Half yearly financial report For the six-month period to 30 September 2017

Transcription

1 Half yearly financial report For the six-month period to 16 November 2017 Hibernia REIT plc ( Hibernia, the Company or the Group ) today announces its interim results for the six months to. Highlights for the period: Good financial performance helped by yield compression and developments Investment property portfolio value of 1,265.6m, up 5.2% 1 in the period (developments up 8.4% 1,2 ) Six-month total property return 3,4 of 7.2% vs IPD Ireland Index of 4.8% EPRA NAV 4 per share of cent, up 6.2% since March 2017 Net rental income of 21.9m, up 31.0% on same period last year (Sept 16: 16.7m) Profit before tax of 70.6m (Sept 16: 32.4m) including revaluation surplus EPRA earnings 4 of 9.0m, up 13.1% on same period last year (Sept 16: 8.0m) Continued progress with development programme: 1WML and 2DC completed 1WML completed in August 2017, delivering 124,000 sq. ft. Grade A office and profit on cost >80% 5 Three committed schemes at September 2017 (247,000 sq. ft. Grade A offices) completing by end 2018 o Hanover Building, to be renamed 2WML (71,000 sq. ft., incl. 12,000 sq. ft. gym) added to committed schemes in May 2017 o 2DC (73,000 6 sq. ft.) completed in November 2017, delivering a profit on cost >35% 5 Near and longer-term pipeline of five schemes totalling 660,000 sq. ft. of office space post completion New lettings increasing income and WAULT of portfolio, with plenty more to come Annual contracted rent roll 4 now 49.5m, up 7.1% on 30 September In-place office portfolio income duration increased with WAULT to earlier of break / expiry now 6.9 years, up 16.9% on 30 September 2016 o Increase in WAULT driven by new lettings in completed developments which have avg. term to earlier of break / expiry of 10.7 years and avg. rents of 51psf Remaining in-place 8 CBD offices have avg. rents of 37psf, reversionary potential of 23% and an avg. period to earlier of rent review or expiry of 2.9 years Strong balance sheet with undrawn facilities available for further investment Net debt 4 at of 181.0m, LTV 4 of 14.3% (March 2017: 155.3m, LTV 13.3%) Cash and undrawn facilities of 263.2m: 150.0m net of committed development spend and planned repayment of 1WML facility Growing dividend as rental income increases Interim dividend up 46.7% to 1.1 cent per share declared, representing 50% of dividends paid in respect of the prior year (Sept 2016: 0.75 cent) Expect further growth as developments are leased and reversion captured via lease events / reviews Estimated financial impact of increase in stamp duty Stamp duty on commercial property transactions increased from 2% to 6%, effective 11 October 2017 Estimated impact if effective as at : o Portfolio value and profit before tax would have reduced by 53.7m o Proforma EPRA NAV 4 per share would have been cent, up 0.8% since March Net of capex and acquisition costs 2 Developments include 1WML which completed at the end of August Total property return is the return of the property portfolio (capital and income) as calculated by MSCI, the producers of the MSCI/IPD Ireland Index. 4 An alternative performance measure ( APM ). The Group uses a number of such financial measures to describe its performance, which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see Supplementary information at the end of this report. 5 Assuming 6% stamp duty and no finance costs 6 57k sq.ft. of entire 2DC (73k sq.ft.) is refurbished space 7 Included pre-let refurbishments, residential income net. Excluding Iconic arrangement in Clanwilliam 8 Excludes refurbishment and development projects 1

2 Kevin Nowlan, Chief Executive Officer of Hibernia, said: We are pleased to report good performance by the Group in the first half with portfolio returns well in excess of those of the MSCI/IPD Ireland property index, helped by our development programme. The increase in stamp duty occurred after the period end and is therefore not reflected in the numbers we have reported, although we estimate its immediate financial impact. It remains to be seen whether the change will have any impact on investment market sentiment. At present demand for prime assets continues to be robust. Demand from domestic and international occupiers for office space in Dublin remains very strong: 2017 is likely to be close to a record year for office take-up and we have started to see some Brexit-related lettings occurring. In the longer term Dublin is expected to have one of the highest growth rates in office-based employment among major European cities, which bodes well for future tenant demand. We remain optimistic about our prospects: our portfolio is rich in opportunity, we expect to recycle capital and we have flexible, low-cost funding available to support further developments and acquisitions as appropriate. Contacts: Hibernia REIT plc Kevin Nowlan, Chief Executive Officer Tom Edwards-Moss, Chief Financial Officer Murray Consultants Doug Keatinge: , dkeatinge@murrayconsultants.ie Jill Farrelly: , jfarrelly@murrayconsultants.ie About Hibernia REIT plc Hibernia REIT plc is a Dublin-focused Irish Real Estate Investment Trust ("REIT"), listed on the Irish and London Stock Exchanges, which owns and develops Irish property. All of Hibernia s portfolio of properties is in Dublin and it specialises in city centre offices. The results presentation will take place at 9.00 am today: a conference call facility will be available to listen to the presentation live using the following details: Ireland Toll: +353 (0) Ireland Toll-Free: Participant code: Disclaimer This 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 Group 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 Group 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. 2

