14th May 2015 07:00
PRELIMINARY RESULTS
For the year to 31 March 2015
14 May 2015
Hibernia REIT plc ("Hibernia" or the "Company") today announces its preliminary results for the year to 31 March 2015.
Highly active but disciplined period of investment
· €445m invested and €43m committed in Dublin property in the period, in 14 transactions
· Since 31 March 2015 a further €3m invested in two transactions
· Since IPO a total of €571m invested and committed (€568m net of disposals and capex) with 88% of acquisitions[1] completed off-market and 39% being loan related purchases1
Excellent financial performance in year of portfolio assembly
· EPRA NAV per share 111.8 cent up 16.0% over the year and 6.8% over H2
· 19.5% uplift in value of investment properties on purchase prices in weighted average hold period of 7.5 months since completion
· EPRA profit of €3.9m (2014: €-0.8m). EPRA EPS 0.8 cent (2014: -0.2 cent)
· Including revaluation surplus and gains on disposals PBT of €92.9m (2014: €-0.8m)
· Final dividend proposed of 0.5 cent per share bringing total for year to 0.8 cent per share
High quality Dublin property portfolio with rental reversion potential
· 75% CBD offices, 13% CBD office development sites, 10% residential and 2% logistics
· CBD office portfolio has average rents of €34.5psf, well below current prime rents of €47.5[2] psf and an average period to rent review of 2.8 years[3]
· Portfolio EPRA net initial yield 4.4%, 4.9% on topped up basis
Development programme progressing well and longer term pipeline supplemented
· Block 3, Wyckham Point ahead of schedule and on budget: first units finished and let in April 2015 and full completion expected by September 2015
· Windmill Lane and Sir John Rogerson's Quay: targeting end of 2017 and mid 2018 completion, respectively
· Cumberland House and Harcourt Square added to pipeline in H2
Strong financial position
· €139m of cash at 31 March 2015 (of the net €286m raised in November 2014) and €100m revolving credit facility which is undrawn
· Additional incremental investment capacity of c.€300m if leveraging current equity base to 35% LTV[4]
· Dorville non-core: €18.0m of assets held for disposal and €12.4m sold (excluding acquisition costs). Balance of assets expected to be sold by December 2015
Proposed internalisation of Investment Manager
· All 16 team members of the Investment Manager to transfer to Group
· No material additional cost to shareholders: upfront consideration of c.€16m is the present value of management fee for remaining 3.5 year term of Investment Management Agreement, less costs that Group will assume, and book value of the net assets of the Investment Manager at 31 March 2015 (excluding performance fees due)
· Kevin Nowlan and Tom Edwards-Moss to join Board as executive directors
· Company will seek approval from independent shareholders
Danny Kitchen, Chairman of Hibernia REIT plc said:
"Hibernia's first full year has been highly active with €488m invested and committed in 14 transactions. At year end the Company's portfolio comprised 18 Dublin properties and was valued at €636m. The Investment Manager's commitment to uncovering opportunities away from public sales processes and in the property loan market, where there has been less competition, has been a significant contributor to the 19.5% uplift in the value of the properties we have seen in an average holding period since acquisition of 7.5 months.
"With Dublin at the centre of a broad-based recovery in the Irish economy and property markets, and an exciting portfolio of properties in place, the Board is confident that the Company will deliver excellent returns."
Kevin Nowlan, Chief Executive Officer, WK Nowlan REIT Management Limited, said:
"I am pleased with our progress this year in building a portfolio of Dublin property and excited by the opportunities we have to deliver value from it through asset management, rent reviews and development projects. The Company is well funded to deliver its development pipeline and act opportunistically as further acquisition opportunities arise.
"With a positive economic backdrop and favourable dynamics in the Dublin property market, we look forward to the coming year."
Contacts:WK Nowlan REIT Management Limited +353 1 9058350Kevin NowlanTom Edwards-Moss
Murray Consultants +353 1 4980300Doug Keatinge
Orlagh Ryan
About Hibernia REIT plcHibernia REIT plc is an Irish Real Estate Investment Trust ("REIT") listed on the Irish and London Stock Exchanges. The principal activity of the Company is to acquire and hold investments in Irish property (primarily commercial property) with a view to maximising shareholder returns.
Chairman's Statement
Hibernia's first full year has been a period of intense activity in a recovering Irish property market: the Group invested €445m and committed €43m across 14 transactions. Since 31 March 2015, a further €3m has been invested and committed in 2 transactions. This takes the total funds deployed since the Group's inception to €571m (€568m net of disposals and capex), creating a portfolio of property, all of which is in Dublin, which was worth €636m[5] as at 31 March 2015.
Having invested the net proceeds of the IPO, in August 2014 the Company agreed a €100m three year revolving credit facility with Bank of Ireland. This was followed by a second equity issue which successfully completed in November 2014, raising net proceeds of €286m. As at 31 March 2015, €147m of this had been deployed and Hibernia REIT plc ("the Company") had net cash of €139m and undrawn credit facilities totalling €100m.The Board is pleased with the performance of the Company to date and believes the portfolio that has been assembled will, with active management, deliver long term sustainable value for shareholders. The discipline the Investment Manager has shown in a period of highly active investment markets has been commendable, as has its commitment to uncovering opportunities away from public sales processes and in the property loan market, where there has been less competition.
Financial results and position
31 March 2015 | 31 March 2014 | Movement | ||||
IFRS NAV - cent per share | 112.4 | 96.4 | + 16.6% | |||
EPRA NAV - cent per share | 111.8 | 96.4 | + 16.0% | |||
Net cash and cash equivalents | €139 m | €292 m | - 52.3% | |||
Group LTV | 0.0% | 0.0% | ||||
Profit/( loss) for the period | €92 m | (€1) m | ||||
Basic EPS | 18.4 cent | -0.2 cent | ||||
Diluted EPS | 18.3 cent | -0.2 cent | ||||
Final dividend / DPS | €3.4m / 0.5 cent | n/a | ||||
Full year dividend /DPS | €5.4m / 0.8 cent | n/a |
As at 31 March 2015, the Group's IFRS NAV was 112.4 cent (estimated 111.6 cent after issue of performance shares) while the EPRA NAV was 111.8 cent per share. This represented an increase of 16.6% in IFRS NAV and 16.0% in EPRA NAV over March 2014. This increase was principally due to an uplift in the value of the Company's property portfolio since acquisition of 19.5% excluding acquisition costs (15.6% including acquisition costs). The weighted average hold period (by purchase price) of the acquisitions the Company has made since completion to 31 March 2015 (for its investment properties) is 7.5 months.Corporate governance and proposed internalisationThe Company is managed by WK Nowlan REIT Management Limited (the "Investment Manager") under the terms of a five year Investment Management Agreement (the "IMA") signed in November 2013. At the IPO, the Board and the Investment Manager expressed the intention that at the expiry of the five year initial term of the IMA, subject to the EPRA NAV of the Company being not less than €650m, the Company would seek to internalise the management team of the Investment Manager for nil consideration.
The Group has grown rapidly and the EPRA NAV at 31 March 2015 was €755m. After careful consideration, the Independent Directors believe the time is now right for the Investment Manager to be internalised and its 16 team members moved into direct contracts with the Company.
The Independent Directors believe the benefits will include:
· Securing the management team for the longer term
· Broadening the universe of potential investors in the Company
· Simplifying the management structure and decision-making processes
· Enhancing transparency and management accountability
· Eliminating any recruitment or retention challenges that the Investment Manager may suffer as the end of the initial term approaches
As announced on 8 May 2015, it is proposed that the internalisation is done at no material additional cost to shareholders by the Company acquiring the Investment Manager. A sum of c. € 16m will be paid to the Investment Manager, 50% in cash and 50% in Hibernia shares, subject to three year clawback and earn-out provisions. This payment reflects the net present value of the base fees due over the remaining term of the IMA, less the net present value of the costs which the Company will assume which under the IMA would have been borne by the Investment Manager, and the book value of the net assets of the Investment Manager at 31 March 2015 excluding any performance fees due. In addition, potential deferred payments may be due relating to "true-up" payments on the IM base fee if the NAV increases, JV fees on Windmill Lane and Sir John Rogerson's Quay developments and the existing performance fee arrangements.
The proposed transaction represents a related party transaction under the Irish and UK Listing Rules: independent shareholders will be given the opportunity to vote on the transaction, and in advance of this, full details of the transaction and the rationale for it will be sent to shareholders.DividendThe Board has proposed a maiden final dividend, subject to approval at the Company's AGM, of 0.5 cent per share (€3.4m) which will be paid in August 2015. Together with the interim dividend of 0.3 cent, the total dividend for the year is 0.8 cent per share or €5.4m (2014: nil). The Board has decided to introduce a Dividend Reinvestment Plan ("DRIP") commencing with the final dividend: this will allow shareholders to instruct Capita, the Company's registrar, to reinvest dividend payments by the purchase of shares in the Company. The terms and conditions of the DRIP and information on how to apply will be communicated to shareholders along with the Annual Report.OutlookWith Dublin at the centre of a broad-based recovery in the Irish economy and foreign direct investment flows continuing, the Board is confident that conditions in the Company's core markets will continue to strengthen in the coming year. The high volume of transactions in the Irish property market is anticipated to persist as the market normalises and the Board expects continued success in deploying the Company's capital in building out its property portfolio. Additionally the Board is confident that the proactive management of the Company's assets and the development of the sites it acquired will deliver excellent returns.
Daniel Kitchen
Chairman
14 May 2015
Investment Manager's Report
WK Nowlan REIT Management Limited's first full year of operation has been highly active. We assessed a large number of investment opportunities for the Company and brought the most attractive of these into the Company's ownership, where they matched the Company's investment policy and returns criteria. We completed 14 transactions for the Company, investing €445m and committing a further €43m.
Since 31 March 2015, we have entered 2 further acquisitions for the Company, investing an additional €3m, taking the total funds invested and committed since IPO to € 571m (€568m net of disposals and capex).
Our expertise in the acquisition of debt has enabled the Company to gain ownership of a number of properties through the purchase of loans secured on those assets: there has generally been less competition for loans than for direct property and a broader loan market, thereby improving potential returns. Since inception 39% of acquisitions (by purchase price) made by the Company have been loan-related purchases and in the year 31% have been loan related. Since IPO, 88% of our transactions have been agreed privately ("off-market") rather than through competitive auction processes ("on-market"), as we believe this generally improves certainty of execution and pricing.
The portfolio
Our investment activity has resulted in a property portfolio as at 31 March 2015 of 18 investment properties valued at €636m (€641m per IFRS consolidated statement of financial position less the fair value of the Windmill site option, €5.1m), which can be categorised as follows:
Portfolio overview | Market Value at | % of portfolio | % Uplift since Sep 2014 | % Uplift since acquisition 1 | Yield on costs 2 | ||||
31-Mar-15 | value | Excl. acq. post Sep 2014 | Including all property | exclud. acq. costs | with acq. costs | Passing rent | Contracted rent | ||
€'m | % | % | % | % | % | % | % | ||
Dublin CBD office portfolio | 476 | 74.8% | 14.2% | 11.1% | 19.3% | 16.3% | 5.1% | 5.4% | |
Dublin CBD Office development/ refurb. | 84 | 13.1% | 25.0% | 7.4% | 11.7% | 8.3% | - | - | |
Dublin residential | 67 | 10.5% | 12.4% | 12.4% | 36.5% | 23.4% | - | - | |
Dublin industrial logistics | 10 | 1.6% | 2.2% | 2.2% | 2.2% | 0.0% | 5.1% | 5.1% | |
Total investment portfolio | 636 |
100.0% | 14.3% | 10.5% | 19.5% | 15.6% | 3.8% | 4.1% | |
1 Includes capex spent to date in acquisition costs
2 Passing rent is pre full ownership of Hardwicke and Montague/ contracted rent is post full ownership
The CBD office element of our portfolio had the following statistics at 31 March 2015:
· Weighted average period to earlier of rent review or lease expiry: c. 2.8 years
· WAULT to earlier of expiry or break: 3.9 years
· WAULT to expiry: 7.8 years
· Average contracted rent per square foot €34.5
· Weighted average capital cost per square foot at acquisition: €570
· Occupancy level: 89%
8 of the Company's 18 investment property acquisitions since formation have been facilitated through the purchase or advance of loans secured on underlying property collateral. Significant progress was made during the year to convey the underlying property collateral into direct ownership and only 2 properties totalling €26m in loans and representing c.5% of the property portfolio cost at 31 March 2015 remain to be conveyed. These are recognised as investment properties.
Asset Management
A key focus for the Investment Manager this year has been the setting up of asset management systems which provide us and Hibernia with effective and timely information on the portfolio and its performance. The Asset Management team has worked hard to quickly integrate all of the assets acquired onto these systems.
