by the Board of Directors on 16 November 2020. 2.b Alternative performance measures The Group uses alternative performance measures to present certain aspects of its performance. These are explained and, where appropriate, reconciled to equivalent IFRS measures. The main alternative performance measures used are those issued by the European Public Real Estate Association ("EPRA"), which is the representative body of the listed European real estate industry. EPRA issues guidelines and benchmarks for reporting both financial and sustainability measures. These are important in assisting investors in comparing and measuring the performance of real estate companies across Europe on a consistent basis as well as being key performance indicators for the Group. 2.c Functional and presentation currency These condensed consolidated financial statements are presented in euro, which is the Company's functional currency and the Group's presentation currency. 2.d Basis of consolidation The condensed consolidated financial statements incorporate the condensed consolidated financial statements of the Company and entities controlled by the Company (its subsidiaries). The accounting policies of all consolidated entities are consistent with the Group's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cashflows relating to transactions between members of the Group are eliminated in full on consolidation. 2.e Assessment of going concern These condensed consolidated financial statements have been prepared on a going concern basis. The Company's shares are trading at a significant discount to the net asset value per share reported in these condensed consolidated financial statements: at 30 September 2020 the closing share price discount to both the IFRS NAV per share and the EPRA NTA per share was 42%. As at close of business on 16 November 2020, being the last day before the publication of this Half Yearly Financial Report, the share price discount to both was 27%. The Group's main assets are its investment properties, which comprise 96% of total assets or 122% of net asset value. These are independently valued at every quarter end and are measured at fair value. More information on the valuation of the Group's investment properties can be found in notes 2.f and 9 to these condensed consolidated financial statements. The Group's property, plant and equipment is mainly its head office in 1WML which is also carried at fair value and independently valued at each quarter end. The balance of assets are assessed for impairment under a simplified expected credit loss model. The Group carries no intangible assets or goodwill. As outlined below, the Group has sufficient headroom in its debt covenants to ensure that financing remains in place. It is therefore the opinion of the Directors that no impairment on the net asset value of the Group is indicated, despite the discount to NAV/NTA at which its shares currently trade. The Board assesses the viability of the Group over a three-year period at each of its quarterly Board meetings. It is satisfied that a forward-looking assessment of the Group for this period is sufficient to enable a reasonable assessment of viability, and also in order to opine on the appropriateness of the going concern basis of preparation of these condensed consolidated financial statements. This assessment considers the Group's current position and the principal and emerging risks that it faces. The most significant of these at the date of preparing these financial statements is the Novel Coronavirus ("COVID-19") pandemic, the full impact of which it is not yet possible to quantify fully or accurately. This has been the subject of intensive assessment by the Board since 31 March 2020 and it is likely it will continue to be so for some time to come. Key factors considered in light of the likely effects of this pandemic are: * Health and safety of staff, tenants, suppliers and the community * Remote working and social distancing measures may continue to disrupt business operations * Investment market activity and property values may decline * Occupational market activity and rental values may decline * Debt funding may become harder to source/more expensive * Tenants may not be able to pay their rent * Dividends may need to be cut * Occupier and investor behaviour and expectation may change permanently as a result An analysis of revenue and a disaggregation of income is outlined in notes 5 and 6. Due to the nature of rent receipts, a significant portion of revenue is collected in advance of its due date and 90% of commercial rent for the quarter ending 31 December 2020 had been collected within 7 days of the gale date rising to 95% within 60 days of the gale date. 98% of the residential rent due for the month of November 2020 had been collected by 16 November 2020. Information on the Group's financial assets and approach to credit risk is contained in Section IV and notes 21 and note 30.d. of the consolidated financial statements in the 2020 Annual Report, with updated information in note 15 of this Half Yearly Financial Report. The Group had a cash balance as at 30 September 2020 of €29m (March 2020: €28m), is generating positive operating cash flows and, as discussed in note 13, has in place debt facilities with average maturity of 3.8 years, no debt maturities until December 2023 and an undrawn balance of €107m at 30 September 2020 (March 2020: €133m). Its capital commitments as at 30 September 2020 were €27m (March 2020: €18m) and it is maintaining a minimum cash balance of €15m for liquidity purposes. As at 30 September 2020, leverage remains low (LTV 18.7%; March 2020: 16.5%) and this means the Group can withstand a 61% decline in its portfolio value and a 78% decline in earnings before interest and tax without breaching its debt covenants. There are no reasons to expect that the Group will not be able to meet its liabilities as they fall due for the foreseeable future. Therefore, the Directors have concluded that the going concern assumption remains appropriate. 2.f Significant judgements Not all of the Group's accounting policies require the Directors to make difficult, subjective or complex judgements. Any judgements made are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The following are the significant judgements used in preparing these consolidated financial statements: Valuation of investment property The valuation of the Group's property portfolio is a key element of the Group's net asset value as well as impacting executive and employee variable remuneration. The Directors have appointed an independent valuer (Cushman & Wakefield, the "Valuer") to perform the valuations and report to them on its opinion as to the fair value of these properties. However, the nature of the valuation process is inherently subjective and values are derived using comparable market transactions and the Valuer's assessment of market sentiment. The valuations therefore represent a significant judgement. The Group's investment properties are held at fair value and were valued at 30 September 2020 by the Valuer. Investment property is valued in accordance with guidance in the appropriate sections of the Valuation Technical and Performance Standards ("VPS") and the Valuation Practice Guidance Applications ("VPGA") contained within the Royal Institution of Chartered Surveyors ("RICS") Valuation - Global Standards November 2019 (the "Red Book"). Valuations are compliant with the International Valuation Standards ("IVS"). Fair value under IFRS 13 is 'the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date'. The Red Book confirms that the references in IFRS 13 to market participants and a sale make it clear that for most practical purposes fair value is consistent with market value. Further information on the valuations and the sensitivities is given in note 9. The COVID-19 pandemic has impacted financial markets and the global economic environment and as at 30 September 2020, the Valuer has stated that it continues to place less weight than usual on market evidence for comparison purposes, to inform opinions of value. The current response to COVID-19 means that there is an unprecedented set of circumstances on which to base a judgement. The Valuer has therefore reported on the basis of a material uncertainty with respect to all assets except for the private rental sector assets (residential sector) as per VPS 3 and VPGA 10 of the RICS Red Book Global. This material uncertainty clause was in place at 31 March 2020 for all assets. This is not intended by the Valuer to suggest that its valuations cannot be relied on but to indicate that less certainty - and a higher degree of caution - should be ascribed to the valuations than would normally be the case. Property valuations are complex and involve data which is not publicly available, and a degree of judgement. The valuations are based upon the key assumptions of estimated rental values and market-based yields. In light of the material valuation uncertainty because of COVID-19, the Board has paid particular attention to the valuations and especially to properties within the portfolio where the impact may be greatest. The Directors have reviewed the valuation process undertaken, the meaning of the material uncertainty the Valuer has expressed, changes in market conditions including COVID-19, recent transactions in the market, valuation movements on individual buildings and the Valuer's expectations in relation to future rental growth and yield movement. With the continued uncertainty in relation to the impact of COVID-19, the Directors have also considered the extent to which this was impacting the property investment and occupational markets in relation to both liquidity and activity. As a result of these reviews, the Directors concluded that the valuations are suitable for inclusion in the Group's condensed consolidated financial statements, unadjusted save for the amendment for income spreading as discussed in 2.g. Valuation basis of investment property The valuation approach for each property, while generally similar, differs based on the physical and investment and/or development attributes of the property. A judgement must be made to decide on the valuation premise appropriate for each asset to give its 'highest and best use'. This judgement impacts on the valuation technique that is appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the property. All valuations are at Level 3 in the fair value hierarchy. 