Hibernia REIT : Preliminary Results for the year to 31 March 2018

Preliminary Results

For the financial year to 31 March 2018

24 May 2018

Hibernia REIT plc ('Hibernia', the 'Company' or the 'Group') today announces its preliminary results for the financial year to 31 March 2018. Highlights for the financial year:

Strong financial performance despite stamp duty increase, outperforming Dublin market

· Portfolio value of €1,308.7m, up 6.6%^[1] in the year (developments up 18.3%^1,[2])

· 12-month total property return^[3],4 of 11.6% vs IPD Ireland Index of 6.8%

· EPRA NAV^[4] per share of 159.1 cent, up 8.7% in the year and 2.4% in H2 (7.4% excl. stamp duty change)

· Net rental income of €45.7m, up 15.1% on prior year (March 2017: €39.7m)

· Profit before tax of €107.1m including revaluation surplus (March 2017: €119.0m)

· EPRA EPS⁴ of 2.8c, up 27.3% on prior year (March 2017: 2.2c)

Disciplined and profitable recycling of capital, enhancing portfolio

· Sale of three smaller assets for €35.8m, prices in aggregate 20.6% ahead of Sept 2017 carrying values

· Acquisitions totalling €39.1m made, primarily

o 77 SJRQ: 34,000 sq. ft. office purchased and simultaneously let, driving immediate valuation gain

o Gateway: 31.3 acres adjacent to existing site purchased

Development programme delivering and pipeline projects progressing

· Two schemes, 1WML and 2DC, completed in the year, delivering 197,000 sq. ft. of Grade A offices and profit on cost of >65% (at completion)

· Three committed schemes totalling 222,000 sq. ft. Grade A offices now in progress

o 1SJRQ and 2WML (172,000 sq. ft.) both delivering by end of 2018, completing the Windmill Quarter

o Cumberland Place Phase II (50,000 sq. ft., H1 2020 completion) committed in May 2018

· Progress made with longer-term pipeline of four schemes

o Preparing and optimising the three pipeline office schemes totalling 505,000 sq. ft. post completion

o Gateway Land holding now 45.4 acres, planning application made for new access road

Income and WAULT of portfolio increasing due to new lettings and rent reviews

· Annual contracted rent roll⁴ now €56.0m and 'in-place' office portfolio WAULT to earlier of break / expiry now 7.3 years, up 15.9% and 9.0% in the year, respectively, driven by:

o €5.7m of new lettings in completed schemes with avg. term to earlier of break / expiry of 11.4 years

o €1.3m of rent reviews settled with an average uplift of 138%, in line with ERVs

· Acquired 'in-place'^[5] CBD offices have avg. rents of €39psf, reversionary potential of 20.6% and an avg. period to earlier of rent review or expiry of 2.6 years

Financial strength to fund further investment

· Net debt⁴ at 31 March 2018 of €202.7m, LTV⁴ of 15.5% (March 2017: €155.3m, LTV 13.3%)

· Cash and undrawn facilities of €197.3m: €120.3m net of committed development spend

Dividend growing as income increases

· Final dividend of 1.9 cent per share bringing total for year to 3.0 cent up 36.4% (2017: 2.2 cent)

· Expect further growth from developments and capturing reversion via lease events / reviews

Kevin Nowlan, Chief Executive Officer of Hibernia, said:

'We are pleased to report another strong performance in the year. Our portfolio returns significantly outperformed the Irish market, helped in particular by our office developments and our residential assets, and our growing rental income has enabled us to propose increasing the dividend for the year by 36%. As guided, we recycled capital into assets which we believe will enhance our future portfolio returns and we expect to continue this process.

'With the completion of 1WML our first cluster of office buildings, the Windmill Quarter, is taking shape. When our developments at 1SJRQ and 2WML complete in the second half of 2018 this will total c. 400,000 sq. ft. of office space together with a gym, food and beverage and residential units across five adjacent buildings in the South Docks. It enables us to provide shared working areas and communal facilities, most notably the Townhall, and is proving popular with tenants.

'Looking ahead, we continue to be optimistic and are today announcing the commencement of the Phase II development at Cumberland Place. The supply of new offices in Dublin remains relatively constrained, particularly in the city centre market in which we specialise, and economic momentum in Ireland is strong, as is demand from domestic and international occupiers for office space in Dublin. These same dynamics are also in evidence in the residential rental market. We have a talented team, a portfolio rich in opportunity and flexible, low-cost funding available to support our plans.'

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@murraygroup.ie
Jill Farrelly: +353 87 738 6608, jfarrelly@murraygroup.ie

About Hibernia REIT plc
Hibernia REIT plc is a Dublin-focused Real Estate Investment Trust ('REIT'), listed on Euronext Dublin and the London Stock Exchange, 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: +353-1436-0959
Ireland Toll-Free: 1-800-930-488

Participant code: Hibernia

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.

Chief executive officer's Statement

We are pleased to report excellent results despite the increase in stamp duty, with our developments and residential assets being particularly strong performers. Our portfolio delivered a total property return (excluding acquisition costs) of 11.6%, outperforming our benchmark, the IPD Ireland Index, which returned 6.8%. EPRA NAV per share grew by 8.7% to 159.1 cent and we are proposing a 1.9 cent per share final dividend taking our total for the year to 3.0 cent, an increase of 36.4% over the prior year.

Growing Irish economy and favourable market conditions
Ireland continues to have one of the best performing economies in the euro area and unemployment has fallen to near pre-crisis levels. This, together with continuing FDI, is resulting in strong occupier demand, particularly from the TMT sector. Dublin office take-up set a new record in 2017 and remained above trend in Q1 2018, taking the overall vacancy rate to 6.2% by March 2018. The Grade A vacancy rate in Dublin's city centre, where c. 90% of Hibernia's portfolio is located was 3.9% at the same date. While supply of new offices has grown year-on-year since 2015, it remains relatively constrained and prime rents have continued to increase. With strong occupier demand, limited new supply and growing rents it has been unsurprising to see prime office yields compress and the same dynamics are in effect in the residential market. The increase in stamp duty on commercial property in the year somewhat reduced the valuation gains from the yield compression and rental growth: on a like-for-like basis our office portfolio grew 4.3% in value (excl. current developments) and our residential portfolio (not subject to the stamp duty increase) grew 13.4%.

Enhancing portfolio through disciplined and profitable recycling of capital
As guided, we made our first sales of investment properties in the year and invested the proceeds in new assets which we believe will improve the forward returns of the portfolio. We sold three of our smaller assets in the second half of the financial year for €35.8m, an aggregate of 20.6% ahead of their September 2017 valuations. In the case of the Chancery, D8, we had extended the unexpired lease term from two years at acquisition to eight years and saw little further asset management opportunities in the near and medium term. In the case of the two neighbouring assets in the South Docks, Hanover Street East and 11a Lime Street, these were acquired with the objective of building a consolidated land holding to undertake a future redevelopment: the sales price gave Hibernia the majority of the upside it could have expected from any such redevelopment with no risk.