Key asset management highlights in the period include the following:
Commerzbank House, IFSC
As expected, we agreed with Commerz Management Services Ltd to an early surrender of its leasehold interests in the property, comprising 55,500 sq. ft. out of a total of 71,000 sq. ft.. As part of the settlement Hibernia received a payment of all of the rent and irrecoverable outgoings to the break date, a one year rental penalty of €2.4m, and a sum for dilapidations.
We are now in the process of refurbishing, modernising and upgrading this property to bring it up to modern Grade A standard. The upgrade elements include new lifts, improved sanitary facilities, increased facilities for cycling (parking and showering) and a complete overhaul of its reception and a leading design team has been appointed.
Work is scheduled to commence on site in Q2 2015 and to be completed in Q1 2016. The estimated capital expenditure will be c. €10m (€7.9m net of the dilapidations payment received). The available space is being actively marketed and a number of parties have expressed interest.
The Observatory Building, South Docks
The property comprises a total of 98,000 sq. ft. of which 11,000 sq. ft. is configured as "live/work" units. These units had been vacant for a number of years and were in a dilapidated state when the Company acquired the property in June 2014, and we ascribed a value of €1.7m to them at purchase.
Having considered a number of asset management options for these units we decided upon a change of use to office space to maximise their value. A planning application for this change was submitted in November 2014 and a positive grant of permission with no onerous conditions was issued in March 2015. It is expected that a contractor will be selected shortly and construction works will be completed by the Q1 2016 at an estimated cost of €1.5m.
We are in discussions with a tenant regarding the lease of the whole of this space.
Block 3, Wyckham Point, Dundrum
This property, which comprises 213 residential units, the loan over which was acquired by the Company in February 2014 as part of the Dorville loan portfolio. On acquisition the units were incomplete: the building structure was finished and weatherproofed but little work had been done on the fit-out. JJ Rhatigan & Company was appointed to complete the fit out of the property and a phased (five phase) contract programme was agreed.
Phase 1, consisting of 29 units, was handed over ahead of schedule in mid-April 2015, Phase 2, consisting of 41 units was completed, again ahead of schedule, in early May 2015 with the remaining phases on programme to be completed on, or ahead of, schedule. The final phase is now expected to complete in Q3 2015.
The marketing of the units commenced ahead of the completion of Phase 1 and to date 35 units have been let (including 27 to a leading international corporate) and 43 have bookings secured. To date, lettings with an aggregate annual rental value of €1.6m have been secured of which €0.8m is in respect of letting which have commenced. On average the rental level achieved is 9% in excess of the rental levels estimated in the September 2014 valuation.
Other completed assets
As the other completed properties in the portfolio are close to full occupation and the tenants' next rent reviews are overwhelmingly (by rental value) dated in future periods the level of leasing and rent review activity has therefore been nil and minimal, respectively. Our Asset Management team is, however, carefully monitoring the letting markets and market rent review activity with a view to ensuring that Hibernia maximises its rental income in the event of vacancies arising in the portfolio and when rent reviews dates are reached.
Additionally we are working closely with Hibernia's tenants to better understand their occupational requirements and work proactively with them to establish if mutually beneficial variations of their leasehold arrangements can be arrived at.
Sale of Dorville non-core assets
Good progress has been made in the disposal of the Dorville non-core assets. The status as at 31 March 2015 was as set out below:
Sold or contracted at year end | Units | Carrying Value1 €'000 | Sales Price €'000 | Profit €'000 | |||||||||||||
Residential assets | 18 | 5,268 | 5,564 | 296 | |||||||||||||
Commercial assets | 3 | 850 | 1,212 | 362 | |||||||||||||
Development Sites | 2 | 6,250 | 9,415 | 3,165 | |||||||||||||
Tax Estimate | (690) | ||||||||||||||||
23 | 12,368 | 16,191 | 3,133 | ||||||||||||||
| |||||||||||||||||
Sale agreed or committed at year end | Units | Carrying Value1 €'000 | Price Agreed €'000 | Expected Profit €'000 |
| ||||||||||||
Residential assets | 19 | 4,541 | 5,467 | 926 |
| ||||||||||||
Cost Estimate | (315) |
| |||||||||||||||
19 | 4,541 | 5,467 | 611 |
| |||||||||||||
| |||||||||||||||||
Remainder of Non-Core Assets | Units | Carrying Value1 €'000 |
| ||||||||||||||
Residential assets | 43 | 11,107 |
| ||||||||||||||
Commercial assets | 3 | 2,310 |
| ||||||||||||||
46 | 13,417 |
| |||||||||||||||
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1) Excludes stamp duty and other purchasing costs | |||||||||||||||||
Since the period end three of the units which were sale agreed above have been contracted. In addition the sale of a further four units was agreed with an aggregate sales value of €0.8m. We intend to complete the disposal of the non-core assets by the end of 2015.
Developments and refurbishmentsThe Company has committed and near term development and refurbishment projects at 5 properties and a further 3 properties in the development pipeline.
Committed and near term projects
Sector | NIA post completion (sq ft) | Full purchase cost | Est. Capex | Est. total cost € psf/p.unit | ERV(1) | Comments |
| ||
Fit out or refurbishment | |||||||||
Block 3, Wyckham Point | Residential | 213 units | €32m(2) | €25m(3) | €275k per 2 bed | €3.7m(4) | • On budget and ahead of schedule. • First completed units delivered April 15. • Project to finish in Q3 2015. • 35 units let to date and a further 43 bookings secured |
| |
Commerzbank House | Office | 71k(8) | €47m(5) | €10m(6) | €760psf(5) | €3.3m(5) | • Refurbishment scheduled to complete by early 2016 • Active discussions ongoing with potential tenants |
| |
Observatory Live/work | Office | 9.5k office 2k retail | €2m | €1.5m | €280psf | €0.4m | • Conversion from Live/Work units to office accommodation • Expected completion Q1 2016 • Near agreement to lease entire space |
| |
Development | |||||||||
Windmill Lane | Office | 121k office 7k retail 15 resi. Units | €8m | €52m | €425psf(7) | €5.1m(7) | • Demolition commenced • Construction scheduled to start by Q3 2015 • Scheduled completion by end of Q4 2017 • Increase in specification vs. previous estimates |
| |
1-6 SJRQ | Office | 102k office 5k retail 3 resi. Units | €18m | €50m | €590psf(7) | €4.9m(7) | • Revised planning application to be submitted by end of May 2015 • Demolition commenced • Expect to complete construction by mid 2018 • Increase in building size and specification vs. previous estimates |
| |
Total | 304k office 14k retail 231 units | €107m | €138.5m | €17.4m |
| ||||
(1) Per CBRE valuation at 31 March 2015
(2) Includes VAT on acquisition
(3) €13.5m spent to 31 March 2015
(4) Net
(5) For entire
(6) €7.9m net of dilapidation charge received
(7) Commercial only
(8) 55k sq. ft. of 71k sq. ft. being refurbished plus all common areas
Development pipeline
Name | Sector | Current NIA (sq. ft.) | NIA post completion (sq. ft.) | Purchase Price | Comments | |
Cumberland House | Office | 112k on1.6 acres | Existing planning for 250k sq. ft. new build office | €49.0m | • In active discussions with potential tenants • Both refurbishment and redevelopment options being assessed | |
Gateway | Logistics | 178k on 14.1 acres | See right | €10.1m | • Expect to submit planning application for interchange connection road to improve access by Q3 2015 • Assessing site intensification/change of use options | |
Harcourt Square | Office | 117k on 1.9 acres | 285k sq. ft. | €70.0m | • Phase 1 planning application submitted for 134k sq. ft. NIA of offices • Discussions ongoing regarding near term lease extension | |
Total | 407k on17.6 acres | 535k sq. ft.(1) | €129.1m |
(1) Excludes Gateway
FinancingHaving invested the proceeds of the Initial Public Offering (IPO), in August 2014, the Investment Manager agreed the terms of a €100m three year revolving credit facility secured via a floating charge over the Company's assets with Bank of Ireland Corporate Banking. This was followed by a second equity issue, in which all shareholders were given the opportunity to participate, which completed in November 2014, raising net proceeds of c.€286m.
As at 31 March 2015, the Company had cash of €139m and the revolving credit facility was undrawn. Under its investment policy, the Company can incur indebtedness up to a maximum of 40% loan to value: currently therefore, the Company could put in place up to a further c.€400m of new debt facilities and preliminary discussions have been had with a number of lending banks regarding additional debt facilities.
Team and proposed internalisation
The team increased in size in the year to 16 people (March 2014: 10) with the hiring of a Chief Financial Officer in June 2014 and the expansion of the asset management, investment and finance teams as the portfolio has grown. I am particularly pleased with the culture of openness, teamwork and entrepreneurship that we have developed in a short time.
The proposed internalisation of the Investment Manager will simplify the corporate structure and decision-making processes and eliminate any recruitment or retention challenges the Investment Manager may suffer as the initial five year term of the Investment Management Agreement with the Company approaches its end.
Looking ahead
We expect the upward trend in office rents to continue, given the low vacancy in the Dublin CBD office market, anticipated strong occupational demand and little new supply of space expected in the next 24 months. In the multi-family residential market in Dublin we expect similar supply-demand dynamics to lead to further rental increases. Turning to the investment market, we are expecting the volume of transactions in Dublin in the next 12-18 months to remain above the long-term average as the market normalises. We have identified and are tracking a number of potential acquisition opportunities. With an experienced and talented team, access to competitive debt terms, supportive markets and a portfolio rich in opportunity we are confident of generating attractive returns for shareholders.
Kevin Nowlan
Chief Executive Officer, WK Nowlan REIT Management Limited
14 May 2015
Market update
General Economy
The Irish economy was the fastest growing in the Euro area in 2014 and this trend is expected to be repeated in 2015 and 2016. GDP growth of 4.8% was reported for 2014 and forecasts for 2015 and 2016 are in a similar range: Goodbody are forecasting GDP growth of 4.3% and 4.0% in 2015 and 2016 respectively.
The Irish economic recovery came from a broader base in 2014; investment grew by 11% (the strongest performance in a decade) and domestic demand moved into growth. Projections for these two measures are similarly strong for 2015 and 2016. Indeed, Goodbody expects domestic demand to be the key driver of growth going forward with increases of 4.3% and 5.1% now anticipated for 2015 and 2016 respectively.
Employment figures have increased for nine consecutive quarters with unemployment levels down from the peak of 15.1% in January 2012 to the current 10% level. As a result of these employment figures, coupled with expected pay rises (from private firms) and lower energy prices, consumer sentiment and the consumer's contribution to the domestic economy is expected to continue to grow. Consumer spending grew at an annualised 2.1% in Q4 2014 after a muted period during the two years to end Q3 2014. The latest KBC Ireland / ESRI Consumer Sentiment Index rose in March 2015 to 97.8 up from 96.1 in February. Consumer confidence is improving as people are feeling more secure in their employment and thus more confident about their personal finances.
As a result of the significant growth of the economy over the last couple of years, Ireland's debt sustainability has greatly improved and this is currently being reflected in the pricing of Irish government bond yields, with the current 10 year bond yield at c. 1.27% after reaching a record low of 0.65% in April 2015. New debt levels are expected to fall below 90% of GDP by the end of 2016 (Source: Goodbody). With the current weak Euro, Ireland is set to benefit further from both a Foreign Direct Investment and an export perspective, with 66% of Ireland's exports destined for non-Eurozone economies vs. 33% for Germany (Source: IBEC).
Irish Property Investment Market
According to MSCI (formerly IPD), total property returns for Ireland in 2014 were 40.1% compared to a global total return of 9.9%. Dublin topped the league tables with total returns of 44.7% in 2014. Since then, MSCI have reported a slowing of growth across all sectors in Q1 2015 with the annual total return to Q1 2015 at 36.3%. After a period of exceptional growth the market is naturally moving into a more stabilised, albeit still high, growth phase.
Prime office yields at the end of Q1 2015 are now at 4.75% (according to CBRE), a further 25bps reduction since Q4 2014. As with other European countries, prime office yields in Dublin are higher than those in the USA and Asia and the spread above 10 year government bond yields in the respective Asian countries and US cities.
Investment volumes were exceptionally strong with over €4.5bn of direct real estate and €20.8bn of real estate related loans traded in 2014. This momentum continued into Q1 2015 with €1bn of direct real estate traded in Q1 2015. Interestingly, the two largest transactions of Q1 saw the arrival of new buyers to the market:
· Starwood Property Trust a US REIT, acquiring Project Molly (portfolio of Dublin offices) for €350m
· Union Investment (German Fund), acquiring 4&5 Grand Canal Square for €233m
We are encouraged by the new wave of purchasers entering the market resulting in an important broadening of sources of capital. Purchasers in the past year have included US REITs, US Private Equity Funds, European funds, Irish REITs and private investors from both Ireland and abroad. Longer term investors from other jurisdictions have appeared joining the opportunistic funds which have dominated the market since 2010.
We continue to see a healthy pipeline of quality stock and expect this trend to continue for some time with CBRE forecasting €4bn of direct property sales and €15bn of property related loan sales in 2015.
Office Occupational Market
The office market in Dublin remains characterised by strong demand for space (from all sectors) and a distinct lack of Grade A stock in the CBD.
Leasing volumes remain strong and vacancy rates continue to move downwards: take up in 2014 was in excess of 2.2m sq. ft. and there was a strong start to 2015 with 64 leasing transactions signed in Q1 2015 - the highest number of individual leasing deals to sign in a quarter in the last 7 years, bringing take-up over 400,000 sq. ft. in Q1 2015.
The overall vacancy rate in Dublin is now 11.3%; 9.1% in the CBD and 1.8% in Grade A Dublin 2/4.
As a result of these two factors, prime Dublin CBD office rents continue to move upwards and are now c.€47.50psf with CBRE expecting the €50psf barrier to be reached in the coming months and expectations in the market that €55psf will be the prime rent by the end of 2015 and €65 psf by the end of 2017.
62% of the leasing volume in Q1 2015 was in the CBD and there is a strong preference for city centre locations although some occupiers are looking at suburban options due to lack of suitable available space in the CBD.
Notably lettings in the last 12 months include the letting of No. 5 Grand Canal (127,600 sq. ft.) to Facebook at €45 per sq. ft. and the entire of 65 St. Stephen's Green (61,500 sq. ft.) to Aercap at €60psf. This building is due to complete in 2016 so perhaps represents where the market is expected to be at that date.
Supply shortages are expected to persist in the city centre which should drive rents higher in the medium term. There are concerns about competitiveness and ability to accommodate expansion space in the short term which leads us onto the important development pipeline.
Office Development Pipeline
The development market for the Dublin CBD is starting to respond to the well documented current cache of supply and there is now 1.3m sq. ft. under construction with most of this stock to be delivered to the market by late 2016/2017. Of the stock under construction approximately 27% has been pre-let. Of the remaining 1.0m sq. ft., 0.4m sq. ft. is refurbished stock and 0.6m sq. ft. relates to new builds which are being built on a speculative basis. The Group's Windmill Lane and 1 - 6 Sir John Rogerson's Quay developments represent over 0.2m sq. ft. of the 0.6m sq. ft. of planned new build stock.
During the course of the last 12 months a number of new schemes have received planning permissions and, using data from CBRE combined with management expectations, if all this stock was to be delivered it would create 2.7m sq. ft. of new space: 0.6m sq. ft. of this is pre-let or owner occupied. Funding is still an issue for a number of schemes with planning as there is only a limited number of financial institutions who are prepared to provide debt funding to speculative development.
Residential
The residential market continues to perform very well. Nationwide, residential property prices increased by 0.9% month on month in March and climbed by 16.8% year on year. Dublin residential property prices rose by 1.1% in March and were 22.8% higher year on year with Dublin apartments increasing by 29.8% year on year. With property prices still 39% below their peak, an unemployment rate that is expected to drop below 10% in the coming months, and limited new supply coming to the market, the fundamentals of the market look strong.
According to the latest rental information from the Private Residential Tenancies Board ("PRTB") index (Q4 2014), Dublin residential rents rose by 9.6% year on year, and Dublin apartment rents rose by 10.9% year on year, outperforming Dublin housing rents by 3.9%.
Rental stock is at its lowest level since 2007 and Central Statistics Office ("CSO") data indicates that rents are now 7% below their previous peak levels and, according to market commentators, this will be surpassed by the end of 2015.
The introduction of the Central Bank of Ireland's new mortgage lending rules, which add new limits on consumer mortgage lending, will shift pressure from the purchaser market to the rental market, particularly in Dublin, and rental growth of 9% and 8% over 2015 and 2016 is being forecasted by Goodbody.
On the supply side, according to Goodbody, 11,000 new units were completed in 2014, this is an increase of 33% from the prior year and the main driver of this increase was the increase in housing commencements (4,708 to 7,717) confirming that the residential construction market has restarted.
Selected portfolio information
1. Top 10 occupiers by contracted rent and % of Hibernia rent roll
Top 10 Tenants | Contracted Rent €.m | % | Sector | ||
1 | Office of Public Works | 5.5 | 24.1 | Government | |
2 | FBD Holdings Plc. | 2.9 | 12.8 | Insurance & Reinsurance | |
3 | Bank of Ireland | 2.8 | 12.5 | Banking and Capital Markets | |
4 | Bank of New York Mellon | 2.2 | 9.7 | Banking and Capital Markets | |
5 | DEPFA Bank PLC | 2.0 | 9.0 | Banking and Capital Markets | |
6 | Riot Games Limited | 1.2 | 5.3 | TMT | |
7 | Deloitte & Touche1 | 1.0 | 4.5 | Professional Services | |
8 | Park Rite | 0.7 | 3.0 | Other | |
9 | Capita | 0.7 | 3.1 | Banking and Capital Markets | |
10 | Renaissance Services of Europe Ltd. | 0.5 | 2.0 | Insurance & Reinsurance | |
Top ten total | 19.5 | 86.0 | |||
Rest of portfolio | 3.2 | 14.0 | |||
Total contracted rent | 22.7 | 100.0 | |||
1 Deloitte & Touche is a tenant of Hardwicke House, which is an investment property of the Group. Deloitte & Touche were in situ when the Group acquired its interest in the building and all lease arrangements are at arm's length.
2. Contracted rent by business sector
Sector | € 'm | % |
Banking and Capital Markets | 8.0 | 35.8 |
Government | 5.5 | 24.1 |
Insurance & Reinsurance | 3.6 | 15.7 |
TMT | 2.3 | 9.9 |
Other | 1.8 | 7.9 |
Professional Services | 1.3 | 5.9 |
Retail | 0.2 | 0.7 |
Total | 22.7 | 100.0 |
3. Portfolio by location
Location | Value €'m 1 | % |
Dublin 2 | 196 | 30.9 |
IFSC | 205 | 32.1 |
South Docks | 141 | 22.2 |
Other | 94 | 14.8 |
Total | 636 | 100.0 |
1Net of the Windmill option (€5.1m)
4. Portfolio by Floor area by sector
Sector | '000 Sq. Ft. | % |
Banking and Capital Markets | 230 | 33.0 |
Government | 134 | 19.2 |
Insurance & Reinsurance | 94 | 13.5 |
TMT | 89 | 12.8 |
Vacant | 73 | 10.5 |
Professional Services | 42 | 6.0 |
Other | 20 | 2.8 |
Retail | 15 | 2.2 |
Total | 697 | 100.0 |
5. Contracted rent by time to the earlier of the next review or expiry date of the lease
Time to open market review | €m | ||||
0 - 1 years | 2.8 | ||||
1 - 2 years | 5.8 | ||||
2 - 3 years | 1.0 | ||||
3 - 4 years | 7.6 | ||||
4+ years | 5.5 | ||||
Total | 22.7 | ||||
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2015
1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | ||||
Notes | €'000 | €'000 | |||
Income | |||||
Revenue | 6 | 18,769 | 158 | ||
Direct property costs | (725 ) | (59 ) | |||
Total property income | 18,044 | 99 | |||
Revaluation of investment properties | 13 | 80,809 | - | ||
Other gains and losses | 7 | 7,691 | - | ||
Total income after revaluation gains and losses | 106,544 | 99 | |||
Expense | |||||
Investment manager fee - base | 26 | (4,690 ) | (669 ) | ||
Performance fee | 26 | (5,772 ) | - | ||
Administration expenses | (1,584 ) | (490 ) | |||
Total operating expenses | (12,046 ) | (1,159 ) | |||
Operating profit/(loss) | 8 | 94,498 | (1,060 ) | ||
Finance income | 9 | 399 | 214 | ||
Finance expense | 9 | (1,974 ) | - | ||
Profit/(loss) before tax | 92,923 | (846 ) | |||
Income tax expense | 10 | (691 ) | - | ||
Profit/(loss) for the period | 92,232 | (846 ) | |||
Other comprehensive income | - | - | |||
Total comprehensive income/(loss) | 92,232 | (846 ) | |||
Basic earnings per share (cent) | 12 | 18.4 | (0.2 ) | ||
Diluted earnings per share (cent) | 12 | 18.3 | (0.2 ) | ||
The notes on pages 21 to 54 form an integral part of these consolidated financial statements.
Consolidated Statement of Financial Position
As at 31 March 2015
31 March 2015 | 31 March 2014 | |||
Notes | €'000 | €'000 | ||
Assets | ||||
Non-current assets | ||||
Investment Property | 13 | 641,296 | - | |
Loans and receivables | 14 | 152 | 68,563 | |
641,448 | 68,563 | |||
Current assets | ||||
Trade and other receivables | 15 | 9,046 | 11,647 | |
Cash and cash equivalents | 139,048 | 291,690 | ||
148,094 | 303,337 | |||
Non-current assets classified as held for sale | 16 | 18,499 | - | |
Total current assets | 166,593 | 303,337 | ||
Total assets | 808,041 | 371,900 | ||
Equity and liabilities | ||||
Capital and reserves | ||||
Issued capital and share premium | 17 | 657,987 | 371,812 | |
Retained earnings | 89,375 | (846 ) | ||
Other reserves | 18 | 5,772 | - | |
Total equity | 753,134 | 370,966 | ||
Current liabilities | ||||
Trade and other payables | 20 | 12,210 | 934 | |
Payable due for investment property | 21 | 42,697 | - | |
Total current liabilities | 54,907 | 934 | ||
Total equity and liabilities | 808,041 | 371,900 | ||
IFRS NAV per share (cents) | 22 | 112.4 | 96.4 | |
Diluted IFRS NAV per share | 22 | 111.6 | 96.4 | |
EPRA NAV per share | 22 | 111.8 | 96.4 |
The notes on pages 21 to 54 form an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 March 20151 April 2014 to 31 March 2015 | |||||||||||
Notes | Share Capital | Share Premium | Retained earnings | Other reserves | Total | ||||||
€'000 | €'000 | €'000 | €'000 | €'000 | |||||||
Balance at start of period | 38,500 | 333,312 | (846 ) | - | 370,966 | ||||||
Total comprehensive income for the period | |||||||||||
Profit for the period | - | - | 92,232 | - | 92,232 | ||||||
Total other comprehensive income | - | - | - | - | - | ||||||
38,500 | 333,312 | 91,386 | - | 463,198 | |||||||
Transactions with owners of the Company, | |||||||||||
recognised directly in equity | |||||||||||
Dividends | 11 | - | - | (2,011 ) | - | (2,011 ) | |||||
Issue of ordinary shares for cash | 17 | 28,532 | 271,052 | - | - | 299,584 | |||||
Share issue costs | 17 | - | (13,409 ) | - | - | (13,409 ) | |||||
Share based payments | 18 | - | - | - | 5,772 | 5,772 | |||||
Balance at end of period | 67,032 | 590,955 | 89,375 | 5,772 | 753,134 | ||||||
13 August 2013 to 31 March 2014 | |||||||||||
Share Capital | Share Premium | Retained earnings | Other reserves | Total | |||||||
€'000 | €'000 | €'000 | €'000 | €'000 | |||||||
Total comprehensive income for the period | |||||||||||
Loss for the period | - | - | (846 ) | - | (846 ) | ||||||
Total other comprehensive income | - | - | - | - | - | ||||||
- | - | (846 ) | - | (846 ) | |||||||
Transactions with owners of the Company, | |||||||||||
recognised directly in equity | |||||||||||
Issue of ordinary shares for cash | 38,500 | 346,500 | - | - | 385,000 | ||||||
Share issue costs | - | (13,188 ) | - | - | (13,188 ) | ||||||
Balance at end of period | 38,500 | 333,312 | (846 ) | - | 370,966 | ||||||
The notes on pages 21 to 54 form an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 March 2015Notes | 1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | ||||
Cash flows from operating activities | €'000 | €'000 |
| |||
| ||||||
Profit/(loss) for the period | 92,232 | (846 ) |
| |||
Adjusted for: |
| |||||
Revaluation of investment properties | (80,809 ) | - |
| |||
Other gains and losses | (7,691 ) | - |
| |||
Share based payment | 5,772 | - |
| |||
Rental income paid in advance | 9 | - |
| |||
Interest (income ) | - | (158 ) |
| |||
Finance (income)/expense | 1,575 | (214 ) |
| |||
Income tax expense | 691 | - |
| |||
Operating cash flow before movements in working capital | 11,779 | (1,218 ) |
| |||
Decrease/(Increase) in trade and other receivables | (1,061 ) | (600 ) |
| |||
Increase in trade and other payables | 3,369 | 434 |
| |||
Net cash flow from operating activities | 14,087 | (1,384 ) |
| |||
| ||||||
Cash flows from investing activities |
| |||||
| ||||||
Purchase of investment property | (445,236 ) | (11,010 ) |
| |||
Development and Refurbishment Expenditure | (12,173 ) | - |
| |||
Purchase of non-current assets classified as held for sale | (541 ) | - |
| |||
Purchase of loans and receivables | (39,300 ) | (67,905 ) |
| |||
Proceeds from loan repayments | 41,981 | - |
| |||
Proceeds from the sale of non-current assets classified as held for sale | 6,297 | - |
| |||
Finance income | 399 | 177 |
| |||
Finance expense | (1,820 ) | - |
| |||
Net cash flow absorbed by investing activities | (450,393 ) | (78,738 ) |
| |||
Cash flow from financing activities |
| |||||
Dividends paid | 11 | (2,011 ) | - |
| ||
Arrangement fee paid re bank facility | 19 | (500 ) | - |
| ||
Proceeds from the issue of ordinary share capital | 17 | 299,584 | 385,000 |
| ||
Share issue costs | 17 | (13,409 ) | (13,188 ) |
| ||
Net cash inflow from financing activities | 283,664 | 371,812 |
| |||
| ||||||
Net (decrease)/Increase in cash and cash equivalents | (152,642 ) | 291,690 |
| |||
Cash and cash equivalents period start | 291,690 | - |
| |||
(Decrease)/increase in cash and cash equivalents | (152,642 ) | 291,690 |
| |||
Net cash and cash equivalents at period end | 139,048 | 291,690 |
| |||
The notes on pages 21 to 53 form an integral part of these consolidated financial statements.
Notes Forming Part of the Financial Statements
1. General InformationThe Company together with its subsidiaries, Hibernia REIT Finance Limited, Hibernia REIT Holding Company Limited, Lamourette Limited and Mayor House Basement Management Limited (together the "Group") is engaged in property investment (primarily commercial) in the Irish 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 Marine House, Clanwilliam Place, Dublin 2. The Company was incorporated on 13 August 2013 and re‑registered as a public limited company on 8 November 2013. The registered number of the Company is 531267.
The Ordinary Shares of the Company are listed on the primary listing segment of the Official List of 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 the Irish Stock Exchange and the London Stock Exchange plc. (the ''London Stock Exchange'').
2. Application of new and revised International Accounting Standards (IFRS)There were a number of changes to IFRS which became effective for the Group during the financial year but did not result in material changes to the Group's consolidated financial statements.
The following standards and interpretations to existing standards have been published by the International Accounting Standards Board ("IASB") and, to the extent indicated, have been adopted by the European Union ("EU") and will be mandatory for future accounting periods. The Company has not early adopted these standards or interpretations.
• IAS 1 Presentation of Financial Statements amendments remove certain impediments to preparers in exercising their judgement in presenting their financial reports and is effective for annual periods beginning on or after 1 January 2016.
• IFRS 9 Financial Instruments is the IASB's replacement of IAS 39 Financial Instruments: Recognition and Measurement. The Standard includes requirements for recognition and measurement, impairment, de-recognition and general hedge accounting. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after 1 January 2018 with early adoption permitted (subject to local endorsement requirements).
• IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities, and IAS 28 Investment in Associates and Joint Ventures are amended for accounting periods beginning on or after 1 January 2016 to clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture.
• IFRS 11 Accounting for Acquisitions of Interests in Joint Operations amends IFRS 11 to require an acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3 Business Combinations) to apply all the of the business combinations principles of IFRS 3 except where they conflict with guidance in IFRS 11 and disclose the information required by IFRS 3 and other IFRS for business combinations. This is effective for accounting periods beginning on or after 1 January 2016.
• IFRS 14 Regulatory Deferral Accounts, applies to an entity's first annual IFRS financial statements for a period beginning on or after 1 January 2016, permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for 'regulatory deferral account balances' in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements.
• IFRS 15 Revenue from Contracts with Customers, provides a single, principles based five-step model to be applied to all contracts with customers and is applicable to an annual reporting period beginning on or after 1 January 2018.
• IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets, which are effective for accounting periods beginning on or after 1 January 2016, clarify acceptable methods of depreciation and amortisation.
• IAS 16 Property, Plant and Equipment and IAS 41 Agriculture are amended for accounting periods starting on or after 1 January 2016 to include and define "bearer plants" within property, plant and equipment.
• IAS 19 Employee Benefits, which is effective for accounting periods beginning on or after 1 July 2014, deals with employee contributions to defined benefit plans.
• IAS 27 Separate Financial Statements is amended to permit investments in subsidiaries, joint ventures and associates to be optionally accounted for using the equity method in separate financial statements for accounting periods beginning on or after 1 January 2016.
• Investment entities: applying the consolidation exception (amendments to IFRS 10 and 12 and IAS 28) addresses issues in applying the consolidation exception for investment entities and is effective for period commencing on or after 1 January 2016.
• Annual Improvements to IFRS: 2012-2014 cycle (effective for accounting periods beginning on or after 1 July 2016); Annual Improvements to IFRS: 2011-13 cycle and Annual Improvements to IFRS: 2010-12 cycle (effective for annual periods beginning on or after 1 July 2014). The IASB has adopted the Annual Improvements process to deal efficiently with a collection of narrow scope amendments to IFRSs even though the amendments are unrelated.
IFRS 15 may have a future impact on revenue recognition and related disclosures although it is not practicable to give a reasonable estimate of the effect of implementation of this standard, if any, until a detailed review has been completed. The Company has not yet fully determined the impact of these amendments on its future financial reporting but does not expect them to have a material impact.
3. Basis of preparationa. Statement of compliance
The consolidated financial statements of 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.
The Company has not early adopted any forthcoming IASB standards. Note 2 sets out details of such upcoming standards.
b. Functional and presentation currency
These consolidated financial statements are presented in Euro, which is the Company's functional currency and the Group's presentation currency.
c. Basis of accounting
The consolidated financial statements have been prepared on a going concern basis, in accordance with IFRS and the IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union and the Companies Acts, 1963 to 2013. The Group financial statements therefore comply with Article 4 of the EU IAS Regulation.
The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties and financial instruments that are measured at fair value at the end of each reporting period. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share based transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IFRS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the 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 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date
- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly
- Level 3 inputs are unobservable inputs for the asset or liability.
d. Assessment of going concern
The financial statements have been prepared on a going concern basis. The Directors have performed an assessment of going concern and are satisfied that the Group is appropriately capitalised. The Group has a positive cash balance as at 31 March 2015 of €139m ( 31 March 2014: €292m), is generating positive cash‑flows and, as discussed in Note 19, has in place a revolving credit facility with an undrawn balance of €100m at 31 March 2015(31 March 2014: €0m). The Group has assessed its liquidity position and 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.
e. Basis of consolidation
The financial statements incorporate the consolidated financial statements of the Company and its subsidiaries, Hibernia REIT Finance Limited, Hibernia REIT Holding Company Limited, Lamourette Limited and Mayor House Basement Management Limited. The Company controls its subsidiaries by virtue of its 100% shareholding in those companies. The Company and its subsidiary Hibernia REIT Finance Limited, make up the majority of the Group assets and liabilities and each of their financial statements are made up to 31 March each year.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
f. Significant judgements
The preparation of financial information requires the Group to exercise judgement judgment in applying the Group's accounting policies. The following are the significant judgements:
Recognition and classification of investment transactions
The Group has acquired an interest in investment property assets both as direct asset purchases and through the acquisition of loans which are secured over the target property. In some cases the Group may acquire portfolios of loans where it does not intend to ultimately directly acquire all the underlying property assets.
Investment properties are treated as acquired when the Group assumes the significant risks and rewards of ownership. In order to make this judgement, the Board reviews each deal individually.
Recognition of property assets collateralising acquired loans as investment properties requires significant judgement by the Directors to determine if it is probable that the future economic benefits that are associated with the underlying investment property will flow to the Group.
Dorville Loan Portfolio
The Dorville Loan Portfolio was a loan portfolio, with a par value (at the time of acquisition) of €151.3m, which was acquired by the Group in March 2014 for €67m (€68.4m including costs). The Board completed an extensive exercise in reviewing the collateral attached to this portfolio, consisting of 16 asset groups, in May 2014 and as a result determined that it would seek the direct ownership of three of the property assets, namely Block 3 Wyckham Point, the Dorville Cannon Place Apartments and South Dock House (the "Dorville Core Assets"). The Dorville Core Assets were recognised as investment properties during the year in accordance with the Group's accounting policy on investment properties.
Additionally, the Dorville loan portfolio was secured against 13 other asset groups, namely over 70 apartments, 3 houses, 12 commercial units and 26.5 acres of land, primarily in Dublin. These 13 asset groups are referred to as the Dorville Non‑Core Assets. The Group determined that the Dorville Non‑Core Assets are not suitable for the Group's portfolio of investment properties. Some of these assets have been disposed of during the year and the balance have been legally transferred to the Company in order to complete the disposal of these assets. The disposal process is expected to be completed by December 2015. Further details are presented in Note 16.
During the year, the Directors judged that the acquisition of the three Dorville Core Assets was virtually certain and as a result these assets were recognised as Investment properties. The title of two of these properties subsequently legally transferred to the Group during the year to 31 March 2015. The third property, Cannon Place apartments, is expected to transfer shortly. These properties fulfil the criteria for recognition as investment properties under the Group's accounting policy on investment properties (Note 4.i) below. The Directors considered that the recognition of these properties presented the most relevant and useful information for users of the financial information that was presented both in the prospectus relating to the secondary equity issue and the interim financial reporting as at 30 September 2014. It ensured that users of this financial information could properly assess the portfolio structure and potential.
As a result, the acquisitions of the Dorville Core Assets were recognised as investment properties during the period, although the legal process has still to complete for the Cannon apartments.
There were no other items of significant judgement that might have a material impact on the financial statements at 31 March 2015.
g. Key estimates
The preparation of financial information requires the use of certain critical accounting estimates. Although these estimates are based on the Board's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. . The following are the key estimates which were made in respect of this financial information.
Valuation of investment properties
The Group's investment properties are held at fair value and were revalued at 31 March 2015 by the external valuer, CBRE Limited, a firm employing qualified valuers in accordance with the Royal Institution of Chartered Surveyors Valuation - Standards (January 2014) (the "Red book"). Further information on the valuation is given in Note 13.
The Board and Investment Manager conduct a detailed review of each property valuation to ensure that appropriate assumptions have been applied. Property valuations are complex and involve data which is not publically available and a degree of judgement. The valuation is based upon the key assumptions of estimated rental values and market based yields. With regard to redevelopments and refurbishment, the development considered achievable, assumed timescale, the assumed future development cost and an appropriate finance and/or discount rate are also used to determine the property value together with market evidence and recent comparable properties where appropriate. In determining fair value the valuers make reference to market evidence and recent transaction prices for similar properties.
The Directors must be satisfied that the valuation of the Group's properties is appropriate for inclusion in the accounts. The fair value of the Group's properties is based on the valuation provided by CBRE. This valuation is based on future cashflows from rental income both for the current lease period and future estimated rental values. In accordance with the Group's policy on lease incentives, the valuation provided by CBRE is adjusted by the fair value of the rental income accruals ensuing from the recognition of these incentives. The valuations were also amended to reflect the impact of a potential cost in respect of the carpark in the Forum Building, IFSC. The total reduction in the external valuers' investment property valuation in respect of these adjustments was €2.2m. No further adjustments were required for the year ended 31 March 2015.
Impairment of non-current assets classified as held for sale
Non-current assets classified as held for sale are measured at the lower of their acquisition cost (or previous carrying amount) and fair value less costs to sell. In order to measure these assets, the Directors are required to make estimations of the fair value less costs to sell. In estimating these fair values, the Directors assessed the properties on an individual basis together and reviewed the sales agent's estimation of achievable price to sell less expected costs to sell including stamp duty and other taxes. The Directors have determined as a result that no impairment of these assets is required as they expect that the assets will be realised for at least their carrying value. These fair values are sensitive to market movements in residential property prices. The Directors have estimated that the current fair value gain is approximately €1.5m. Therefore a movement of 8% downwards in residential property values would not result in the need for an impairment in the carrying value of these assets.
There were no other key estimates that might have a material impact on the financial statements at 31 March 2015.
4. Significant accounting policiesa) Revenue recognition
Revenue consists of rental income on the Group's investment properties and interest income on loans and receivables.
Revenue is recognised in the Consolidated Statement of Comprehensive Income when it meets the following criteria:
• It is probable that any future economic benefit associated with the item of revenue will flow to the Group and
• The amount of revenue can be measured with reliability.