3 Market Review General economy Ireland s economic momentum has continued in 2017 with year-on-year GDP growth of 5.2% and 5.8% in the first two quarters (source: CSO). This growth is underpinned by core domestic demand, a key indicator of the underlying strength of the Irish economy, which is expected to recover to pre-crisis levels by mid-2018 (source: Goodbody). The Department of Finance is forecasting GDP growth of 4.3% and 3.5% for 2017 and 2018, and a medium-term growth rate of around 2.5% per annum. While these figures represent a reduction in the exceptional growth rates enjoyed in recent years, they compare favourably with forecasts for the Eurozone of around 1.8% for 2017 and 2018 (source: OECD). Unemployment in Ireland continues to fall and stood at 6.1% in September 2017 (Sept 2016: 7.5%). Jobs were added in all regions of Ireland in the year to June 2017, indicating a broad-based economic recovery (source: CSO, Goodbody). Dublin unemployment also stands at 6.1%, its lowest rate in nine years, and employment data indicates that firms are adding jobs more rapidly in Dublin than elsewhere (CSO, Dublin Economic Monitor). Despite spending increases and tax cuts of 1.2bn in Budget 2018, the Irish Government s fiscal position is expected to improve slightly in 2018 as a government deficit of 0.2% of GDP and a debt/gdp ratio of 69% are forecast (source: Department of Finance, Davy). While the medium-term forecast for the public finances projects a budget surplus in 2020, pressure for increased public spending and tax cuts may prevent this. Given Ireland s dependence on international trade and foreign direct investment, factors such as the UK s departure from the EU and potential US tax and trade policy changes remain key downside risks to the economy. No discernible negative impact has been felt from these factors as yet: during ,100 IDAsponsored jobs were created in Dublin alone, comparing favourably with the five-year average of 4,900 annual job additions in the county (source: IDA) performance to date has also been solid, with a total of 6,300 IDA-sponsored jobs announced nationwide and 4,000 of these located in the capital (source: IDA, Davy). Despite the risk to the Irish economy posed by the UK s exit from the EU, the departure may create opportunities at the same time, particularly for Dublin from UK-based firms moving or from a redirection of future foreign investment away from the UK. Irish property investment market In the 12 months to the MSCI Ireland Property Index delivered a total return of 10.7% (vs 11.2% in 12 months to 31 March 2017): the industrial sector was the top performer in the 12 months to September 2017 with a total return of 14.5% versus retail at 10.8% and offices at 10.5%. The majority of capital growth in the office sector in the MSCI Ireland Index (5.8% in the 12 months to 30 Sept 2017) came from ERV growth rather than yield compression (4.2% of the 5.8%). However, in the quarter ending 30 Sept 2017 yield compression was the biggest driver of capital growth in the office sector, representing 1.5% of the 2.0% total capital return. CBRE moved their prime office yield from 4.65% to 4.25% in September 2017 while the other main agencies in Dublin are of the view that prime yields range from 4.00% to 4.50%. CBRE expects prime yields may contract further over the coming months as new transactional evidence materialises. In October 2017, as part of Budget 2018, the Irish Government announced a trebling of stamp duty on commercial property transactions from 2% to 6%. The increase in stamp duty is estimated to have a one-off negative impact of around 4% on commercial property values as it will increase purchasers costs by the same amount: the net impact on valuations over the past six months may be offset to a degree by the yield compression mentioned above for prime assets. Transaction volumes (by value) in all sectors of the commercial property market have declined in the last 12 months following three years of exceptional activity due to deleveraging: volumes in the nine months to 30 September 2017 were 1.3bn, with office representing 39% of the volume (source: CBRE). Prior to Budget 2018, JLL was expecting total volumes for 2017 of between 2.0bn and 2.5bn, assuming certain anticipated 3

