Hibernia REIT : Half yearly financial report

Half yearly financial report

For the six-month period to 30 September 2017

16 November 2017

Hibernia REIT plc ('Hibernia', the 'Company' or the 'Group') today announces its interim results for the six months to 30 September 2017. Highlights for the period:

Good financial performance helped by yield compression and developments

· Investment property portfolio value of €1,265.6m, up 5.2% in the period (developments up 8.4%)

· Six-month total property return of 7.2% vs IPD Ireland Index of 4.8%

· EPRA NAV per share of 155.3 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 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%

· 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 sq. ft.) completed in November 2017, delivering a profit on cost >35%

· 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 now €49.5m, up 7.1% on 30 September 2016

· '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' 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 at 30 September 2017 of €181.0m, LTV 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 30 September 2017:

o Portfolio value and profit before tax would have reduced by €53.7m

o Proforma EPRA NAV per share would have been 147.5 cent, up 0.8% since March 2017

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 +353 1 536 9100
Kevin Nowlan, Chief Executive Officer
Tom Edwards-Moss, Chief Financial Officer

Murray Consultants
Doug Keatinge: +353 86 037 4163, dkeatinge@murrayconsultants.ie
Jill Farrelly: +353 87 738 6608, 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)1 436 0959
Ireland Toll-Free: 1800 930 488

Participant code: 830614

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.

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 2016 6,100 IDA-sponsored jobs were created in Dublin alone, comparing favourably with the five-year average of 4,900 annual job additions in the county (source: IDA). 2017 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 30 September 2017 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 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 year-to-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 nine-month 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 2017.

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 Q3 2017 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 2017. 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 €55.00 psf and term to break in excess of 12 years. 2017 also witnessed the sale of a 130,000 sq. ft. office building mid-construction to JP Morgan.

2016 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 2020. 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 1993 - 2002 and 51% in 2003 - 2011 (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 2019. 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 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 Q3 2017 (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 H1 2017 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).

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 30 September 2017 (six months to Sept 2016: acquisition spend €52.4m)

Portfolio overview

As at 30 September 2017 the property portfolio consisted of 29 investment properties valued at €1,266m (31 March 2017: 28 investment properties valued at €1,167m), which can be categorised as follows:

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

The office element of our portfolio had the following statistics at 30 September 2017:

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) giving us further potential to enhance portfolio income and duration.

The 'in-place' office portfolio occupancy level at 30 September 2017 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 30 September 2017 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 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 30 September 2017, 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 2018. 23% 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 2017

· 1 Sir John Rogerson's Quay ('1SJRQ'):construction work continues and the scheme remains on track to complete in mid-2018. 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 30 September 2017 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. €10-15m of difference to the development profits, and a €2.50psf change in estimated rental value ('ERV') would result in a c.€10m difference.

Please see further details on the development schemes below:

1. Per C&W valuation at 30 Sept 2017

2. 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.

8. €9.4m net of dilapidation received

9. Est. total cost psf is net of dilapidations

10. For entire 73k sq. ft. €50.26psf for refurbished space only

11. €62.4m 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:

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 2016. 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 30 September 2017 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 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 2017.

1WML, 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 30 September 2017 the building was c. 50% let and since 30 September 2017 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 2017.

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% of the 57,000 sq. ft. under refurbishment was pre-let to HubSpot and ENI. As at 30 September 2017 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

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 30 September 2017 (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:

- 9.0 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

- 1.3 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 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 2017. No such accruals were made in respect of the period ended September 2016.

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 30 September 2017. For further details on the estimated impact had this increase been effective as at 30 September 2017, please see below.

The Group's investment properties were valued by CBRE as at 31 March 2017. 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 30 September 2017, 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 2020. 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 30 September 2017 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 30 September 2017, 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 4 January 2018.

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.

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 2017. 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 30 September 2017 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 30 September 2017 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

2. 'In-place' office contracted rent by business sector

3. 'In-place' office contracted rent and WAULT progression

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

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 2018. 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 2017. 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 30 September 2017, 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 2018.

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 2017. 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 30 September 2017 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 30 September 2017 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 30 September 2017 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.

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.

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 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 30 September 2017 and that have materially affected the financial position or performance during the period.