Rental Income
Rental income arises on properties which are included as investment properties in the Consolidated Statement of Financial Position and which are leased out under operating leases. Rental income from operating leases is recognised in the Consolidated Statement of Comprehensive Income on an accrual basis as revenue on a straight line basis over the lease term. Rent received in advance is deferred in the Consolidated Statement of Financial Position and recognised in the period to which it relates to.
Rental income also arises on the Group's non-current assets classified as held for sale. This income is an immaterial and decreasing amount as the Group continues its programme of selling these assets in the short term and is therefore seeking vacant possession where possible. This income is included in the "Other" segment for reporting purposes.
Where adjustments to rent or a review under a lease is unsettled at the reporting date, these are included in income based on a reasonable estimate of the expected settlement amount and then adjusted to the actual amount when settlement is reached. Surrender payments for early lease terminations are reflected, net of any costs such as dilapidation or legal costs relating to the lease, in the accounting period in which the surrender took place.
Service charges and other sums receivable from tenants are recognised on an accrual basis by reference to the stage of completion of the relevant service or transactions at the reporting date. These services generally relate to a 12‑month period.
Lease incentives
When the Group provides incentives to its tenants the incentives are recognised over the lease term on a straight line basis. These incentives can be a rent free period at the commencement of the lease, a reduced rent for a period, an assumption of lessee costs or other incentives negotiated. All such incentives are recognised as an integral part of the net consideration agreed for the use of the leased asset, irrespective of the incentive's nature or form. The aggregate cost of such incentives is recognised as a reduction of rental income on a straight-line basis over the lease term. The lease term is either the period to the expiry date of the lease or to the next break point, i.e. where there is a legal right for the tenant to break the lease. The value of the resulting accrual is included within the respective property value in the Consolidated Statement of Financial Position.
Details on all aspects of rental payments and concessions under leases are provided to the external valuers at each reporting date for their consideration in assessing the fair value of the properties concerned.
Interest Income
Interest income arising on the loans held in the Group's investment portfolio is included in Revenue on the basis that it relates to the Group's property business. This interest income arises from the effective interest rate applicable to loans and receivables and is calculated by calculating the amortised cost of the loans and advances and of allocating the interest income, interest expense and fees paid and received over the relevant period.
b) Direct property costs
Direct costs comprise service charges and other costs directly recoverable from tenants and non-recoverable costs directly attributable to investment properties and other revenue streams.
c) Foreign currencies transactions and balances
Transactions in currencies other than Euro are recognised at the rates of exchange prevailing on the dates of the transactions. At the end of each period, monetary amounts denominated in foreign currencies are re‑translated at the rates prevailing at that date. Non‑monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing when the fair value was determined. Non‑monetary items carried at historical cost are reported using the exchange rate at the date of the transaction.
Exchange differences on monetary items are recognised in profit or loss in the period in which they arise.
d) Finance income and expense
Interest income and expense is recognised in the Consolidated Statement of Comprehensive Income for all interest‑bearing financial instruments using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and of allocating the interest income, interest expense and fees paid and received over the relevant period.
e) Provisions
A provision is recognised if, as a result of a past event, the Group has a present obligation (legal or constructive) that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (in most cases, the risk free rate) at a pre‑tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third‑party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
f) Expenses
Expenses are recognised in the Consolidated Statement of Comprehensive Income on an accrual basis.
g) Share based payments
The Group operates an Investment Management Agreement with the Investment Manager under which the Group receives management services which in part are compensated on a performance fee basis. This performance fee is paid in shares in the Company.
The performance fee is calculated in accordance with the provisions of the Investment Management Agreement and the number of shares that this represents is determined by the average closing price in the 20 days prior to the issue of the invoice for this fee by the Investment Manager. The shares are issued as soon as is practicable after this invoice date. These shares are issued directly to the Investment Manager at the issue date and there is therefore no further fair value measurement required in accounting for these after issue. The Investment Manager has agreed that these shares will be "locked in" for up to three years after their issuance under the terms of the Investment Manager's agreement.
The Group recognises its best estimate of its obligation in relation to the issue of shares on foot of the agreement with the investment manager to settle the performance fee in other reserves during the period.
The fair value of the relevant services are recognised as an expense over the accounting period in which they are incurred.
h) Taxation
Hibernia REIT plc. elected for Real Estate Investment Trust (REIT) status on 11 December 2013. As a result, the Company will not pay Irish corporation tax on the profits and gains from qualifying rental business in Ireland provided it meets certain conditions. Corporation tax is still payable as normal in respect of income and gains from the Group's residual business (generally any non-investment property rental business). The Group is also liable to pay other taxes such as VAT, capital gains tax, relevant contracts tax, local property tax, property rates, payroll taxes and foreign taxes as normal.
Current tax
Current tax is the expected tax payable on the taxable income or loss for the period, using tax rates enacted or substantially enacted at the reporting date, and any adjustment in taxes payable in respect of the previous periods.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse using tax rates enacted or substantially enacted at the reporting date.
i) Investment properties
Investment properties are properties held to earn rental income and/or for capital appreciation (including property under construction for such purposes). Properties are treated as acquired at the point at which the Group assumes the significant risks and rewards of ownership. This occurs when:
(1) It is probable that the future economic benefits that are associated with the investment property will flow to the Group;
(2) There are no material conditions which could affect completion of the acquisition; and
(3) The cost of the investment property can be measured reliably.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are included in the Consolidated Statement of Comprehensive Income in the period in which they arise.
Investment properties and properties under development are professionally valued on a twice yearly basis or as required by qualified external valuers using inputs that are observable either directly or indirectly for the asset in addition to unobservable inputs and are therefore classified at level 3. The valuation of investment properties is further discussed above under Note 3.
The valuations of investment properties and investment properties under development are prepared, as recommended by the Society of Chartered Surveyors, in accordance with the RICS-Valuation-Professional Standards (January 2014) (the Red Book).
When the Group begins to redevelop an existing investment property, or property acquired as an investment property, for future use as an investment property, the property remains an investment property and is accounted for as such. Expenditure on investment properties is capitalised only when it increases the future economic benefits associated with the property. All other expenditure is charged to the Consolidated Statement of Comprehensive Income. Interest and other outgoings, less any income, on properties under development are capitalised. Interest capitalised is calculated on development outgoings using the weighted average cost of general Group borrowings. Fair value for investment properties under development is based on the Group's external professional valuers' assessment of future value, with an appropriate adjustment for the costs of completion and remaining risk, based on market conditions at the reporting date.
In accordance with the Group's policy on revenue recognition (Note 4.a), the value of accruals in relation to the recognition of lease incentives under operating leases over the term of the lease is included in the fair value assessment of the investment property to which the accrual relates.
Where amounts are received from departing tenants in respect of "dilapidation ", i.e. compensation for works that the tenant was expected to carry out at the termination of a lease but the tenant, in agreement with the Group, pays a compensatory sum in lieu of carrying out this work, the Group applies these amounts to the cost of the property. The value of the work to be done is therefore reflected in the fair value assessment of the property when it is assessed at the end of the period.
An investment property is de‑recognised on disposal, i.e. when the significant risks and rewards are transferred outside the Group's control, or when the investment property is permanently removed from use and no future economic benefits are anticipated from the disposal. Any gain or loss arising on de‑recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Consolidated Statement of Comprehensive Income in the period in which the property is de‑recognised.
j) Non-current assets classified as held for sale
Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use as an investment property. Non-current assets are treated as acquired at the point at which the Group assumes the significant risks and rewards of ownership. This occurs when:
1. It is probable that the future economic benefits that are associated with the asset will flow to the Group;
2. There are no material conditions which could affect completion of the acquisition; and
3. The cost of the asset can be measured reliably.
Assets fall into this category only when the sale is highly probable and the asset is available for immediate sale in its present condition. The Group must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets classified as held for sale are measured at the lower of their acquisition cost and fair value less costs to sell.
k) Financial instruments
Financial assets and liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instruments.
Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and liabilities (other than financial assets or liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or liabilities, as appropriate, on initial recognition. Transaction costs attributable to the acquisition of financial assets or liabilities at fair value through profit or loss are recognised immediately in the Consolidated Statement of Comprehensive Income.
Where the Group enters into a written option, i.e., an option that is written into a contract with no net settlement (i.e. it will be settled with a non-financial asset, an investment property) the relevant investment property will be included at its full fair value while the fair value of the written option is classified as a payable.
Financial assets
Financial assets are generally classified into the following specified categories: financial assets 'at fair value through profit or loss (FVTPL)', 'held‑to‑maturity investments', 'available‑for‑sale' (AFS) financial assets and 'loans and receivables'. Financial assets 'at fair value through profit or loss' has two subcategories which are determined at initial recognition:
(1) Designated. This includes any financial asset to be measured at fair value with fair value changes in profit or loss.
(2) Held for trading. The second category includes financial assets that are held for trading.
Purchases and sales of financial assets in a regular way, i.e. within timeframes established by regulation or convention in the marketplace, are recognised and de‑recognised on a trade date basis.
Effective interest method: The Group uses the effective interest method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Loans and receivables: Loans and receivables are non‑derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans are recorded at fair value plus transaction costs when acquired. They are subsequently accounted for at amortised cost using the effective interest method.
Impairment allowances for loans and receivables are created if there is objective evidence that it will not be possible for the entire amount which is due under the original contractual arrangements to be recovered. Allowances for loans and receivables are calculated where there is objective evidence with regard to loan defaults, the structure and quality of the loan portfolio as well as macroeconomic parameters, on an individual basis. Losses expected as a result of future events, no matter how likely, are not recognised.
Individual loans: The allowance is calculated as the difference between the carrying value of the asset and the present value of the expected future cash flows using the original effective interest rate. The increase in the present value of an adjusted receivable which occurs over time is shown as interest income.
In assessing the need for impairment on loans and receivables, the Group takes into account the expected cash flows from the realisation of collateral.
Derecognition: When the cash flows from a loan are considered to have expired, or where no further cash flows are expected to be received on the loan in the case where the underlying property asset has been recognised as an investment property or non-current assets classified as held for sale, the original asset is derecognised and a new asset is recognised, initially measured at fair value. Any difference between the carrying value of the original asset and the fair value of the new asset on initial recognition is recognised within other gains and losses in the Consolidated Statement of Comprehensive Income.
l) Trade and other receivables
Trade and other receivables are initially measured at fair value and subsequently measured at amortised cost. Where there is objective evidence of loss, appropriate allowances for any irrecoverable amounts are recognised in the Consolidated Statement of Comprehensive Income.
m) Cash and cash equivalents
Cash and cash equivalents includes cash at banks in current accounts, deposits held at call with banks and other highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
n) Equity and share issue costs
The equity of the Company consists of ordinary shares issued. Shares issued are recorded at the date of issuance. The par value of the issued shares is recorded in the share capital account. The excess of proceeds received over the par value is recorded in the share premium account. Direct issue costs in respect of the issue of shares are accounted for in the share premium account, as a deduction from equity, net of any related tax deduction. Direct issue costs include:
- Costs of preparing the prospectus
- Accounting, tax and legal expenses
- Underwriting fees
- Valuation fees in respect of the shares and of other assets
Costs that relate to the listing itself (e.g. stock exchange registration costs) are not directly attributable to the share issue and are expensed.
o) Trade and other payables
Trade and other payables are initially measured at fair value, subsequently measured at amortised cost.
p) Net Asset Value (NAV)
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 is calculated in accordance with the European Public Real Estate Association (EPRA) Best Practice Recommendations: December 2014.
The EPRA Net Asset Value per share includes investment property, other non-current asset investments and trading properties at fair value. For this purpose, non-current assets classified as held for sale are included at fair value. It excludes the fair value of financial instruments and deferred tax and related good will.
5. Operating segmentsThe Group is organised into five business segments, against which the Group reports its segmental information, being Office Assets, Industrial Assets, Residential Assets, Development Assets and Other Assets (loans and other assets that do not fall into the preceding classifications). All of the Group's operations are in the Republic of Ireland. Operating segments are reported in a manner consistent with the reporting to the Board of Directors of the Company which is the chief operating decision maker of the Group.
Unallocated income and expenses are those that occur centrally, e.g. investment management fees and other administration expenses. Unallocated assets include cash and cash equivalents, tax refundable and administration expenses paid in advance. In addition, cash received in advance in relation to rental receipts on properties and rental income accrued have been allocated from receivables and cash and cash equivalents to the appropriate segment.
The Group's key measure of underlying performance of a segment is total income after revaluation gains and losses which comprises revenue (rental and interest 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, which measure the cash passing rent returns on market value of investment properties before and after an adjustment for the expiration of rent free period or other lease incentives respectively. All interest income relates to Other Assets whilst the revenue for all other segments represents rental income.
No segment information is presented for the prior period as the Group's investment properties were all acquired since 31 March 2014.
Group Consolidated Segment Analysis
For the year 1 April 2014 to 31 March 2015
Office Assets | Industrial Assets | Residential Assets | Office Development Assets | Other Assets | Unallocated | Group Consolidated Position | ||
€'000 | €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | ||
Rental income | 15,997 | 440 | 196 | - | 479 | - | 17,112 | |
Interest income | - |
- | - | - | 1,657 | - | 1,657 | |
Revenue | 15,997 | 440 | 196 | - | 2,136 | - | 18,769 | |
Property outgoings | (253) | (140) | (104) | (116) | (74) | (38) | (725) | |
Total Property Income | 15,744 | 300 | 92 | (116) | 2,062 | (38) | 18,044 | |
Revaluation of investment properties | 66,750 | (4) | 2,551 | 11,512 | - | - | 80,809 | |
Other gains and losses | - | - | 10,059 | (5,100) | 2,732 | - | 7,691 | |
Total Income | 82,494 | 296 | 12,702 | 6,296 | 4,794 | (38) | 106,544 | |
Investment manager fee - base | - | - | - | - | - | (4,690) | (4,690) | |
Performance fee | (5,772) | (5,772) | ||||||
Administration expenses | - | - | - | - | - | (1,584) | (1,584) | |
Total operating expenses | - | - | - | - | (12,046) | (12,046) | ||
Operating profit/(loss) | 82,494 | 296 | 12,702 | 6,296 | 4,794 | (12,084) | 94,498 | |
Net finance cost | - | - | - | - | - | (1,575) | (1,575) | |
Profit/(loss) before tax | 82,494 | 296 | 12,702 | 6,296 | 4,794 | (13,659) | 92,923 | |
Total Segment Assets | 475,877 | 10,319 | 66,500 | 88,600 | 18,651 | 148,094 | 808,041 | |
Investment Properties | 475,877 | 10,319 | 66,500 | 88,600 | - | - | 641,296 |
6. Revenue
1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Rent receivable | 14,712 | - | ||
Surrender premium | 2,400 | - | ||
Gross rental and related income | 17,112 | - | ||
Interest income from loans and receivables | 1,657 | 158 | ||
Revenue | 18,769 | 158 |
Rental income arises from the Group's investment properties. Interest income arises from the recognition of the effective interest rate on the loans and receivables in accordance with the accounting policy described in Note 4(d). Rental income includes €1.4m in relation to the spreading of lease incentives (31 March 2014:€nil).
7. Other gains and losses1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Gains on recognition of investment property | 10,059 | - | ||
Fair value of written call option | (5,100 ) | |||
Gains on sales of non-current assets classified as held for sale | 2,732 | - | ||
Other gains and losses | 7,691 | - |
The gains on recognition of investment property arise from the difference between initial recognition at cost of the loans relating to the Dorville Core Assets and the fair value at the date of subsequent recognition of the underlying investment properties.
8. Operating profit for the yearOperating profit for the year has been stated after charging/ (crediting):
1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Non-executive directors' fees | 250 | 145 | ||
Professional valuers' fees | 218 | - | ||
Depository fees | 218 | 69 | ||
Registrar fees | 28 | 4 |
All fees paid to non-executive directors are for services as directors.
Professional valuers' fees are paid to CBRE Dublin in return for their services in providing independent valuations of the Group's properties on an at least twice yearly basis. In 2014 CBRE also provided valuation services in relation to the secondary equity issue. CBRE Ireland, a private unlimited company, is part of a worldwide group with total revenues for 2014 of approximately $9 billion of which valuation and appraisal services constitute approximately 5%.
There were no employees during the year.
Auditor's remuneration
1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Fees paid to the external auditor | ||||
Audit of financial statements | 85 | 30 | ||
Other assurance services | 17 | - | ||
Tax advisory services | 97 | 30 | ||
Other non-audit services | 226 | 220 | ||
Total | 425 | 280 |
The other non-audit fees were charged in relation to the Company's share offering, € 225,894 to 31 March 2015 (31 March 2014: € 220,000, relating to the Initial Public Offering).
9. Finance income and expense
1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Interest income on cash and cash equivalents | 399 | 214 | ||
Effective interest expense on borrowings | (897 ) | |||
Finance expense on payable due for investment property | (1,077 ) | - | ||
Net finance income/(expense) | (1,575 ) | 214 |
As disclosed in Note 21 below, the Group has recognised a payable due for investment property in relation to the Hardwicke House and Montague House acquisition. The Group has therefore accounted for the related finance charge using the effective interest method.
The effective interest expense on borrowings arises as a result of the recognition of interest expense, commitment fees and arrangement fee on the Group's undrawn revolving credit facility (Note 19).
10. Income tax expense1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Income tax on non-core property income | (5 ) | - | ||
Tax on the disposal of non-core assets | (686 ) | - | ||
Income tax expense for year | (691 ) | - |
The tax expense during the year arose in respect of income and gains from the Group's residual business.
Reconciliation of income tax expense for the year
1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Profit/(loss) before tax | 92,923 | (846) | ||
Tax charge on profit at standard rate of 12.5% | 11,615 | - | ||
Non-taxable revaluation surplus | (10,721 ) | - | ||
REIT tax-exempt rental profit | (547 ) | - | ||
Other (Additional tax rate on Non-Core) | 344 | - | ||
Income tax expense for year | 691 | - |
Hibernia REIT plc has elected for Real Estate Investment Trust ("REIT") status under section 705 E of the Finance Act 2013. As a result, the Group does not pay Irish corporation tax on the profits and gains from its qualifying rental business in Ireland provided it meets certain conditions. With certain exceptions, corporation tax is still payable in the normal way in respect of income and gains from a group's Residual Business that is, its non-property rental business.
The Directors confirm that the Group has remained in compliance with the Irish REIT rules and regulations up to and including the date of this report.
11. Dividends
1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Interim dividend for the year ended 31 March 2015 of 0.3 cents per share | 2,011 | - | ||
Proposed final dividend for the year ended 31 March 2015 of 0.5 cents per share | 3,375 | - |
The Board has proposed a final dividend of 0.5c per share which is subject to approval by shareholders at the Annual General Meeting and has therefore not been included as a liability in these consolidated financial statements. The proposed dividend is payable to all shareholders on the Register of Members on 26 June 2015 and therefore will include the performance fee shares which are to be issued. Of this proposed final dividend 0.45c per share will be a PID in respect of the Group's tax exempt property rental business. The total dividends, interim paid and proposed for the year ended 31 March 2015 are 0.8 cent per share or €5,386,007(31 March 2014: €nil).
The payment of this dividend will not have any tax consequences for the Group. The Board has decided to introduce a Dividend Reinvestment Plan ("DRIP") commencing with the final dividend: this will allow shareholders to instruct Capita, the Company's registrar, to reinvest dividend payments by the purchase of shares in the Company. Details will be provided to shareholders along with the Annual Report.
12. Earnings per ShareThere are no convertible instruments, options, warrants or ordinary shares that are issued upon the satisfaction of specified conditions as at the year ended 31 March 2015. However, the Company has established a reserve of €5.8m against the issue of ordinary shares relating to the payment of the performance fee due under the Investment Management Agreement. It is estimated that approximately 4.7m ordinary shares will be issued calculated on an issue price of €1.2375. The dilutive effect of these shares is disclosed below. There were no dilutive effects on earnings per share as at 31 March 2014.
The calculations are as follows:
Weighted average number of shares | ||||
31 March 2015 | 31 March 2014 | |||
'000 | '000 | |||
Issued share capital at beginning of period | 385,000 | - | ||
Shares issued during the period | 285,317 | 385,000 | ||
Shares in issue at end of period | 670,317 | 385,000 | ||
Weighted average number of shares | 500,690 | 383,559 | ||
Estimated additional shares due for issue from performance reserve | 4,664 | - | ||
Diluted number of shares | 505,354 | 383,559 | ||
Basic and diluted earnings per share | ||||
1 April 2014 to 31 March 2015 | 13 August 2013 to 31 March 2014 | |||
€'000 | €'000 | |||
Profit/(loss) for the period attributable to the owners of the Company | 92,232 | (846 ) | ||
'000 | '000 | |||
Weighted average number of ordinary shares (basic) | 500,690 | 383,559 | ||
Weighted average number of ordinary shares (diluted) | 505,354 | 383,559 | ||
Basic earnings per share (cents) | 18.4 | (0.2 ) | ||
Diluted earnings per share (cents) | 18.3 | (0.2 ) | ||
The estimated additional shares that are to be issued pursuant to performance fee arrangements are not included in the basic share calculation due to the way in which the performance fee is earned which is outlined in Note 26.2. The price applied in calculating these shares is €1.2375 per share.
For the period 13 August 2013 to 31 March 2014 the calculation of earnings per share is based on the period from commencement to trade, 11 December 2013, to 31 March 2014 rather than the period from incorporation, 13 August 2013, to 31 March 2014 as the Directors believe that this calculation provides a more informative disclosure to the shareholders because:
• The date of commencement to trade is the same as the listing date, and
• The majority of shares were issued at this date.
13. Investment Properties
31 March 2015 | |||||||
Office and Residential | Development | Industrial | Total | ||||
Level 3 | Level 3 | Level 3 | Level 3 | ||||
Group | Group | Group | Group | ||||
€'000 | €'000 | €'000 | €'000 | ||||
Carrying Value at 1 April 2014 | - | - | - | - | |||
Additions: | |||||||
Property Purchases | 412,714 | 76,578 | 10,338 | 499,630 | |||
Investment properties recognised on de-recognition of loans (Note 1) | 48,684 | - | - | 48,684 | |||
Development and Refurbishment Expenditure (Note 2) | 11,678 | 510 | (15 ) | 12,173 | |||
Revaluations included in income statement | 69,301 | 11,512 | (4 ) | 80,809 | |||
Carrying Value at 31 March 2015 | 542,377 | 88,600 | 10,319 | 641,296 | |||
No disclosures are made in relation to the period ended 31 March 2014 as all investment property acquisitions were made during the year ended 31 March 2015.
Note 1: During the year, certain loans which were acquired by the Group were recognised as investment properties and accounted for in accordance with the accounting policies set out in Note 4(i).
Note 2: The €11.7m of development and refurbishment expenditure on office and residential includes €13.5m in relation to the expenditure on Wyckham Point and a dilapidation receipt for Commerzbank House as discussed below.
On 28 August 2014, the Group announced that it had signed a development contract with JJ Rhatigan & Company for the fit‑out and completion of the Group's 213 partially completed apartments in Wyckham Point, Dundrum. The total cost to complete the apartments is expected to be up to €25m (including VAT). Approximately €13.5m in costs in relation to this development have been incurred to date. This project will be completed on a phased basis with the first units finished and let to tenants in April 2015.
The Group received €2.1m in relation to a dilapidation costs payment relating to Commerzbank's break of their lease on Commerzbank House. This has been applied to the development and refurbishment costs on this property and therefore reduces the cost of this property.
The vendor of the Windmill lane site was granted an option when the Group purchased the site, to buy into 50% of the future development project at the original purchase price. This option has been accounted for as written call option and, as there is no net settlement, the fair value liability of €5.1m is shown separately from the investment property value in the financial statements as a trade and other payable. In analysing the results of the portfolio, the Group nets the value of this option with the fair value of the investment properties, resulting in a total value of investment property for portfolio performance purposes of €636m.
The valuations used in order to determine fair value for the investment properties in the financial statements are determined by CBRE, the Group's independent valuers, and are in accordance with the provisions of IFRS 13. CBRE has agreed to the use of their valuations for this purpose. Some of the inputs to the valuations are defined as "unobservable" by IFRS 13. As discussed in Note 3. (g) above, property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer. For these reasons, and consistent with EPRA's guidance, the Group has classified the valuations of its property portfolio as Level 3 as defined by IFRS 13. The methods that are 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. A reduction of €1.2m has been made to the valuation of the Forum building to reflect the maximum value of a potential payment in relation to the acquisition of the carpark. In addition, a reduction of €1m has been recognised in the valuation as the effect of the recognition policy on rental incentives. There were no transfers between levels during the year. There was no capitalised interest included in investment properties during the year.
Information about fair value measurements using unobservable inputs (Level 3).
The valuation techniques used in determining the fair value for each of the categories of assets is market value as defined by VPS4 of the Red Book 2014, being the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, and is in accordance with IFRS 13. Included in the inputs for the valuations above are future development costs where applicable. The tables below show a summary of the quantitative inputs for the fair value determination as at 31 March 2015 and sensitivity information for each category.
Quantitative Information
The following information has been used in calculating the fair value of Investment Properties at 31 March 2015. There is no equivalent disclosure for the period ended 31 March 2014 as the Group had no Investment Properties as at that date.