4 large asset sales closed in time for the end of the year. The market continues to see high levels of demand from investors, with European funds active and concentrating particularly on prime assets. It remains to be seen whether the stamp duty changes will have any longer-lasting impact on perceptions of Ireland as an attractive investment market. Office occupational market Take-up in the Dublin office market has been strong: in the nine months to September 2017 it totalled 2.0m sq. ft. (source: CBRE), meaning it has already reached the 10-year average of 2.0m sq. ft. with one quarter still to go. Domestic and U.S.-headquartered occupiers continue to dominate, representing 45% and 35% of yearto-date take-up, respectively, but Brexit-related occupiers are also adding to demand (source: CBRE). Demand is up slightly quarter-on-quarter to almost 2.8m sq. ft. and is at the same level it was at the beginning of 2017, which is encouraging for future take-up trends (source: CBRE). While the Dublin office rental market is usually characterised by relatively small leasing deals, 2017 has seen larger than usual lettings: almost 40% of take-up year to date has been greater than 50,000 sq. ft. whereas lettings of this size only accounted for 28% of the six previous years (source: CBRE). Occupiers taking more than 50,000 sq. ft. included Facebook, AIB, JP Morgan, Google and the Office of Public Works (i.e. the Irish State). TMT companies continue to be the largest takers of space representing over 36% of take-up in the ninemonth period, while Financial Services firms made up 20% and the State represented 15%. (source: CBRE). Despite some large lettings in the suburbs, the city centre continues to dominate the letting market at 76% of take-up in The overall vacancy rate at the end of Q3 was 6.2% vs. 6.6% at the beginning of 2017 and the Grade A vacancy rate in Dublin 2/4 (where 66% of Hibernia s portfolio is located) was 2.6% at the end of Q vs. 2.3% at the beginning of 2017 (due to some completions) (source: CBRE). Despite increased supply as new completions come on stream, demand from high profile occupiers has resulted in an upward move in prime rents for some of Dublin s most sought-after locations (source: BNP) with headline rents now standing at 63.50psf and some agents expecting them to reach 65.00psf by the end of 2017 (source: CBRE). Office development pipeline Competitively priced funding for speculative development remains limited, which is resulting in the owners of key development sites in the CBD seeking large pre-lets before commencing development. While there were a few pre-lets in 2016, they remain relatively infrequent in the Dublin office market and to date there has been none in Many developments are achieving lettings mid-construction (sometimes termed mid-lets ): mid-lets agreed thus far in 2017 include to Barclays, Informatica and Google, all achieving rents at or in excess of psf and term to break in excess of 12 years also witnessed the sale of a 130,000 sq. ft. office building mid-construction to JP Morgan saw the delivery of the first newly constructed office buildings in Dublin in over five years. Since then 2.0m sq. ft. of new office space has been delivered, c.95% of which is now let. We expect a total of 1.9m sq. ft. to be delivered in 2017 of which c.75% is already leased or reserved. Looking further ahead, we expect around 2.0m sq. ft. to be delivered in 2018, 1.3m sq. ft. in 2019 and 2.4m sq. ft. 2020: a total of 8.9m sq. ft. gross of new space delivered between 2015 and This represents c.7.9m sq. ft. of net new space (as a result of demolition to facilitate new development) and would represent an increase in the total stock figure of c.25% vs an increase in stock of 98% from and 51% in (source: Goodbody). The Government has announced plans to more than double (3% to 7%) the proposed tax on vacant sites which is due to come into operation in January While the details of this tax remain unclear it may spur some development if introduced. Residential sector Housing completions and commencements continue to fall well short of the Government s target of delivering 25,000 homes per annum in the period to 2021 (Source: Rebuilding Ireland/Government of Ireland) and the lack of available housing stock remains a problem, particularly in Dublin. On the positive side, completions 4

5 and commencements are increasing and are up 29% and 24%, respectively, year-on-year and now stand at 18,000 and 5,700 on a 12-month basis (source: Department of Housing). Rents in Dublin are up 12.3% in the 12 months to Q (source: DAFT). In the sales market, Dublin prices are up 12.2% year-on year (source: RPPI). Mortgage drawdowns were also up 33% in nominal terms on the year to reach 3bn in H and sales volumes are also up 16% year on year (source: Davy). Demand from investors remains strong in residential, and in particular the Private Rented Sector (source: JLL). However, lack of available stock is hindering investment volumes in this sector. Despite rising sales prices and rents, apartment construction remains limited: with apartments accounting for 15% of new builds and amounting to less than 1,000 in the year to date (source: Goodbody using BER data). The current high cost of apartment delivery, such as those highlighted in a recent report by the SCSI on the topic, are a major inhibitor of new apartment supply, despite a serious shortage of this accommodation type (source: Goodbody). 5

6 Business Review Acquisitions and disposals Consistent with its expectations of slowing net acquisition expenditure, the Group made no material acquisitions or disposals in the six months to (six months to Sept 2016: acquisition spend 52.4m) Portfolio overview As at the property portfolio consisted of 29 investment properties valued at 1,266m 9 (31 March 2017: 28 investment properties valued at 1,167m) 9, which can be categorised as follows: 1. Dublin CBD Offices Value as at Sept 17 (all assets) % of portfolio % uplift since Mar 17 excl. new acquisitions (1) % uplift since Mar 17 incl. new acquisitions (1) Equivalent Yield on Passing rent 10 value (%) ( m) Traditional Core 467m 37% 6.3% 6.3% 5.4% (2) 21.8m IFSC 268m (3) 21% 3.5% 3.5% 5.0% 9.9m South Docks 296m (4) 23% 10.0% 10.0% 4.9% 6.0m Total Dublin CBD Offices 1,031m 81% 6.6% 6.6% 5.1% (2) 37.7m 2. Dublin CBD Office Development (5) 100m 8% 1.2% 1.2% 3. Dublin Residential 117m 9% 0.1% 0.0% 4.6% (6) 5.1m 4. Industrial 18m 2% (5.7)% (10.1)% 5.1% 0.7m Total Investment Properties 1,266m 100% 5.4% 5.2% 5.1% (2) (6) (7) 43.5m 1. Includes capex in acquisition costs 2. Harcourt Square yield is based on the total value which includes residual land value 3. Includes full value of 2DC in IFSC (even though under refurbishment at 30 Sept 17) 4. Excludes the value of space occupied by Hibernia in South Dock House 5. Includes 2WML, 1SJRQ & Cumberland Phase II 6. Excludes Cannon Place as valued on vacant possession basis. This is the net yield based on Hibernia s actual operating costs. C&W has valued Wyckham Point and Dundrum View on a gross yield basis: gross initial yield ex acquisition costs is 5.7% and reversion is 6.0% 7. Excludes all CBD office developments but includes 1WML and 2DC in Dublin CBD Offices 9 Net of income smoothing 10 An alternative performance measure ( APM ). The Group uses a number of such financial measures to describe its performance which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see Supplementary information at the end of this report. 6