Signed on behalf of the Board

Kevin Nowlan Thomas Edwards-Moss

Chief Executive Officer Chief Financial Officer

15 November 2017

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 30 September 2017 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 2410. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

INDEPENDENT REVIEW REPORT TO HIBERNIA REIT PLC (Continued)

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 September 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

Deloitte

Chartered Accountants and Statutory Audit Firm

Dublin

15 November 2017

Condensed Consolidated Income Statement

For the six months ended 30 September 2017

The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.

Condensed Consolidated statement of comprehensive income

For the six months ended 30 September 2017

The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.

Condensed Consolidated Statement of Financial Position

As at 30 September 2017

The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.

.

Condensed Consolidated Statement of Changes in Equity

For the period from 1 April 2016 to 30 September 2017

The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.

Condensed Consolidated Statement of Cash flows

For the six-month period 1 April 2017 to 30 September 2017

The notes on pages 26 to 60 form an integral part of these condensed consolidated interim financial statements.

Notes to the condensed consolidated interim financial statements

1. General Information

Hibernia REIT plc, the 'Company', together with its subsidiaries and associated undertakings as detailed in Note 30 (the 'Group'), is engaged in property investment and development (primarily office) in the Dublin market with a view to maximising its shareholders' returns.

The Company is a public limited company and is incorporated and domiciled in Ireland. The address of the Company's registered office is South Dock House, Hanover Quay, Dublin, D02 XW94, Ireland.

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. Basis of preparation

a) Statement of compliance and basis of preparation

The annual 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. These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reportingas adopted by the EU.

The interim figures for the six months ended 30 September 2017 are unaudited but have been reviewed by the independent auditor whose report is set out on pages 19 to 20 of this report. The summary financial statements for the year ended 31 March 2017 that are presented in the condensed consolidated interim financial statements represent an abbreviated version of the full accounts for that year on which the independent auditor, Deloitte, issued an unqualified audit report and which are not annexed to these interim financial statements. The half yearly financial statements herein are non-statutory financial statements for the purposes of the Companies Act 2014 and in compliance with Section 340(4) of that Act.

The Group has not early adopted any forthcoming IASB standards (Note 3).

The consolidated financial statements of the Group for the year ended 31 March 2017 ('The Annual Report 2017') are available upon request from the Company Secretary or from www.hiberniareit.com. The financial statements for the financial year ended 31 March 2017 have been filed in the Companies Registration Office.

b) Functional and presentation currency

These condensed consolidated interim financial statements are presented in Euro (€), which is the Company's functional currency and the Group's presentation currency.

c) Basis of consolidation

The condensed consolidated interim 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 Act 2014. The Group financial statements therefore comply with Article 4 of the EU IAS Regulation.

The condensed consolidated interim financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties, owner occupied buildings 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.

d) Assessment of going concern

The condensed consolidated interim financial statements have been prepared on a going concern basis. The Directors have performed an assessment of going concern for a minimum period of 12 months from the date of this statement and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 30 September 2017 of €19m (31 March 2017: €18m), is generating positive operating cash‑flows and, as discussed in Note 25, has in place debt facilities with an average period to maturity of 3.2 years and an undrawn balance of €245m at 30 September 2017 (31 March 2017: €289m). 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) Significant judgements

The preparation of the financial statements may require management to exercise judgement in applying the Group's accounting policies. The following are the significant judgements and key estimates used in preparing these financial statements:

Fair value

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 condensed consolidated interim 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 IAS 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:

1. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

2. 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

3. Level 3 inputs are unobservable inputs for the asset or liability.

Valuation basis of investment properties

- All investment properties as at 30 September 2017 are valued in accordance with their current use, which is also the highest and best use, except for:

· Harcourt Square where, in accordance with IFRS 13:27, the valuers have determined that the highest and best use of this property would be the demolition of the existing building and the completion of a new development on the site once vacant possession is achieved. It is therefore valued on this basis after the expiry of the current expiry in December 2022. It is the Directors' intention to pursue the redevelopment of this property when the existing lease has expired.

· Cannon Place apartment building has been valued on a break up basis which is the highest and best use for this building.

- Block 3, Wyckham Point: This property is held for long-term property rental and was developed on this basis. The units comprising this property were completed on a phased basis by the Group during 2015. VAT was payable both on the acquisition and on the construction costs which were treated as irrecoverable and recognised as part of the capital costs of the project. If this property is sold within five years of completion, i.e. before mid-2020, the Group would be obliged to charge VAT on the sale but would be entitled to a recovery of the VAT incurred on the construction and acquisition costs on an apportioned basis according to the VAT life of the building. As this property is not intended to be sold within the five-year period, in the opinion of the Directors, no amendment to the valuer's valuation of this asset is deemed necessary.