Information on fair value inputs as at 31 March 2015
Fair value at 31 March 2015 | Inputs | Lowest in range | Highest in range | ||
€m | |||||
Office assets | 475 | Annual rent € per sq. ft. | € 14.45 | € 45.50 | |
ERV € per sq ft | € 22.50 | € 48.00 | |||
Equivalent Yield | 5.00% | 6.13% | |||
Industrial assets | 10 | Annual rent € per sq. ft. | € 4.22 | € 5.12 | |
ERV € per sq ft | € 2.75 | € 5.20 | |||
Equivalent Yield | 7.63% | 7.63% | |||
Residential assets | 67 | Equivalent Yield | 4.50% | 4.75% | |
Development assets | 89 | Equivalent Yield | 5.40% | 6.50% | |
Sensitivity Analysis
Estimated rental values and market observed yields are key inputs into the valuation models used. For example, completed properties are valued mainly using a term and reversion model, i.e. the present values of future cash flows from expected rental receipts are calculated. For the existing rental contract or "term" this is the expected rents from tenants over the period to the next lease break option or expiry. After this period, the "reversion", estimated rental values are used to calculate cash flows based on expectations from current market conditions. Thus a decrease in the estimated rental value will decrease the fair value. Similarly, an increase in the yield will decrease the fair value. There are interrelationships between these rates as they are determined by market rate conditions. Most of the Group's properties are valued on this or a basis using similar assumptions.
Across the entire portfolio of investment properties, a 1% increase in yield would have the impact of a €139m reduction in fair value whilst a 1% decrease in yield would result in a fair value increase of €201m.
This is further analysed by property class, as follows:
31 March 2015 | |||
Property Class | Change in fair value +1% Yield | Change in fair value -1% Yield | |
€'000's | €'000's | ||
Office assets | (88,200 ) | 128,783 | |
Development assets | (36,290 ) | 52,820 | |
Residential assets | (13,660 ) | 18,400 | |
Industrial assets | (1,058 ) | 1,370 | |
Total | (139,208 ) | 201,373 | |
14. Loans and receivables
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Balance at beginning of period | 68,563 | - | ||
Purchases and loan advances | 38,800 | 68,405 | ||
Loans recognised as investment properties | (38,625 ) | - | ||
Loans recognised as non-current assets classified as held for sale | (22,993 ) | |||
Loan repayments | (47,250) | - | ||
Interest income at effective interest rate | 1,657 | 158 | ||
Balance at end of period | 152 | 68,563 | ||
The opening loans and receivables balance consists of the loans which were part of the Dorville loan portfolio acquired in March 2014, which were secured on the Dorville Core and Non‑Core Assets as discussed in Note 3(f). The Dorville Core assets are recognisedas investment properties and the legal acquisition of 213 partially completed apartments at Wyckham Point, Dundrum and offices at South Dock House, Grand Canal Dock, Dublin has also completed. The Dorville non-core assets have now either been disposed of, and the proceeds applied to the loan balances, or acquired by the Company as non-current assets classified as held for sale (Note 16).
Loan purchases and advances for the year consist of a loan issued to the owners of Cumberland House as well as part of a portfolio acquired from Ulster Bank, the BH portfolio. The Group acquired Cumberland House in February 2015, at which time the loan principle was repaid through the acquisition of the property. The BH portfolio was purchased for a total cost of €2.5m of which €1.7m related to loans secured over four apartments in the Cannon Place apartment block acquired as part of the Dorville acquisition. These four apartments are recognised as investment properties in line with the Group's policy on investment property recognition.
The balance of loans and receivables at the year-end consists of one loan on which the Group hold a property as collateral.
15. Trade and other receivables
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Deposit paid on investment property | - | 11,010 | ||
Due from sale of non-current assets classified as held for sale | 1,467 | - | ||
Receivable from loan redemptions | 3,613 | - | ||
Amounts paid to related parties | - | 366 | ||
Arrangement fee | 394 | - | ||
Property income receivables | 1,911 | - | ||
Prepayments | 266 | 110 | ||
VAT refundable | 1,395 | 161 | ||
Balance at end of period | 9,046 | 11,647 |
There are no amounts past due. The Directors consider that the carrying value of trade and other receivables approximates to their fair value. The amounts receivable from loan redemptions and the sale of non-current assets classified as held for sale relate to monies due from the sale of a number of collateral properties. Apart from this amount, there is no concentration of credit risk with respect to trade receivables as most of these relate to prepayments and refunds due on taxes.
16. Non-current assets classified as held for sale
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Balance at start of period | - | - | ||
Recognised during the period | 22,993 | - | ||
Acquisition costs | 541 | - | ||
Sold during the period | (5,035 ) | - | ||
Balance at end of period | 18,499 | - |
The Group has purchased two portfolios of loans (see Note 14) which included as collateral some assets the Group retained for its investment portfolio and other assets which the Group intends to dispose of as soon as possible. Those assets not intended for the investment portfolio and not disposed by February 2015 have been legally acquired by the Company and recognised as non-current assets classified as held for sale in accordance with the Group's accounting policy (Note 4.j). Plans for the disposal of these assets are well advanced. A sales agent has been appointed and a sales plan agreed. In order to ensure that the best prices are achieved, these assets are being released to the market in a phased basis over the period to 31 December 2015. It is expected that disposal of these assets will be completed at the latest within 12 months from their acquisition by the Company. These assets do not form part of the REIT property rental business.
Non-current assets classified held for sale are measured at the lower of carrying amount and fair value less costs to sell. The Directors have assessed the fair value of these assets by reviewing the sales prices achieved on similar assets and the expected sales price as determined by the selling agent in preparing their disposal plans. Assets sold to date have achieved at least their acquisition price on an individual basis and in total a profit of approximately €2.7m before tax and after costs has been achieved. The Directors have therefore concluded that the fair value of these assets is at least their carrying value.
17. Issued capital and share premium31 March 2015 | 31 March 2014 | ||||||||||
Share Capital | Share Premium | Total | Share Capital | Share Premium | Total | ||||||
€'000 | €'000 | €'000 | €'000 | €'000 | €'000 | ||||||
At start of period | 38,500 | 333,312 | 371,812 | - | - | - | |||||
Shares issued during the period | 28,532 | 271,052 | 299,584 | 38,500 | 346,500 | 385,000 | |||||
Costs associated with the issue | - | (13,409 ) | (13,409 ) | - | (13,188 ) | (13,188 ) | |||||
At end of period | 67,032 | 590,955 | 657,987 | 38,500 | 333,312 | 371,812 | |||||
Authorised share capital | |||||||||||
No of shares '000 | No of shares '000 | ||||||||||
Authorised | 1,000,000 | 1,000,000 | |||||||||
Allotted, called up and fully paid | |||||||||||
Issued for cash | 670,317 | 385,000 | |||||||||
In issue at period end | 670,317 | 385,000 | |||||||||
On 7 October 2014 the Company announced its intention to undertake a Firm Placing and a Placing and Open Offer (the "Capital Raise") to raise gross proceeds of approximately €299.6million through the issue of 285,317,459 New Ordinary Shares at a price of 105 euro cent (or €1.05) per New Ordinary Share (the "Issue Price"). 71,428,571 New Ordinary Shares were issued through the Firm Placing at the Issue Price and 213,888,888 New Ordinary Shares were issued through the Placing and Open Offer at the Issue Price to raise gross proceeds of approximately €299.6m. These shares were admitted to trading on 4 November 2014.
18. Other reserves31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Other reserves | 5,772 | - |
Other reserves comprise amounts reserved for the issue of shares in respect of the performance fees due to the investment manager for the year ended 31 March 2015 (31 March 2104: €nil). Further details of this are set out in Note 26.2.
19. Loans and advances from banksOn 12 August 2014, the Company and its subsidiary, Hibernia REIT Finance Limited, signed a €100m three‑year floating rate revolving credit facility with Bank of Ireland. An arrangement fee of €500,000 was paid in relation to this facility and is accounted for as part of the effective interest on the loan. A commitment fee of 1% is payable on the undrawn balance.
First‑ranking security for the Revolving Credit Facility is given by way of floating charges granted by the Company and its subsidiary, Hibernia REIT Finance Limited, over all of the Group's assets and also by way of a fixed charge granted by the Company over the shares in each of its subsidiaries as may from time to time exist.
There was no balance drawn on this facility at 31 March 2015. The Directors confirm that all covenants have been complied with and are kept under review.
20. Trade and other payables
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Accrued investment property costs | 687 | - | ||
Loan acquisition costs | - | 500 | ||
Fair value of written call option | 5,100 | - | ||
Rent deposits and early payments | 1,920 | - | ||
Investment management fee payable -base | 1,625 | - | ||
Trade and other payables | 2,153 | 398 | ||
PAYE/PRSI payable | 36 | 36 | ||
Tax payable | 689 | - | ||
Balance at end of period | 12,210 | 934 |
The fair value of written call option relates to an option that was granted to the vendor of the Windmill lane site to buy into 50% of the development project at the original purchase price. Trade and other payables are interest free and have settlement dates within one year. The Directors consider that the carrying value of trade and other payables approximates to their fair value.
21. Payable due for investment properties31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Payable due for investment property | 42,697 | - |
On 16 May 2014 the Group entered into an arrangement to acquire two Grade A office buildings, Hardwicke House and Montague House in Dublin's Central Business District in a partially deferred transaction for a total consideration of approximately €61.3m (including costs). This transaction was structured as a loan transaction with the Group paying a sum of €18.25m. Under the terms of a call option and put option agreement, the Group has the right to take ownership (or can be required to take ownership) of the buildings on payment of the agreed balance and the vendor has the right to sell the property to the Group after 1 January 2016 if the Group has not already acquired it. The Company is most likely to complete the acquisition in December 2015 to comply with existing REIT rules. The finance charge relating to this payable is recognised for the period as a finance expense (Note 9).
22. IFRS and EPRA Net Asset Value per Share31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
IFRS net assets at period end | 753,134 | 370,966 | ||
Ordinary shares in issue | 670,317 | 385,000 | ||
IFRS NAV per share (cents) | 112.4 | 96.4 | ||
Ordinary shares in issue | 670,317 | 385,000 | ||
Estimated additional shares due for issue from performance reserve | 4,664 | - | ||
Diluted number of shares | 674,981 | 385,000 | ||
Diluted IFRS NAV per share (cents) | 111.6 | 96.4 | ||
The Company has established a reserve of €5.8m against the issue of ordinary shares relating to the payment of the performance fee due under the Investment Management Agreement. It is estimated that approximately 4.7m ordinary shares will be issued in relation to this fee. The IFRS NAV is therefore presented on a diluted basis including these shares.
EPRA NAV
31 March 2015 | ||||
€ '000 | € '000 | |||
IFRS net assets at period end | 753,134 | 370,966 | ||
Revaluation of non-current assets classified as held for sale | 1,445 | - | ||
EPRA NAV | 754,579 | 370,966 | ||
EPRA NAV per share (cents) | 111.8 | 96.4 | ||
EPRA NAV is calculated on a diluted basis and therefore includes the performance shares that are due to be issued.
23. Financial Instruments and risk managementThe Group has identified exposure to the following risks:
Market risk
Credit risk
Liquidity risk
The policies for managing each of these and the principal effects of these policies on the results for the period are summarised below:
a) Market riskMarket 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's financial assets currently principally comprise short term bank deposits and trade receivables. The Group currently has no financial liabilities other than trade payables which do not, with the exception of a written call option on the Windmill lane site, give rise to any significant market risk. The written call option is measured at fair value which is approximately 50% of the gain on the Windmill lane site held as investment property.
The short term bank deposits are used to invest cash while awaiting suitable investment properties for investment. These are denominated in euro. Therefore exposure to market risk in relation to these is limited to interest rate risk. Exposure to interest rates is limited to the exposure of its earnings from uninvested funds, € 139m at the period end (31 March 2014: €291m). Interest rates are at historic lows and therefore the impact of a change in the rate by 10% during the period would be approximately €40,000 (31 March 2014: c. €22,000).
b) Credit riskCredit 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's main financial asset is cash and cash equivalents. Loans receivables which totalled €69m on 31 March 2014 have either been repaid through the sale of collateral properties and the receipt of income from these properties or by the direct acquisition of the properties by the Group.
Cash and cash equivalents 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, €25-50m with individual institutions dependent on rating, to avoid concentration risks with any one counterparty. The Company has also engaged the services of a Depository to ensure the security of the cash assets.
Concentration of risk in receivables: Approximately €5.1m of the balance of trade and other receivables relates to funds due from the sale of properties. These amounts are therefore secured on the properties as title will not be released until the funds have been received on completion. The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments and tax refunds due.