7 The office element of our portfolio had the following statistics at : Contracted rent ( m/ psf) ERV ( m/ psf) WAULT to review (1) (years) WAULT to break/expiry (years) % of rent upwards only (2) % of next rent review cap & collar % of rent MTM (3) at next lease event Acquired in-place office portfolio Completed office developments (4) Whole in-place office portfolio Pre-let committed schemes (5) Whole office portfolio 27.5m ( 37psf) 33.9m ( 47psf) 2.9yrs 4.9yrs 38% - 62% 13.7m ( 51psf) 14.0m ( 51psf) 4.2yrs 10.7yrs - 62% 38% 41.3m ( 41psf) 47.9m ( 48psf) 3.3yrs 6.9yrs 25% 21% 54% 2.3m ( 53psf) 2.2m ( 51psf) 4.8yrs 10.5yrs - 22% 78% 43.5m ( 41psf) 50.1m ( 48psf) 3.4yrs 7.0yrs 24% 21% 55% 1. Weighted average unexpired lease term ( WAULT ) to earlier of review or expiry 2. Incl. small amount (<1%) of CPI linked 3. Mark to Market ( MTM ) 4. 1 Cumberland Place, SOBO, 1DC, 1WML 5. 2DC We continue to work to increase portfolio income and extend unexpired lease terms and income security through the completion and letting of new office developments and through rent reviews and lease renewals in the in-place portfolio. In the period, we completed 1 Windmill Lane ( 1WML ), where the office space is now 57% let on leases with average terms achieved on lettings of 19.2 years and first break options at 11.7 years, adding 4.1m to the in-place office portfolio and increasing WAULTs to break and expiry. The remaining in-place portfolio (i.e. the acquired in-place office portfolio) has an average period to the earlier of rent review or expiry of 2.9 years and reversionary potential of 23% (at valuers ERVs 11 ) giving us further potential to enhance portfolio income and duration. The in-place office portfolio occupancy level at was 90% (31 March 2017: 97%). The reduction in occupancy rate is principally due to the completion of the 1WML development in August 2017: c. 50% of the 124,000 sq. ft. office building was unlet at period end, which has decreased to 43% since then. Developments and refurbishments Schemes completed The Group completed 1WML in the period, which totals 124,000 sq. ft. of new Grade A office space, 7,000 sq. ft. townhall and reception, 8,000 sq. ft. of retail and 14 residential units. As at the office building was c. 50% let to Informatica and Core Media. Since period end the Group has let further space to Pinsent Mason, taking occupancy in the building to 57%. Upon completion the project delivered a profit on cost of over 80% (post stamp duty change and excluding finance costs) and when fully let the yield on cost is expected to exceed 9.5%. In early November 2017 the Group completed the refurbishment of 57,000 sq. ft. of office space at Two Dockland Central ( 2DC ) on schedule and within budget. Upon completion, the 73,000 sq. ft. building was 77% let with terms agreed for the ground floor which, if contracted, would take occupancy in the building to 11 Estimated Rental Value ( ERV ) 7

8 95%. Upon completion the project delivered a profit on cost of over 35% (post stamp duty change and excluding finance costs) and when fully let the yield on cost is expected to exceed 7%. Committed development schemes At, the Group had committed schemes under way at three properties which will deliver c. 247,000 sq. ft. of new and refurbished Grade A office space by the end of % of this office space was pre-let as at period end. Two Dockland Central ( 2DC ): as stated above, the refurbishment was successfully completed in early November Sir John Rogerson s Quay ( 1SJRQ ): construction work continues and the scheme remains on track to complete in mid Preliminary discussions with potential tenants are on-going Hanover Building (being renamed 2WML ): the office tenant (BNY Mellon) left the building at the end of March 2017 and the retail tenant left in November 2017: the redevelopment and extension of the building is expected to complete in late 2018 At Cushman & Wakefield, the Group s independent valuer, had an average estimated rental value for the unlet office space (227,000 sq. ft.) in the committed developments 1SJRQ, 2WML plus the unlet office space in the completed 1WML of 53.16psf and were assuming an average yield of 4.81% upon completion: based on these assumptions they expect a further c. 39m of development profit (ex. finance costs) to be realised through the completion and letting of the unlet space in these schemes. A 25-basis point movement in yields across the unlet space would make c m of difference to the development profits, and a 2.50psf change in estimated rental value ( ERV ) would result in a c. 10m difference. 8

9 Please see further details on the development schemes below: Sector Total Net internal area ( NIA ) post completion (sq. ft.) Full purchase price Capex/Est. capex Est. total cost (incl. land) Office ERV psf ERV (1) psf (1) Expected practical completion ( PC ) Date Schemes completed in 6 months to 30 Sept 17 1WML Office 124k office 8k retail (2) 7k reception 14 resi. units 24m (3) 53m (3) 547psf (4) 7.5m (5) 52.28psf (4) Completed in August 2017 Schemes completed post 30 Sept 17 Two Dockland Central Office 73k (7) office 46m 11m (8) 760psf (9) 4.0m 50.20psf (10) Completed in November 2017 Total completed 197k office 8k retail 7k Reception 14 resi. units 70m 64m (11) 11.5m Committed schemes 2WML Office 59k office 12k gym 21m 22m 680psf (4) 3.2m 51.23psf late SJRQ Office 115k office 5k retail 18m 58m 639psf (4) 6.5m 54.58psf mid 2018 Total committed 174k office 17k retail/gym 39m 80m 13.8m 1. Per C&W valuation at 30 Sept Incl. 1k sq. ft. basement store 3. Hibernia est. all in cost of 1WML on 100% basis is 77m (i.e. 24m all-in land cost plus 53m total capex). In the prior year, Hibernia s financial accounts show that the cost of acquiring 100% of 1WML was 36m which incl. the vendor s 50% share of capex spent to date of acquisition of 13m. There was c. 28m of capex remaining (based on est. total capex of 53m) to be spent at date of acquisition. Therefore, the total cost of the project is 77m ( 36m + 28m + 13m = 77m) 4. Office demise only 5. Commercial (incl. reception/townhall) and residential 6. Assuming 6% stamp duty and no finance costs 7. 57k sq. ft. refurbished out of total 73k sq. ft m net of dilapidation received 9. Est. total cost psf is net of dilapidations 10. For entire 73k sq. ft psf for refurbished space only m net of dilapidations received at 2DC Development pipeline In total there are five schemes in the future pipeline (treating Clanwilliam Court and Marine House as one project) which, if undertaken, would deliver and estimated 660,000 sq. ft. of high quality office space upon completion. Please see further details on the development pipeline below: 9

10 Sector Current NIA (sq. ft.) NIA post completion (sq. ft.) Full purchase price Comments Near term Cumberland Place (front block) Office nil 50k (1) 0m (2) Full planning in place Likely commencement in 2018 once existing developments exposure reduced Total near term nil c.50k 0m Longer term Gateway Logistics/Office 14.1 acres (3) 115k office (4) 10m Strategic transport location Redevelopment potential subject to planning Blocks 1, 2 & 5 Clanwilliam Court and Marine House Office 135k 190k 80m Refurbishment and/or redevelopment opportunity post 2021/22 Potential to add up to 40% to exiting NIA across all four blocks and create an office cluster similar to the Windmill Quarter Harcourt Square Office 117k on 1.9 acres 277k 72m Planning in place for 277k sq. ft. redevelopment Lease to OPW until Dec 22 Site offers potential to form cluster of office assets and facilities Working to refine/improve the scheme One Earlsfort Terrace Office 22k >28k 20m Planning permission for two extra floors Also potential for redevelopment as part of the wider Earlsfort Centre scheme Total longer term 274k 610k 182m 1. 49k sq. ft. of office and 1k sq. ft. retail/reception 2. 51m (incl. costs) paid for existing block which was refurbished and completed in September No land value attributed to new block at acquisition 3. Currently 178k sq. ft. of industrial/logistics 4. Planned new offices of c.115k sq. ft. plus potential to add a further c.130k sq. ft. of offices Asset management In the six months to we added 1.9m to contracted rents through lettings, 1.2m net of lease expiries and surrenders, increasing the contracted rent roll by 2.5% to 49.5m. Since period end we have added a further 1.3m through three further office lettings to the ESB and Pinsent Mason over 18,500 sq. ft. and a retail letting to Spar: net of surrenders the increase in contracted rent was c. 1.0m. Summary of letting activity in the period Offices: Three new lettings of 29,000 sq. ft. generating 1.7m of incremental new annual rent. The weighted average periods to break and expiry for the new leases were 11.3 years and 20.0 years, respectively. At present, we have eight outstanding rent reviews over 1.3m of contracted income under negotiation Residential: 293 of the Company s 313 apartments are located in Dundrum and, in the period, average rents achieved by the Company for two bed apartments in Dundrum were 1,773 per month vs average two bed passing rents of 1,709 per month. Letting activity and lease renewals at Dundrum 10

11 generated incremental gross annual rent of 58,720 in the period (new leases signed on 40 apartments and leases renewed on 8 apartments). The total net income from the Dundrum residential properties during the period was 2.6m representing a net to gross margin in excess of 80%. Total contracted residential income reduced by 300k as the Company obtained vacant possession of Cannon Place to carry out remedial works. As set out below, we are in discussions with potential tenants in a number of buildings where we have vacant space. Key asset management highlights See also Developments and Refurbishments section above for further details. Flexible workspace arrangement The flexible workspace arrangement with Iconic Offices ( Iconic ) in 21,000 sq. ft. of Block 1 Clanwilliam Court is trading well, with 87% of the workstations occupied and 72% of the available co-working memberships contracted as at the end of September 2017 and full capacity expected to be reached on both during November. Revenue and profitability are materially ahead of budget both for the quarter ended September 2017 and since operations commenced in April WML, South Docks The office development reached practical completion in late August 2017, and shortly afterwards Core Media agreed to take 24,000 sq. ft. on a 21-year lease (six month rent free) at an initial rent of 1.4m per annum. They joined Informatica which pre-leased the top two floors totalling 36,000 sq. ft. in March 2017 on a 17-year lease (six month rent free) at an initial rent of 2.1m per annum. As at the building was c. 50% let and since this has increased to 57% following a letting to international law firm Pinsent Masons, which has taken 10,000 sq. ft. on the ground floor on a 20-year lease (five months rent free) at an initial rent of 0.6m per annum. Discussions continue with potential occupiers regarding the remaining vacant space. In November 2017 we agreed a 20-year lease (12 month rent free) with Spar to move from their current location in 11,500 sq. ft. in 2WML to occupy the 8,000 sq. ft. retail unit in 1WML. Spar will pay an initial rent of 0.2m per annum ( 20psf). A surrender premium of 0.3m will be paid to the tenant to cover the costs of this move. Cannon Place, D4 The tenants in the 16 units have moved out to enable some remedial works to be carried out. The programme is expected to be completed by the end of December Central Quay, South Docks A ground floor office suite of c. 3,000 sq. ft. was let to Fragomen, a firm of solicitors, in June 2017 on a 10-year lease. Inspections are ongoing regarding the remaining vacant space on the ground floor (5,000 sq. ft.) and the third floor (11,000 sq. ft.). Chancery, D8 Terms have been agreed with a tenant to lease the vacant fourth floor (6,000 sq. ft.). The remainder of the building is fully let. Clanwilliam Court, Block 2 and Marine House, D2 In October 2017, the ESB leased the ground floor of Block 2 and second floor of Marine House (8,500 sq. ft. in total) on leases which run until 2020/21 (i.e. these terminate concurrently with other occupiers in the buildings) at a total rent of 0.4m per annum. Two Dockland Central, IFSC The repositioning works completed in early November (see further detail above). As at 31 March 2017, 66% 11

12 of the 57,000 sq. ft. under refurbishment was pre-let to HubSpot and ENI. As at this had increased to 70% following the pre-lease of a suite on the top floor to Fountain Healthcare at a rent of 55psf. Terms have been agreed with an occupier for the ground floor space which, if completed, would mean 93% of the refurbished space is let and 95% of the building overall. Other completed assets The remaining completed properties in the portfolio are close to full occupancy. The average period to rent review or lease expiry for the acquired in-place office portfolio (not including recently completed developments) is 2.9 years: the team is focused on the upcoming lease events and working closely with our tenants. Financial results and position As at 31 March 2017 Movement IFRS NAV - cent per share % EPRA NAV (1) - cent per share % Proforma IFRS NAV (1) (2) cent per share % Proforma EPRA NAV (1) (2) cent per share % Net debt (1) 181.0m 155.3m +16.6% Group LTV (1) 14.3% 13.3% +7.5% Financial period ended 30 September 2016 Movement Profit before tax for the period 70.7m 32.4m % EPRA earnings (1) 9.0m 8.0m +13.1% IFRS EPS 10.2 cent 4.7 cent % Diluted IFRS EPS 10.2 cent 4.7 cent % EPRA EPS (1) 1.3 cent 1.2 cent +8.3% Interim dividend per share (1) (DPS) 1.1 cent 0.75 cent +46.7% 1. An alternative performance measure ( APM ). The Group uses a number of such financial measures to describe its performance which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see the Alternative Performance Measures Section at the back of this report. 2. Based on valuers assessment of impact of increase in Stamp Duty rate on Hibernia s portfolio if it had been in place on (see Note 32.a of condensed consolidated interim financial statements). The key drivers of EPRA NAV per share, which increased 9.0 cent from 31 March 2017 were: cent per share from the revaluation of the property portfolio, including 2.6 cent per share in relation to development properties: the yield compression seen in the market helped the value of the Group s more prime assets cent per share from EPRA earnings in the period - Payment of the FY17 final dividend, which decreased NAV by 1.45 cent per share Net debt increased by 25.7m to 181.0m (LTV: 14.3%). Almost all of the increase in net debt related to development or refurbishment work with a further c. 0.8m due to maintenance expenditure. EPRA earnings for the period were 9.0m, up 13.1% compared to the same period in the prior year. The key driver of the increase was rental income from new lettings and a full period of ownership for Blocks 1, 2 & 5 Clanwilliam Court (which were acquired in July 2016). Administrative expenses (excluding performance 12

13 related payments) were 6.5m (Sept 2016: 6.3m). Performance related payments were 2.2m (Sept 2016: nil): the principal amount of this related to relative performance fees accrued based on the Group s outperformance of the MSCI/IPD Ireland index in the six months to September No such accruals were made in respect of the period ended September Profit before tax for the period was 70.7m, an increase of 118.0% over the same period last year mainly due to greater revaluation gains. The stamp duty increase from 2% to 6% occurred in early October 2017 and consequently the impact is not reflected in the financial statements as at. For further details on the estimated impact had this increase been effective as at, please see below. The Group s investment properties were valued by CBRE as at 31 March Cushman & Wakefield ( C&W ) was appointed by Hibernia in September 2017 following a tender process after a rotation of the Group s retained valuers was considered and approved by the Audit Committee. Financing and hedging As at, the Group s net debt was 181.0m, a loan to value ratio ( LTV ) of 14.3%, having increased from a net debt position of 155.3m (LTV of 13.3%) at 31 March 2017 primarily due to capital expenditure on developments. The Group s main debt facility is a 400m revolving credit facility ( RCF ) with Bank of Ireland, Barclays and Ulster Bank which matures in November The Group also has a 44.2m non-recourse debt facility with Deutsche Bank for Windmill Lane (the 1WML facility ) which matures in June 2019 and is currently 17.1m drawn. Since mid-2017 the Group has been using the RCF to fund capital expenditure on 1WML and it remains its intention to repay and cancel the 1WML facility in early 2018 once early repayment penalties expire, given the cash and undrawn facilities currently available to the Group and the relatively high cost of the 1WML facility. Cash and undrawn facilities as at totalled 263.2m or 150.0m net of committed capital and the intended repayment of the 1WML facility. Assuming repayment of the 1WML facility and the investment of the remaining RCF funds in property, the LTV, based on property values at, would be c. 27.0%. The Group s through-cycle leverage target remains 20 30% LTV. The Group has a policy of fixing or hedging the interest rate risk on the majority of its drawn debt. As at 31 March 2017 it had interest rate caps and swaptions with 1% strike rates in place covering the interest rate risk on 100m of the RCF drawings over the period until November 2020 (when the RCF expires). In September 2017 the Group entered further interest rate caps and swaptions, again with 1% strike rates, for the period from November 2017 to November 2021: initially these new instruments cover the interest rate risk on a further 50m of RCF drawings, rising to 100m in February 2018, at which point 200m of RCF drawings will be covered. The interest rate exposure of the 1WML facility has also been hedged using an interest rate cap with a 1% strike rate. Dividend The total dividend paid by the Group in respect of the year ended March 2017 was 2.2 cent per share (2016: 1.5 cent). Consistent with its policy of paying an interim dividend totalling 30-50% of the total regular dividends paid in respect of the prior year, the Board has declared an interim dividend of 1.1 cent per share (2016: 0.75 cent). All of this dividend will be a Property Income Distribution ( PID ) in respect of the Group s property rental business as defined under the Irish REIT legislation. The interim dividend will be paid on 25 January 2018 to shareholders on the register as at 5 January Hibernia s Dividend Reinvestment Plan ( DRIP ) remains in place, allowing shareholders to instruct Link, 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 are available on the Group s website. 13

14 ESTIMATED IMPACT OF CHANGE IN STAMP DUTY In the 2018 Budget the Irish Government increased stamp duty on Irish commercial property transactions from 2% to 6%, with effect from 11 October This has led to an immediate one-off reduction in values of commercial investment properties of c. 4%. It remains to be seen what impact, if any, there will be on the investment market in the longer term. Cushman & Wakefield, the Group s independent valuers, have calculated that the reduction in the value of the Group s property portfolio had the stamp duty change been in place on would have been 53.7m. This represents a 4.2% reduction in the value of the Group s portfolio as at 30 September and a 4.7% reduction in the value of the Group s office portfolio, including developments. The reduction in the value of the office portfolio is greater than 4% because of the residual methodology used in assessing the Group s development assets: the current value of an asset under development is calculated by reference to the estimated gross development value ( GDV ) of the asset when completed less the expenditure required to complete and a developers profit margin. The percentage reduction in the GDV as a result of the stamp duty is magnified in the percentage reduction in the current value of the site given that this is generally less than the GDV. Secondly, if the site was sold during development, stamp duty would also need to be charged on the value of the site: this stamp duty double count also increases the impact of the stamp duty increase on the value of development assets, though it will unwind upon completion of the development. The impact on the EPRA NAV per share of the Group had the change been in effect on is estimated to be a reduction of approximately 7.8c per share from 155.3c to 147.5c, a 5.0% reduction. The stamp duty change has no impact on current distributable reserves and dividends as it relates to unrealised gains and losses on the portfolio. Selected portfolio information 1. Top 10 in-place office occupiers by contracted rent and % of contracted in-place office rent roll Top 10 Tenants Contracted Rent m % Sector 1 Office of Public Works Government 2 Twitter International Company TMT 3 Bank of Ireland Banking and Capital Markets 4 Informatica Ireland EMEA TMT 5 DEPFA Bank plc Banking and Capital Markets 6 Travelport Digital TMT 7 Core Media TMT 8 BNY Mellon Banking and Capital Markets 9 ComReg Government 10 Electricity Supply Board Government Top ten total Rest of portfolio Total contracted in-place office rent

15 2. In-place office contracted rent by business sector Sector 'm % TMT Government Banking & Capital Markets Professional Services Other Insurance & Reinsurance Total In-place office contracted rent and WAULT progression Sep-16 Mar-17 Sep-17 All office contracted rent 40.2m +5% 42.1m +3% 43.5m In-place office contracted 40.2m (5%) 38.0m +9% 41.3m rent In-place office WAULT (1) 5.9 yrs +14% 6.7yrs +3% 6.9 yrs In-place office vacancy (2) 6% 3% 10% (3) Analysis excludes agreement with Iconic Offices at Clanwilliam 1. To earlier of break or expiry 2. By net lettable office areas. Office area only i.e. excl. retail, basement, gym, townhall etc.) 3. Following completion of 1WML 12 Technology, Media and Telecommunications 15