'Highest and best use' All investment properties in the Group's portfolio are valued in accordance with their current use, which is also the highest and best use except for: * Harcourt Square, Marine House and Clanwilliam Court Blocks 1, 2 and 5 where, in accordance with IFRS 13:27, the valuations take into account the redevelopment potential upon expiry of the current leases which reflects their highest and best use. It is the Directors' intention to pursue the redevelopment of these properties when the leases have expired. At 30 September 2020 full planning was in place for all three schemes. These are valued on an investment basis until the end of the leases and on a residual basis thereafter. * Newlands (Gateway) which is currently partly rented on short-term leases, has been valued on a price per acre basis as early stage plans are in place to redevelop this property in future and this approach reflects the highest and best use of this property. * Properties in Malahide Road Industrial Park and Dublin Industrial Estate which are currently partly rented on mostly short-term leases, have been valued on a basis that includes recognition of their potential as development sites. * 2 Cumberland Place and 50 City Quay are nearing practical completion and progress has been made in relation to pre-letting parts of 2 Cumberland Place. The valuation methodology is an investment valuation with outstanding capital expenditure recognised within the valuation. 2.g Analysis of sources of estimation uncertainty Valuation of investment property Although valuations are based on the Directors' best knowledge of the amount, event or actions, actual results may differ from those estimates. The Group's investment properties are held at fair value and were valued at 30 September 2020 by the Valuer on the basis discussed in 2.f above. Further information on the valuations and the sensitivities around the inputs used is given in note 9. The Board conducts a detailed review of each property valuation to ensure that appropriate assumptions have been applied. The most significant estimates affecting the valuation included yields and estimated rental values ("ERVs"). For development projects, other assumptions including costs to complete and risk premium assumptions are also factored into the valuation. As discussed in 2.f, the Valuer has expressed a material uncertainty due to the impacts of COVID-19 in relation to commercial property. In accordance with the Group's policy on revenue recognition from leases, the valuation provided by C&W has been adjusted only by the fair value of the income accruals ensuing from the recognition of lease incentives and the deferral of lease costs. The total reduction in the Valuer's investment property valuation in respect of these adjustments was €9.1m (March 2020: €8.1m). There were no other significant judgements or key estimates that might have a material impact on the condensed consolidated financial statements as at 30 September 2020. 3. Application of new and revised International Financial Reporting Standards ("IFRS")Changes in accounting standards As set out below, a limited number of changes to IFRS became effective for periods commencing on or after 1 January 2020. Although these changes do not amend the disclosure requirements of IAS 34, they may impact the underlying accounting applied during the period. Having assessed the amendments below, none had, nor is expected to have, a material impact on the Group's accounting.
Section 2 - PerformanceThis section includes notes relating to the performance of the Group for the period, including segmental reporting, earnings per share and net assets per share as well as specific elements of the condensed consolidated statement of income. 4. Operating segments4.a Basis for segmentation The Group is organised into six business segments, against which the Group reports its segmental information. These segments mainly represent the different investment property classes. The Group has divided its business in this manner as the various asset segments differ in their character and risk/return profiles depending on market conditions and reflect the strategic objectives that the Group has targeted. There were no amendments to the segments used during the period and a full description together with further information can be found on pages 137 to 139 of the 2020 Annual Report. 4.b Information about reportable segments The Group's key measure of underlying performance of a segment is total income after revaluation gains and losses, which comprises revenue (rental and service charge income), property outgoings, revaluation of investment properties and other gains and losses. Total income after revaluation gains and losses includes rental income, which is used as the basis to report key measures such as EPRA Net Initial Yield ("NIY") and EPRA "topped-up" NIY. These alternative performance measures ("APMs") (detailed on page 188 of the 2020 Annual Report and in the supplementary section on pages 51 to 56 of this Half Yearly Financial Report) measure the cash passing rent returns on market value of investment properties before and after an adjustment for the expiry of a rent-free period or other lease incentives, respectively. An overview of the reportable segments is set out below: For the six months ended 30 September 2020 (unaudited)
For the six months ended 30 September 2019 (unaudited)
4.c Geographic information All of the Group's assets, revenue and costs are based in the Greater Dublin Area, mainly in central Dublin. 4.d Major customers The Group uses information on its top 10 tenants to monitor its major customers. This is presented below based on gross contracted rents (including variable rents based on profit sharing arrangements) as at the period end. This is concentrated on office tenants as the next major segment, residential, consists mainly of small private tenants and therefore contains no major concentration of credit risk. The Group's top 10 tenants as at 30 September 2020 are as follows, expressed as a percentage of Group gross contracted rent: As at 30 September 2020 (unaudited)
1. Includes residential rents gross and variable rents from the Iconic arrangement As at 31 March 2020 (audited)
1. Includes residential rents gross and variable rents from the Iconic arrangement 5. Revenue and net rental and related incomeAccounting policy See note 5 of the 2020 Annual Report. Revenue can be analysed as follows:
1. Revenue from contracts with customers is service charge income Net rental and related income
1. Costs of goods and services are service charge expenses. Further information on the sources and characteristics of revenue and rental income is provided in note 6. Included in property expenses is an amount of €0.4m (Sep 2019: €0.4m) relating to void costs on office properties, i.e. costs relating to office properties which were available to let but were not income-generating during the financial period. Property operating expenses
6. Disaggregation of revenue and rental incomeA full description of the basis of the disaggregation of the Group's income can be found in note 6 of the 2020 Annual Report. Total revenue by duration of lease contract (based on next break date or expiry) Service charge income is included within the one year or less segment as these arrangements, while provided for under the lease contracts, are negotiated on an annual basis. Six months ended 30 September 2020 (unaudited)
Six months ended 30 September 2019 (unaudited)
Rental income by tenant industry sector1
1. Tenant industry sectors have been reviewed. The main change is to split the previous "TMT" into Technology and Media and Telecommunications. Other reclassifications in prior periods reflect current sector analysis for more relevant comparison. 2. Other includes: Industrial (mainly logistics), parking, retail and other small businesses. 7. Earnings per shareThere are no convertible instruments, options or warrants on ordinary shares in issue as at 30 September 2020 other than those arrangements relating to share-based payments. The Company has established a reserve of €1.7m (September 2019: €1.2m, March 2020: €2.1m) which is mainly for the issue of ordinary shares relating to the Group's bonus schemes. It is estimated that a maximum of approximately 2.2m ordinary shares (September 2019: 1.3m; March 2020: 2.4m shares) may be issued under the share-based performance award schemes, 1.3m of which are provided for at 30 September 2020 and a further 0.9m of which may be recognised over the next three years, depending on performance and various service conditions. The dilutive effect of these shares is disclosed below. The calculations are as follows:
1. Included here are all amounts from share-based payments which are granted but which have not been recognised at the period end but will be recognised over the next two to three years
EPRA earnings and EPRA earnings per share, alternative performance measures, are presented below as they illustrate for investors the extent to which dividends are supported by recurring income and are key performance indicators for the Group.
8. NAV per share, EPRA NTA per share and Total Accounting Return ("TAR")The IFRS NAV is calculated as the value of the Group's assets less the value of its liabilities based on IFRS measures.
EPRA NAV measures (which are APMs) are calculated in accordance with the European Public Real Estate Association ("EPRA") Best Practice Recommendations: October 2019 and are set out on pages 54 to 56 of this Half Yearly Financial Report. Total accounting return ("TAR") Total Accounting Return, a key performance indicator and alternative performance measure, is calculated as the increase in EPRA Net Tangible Assets ("NTA") per share for the period over the previous period-end EPRA NTA per share and adding back dividends per share paid during the period, expressed as a percentage of opening EPRA NTA per share. Please note under the EPRA Best Practice Guidelines October 2019 NTA has replaced NAV as the key asset value measure. For further details please see pages 54 and 56 of this Half Yearly Financial Report. EPRA NTA
TAR
Section 3 -Tangible assetsThis section contains information on the Group's investment properties and other tangible assets. All investment properties are fully owned by the Group. The Group's investment properties are carried at fair value and its other tangible assets at depreciated cost except for land and buildings which are adjusted to fair value. 9. Investment propertyAccounting policy See note 16 of the 2020 Annual Report. In accordance with the Group's policy on revenue recognition from leases, the valuation provided by C&W has been adjusted only by the fair value of the income accruals ensuing from the recognition of lease incentives and the deferral of lease costs. The total reduction in the Valuer's investment property valuation in respect of these adjustments was €9.1m (March 2020: €8.1m). At 30 September 2020 (unaudited)
1. 50 City Quay is undergoing redevelopment and has been recognised as a development property from 30 September 2020. 2. On 9 November 2018 the Group agreed to acquire 92.5 acres adjacent to its holdings in Newlands Cross from the Irish Rugby Football Union (the "IRFU") for initial consideration of €27m. If rezoning is achieved before November 2028 the IRFU will be due additional consideration equating to 44% of the value of Hibernia's total land interests of 143.7 acres in the Newlands site at re-zoning, less the initial consideration. At 31 March 2020 (audited)
1. A VAT refund of €0.5m was accounted for during the financial year arising as a result of the grant of VAT inclusive leases within a redeveloped property in 2DC, following its refurbishment. Gross acquisitions in the financial year therefore €23.3m. 2. This includes capital expenditure on 1WML, 1SJRQ and 2WML after their transfer to the office segment. 3. The Group moved to a new head office in 1WML in late 2019. The space previously occupied by the Group in South Dock House was leased to a tenant during the financial year and was transferred to investment property at fair value on the date on which it changed in use. 4. On 9 November 2018 the Group agreed to acquire 92.5 acres adjacent to its holdings in Newlands Cross from the Irish Rugby Football Union (the "IRFU") for initial consideration of €27m. If rezoning is achieved before November 2028 the IRFU will be due additional consideration equating to 44% of the value of Hibernia's total land interests of 143.7 acres in the Newlands site at re-zoning, less the initial consideration. There were no transfers between fair value levels during the period. Approximately €129k of financing costs were capitalised at an effective interest rate of 2.1% in relation to the Group's developments and major refurbishments (March 2020: €141k). No other operating expenses were capitalised during the period. Valuations as at 30 September 2020 The valuations used to determine fair value for the investment properties in the condensed consolidated financial statements are determined by the Group's Valuer and are in accordance with the provisions of IFRS 13. C&W has agreed to the use of its valuations for this purpose. As discussed in notes 2.f and 2.g, property valuations are inherently subjective as they are made on the basis of assumptions made by the Valuer and therefore are classified as Level 3. At the 30 September 2020 the Valuer has reported on the basis of a material uncertainty for commercial assets as per VPS 3 and VPGA 10 of the RICS Red Book Global. No material uncertainty attaches to residential assets. At 31 March 2020 the material uncertainty extended to all assets. This is not intended by the Valuer to suggest that its valuations cannot be relied on but to indicate that less certainty - and a higher degree of caution - should be ascribed to the valuations than would normally be the case. Valuations are completed on the Group's investment property portfolio on at least a half-yearly basis and, in accordance with the appropriate sections of the Professional Standards, the Valuation Technical and Performance Standards ("VPS") and the Valuation Practice Applications ("VPGA") contained within the RICS Valuation - Global Standards 2019 ("the Red Book"). It follows that the valuations are compliant with the International Valuation Standards. Fair value under IFRS 13 is "the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date". The Red Book confirms that the references in IFRS 13 to market participants and a sale make it clear that for most practical purposes fair value is consistent with market value. The method that is applied for fair value measurements categorised within Level 3 of the fair value hierarchy is the yield methodology using market rental values capitalised with a market capitalisation rate or yield or other applicable valuation technique. Using this approach for the Group's investment properties, values of investment properties are arrived at by discounting forecasted net cash flows at market derived capitalisation rates. This approach includes future estimated costs associated with refurbishment or development, together with the impact of rental incentives allowed to tenants. Thus development properties are assessed using a residual method in which the completed development property is valued using income and yield assumptions and deductions are made for the estimated costs to complete, including finance costs and developers' profit, to arrive at the current valuation estimate. In effect, this values the development as a proportion of the completed property. In the period ended 30 September 2020, for most properties the highest and best use is the current use except as discussed in note 2.f. In these instances, the Group may need to achieve vacant possession before redevelopment or refurbishment may take place and the valuation of the property takes account of any remaining occupancy period on existing leases. The table below summarises the approach for each investment property segment. Valuation methodology The following table illustrates the fair value methods applied to each segment:
Reconciliation of the independent Valuer's valuation report amount to the carrying value of investment property in the consolidated statement of financial position:
1. Income recognition adjustment: this relates to the difference in valuation that arises as a result of property valuations using a cash flow based approach while income recognition for accounting purposes spreads the costs of tenant incentives and lease set up over the lease term. EPRA capital expenditure The following table analyses capital expenditure ("CapEx") according to EPRA guidelines.
a. Incremental lettable area: amounts spent to add additional lettable space to 'in-place' investment property b. No incremental lettable space: amounts spent to enhance the property without increasing lettable areas c. Tenant incentives: any amounts spent on the investment property as incentive for tenants
The Group has no joint ventures; all of its properties are located in the Dublin area. Expenditure is therefore analysed into portfolio property type only. As at 30 September 2020 (unaudited)
1. Capital expenditure relating to development or major refurbishment of 2 Cumberland Place, 50 City Quay and some remaining CapEx on 1SJRQ. 2. Financing expenses capitalised on developments and refurbishments. As at 31 March 2020 (audited)
1. A VAT refund of €0.5m was accounted for during the financial year arising as a result of the grant of VAT inclusive leases within a redeveloped property in 2DC, following its refurbishment. Gross acquisitions in the financial year therefore €23.3m. 2. Capital expenditure relating to development or major refurbishment of 1SJRQ, 1&2WML, and 2 Cumberland Place. 3. Dilapidation payments were received from vacating tenants and have been netted with capital expenditure. 4. Financing expenses capitalised on developments and refurbishments.