Provisions for taxes

Where properties have been significantly developed or redeveloped by the Group, if the asset was to be sold within three years of completion, the Group would be liable to tax on any profits arising on the disposal under S.705G Taxes Consolidation Act 1997. No provision is currently being made for potential deferred tax on revaluations on these properties that have been significantly developed, since in the judgement of the Directors, these assets are held for longer term rental income and capital appreciation and therefore they will not be sold within the three-year period.

f) Key estimates

Valuation of investment properties

The Group's investment properties are held at fair value and were valued at 30 September 2017 by the external valuer Cushman and Wakefield ('C&W') a firm employing qualified valuers in accordance with the appropriate sections of the Royal Institute of Chartered Surveyors ('RICS') Professional Standards, RICS Global Valuation Practice Statements and the RICS Global Valuation Practice Guidance - Applications contained within the RICS Valuation - Global Standards 2017 (the 'Red Book'). It follows that these valuations are compliant with International Valuation Standards and therefore also with International Financial Reporting Standards. Further information on the valuations and the sensitivities is given in Note 18. The Group's investment properties were valued by CBRE as at 31 March 2017. 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.

The Board conducts 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 publicly available and a degree of judgement. The valuation is based upon the key assumptions of estimated rental values and market based yields. The approach to developments and refurbishments is on a residual basis and factors such as the assumed timescale, the assumed future development cost and an appropriate finance and/or discount rate are used to determine the property value together with market evidence and recent comparable properties where appropriate. In determining fair value, the valuers refer 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 C&W. 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 C&W is adjusted by the fair value of the rental income accruals ensuing from the recognition of these incentives. The total reduction in the external valuer's investment property valuation in respect of these adjustments was €5.2m (Note 18) (31 March 2017: €4.1m).

There were no other significant judgements or key estimates that might have a material impact on the condensed consolidated interim financial statements at 30 September 2017.

g) Change of stamp duty rates

These condensed consolidated interim financial statements are prepared based on market conditions in place at 30 September 2017. 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. Note 32.a analyses the estimated impact of this increase on the valuation of the Group's investment properties at 30 September 2017, had this change been in place at that date.

3. Application of new and revised International Accounting Standards (IFRS)

The Group has not adopted any new or amended accounting pronouncements which have impacted on the half yearly report.

Upcoming IFRS implementations

IFRS 9: Financial Instrumentsreplaces IAS 39 Financial Instruments: Measurement and Recognition and is effective for annual periods beginning on or after 1 January 2018. While minor amendments may arise due to changes in hedge accounting, implementation is not expected to have a material impact on the Group's financial statements.

IFRS:15 Revenue from Contracts with Customersis valid for periods starting on or after 1 January 2018 and specifies how and when an entity recognises revenue from a contract with a customer. This will be effective for the financial year ended 31 March 2019. The Group has reviewed its revenue streams to consider the impact of IFRS 15 on the financial statements. Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied. The Group's main source of revenue is from the leasing of properties and revenue is recognised in accordance with IAS 17: Leases and SIC 15: Operating Leases-Incentives. Rental and other income is recognised over the period of the contract in accordance with the principles in IFRS 17. IFRS 15 will apply to service charge income, performance fees and miscellaneous minor contracts but it is expected that there will be no material impact from the adoption of this standard.

IFRS 16: Leasesis applicable for annual periods beginning on or after 1 January 2019 will apply to the operating leases applicable to the Group's Investment property but is not expected to materially change the Group's accounting in relation to these items as lessor accounting arrangements remain largely unchanged from IAS 17.

4. Significant accounting policies

The accounting policies and methods of computation employed in the preparation of the condensed consolidated interim financial statements are consistent with those employed in the preparation of the most recent annual consolidated financial statements in respect of the year ended 31 March 2017. These condensed consolidated interim financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should therefore be read in conjunction with the Group's Annual Report in respect of the year ended 31 March 2017.

5. Remuneration to the Investment Manager

On 27 October 2015 at an Extraordinary General Meeting of the Company, the shareholders approved the acquisition of the Investment Manager, WK Nowlan REIT Management Limited. On 5 November 2015, the Company completed this acquisition by acquiring the entire share capital (100% of voting equity) of WK Nowlan REIT Management Limited and its parent, Nowlan Property Limited (together 'the Acquirees') from the companies' shareholders (the 'Vendors'). This transaction was carried out to internalise the investment management function.