16 Principal Risks and Uncertainties There are a number of risks and uncertainties which could have a material impact on the Group s performance and could cause actual results to differ materially from expected results. The Directors consider that the principal risks and uncertainties to the Group, which are set out on pages 36 to 41 of the 2017 Annual Report, are materially unchanged for the remaining six months of the financial year. These risks and uncertainties are summarised, together with a short update where relevant, below. Strategic risks: inappropriate business strategy Budget 2018 introduced an increase in the rate of stamp duty on Irish commercial property transactions from 2% to 6% with effect from 11 October 2017 and this is expected to have a one-off negative impact on asset values (Note 32 of the Condensed Group Financial Statements), though yield compression in the market since 31 March 2017 may negate this for pima assets. It remains to be seen if the change has any impact on the investment market in the longer term. Otherwise, tenant demand remains strong and the Group is focusing particularly on the delivery of its development schemes: in the first half of the financial year it has made a number of new lettings. Market risks: weakening economy/under performance of Dublin property market External risks from Brexit and the policy direction of the US presidential administration have increased risks but the Irish and Dublin economies continue to grow strongly: the Department of Finance expects Irish GDP growth of 4.3% in 2017 and 3.5% in The Group has continued to work to extend its WAULT which now stands at 6.9 years for the in-place office portfolio, up from 6.7 years at 31 March This reduces vacancy risks in a market downturn. Development risks: poor execution of development projects An experienced Head of Project Management was appointed in June 2017 to support the Director of Development. During the period, the Group has completed 1WML, consisting of 124k sq.ft. which is now 57% let, with discussions continuing regarding the remaining space. As at, the Group had three committed schemes totalling 231k sq. ft.: 2DC (57k sq.ft.) completed in November 2017, and the remaining schemes are expected to complete at the end of Investment risks: poor/mis-timed investment or sale or asset allocation The Group now has a portfolio valued at over 1.2 billion and has slowed its rate of acquisition, with no material new acquisitions made since 31 March Looking ahead, the Group s net acquisition spend is likely to continue to be relatively modest. The Group has built a balanced portfolio comprising 29 properties since commencement of operations. As at the largest single asset represented 11% of the portfolio by value (11% as at March 2017). The portfolio s top 10 tenants account for 65% of the contracted rent roll as at 30 September 2017 (67% as at March 2017). Asset management risks: poor asset management leading to underperformance The Group continues to work to improve its buildings and strengthen tenant relationships and increase the level of service through its building management company. Finance risks: inappropriate capital structure or lack of available funding At the Group s indebtedness remained relatively low with a LTV ratio of 14.3% (31 March 2017: 13.3%). Committed capital expenditure in the next 18 months is expected to increase the LTV ratio to c. c.20%. At the Group had cash and undrawn facilities totalling 263m, or 150m net of committed capital expenditure and the anticipated repayment of the WML facility (31 March 2017: 289m or 150m). The Group continues to monitor its capital requirements closely. No covenant breaches have occurred in the period. People risks: Loss of key staff and/or motivation There have been no changes to the risks in this area. The Remuneration Committee continues to focus on plans for employee incentivisation post November 2018 when the current arrangements expire. 16

17 Regulatory & tax risk: adverse changes or failure to comply with legislation including the REIT regime As mentioned above, Budget 2018 introduced an increase in the rate of stamp duty on Irish commercial property transactions from 2% to 6% with effect from 11 October 2017 which is expected to have a one-off negative impact on commercial property values. Business interruption risks: adverse external event We believe the risk of cyber-attack continues to increase for all businesses in Ireland though we have taken steps to address this through improving our IT security measures. Other business interruption risks remain stable. 17

18 Directors Responsibilities Statement Each of the Directors, whose names appear on page 64 of this report confirm to the best of their knowledge that the condensed consolidated interim financial statements in the Half Yearly Financial Report have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union ( EU ) and the interim management report 13 herein contains a fair review of the information required by Disclosure and Transparency Rules of the Central Bank of Ireland, namely: - Regulation 8(2) of the Transparency Directive (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the period from 1 April 2017 to 30 September 2017 and their impact on the half yearly financial report, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and - Regulation 8(3) of the Transparency Directive (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place during the period from 1 April 2017 to and that have materially affected the financial position or performance during the period. Signed on behalf of the Board Kevin Nowlan Chief Executive Officer Thomas Edwards-Moss Chief Financial Officer 15 November Comprising the Business Review and Principal Risks and Uncertainties 18

19 INDEPENDENT REVIEW REPORT TO HIBERNIA REIT PLC We have been engaged by Hibernia REIT p.l.c. (the company ) to review the condensed consolidated set of financial statements included in the half-yearly financial report for the six months ended which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and the related notes 1 to 32 ( the condensed set of financial statements ). We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of financial statements. This report is made solely to the company in accordance with International Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the International Auditing and Assurance Standards Board ( ISRE 2410 ). Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this review report, or for the conclusions we have formed. Directors responsibilities The half yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland. As disclosed in note 2a Statement of Compliance, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as adopted by the European Union. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with ISRE A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 19