Key unobservable inputs used in the valuation of the Group's investment property 30 September 2020 (unaudited)
1. Average ERV based on a two-bedroom apartment. Residential yields are based on the contracted income after deducting operating expenses. The market standard deduction is 20% of gross rental income. Based on the Valuer's estimation of market rent with no deduction for operating expenses 31 March 2020 (audited)
1. Average ERV based on a two-bedroom apartment. Residential yields are based on the contracted income after deducting operating expenses. The market standard deduction is 20% of gross rental income. Based on the Value's estimation of market rent with no deduction for operating expenses. Sensitivity data The sensitivity tables below illustrate the impact of movements in key unobservable inputs on the fair value of investment properties. These are net ERV, equivalent yields and development construction costs (residual appraisals). To calculate these impacts only the movement in one unobservable input is changed as if there is no impact on the other. In reality there may be some impact on yields from an ERV shift and vice versa. However, this gives an assessment of the maximum impact of shifts in each variable. The tables illustrate the impacts from a 5% or 10% ERV and a 25bp or 50bp shift in equivalent yield on the valuations as included in the consolidated financial statements at 30 September 2020 and 31 March 2020. ERV and equivalent yields 30 September 2020 (unaudited)
31 March 2020 (audited)
Development construction costs A 5% decrease or increase in construction costs would result in a decrease or increase in the total value of the portfolio of €10m as at 30 September 2020 (March 2020: €10m). Development construction costs are an unobservable input to residual appraisals which are used in valuing those properties that are pipeline development assets. 10. Trade and other receivables
The non-current balance is mainly non-financial in nature; €0.4m (March 2020: €0.7m) relates to amounts receivable from tenants in relation to capital expenditure funded initially by the Group to be recovered over the relevant lease term, with the balance consisting of accrued income and expenditure amounts relating to the lease incentives and deferred lease costs. These amounts, as they are receivable over the term of the lease, have a financing element. The Group has chosen to apply the simplified expected credit loss model to these. The Group introduced an internal rating system for tenants during the COVID-19 pandemic in order to ensure proactive management of amounts due. The Group has a diverse range of tenants, many of which are large multinational companies, and our rent collection statistics have remained strong (note 2.e, page 16). The current balance of trade and other receivables has a low concentration of credit risk, and for the most part consists of prepayments or income accruals for rents due from reviews and other agreed amendments to lease terms which were not invoiced at the period end (note 15.d). The expected credit loss allowance is calculated according to the provision matrix and totals €310k (March 2020: €97k). No credit losses were realised in the period (March 2020: €50k). Section 4 - Financing including equity and working capitalThis part focuses on the financing of the Group's activities, including the equity capital, bank borrowings and working capital. It also covers financial risk management. The Group's accounting policies with respect to these items can be found in Section IV of the 2020 Annual Report. 11. Issued share capital and share premiumAccounting policy See note 22 of the 2020 Annual Report.
At 30 September 2020 (unaudited)
At 31 March 2020 (audited)
Shares issued during the period are as follows: 0.1m ordinary shares with a nominal value of €0.10 were issued on 23 April 2020 in settlement of share-based payments relating to remuneration (see further details below). Shares cancelled during the period - share buyback programme: On 7 August 2020, the Company commenced a €25m share buyback programme which completed on 16 November 2020. This €25m share buyback is accretive to net asset value per share and earnings per share and completed the return to shareholders of the proceeds from the sale of 77 Sir John Rogerson's Quay started with the €25m share buyback programme undertaken in the 2020 financial year. As at 30 September 2020 8.1m shares had been repurchased and cancelled under this buyback programme for aggregate consideration of €9.0m (an average purchase price of €1.11 per share). It completed on 16 November 2020: in total 23.1m shares were acquired and cancelled at an average price of €1.08 per share. Share-based payments The Group's remuneration scheme includes awards which are made in shares or nil-cost share options and which are payable to employees only after fulfilling service and/or performance conditions. Amounts provided for at 30 September 2020 were 1.3m shares and a maximum of a further 0.9m shares remain to be accrued as at the period end. Amounts due at 31 March 2020 were 1.5m shares and a further 0.9m shares remain to be accrued as at the period end (note 7). On 29 July 2020 conditional awards of the Company's ordinary shares of €0.10 cent each ("LTIP Shares") under the LTIP were granted to Executive Directors and other key management personnel totalling 2,437,608 shares. These vest after three years subject to performance and service conditions. Details on the Group's remuneration scheme can be found in the Remuneration Committee Report on pages 98 to 116 of the 2020 Annual Report or on the Group's website. Share capital Ordinary shares of €0.10 each:
12. Retained earnings and dividends
On 9 April 2020 €50m in share premium was converted to distributable reserves as a result of a capital reorganisation which commenced during the financial year ended 31 March 2020. Share-based payments released relates to share-based payment awards which have been partially or fully settled in cash, e.g. payment of taxes on behalf of employees which are assessed at the date on which the award vests and therefore differ from the amount provided using the grant date share price. The difference between the award amount and the settlement amount is moved to retained earnings when the awards are settled as the provision was made through personnel costs. . Distributable reserves - Company only
1. Unrealised inter-company profits arising on the transfer of investment properties to subsidiaries have been eliminated for the purposes of the above calculation.
In August 2020 a dividend of 3.0 cent per share (€20.5m) was paid to the holders of fully paid ordinary shares. An interim dividend for the period of 2.0 cent per share (c. €13.2m) has been declared and will be paid on 28 January 2021. The Directors confirm that the Company continues to comply with the distribution obligations contained within the Irish REIT legislation. 13. Financial liabilitiesAccounting policy See note 25 of the 2020 Annual Report. 13.a Borrowings
The maturity of non-current borrowings is as follows:
Movements in borrowings during the period:
The Group has a stated policy of not incurring debt above 40% of the market value of its property assets and has a through-cycle leverage target of 20-30% loan to value ("LTV"). Under the Irish REIT rules the LTV ratio must remain under 50%. The Group has an unsecured RCF of €320m provided by Bank of Ireland, Wells Fargo, Barclays Bank Ireland and Allied Irish Banks. This facility, which expires in December 2023, is denominated in euro and is subject to a margin of 2.0% over three-month EURIBOR. The Group has entered into derivative instruments so that the majority of its (€125m) EURIBOR exposure is capped at 0.75% in accordance with the Group's hedging policy (note 15.d.ii) The Group also has €75m of private placement notes with an average maturity of 6.8 years at 30 September 2020 (March 2020: 7.3 years) which were placed with a single institutional investor. Coupons of 2.525% are fixed so long as the Group's credit rating remains investment grade. Where debt is drawn to finance material refurbishments and developments that take a substantial period of time to take into use, the interest cost of this debt is capitalised. Approximately €129k of financing costs were capitalised at an effective interest rate of 2.05% in relation to the Group's developments and major refurbishments during the period (March 2020: €141k). All costs related to financing arrangements are amortised using the effective interest rate. The Directors confirm that all covenants have been complied with and are kept under review. There is significant headroom on the financial covenants (note 2.e). 13.b Net debt reconciliation and LTV Net debt and LTV are key financing metrics used by the Group and are also APMs. Net debt is the redemption value of borrowings as adjusted by cash available for use. LTV or "loan to value" is the ratio of net debt to investment property value at the measurement date.