We made acquisitions totalling €39.1m in the year. 77 Sir John Rogerson's Quay, in the improving eastern end of the South Docks, was acquired vacant and we agreed a simultaneous long lease with International Workplace Group plc ('IWG') generating an immediate valuation uplift. We also acquired 31.3 acres of agricultural land adjacent to our Gateway site, increasing our interest to 45.4 acres in an area with excellent transport links that we feel has significant future potential.

Development programme delivering and making progress with pipeline of future schemes
We successfully completed our committed schemes at 1WML and 2DC, delivering 197,000 sq. ft. of Grade A office space and some ancillary space and generating an aggregate profit on cost in excess of 65% at completion. At 31 March 2018 over 96% of this space was let, with contracted rent of €11.5m. 1SJRQ and 2WML, our two committed developments at 31 March 2018, will deliver 172,000 sq. ft. of prime office space and remain on track for completion in late 2018. They are the final parts of the Windmill Quarter, our first cluster of five adjacent buildings in the South Docks comprising c. 400,000 sq. ft. of offices plus further retail (food & beverage), leisure and residential units centred around the communal facilities we are putting into Windmill Lane, most notably the Townhall. In May 2018, the Board approved the development of Phase II of Cumberland Place, which will deliver an additional 50,000 sq. ft. of new Grade A office space and which we expect to complete in the first half of 2020.

Following the approval of Cumberland Phase II, our longer-term development pipeline totals four schemes. The three office schemes, two of which have the scale to create similar clusters of buildings with shared facilities to the Windmill Quarter, are expected to deliver 505,000 sq. ft. of office space post completion and we are working to optimise our plans for them. At Gateway, our interest has been enhanced by the additional land we have acquired and we are assessing our options to enhance value.

Income and WAULT increasing and driving growing dividend
Contracted rent grew by 15.9% to €56.0m per annum and our office WAULT to the earlier of break or expiry grew 9.0% to 7.3 years. The key driver of this has been the lettings made at the two developments which completed in the year, 1WML and 2DC, which added €5.7m of contracted rent with WAULT to break of 11.4 years. In addition, we successfully concluded four rent reviews, adding €0.7m to contracted rent, an uplift of 138% on existing rent and in line with ERVs.

EPRA earnings grew 29.4% to €19.4m (2.8 cent per share) for the financial year as a result of this activity and the Board has proposed a final dividend of 1.9 cent per share, bringing the dividend for year to 3.0 cent, up 36.4% on prior year. We see potential for further growth as our committed and near term developments, which are unlet at present and have an ERV of €12.7m, are leased up and as we capture the €6.0m of reversionary potential in our acquired 'in-place' office portfolio, which has an average period to earlier of review or expiry of 2.6 years.

Moving towards target leverage but still substantial investment capacity
We continue to make progress towards our through-cycle leverage target range of 20-30% LTV: net debt at 31 March 2018 was €202.7m, a loan to value ratio of 15.5% (March 2017: 13.3%). The €47.4m increase in net debt in the year was primarily due to development expenditure, which totalled €43.9m, and there remains a further €77m of committed development expenditure, most of which will occur in the year to March 2019. Net of this committed development spend we have cash and undrawn facilities of €120.3m available. We are looking at options to diversify our sources of debt funding and extend average maturity dates.

Outlook
The supply of new offices in Dublin remains relatively constrained, particularly in the city centre market in which we specialise, and economic momentum in Ireland continues to be strong, as does demand from domestic and international occupiers for office space in Dublin. These same dynamics are also in evidence in the residential rental market. We are positive on our prospects: we have a talented team, a portfolio rich in opportunity and flexible, low-cost funding available to support our plans.

Kevin Nowlan, Chief Executive Officer

Market Review
General economy
Ireland again had one of the best performing economies in the euro area in 2017, with GDP growth for the year forecast at 8.1%, as activity returned to pre-crisis levels (source: CSO, Goodbody). The Department of Finance ('DoF') recently upgraded its forecasts for GDP growth in 2018 and 2019 to 5.6% and 4.0%, respectively (previously 3.5% and 3.2%). Core domestic demand is forecast to grow by 2.8% in 2017 (source: Goodbody) and is expected to average 4.3% per annum for the next two years, supporting further GDP growth (source: Central Bank of Ireland). The unemployment rate fell to 5.9% in April 2018, the first time in 10 years it has been below 6%, and the economy is nearing practical full employment, which is likely to create upward pressure on wages in the near term (source: Goodbody, CSO).

Notwithstanding current and capital spending increases of 4% and 9%, respectively, the Government budget deficit reduced to 0.2% of GDP in 2017 (2016: 0.7% deficit) as tax revenues increased (source: Goodbody). Ireland's improving fiscal health should help the execution of the Government's National Development Plan, an important programme of investment in Ireland's infrastructure network for the long term.

The uncertainty around the terms of the UK's departure from the EU and the impact of the recent US tax reforms remain the key external risks for the Irish economy. To date there has been little discernible negative impact from either: an additional 4,700 IDA-sponsored jobs were added in Dublin in 2017 (3,300 in 2016) while 1,100 jobs were added in Q1 2018 (source: Davy, Goodbody). Nonetheless, while the potential upside for Dublin from Brexit has been discussed previously, the longer-term implications of it and the US tax changes for Dublin remain less clear.

Irish property investment market In the 12 months to 31 March 2018 the MSCI Ireland Property Index (the 'Index') delivered a total return of 6.8% (March 2017: 11.2%). Over 97% of the Index by value comprises commercial property, which was negatively impacted by the trebling of stamp duty on commercial property transactions in Ireland from 2% to 6% which came into effect in October 2017. Excluding the stamp duty change, the Index would have delivered capital growth of c.6% in the year to March 2018 rather than 2.1% (March 2017: 6.2%). The office sector delivered a total return of 7.1% in the 12 months to March 2018 and capital growth of 2.6%. This capital growth came from ERV growth and yield compression in broadly equal measure.

The immediate impact of the stamp duty increase was a reduction in the value of commercial property of around 4%. However, it has been difficult to determine any notable impact on investment volumes: although the €2.6bn of commercial property transactions in Ireland in 2017 was lower than the €4.5bn of transactions in 2016 this decrease was expected as the market continued to move out of its deleveraging phase and Q4 2017 (i.e. after the change) saw 48% of all the investment volumes in the year. Q1 2018 volumes were relatively strong at c.€0.9bn, helped by the completion of three large transactions of over €100m each (source: CBRE).