The maximum amount of credit exposure is therefore:
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Trade and other receivables | 9,046 | 11,647 | ||
Cash and cash equivalents | 139,048 | 291,690 | ||
Balance at end of period | 148,094 | 303,337 |
c) 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. The Investment manager is responsible for this activity and the Board monitors its performance.
Net current assets at the period end were:
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Net current assets at the period end | 111,686 | 302,403 |
The following tables show total liabilities due as compared with funds available. No account is taken of trade and other receivables due, rent income due under operating leases, or other cash in-flows. Only trade payables relating to cash expenditure are included, the balances relate either to non-cash items or deferred income.
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Liabilities due in less than one year: | ||||
Trade and other payables | 5,190 | 934 | ||
Payable for investment property | 42,697 | - | ||
Total liabilities due in less than one year | 47,887 | 934 | ||
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Funds available: | ||||
Cash and cash equivalents | 139,048 | 291,690 | ||
Revolving credit facility undrawn | 100,000 | - | ||
Total funds available - less than one year | 239,048 | 291,690 | ||
Net funds available | 191,161 | 290,756 |
All financial liabilities for the Group fall due within one year.
d) Capital managementThe Group manages capital in order to ensure its continuance as a going concern.
As the Group grows it is planned to finance up to 40% of the market value of the Group's assets out of borrowings in order to enhance the return on equity for its shareholders. This percentage may increase to 50% under the REIT regime and so the Group may modify this leverage from time to time taking into account current prevailing economic and market conditions. Any alteration in this leverage ratio would be an amendment to the investment policy and therefore require a shareholder vote. This leverage ratio will be monitored in the regular financial reporting and prior to entering into any borrowing arrangements in order to ensure this policy is maintained.
Capital comprises share capital, reserves and retained earnings as disclosed in the Consolidated and Company statement of changes in equity. At 31 March 2015 the capital of the Company was €753m (31 March 2014: €371m).
There are no external capital requirements on the Group.
Under the Irish REIT regime, the Group must distribute at least 85% of its property income by way of a Property Income Distribution ("PID"). Therefore, capital available for business growth will not be augmented by dividend policy. To grow the business, the Group must therefore consider the need to seek further capital in the market given both the inability to grow reserves and the restriction on its borrowings as a source of increasing its portfolio size as discussed above. During the year ended 31 March 2015, the Group launched a secondary equity issue as discussed in Note 17.
The Company's share capital is publicly traded on the London and Irish stock exchanges. In order to ensure the proper management of the share register, the Group employs the services of a share registrar, Capita Registrars (Ireland) Limited t/a Capita Asset Services.
e) Fair values of financial assets and financial liabilitiesFair 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 table shows the Group's financial assets and liabilities and the methods used to calculate fair value.
Asset/ Liability | Carrying value | Level | Method | Assumptions |
Loan and receivables | Amortised cost | 3 | Assessed in relation to collateral value | Valuation of collateral is subjective based on agents guide sales prices and market observation of similar property sales were available |
Trade and other receivables | Amortised cost | 2 | Cash value | Most of these are receivables in relation to the sale of properties, prepayments or income tax refunds and therefore there is no objective information of any loss and they are expected to be fully recoverable in the short term. No discounting is therefore applied |
Trade and other payables | Amortised cost | 2 | Cash value | These are all accruals and will settle in the short term based on their cash value and therefore no discounting is applied |
The Directors have determined that the carrying value of loans and receivables approximates their fair value, based on their assessment of the value of the underlying collateral. The carrying value of non-interest bearing financial assets and financial liabilities and cash and cash equivalents approximates their fair values, largely due to their short-term maturities.
At 31 March 2015 the Group's liability, payable due for investment property is held at fair value based on the net present value discounted at a market interest rate. In addition, the written call option on the Windmill Lane site is held at fair value. Other than this, the Group had no financial assets or liabilities held at fair value. As at 31 March 2014, the Group had no financial assets or liabilities which were carried at fair value.
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.
31 March 2015 | 31 March 2014 | |||||||||||
Carrying value | Level 1 | Level 2 | Level 3 | Carrying value | Level 1 | Level 2 | Level 3 | |||||
€'000 | €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | |||||
Financial assets | ||||||||||||
Loans and receivables | 152 | - | - | 152 | 68,563 | - | - | 68,563 | ||||
Trade and other receivables | 9,046 | - | 9,046 | - | 11,647 | - | 11,647 | - | ||||
Cash and Cash equivalents | 139,048 | 139,048 | - | - | 291,690 | 291,690 | - | - | ||||
148,246 | 139,048 | 9,046 | 152 | 371,900 | 291,690 | 11,647 | 68,563 | |||||
Financial liabilities | ||||||||||||
Trade and other payables | 12,210 | - | 7,110 | 5,100 | 934 | - | 934 | - | ||||
Payable due for investment property | 42,697 | - | 42,697 | - | - | - | - | - | ||||
54,907 | - | 49,807 | 5,100 | 934 | - | 934 | - |
Fair value movements at level 3
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Balance at start of period | 68,563 | - | ||
Transfers into level 3 | - | - | ||
Transfers out of level 3 | (22,993 ) | - | ||
Purchases, sales, issues and settlement | ||||
Purchases | 550,603 | 68,405 | ||
Sales | - | - | ||
Repayments | (47,250 ) | - | ||
Fair value recognition | 85,768 | - | ||
Amortisation | 1,657 | 158 | ||
Balance at end of period | 636,348 | 68,563 | ||
The Directors review and approve the valuations as part of their review of the financial statements. The Group's policy is to recognise transfers into and out of the fair value hierarchy levels as of the date of the event or change in circumstance that caused the transfer.
24. Operating leases receivablesFuture aggregate minimum rentals receivable (to the next break date) under non-cancellable operating leases are:
31 March 2015 | 31 March 2014 | |||
€'000 | €'000 | |||
Operating lease receivables due in: | ||||
Less than one year | 20,457 | - | ||
Between two and five years | 41,469 | - | ||
Greater than five years | 24,412 | - | ||
86,338 | - |
The Group leases its investment properties under operating leases. The weighted average unexpired lease term (WAULT) at 31 March 2015 based on lease expiry date was 7.8 years or 3.9 years based on the next tenant break option date (31 March 2014: n/a).
25. Investment in subsidiary undertakings
The Company has the following interests in ordinary shares in the following subsidiary undertakings at 31 March 2015. These subsidiaries are fully owned and consolidated within the Group.
Name | Registered address/ Country of Incorporation | Shareholding/ Number of shares held | Directors | Company Secretary | Nature of business |
Hibernia REIT Finance Limited | Marine House, Clanwilliam Place, Dublin 2/ Ireland | 100%/ 10 | Daniel Kitchen, Colm Barrington, Stewart Harrington, Terence O'Rourke, William Nowlan | Castlewood Corporate Services Limited | Financing activities |
Hibernia REIT Holding Company Limited | Marine House, Clanwilliam Place, Dublin 2/ Ireland | 100%/ 10 | Richard Ball, Kevin Nowlan, Frank O'Neill | Castlewood Corporate Services Limited | Holding property interests |
Mayor House Basement Management Limited | Marine House, Clanwilliam Place, Dublin 2/ Ireland | 100%/2 | Richard Ball, Kevin Nowlan, Frank O'Neill | Castlewood Corporate Services Limited | Property management |
Lamourette Limited | Marine House, Clanwilliam Place, Dublin 2/ Ireland | 100%/2 | Richard Ball, Kevin Nowlan, Frank O'Neill | Castlewood Corporate Services Limited | Property management |
The Group has no interests in unconsolidated subsidiaries.
26. Related Parties26.1 SubsidiariesAll transactions between the Company and its subsidiaries are eliminated on consolidation.
26.2 Investment ManagerThe Group, pursuant to the Investment Management Agreement entered into on 27 November 2013, is managed by WK Nowlan REIT Management Limited ("The Investment Manager"). WK Nowlan REIT Management Limited is wholly owned and controlled by Nowlan Property Limited and Mr. Frank Kenny. William Nowlan is the investment director of the Investment Manager. Frank J. Kenny is the development director of the Investment Manager. Both the Investment Manager and Nowlan Property Limited are considered to be related parties of the Company. The following are the key management of the Investment Manager:
Kevin Nowlan Chief Executive Officer
Richard Ball Chief Investment Officer
Tom Edwards-Moss Chief Financial Officer
William Nowlan Investment Director
Frank Kenny Development Director
Sean O' Dwyer Risk and Compliance Officer
Frank O'Neill Chief Operations Officer
All of this team, with the exception of Sean O' Dwyer, are Directors of the Investment Manager. The investment management fee covers the services of this management team, save regulatory costs which are borne by the Company.
At 31 March 2015, the Directors of the Investment Manager held an aggregate of 2,059,894 shares in the Company, of which 600,000 are held by William Nowlan and 147,620 are held by Kevin Nowlan.
The Investment Management Agreement governs the provision of investment management and related services to the Company by the Investment Manager. It has an initial term of five years and will automatically continue for three consecutive year periods, unless terminated by the Company or the Investment Manager.
Investment Manager's fees
Base Fee
The base fee for each quarter is payable quarterly in arrears and is calculated by reference to the following table. The fee is based on the EPRA Net Asset Value (NAV) and is the sum of the following amounts:
EPRA NAV:
EPRA NAV | EPRA NAV | Base Fee | |
From | To | % | |
€'000,000 | €'000,000 | ||
0 | 0.250 | ||
>450 | 0.200 | ||
>600 | 0.150 | ||
Uninvested net proceeds | 0.125 |
The total base fee earned by the Investment Manager in the period amounted to €4.7m (excluding VAT). The Company paid the Investment Manager €2.7m during the period in relation to the base fee and at the period end the Company owed the Investment Manager €1.6m with the remaining €0.4m being prepaid as at 31 March 2014.
The Investment Manager incurred "out of pocket" expenses during the year to the amount of €159k (excluding VAT). These costs were refunded by the Company in accordance with the Investment Management Agreement.
Performance fee
A performance fee may also paid to the Investment Manager subject to the Group achieving certain returns criteria. The Performance Fee is calculated annually on a per Ordinary Share basis as to 50% by reference to the return to shareholders (via the calculation of REIT IMA Shareholder Return) and as to 50% by reference to outperformance of the Reference Index the "SCSI/IPD Ireland Quarterly Property Index-All Property Quarterly Index" (via the calculation of the Relative Performance Fee). Performance fees due at 31 March 2015 were €5.8m. A reserve has been created for this amount (Note 18). Shares based on the average closing price for the 20 days prior to the issuing of the performance fee invoice by the Investment Manager will be issued after the year end when the fees are agreed.
26.3 Key management personnel
The non-executive directors are the only key management personnel of the Group. The management functions are delegated to the Investment Manager under the Investment Management Agreement. Details on the investment management fees which compensate the Investment Manager for these functions are disclosed above.
26.4 Other related party transactions
WK Nowlan property Limited is an 80% owned subsidiary of Nowlan Property Limited and was engaged on an arm's length basis to carry out receivership and project management services in relation to the loan and property portfolios. A significant amount of this work relates to the resolution of the collateral properties that made up the Dorville portfolio of loans. The fees paid for these services were benchmarked on normal commercial terms. These fees totaled €0.7m to 31 March 2015 (31 March 2014: €nil). No balances were owed to WK Nowlan Property Limited at the period end. William Nowlan is Chairman of Nowlan Property Limited and Frank O'Neill is a non-executive director.
There were no further related party transactions for the period.
27. Profit or loss of the parent companyThe parent company of the Group is Hibernia REIT plc. In accordance with Section 148(8) of the Companies Act, 1963 and Section 7(1A) of the Companies (Amendment) Act, 1986, the Parent Company is availing of the exemption of presenting its individual income statement to the Annual General Meeting and from filing it with the Registrar of Companies. The Parent Company's profit after tax for the year ended 31 March 2015 determined in accordance with IFRS is €92.2m (31 March 2014: €0.8m (Loss)).28. Subsequent Events1. On 30 April 2015 the Company acquired 35 - 37 Lower Camden St for a price of €1.6m (€1.7m including costs). 2. On 7 May 2015 the Company announced the acquisition of 11 Lime Street for €1.4m. 3. On 8 May 2015, the Company announced its intention to seek approval from its shareholders for the internalization of the investment manager. Further information on this proposal is given in the Chairman's Statement on pages 3 to 4 of this preliminary statement.
DisclaimerThis Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements speak only as at the date of this Announcement. The Company will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.
[1] By purchase price
[2] Source: CBRE Market View Dublin Office Q1 2015
[3] On contracted rents
[4] Hibernia's investment policy limits leverage to 40% LTV at time of incurrence. Under the Irish REIT Regime the Company is restricted to keep the LTV below 50%.
[5] Net of the value of the Windmill option of €5m
Related Shares:
HBRN.L