1. Cash is reduced by the amounts held in relation to rent deposits, sinking funds and similar arrangements as these balances are not viewed as available funds for the purposes of the above calculation. Reconciliation of opening to closing net debt:
1. Cash is reduced by the amounts held in relation to rent deposits, sinking funds and similar arrangements as these balances are not viewed as available funds for the purposes of the above calculation. 14. Cash flow informationPurchase of investment property
Cash expenditure on investment property
15. Financial instruments and risk management15.a Financial risk management objectives and policy The Group takes calculated risks to realise its strategic goals and this exposes the Group to a variety of financial risks. These include, but are not limited to, market risk (including interest and price risk), liquidity risk and credit risk. These financial risks are managed in an overall risk framework by the Board, in particular by the Chief Financial Officer, and monitored and reported on by the Risk and Compliance Officer. The Group monitors market conditions with a view to minimising the volatility of the funding costs of the Group. The Group uses derivative financial instruments such as interest rate caps and swaptions to manage some of the financial risks associated with the underlying business activities of the Group. 15.b Financial assets and financial liabilities The following table shows the Group's financial assets and liabilities and the methods used to calculate fair value.
The carrying value of non-interest-bearing financial assets and financial liabilities approximates to their fair values, largely due to their short-term maturities. 15.c Fair value hierarchy Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on observable market data. The following tables present the classification of financial assets and liabilities within the fair value hierarchy and the changes in fair values measurements at Level 3 estimated for the purposes of making the above disclosure. As at 30 September 2020 (unaudited)
As at 31 March 2020 (audited)
Movements of Level 3 fair values This reconciliation includes investment property, loans and other financial assets which are included in trade payables, trade receivables and contract liabilities. Measurement of these assets is described in note 0 (Investment property) and in the table at the start of this note.
1. Includes development, refurbishment and maintenance expenditure. 15.d Financial risk management This note explains the Group's exposure to financial risks and how these risks could affect the Group's future financial performance.
The policies for managing each of these and the principal effects of these policies on the results for the period are summarised below: i. Risk management framework The Group's Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Audit Committee is responsible for developing and monitoring the Group's risk management policies. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. All of these policies are regularly reviewed in order to reflect changes in the market conditions and the Group's activities. The Audit Committee is assisted in its work by internal audit, conducted by PwC Ireland, which undertakes periodic reviews of different elements of risk management controls and procedures. ii. Market risk Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks. The Group has no financial assets or liabilities denominated in foreign currencies. The Group's financial assets mainly comprise trade receivables. Financial liabilities comprise short-term payables, private placement notes and bank borrowings. Therefore the primary market risk is interest rate risk. The Group has both fixed and variable rate borrowings. Variable rate borrowings consist of an unsecured revolving credit facility and the Group has partly hedged against increasing rates by entering into interest rate caps and swaptions to restrict EURIBOR costs to a maximum of 0.75%. The following therefore illustrates the potential impact on profit and loss for the period of a 1% or 2% increase in EURIBOR: As at 30 September 2020 (six months)
1. This calculation uses the more advantageous hedge first and therefore shows the best-case scenario. As at 31 March 2020 (year)
1. This calculation uses the more advantageous hedge first and therefore shows the best-case scenario. Exposure to interest rates is limited to the exposure of the Group's costs from borrowings. Variable rate borrowings were €213m (March 2020: €187m) and gross debt (note 13.b) was €288m in total of which €75m was fixed rate private placement notes (March 2020: €262m of which €75m was fixed). The Group's interest cost under its RCF was based on a EURIBOR rate of 0% throughout the period (together with the 2% margin). iii. Credit risk Credit risk is the risk of loss of principal or loss of a financial reward stemming from a counterparty's failure to repay a loan or otherwise meet a contractual obligation. Credit risk is therefore, for the Group and Company, the risk that the counterparties underlying its assets default. The Group has the following types of financial assets and cash that are subject to credit risk: Cash and cash equivalents: These are held with major Irish and European institutions. The Board has established a cash management policy for these funds which it monitors regularly. This policy includes ratings restrictions, BB or better, and related investment thresholds, maximum balances of €25-50m with individual institutions dependent on rating, to avoid concentration risks with any one counterparty. The Group has also engaged the services of a Depository to ensure the security of the cash assets. Trade and other receivables: Rents are generally received in advance from tenants and therefore there tends to be a low level of credit risk associated with this asset class. As part of the Group's response to the COVID-19 pandemic, a credit rating system was introduced for tenants. This is used, together with an analysis of past loss patterns and future expectations of economic impacts, to create a matrix for the calculation and allowance for expected credit losses. Included in non-current trade receivables is a net amount of €0.4m relating to expenditure on fit-outs that is recoverable from tenants over the duration of the lease (March 2020: €0.7m). This amount is monitored closely in the current economic environment due to its long-term nature. An amount of €0.1m was due in relation to the sale of an investment property at 30 September 2020 (March 2020: €0.1m). Trade receivables are mainly rents and related amounts due from tenants and rent collection is closely monitored. Please see page 16 of this Half Yearly Financial Report for rent collection information. Trade receivables are managed under a "held to collect" business model as described in note 21 to the 2020 Annual Report. The Expected Credit Losses ("ECL") on financial and contract assets recognised during the period were €213k (March 2020: €147k). Details on the Group's policy on providing ECL can be found in the introduction to Section IV of consolidated financial statements in the 2020 Annual Report. The Group has a diverse range of tenants, many of which are large multinational companies. 58% of the Group's contracted rent (gross of residential property costs and the Iconic arrangement) is from the technology and state entity sectors (March 2020: 60%). The maximum amount of credit exposure is therefore:
iv. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures that it has sufficient available funds to meet obligations as they fall due. Net current assets, a measure of the Group's ability to meet its current liabilities, at the period end were:
The nature of the Group's activities means that the management of cash is particularly important and is managed over a four-year period. The budget and forecasting process includes cash forecasting, capital and operational expenditure projections, cash inflows and dividend payments on a quarterly basis over the four-year horizon. This allows the Group to monitor the adequacy of its financial arrangements. The Group had access at 30 September 2020 to €107m (March 2020: €133m) in undrawn amounts under its revolving credit facility (note 13.a), which matures in December 2023. As a precaution given the uncertainty caused by COVID-19, the Group has implemented a policy of maintaining a minimum cash balance of €15m at all times for liquidity purposes. Exposure to liquidity risk Listed below are the contractual cash flows of the Group's financial liabilities. This includes contractual maturity in relation to borrowings which is also the earliest maturity of the facilities assuming that covenants are not breached. Covenants are reviewed quarterly and scenario analyses performed as to the circumstances under which these covenants could be breached in order to monitor going concern and viability (see also note 2.e). Only trade and other payables relating to cash expenditure are included; the balance relates either to non-cash items or deferred income. These include interest margins payable and contracted repayments. EURIBOR is assumed at 0% throughout the period. As at 30 September 2020 (unaudited)
At 31 March 2020 (audited)
v. Capital management The Group's objectives when managing capital are to:
In order to maintain or adjust capital, the Group may adjust the amount of dividends paid to shareholders (whilst ensuring it maintains compliance with the dividend distribution requirements of the Irish REIT regime) return capital to shareholders, issue new shares or sell assets to reduce debt. In August 2020, the Company commenced a second share buyback programme to return €25m to shareholders which completed on 16 November 2020 (note 11). The Group is also obliged to distribute at least 85% of its property rental income annually via dividends under the REIT regime regulations. Capital comprises share capital, retained earnings and other reserves as disclosed in the consolidated statement of changes in equity. At 30 September 2020 the total capital of the Group was €1,167m (March 2020: €1,231m). The key performance indicators used in evaluating the achievement of strategic objectives, and as performance measurements for remuneration, are as follows:
The Group seeks to leverage its equity capital in order to enhance returns (note 13.a). The loan to value ratio ("LTV") is expressed as net debt (note 13.b) divided by total investment property value (as shown in the balance sheet). The Group's policy is to maintain an LTV ratio of 20-30% on a through cycle basis and not to incur debt above an LTV ratio of 40% (see note 13.b). Loan covenants Under the terms of the major borrowing facilities, the Group is required to comply with the following key financial covenants:
The Group has complied with these key covenants throughout the reporting period. Other In addition, the LTV ratio must remain under 50% under the rules of the Irish REIT regime. The Company's share capital is publicly traded on Euronext Dublin and the London Stock Exchange. As the Company is authorised under the Alternative Investment Fund regulations it is required to maintain a minimum of 25% of its annual fixed overheads as capital. This is managed through the Company's risk management process. The limit was monitored throughout the period and no breaches occurred. Section 5 - OtherThis section contains notes that do not belong in any of the previous categories. 16. Capital commitmentsThe Group enters into development contracts to develop buildings in its portfolio. The total capital expenditure commitment in relation to these over the next one to two years is estimated at €11m (March 2020: €18m). The Group has also committed to return €25m of share capital to shareholders (note 11) and €16m remained to be returned at 30 September 2020 (March 2020: €nil). 17. Contingent liabilitiesAccounting policy See note 33 of the 2020 Annual Report. The Group has not identified any contingent liabilities which are required to be disclosed in the condensed consolidated financial statements. 18. Related parties18.a Subsidiaries All transactions between the Company and its subsidiaries are eliminated on consolidation. See note 34.a of the 2020 Annual Report for a list of major subsidiaries. 18.b Other related party transactions Thomas Edwards-Moss (CFO) rents an apartment from the Group at market rent and paid €17k in rent during the period (March 2020: €14k). Stewart Harrington (Non-Executive Director) also rented an apartment from the Group at market rent and paid €17k in rent during the period (March 2020: €9k). 19. Events after the reporting period19.a Interim dividend On 16 November 2020 the Directors approved the interim dividend of 2.0 cent per share (€13.2m) which will be paid on 28 January 2021 to shareholders on the register on 8 January 2021. 19.b Share buyback programmeIn August 2020 the Group announced a second €25m share buyback programme. As at 30 September 2020 8.1m shares had been repurchased and cancelled at an average price of €1.11. The buyback completed on 16 November 2020, at which point 23.1m shares had been repurchased and cancelled at an average price per share of €1.08.
Supplementary Information (unaudited)I. Alternative Performance MeasuresThe Group has applied the European Securities and Markets Authority (ESMA) "Guidelines on Alternative Performance Measures" in this Half Yearly Financial Report. An Alternative Performance Measure ("APM") is a measure of financial or future performance, position or cash flows of the Group which is not a measure defined by International Financial Reporting Standards ("IFRS"). The APMs used in this Half Yearly Financial Report are described in detail on page 188 of the 2020 Annual Report. II. European Public Real Estate Association ("EPRA") Performance Measures (unaudited)EPRA Performance Measures are calculated according to the EPRA Best Practices Recommendations October 2019. EPRA performance measures are used in order to enhance transparency and comparability with other public real estate companies in Europe. EPRA earnings and EPRA NTA measures are also included within the financial statements, in which they are audited annually, as they are important key performance indicators for variable remuneration. All measures are presented on a consolidated basis only and, where relevant, are reconciled to IFRS figures as presented in the consolidated financial statements.
II.a EPRA earnings EPRA earnings, earnings from operational activities, are presented as they are a key measure of the Group's underlying operating results and an indication of the extent to which current dividend payments are supported by earnings. Unrealised changes in valuation, gains or losses on disposals of properties and certain other items are excluded as they are not considered to be part of the core activity of an investment property company. The EPRA earnings table can be found in note 7 to the condensed consolidated financial statements. II.b EPRA cost ratio A key measure to enable meaningful measurement and comparison of the changes in a company's operating costs.
1. Costs and revenue are adjusted in accordance with EPRA for operating expenses not recharged specifically to tenants but which are de facto included in the rents The Group has not capitalised any overheads in the current period or the prior financial year. Property expenses are reduced by the costs which are reimbursed through rental receipts. II.c EPRA vacancy rate This provides comparable and consistent vacancy data for investors based on the Valuer's assessment of gross ERV. The EPRA vacancy rate measures the ERV of vacant space expressed as a percentage of the total ERV of the completed portfolio. EPRA vacancy rate: Calculated as recommended excluding current developments/refurbishments projects underway: 2 Cumberland Place and 50 City Quay.