Prime office yields compressed from 4.65% to 4.00% in 2017 and have remained stable in Q1 2018 (source: CBRE). Investor appetite for prime assets remains strong although the scarcity of product has led some investors to shift to the suburban market and forward-funding transactions are becoming more common (source: Knight Frank). In addition, appetite for alternative property classes such as private rented sector residential ('PRS') and student accommodation has grown, with PRS witnessing net yield compression from 4.80% to 4.25% during the year to March 2018 (source: CBRE).

Office occupational market Take-up in the Dublin office market in 2017 reached a record high of 3.6m sq. ft., well ahead of the five and 10-year averages of 2.7m and 2.1m, respectively. Despite some large suburban lettings, the city centre accounted for 61% of take-up. Q1 2018 saw a continuation of this trend with take-up of 0.7m sq. ft., up substantially on the same period in 2017 (source: Knight Frank). While the Dublin office rental market is usually dominated by relatively small leasing deals, 2017 witnessed larger than usual lettings with 57% of take-up (by area) comprising lettings of greater than 50,000 sq. ft.. This trend has also continued into 2018 with two deals greater than 50,000 sq. ft. in Q1 (source: Knight Frank).

TMT companies accounted for 51% of take-up in 2017 in the Dublin office market, followed by financial services firms (20%) and state institutions (10%) (source: Knight Frank). There has also been significant activity in the serviced office market in Dublin in the past year, as international firms such as WeWork and IWG have begun to establish significant presences: 3.2% of take-up in 2017 went to serviced office operators (source: Knight Frank). While less evident than the Brexit-related moves (and potential moves) to Dublin by UK-based financial and professional services firms, we believe it is investment decisions by technology firms that are likely to have the bigger impact on the Dublin office market ('latent Brexit'): these companies are highly reliant on sourcing skilled labour, often from overseas - something that Brexit and the current US administration are making less certain in those countries. We believe this trend is one of the drivers of the strong take-up in Dublin over the past 18 months (source: CBRE).

The overall Dublin office vacancy rate fell to 6.2% in the quarter to March 2018 and in the city centre (where 88% of Hibernia's portfolio is located) the Grade A vacancy rate is now 3.9% (source: Knight Frank). While the new supply delivered in Dublin has grown year on year since 2015, the strong tenant demand has led to continued rental growth with prime office rents increasing from €62.50psf to €65.00psf in 2017 and remaining at that level at the end of Q1 2018.

Office development pipeline
Following the delivery of the first new office developments in Dublin in five years in 2016, 2017 saw growth in supply with a total of 1.4m sq. ft. delivered, over 90% of which has now been let (source: Hibernia). 2.3m sq. ft. is expected to be delivered in Dublin in 2018, of which 1.4m sq. ft. is already let, and 1.8m sq. ft. is expected to be delivered in the CBD. Between the start of 2018 and the end of 2021 we expect that 7.4m sq. ft. of space will be delivered in Dublin, with 69% of this (5.1m sq. ft.) in the CBD. At the end of Q1 2018, 4.4m sq. ft. of the aforementioned 7.4m sq. ft. was under construction. The majority of the expected CBD delivery between the start of 2019 and 2021 will be in the IFSC and North Docks areas as available sites in the Traditional Core and South Docks become increasingly scarce. Finance for speculative development is still limited, which is delaying some supply.

Residential sector Supply of new housing is still below the Government's target of delivering 25,000 homes per annum in the period to 2021 (source: Rebuilding Ireland/Government of Ireland) but completions grew to 19,271 units in 2017, up from 14,932 in 2016: in the Greater Dublin Area completions were up 47% and commencements were up 18% in 2017, to 8,576 and 1,738, respectively (source: Department of Housing). In an attempt to improve the viability (and therefore delivery) of apartments which accounted for only 25% of the units delivered in 2017 (source: Department of Housing), the Department of Housing, Planning and Local Government published updated design standards for new apartments in early 2018. A study commissioned by the same Department indicated that these measures reduced the build cost of an apartment scheme by 15%. Despite these measures, viability remains challenging at affordable rental levels.

A lack of available housing rental stock remains, particularly in Dublin where just 1,250 units of rental stock were available as at April 2018, a reduction of 11% year-on-year (source: DAFT). Rents in Dublin are up 12.4% in the 12 months to March 2018 and are now 30% above the previous peak (source: DAFT). On the sales side, house prices in Dublin are up 13% in the 12 months to February 2018, although they remain 23% off their previous peak (source: Residential Property Price Index). House price growth of c.9% is forecast for 2018, given the current market dynamics (source: Goodbody).

Business Review

Acquisitions and disposals

Hibernia's net acquisition spend in the year was €3.3m including costs (2017: €85.4m), comprising two material acquisitions and the disposal of three investment properties as we started to recycle capital into new opportunities as previously guided.

Acquisitions

· 77 Sir John Rogerson's Quay, South Docks ('77 SJRQ'):the 34,000 sq. ft. office building was bought in February 2018 for €30.7m. The building was sold with vacant possession but we agreed a simultaneous 25-year lease for the entire building to International Workplace Group plc ('IWG') creating an immediate valuation gain

· Gateway lands, D22:31.3 acres of land (zoned for agriculture) adjacent to our Gateway site was purchased in H2 2017 for €6.2m. This acquisition increased Hibernia's interest in the Newlands Cross area to 45.4 acres and, as described in more detail in the developments section below, we believe it has significant future potential

Disposals

· The Chancery, D8:the 35,000 sq. ft. office building and four adjoining apartments were sold in December 2017 for €23.8m, equating to a net initial yield of 5.9% for the office accommodation. The ungeared IRR for Hibernia since acquisition in 2014 was over 17%

· Two small assets in the South Docks:Hanover Street East, a 13,000 sq. ft. office building, and 11a Lime Street, a neighbouring house, were sold in February 2018 for €12m, significantly ahead of their September 2017 valuations. The assets had contracted income of €0.2m per annum and were acquired in 2015 for €4.8m with the objective of building a consolidated land holding to undertake a future redevelopment. The sales price gave Hibernia the majority of the upside it could have expected from any such redevelopment with no risk, and an ungeared IRR of 40%

Portfolio overview

As at 31 March 2018 the property portfolio consisted of 32 investment properties valued at €1,309m^[6] (31 March 2017: 28 investment properties valued at €1,167m)⁶, which can be categorised as follows:

1. Includes capex

2. Yields on unsmoothed values and excluding the adjustment for South Dock House owner occupied space

3. Harcourt Square yield is based on the total value which includes residual land value

4. Excludes the value of space occupied by Hibernia in South Dock House

5. Includes 2WML, 1SJRQ & Cumberland Phase 2

6. Includes 1WML residential element (Hanover Mills)

7. These are net yields assuming 80% net to gross. C&W has valued Wyckham Point, Dundrum View, Cannon Place and Hanover Mills on a gross yield basis ex acquisition costs: gross initial yield is 4.9% and gross reversion is 5.2%

8. Current rental value assumed as ERV as this asset is now being valued on a price per acre basis

9. Excludes all CBD office developments

10. Residential rent on a net basis

11. An Alternative Performance Measure ('APM').The Group uses a number of such financial measures to describe its performance which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see 'Supplementary information' at the end of this report.

The office element of our portfolio, which comprises 88% by value and 89% of our contracted income had the following statistics at 31 March 2018:

1. To earlier of review or expiry

2. Mark to Market ('MTM')

3. 1 Cumberland Place, SOBO, 1DC, 2DC & 1WML

Our focus on increasing portfolio income and extending unexpired lease terms continues. We are achieving this through the completion and letting of new office developments and through rent reviews and lease renewals in the 'in-place' portfolio. In the year we:

· Added €5.7m to office portfolio income with average term certain of 11.4 years through the letting of the two developments that completed in the year (see further details in next section below)

· Successfully agreed four rent reviews, adding a further €0.7m to contracted income, an uplift of 138% and in line with ERV. The acquired 'in-place' office portfolio has an average period to the earlier of rent review or expiry of 2.6 years and reversionary potential of 20.6% (at valuers' ERVs) giving us further potential to enhance portfolio income and duration though rent reviews and lease renewals.

The 'in-place' office portfolio vacancy rate was 3% at 31 March 2018 (31 March 2017: 3%). The vacancy rate rose to 10% at 30 September 2017 mainly due to the completion of 1WML, which was only c. 50% let at that date, and has since reduced as the remaining space in the building has been let.

Developments and refurbishments

Schemes completed
We completed two schemes in the year totalling 197,000 sq. ft. of Grade A office space (see Asset Management section below for further details of the lettings at these schemes).

· 1 Windmill Lane ('1WML'), South Docks:the development of 124,000 sq. ft. of new office space, 7,000 sq. ft. townhall and reception, 8,000 sq. ft. of retail and 14 residential units, was completed on time and on budget in late August 2017, delivering a profit on cost of over 80% (post stamp duty and excluding finance costs). The building is now over 96% let and is yielding 9.6% on cost

· Two Dockland Central ('2DC'), IFSC:the refurbishment of 57,000 sq. ft. of office space (out of total building of 73,000 sq. ft.) was completed on schedule and within budget in November 2017. It delivered a profit on cost of over 35% (post stamp duty change and excluding finance costs) and is now fully let with a yield on cost in excess of 7% (net of dilapidations received)

Committed development schemes
At 31 March 2018, we had two committed schemes in progress which will deliver c. 172,000 sq. ft. of new and refurbished Grade A office space by the end of 2018: none of this is pre-let currently.

· 1 Sir John Rogerson's Quay ('1SJRQ'), South Docks:the 112,000 sq. ft. office building is now largely enclosed and the scheme remains on schedule for completion in Q3 2018.

· 2 Windmill Lane ('2WML', formerly the Hanover Building), South Docks:the office tenant (BNY Mellon) left the building at the end of March 2017 and the retail tenant (Spar) left in November 2017: the redevelopment and extension of the building, which will deliver 60,000 sq. ft. of office space and a 12,000 sq. ft. gym, is expected to complete in late 2018

These two committed schemes will complete the Windmill Quarter, Hibernia's first cluster of office buildings, which will comprise c. 400,000 sq. ft. of office space upon completion. One of our principal motivations in creating the cluster was to be able to provide some communal working and leisure areas at affordable prices for our tenants in multi-let buildings. In the case of the Windmill Quarter, this is centred around the Townhall area in 1WML and we are also bringing food & beverage units and a gym to the cluster.

In May 2018 the Board approved the development of Phase II of Cumberland Place, D2. This scheme, which is expected to complete in H1 2020, will deliver 50,000 sq. ft. of new Grade A office space. The building will be at the front of our existing 1 Cumberland Place and has the potential either to link into the existing reception or to be separately accessed, with additional flexibility to interlink certain floors to the existing building if required.

At 31 March 2018 Cushman & Wakefield, the Group's independent valuer, had an average estimated rental value for the unlet office space (222,000 sq. ft.) in the committed developments 1SJRQ, 2WML and Cumberland Place Phase II of €54.94 per sq. ft. and were assuming an average yield of 4.87% upon completion: based on these assumptions they expect a further c. €19m of development profit (excluding finance costs) to be realised through the completion and letting of these schemes. A 25-basis point movement in yields across the properties would make c. €12m of difference to the development profits, and a €2.50 per sq. ft. change in estimated rental value ('ERV') would result in a c.€10m difference. If current market conditions prevail, we would expect these yields to tighten once the buildings are completed and let.

Please see further details on the development schemes below:

1. Per C&W valuation at 31 March 2018

2. Incl. 1k sq. ft. basement store

3. Hibernia est. all in cost of 1WML on 100% basis is €78m (i.e. €25m 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 €78m (€37m + €28m + €13m = €78m)

4. Office demise only

5. Commercial (incl. reception/townhall) and residential net

6. Assuming 6% stamp duty and no finance costs at Sep-17 values

7. 57k sq. ft. refurbished out of total 73k sq. ft.

8. €9.4m net of dilapidations received

9. Est. total cost psf is net of dilapidations

10. For entire 73k sq. ft.

11. €62.4m net of dilapidations received at 2DC

Development pipeline
Following the approval of Cumberland Place Phase II as a committed project, there are now three office schemes in the future pipeline (treating Clanwilliam Court and Marine House as one project) which, if undertaken, would deliver an estimated 505,000 sq. ft. of high quality office space upon completion. Two of these future projects, Clanwilliam Court / Marine House and Harcourt Square, provide us with opportunities to create clusters of office buildings with shared facilities similar to the Windmill Quarter referenced above.

In the longer term there is also development potential for the 45.4 acres we now own at Gateway: we think it is likely this would take the form of a mixed-use scheme and hence we have removed the nominal 115,000 sq. ft. of offices previously allocated to Gateway from our pipeline. Please see further details on the development pipeline below:

1. Currently 178k sq. ft. of industrial/logistics on 14.1 acres and 31.3 acres of agricultural land

2. Net Internal Area ('NIA')

Asset management

In the year to 31 March 2018 we added €8.9m to contracted rents through lettings and €0.7m though rent reviews, a total of €7.7m net of lease expiries, surrenders, sales and acquisitions increasing the contracted rent roll by 15.9% to €56.0m.

Summary of letting activity in the period

Offices:

· 11 new lettings totalling 156,000 sq. ft. and generating €8.3m per annum of incremental new rent. The weighted average periods to break and expiry for the new leases were 11.4 years and 19.8 years, respectively

· Four rent reviews concluded over 25,000 sq. ft. adding a further €0.7m of rent per annum: on average these rent reviews were 138% ahead of previous contracted rents and in line with ERVs

· At present, we have one rent review under negotiation over €0.3m of contracted income

Residential:

· 293 of the Company's 326 apartments are located in Dundrum and, in the period, average rents achieved in new lettings by the Company for two bed apartments in Dundrum were €1,799 per month vs average two bed passing rents of €1,758 per month

· Letting activity and lease renewals at Dundrum generated incremental gross annual rent of €0.2m in the period (new leases signed on 72 apartments and leases renewed on 186 apartments). The total net income from the Dundrum residential properties during the year was €5.1m representing a net to gross margin in excess of 80%

· The 14 residential units at 1WML, now known as Hanover Mills, have been let to Corporate City Apartments at a rent of €0.4m per annum for a term of 5 years

At 31 March 2018 the vacancy rate in the office portfolio was 3%.

Key asset management highlights
See also Developments and Refurbishments section above for further details.

1WML, South Docks
The development completed in late August 2017 and at 31 March 2018 the building was over 96% let, with office tenants including Informatica, Core Media and Pinsent Masons and the retail unit let to Spar. The 14 residential units have been let to Corporate City Apartments, a residential letting provider, on a five year lease. The contracted rent for the property is €7.5m per annum and the weighted average unexpired lease term for the commercial space is 11.6 years.

77 SJRQ, South Docks Having acquired the 34,000 sq. ft. building in February 2018, the planned improvement works completed in late March for €0.3m and the 25 year lease to IWG commenced in early April 2018. IWG is paying initial rent of €1.8m per annum.

Cannon Place, D4 The tenants in the 16 units moved out during the year to enable remedial works to be carried out. The programme completed in early 2018. The building remained vacant at 31 March 2018: given its small scale Hibernia is considering disposing of the asset and recycling its capital into other opportunities.

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. The remaining vacant space on the ground floor (5,000 sq. ft.) and the third floor (12,000 sq. ft.) continues to be marketed.

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. In February 2018, 50 car parking spaces were let to Park Rite on a two year term for rent of €0.1m per annum.

The Forum, IFSC
Depfa Bank ('Depfa'), which occupies all 47,000 sq. ft. of office accommodation in the building and 50 car parking spaces, served notice of its intention to exercise its options to terminate its leasehold interests in March 2019. Depfa pays rent of €2.0m per annum (an average of €40 per sq. ft. for the office space). Hibernia is considering options for the building, with the March 2018 ERV of the offices well in excess of the passing rent.

Observatory, South Docks We concluded rent reviews with Core Media and Realex in the year, adding €0.6m to our contracted annual rent. In aggregate the rents agreed were in line with ERV and represented an uplift of 121%.

Two Dockland Central, IFSC
The refurbishment works completed in November 2017 (see further detail above). As at 31 March 2018, the building was fully let to HubSpot, BNY Mellon, ENI, Fountain Healthcare and ALD Automotive with a contracted rent of €4.0m per annum and a weighted average term certain of 9.1 years.

Flexible workspace arrangement
The flexible workspace arrangement with Iconic Offices ('Iconic') in 21,000 sq. ft. of Block 1 Clanwilliam Court continues to operate well, with 100% of the workstations occupied and 92% of the available co-working memberships rented as at the end of March 2018.

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 2.6 years and the team is focused on the upcoming lease events and is working closely with our tenants.

Financial results and position

¹An alternative performance measure ('APM'). The Group uses a number of such financial measures to describe its performance, which are not defined under IFRS and which are therefore considered APMs. In particular, measures defined by EPRA are an important way for investors to compare similar real estate companies. For further information see 'Supplementary information' at the end of this report.

The key drivers of EPRA NAV per share, which increased 12.8 cent from 31 March 2017 were:

- 19.3 cent per share from the revaluation of the property portfolio, including 8.1 cent per share in relation to development properties: the yield compression seen in the market helped the value of the Group's more prime office assets and its residential assets

- 2.8 cent per share from EPRA earnings in the period

- 0.9 cent per share from profits on the sale of investment properties

- Payment of the FY17 final and FY18 interim dividends, which decreased NAV by 2.5 cent per share

- The increase in stamp duty rate in October 2017 reduced NAV by an estimated 7.7 cent per share

Net debt increased by €47.4m to €202.7m (LTV: 15.5%). Almost all of the increase related to development and refurbishment expenditure: net acquisition spend in the year was €3.3m and maintenance expenditure was c. €3m.

EPRA earnings were €19.4m, up 29.4% compared to the prior financial year. The uplift was principally due to increased rental income as a result of new lettings made at our developments in the financial year and a full year of income from lettings made in the prior year. Administrative expenses (excluding performance related payments) were €13.5m (March 2017: €12.8m). Performance related payments were €6.6m (March 2017: €8.2m) with the majority relating to relative performance fees earned due to the Group's outperformance of the MSCI/IPD Ireland index over the financial year.
Profit before tax for the period was €107.1m, a reduction of 10.0% over the prior year, mainly due to reduced revaluation gains in the financial year as a result of the increase in stamp duty on Irish commercial property transactions introduced in the 2018 Budget. This change, which took effect from 11 October 2017, increased the stamp duty rate from 2% to 6%. Cushman & Wakefield, the Group's independent valuers, 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.

Financing and hedging
As at 31 March 2018, the Group had net debt of €202.7m, a loan to value ratio ('LTV') of 15.5%, up from net debt of €155.3m (LTV of 13.3%) at 31 March 2017, primarily due to development expenditure.

As intended, the Group repaid the €44.2m non-recourse debt facility for Windmill Lane (the '1WML facility') in February 2018 once early repayment penalties expired. The facility was €17.5m drawn at the time of repayment and was refinanced using the Group's main debt facility, a €400m revolving credit facility ('RCF') which matures in November 2020. Since shortly after acquiring full control of 1WML in December 2016 the Group had used the RCF to fund capital expenditure on the scheme due to the comparatively high cost of the 1WML facility.

Cash and undrawn facilities as at 31 March 2018 totalled €197.3m or €120.3m net of committed capital expenditure. Assuming full investment of the available RCF funds in property, the LTV, based on property values at 31 March 2018, would be c. 27%. 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 2018 it had interest rate caps and swaptions with 1% strike rates in place covering the interest rate risk on €244.7m of the RCF drawings. Half of this covers the period until November 2020 (when the RCF expires) and half was put in place during the year and covers the period from November 2017 to November 2021.

With a stable portfolio valued well in excess of €1bn, the Group is considering options to diversify its sources of debt funding and lengthen the average maturity of its debt.

Dividend
Following another substantial uplift in EPRA earnings (distributable income) in the year, the Board has proposed a final dividend of 1.9 cent per share (2017: 1.45 cent) which, subject to approval at the Group's AGM on 31 July 2018, will be paid on 3 August 2018 to shareholders on the register as at 6 July 2018. All of this final dividend will be a Property Income Distribution ('PID') in respect of the Group's tax-exempt property business.