As part of the arrangements in this transaction, amounts were paid or agreed to be paid for future services. These arrangements continue until November 2018, the date on which the Investment Management Agreement ('IMA') was due to expire.

These arrangements fall into three categories:

A. Remuneration for future services

A payment of €14.2m, the 'Initial Payment', was made in November 2015. The fair value of this payment was €15.1m due to the movement in the share price for the share based portion.

This payment was made subject to clawback arrangements for those Vendors who remain tied to the Company by employment or service contracts. The clawback arrangements applying to one third of this payment are removed on each anniversary of the acquisition date until November 2018. €2.2m was recognised as 'Prepaid remuneration expense' (Note 11) in the condensed consolidated income statement in the six months ended 30 September 2017 (30 September 2016: €2.2m) and €4.9m (31 March 2017: €7.1m) is included in trade and other receivables as prepaid remuneration and split between current and non-current elements (Note20).

B. Performance related payments

Performance related payments comprise absolute and relative performance fees as described under the IMA. These amounts are calculated and paid annually to the Vendors of the Investment Manager, contingent for the majority of Vendors on the fulfilment of their service obligations.

Performance fees are earned for performance over 12-month periods. Performance fees of €1.9m (30 September 2016: €nil) were provided for in the six months ended 30 September 2017: these reflected the Group's relative outperformance of the MSCI/IPD Ireland index in the period and also factored in the estimated impact of the stamp duty changes.

C. 'Top-up' internalisation expense for the period

'Top-up' internalisation expense for period is €0.9m (30 September 2016: €0.7m) and relate to management fees that would have been due under the IMA as a result of increases in NAV in the period since internalisation.

Summary of performance related payments

The estimated amount due to the Vendors based on performance and 'top-up' fees in the period is therefore €2.5m (30 September 2016: €0.7m), all of which will be payable in shares of the Company (Note 12) after 31 March 2018, assuming that there are no changes in the performance fee calculation in the second half of the year.

The payments above, while remuneration in nature due to the existence of clawback, vesting or service conditions, are not under the discretion of the Remuneration Committee but were determined in the share purchase agreement for the acquisition of the Investment Manager and approved by the shareholders of the Company at the Extraordinary General Meeting of the Company held on 27 October 2015.

All amounts of fees payable in shares are further analysed in Note 12 to the condensed consolidated interim financial statements and are recorded at fair value as at the end of the financial period.

6. Operating segments

The Group is organised into five business segments, against which the Group reports its segmental information, being 'Office Assets', 'Office Development Assets', 'Residential Assets', 'Industrial Assets', and 'Central Assets and Costs'. Segment analysis is based on the type of investment property with other assets containing non-core assets. Central Assets and Costs include the Group head office assets, some residual non-core assets, and expenses. All the Group's operations are in Dublin 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. No segments are aggregated.

Central 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 service charge income, and other gains and losses such as development management fees), 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 performance measures to the Board such as EPRA Net Initial Yield ('NIY') and EPRA 'Topped‑ Up' NIY, which measure the 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. Passing rent is the actual cash rent being received from tenants at the period end, i.e. excluding accounting adjustments for rental incentives.

Group Consolidated Segment Analysis

For the six months ended 30 September 2017

Group Consolidated Segment Analysis

For the period ended 30 September 2016

7. Total revenue

Rental income arises from the Group's investment properties and all revenue is from external customers. Significant concentrations in revenue may arise in rental income and the percentage of rental income from the Group's top ten tenants are disclosed on page 14 of this half yearly financial report.

8. Rental income

9. Net property expenses

Service charge income relates to contributions from tenants of buildings for the property expenses of the occupied buildings managed by the Group. Service charge expense includes building management staff costs and all other costs of managing the buildings. Building management fees are accounted for through the service charge income line along with the amounts invoiced to tenants. Other property expenses consist mainly of vacancy costs of commercial properties as well as residential property costs.

10. Other gains and (losses)

Other gains and (losses) arise mainly from the fair value movements on share based payments. A €0.9m loss was recognised relating to shares issued during the period in settlement of performance related payments for the year ended 31 March 2017 (30 September 2016: €0.2m) (Note 22).

11. Administration Expenses

Operating profit for the period has been stated after charging:

All fees paid to non-executive directors are for services as directors. Non-executive directors receive no other benefits with the exception of William Nowlan who also received fees as a Vendor. Please see Note 31: Related partiesfor further details.