Adjusted EPRA vacancy rate: Calculated as above but also excluding the Clanwilliam Court properties (Clanwilliam Blocks 1,2 and 5 and Marine House) which are scheduled to move to the development portfolio segment in the next 12-18 months and are therefore will be unavailable to rent when the current leases expire:
II.e EPRA Net Initial Yield ("EPRA NIY") and EPRA "topped-up" Net Initial Yield This measures the inherent yield of the portfolio according to set guidelines to allow investors to compare real estate investment companies across Europe on a consistent basis, using current cash passing rent. EPRA 'topped-up' NIY measures the yield based on rents adjusted for the expiration of lease incentives, i.e. on a contracted rent basis. EPRA NIY is calculated using the fair value of investment property per the Valuer's Report excluding owner occupied property. As at 30 September 2020
1. Investment property fair value under IFRS includes an reduction of €9m in relation to income spreading. 2. Lands at Newlands Cross are excluded from industrial/land as held for future development and were undeveloped at 30 September 2020. 3. Purchasers' costs are extracted from the valuations report and are approximately 9.92% for commercial property and 4.42% for residential. 4. Cash passing rent includes residential rents gross, as property outgoings are included separately, and variable rent from the Iconic arrangement in Clanwilliam Court. 5. The expiry of lease incentives and fixed uplifts are mainly within one year. As at 31 March 2020
1. Lands at Newlands Cross are excluded as held for future development and were undeveloped at 31 March 2020 2. Purchasers' costs are approximately 9.96% for commercial property and 4.46% for residential 3. Cash passing rent includes residential rents gross, as property outgoings are included separately, and rents from the Iconic arrangement in Clanwilliam 4. The expiry of lease incentives and fixed uplifts are mainly within one year II.f EPRA NAV measures Net Asset Value ("NAV") is a key performance measure for real estate companies. EPRA has introduced a number of measures to enhance investors' understanding. EPRA has defined three measures in the 2019 Guidelines as below. These measures replaced EPRA NAV and EPRA NNNAV as previously reported. The EPRA NAV and EPRA NNNAV are presented for comparison purposes. EPRA Net Reinstatement Value ("NRV") highlights the value of net assets on a long-term basis. This assumes that entities never sell assets and aims to represent the value required to rebuild the entity. EPRA Net Tangible Assets ("NTA") assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax. EPRA Net Disposal Value ("NDV") represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax.
1. Following changes to the Irish REIT legislation introduced in October 2019, if a REIT disposes of an asset of its property rental business and does not (i) distribute the gross disposal proceeds to shareholders by way of dividend; (ii) reinvest them into other assets of its property rental business (whether by acquisition or capital expenditure) within a three-year window (being one year before the sale and two years after it); or (iii) use them to repay debt specifically used to acquire, enhance or develop the property sold, then the REIT will be liable to tax at a rate of 25% on 85% of the gross disposal proceeds, subject to having sufficient distributable reserves. For the purposes of EPRA NTA we have assumed any such sales proceeds are reinvested within the required three-year window. 2. Deferred tax is assumed as per the IFRS balance sheet. To the extent that an orderly sale of the Group's assets was undertaken over a period of several years, during which time (i) the Group remained a REIT; (ii) no new assets were acquired or sales proceeds reinvested; (iii) any developments completed were held for three years from completion; and (iv) those assets sold were sold at 30 September 2020 valuations, 85% of the sales proceeds would need to be distributed to shareholders by way of dividend within the required timeframe or else a tax liability amounting to up to 25% of distributable reserves plus current unrealised revaluation gains could arise for the Group. 3. The Group uses the fair value option under IAS 40 and has no hybrid instruments or tenant leases held as finance leases. 4. The Group has no goodwill or intangibles. This is the purchasers' costs amount as provided in the valuation certificate. Purchasers' costs consist of items such as stamp duty on legal transfer and other purchase fees that may be incurred, and which are deducted from the gross value in arriving at the fair value of investment and owner- occupied property for IFRS purposes. Purchasers' costs are in general estimated at 9.92% for commercial and 4.42% for residential. 5. Following changes to the Irish REIT legislation introduced in October 2019, if the Group ceases to be a REIT, as defined under Irish legislation, within 15 years of it originally becoming a REIT then a potential tax liability could arise for the Group.
1 -3 See notes 1-3 in 30 September 2020 table above. 4. The Group has no goodwill or intangibles. This is the purchasers' costs amount as provided in the valuation certificate. Purchasers' costs consist of items such as stamp duty on legal transfer and other purchase fees that may be incurred, and which are deducted from the gross value in arriving at the fair value of investment and owner-occupied property for IFRS purposes. Purchasers' costs are in general estimated at 9.96% for commercial and 4.46% for residential. 5. See note 5 in 30 September 2020 table above. EPRA NAV measures using previous calculation basis:
1. Difference in fair value of fixed rate private placement notes versus book value (amortised cost) II.g EPRA capital expenditure EPRA capital expenditure Capital expenditure ("capex") during the period is analysed in note 9 according to the EPRA Best Practice Recommendation Guidelines. All amounts are from the IFRS financial statements of the Group without adjustment and are reconciled in the table. Directors and Other Information
Glossary AGM is Annual General Meeting. APM is an Alternative Performance Measure. BEPS is Bare erosion and profit shifting. It refers to corporate tax planning strategies used by multinationals to shift profits from higher tax jurisdictions to low tax jurisdictions. Brexit is the UK exit from the EU. C&W or Cushman & Wakefield or the Valuer are the Group's external independent Valuer. Cash passing rent is the gross property rent receivable on a cash basis as at the reporting date. It includes sundry items such as car parks rent and estimates of rents in respect of unsettled rent reviews. CBD is Central Business District. CDP (formerly the Carbon Disclosure Project) is a not-for-profit organisation that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. Contracted rent is the annualised rent adjusted for the inclusion of rent that is subject to a rental incentive such as a rent-free period or reduced rent year. Developer's profit is the profit on cost estimated by valuers which is typically a percentage of developer's costs, usually between 10% and 25%. Development construction cost is the total costs of construction to completion, excluding site and financing costs. Finance costs are usually assumed at a notional 7% per annum by the Valuer. DPS is dividend per share. DRiP or dividend reinvestment plan is a plan offered by the Group that allows investors to reinvest their cash dividends by purchasing additional shares on the dividend payment date. EBIT is earnings before interest and tax. EBITA is earnings before interest, tax, depreciation and amortisation. EPRA is the European Public Real Estate Association, which is the industry body for European property companies. It produces guidelines for a number of standardised performance measures (e.g. EPRA earnings).It is a proxy for the capacity of a company to pay ordinary dividends. EPRA cost ratio (including direct vacancy costs) is the ratio of net overheads and operating expenses against gross rental income. Net overheads and operating expenses relate to all administrative and operating expenses net of any service fees, recharges or other income which is specifically intended to cover overhead and property expenses. EPRA cost ratio (excluding direct vacancy costs) is the same as above except it excludes direct vacancy costs. EPRA earnings is the profit after tax excluding revaluations and gains and losses on disposals and associated taxation (if any). EPRA EPS is EPRA earnings on a per share basis (diluted). EPRA net asset value ("EPRA NAV") is defined as the IFRS assets excluding the mark to market on effective cash flow hedges and related debt instruments and deferred taxation on revaluations. EPRA NAV per share is the EPRA NAV divided by the diluted number of shares at the period end. This measure has now been superceded by EPRA NRV, NTA and NDV. EPRA Net Disposal Value ("NDV") represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. EPRA net initial yield ("NIY") is the passing rent generated by the investment portfolio at the balance sheet date, less estimated recurring irrecoverable property costs, expressed as a percentage of the portfolio valuation as adjusted. The portfolio valuation is adjusted by the exclusion of development properties and those under refurbishment. EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations. This measure has now been superceded by EPRA NRV, NTA and NDV. EPRA Net Reinstatement Value ("NRV") is NAV calculated on a basis that assumes entities never sell assets and aims to represent the value required to rebuild the entity. EPRA Net Tangible Assets ("NTA") assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax. EPRA 'topped-up' net initial yield is calculated as the EPRA NIY but adjusting the passing rent for contractually agreed uplifts, where these are not in lieu of rental growth. EPRA vacancy rate is the Estimated Rental Value ("ERV") of vacant space divided by the ERV of the whole portfolio, excluding developments and residential property. This is the inverse of the occupancy rate. EPS or earnings per share is the profit after taxation divided by the weighted average number of shares in issue during the period. Equivalent yield is the weighted average of the initial yield and reversionary yield and represents the return that a property will produce based on the occupancy data of the tenant leases. ERV or estimated rental value is the Valuer's opinion as to what the open market rental value of the property is on the valuation date, and which could reasonably be expected to be the rent obtainable on a new letting on that property on the valuation date. Fair value movement is the accounting adjustment to change the book value of the asset or liability to its market value. FRI lease is a full repairing and insuring lease. Gale date is the date on which rent is due. GDV is gross development value. GRESB is a sustainability benchmark for property assets. Grey space is surplus space offered by tenants for letting by sub-tenants. Gross rental income is the accounting-based rental income under IFRS. When the Group provides incentives to its tenants the incentives are recognised over the lease term on a straight-line basis in accordance with IFRS. Gross rental income is therefore the passing rent as adjusted for the spreading of these incentives. Hibernia is Hibernia REIT plc, the Company or the Group. IFRS are International Financial Reporting Standards. 'In-place' portfolio is the portfolio of completed properties, i.e. excluding active development and refurbishment projects and land. IPD is the Investment Property Databank Limited which is part of the MSCI Group and produces as independent benchmark of property returns (IPD Ireland Index) and which provides the Group with the performance information required in calculating the performance-based management fee. IPMS are the international property measurement standards as issued by the Royal Institute of Chartered Surveyors. Lease incentive is any consideration or expense, borne by the Group, in order to secure a lease. LEED ("Leadership in Energy and Environmental Design") is a Green Building Certification System developed by the US Green Building Council. Its aim is to be an objective measure of building sustainability. Loan to value ("LTV") is the ratio of the Group's net debt to the value of its investment properties. Long-term incentive plan ("LTIP") aims to encourage senior management retention and align their interests with those of the Group through the payment of rewards based on the Group's long-term performance through shares in the Company that vest after a future period of service. Market Abuse Regulations are issued by the Central Bank of Ireland and can be accessed at https://www.centralbank.ie/regulation/securities-markets/market-abuse/Pages/default.aspx. MDD is modified domestic demand. It is defined as total domestic demand net of trade in aircraft by leasing companies and investment in intellectual property. MSCI/SCSI Ireland Quarterly Property All Assets Index ("MSCI Ireland Index") is the index produced by MSCI which measures the return of the property market in Ireland for all asset classes and which is calculated by MSCI both including and excluding Hibernia assets and is used to calculate our KPI 'Total property return' or TPR. NAV is the net asset value. NAVPS is the NAV in cent per share. Net development value is the external Valuer's view on the end value of a development property when the building is fully completed and let. Net equivalent yield is the weighted average income return (after allowing for notional purchaser's costs) a property will produce based on the timing of the income received. As is normal practice, the equivalent yields (as determined by the external Valuer) assumes rent is received annually in arrears. Net lettable or net internal area ("NIA") is the usable area within a building measured to the internal face of the perimeter walls at each floor level. Net reversionary yield is the expected yield after the rent reverts to the ERV. Occupancy rate is the estimated rental value of let units as a percentage of the total estimated rental value of the portfolio, excluding development properties. Passing rent is the annualised gross property rent receivable on a cash basis as at the reporting date. It includes sundry items such as car parks rent and estimates of rents in respect of unsettled rent reviews. PC is practical completion. Property income distributions ("PIDs") are dividends distributed by a REIT that are subject to taxation in the hands of the shareholders. Normal withholding tax still applies in most cases. PP are private placement notes, effectively private loan notes. PRS is the private rental sector which refers to residential properties held for rent. Psf is per square foot. RCF is revolving credit facility. REIT is a Real Estate Investment Trust. Irish REITs follow section 705E of the Taxes Consolidation Act 1997. Remuneration Policy: the remuneration policy approved by shareholders at the 2018 AGM and which took effect from 27 November 2018. Reversion is the rent uplift where the ERV is higher than the contracted rent. Royal Institute of Chartered Surveyors ("RICS") Professional Standards, RICS Global Valuation Practice Statements and the RICS Global Valuation Practice Guidance - Applications contained within the RICS Valuation - Global Standards 2019 (the "Red Book") issued by the Royal Institute of Chartered Surveyors provide the standards for preparing valuations on property. Shadow space is also referred to as grey space (see definition above. Sq. ft. is square feet. TCFD is the Financial Stability Board Task Force on Climate-related Financial Disclosures. Tenant or lease incentives are incentives offered to occupiers on entering into a new lease and may include a rent free or reduced rent period, or a cash contribution to fit-out. Under accounting rules, the value of these incentives is amortised through the rental income on a straight-line basis over the term of the lease or the period to the next break point. Term certain is the lease period to the next break or expiry. Total accounting return ("TAR") measures the absolute growth in the Group's EPRA NAV per share plus any ordinary dividends paid. Total Property Return ("TPR") is the return for the period of the property portfolio (capital and income) as calculated by MSCI, the producers of the IPD Ireland Index. Total shareholder return ("TSR") is the growth in share value over a period assuming dividends are reinvested to purchase additional units of stock. Traditional core is the historic central business district of Dublin, centred around St. Stephen's Green and Merrion Square. Transparency regulations enhance the information made available about issuers whose securities are admitted to trading on a regulated market and further information is available on https://www.centralbank.ie/regulation/securities-markets/transparency/Pages/default.aspx. USPP is US private placement notes, effectively private loan notes. Valuer is the independent valuer appointed by the Group to value the Group's investment properties at the date of the consolidated financial statements. From September 2017 the Group has used Cushman and Wakefield. Previously the Group has used CBRE. WAULT is weighted average unexpired lease term and is variously calculated to break, expiry or next review date.
1. 91% of contracted rent 2. 9% of contracted rent 3. Like-for-like change (incl. finance costs) on Investment Property and excluding assets acquired and disposed of during the period [4]. Total Property Return is the return of the property portfolio (capital and income) as calculated by MSCI. 5. An alternative performance measure ("APM"). The Group uses a number of such financial measures, which are not defined under IFRS. In particular, measures defined by EPRA are an important way for investors to compare real estate companies. Please see Supplementary Information at the back of this release for further details. [5] Existing income within this figure represents €29 per buildable square foot [6] To calculate the net development value standard purchasers' costs used are 9.92% [7] 91% of Group contracted rent [8] 9% of Group contracted rent |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ISIN: | IE00BGHQ1986 |
| Category Code: | IR |
| TIDM: | HBRN |
| LEI Code: | 635400MHRA4QVVFTON18 |
| OAM Categories: | 1.2. Half yearly financial reports and audit reports/limited reviews |
| Sequence No.: | 87991 |
| EQS News ID: | 1148603 |
| End of Announcement | EQS News Service |
|
|