The Group's policy is to pay out 85-90% of distributable income in dividends, with the interim dividend in a year usually representing 30-50% of the total regular dividends paid out in respect of the prior financial year. Together with the interim dividend paid of 1.1 cent per share, the total dividend for the year is 3.0 cent per share (2017: 2.2 cent) which represents 108% of the year's EPRA profits due to the larger than expected uplift in NAV and, as a result, performance fee.

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.

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

1. Excl. arrangement with iconic Offices at Clanwilliam

2. To earlier of break or expiry

3. By net lettable office areas. Office area only i.e. excl. retail, basement, gym, townhall etc.)

Principal risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historical results. A description of these principal risks and the steps which the Group has taken to manage them is set out below.

Consolidated income statement

For the financial year ended 31 March 2018

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.

Consolidated statement of comprehensive income

For the financial year ended 31 March 2018

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.

Consolidated statement of financial position

As at 31 March 2018

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.

Consolidated statement of changes in equity

For the financial year ended 31 March 2018

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.

Consolidated statement of cashflows

For the financial year ended 31 March 2018

The notes on pages 27 to 74 form an integral part of these consolidated financial statements.

Notes to the financial statements for the year ended 31 March 2018

Section 1 - General

This section contains the significant accounting policies and other information that apply to the Group's financial statements as a whole. Those policies applying to individual areas such as investment properties are described within the relevant note to the consolidated financial statements. This section also includes a summary of the new European Union endorsed accounting standards, amendments and interpretations that have not yet been adopted and their expected impact on the reported results of the Group.

1. General Information

Hibernia REIT plc, the 'Company', registered number 531267, together with its subsidiaries and associated undertakings (the 'Group'), is engaged in property investment and development (primarily office) in the Dublin market with a view to maximising its shareholders' returns.

The Company is a public limited company and is incorporated and domiciled in Ireland. The address of the Company's registered office is 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 Euronext Dublin (formerly the Irish Stock Exchange) (the 'Irish Official List') and the premium listing segment of the Official List of the UK Listing Authority (the 'UK Official List' and, together with the Irish Official List, the 'Official Lists') and are traded on the regulated markets for listed securities of Euronext Dublin and the London Stock Exchange plc (the 'London Stock Exchange').

2. Basis of preparation

a. Statement of compliance and basis of preparation

These consolidated financial statements of Hibernia REIT plc are non-statutory consolidated financial statements. The Auditors have not completed their audit but the Directors expect that there will be no changes to the financial information between these non-statutory consolidated financial statements and the statutory financial statements that will be contained in the Annual Report. The Annual report of the Group will be issued at the end of June 2018. The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties, owner occupied buildings and derivative 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.

The Group has not early adopted any forthcoming IFRS standards. Note 3 sets out details of such upcoming standards.

b. Functional and presentation currency

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

c. Basis of consolidation

The financial statements incorporate the consolidated financial statements of the Company and entities controlled by the Company (its subsidiaries). The results of subsidiaries and joint arrangements acquired or disposed of during the financial year are included from the effective date of acquisition or to the effective date of disposal. The accounting policies of all consolidated entities are consistent with the Group's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cashflows relating to transactions between members of the Group are eliminated in full on consolidation.

d. Assessment of going concern

The consolidated 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 signing of this statement and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 31 March 2018 of €23m (31 March 2017: €18m), is generating positive operating cashflows and, as discussed in note 26, has in place a debt facility with a period to maturity of 2.6 years and an undrawn balance of €179m at 31 March 2018 (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 consolidated financial statements is determined on such a basis, except for share-based transactions that are within the scope of IFRS 2 (see note 11 for more details), 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:

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

- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability either directly or indirectly.

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

Valuation basis of investment properties

All investment properties 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 valuation takes into account its potential as a redevelopment asset which reflects the asset in its highest and best use. It is the Directors' intention to pursue the redevelopment of this property when the existing lease has expired.

- 1-6 Sir John Rogerson's Quay, a development property which is nearing completion, has been valued on an investment basis, using market rental values capitalised with a market capitalisation rate, from which remaining capital expenditure has been deducted.

- Gateway, which is currently partly rented on short-term leases, has been valued on a price per acre basis as early stage plans are in place to redevelop this property in the future and this approach reflects the highest and best use of this property.

Block 3 Wyckham Point and Hanover Mills: Both properties are held for long-term property rental and were developed on this basis. VAT was payable on the acquisition (in the case of Block 3 Wyckham Point only) and on the construction costs for both schemes which has been treated as irrecoverable and recognised as part of the capital costs of both projects. If either property is sold within five years of completion, i.e. before mid-2020 (in the case of Block 3 Wyckham Point), 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 neither property is intended to be sold within the five-year period, in the opinion of the Directors, no amendment to the Valuer's valuation of either asset was deemed necessary.

Share-based payments

The Group has a number of share-based payment arrangements in place. The determination of the grant date in particular can be complex in nature and requires significant judgement in the interpretation and application of IFRS 2 to these arrangements. The determination of grant date for the performance-related payments element of share-based payments (note 11) was given particular attention by the Audit Committee. Although the grant date of the payments at note 11a and 11b (those arising from internalisation) has been amended from 31 March each financial year to the date of original agreement of the conditions of the payment, the Directors have determined that there is no impact on the accounting for this payment as it is dependent on future performance conditions which include both service and other non-market performance conditions and can only therefore be measured during the period in which it is earned, i.e. during each financial year. This is considered a significant judgement due to the quantum of performance-related payments shown in note 11 each year. The calculation of the absolute element of the performance fee requires some judgement around adjustments to EPRA NAV and while not material in nature, due to the related party nature of the performance-related payments, these are reviewed by the Audit Committee.

f. Analysis of sources of estimation uncertainty

Valuation of investment properties

The Group's investment properties are held at fair value and were valued at 31 March 2018 by the external valuer, Cushman and Wakefield ('C&W'), a firm employing qualified valuers in accordance with the appropriate sections of the Professional Standards ('PS'), the Valuation Technical and Performance Standards ('VPS') and the Valuation Applications ('VPGA') contained within the RICS Valuation - Global Standards 2017 ('the Red Book'). It follows that the valuations are compliant with the International Valuation Standards ('IVS').Further information on the valuations and the sensitivities is given in note 17. The Group's investment properties at 31 March 2017 were valued by CBRE Unlimited, the Group's previous valuers. C&W were appointed by Hibernia in September 2017 following a tender process after a rotation of the Group's 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 material 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 are satisfied that the valuation of the Group's properties is appropriate for inclusion in the financial statements. 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 €6.8m (31 March 2017: €4.1m).

There were no other significant judgements or key estimates that might have a material impact on the consolidated financial statements at 31 March 2018.

3. Application of new and revised International Financial Reporting Standards ('IFRS')

Impacts expected from relevant new or amended standards

The following standards and amendments will be relevant to the Group but were not effective at the financial year end 31 March 2018 and have not been applied in preparing these consolidated financial statements. The Group's current view of the impact of these accounting changes is outlined below:

IFRS 9Financial Instrumentsreplaces IAS 39 Financial Instruments: Measurement and Recognitionand is effective for annual periods beginning on or after 1 January 2018.

The Group's financial instruments consist of its borrowings and a small number of hedging instruments and loans. There are also some minor amounts in trade receivables and payables which will also be classified as financial instruments. These are analysed further in note 29. We have carried out an assessment of the impacts and implemented these changes from 1 April 2018. While there are some minor amendments to the treatment of financial instruments due to the implementation of IFRS 9, there is no material impact and retained earnings are not expected to be materially impacted based on unaudited calculations.

IFRS 15Revenue from Contracts with Customersis effective 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: Leasesand SIC 15: Operating Leases-Incentives. Rental and other income is recognised over the period of the contract in accordance with the principles in IAS 17. IFRS 15 will apply to service charge income, performance fees and miscellaneous minor contracts. This is effective for the financial year commencing 1 April 2018 and therefore implementation has commenced. The impact of this standard on the recognition of revenue is minor. The service charge income stream is accounted for as a single performance obligation satisfied over time by measuring its progress towards complete satisfaction of that performance obligation. Management fees relating to the provision of services to tenants are recognised as these services are provided. This is in line with the prior recognition approach.

IFRS 16Leasesis applicable for annual periods beginning on or after 1 January 2019.

This standard 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. The Group has some immaterial lease arrangements for minor office assets and recognising these in accordance with IFRS 16 will have no material impact on its financial statements.

Section 2 - Performance

This section includes notes relating to the performance of the Group for the year, including segmental reporting, earnings per share and net assets per share as well as specific elements of the consolidated statement of income.

4. Operating segments

A. Basis for segmentation

The Group is organised into six business segments, against which the Group reports its segmental information. These segments mainly represent the different investment property classes. The Group has divided its business in this manner as the various asset segments differ in their character and returns profiles depending on market conditions and reflect the strategic objectives that the Group has targeted. The following table describes each segment:

The Board reviews the internal management reports, including budgets, at least quarterly at its scheduled meetings. There is some interaction between reportable segments, for example completed development properties transferred to income-generating segments, for example 1WML, in this financial year. These transfers are made at fair value on an arm's length basis using values determined by the Group's independent Valuers.

B. Information about reportable segments

The Group's key measure of underlying performance of a segment is total income after revaluation gains and losses, which comprises revenue (rental and service charge income 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 measures such as EPRA Net Initial Yield ('NIY') and EPRA 'topped-up' NIY. These measure the cash passing rent returns on market value of investment properties before and after an adjustment for the expiration of rent-free period or other lease incentives, respectively.

An overview of the reportable segments is set out below:

Group consolidated segment analysis

For the financial year ended 31 March 2018

Group consolidated segment analysis

For the financial year ended 31 March 2017

C. Geographic information

All of the Group's assets, revenue, and costs are based in Ireland, mainly in central Dublin.

D. Major customers

Included in gross rental income are rents of €11.1m (31 March 2017: € 11.7m) which arose from the Group's two largest tenants, both of which contributed more than 10% of the rental income. No other single tenant contributed more than 10% of the Group's revenue in 2018 or 2017.

5. Total revenue

Accounting policy

Revenue comprises rental income and surrender premia, service charge income and fees from other activities associated with the Group's property business.

Revenue is recognised in the consolidated income statement when it meets the following criteria:

- it is probable that any future economic benefit associated with the item of revenue will flow to the Group; and

- the amount of revenue can be measured with reliability.

Rental income, including fixed rental uplifts, arises on the Group's investment properties and is recognised in the consolidated income statement on a straight-line basis over the term of the lease. All 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 therefore recognised on the same straight-line basis over the lease term. Contingent rents, being lease payments that are not fixed at the inception of a lease, such as turnover rents, are recorded as income in the period in which they are earned.

Service charge income and other sums receivable from tenants are recognised as revenue in the period in which the related expenditure is recognised.

6. Net property expenses

Accounting policy

Net property expenses comprise service charges and other costs directly recoverable from tenants and non-recoverable costs directly attributable to investment properties. Service charge income relates to contributions from tenants of managed buildings for the property expenses of the occupied buildings. 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 residential property costs, vacancy costs and other costs of commercial properties.

Included in other property expenses is an amount of €1.2m (31 March 2017: €0.9m) relating to void costs, i.e. costs relating to assets which were not income-generating during the financial year.

7. Gains and losses on investment properties

8. Other gains and losses

9. Administration expenses

Accounting policy

Administration expenses are recognised when incurred in the consolidated income statement.

Operating profit for the financial year has been stated after charging:

All fees paid to non-executive Directors are for services as Directors to the Company. Non-executive Directors receive no other benefits other than Frank Kenny who also received €181k in consulting fees during the year and 1.3m shares or €1.8m as a Vendor (note 34).

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 the service. These payments were made in November 2015 as part of the internalisation of the Investment Manager and were made subject to clawback arrangements for those Vendors who remain tied to the Company by employment or service contracts. These clawback arrangements over one-third of this payment are removed on each anniversary of the acquisition date until November 2018. €2.7m (31 March 2017: €7.1m) is included in trade and other receivables as prepaid remuneration (note 22).

'Top-up' internalisation expenses relate to additional management fees that would have been due under the IMA due to increases in NAV in the period since internalisation. These are payable in shares of the Company (note 11).

Professional valuers' fees are paid to Sherry FitzGerald (Commercial) Limited, trading as Cushman & Wakefield (formerly DTZ Sherry FitzGerald) ('C&W'), in return for their services in providing independent valuations of the Group's investment properties on an at least twice-yearly basis. Professional valuers' fees are charged on a fixed rate per property valuation. The fees for the period from September 2017 to 31 March 2018 were agreed in September 2017 through a letter of engagement. The fees payable to C&W are less than 5% of their fee income for the financial year 31 December 2016.

Auditors' remuneration (excluding VAT)

10. Employment

The average monthly number of persons (including executive Directors) directly employed during the financial year in the Group was 28 (31 March 2017: 18). The single largest area of growth since last year was building management services, as the number of buildings under Hibernia's direct management increased.

Total employees at financial year end:

Group

Company

No amount of salaries and other benefits is capitalised into investment properties. Staff costs are allocated to the following expense headings:

Group

¹Most of the €848k is recovered directly from tenants via the service charge arrangements within Hibernia managed buildings.

Company

11. Share-based payments

Accounting policy

The Group has a number of share-based arrangements in place. These share-based payments are transactions in which the Group receives services in exchange for its equity instruments or by incurring liabilities for cash amounts based on the price of the Group's shares. Share-based payments settled in the Group's shares are measured at the grant date except where they are subject to non-market performance conditions which include a service condition in which case they are measured over the relevant service period.

Share-based payments that are granted to employees at the end of each financial year, and that have a vesting period subject to service conditions, are recognised at fair value at the grant date and amortised through the consolidated income statement over the vesting period. Share-based payments that are cash-settled are re-measured at fair value at each accounting date. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share-based payment reserve.

The following share-based payment arrangements were in place during the financial year.

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 calculated as under the IMA for each financial year and settled mainly in shares of the Company until the expiry of the agreement in November 2018. It was agreed that up to 15% of any performance fees would be set aside for the payment of cash bonuses and deferred share-based payments (see part b below) to employees. This was agreed within the Share Purchase Agreement ('SPA') which was signed on 23 September 2015 and approved by shareholders at an EGM on 27 October 2015. As all parties had a shared understanding of the terms and conditions of the arrangement and approval was obtained on 27 October 2015, the grant date is determined to be this date for payments made under this arrangement.

At the grant date, the Company has granted possible future share awards based on future performance conditions which include both service and other non-market performance conditions. The service period is defined in the contract as each financial year until the expiry of the agreement on 26 November 2018. Expenses are therefore recognised over each financial year as services are provided.

Performance-related payments comprise absolute and relative performance fees as described under the IMA as well as 'top-up' internalisation expenses that relate to management fees that would have been due under the IMA as a result of increases in NAV in the period since internalisation.

At the start of each financial year, as part of the budgeting process, the Board estimates the level of performance-related fees that are expected to be earned over the period. The number of shares expected to issue in payment of these fees is estimated by reference to the share price at each accounting date. At the year end, the calculation of the monetary value of the performance-related payments is determined using the EPRA Net Asset Value of the Group at the financial year end and the Total Property Return as determined by IPD and using calculation protocols as were set out in the Investment Management Agreement and as subsequently modified by shareholder agreement at an Extraordinary General Meeting ('EGM') on 26 October 2016. The number of shares which will be issued to satisfy these payments is determined using the average closing price of Hibernia shares on the Irish Stock Exchange for the 20 business days preceding the date of the financial period end.

The Directors have calculated the amount of fees that are payable under this arrangement for the financial year ended 31 March 2018 in preparing these consolidated financial statements and these are shown in the table below split between performance-related payments, 'top-up' internalisation expenses and employee share-based payment reserves (see also part b). In addition, amounts fell due in December 2016 in relation to the achievement of return targets on the termination of the Windmill Lane joint arrangement and these were provided in the financial year ended 31 March 2017.

Summary of performance-related payments

Shares issued relating to performance-related payments to Vendors 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 the issue date. All shares are beneficially owned by the recipients and all voting rights and rights to dividends accrue to them.

Share-based performance-related payments during the financial year

€0.5m of the above total performance payment of €8.3m will be paid in cash bonuses to staff, the balance of €7.8m will be payable in shares.

¹The 20-day average share price prior to the financial year end was 1.448

¹The 20-day average share price prior to the financial year end was 1.237

a. Performance-related payments

31 March 2018

Grant date: 27 October 2015

Measurement date: 31 March 2018

The settlement of performance-related fees for the financial year ended 31 March 2017 was made on 3 July 2017 resulting in the listing of 6,895,231 new Ordinary Shares when the prior days closing price of the Company's shares was €1.375.

b. Employee long-term incentive plan - IMA portion

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 these performance-related payments. Shares awarded under the PRR, approximately 50% of the total award or up to 7.5% of the performance fee element of the performance-related payments at a. above, are in the form of a contingent award 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. These shares are a part of the payments outlined at part a. above and the grant and measurement dates are determined on the same basis. 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 measurement date, i.e. the 31 March of the year to which they are earned. The charge recognised in the consolidated income statement for the period ended 31 March 2018 is €0.5m (31 March 2017: €0.4m). When these shares vest they are assessed for tax purposes at the current market share price. Employee taxes are recognised through payroll.

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 from any possible departures relating to these shares.

Employee long-term incentive plan - IMA portion

31 March 2018

Grant date: 27 October 2015

Measurement date: 31 March 2018

* These amounts are paid out of the deductions from performance-related payments in a. above. Share-based payments awards amount to approximately 50% of the total, the balance being paid in cash

c. Employee long-term incentive plan - interim arrangements

Employees who fall outside of the arrangements at b. above, i.e. those who provide services that were not part of the IMA arrangements, e.g. new staff including building management and development staff, are also paid bonuses on a similar basis to those paid to the employees qualifying at b. above. Until the expiry of the IMA and the introduction of the new remuneration arrangements, these arrangements are approved by the Board each year. Shares granted to these employees are determined to have a grant date of the date of approval by the Board of these awards. These shares vest two years after the end of the financial year to which they relate. Employees who leave before the vesting date will lose entitlement to these shares. These amounts are amortised over the vesting period by reference to the fair value of the shares granted and after appropriate consideration of the potential impact of employee departures. Due to the low level of turnover in the Group to date, the fact that the relevant employees have mainly joined within the last year, and the likely immaterial amounts involved, the Directors have made no amendment to the amount provided for expected forfeiture of shares due to departures. When these shares vest they are assessed for tax purposes at the current market share price.

Employee long-term incentive plan - Interim arrangements

31 March 2018

Grant date: 24 May 2017

Total shares awarded at the grant date 24 March 2017 were 0.1m. These vest on 31 March 2019.

A further 0.4m shares are expected to be granted and, if granted, will vest on 31 March 2020.

12. Finance income and expense

Accounting policy

Finance expenses directly attributable to the construction or production of investment properties which take a considerable length of time to prepare for rental to tenants, are added to the costs of those properties until such time as the properties are substantially ready for use. All other finance expenses and income are recognised in the profit and loss account as they occur using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and of allocating the interest income, interest expense and fees paid and received over the relevant period.

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

Interest costs capitalised in the financial year were €2.0m (31 March 2017: €0.9m) in relation to the Group's development and refurbishment projects. The capitalisation rate used is the effective interest rate on the cost of borrowing applied to the portion of investment that is financed from borrowings.

13. Income tax expense

Accounting policy

Income tax expense comprises current and deferred tax. It is recognised in profit or loss except insofar as it applies to business combinations or to items recognised in other comprehensive income.

Current tax: current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. 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.

Reconciliation of the income tax expense for the financial year

The Directors confirm that the Group has remained in full compliance with the Irish REIT rules and regulations up to and including the date of this report.

14. Dividends

Accounting policy

Interim dividends are recognised as a liability of the Company when the Board of Directors resolves to pay the dividend and the shareholders have been notified in accordance with the Company's Articles of Association. Final dividends of the Company are recognised as a liability when they have been approved by the Company's shareholders at the AGM.