Prepaid remuneration expense relates to the recognition of payments to Vendors of the Investment Manager that are contingent on the continued provision of services to the Group over the period during which the Group benefits from those services and is further discussed in Note 5. 'Top-up' internalisation is due to Vendors based on increases in management fees that would have been due under the IMA as a result of increases in NAV since 31 March 2017.

12. Share based payments

As at 30 September 2017 the Group had the following share based payment arrangements:

a. Performance related payments

As part of the arrangements for the internalisation of the Investment Manager in 2015, it was agreed that any future performance fees and other payments due under the terms of the Investment Management Agreement ('IMA'), would be made in shares of the Company until the expiry of the agreement in November 2018. The calculation of these amounts is determined using the EPRA Net Asset Value of the Group at the financial year end and the investment property returns as determined by MSCI/IPD (Investment property databank) and using calculation protocols as set out in the Investment Management Agreement or as subsequently modified by shareholder agreement at an EGM on 26 October 2016.

These amounts are referenced to the average closing price of Hibernia shares on the Irish Stock Exchange for the 20 business days preceding the grant date in order to calculate the number of shares that should be issued for any such award.

Once the NAV, including valuation of the investment properties, is determined, the amount of the award is fixed and the Directors have determined that the grant date for the share based payment is the date on which the calculation is fixed, i.e. 31 March each year. €2.8m has been provided in the six months ending 30 September 2017 (30 September 2016: €0.7m). This includes 'top-up' fees of €0.9m (30 September 2016: €0.7m) (Note 5.B).

Shares issued relating to performance-related payments to Vendors that remain obliged to perform future services for the Group are subject to lock-up provisions meaning they are restricted from being sold upon receipt, with one third of the shares being 'unlocked' on each anniversary of issue date. All shares are beneficially owned by the recipients and all voting rights and rights to dividends accrue to them. The Directors considered the likelihood of the clawback provision being triggered on these shares, the difficulty in measuring this provision, and the likelihood that any discount to be applied would be material. They concluded that it was inappropriate to modify the fair value of the shares issued to reflect these restrictions and that the shares issued would be valued without any discount to reflect these restrictions.

b. Employee long term incentive plan

Awards may be granted to employees of the Group under a remuneration plan which includes both cash elements and share-based long-term incentive payments (the 'Performance Related Remuneration Scheme' or 'PRR'). Until the expiry of the performance related payments referenced in part a) above in November 2018, the PRR will be funded principally by deductions of up to 15% from any Performance Fees included in this payment. Shares awarded under the PRR, 50% of the total award or up to 7.5% of the performance related payments at a) above, are in the form of a contingent grant of Company shares which will issue at the time of vesting, which occurs on the third anniversary of the start of the year to which they relate. The number of shares is calculated based on the average closing price for the 20 business days preceding the end of the period to which the award relates. These shares are recorded at fair value on the contingent grant date, i.e. the 31 March of the year to which they are earned.

Shares are forfeited should the person leave the Group prior to the vesting date unless subject to 'good leaver' provisions. Any shares forfeited are transferable to the Vendors on the basis that these shares have been deducted from performance fees that would otherwise have been due to the Vendors. Therefore, there is no impact on fair value measurement in respect of these shares.

Share based payments made and provided during the period:

Period ended 30 September 2017 (Unaudited)

Shares issued during the period:

6,895,231 Ordinary Shares of €0.10 were issued during the period in settlement of performance related fees due at 31 March 2017. The number of shares is determined by reference to the contract price. The fair value at the grant date was €8.6m. These shares were issued on 3 July 2017 on which day the prior closing price was €1.375.

Year ended 31 March 2017 (Audited)

Shares issued during the period:

4,200,590 Ordinary Shares of €0.10 were issued during the period in settlement of performance related fees due at 31 March 2016. The number of shares is determined by reference to the contract price. The fair value at the grant date was €5.5m. These shares were issued on 16 August 2016 on which day the prior closing price was €1.36.

Six months ended 30 September 2016 (Unaudited)

Shares issued during the period:

4,200,590 Ordinary Shares of €0.10 were issued during the period in settlement of performance related fees at a fair value of €1.302 on 31 March 2016, the grant date, giving a total recorded amount of €5.5m in settlement of fees due.

13. Finance income and expense

The effective interest expense on borrowings arises as a result of the recognition of interest expense, commitment fees and amortisation of arrangement fees.

Interest costs capitalised in the period were €1.3m (30 September 2016: €nil) in relation to the Group's development and refurbishment projects. The rate used, 4.2%, is the effective interest rate on the cost of borrowing applied to the portion of investment that is financed by the relevant facility.

14. Income tax

Hibernia REIT plc has elected for Real Estate Investment Trust ('REIT') status under section 705E Tax Consolidation Act 1997. 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.

15. Dividends

The Board has declared an interim dividend of 1.1 cent per share (30 September 2016: 0.75 cent) which will be paid to shareholders in January 2018. All of the interim dividend of 1.1 cent per share will be a Property Income Distribution ('PID') in respect of the Group's property rental business as defined under the Irish REIT legislation (30 September 2016: 0.75 cent).

16. Earnings per Share

There are no convertible instruments, options, warrants on ordinary shares in issue as at the periodended 30 September 2017. However, the Company has established a reserve of €4.1m (30 September 2016: €1.1m) against the issue of ordinary shares relating to the payment of performance related amounts due under the performance related payment element of the Share Purchase Agreement relating to the internalisation of the Investment Manager and amounts due under long term incentive arrangements for employees not included in the internalisation arrangements (Notes 5and 12). It is estimated that approximately 2.7m ordinary shares (30 September 2016: 0.8m shares) will be issued and the details of these amounts are set out in Note 12. The dilutive effect of these shares is disclosed below.

The calculations are as follows:

17. Property, plant and equipment

The Group occupies 54% (31 March 2017: 54%) of the office space in its South Dock House property. This property was revalued as at 30 September and 31 March 2017 by the Group's valuers and in accordance with the valuation approach described under Note 2. (f).

At 31 March 2017

18. Investment properties

2WML('The Hanover Building') was vacated and ready for redevelopment at 1 April 2017 and was therefore transferred to Office development assets on that date. 1WML development was substantially complete and transferred into Office assets at the period end. Both transferred at fair value at the relevant date.

Reconciliation of the independent valuer's valuation report amount to the carrying value of investment property in the condensed consolidated statement of financial position:

Rental incentives adjustment: this relates to the difference in valuation that arises as a result of property valuations using a cashflow based approach while incentives given to tenants under lease arrangements are recognised as an integral part of the net consideration agreed for the use of the leased asset and the aggregate cost of such incentives is recognised as a reduction of rental income on a straight-line basis over the lease term.

The valuations used to determine fair value for the investment properties in the condensed consolidated interim financial statements for the six months ended 30 September 2017 are determined by C&W, the Group's independent valuer, and are in accordance with the provisions of IFRS 13. C&Whas agreed to the use of their valuations for this purpose as did CBRE, who previously acted as the Group's independent valuer. Some of the inputs to the valuations are defined as 'unobservable' by IFRS 13. As discussed in Note 2. (e) of this report, 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. Valuations are completed on the Group's investment properties on at least a half yearly basis and are in accordance with the appropriate sections of the Royal Institute of Chartered Surveyors ('RICS') Professional Standards, RICS Global Valuation Practice Statements and the RICS Global Valuation Practice Guidance - Applications contained within the RICS Valuation - Global Standards 2017 (the 'Red Book'). It follows that these valuations are compliant with International Valuation Standards. This takes account of the properties' highest and best use. Where the highest and best use is not the current use, the valuation will account for the costs and likelihood of achieving this use in arriving at a valuation estimate for that property. In the period to 30 September 2017, for most properties the highest and best use is the current use except as discussed in Note 2.(e). In these instances, the Group may need to achieve vacant possession before re-development or refurbishment may take place and the valuation of the property takes account of any remaining occupancy period on existing leases. The table below summaries the approach for each investment property segment and highlights properties where the approach has been varied.

The method that is applied for fair value measurements categorised within Level 3 of the fair value hierarchy is the yield methodology using market rental values capitalised with a market capitalisation rate or yield or other applicable valuation technique. Using this approach for the Group's investment properties, values of investment properties are arrived at by discounting forecasted net cashflows at market derived capitalisation rates. This approach includes future estimated costs associated with refurbishment or development, together with the impact of rental incentives allowed to tenants. Therefore, for example, development properties are assessed using a residual method in which the completed development property is valued using income and yield assumptions and deductions are made for the estimated costs to completion, including finance costs and developers' profit, to arrive at the current valuation estimate. In effect, this values the development as a proportion of the completed property.

The following table illustrates the methods applied to each segment: