Hibernia REIT Plc
Annual Report 2016

Plain-text annual report

1 Annual Report 2016 STRATEGIC REPORTH I B E R N I A R E I T P L C A N N U A L R E P O R T 2 0 1 6 Governance 50 57 57 59 62 67 71 75 Directors’ report Corporate governance report Chairman’s corporate governance statement Introduction Audit Committee Remuneration Committee Nominations Committee Directors’ responsibility statement Contents Strategic report 3 4 7 8 12 14 16 20 22 25 25 25 26 27 31 33 33 34 34 35 42 Our approach Hibernia at a glance Chairman’s statement Our portfolio Highlights for the financial year Strategic priorities Strategy in action: case studies Chief Executive Officer’s statement Market update Business review Acquisitions Disposals Portfolio overview Developments and refurbishments Asset management Financial results and position Financing and hedging Internalisation of management team Dividend Sustainability Risks and risk management Financial statements 76 Independent auditors’ report to the members of Hibernia REIT plc Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes forming part of the Annual Report Company statement of financial position Company statement of changes in equity Company statement of cash flows 80 81 82 83 84 85 126 127 128 129 Notes to the company financial statements 137 145 146 148 Supplementary disclosures (unaudited) Directors and other information Glossary Shareholders’ information Daniel Kitchen Chairman, Hibernia REIT plc, said: Our clear strategy, and focus on offices in Dublin’s city centre, is delivering excellent results: net property income grew 68% in the year to €30.2m, profit before tax increased 47% to €136.3m and EPRA NAV per share rose 17% to 130.8 cent. Kevin Nowlan CEO, Hibernia REIT plc, said: We are delighted to report strong results: we have made good progress in all aspects of our business in this, our second full year since IPO. EPRA NAV per share grew 17% in the financial year, with our portfolio of properties delivering an increase in value of 19%. Photograph of the building works at Cumberland House, Dublin 2 STRATEGIC REPORT2 Hibernia REIT plc (“Hibernia”) is a Dublin-focused Real Estate Investment Trust (“REIT”) which owns and develops property. Hibernia was established in late 2013 and now we have a portfolio valued at €928m, all in Dublin, and primarily in city centre offices. Our strategy is to use our experience and detailed knowledge of the Dublin property market to create superior shareholder returns through income growth and through developing or repositioning buildings at appropriate times in the property cycle. HIBERNIA REIT PLCANNUAL REPORT 20163 Our approach Asset improvement We unlock value through refurbishment, redevelopment and change of use, increasing the rents tenants are prepared to pay. Disciplined acquisitions Capital recycling Where assets no longer meet our expected forward returns targets or we can crystallise future gains today we look to sell and recycle the proceeds into new acquisitions. Where possible we buy off- market (i.e. away from public sales processes) and we are experienced in buying property through secured loans where, since inception, we have often seen greater value. We seek out well-located buildings with potential for improvement or complex lease situations. Active management We seek to have close relationships with tenants and take a cycle-based approach to lease maturities. Financial management We run with low leverage on a through cycle basis and look for flexible financing. We ensure our interest rate exposure is substantially hedged or fixed. STRATEGIC REPORT4 Hibernia at a glance Key statistics at 31 March 2016 Total portfolio Value: €928m Number of properties: 25 Number of tenants: 48 Contracted rent: €39.0m Passing rent: €30.0m Portfolio by sector (by value) Office and development portfolio (by net lettable area) Office traditional core 26% In-place office portfolio 764k sq.ft. Office South Docks 19% Total €928m CBD office development / refurb 17% Total 1.5m sq.ft. Longer term development pipeline 371k sq.ft. Office IFSC 25% Residential 12% Industrial 1% Committed developments 340k sq.ft. (Pre-let 105k sq.ft.) HIBERNIA REIT PLCANNUAL REPORT 20165 Office portfolio Value including developments: €802m In-place office portfolio – i.e. portfolio excluding assets under development or refurbishment – has the following characteristics: Value at 31 March 2016: €616m Passing rent of €24.1m; contracted rent of €27.3m Average rent of €33psf vs ERV of €44psf Average 2.0 yrs to earlier of rent review or lease expiry 45% of leases with break or expiry beyond 2019 Vacancy rate: 6% Industry split of in-place tenants Top 10 tenants of in-place portfolio (by contracted rent) Banking & capital markets 40% Insurance & reinsurance 5% OPW 20% BNY Mellon 11% Total €27.3m TMT 10% Total €27.3m Professional services 12% Government 20% Other 13% Remainder 29% Capita 3% Eversheds 2% Deloitte 4% Bank of Ireland 10% DEPFA Bank 8% HubSpot 5% Riot Games 4% AWAS 4% STRATEGIC REPORT7 Chairman’s statement Our clear strategy, and focus on offices in Dublin’s city centre, is delivering excellent results: net property income grew 68% in the year to €30.2m, profit before tax increased 47% to €136.3m and EPRA NAV per share rose 17% to 130.8 cent. Given the strong growth in earnings the Board is recom- mending an increase in the final dividend of 60% to 0.8 cent per share, to be paid on 2 August 2016. This represents an increase in the total dividend for the year of 88% to 1.5 cent per share. During the year we purchased nine properties, all of which were consistent with our strategy of acquiring assets with opportunities for rental growth through asset management or building improvement: seven of the properties acquired related to our portfolio of central Dublin offices. We are making good progress with our development pro- gramme: we completed one scheme in the year and two shortly after year end, with all three projects delivering profits on cost of more than 30%. The four active office de- velopment schemes we have are all scheduled to complete in the next 24 months and will deliver over 350,000 sq. ft. of new office space at a time when we believe there will be a significant shortage in available space. We have also expanded our longer term pipeline of developments to six projects with the potential to deliver over 600,000 sq. ft. of office space, giving us plenty of future optionality. In November 2015 we completed an important step in the Company’s progress with the internalisation of the management team through the acquisition of WK Nowlan REIT Management Ltd, the Investment Manager, and its parent company. Upon completion, Kevin Nowlan (CEO) and Thomas Edwards-Moss (CFO) joined the Board, which continues to have a majority of independent directors, as recommended by the Corporate Governance Code. All of the achievements we report this year are a reflection of the hard work and dedication of our employees and I would like to thank them for their expertise and commitment which is growing our business. Looking ahead, I believe we have the right strategy to continue to grow and deliver superior shareholder returns. Daniel Kitchen Chairman 2 June 2016 STRATEGIC REPORT8 Our portfolio Dublin city centre The Company’s investment focus is on attractively- located, institutional quality, income-producing commercial properties primarily in the greater Dublin area. Key Office properties Rail line and station Active development schemes LUAS line and station Residential properties LUAS Cross City line and proposed station Industrial properties 22141321151617192018756349111210821AvivaStadiumTrinity CollegeSt Patrick’sCathedralChrist ChurchCathedralCity HallDublinCastleIFSCConnolly StationDublin PortRiver LiffeyGrand CanalSt Stephen’sGreenIveaghGardensMerrionSquareM50HIBERNIA REIT PLCANNUAL REPORT 20169 22141321151617192018756349111210821AvivaStadiumTrinity CollegeSt Patrick’sCathedralChrist ChurchCathedralCity HallDublinCastleIFSCConnolly StationDublin PortRiver LiffeyGrand CanalSt Stephen’sGreenIveaghGardensMerrionSquareM50STRATEGIC REPORT10 Our portfolio Greater Dublin Area Dun LaoghaireTallaghtSantryBlackrockRed CowInterchangeParkwestBusiness ParkPhoenix ParkCrumlin HeustonSouthQuarterRathminesIFSCCityCentreBallsbridgeDublin BayDonnybrookDundrumClontarfFairviewDrumcondraM50M50M50M50252423HIBERNIA REIT PLCANNUAL REPORT 20162. Guild House (2DC) Guild Street, IFSC Dublin 1 5. 1 Sir John Rogerson’s Quay (1 SJRQ) Dublin 2 8. The Hanover Building Windmill Lane Dublin 2 11. Central Quay Sir John Rogerson’s Quay Dublin 2 14. Marine House Clanwilliam Place Dublin 2 17. Montague House Adelaide Road Dublin 2 20. 35-37 Camden Street Dublin 2 23. Dundrum View Dundrum Dublin 14 11 3. New Century House Mayor Street, IFSC Dublin 1 6. The Observatory Building 7-11 Sir John Rogerson’s Quay Dublin 2 9. 11 Lime Street Dublin 2 12. South Dock House Hanover Quay Dublin 2 15. 1 Earlsfort Terrace Dublin 2 18. Harcourt Square Harcourt Street Dublin 2 21. The Chancery Building Chancery Lane Dublin 8 24. Block 3, Wyckham Point Dundrum Dublin 16 1. One Dockland Central (1DC) Guild Street, IFSC Dublin 1 4. The Forum Commons Street, IFSC Dublin 1 7. 1 Windmill Lane (1 WML) Windmill Lane Dublin 2 10. 8-12 Hanover Street East Dublin 2 13. Cumberland House Dublin 2 16. Hardwicke House Hatch Street Dublin 2 19. 39 Harcourt Street Dublin 2 22. Cannon Place Sandymount Dublin 4 25. Gateway Site Newlands Cross, Naas Road Dublin 22 Dun LaoghaireTallaghtSantryBlackrockRed CowInterchangeParkwestBusiness ParkPhoenix ParkCrumlin HeustonSouthQuarterRathminesIFSCCityCentreBallsbridgeDublin BayDonnybrookDundrumClontarfFairviewDrumcondraM50M50M50M50252423STRATEGIC REPORT12 Highlights for the financial year Excellent financial performance Disciplined investment activity enhancing portfolio Development programme well- timed and making good progress • EPRA NAV per share of 130.8 cent, up 17% since 31 March 2015 • EPRA profit of €10.0m (March 2015: €3.9m), helped by €4.9m surrender premium (March 2015: €2.4m) • Profit before tax up 47% to €136.3m (March 2015: €92.9m) including revaluation surplus and gains on disposals of non-core assets • Portfolio value of €927.7m (March 2015: €641.3m) • Proposed final dividend of 0.8 cent per share bringing total for financial year to 1.5 cent (2015: 0.8 cent) • €179m invested in nine acquisitions: seven off-market and seven related to central Dublin offices • Office acquisitions all either with asset management opportunities (e.g. Central Quay, Hardwicke & Montague) or future development potential (e.g. Marine House, One Earlsfort Terrace) • 50:50 joint arrangement formed with affiliate of Starwood Capital on Windmill Lane development • Block 3, Wyckham Point completed ahead of schedule delivering profit on cost of more than 30% • Refurbishments of One Dockland Central and SOBO Works completed since financial year end, both delivering profits on cost in excess of 30% at completion • Currently four committed development schemes which are progressing well and will deliver 354,000 sq. ft. of high quality office space in 2016, 2017 and 2018 (c. 27% pre-let) • Longer term pipeline expanded to six schemes totalling 610,0001 sq. ft. of office space post completion (Sept 2015: two schemes totalling 530,000 sq. ft.) • Seeking vacant possession of Harcourt Square to commence redevelopment Active year of lettings adding significantly to contracted rent roll with more to come • Contracted rent roll now €39.0m, up 72% on 31 March 20152 • New lettings and rent reviews added €11.8m to contracted rent: includes major pre-lets to Twitter and HubSpot totalling 129,000 sq. ft. (Twitter pre- let extended by 16,500 sq. ft. for €0.7m extra rent) • “In-place”3 Dublin Central Business District (“CBD”) office average rents of €33psf (vs ERV at March 2016 of €44psf) and average period to earlier of rent • Income producing “in-place” CBD office3 portfolio vacancy rate of 6% (Sept review or expiry of 2 years 2015: 1%) Substantial, flexible funding in place • Five year €400m revolving credit facility (“RCF”) agreed in November 2015, • Three year €44.2m facility (Hibernia share: €22.1m) to fund Windmill Lane replacing €100m RCF development entered into €139.0m) development spend • Net debt at 31 March 2016 of €52.9m, LTV of 5.7% (March 2015: net cash of • Cash and undrawn facilities of €369m; €265m net of committed Management structure simplified and team strengthened • Internalisation of management team completed in November 2015 • Appointment of Director of Development, Mark Pollard, who joined in May 2016 HIBERNIA REIT PLCANNUAL REPORT 2016Excellent financial performance Disciplined investment activity enhancing portfolio Development programme well- timed and making good progress • EPRA NAV per share of 130.8 cent, up 17% since 31 March 2015 • EPRA profit of €10.0m (March 2015: €3.9m), helped by €4.9m surrender premium (March 2015: €2.4m) • Profit before tax up 47% to €136.3m (March 2015: €92.9m) including revaluation surplus and gains on disposals of non-core assets • Portfolio value of €927.7m (March 2015: €641.3m) • Proposed final dividend of 0.8 cent per share bringing total for financial year to 1.5 cent (2015: 0.8 cent) • €179m invested in nine acquisitions: seven off-market and seven related to central Dublin offices • Office acquisitions all either with asset management opportunities (e.g. Central Quay, Hardwicke & Montague) or future development potential (e.g. Marine House, One Earlsfort Terrace) • 50:50 joint arrangement formed with affiliate of Starwood Capital on Windmill Lane development • Block 3, Wyckham Point completed ahead of schedule delivering profit on cost of more than 30% • Refurbishments of One Dockland Central and SOBO Works completed since financial year end, both delivering profits on cost in excess of 30% at • Currently four committed development schemes which are progressing well and will deliver 354,000 sq. ft. of high quality office space in 2016, 2017 and completion 2018 (c. 27% pre-let) • Longer term pipeline expanded to six schemes totalling 610,0001 sq. ft. of office space post completion (Sept 2015: two schemes totalling 530,000 sq. ft.) • Seeking vacant possession of Harcourt Square to commence redevelopment Active year of lettings adding significantly to contracted rent roll with more to come Substantial, flexible funding in place Management structure simplified and team strengthened 13 We are making good progress with our development programme: we completed one scheme in the year and two shortly after year end, with all three projects delivering profits on cost of more than 30%. Daniel Kitchen Chairman • Contracted rent roll now €39.0m, up 72% on 31 March 20152 • New lettings and rent reviews added €11.8m to contracted rent: includes major pre-lets to Twitter and HubSpot totalling 129,000 sq. ft. (Twitter pre- let extended by 16,500 sq. ft. for €0.7m extra rent) • “In-place”3 Dublin Central Business District (“CBD”) office average rents of €33psf (vs ERV at March 2016 of €44psf) and average period to earlier of rent review or expiry of 2 years • Income producing “in-place” CBD office3 portfolio vacancy rate of 6% (Sept 2015: 1%) • Five year €400m revolving credit facility (“RCF”) agreed in November 2015, replacing €100m RCF • Three year €44.2m facility (Hibernia share: €22.1m) to fund Windmill Lane development entered into • Net debt at 31 March 2016 of €52.9m, LTV of 5.7% (March 2015: net cash of €139.0m) • Cash and undrawn facilities of €369m; €265m net of committed development spend • Internalisation of management team completed in November 2015 • Appointment of Director of Development, Mark Pollard, who joined in May 2016 1. Including new offices at Gateway of c. 115,000 sq.ft. 2. Includes pre-let refurbishments and net residential income. 3. Excludes refurbishment and development projects. STRATEGIC REPORT14 Strategic priorities We have a clear strategy and have a number of strategic priorities based on this: Progress 2015/16: 1 Delivery of development projects 2 3 4 5 Increase rental income of portfolio Deploy further Recycle capital by Enhance balance capital into selective selling assets where sheet efficiency acquisitions • Contracted rent increased in the financial year to €39.0m from €22.7m at March 2015 • Passing rent increased in the financial year to €30.0m from €19.3m at March 2015 • We completed 213 residential units at Block 3, Wyckham Point in Dundrum in the financial year, delivering a profit on cost of over 30% • Shortly after financial year end we completed the refurbishment of One Dockland Central and the conversion to offices of SOBO Works, both delivering profits on cost at completion in excess of 30% • Invested €179m in 9 acquisitions • No investment assets disposed • Moved from net cash position of in the financial year, primarily in of in financial year although a €139m at 31 March 2015 to net debt Dublin city centre offices 50% interest in the Windmill position of €53m at financial year Lane site was sold to form a joint end, equating to a loan to value arrangement upon the exercise ratio of 5.7% forward returns are not expected to meet our targets and reinvesting elsewhere of an option by an affiliate of Starwood • Sold the majority of the remaining non-core assets acquired as part of the Dorville loan portfolio acquisition. In total 49 properties sold in financial year, generating proceeds of €16.7m and profits of €2.1m Priority 2016/17: • Making progress with the four committed schemes under way, all of which have completion dates over the next 24 months • Drive further increases in rents through new lettings and rent reviews • Further selective acquisitions • Sale of assets where forward • Continue to utilise our committed where we expect our returns returns not expected to meet our debt facilities where investment criteria to be met targets opportunities arise which meet our criteria, moving our loan to value ratio towards our through-cycle target of 20-30% HIBERNIA REIT PLCANNUAL REPORT 201615 We have a clear strategy and have a number of strategic priorities based on this: Progress 2015/16: 1 Delivery of development projects 2 Increase rental income of portfolio • We completed 213 residential • Contracted rent increased in the units at Block 3, Wyckham Point financial year to €39.0m from in Dundrum in the financial year, €22.7m at March 2015 delivering a profit on cost of over • Passing rent increased in the 30% financial year to €30.0m from • Shortly after financial year end €19.3m at March 2015 we completed the refurbishment of One Dockland Central and the conversion to offices of SOBO Works, both delivering profits on cost at completion in excess of 30% 3 4 Deploy further capital into selective acquisitions • Invested €179m in 9 acquisitions in the financial year, primarily in Dublin city centre offices Recycle capital by selling assets where forward returns are not expected to meet our targets and reinvesting elsewhere • No investment assets disposed of in financial year although a 50% interest in the Windmill Lane site was sold to form a joint arrangement upon the exercise of an option by an affiliate of Starwood • Sold the majority of the remaining non-core assets acquired as part of the Dorville loan portfolio acquisition. In total 49 properties sold in financial year, generating proceeds of €16.7m and profits of €2.1m Priority 2016/17: • Making progress with the four • Drive further increases in rents committed schemes under way, through new lettings and rent all of which have completion dates reviews over the next 24 months • Further selective acquisitions where we expect our returns criteria to be met • Sale of assets where forward returns not expected to meet our targets 5 Enhance balance sheet efficiency • Moved from net cash position of €139m at 31 March 2015 to net debt position of €53m at financial year end, equating to a loan to value ratio of 5.7% • Continue to utilise our committed debt facilities where investment opportunities arise which meet our criteria, moving our loan to value ratio towards our through-cycle target of 20-30% STRATEGIC REPORT16 Strategy in action Case studies Photographs of Block 3, Wyckham Point Block 3, Wyckham Point D16 We acquired the asset in partially complete form in February 2014 as part of the Dorville loan portfolio purchase. We completed the fit out of all 213 apartments in July 2015, well ahead of schedule and within budget. All 213 units were let by the end of September 2015, producing a net annual rent of c. €3.7m (average 2 bed apartment rents of €1,700 per month). The project delivered a profit on cost in excess of 30% and an unleveraged IRR in excess of 25%. HIBERNIA REIT PLCANNUAL REPORT 2016 17 1 Sir John Rogerson’s Quay D2 (“1 SJRQ”) The 0.75 acre site, which forms part of Hibernia’s quadrant of assets in the South Docks and overlooks the River Liffey, was acquired in August 2014 for €17.8m with planning per- mission for 102,000 sq. ft. of offices and 5,000 sq. ft. of retail. Since acquisition, we have worked to improve the layout and specification of the planned development and have received planning approval for our revised scheme, which will total 110,000 sq. ft. of offices and 6,000 sq. ft. of retail space. The site has now been cleared and construction has commenced. We expect the development to be completed in mid-2018 at a cost of €55m (excluding the purchase of the site). CGIs of 1 SJRQ STRATEGIC REPORT 18 Strategy in action Case studies (continued) HIBERNIA REIT PLCANNUAL REPORT 201619 CGIs of 1 WML Windmill Lane D2 (“1 WML”) The one acre site in the South Docks was acquired in June 2014 from an affiliate of Starwood Capital for €7.5m. The site has planning permission for a 122,000 sq. ft. office develop- ment, plus c. 6,000 sq. ft. of retail and 15 residential units. Simultaneously we acquired the Hanover Building, an office building which adjoins the site, and shortly afterwards acquired the neighbouring Observatory office building and the site at 1 Sir John Rogerson’s Quay (all from different vendors), giving Hibernia a quadrant of adjoining assets in the South Docks. As part of the purchase, Starwood was granted an option to buy back in as a joint arrangement partner on Windmill Lane, which it exercised in 2015, leading to the formation of the Windmill Lane Partnership, owned 50:50 by Hibernia and Starwood and to which the Hibernia Group is acting as asset manager and development manager. As the de- sign process has evolved, Hibernia has been successful in making a number of improvements to the specification of the building which have allowed for a more efficient design so that the building has the potential to be let on a multi-occupancy per floor basis. The site has been cleared, construction work is progressing well and the project is on schedule for completion in late 2017 with capital expenditure expected to be €52m (Hibernia’s share: €26m). Together with the development of the neighbouring site at 1 Sir John Rogerson’s Quay and improvement works in the Hanover and Observatory buildings, we believe this project will deliver a significant regeneration of the area. STRATEGIC REPORT20 Chief Executive Officer’s statement We are delighted to report strong results: we have made good progress in all aspects of our business in this, our second full year since IPO. EPRA NAV per share grew 17% in the financial year, with our portfolio of properties delivering an increase in value of 19%. Disciplined acquisitions adding to portfolio and development pipeline We invested €179m (including costs) in the financial year in nine acquisitions (seven excluding acquiring full ownership of Hardwicke House and Montague House), fully utilising the remaining cash raised in the second equity issue in November 2014. Seven of these acquisitions were related to our portfolio of central Dublin offices and all were consistent with our strategy of acquiring buildings with opportunities to exploit, whether through redevelopment, active asset management or rental reversion. Development programme timed to take advantage of cycle We completed the fit out of Block 3, Wyckham Point ahead of schedule, delivering a profit on cost of more than 30% in the 18 months from its purchase to completion. Since financial year end we have completed the refurbishment of One Dockland Central (formerly Commerzbank House) and the conversion of SOBO Works to office space, both of which have delivered profits on cost upon completion in excess of 30% in less than two years of ownership. We have expanded our committed programme of central Dublin office developments and refurbishments to four projects totalling 354,000 sq. ft. of office space, all of which are making good progress towards their completion dates in 2016, 2017 and 2018. We have also expanded our longer term development pipeline to six projects and 610,000 sq. ft. of space with the acquisitions of Marine House and One Earlsfort Terrace and the addition of the Hanover Building and a possible new block at the front of Cumberland House. HIBERNIA REIT PLCANNUAL REPORT 201621 (€265m after committed development spend), almost all of which is funded by a new €400m revolving credit facility which was agreed in the financial year. Positive outlook The strength of the domestic economy together with low vacancy rates and limited new supply in Dublin means prospects for further rental growth are good in the absence of macroeconomic shocks. We expect the volume of trans- actions in Dublin’s investment market to remain above long term averages in the near term. Our portfolio is rich in opportunity and we have substantial undrawn facilities in place to move quickly on further acquisition opportunities, underpinning our confidence in the future. Kevin Nowlan Chief Executive Officer 2 June 2016 Leasing activity New lettings and rent reviews added a total of €11.8m per an- num to contracted rents. The largest lettings were the 101,500 sq. ft. pre-let in Cumberland House to Twitter (increased from 85,000 sq. ft. when originally agreed in September 2015) and the 27,500 sq. ft. pre-let in One Dockland Central to HubSpot, which together added a total €6.6m per annum to contracted rents. In addition, the letting of the 213 apartments in Block 3, Wyckham Point upon their completion added €3.7m of net rent. We agreed a lease surrender with Indeed Ireland Operations Ltd at Central Quay for their 22,000 sq. ft. space for a payment to the tenant of €0.3m and have let 11,000 sq. ft. of this space to Daqri International Limited at a rent of €52.50 per sq. ft., significantly ahead of the average rent Indeed was paying of €30 per sq. ft.. We expect to make further progress with leasing in the coming months. Experienced management team In November 2015 we completed the internalisation of the management team through the acquisition of WK Nowlan REIT Management Ltd, the Investment Manager, and its parent company and at financial year end the Company had a team of 17. The internalisation was an important step in the Company’s progress and secures our talented and experienced team for the future. Upon completion Thomas Edwards-Moss and I joined the Board of Directors. In early May 2016 Mark Pollard joined the team as Director of Development and will oversee the management and delivery of our substantial pipeline of developments. Flexible balance sheet with substantial capacity With net debt of €52.9m and loan to value of 5.7% our leverage is low and we have available undrawn debt capacity of €369m STRATEGIC REPORT 22 Market update General economy Irish property investment market Ireland recorded GDP growth of 7.8% in 2015, five times the Euro area aggregate of 1.6% (source: Eurostat). Irish GDP growth is expected to remain strong in 2016 and 2017, with Goodbody forecasting 4.6% and 3.7%, respectively, and Davy forecasting 6.0% and 4.0%, respectively. Irish “core” domestic demand (which excludes aircraft leasing and R&D) provides a good indicator of underlying economic activity and is expected to grow by 5.0% in 2016 and 4.4% in 2017 following a 4.3% increase in 2015 (source: Goodbody). Unemployment continues to fall (down to 8.4% in April 2016 nationally) and was 7.8% in Dublin at December 2015 (source: CSO). Increasing employment, coupled with tax reductions announced in the most recent budget, lower oil prices and the first period of sustained wage growth since the recession began are having a positive impact on consumer spending, which in 2015 experienced its best year of growth since 2007. Growth in numbers in employment has been particularly strong in Dublin, where the workforce increased 24,000 in 2015, bringing total employment in Dublin to 608,000 (Source: CSO). Irish state finances are also improving; the debt to GDP ratio fell to 94.4% at the end of 2015 and is expected to fall to a mid-80% level by 2017 (source: Davy). With a new Irish Government now formed, albeit a minority one, the biggest near term risks facing the Irish economy are international and include the UK referendum on its EU membership. The UK accounts for 18% of Irish exports and 30% of imports (source: Davy) so a vote to leave could impact the Irish economy negatively. While a “Brexit” scenario could be incrementally positive to the Dublin office sector in the near term, the longer term implications are uncertain. The MSCI Irish Property Index delivered a total return of 23.5% in the financial year to 31 March 2016. As expected, returns moderated slightly compared to the financial year to 31 December 2015, when a 25.0% return was delivered making it the best performer in the MSCI Global Index, which delivered 10.7% in 2015. Prime Dublin office yields have remained stable at 4.65% for three consecutive quarters according to CBRE, albeit a handful of deals recorded closer to 4.5%. Capital values for prime Dublin offices are up 24% year on year to over €1,200 per sq. ft., primarily driven by rental growth. Investment volumes have reduced somewhat since the mass deleveraging in 2014 and 2015, when €4.6bn and €3.5bn of assets were traded (excluding debt) (source: CBRE). Investment volumes in Q1 2016 were €735m (source: CBRE), still considerably above long term run-rates, and we expect a gradual reversion towards more normalised levels. As the investment market matures, the investor profile is continu- ing to evolve towards those with a lower risk appetite, with 71% of sales in 2015 vs 36% in 2013 to longer-term investors (including REITs) (source: CBRE). Office occupational market The Dublin office market, particularly the prime office sector in the city centre, continues to be characterised by a shortage of available stock in the right locations to satisfy high demand from tenants, both domestic and international. Despite the lack of available stock, take-up in 2015 totalled 2.7m sq. ft., above the 20 year average of 1.8m sq. ft. per annum (source: CBRE). 2016 has also started strongly, with take-up in Q1 totalling 0.6m sq. ft., 37% higher than the same period last financial year (source: CBRE). Occupation has continued to be focused in central Dublin, with 69% of take-up in the CBD in 2015 (source: CBRE). HIBERNIA REIT PLCANNUAL REPORT 2016 23 As a result of strong tenant demand and low vacancy rates, prime central Dublin office rents at the end of Q1 2016 were €57.50 per sq. ft. up from €47.50 per sq. ft. a year ago. (source: CBRE) pre-let is not in place) which has resulted in the owners of key development sites in the CBD awaiting pre-lets before commencing development. Residential sector The Dublin residential market continues to show strong demand and insufficient supply. Housing completions in 2015 were 12,666 nationwide and just 2,900 in Dublin (source: Dept of Environment) and despite an expected rise in delivery levels in 2016 and 2017, the number of units are expected to be well below the estimated c.30,000 units required per annum nationwide (source: Goodbody). The Central Bank measures introduced in February 2015 to control mortgage ratios reduced the likelihood of another credit-fuelled price boom and price growth in the financial year to 31 March 2016 was a muted 3.9% in Dublin (source: CSO). Despite this, the Central Bank’s quarterly survey of housing market participants revealed an expectation of price growth of 4% in Dublin in the 12 months to September 2016 (source: Goodbody). A side effect of the Central Bank measures has been that potential purchasers have remained in the rental market for longer, particularly in Dublin. According to Daft.ie, the average rent in Dublin was up 8-9% in the financial year to 31 March 2016 against a backdrop of virtually zero inflation. The Dublin rental market does not have the adequate infrastructure to house these people appropriately and as a result, opportunities exist to deliver stock that matches these demands. The overall Dublin office vacancy rate is now 7.7% and 6.0% in the CBD. However, there are marked differences by area and quality of stock. In the IFSC, where 25% of Hibernia’s portfolio is located, the Grade A vacancy rate is 2.4% while in D2/D4, where 59% of Hibernia’s portfolio is located (in- cluding three key committed developments sites) the Grade A vacancy rate is 1.5% (source: CBRE). As a result of strong tenant demand and low vacancy rates, prime central Dublin office rents at the end of Q1 2016 were €57.50 per sq. ft. up from €47.50 per sq. ft. a year ago (source: CBRE). Most agents are expecting further rental growth in 2016. While the TMT sector has undoubtedly played an important part in Dublin’s economic recovery, tenant demand has come from a wide range of sectors: TMT has accounted for 32% of occupier take-up in the 5 years to December 2015 (source: CBRE). Dublin continues to be an occupational market dom- inated by lettings of less than 50,000 sq. ft.: 72% of take-up in the past 5 years has been in this category (source: CBRE). Almost two thirds of the lettings agreed in Q1 2016 were to Irish companies (source: CBRE) highlighting the increasing importance of domestic demand in the Irish economy and the broadening of the economic recovery. Office development pipeline A handful of office refurbishment projects were delivered in Dublin in late 2015. 2016 will see the first new build office building delivered to the Dublin market in over 5 years. In total, 1.3m sq. ft. of new stock is expected to be delivered in 2016, 46% of which is already pre-let and against a backdrop of average 10 year take-up of 1.9 m sq. ft. and take-up of 2.4m and 2.7m sq. ft. in 2014 and 2015, respectively (source: CBRE). It takes c. 2.5 years to deliver an office building so one can forecast the supply pipeline to 2019 with reasonable certainty: we expect 5.3m sq. ft. will be delivered between now and the end of 2018 and that 8.3m sq. ft. will be de- livered between now and the end of 2019. Availability of development finance remains scarce (particularly if a STRATEGIC REPORT 24 In March 2016 we acquired One Earlsfort Terrace in Dublin 2, for €19.2m. The 21,700 sq. ft. office building is let to international law firm Eversheds. Photograph of One Earlsfort Terrace HIBERNIA REIT PLCANNUAL REPORT 201625 Business review Acquisitions We purchased nine properties in the financial year for a total investment of €179m (including acquisition costs). In June 2015 we acquired Dundrum View, an 80 unit apart- ment complex in Dundrum, South Dublin for €28.1m. The property is situated close to Dundrum Town Centre, Ireland’s leading shopping centre, and to our property at Block 3, Wyckham Point and together the two properties give us almost 300 residential units in the attractive Dundrum area. In January 2016 we took direct ownership of Hardwicke House and Montague House, D2, two fully occupied office buildings totalling 88,500 sq. ft., for a net payment of €41.8m, bringing the total consideration paid to €60m (€64m includ- ing costs, or €725 per sq. ft.). Hibernia’s initial interest in the buildings was via secured loans purchased in May 2014 for €18.2m with a put / call option arrangement allowing Hibernia to acquire full ownership up to mid-2016. In February 2016 we exchanged contracts to acquire Central Quay, a 57,700 sq. ft. office building in the South Docks, for €51.3m (€890 per sq. ft.). At the time of acquisition the building, which was completed in 2007, was 88% let and the net initial yield was 4.5%, with opportunities to move this above 5.5% in the near term through letting the vacant space and upcoming lease events. Since the acquisition we have completed a lease surrender and signed a new lease which will assist us in increasing the yield. In March 2016 we exchanged contracts to acquire Marine House, D2 for €26.5m (€640 per sq. ft.). The 41,000 sq. ft. office building is fully occupied off low average rents of €23 per sq. ft. and offers near term opportunities to enhance the net initial yield of 4.3% through light refurbishment and redevelopment potential in the longer term. Also in March 2016 we acquired One Earlsfort Terrace, D2, for €19.2m (€880 per sq. ft.). The 21,700 sq. ft. office building is let to international law firm Eversheds. Concurrently we agreed with the tenant that the rent will rise from €0.6m to €1.0m per annum (€45psf) at the next rent review in September 2016, taking the running yield to 5.3%. In the longer term there are opportunities to enhance the value of the building through refurbishment, extension or redevelopment. During the financial year we also completed the acquisitions of three small buildings for a total consideration of €4.8m. These assets, 11 Lime Street, 35-37 Lower Camden Street and 39 Harcourt Street, were acquired to enhance the value and / or optionality of the assets in our portfolio. Disposals Excluding the continued sell-off of the Dorville non-core assets (see further details in the asset management section below), the only disposal in the financial year was the sale of a 50% interest in the Windmill Lane site for €4.9m. In August 2015 Starwood exercised its option to buy back into the Windmill Lane development as a 50:50 joint arrangement partner at the price the asset was sold to Hibernia for (€7.5m) and an annual return of 7%, plus costs incurred to date, leading to the creation of the Windmill Lane Partnership (“WLP”). The Hibernia Group is acting as asset manager and development manager. STRATEGIC REPORT26 Business review (continued) Portfolio overview At 31 March 2016 the property portfolio consisted of 25 investment properties valued at €928m, categorised as follows: Value as at Mar 16 (all assets) % of portfolio % uplift since Mar 15 excl. new acquisitions(1) % uplift since Mar 15 incl. new acquisitions(1) % uplift since Equivalent yield Passing rent acquisition (all on value (%) (€m) assets) incl. costs(1) 1. Dublin CBD offices Traditional core IFSC South Docks Total Dublin CBD offices 2. Dublin CBD office development/refurbishment 3. Dublin residential 4. Industrial €238m €237m €173m(4) €648m €155m €113m €12m 25.7% 25.5% 18.6% 69.8% 16.7% 12.2% 1.3% 12.8% 12.9% 11.9% 12.6% 57.9% 9.2% 19.3% 9.2% 12.9% 8.3% 10.3% 57.9% 6.2% 19.3% 16.6% 29.7% 28.8% 24.4% 69.0% 20.4% 19.3% 5.2%(2) €10.4m(5) 5.2%(2) €24.1m(5) 5.2% 5.4% – 4.6% 7.4% €8.0m €5.7m – €5.4m €0.5m Total investment properties €928m 100.0% 19.0% 15.7% 29.5% 5.2%(2)(3) €30.0m 1. Includes capex in acquisition costs and assumes 100% of South Dock House held for rent 2. Excludes Harcourt Square as this is valued by CBRE on a residual/ development appraisal basis 3. Excludes all Dublin CBD Office Development/Refurbishment 4. South Docks excludes the value of space occupied by Hibernia 5. Incl. c.€70k of residential in Chancery The “in-place” CBD office element of our portfolio had the following statistics at 31 March 2016: • Average contracted rent: €33psf (vs ERV of €44psf) • Weighted average period to earlier of rent review or lease expiry: 2.0 years • WAULT to earlier of expiry or break: 4.3 years • WAULT to expiry: 7.3 years • Occupancy level: 94% • 45% of leases with break / expiry beyond 2019 The in-place office portfolio occupancy level decreased to 94% from 99% at 30 September 2015, principally due to the acquisition of Central Quay and the asset management initiatives ongoing there as well as vacancy in the Chancery Building following a tenant exercising a break option (see further details below). Photograph of 1 WML and 1 SJRQ marketing suite in Observatory Building HIBERNIA REIT PLCANNUAL REPORT 2016 Value as at Mar 16 (all % of portfolio % uplift since % uplift since Mar 15 excl. new Mar 15 incl. new acquisitions(1) acquisitions(1) % uplift since acquisition (all assets) incl. costs(1) Equivalent yield on value (%) Passing rent (€m) Portfolio overview At 31 March 2016 the property portfolio consisted of 25 investment properties valued at €928m, categorised as follows: 1. Dublin CBD offices Traditional core IFSC South Docks Total Dublin CBD offices 3. Dublin residential 4. Industrial 2. Dublin CBD office development/refurbishment assets) €238m €237m €173m(4) €648m €155m €113m €12m 25.7% 25.5% 18.6% 69.8% 16.7% 12.2% 1.3% 12.8% 12.9% 11.9% 12.6% 57.9% 9.2% 19.3% 9.2% 12.9% 8.3% 10.3% 57.9% 6.2% 19.3% 1. Includes capex in acquisition costs and assumes 100% of South Dock House held for rent 2. Excludes Harcourt Square as this is valued by CBRE on a residual/ development appraisal basis 3. Excludes all Dublin CBD Office Development/Refurbishment 4. South Docks excludes the value of space occupied by Hibernia 5. Incl. c.€70k of residential in Chancery Total investment properties €928m 100.0% 19.0% 15.7% 29.5% 5.2%(2)(3) €30.0m 27 Developments and refurbishments With favourable conditions in the Dublin property market and limited new supply expected in the near term, the Group is active with a number of development and refurbishment projects which it believes will deliver attractive returns to shareholders. At the financial year end the Group had projects under way at five properties (the “committed schemes”) which will deliver 340,000 sq. ft. of high quality new office space: two of these schemes completed shortly after the financial year end and one scheme, Guild House, was added bringing the current committed schemes to 354,000 sq. ft.. The Group has added significantly to its longer term pipeline of developments: this now totals six schemes (up from two in September 2015), which, if undertaken would deliver an estimated 610,000 sq. ft. of high quality office space when fully completed. €5.4m Schemes completed The fit-out of the 213 residential units in Block 3, Wyckham Point was completed in late July 2015, well ahead of schedule. The project was delivered within budget, generating a profit on cost in excess of 30% and an IRR of over 25% at completion. The units were fully let by the end of September 2015, and currently produce a net rent of €3.7m per annum and a yield on cost of over 6%. The refurbishment of One Dockland Central was successfully completed on budget in May 2016, delivering a profit on cost of over 30%. 48% of the 57,500 sq. ft. being refurbished was pre-let to HubSpot and we are in advanced discussions with a tenant regarding the remaining vacant space. SOBO Works (formerly known as the Observatory Live/Work units) was converted to c. 9,500 sq. ft. of office accommoda- tion and 1,500 sq. ft. of retail with the works completing in April 2016. At completion the project had delivered a profit on cost in excess of 50%. A pre-let of all the space to a serviced office provider, Iconic Offices, was agreed in the financial year at a rent of €0.4m per annum and the tenant is now fitting out their demise. 16.6% 29.7% 28.8% 24.4% 69.0% 20.4% 19.3% 5.2%(2) €10.4m(5) 5.2% 5.4% €8.0m €5.7m 5.2%(2) €24.1m(5) – 4.6% 7.4% – €0.5m STRATEGIC REPORT 28 Business review (continued) Committed development and refurbishment schemes Please see further details on the development schemes below: Following the successful refurbishment of One Dockland Central, a similar refurbishment of the adjoining Guild House (which is to be renamed Two Dockland Central) is now under way using the same contractors. Unlike One Dockland Central, many of the tenants remain in occupation in Guild House at present (all leases bar that of BNY Mellon expire by March 2017), with works expected to be completed towards the end of 2017. Construction work at Windmill Lane (“1 WML”) is progress- ing well and the structure is up to the second and third storeys: the project remains on budget and on schedule for completion in late 2017. The formal marketing campaign for 1 WML and 1 Sir John Rogerson’s Quay (“1 SJRQ” and formerly known as 1-6 Sir John Rogerson’s Quay) commenced in April 2016. Having completed site preparation, a contractor has been selected for 1 SJRQ and construction works have commenced. The estimated capital expenditure has increased to €55m due to a higher specification building, increased council levies and some cost inflation. We continue to expect the project to complete in mid-2018. Sector NIA post completion (sq ft) Full purchase cost land) € psf Est. capex Est. total cost (incl. ERV(1) Office ERV psf(1) Expected PC date Comments Committed schemes Cumberland House Office 127k(2) €51m €27m €605psf €7.2m €51.40psf Q4 2016 Guild House (Two Dockland Central) Office 72k(4) €46m €12m €790psf(5) €3.9m €50.50psf Q3 2017 1 WML (50% interest) Office 61k office(6) 3k retail 7.5 resi. units €4m €26m €420psf(8) €3.0m(7) €47.00psf late 2017 • Structure up to second & third 1 SJRQ Office 110k office 6.2k retail €18m €55m €643psf(8) €5.9m €50.50psf mid 2018 • Pre-let 101,500 sq. ft.(3) to Twitter • In discussions with potential tenants re remaining 33k sq. ft. (top two floors) • Refurbishment works on schedule for full completion in Q4 2016 • Refurbishment works (to the same standard as One Dockland Central) expected to commence shortly storeys and project remains on budget & on schedule for completion in late 2017 • Formal marketing campaign commenced in April 2016 • Contractor selected and construction works have commenced • Budget increased to €55m due to higher spec building, increased levies and some cost inflation • Project on schedule for completion mid-2018 €120m €20m Total 370k office(9) 9k retail 7.5 units €119m 1 Per CBRE valuation at 31 March 2016 2. Excl. additional basement areas (8k sq. ft.) and potential new block (c.50k sq. ft.) but incl. new reception (1k sq. ft.) additional ground floor (5k sq. ft.) and gains due to design efficiencies of existing building (9k sq. ft.) 3. Including storage & ancillary areas 4. 56k sq. ft of 72k sq. ft. is committed refurbishment 5. Net of dilapidations 6. Incl. extensions to 4th & 5th floors (2.3k sq. ft.) for which planning was granted in May 2016 7. Commercial only 8. Office only 9. 354k sq. ft. when adjusted for the 56k sq. ft. that is committed refurbishment in Guild House (Two Dockland Central) HIBERNIA REIT PLCANNUAL REPORT 2016 29 Please see further details on the development schemes below: Sector NIA post completion Full purchase cost Est. capex (sq ft) Est. total cost (incl. land) € psf ERV(1) Office ERV psf(1) Expected PC date Comments Committed schemes Guild House (Two Dockland Central) Cumberland House Office 127k(2) €51m €27m €605psf €7.2m €51.40psf Q4 2016 Office 72k(4) €46m €12m €790psf(5) €3.9m €50.50psf Q3 2017 1 WML (50% interest) Office 61k office(6) 3k retail 7.5 resi. units €4m €26m €420psf(8) €3.0m(7) €47.00psf late 2017 1 SJRQ Office 110k office 6.2k retail €18m €55m €643psf(8) €5.9m €50.50psf mid 2018 • Pre-let 101,500 sq. ft.(3) to Twitter • In discussions with potential tenants re remaining 33k sq. ft. (top two floors) • Refurbishment works on schedule for full completion in Q4 2016 • Refurbishment works (to the same standard as One Dockland Central) expected to commence shortly • Structure up to second & third storeys and project remains on budget & on schedule for completion in late 2017 • Formal marketing campaign commenced in April 2016 • Contractor selected and construction works have commenced • Budget increased to €55m due to higher spec building, increased levies and some cost inflation • Project on schedule for completion mid-2018 Total 370k office(9) €119m €120m €20m 9k retail 7.5 units 1 Per CBRE valuation at 31 March 2016 2. Excl. additional basement areas (8k sq. ft.) and potential new block (c.50k sq. ft.) but incl. new reception (1k sq. ft.) additional ground floor (5k sq. ft.) and gains due to design efficiencies of existing building (9k sq. ft.) 3. Including storage & ancillary areas 4. 56k sq. ft of 72k sq. ft. is committed refurbishment 5. Net of dilapidations 6. Incl. extensions to 4th & 5th floors (2.3k sq. ft.) for which planning was granted in May 2016 7. Commercial only 8. Office only Dockland Central) 9. 354k sq. ft. when adjusted for the 56k sq. ft. that is committed refurbishment in Guild House (Two Longer term development pipeline Four new schemes have been added to the longer term pipeline: two of the additions – Marine House and One Earlsfort Terrace – are buildings acquired in the financial year and two additions are from the existing portfolio. In the Hanover Building, the main tenant (BNY Mellon) has served notice to vacate in December 2016. We continue to assess our options but expect that the space will be improved ahead of re-letting. At Cumberland House, while our primary focus is the successful completion of the existing refurbishment programme, we are also assessing plans for a new office block at the front of the site. At Harcourt Square, where the four leases to the Office of Public Works (“OPW”) have either expired or are due to expire during 2016, we are seeking to gain vacant possession for redevelopment. The OPW has applied to the Irish Circuit Court seeking statutory extension of the leases, which we will defend. We have planning permission for a first phase development of 134,000 sq. ft. Net Internal Area (“NIA”) and an application for a second phase development of 152,000 sq. ft. NIA has received preliminary approval from Dublin City Council. STRATEGIC REPORT 30 Business review (continued) Please see further details on the longer term development pipeline below: Name Sector Current NIA (sq. ft.) NIA post completion (sq. ft.) Full purchase price Comments Cumberland House (front block) Office 0k c.50k sq. ft. €0m(3) One Earlsfort Terrace Office 22k >28k sq. ft. €20m Hanover Building Office 44k office 15k retail(2) c.73k sq. ft €21m • Potential for new block at front of Cumberland House of up to c.50k sq. ft. subject to planning • Planning permission is in place for two extra floors which would add c.6k sq. ft. to the NIA • Potential for redevelopment as part of the wider Earlsfort Centre scheme • Potential to extend the current building by adding c.13k sq. ft. subject to planning Harcourt Square Office 117k on 1.9 acres c.285k sq. ft. €72m • Potential development of over 285k Marine House Office 41k c.60k sq. ft. €27m Gateway Logistics / office 178k on 14.1 acres c.115k(1) sq. ft. €10m Total 402k c.611k sq. ft. €150m 1. Planned new offices of c.115k sq. ft. plus potential to add a further c.130k sq. ft. of offices 2. 4k sq. ft. in basement 3. €49m excl. costs or €51m incl. costs paid for existing block which is being refurbished to create 135k sq. ft. i.e. €362psf. No land value attributed to new block at acquisition sq. ft. of office space. • Phase 1 planning granted with Phase 2 under review by the planning board • Potential opportunity to develop c.60k sq. ft. (+20k sq. ft.) NIA on the site of Marine House • Longer term redevelopment opportunity as part of the wider Clanwilliam Court complex • Outline planning application for new road configuration expected to be submitted shortly HIBERNIA REIT PLCANNUAL REPORT 2016Photograph of Central Quay 31 It has been a very active year with new leases and rent reviews agreed adding a total of €11.8m per annum to contracted rents and asset management initiatives under way at a number of buildings in the portfolio. Asset management It has been a very active year with new leases and rent reviews agreed adding a total of €11.8m per annum to con- tracted rents and asset management initiatives under way at a number of buildings in the portfolio. estimated capital expenditure is €27m (€11m spent at 31 March 2016). We have commenced the marketing of the remaining 33,000 sq. ft. of available space and are discussing terms with a number of interested parties. Summary of letting activity in the financial year Central Quay, South Docks • Offices: Six new leases signed on 157,000 sq. ft. and one rent review together generating €7.8m of incremental new annual rent. The weighted average periods to break and lease expiry for the new leases were 11 years and 19 years, respectively • Residential: 310 units now let generating €6.4m of annual rent (€5.4m net of costs) and including the 80 Dundrum View apartments acquired in June 2015: letting activity generated incremental new net annual rent of €4.0m during the financial year • Industrial: restructuring of tenant leases at Gateway to maintain current passing rent and give landlord ability to gain vacant position upon 12 months’ notice for any future redevelopment Letting activity post financial year end As set out below, we are in discussions with potential tenants in a number of buildings where we have unlet space. Key asset management highlights See also developments and refurbishments section above for further details. Cumberland House, D2 In September 2015 we pre-let 85,000 sq. ft. to Twitter on a 20 year lease, with initial rent of c. €4.6m per annum (€50psf). Subsequently the agreement for lease has been extended to a further 16,500 sq. ft. generating additional net rental income of €0.7m per annum: 14,000 sq. ft. of this is additional space being created for Twitter and the remaining 2,500 sq. ft. relates to design efficiencies in the existing building. The total building area has increased from 112,000 sq. ft. to 135,000 sq. ft. The expected lease commencement is late 2016 upon completion of the refurbishment works, for which The 57,700 sq. ft. office building was acquired in February 2016 with some near term opportunities to drive rents through asset management. In March 2016 we agreed a lease surren- der with Indeed Ireland Operations Ltd, occupier of 22,000 sq. ft. across the first and third floors, for a payment to the tenant of €0.3m. Indeed were paying a low average rent of €30psf. Simultaneously with the surrender, we agreed to lease the first floor (11,000 sq. ft.) to Daqri International Limited for ten years, with a break after three years, from April 2016 at a rent of €52.50psf. We are in discussions with a number of potential occupiers regarding the remaining 18,500 sq. ft. of available space in the building. The Chancery, D8 Webzen vacated all 11,500 sq. ft. previously occupied in March 2016 having exercised a break option. We are close to finalising terms with a tenant for one of the two floors vacated. We are also in the process of upgrading the common areas in the building, at a cost expected to be less than €0.1m. The Forum, IFSC Terms have been agreed with Parkrite for a new 20 year lease from 14 May 2013 for the multi storey car park. The initial rent will be €0.5m with five yearly reviews. The lease is expected to be completed in Q2 2016. Guild House, IFSC In July 2015 FBD plc surrendered their leasehold interest for a total payment to Hibernia of €8.8m, covering surrender premiums, rental top-ups and dilapidations. The building was fully occupied and all nine of the former sub-tenants of FBD, with the exception of Bank of New York Mellon who occupy the entire first floor, have lease expiration dates prior to the end of Q1 2017. STRATEGIC REPORT 32 Business review (continued) We have informed all tenants of our decision to undertake a full refurbishment of all common areas to the same standard as that recently completed in One Dockland Central and work is expected to commence shortly. We are in discussions with the existing tenants regarding new leases beyond Q1 2017: we expect certain tenants will agree new leases and remain in situ throughout the works. The building will be renamed Two Dockland Central on completion. One Dockland Central (formerly Commerzbank House), IFSC cussions with a potential occupier regarding the remaining 30,000 sq. ft. of available refurbished space. Other completed assets The other completed properties in the portfolio are close to full occupation with an average period to rent review or lease expiry for the “in-place” office portfolio of 2.0 years: the team is assessing options to maximise returns from the up-coming lease events and continues to carefully monitor the letting markets. Of the 57,600 sq. ft. refurbished, 27,500 sq. ft. (two floors) and 14 car parking spaces were pre-let to HubSpot in November 2015 on a 20 year lease at a rent of €1.3m per annum (€45psf) after a six month rent free period from commencement: the lease commenced in February 2016. We are in advanced dis- Sale of non-core assets Good progress has been made in disposing of the remaining non-core assets acquired as part of the Dorville loan port- folio, which is substantially complete. As at 31 March 2016 the position was as follows: Sale of non-core assets Sold or contracted in the financial year Units Residential assets Commercial assets Sale agreed at financial year end Residential assets Remainder of non-core assets Residential assets 46 3 49 Units 1 Units 15 Carrying value €’000 Sales price €’000 12,168 13,134 Profit €’000 966 2,410 3,580 1,170 14,578 16,714 2,136 Carrying value €’000 Price agreed €’000 Expected profit(1) €’000 354 460 106 Carrying value €’000 3,567 1. Figure excludes tax payable on net profits arising on disposal Contracted in-place office portfolio rent by time to the earlier of the next review or expiry date of the lease Since the financial year end the sale which was agreed at financial year end but uncompleted has closed with funds received by Hibernia. In addition, the sale of a further seven units have been agreed with an aggregate gross sales value of €1.8m. Time to open market review 0 - 1 years 1 - 2 years 2 - 3 years 3 - 4 years 4+ years Total €m 11.6 1.0 8.4 2.1 4.2 27.3 HIBERNIA REIT PLCANNUAL REPORT 201633 Financial results and position IFRS NAV - cent per share EPRA NAV - cent per share Net debt / (cash) Group LTV Profit for the financial year EPRA profits Basic EPS Diluted EPS 31 March 2016 31 March 2015 Movement 131.6 130.8 €52.9m 5.7% €136.8m €10.0m 20.2 cent 20.1 cent 112.4 111.8 €(139.0)m n/a +17% +17% n/a n/a €92.2m +48% €3.9m +153% 18.4 cent 18.3 cent +10% +10% Final dividend / DPS €5.5m / 0.8 cent €3.4m / 0.5 cent Full year dividend /DPS* €10.3m / 1.5 cent €5.4m / 0.8 cent * Based on estimated shares in issue at the dividend date The key drivers of EPRA NAV per share, which increased 19.0 cent from 31 March 2015 were: • 18.2 cent per share from the revaluation of the property portfolio, including 8.2 cent per share in relation to de- velopment properties • 1.5 cent per share from EPRA earnings for the financial year • Payment of dividends, which decreased NAV by 1.2 cent per share • Gains on sales of non-core assets, which increased NAV by 0.5 cent per share Net profit for the financial year was €136.8m, an increase of 48% over the same period last financial year. In addition to the increase in property income, revaluation gains and losses to 31 March 2016 amounted to €125m, considerably higher than the prior financial year figure of €80.8m (the March 2015 figure was €90.9m including gain made on recognition of Block 3, Wyckham Point as an investment property) and assisted, in particular, by the valuation uplift in Cumberland House following the pre-let of the majority of the building to Twitter. EPRA profits for the financial year were €10.0m, up 153% since 31 March 2015. The key driver of the increase was the 85% increase in rental income, excluding surrender premia, due to further acquisitions made in the past 12 months, full periods of ownership for a number of assets and new lettings made (e.g. Block 3, Wyckham Point). In addition, property income was positively impacted by the surrender premium from FBD in relation to their lease on Guild House: this amounted to a one-off gain to property income of €4.9m (31 March 2015: €2.4m from surrender premia). Financing and hedging At 31 March 2016 Group net debt was €52.9m, a loan to value ratio (LTV) of 5.7%, having moved from a net cash position of €139.0m at 31 March 2015 as capital expenditure on acquisitions and developments significantly outweighed inflows from the sale of non-core assets, Starwood affiliates’ buy-in to the Windmill Lane development and undistributed rental income. In November 2015 the Group entered a new five year €400m RCF with Bank of Ireland, Barclays and Ulster Bank, replacing the existing €100m facility and providing flexible funding for the STRATEGIC REPORT 34 Business review (continued) development pipeline and future acquisitions. In December 2015 the Windmill Lane Partnership (“WLP”), the Group’s 50:50 joint arrangement with Starwood entities, entered a non-recourse, three year debt facility with Deutsche Bank of €46.7m (Hibernia share: €23.4m) to fund the development of the Windmill Lane site. At the request of WLP, this was subsequently reduced to €44.2m (Hibernia share: €22.1m). If both facilities were fully drawn at 31 March 2016 this would have resulted in a LTV of 32.5%. Given the nature of our portfolio and the development exposure within it, we expect the through-cycle gearing to be in the range of 20-30% LTV. and remains in compliance with the relevant requirements and procedures set out in the Irish, UK and AIC Corporate Governance Codes. Further information can be found in Note 5 to the financial statements. Dividend The Board has proposed a final dividend of 0.8 cent per share (2015: 0.5 cent) which, subject to approval at the Company’s AGM, will be paid in August 2016. All of this final dividend will be a Property Income Distribution (“PID”) in respect of the Group’s tax exempt property business. The Group has a policy of fixing or hedging the interest rate risk on the majority of its drawn debt. Consequently it has entered into interest rate caps and swaptions with 1% strike rates (reference 3m Euribor) covering €100m of the RCF. The interest rate exposure of the Windmill Lane facility has been hedged using an interest rate cap with a 1% strike rate (reference 3m Euribor). Together with the interim dividend of 0.7 cent, the total dividend for the financial year will be 1.5 cent (2015: 0.8 cent). This represents over 87% of realised profits received in the financial year. As the portfolio income stabilises, we intend that the interim dividend declared will usually be in the region of 30-50% of the total regular dividends paid in respect of the prior financial year. Internalisation of management team The Group completed the internalisation of its management team in November 2015, following approval by shareholders in late October 2015. The transaction was effected through the acquisition of WK Nowlan REIT Management Ltd (the “Investment Manager”) and its parent company, Nowlan Property Limited (“NPL”), on terms representing no antici- pated material additional cost to the Group when compared to the estimated costs of retaining the external structure until the expiry of the initial term of the Investment Management Agreement in November 2018. Under the terms agreed, the transaction was structured to take effect from 1 April 2015. Initial consideration paid of €21.1m comprised €14.2m in respect of base management fees and €6.9m in respect of the net assets of the Investment Manager and NPL (which were principally the performance fee payable to the Investment Manager for the financial year to March 2015 and cash). The initial consideration was settled through the payment of €8.3m of cash and the issue of 10.9m of new ordinary shares. Following completion, the Directors and senior management hold c. 2% of the issued share capital of the Company and the free float is c. 98%. Upon completion Kevin Nowlan (CEO) and Thomas Edwards- Moss (CFO) joined the Board of Directors, which continues to have a majority of independent non-executive directors Hibernia introduced a Dividend Reinvestment Plan (“DRIP”) last year: this allows shareholders to instruct Capita, the Company’s registrar, to reinvest dividend payments by the purchase of shares in the Company. The terms and con- ditions of the DRIP and information on how to apply are available on the Group’s website. In November 2015 we completed the internalisation of the management team [...] The internalisation was an important step in the Company’s progress and secures our talented and experienced team for the future. Kevin Nowlan Chief Executive Officer HIBERNIA REIT PLCANNUAL REPORT 2016 35 Sustainability is an integral part of our strategy Sustainability and social responsibility are key components in our strategy to deliver superior long term value for shareholders. We have identified four key sustainability priorities: 1 2 Responsible asset management Delivering sustainable buildings Active management of existing buildings to reduce environmental impact while maximising asset performance and efficiency for occupiers. Providing efficient new space through developments or refurbishments which offer lower running costs, lower emissions and an enhanced occupier experience. 3 4 Positive community impact Developing our employees Supporting the communities in which we operate, being responsible neighbours and developing and maintaining strong relationships. Providing an inclusive, open environment for our employees with opportunities for individuals and teams to realise their full potential and enable the business to meet its strategic targets. STRATEGIC REPORT36 Sustainability (continued) Management of the existing portfolio This financial year we initiated a first review of our occupied (“in-place”) buildings. All eight office buildings, which are multi-tenanted and where the Group has control of the utilities, were assessed for energy efficiency, water usage, and greenhouse gas emission and waste production for the period 1 April 2015 to 31 March 2016. As part of this, measurement of the metrics recommended in the EPRA Best Practices Recommendations on Sustainability Reporting (September 2011) was undertaken. The metrics assessed cover electrical and gas energy, water and waste. A total of approximately 39,000 square meters over the eight buildings was covered. These metrics will continue to be measured as we undertake initiatives to improve building efficiency in the future. The key EPRA metrics for the eight buildings for the assessed period were: EPRA sustainability summary EPRA code EPRA code Performance measure Building Total treated floor area Occupancy level GRI G4 indicator Unit (m²) Total for assessed buildings 39,260 95% Energy Elec-Abs Total electricity consumption G4-EN3 (kWh/ann) 4,475,000 Fuels-Abs Total fuel consumption G4-EN3 (kWh/ann) 5,753,000 Energy-Int Building energy intensity CRE1 (kWh/m².ann) Carbon GHG-Dir-Abs Total direct greenhouse gas (GHG) emissions (Gas) G4-EN15 (T CO₂/ann) 261 1,151 GHG-Indir-Abs Total indirect greenhouse gas (GHG) emissions (Elec) G4-EN16 (T CO₂/ann) 2,059 GHG-Int Greenhouse gas (GHG) intensity from building energy consumption CRE3 (kgCO₂/m².ann) 82 Water Water-Abs Total water consumption G4-EN8 (m³/ann) 16,751 Waste Cert Water-Int Building water intensity CRE2 (m³/ m².ann) Waste-Abs Total weight of waste G4-EN23 (Tonne/ann) Cert-Tot Type and number of sustainability certified assets CRE8 No. 0.55 203 N/A Note: Building Energy and Greenhouse Gas Intensity (CRE1 and CRE2) as reported are inclusive of total (i.e. Landlord plus Tenant) electrical energy consumption for Montague House (solely), as its current metering arrangement records whole-building usage only. It is estimated that the inclusion of tenant electricity consumption for this particular property amplifies expected energy and carbon intensity for the entire portfolio by the order of 5-10%. Sub-metering of electrical installations is being implemented at Montague House in order to enable future sustainability reporting to reflect solely landlord energy consumption throughout the portfolio. As this is our first year of reporting, no “like for like” numbers are available. HIBERNIA REIT PLCANNUAL REPORT 201637 Delivering new buildings A number of the assets we have acquired were purchased as development or refurbishment opportunities. Three of our largest active development/refurbishment projects are shown here. Hibernia has adopted LEED certification for its projects. LEED is a green building certification system developed by the U.S. Green Building Council (USGBC). Its aim is to be an objective measure of building sustainability. It measures: Water efficiency CO2 emissions reduction Improved indoor environmental quality Resource stewardship Improving energy savings Leadership in Energy and Environmental Design for core and shell buildings: LEED CS Version 2009 LEED Certified 40-49 LEED Silver 50-59 LEED Gold 60-79 LEED Platinum 80-110 STRATEGIC REPORT38 Sustainability (continued) High performance facade Energy efficient LED external lighting Case study Cumberland House, Dublin 2 In Ireland only one building has achieved LEED Platinum rating to date and no office buildings. The refurbishment of Cumberland House, a 1970’s office building, is currently on target to achieve the LEED Platinum standard. Cumberland House, near Trinity College and the National Gallery, was purchased by Hibernia in March 2015. The entire building is under refurbishment with 75% of the available space prelet to Twitter. The building’s refurbishment is expected to cost up to €27 million, with Twitter due to occupy the majority of the space in late 2016. Green roofs Energy efficient lift system Energy efficient LED lighting throughout Energy efficient air conditioning Optimised glazing providing natural daylight Water efficient appliances Energy efficient heat recovery ventilation system Extensive green landscaping and garden spaces HIBERNIA REIT PLCANNUAL REPORT 2016 39 Case study 1 Windmill Lane, Dublin 2 This is a new development to a LEED Gold standard extend- ing over six floors with a lettable area of approx. 122k sq ft of Grade A office space. The building is part of our regeneration of the Windmill Lane area of the South Docks. Energy efficient HVAC systems Optimised glazing providing natural daylight Water efficient appliances Open landscaped areas and courtyard Green roof Energy efficient LED lighting throughout High performance facade Sustainable materials and FSC wood High ratio of bicycle spaces STRATEGIC REPORT40 Sustainability (continued) Case study 1 Sir John Rogerson’s Quay, Dublin 2 This project commenced in late 2015 and is a new develop- ment to LEED Gold standard. Optimised glazing providing natural daylight Energy efficient LED lighting throughout Green roofs and open landscaped areas Green wall at the entrance Water efficient appliances High performance facade Sustainable materials and FSC wood High ratio of bicycle spaces HIBERNIA REIT PLCANNUAL REPORT 201641 from left to right: Thomas Edwards-Moss, Frank O’Neill, Kevin Nowlan, Mark Pollard, Richard Ball Our team With the internalisation of the Investment Manager in November 2015, Hibernia became an employer. We have a team of 17 people providing services either as employees or contracted service providers. At the core of our culture are the following values: Communication Personal development Weekly meetings are held across and within departments to encourage regular and effective communication. The Board and committees encourage participation by those directly responsible for the topics being discussed. Informal team events foster good relationships within the team. We encourage our people to undertake training to develop their skills and enhance their career and arrange for experts to present to the team on a regular basis Performance Remuneration Our people are encouraged to align with the Group’s strategy through objective setting and periodic performance reviews. We seek to remunerate in line with market salaries and have bonus arrangements to incentivise achievement of personal and Group objectives. We support diversity in all areas. STRATEGIC REPORT 42 Risks and risk management We believe good risk management practices and a strongly performing business go hand in hand and that both are dependent on the right culture of transparency, responsibility and accountability at all levels within an organisation, which is what we actively encourage in Hibernia. Our approach to risk management Risk management is the ultimate responsibility of the Board. The Board has implemented a risk framework to manage risk within the Group. This framework establishes and maintains the appropriate systems and controls to manage risk within the Group and ensure compliance with laws and regulations. This framework is reviewed annually or more frequently if required. The most recent review was undertaken as a result of the restructuring of the Group through the internalisation of the Investment Manager. The risk management system is an integral part of the internal control system within the Group. HIBERNIA REIT PLCANNUAL REPORT 201643 Governance structure and risk management Board Committees: Audit – Remuneration – Nomination Direct management of risk through Audit Committee and full Board oversight Operational management Fortnightly meetings: Investment, Development, Portfolio Operations, Finance and Investor Relations Periodic strategy and budget days Monitoring of key risk indicators Investment returns Debt covenant compliance Actuals v budget Lease covenants Market trends Risk tolerance limits Internal controls Risk framework and risk monitoring including risk register Policies and procedures and formal approval processes Formal documentation and Board approval for investment and other major decisions Skilled and experienced team STRATEGIC REPORT44 Risks and risk management (continued) Overall risk ratings are as follows: Overall Risk Rating Score Unacceptable High Medium Low >15 9-15 4-9 <=4 The Group has controls and procedures to mitigate all risks and strives in particular to reduce any risk which is rated as “unacceptable”. In general, the Group will not proceed with a course of action which would be likely to lead to such a risk. The Group has identified its main risk appetites and risk tolerance levels have been applied to these. A combined risk register is maintained for the Group. This is reviewed and reported on regularly. The Risk and Compliance Officer reports directly to the Audit Committee/Board. The Directors confirm that they have carried out a robust assessment of these risks and set out below a description of the principal risks together with the measures they have taken in order to manage and mitigate these risks. The Group’s risk management framework is continually monitored by the Group’s Audit Committee, under delegation from the Board. The Audit Committee is responsible for over- seeing the effectiveness of this framework and of the internal control environment of the Group. The Audit Committee Report is set out on pages 62 to 66 of this Annual Report. Internal controls are addressed in the Corporate Governance Report on pages 72 to 73. Our risk management framework involves designing, implementing, monitoring, reviewing and continually improving risk management processes in the organisation. Our inputs include all risks, processes and controls applicable to the organisation. Quantitative and qualitative analyses are performed to identify and quantify the most important risks. The system’s outputs include a risk register, risk monitoring plan and risk metrics. The Group has devised an action plan to identify and mitigate any risk concerns and/or breaches. Identifying and monitoring principal risks The Group has to take carefully considered and appropriate risks in order to realise its strategic goals and risk appetites are approved which are complementary and appropriate to these goals. Principal risks are identified through a Group wide assessment process. This assessment process consists of the following steps: • Identify the risk • Determine the magnitude of impact. This assigns a rat- ing from 1 (insignificant) to 5 (catastrophic) based on the magnitude of possible financial loss • Determine the likelihood of the risk occurring from 1 (rare) to 5 (almost certain) • Multiply the impact and likelihood ratings to produce the risk rating HIBERNIA REIT PLCANNUAL REPORT 201645 Principal risks and uncertainties There are a number of potential risks and uncertainties which could have a material impact on the Group’s perfor- mance and could cause actual results to differ materially from expected and historical results. A description of these risks and the steps which the Group has taken to manage these risks is set out below. Risk Weakening economy Potential impact High Strategic goal impact Performance below target levels through lower capital or income returns or both. Description of exposure Mitigation Change from last year Comment The value of the investment portfolio may decline and rental income may reduce as a consequence of lowered levels of economic activity in Dublin and/or Ireland. The Group has set risk appetite limits, which are the level of risk that the Board considers acceptable to accept in achieving the Group’s strategic objectives in the current economic environment. Close monitoring of economic lead indicators and access to market knowledge through the Group’s contacts and advisers help to ensure it has the best possible knowledge of the current macro-economic environment to allow it to anticipate and react to potential issues. Increased The IMF has forecast that the Irish economy is to continue its strong expansion, especially relative to the Eurozone, for the next two years. The Central Bank of Ireland’s view is similar and it expects growth to be 5.1% this year and 4.2% next year. The Central Bank highlights that risks to projections, related mainly to external factors, are tilted to the downside. Domestically, they note the continuing relatively high levels of private sector indebtedness but point out that the favourable growth outlook offers some relief. Externally, it noted that the risk of the UK leaving the European Union could lead to weaker economic and financial conditions in the broader international economy. Adding to the specific event risk of the UK “Brexit” referendum, external risks in the global economy remain elevated with fears over a hard landing for the Chinese economy and uncertainty around the path for US interest rate policy of particular note. Risk Underperformance of Dublin property market Potential impact High Strategic goal impact Value of investment property may decrease thus reducing NAV. Potential impacts on rental income through lower rents or defaulting tenants. Description of exposure Mitigation Change from last year Comment Underperformance by Dublin property market compared to other Irish property sectors: to date all the Group’s investments have been within Dublin. The Group regularly reviews its strategy and asset allocation to determine if it remains appropriate. The Dublin property market is currently performing well and Dublin remains a key contributor to the Irish economy. Stable STRATEGIC REPORT 46 Risks and risk management (continued) Risk Investment Potential impact High Strategic goal impact Inability to find new opportunities that meet the Group’s return targets, over concentration in one particular asset or location or failure to correctly identify all risks of a purchase may result in poor investment returns below the Group’s targets. Description of exposure Mitigation Change from last year Comment Competition may reduce the access to attractive investment opportunities. Market knowledge and contacts improve the Group’s ability to uncover opportunities and acquire investments. Increased Concentration of investment in single assets, tenants, locations or sectors may increase risk. Overlooking or mis- pricing risks at point of investment. Risk appetites are set and monitored for concentration risk factors. Stable Stable The Group has an experienced management team which carries out extensive due diligence ahead of purchase. Board approval is part of the investment decision which provides another layer of scrutiny. The rise in Dublin property prices has reduced the pool of assets which meet our returns criteria, although with our focus on value add projects there remains a good level of opportunity. The Group has built a balanced portfolio since commencement of operations. As at 31 March 2016 the largest single asset represented 11.7% of the portfolio by value. Due diligence involves a diverse range of parties, internal and external, and helps to mitigate risks around acquisitions. Risk Development Potential impact High Strategic goal impact Target returns impacted through lower than expected profits on developments. Description of exposure Mitigation Change from last year Comment Inability to properly manage developments. Any refurbishment or redevelopment project may suffer delays, may not be completed or may fail to achieve expected results. Budgets may overrun. Close monitoring of developments coupled with significant in-house experience in managing large scale projects reduces these risks. The use of joint venture arrangements also reduces overall exposure. Decreased The Group has hired an experienced Director of Development and our development projects have progressed considerably in the last twelve months. The Development Committee monitors development progress and issues. Issues are identified early and proactively managed to ensure effective delivery of projects. In addition, rents have risen in the last twelve months which should enhance returns on our developments. HIBERNIA REIT PLCANNUAL REPORT 2016 47 Risk Financing Potential impact Medium Strategic goal impact Inappropriate capital structure may lead to Group being unable to meet goals through covenant breaches or high interest costs impacting returns. Description of exposure Mitigation Change from last year Comment Leverage exposes the Group to risks associated with borrowing such as covenant breaches. New facilities are approved at Board level and under the investment policy debt is limited to a 40% loan to value ratio at incurrence. Hedging instruments have been used to cap the Group’s interest rate exposure and the Group intends to hedge the majority of its interest rate exposure on its drawn debt. Active and regular monitoring of covenant breaches is undertaken. Levels of leverage are set at Board level and monitored closely. Alternative sources of financing are also continually assessed. Decreased No breaches have occurred in the period. A conservative approach to hedging of interest costs on financing arrangements means that the impact of borrowing on the overall return on equity should be positive against a backdrop of rising EURIBOR. The Group continues to be vigilant in monitoring covenants and hedging requirements. Strategic goal impact Targeted returns impacted, new investment limited through lack of available funds. Description of exposure Mitigation Change from last year Comment No access to financing limits potential for further investment growth or means the Group misses out on opportunities. The Group actively manages its finance requirements and continues to monitor availability to ensure it is well placed to take advantage of market investment opportunities as they arise. Decreased The Group put in place a new €400m revolving credit facility in 2015, replacing the previous €100m revolving credit facility. €75m had been drawn as of 31 March 2016 (31 March 2015: €nil). Its Windmill Lane joint arrangement is also funded from bank borrowings. The Group continues to monitor capital requirements to ensure that future requirements are anticipated and met within the limits of its leverage targets. Risk People Potential impact Medium Strategic goal impact Strategic goals achievement impacted through loss of expertise or key personnel. Description of exposure Mitigation Change from last year Comment The Group fails to attract, motivate and retain sufficient skilled people to achieve targets. Poor management of people may impact on performance. The Group has a team of directly employed staff through the internalisation of the Investment Manager, with a remuneration system that is linked closely to individual and Group performance. The Group has introduced a long-term incentive plan (funded through the existing performance fee arrangements) as part of performance remuneration this year in order to help align employees interest with shareholders and encourage retention. Decreased With the completion of the internalisation of the Investment Manager in November 2015 this risk has decreased due to the Group’s enhanced ability to retain and attract staff. A Remuneration Committee of the Board has been established to proactively manage remuneration measures. STRATEGIC REPORT48 Risks and risk management (continued) Risk Regulatory Potential impact Low Strategic goal impact Achievement of strategic goals impacted through inability to continue as a REIT and a greater tax burden. Description of exposure Mitigation Change from last year Comment Legislative and regulatory requirements may not be complied with resulting in sanctions being imposed. The management team and the Board spend substantial time, and retain external experts as necessary, to ensure compliance with current and possible future regulatory requirements. Effective monitoring of REIT requirements compliance at a senior level. The Group’s REIT status may be revoked if it fails to satisfy all the relevant tax and legislative requirements, which would have adverse consequences for its investors. Our strategy in managing this risk together with a relatively unchanged regulatory environment has meant the risk has remained relatively stable over the last year. This continues to be done on a regular basis and is the subject of review by our retained tax advisers, KPMG. Stable Stable Photograph of completion of refurbishment works at One Dockland Central HIBERNIA REIT PLCANNUAL REPORT 2016 50 Directors’ report Board of Directors Daniel Kitchen Non-Executive Chairman Appointed: 23 August, 2013 Nationality: Irish Age: 64 Committee membership: Nominations (Chair) and Remuneration Daniel Kitchen is currently the Non-Executive Chairman of Workspace Group plc, the Non-Executive Chairman of Applegreen plc and a Non-Executive Director of LXB Retail Properties plc, as well as the ISE-nominated Director on the Irish Takeover Panel. Previously, he was Finance Director of Green Property plc from 1994 to 2002, Deputy Chief Executive of Heron International plc from 2003 to 2008 and the Irish Government-appointed Chairman of Irish Nationwide Building Society and a Non- Executive Director of Kingspan Group plc and Minerva plc. He brings the benefit of his expertise and the experience gained across a variety of property, finance and public company roles to his chair- manship of the Board and Nominations Committee. Colm Barrington Independent Non-Executive Director and Senior Independent Director Appointed: 23 August, 2013 Nationality: Irish Age: 70 Committee membership: Audit, Nominations and Remuneration (Chair) Colm Barrington is currently Chief Executive Officer and a Director of Fly Leasing Ltd, the NYSE-listed and Irish based aircraft leasing company. Previously he was Managing Director of Babcock & Brown Ltd in Ireland, President of GE Capital Aviation Services Ltd, Chief Operating Officer of GPA Group plc and Chief Executive of GPA’s Capital Division. He is a Non-Executive Director of IFG Group plc and is a former Non-Executive Chairman of Aer Lingus Group plc. Colm Barrington’s senior executive and non-executive board roles add significant experience to the Board from outside the property sector and within the context of a public company. Stewart Harrington Independent Non-Executive Director Appointed: 23 August, 2013 Nationality: Irish Age: 73 Committee membership: Audit, Nominations and Remuneration Stewart Harrington is currently a Director of Killeen Properties and a Non-Executive Director of the parent company of the BWG Group, Stafford Holdings and Argentum Homes. He has extensive knowledge and experience of the Irish property market over many years in a variety of roles. Previously, he was a partner in Jones Lang Wootton (now JLL), a founding partner of Harrington Bannon Chartered Surveyors (now BNP Paribas Real Estate Ireland), and Managing Director of Dunloe Ewart Ltd (formerly known as Dunloe House Group plc). He was also previously a Non-Executive Director of St. Vincent’s Healthcare Group, CIE (Córas Iompair Éireann, Ireland’s national public transport provider), ESB (the Electricity Supply Board, Ireland’s premier electricity utility) and the National Development Finance Agency. HIBERNIA REIT PLCANNUAL REPORT 201651 William Nowlan Non-Executive Director Appointed: 13 August, 2013 Nationality: Irish Age: 70 Committee membership: None William Nowlan has more than 40 years’ experience investing in Irish commercial property. Prior to forming WK Nowlan & Associates (now WK Nowlan Real Estate Advisers) in 1996, he was Head of Property Investment at Irish Life Assurance plc from 1985 to 1995. He was a member of the Committee of Management of IPUT (Irish Property Unit Trust, one of the largest institutional property investors in Ireland) from 1997 to 2007. He is a member of the Irish Town Planning Institute, a fellow of the Royal Institute of Chartered Surveyors and a former Chairman of both the Royal Institute of Chartered Surveyors Ireland and the Royal Institute of Chartered Surveyors Europe. He was also a member of the RICS Governing council in London. He was the founding Chairman of the Irish Property and Facilities Managers’ Association. He was also Visiting Professor in the University of Ulster and lecturer in Town Planning at University College, Dublin. He assembled and led the Irish REITs Forum, a voluntary body of leading property industry practitioners and shareholders who came together in January 2011, to promote the introduction of REITs to Ireland that influenced the introduction of the Irish REIT legislation in early 2013. Terence O’Rourke Independent Non-Executive Director Appointed: 23 August, 2013 Nationality: Irish Age: 61 Committee membership: Audit (Chair), Nominations and Remuneration Terence O’Rourke is currently Chairman of Enterprise Ireland, a Non-Executive Director of The Irish Times and a council member and Non-Executive Director of the Irish Management Institute. Previously, he was Managing Partner of KPMG Ireland from 2007 to 2013, a board member of the Chartered Accountants Regulatory Board, President of The Institute of Chartered Accountants in Ireland and Chairman of the Leinster Society of Chartered Accountants. He was also a member of the Global Board, the EMEA Board and the Global Executive Team of KPMG International from 2007 to 2013. Terence O’Rourke’s professional accounting and management background and experience over many years in advising clients across a range of sectors, contributes to the balance of skills, experience and knowledge of the Board. GOVERNANCE52 Directors’ report (continued) Kevin Nowlan Chief Executive Officer Appointed: 5 November, 2015 Nationality: Irish Age: 45 Committee membership: None Kevin Nowlan is a chartered surveyor with more than 20 years’ experience in the Irish property market, including commercial agency, property management, investment, development and devel- opment financing, commercial loan portfolio management and debt restructuring. Kevin joined the Board of Hibernia as Chief Executive Officer in November 2015 following the internalisation of WK Nowlan REIT Management Limited, the Investment Manager. Prior to this Kevin held the same position in the Investment Manager from its inception in 2013 and previously held senior roles in NAMA and Treasury Holdings and was MD of WK Nowlan Property (now WK Nowlan Real Estate Advisers). He has a BSc in Estate Management from the University of Ulster, an MBA from Ulster Business School and a Diploma in Project Management from Trinity College, Dublin. Thomas Edwards-Moss Chief Financial Officer Appointed: 5 November, 2015 Nationality: British Age: 36 Committee membership: None Thomas Edwards-Moss joined the Board of Hibernia as Chief Financial Officer in November 2015, following the internalisation of the Investment Manager. Prior to this he held the same role in the Investment Manager since joining in June 2014. Previously he spent nine years at Credit Suisse, London as part of the UK & Ireland Investment Banking team. While there, he had a particular focus on corporate finance in the real estate sector and he advised on the initial public offering of Hibernia. He is a graduate of Cambridge University and qualified as a chartered accountant at PricewaterhouseCoopers in 2005. All the Directors will retire at the Annual General Meeting (AGM) and, being eligible, will offer themselves up for election or re-election. The Company Secretary, Castlewood Corporate Services Limited (trading as Chartered Corporate Services), was appointed on 15 November 2013. HIBERNIA REIT PLCANNUAL REPORT 201653 The Directors submit their Annual Report for the financial year ended 31 March 2016. The Strategic Report and all other sections of the Annual Report, to which cross reference is made, are incorporated into the Directors’ Report by reference. Principal risks and uncertainties The principal risks and uncertainties are discussed in the Risks and risk management section on pages 42 to 48 and form part of this report. Directors' responsibilities REIT status and taxation These are set out in the Directors’ Responsibility Statement on page 75 of this report. Principal activity and business review The principal activity of the Group is property investment. Further details on the Group’s development and performance for the financial year under review are set out in the Financial results and position on pages 33 to 34 The principal subsidiary and associate undertakings are listed in Note 31 to the consolidated financial statements and form part of this report. Results for the financial year Group results for the financial year are set out in the Group income statement on page 80. The profit for the financial year ended 31 March 2016 was €136.8m (March 2015: €92.2m), including unrealised profits on investment properties of €125.1m (31 March 2015: €80.8m). The Group has a number of key performance indicators which it meas- ures. The main indicators of performance used are EPRA Net Asset Value per share (a measure of the growth in shareholder value) and EPRA earnings (a measure of the underlying property rental income) and profit before tax. Other important measures for the Group are measures relating to the property portfolio and tenancy data such as passing and contracted rents, weighted average life of leases and occupancy levels. In addition, the Group has commenced measurement of sustainability parameters such as energy and waste consumption using EPRA measures. All of these measures are reported on in the Strategic Report on pages 3 to 48 of this Annual Report. The Board has proposed a final dividend of 0.8 cent per share (€5.5m) (31 March 2015: 0.5 cent per share or €3.4m) which will be paid, subject to shareholder approval, in August 2016. Together with the interim dividend of 0.7 cent, the total dividend for the financial year is 1.5 cent per share or c.€10.3m (31 March 2015: 0.8 cent or €5.4m) based on the number of shares estimated to be in issue at that date. Hibernia REIT plc elected for Real Estate Investment Trust (“REIT”) status under section 705E Taxes Consolidation Act 1997. As a result, the Group does not pay Irish corporation tax or capital gains tax on the profits or gains from its qualifying rental business in Ireland provided it meets certain conditions. With certain exceptions, cor- poration tax is still payable in the normal way on profits from the Group’s non-core business. The Group purchased two loan portfolios in prior years in order to acquire several investment properties which were part of the collateral securing these portfolios. These portfolios were also secured on assets which the Group did not intend to hold in its rental business, and which it has designated as “non-core” assets. These non-core assets have since either been sold, and the proceeds applied against the loan balances due, or have been acquired by the Group and are classified as “non-current assets classified as held for sale”. The disposal process of these assets is close to completion with only 16 assets unsold at financial year end. As they are not part of the qualifying rental business, the Group may be liable to taxes on any relevant profits arising from these assets. The Group must satisfy the conditions summarised below for each accounting period: a) at least 75% of the Aggregate Income of the Group must be derived from carrying on a Property Rental Business; b) c) d) e) f) it should conduct a Property Rental Business consisting of at least three properties, the market value of no one of which is more than 40% of the total market value of the properties in the Property Rental Business; it should maintain a property financing ratio being, broadly, the ratio of Property Income plus Financing Costs to Financing Costs, of at least 1.25:1; at least 75% of the market value of the assets of the Group must relate to assets of the Property Rental Business; the aggregate debt shall not exceed an amount of 50% of the market value of the assets of the Group; subject to having sufficient distributable reserves, the Group must distribute at least 85% of its Property Income to its share- holders by way of a Property Income Distribution for each account- ing period. GOVERNANCE54 Directors’ report (continued) At 31 March 2016 the Group had invested all funds (31 March 2015: €139m remained) from the Group’s secondary equity issue. In relation to properties under development, where the development costs exceed 30% of the market value of the property at the commence- ment of development, then the property must not be disposed of within three years of completion. If such a disposal takes place then the Group would be liable to tax on the proceeds of any profit on disposal. The Directors confirm that the Company complied with the REIT legislation for the financial years ended 31 March 2016 and 2015. So far as the Directors are aware the Company is not a close company within the meaning of the Taxes Consolidation Act. Share capital At 31 March 2016 the Company had 681,251,285 units of ordinary stock in issue (31 March 2015: 670,317,459 units). As approved at an extraordinary general meeting of the Company on 27 October 2015, 10,933,826 units of ordinary stock were issued on 5 November 2015 in part payment of the cost of Internalisation. Approx- imately €4.5m shares will be issued in relation to performance related payments for the financial year ended 31 March 2016. Further information on the Company’s share capital, including that required by Regulation 21 of the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006 is contained in Note 22 to the Group financial statements. Future developments The Group continues to look for opportunities to increase the size of its portfolio and to enhance its shareholders’ returns through leveraging its capital base. The outlook for the property market is discussed in the Strategic Report on pages 3 to 48 of this report. We are confident that the Group is well-placed to deliver further progress in the coming financial year and beyond. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 3 to 48 of this Annual Report. This also covers the financial position of the Company, its cash flows, liquidity position and borrowing facilities. Further detail on the financial performance and financial position of the Group and Company is provided in the consolidated financial statements and Company financial statements on pages 80 to 136 and in Note 2.(d) to these financial statements. In addition, Note 29 to the Annual Report includes details on the Group’s financial risk management and exposures. 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. Therefore the Directors have con- cluded that the going concern assumption remains appropriate. Viability statement The Directors have assessed the prospects of the business and its ability to meet its liabilities as they fall due over the medium term. They have concluded that a three year period is an appropriate basis for the assessment as this is the key period for completion of the Group’s committed development projects. Assumptions have been built into the planning process which are based on a conservative view of the Group’s expected income and investment profile over this three year horizon. The Directors have based their assessment on the analysis performed as part of the Group’s budget forecasting and planning. A number of scenarios are prepared and kept under continuous review. Sensitivity analysis is performed to test the potential impact of some of the principal risks and uncertainties affecting the Group’s activities as described on pages 45 to 48. For the purposes of this viability statement, worst case budget pro- jections are used to conduct this assessment. When considering stress scenarios, the Directors have calculated how significant a deterioration in underlying operating profits and asset values is required before the Group breaches its debt covenants or the requirements of the Irish REIT regime. Having reviewed the results of this exercise, the Directors consider that all of these scenarios are extremely unlikely to occur within the three year horizon examined. The current €400m revolving credit facility extends until November 2020. Taking all these factors into account, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period of their assessment. Directors The business of the Company is managed by the Directors, each of whose business address is Hibernia REIT plc, South Dock House, Hanover Quay, Dublin D02 XW94, Ireland. Unless otherwise determined by the Company in a general meeting, the number of Directors shall not be more than ten nor less than two. A Director is not required to hold shares in the Company. Two Directors present at a Directors' meeting shall be a quorum, subject to appropriate notification requirements. Each Director has the same general legal responsibilities to the Company as any other Director and the Board as a whole is collectively responsible for the overall success of the Company. In addition to their general legal responsibilities, the Directors have responsibility for the Company's strategy, performance, financial and risk control and personnel. HIBERNIA REIT PLCANNUAL REPORT 201655 Details on directors’ remuneration are contained in the Remuneration Committee Report on pages 69 to 71 of this Annual Report. who are seeking re-appointment at the forthcoming AGM as they continue to be effective and remain committed to their role on the Board. In accordance with provision B.7.1 of the UK Corporate Governance Code (“the Code”) and the Irish Corporate Governance Annex (the “Annex”), the Directors individually retire at each AGM of the Company and submit themselves for re-election if appropriate. No re-appoint- ment is automatic and all Directors are subject to a full and rigorous evaluation. One of the main purposes of this evaluation is to assess each Director’s suitability for re-election. The Board will not recom- mend a Director for re-election if the individual concerned is not considered effective in carrying out their required duties. In the financial year under review, each Director has been subject to the evaluation process recommended by the Code. On this basis, the Chairman and the Board are pleased to recommend those Directors Substantial shareholdings Directors’ interests in share capital as at 31 March 2016 The interests of the Directors and Company Secretary in the shares of the Company are set out in the Report on the Directors’ Remuneration on pages 69 to 71. This is further discussed in Note 32 to the Group Financial Statements. The Directors and the Company Secretary have no beneficial interests in any of the Group’s subsidiary or associated undertakings. As at 31 March 2016 the Company has been notified of the following substantial interests in the Company’s shares: Holder  Soros Fund Management LLC Wellington Management Company LLP Oppenheimer Funds Inc. Invesco TIAA-CREF Investment Management LLC Zurich Life Assurance plc Morgan Stanley Investment Management Limited As at 2 June 2016 the Company has been notified of the following changes: Holder Soros Fund Management LLC Wellington Management Group LLP Morgan Stanley Investment Management Limited BlackRock, Inc. Holding '000 shares 46,902 39,941 34,839 34,352 33,370 20,951 20,688 % 6.88 5.86 5.11 5.04 4.89 3.07 3.04 Holding '000 shares % 38,477 32,183 27,926 21,026 5.64 4.72 4.10 3.09 GOVERNANCE                      56 Directors’ report (continued) Corporate governance Annual Report The Group is committed to high standards of corporate governance, details of which are given in the Corporate Governance Report on pages 57 to 74 which forms part of the Directors’ Report. Sustainability The Group is committed to ensuring ethical and sustainable practices for the benefit of all our stakeholders. More details on our policies and progress can be found in our Sustainability Report on pages 35 to 41. Accounting records The Directors believe that they have complied with the provisions of sections 281 to 286 of the Companies Act 2014 with regard to the accounting records by employing accounting personnel with appro- priate expertise and by providing adequate resources to the finance function. The accounting records of the Company are maintained at the registered office located at South Dock House, Hanover Quay, Dublin, D02 XW94, Ireland. Political contributions The Board, having reviewed the Annual Report in its entirety, is satisfied it is fair, balanced and reasonable and gives the reader all the information required to understand the business model, strategy and performance of the Group. The Board is assisted in this review by the work carried out by the Audit Committee as set out in the Audit Committee Report on pages 62 to 66 of this Annual Report. A key responsibility of the Audit Committee is to assist the Board in monitoring the integrity of the financial statements and to recommend to the Board that it believes that the Annual Report taken as a whole is fair, balanced and under- standable and provides the information necessary for shareholders to assess the Group’s performance, business model and strategy. To achieve this for the current reporting period, the Audit Committee reviewed the Annual Report and considered whether the consolidated financial statements were consistent with the operating and financial reviews elsewhere in the Annual Report. The Audit Committee also considered the treatment of items representing significant judge- ments and key estimates as presented in the consolidated financial statements and where appropriate discussed these items with the external auditor. The Group made no political contributions during the financial year. Annual General Meeting Financial risk management The financial risk management objectives and policies of the Company are set out in Note 29 to the consolidated financial statements. Independent auditor The auditor, Deloitte, Chartered Accountants, continues in office in accordance with section 383 of the Companies Act 2014. Under Irish legislation, the Company’s external auditor is automatically reapp- ointed each year at the AGM unless the meeting determines otherwise or the auditor expresses its unwillingness to continue in office. How- ever, a resolution confirming that they will be reappointed will be included as ordinary business at the Annual General Meeting. Events after the reporting date These are described in Note 33 to the consolidated financial statements. The second Annual General Meeting of the Company was held on 30 July 2015. In addition, an Extraordinary General Meeting was held on 27 October 2015 to approve the internalisation of the Investment Manager. The third Annual General Meeting will be held on 26 July 2016. Notice of the 2016 AGM, together with details of special business to be considered at the meeting, will be circulated to the shareholders in June 2016. Mr Kevin Nowlan Chief Executive Officer 2 June 2016 Mr Thomas Edwards-Moss Chief Financial Officer 2 June 2016 HIBERNIA REIT PLCANNUAL REPORT 2016Corporate governance report 57 Chairman’s corporate governance statement Financial year to 31 March 2016 The financial year ended 31 March 2016 saw substantial change with the internalisation of the Investment Manager. This was legally com- pleted in November 2015 and in the planning and implementation stages, we as a Board maintained a close overview of all strands of the project. WK Nowlan REIT Management Limited (the Investment Manager) remained approved as the alternative investment fund manager (“AIFM”) under the European Union (Alternative Invest- ment Fund Managers) Regulations 2013 (as amended) (“the AIFM Authorisation”) at 31 March 2016. The Company has applied to the Central Bank for approval as an Internally Managed Alternative Investment Fund and awaits approval. Throughout the financial year, the Company complied with all relevant provisions of the UK Corporate Governance Code (“Irish Code), the UK Corporate Governance Code 2014 (“UK Code”) and the Association of Investment Companies Code of Corporate Governance (“AIC Code”). During the financial year we reviewed our corporate governance arrangements in light of the UK Code amendments. Company restructuring As a result of the Internalisation, the Company now has an executive structure and we have transferred the procedures and policies that were in place in the Investment Manager into the Company and put them directly under our supervision. There is a clear division of respon- sibility between the Board and executive management. Reflecting this change we added a Remuneration Committee at Board committee level and several executive committees as listed in this report. The Remuneration Committee was constituted in February 2016 and reports here for the first time. In addition to the Remuneration Committee, we have Audit and Nominations Committees. The Audit Committee continues to have a wide scope of work, and is an important factor in our being able to state our belief that this Annual Report and consolidated financial statements, taken as a whole, is fair, balanced and understandable, and provides the information necessary to assess the Group’s performance and prospects. Our role in strategy and risk We believe good governance requires the Board to have close engage- ment with all aspects of governance and the business so that we have an in depth knowledge of the business and a clear understanding of the challenges and risks that it faces. As Chairman, it is my respon- sibility to ensure we are effective in our roles and that we have focused on strategic matters as well as the internal controls and risk manage- ment. The Non-Executive Directors and Management Team held a strategy day in April 2016. With all our cash raised by share issues now invested and the new €400m revolving credit facility starting to be drawn, it is particularly important that we continue to assess and refine our strategy to ensure it delivers optimal returns for our stakeholders. Risk management is another important area of focus for our Board and we have provided a separate section elaborating on our measures to identify, manage and mitigate risks on pages 42 to 48 of this Annual Report. In addition, we performed an overview of the Company’s risk framework during the financial year and we keep the process of iden- tifying and monitoring these risks under constant and close review – the Risk and Compliance Officer reports on compliance and risks at every Board meeting. GOVERNANCE58 Corporate governance report (continued) Stakeholder engagement Board evaluation I see engagement with all our stakeholders as an important part of our role. We talk about engagement with our shareholders in Communication with shareholders on pages 74 of this report. We also engage actively with other providers of capital such as our bankers. We signed a new revolving credit facility for €400m during the financial year and also put in place financing for the Windmill Lane joint arrangement. We actively manage covenant compliance and encourage open communication with our capital providers. The formation of the Windmill Lane joint arrangement has enabled us to manage our development risk and funding requirements appro- priately. We act as managers of the development through one of our subsidiaries and this too has been actively managed by the Board in developing controls and communication with our partner. Further information on our joint arrangement is found in Note 18 of the Annual Report. We need to recognise the role and importance of our employees’ con- tribution. They are also important stakeholders in our Group. It is particularly important that non-executive and executive directors, as well as other senior managers, continue to communicate effectively and constructively. This was in place with the Investment Manager; it continues in our new structure. The executive committee structure aids this, with the inclusion of non-executive and executive directors and employee representatives to ensure full communication. Aside from formal membership of the committees, all employees that have roles in each area are invited to the bi-weekly meetings and every two months there is a meeting for all staff at which each department gives an update on their area of responsibility. With these mechanisms we hope to continue and grow the team spirit that has driven the Company so successfully in its first years of operation. The composition and performance of the Board and its committees were reviewed during the financial year. In general, there was satis- faction with the composition and performance of the Board. One minor concern was that attendance in person could be difficult given the large number of ad hoc meetings called at short notice. Many of these were as a result of the Internalisation and a high level of acquisitions as we rolled out our capital raised. The number of meetings is therefore expected to reduce significantly as business settles into normal levels of activity. Another point made was that we should keep the need for an internal audit function under review. This need is reviewed regularly and, at the moment, we are comfortable that there is appropriate oversight for the nature and complexity of the business. During the financial year the Company Secretary has provided strong support in ensuring that we have all the information we need and in advising us on governance matters. In 2016/17 our challenge is to continue to grow the organisation in a safe and measured way, ensuring that effective risk management remains a priority and that we continue to keep pace with develop- ments in corporate governance. Daniel Kitchen Chairman 2 June 2016 HIBERNIA REIT PLCANNUAL REPORT 201659 Introduction The Board of Directors of Hibernia REIT plc (“the Board”) is committed to developing and maintaining a high standard of corporate governance. The Company complies with the relevant requirements and procedures as set out by the Central Bank of Ireland and the Irish and London Stock Exchanges. The main governance requirements are listed in the Listing Rules of the Irish and London Stock Exchanges, the Irish Corporate Governance Annex to the UK Corporate Governance Code (“Irish Code”), the UK Corporate Governance Code 2014 (“UK Code”) and the Association of Investment Companies Code of Corporate Governance (“AIC Code”). The Company has applied the UK Corporate Governance Code due to the listing on the London Stock Exchange. To this end, the Board has established Audit, Remuneration and Nominations Committees, as described below, comprised entirely of Independent Non-Executive Directors. During the financial year the Board reviewed changes in corporate governance recommendations arising from changes to the UK Code which apply for the first time to this accounting period. The terms of reference of the Board committees were revised accordingly. The Company also noted the commencement of the provisions of the Companies Act 2014 (“the Act”) during the financial year. The role of the Board The Board has reserved the following matters for its direct stewardship and decision making: • Strategy and oversight • Board composition, committees of the Board and the company secretary • Appointment and oversight of delegates • Corporate structure and share capital • Risk management • Financial control • Internal controls • Remuneration of the Board • Corporate governance The Board is responsible for providing governance and stewardship to the Company and its business. This includes establishing goals for management and monitoring the achievement of these goals. The Chairman is responsible for leadership of the Board and ensuring its effectiveness in all aspects of its role. All Directors are expected to allocate sufficient time to the Company to discharge their responsibilities effectively. Directors are expected to attend all scheduled Board meetings as well as the Annual General Meeting (“AGM”). All Directors are furnished with information necessary to assist them in the performance of their duties. The Board meets at least four times each calendar year and, prior to such meetings taking place, an agenda and board papers are circulated to the Directors so that they are ade- quately prepared for the meetings. The Company Secretary is respon- sible for the procedural aspects of the Board meetings. Directors are, where appropriate, entitled to have access to independent professional advice at the expense of the Company. Standing items include man- agement accounts for the period, risk reporting, portfolio management and development progress as well as cash management and other operational reports. The Board oversees the performance of the Group’s activities. Management has discretionary authority to enter into transactions for and on behalf of the Group save for certain matters which require the consent of the Board. The Board is obliged to challenge, supervise and instruct management at a high level. The Board reviews the Group and Company's management accounts on a quarterly basis. Any Director appointed to the Board by the Directors will be subject to re-election by the shareholders at the first AGM after his/her appoint- ment. Furthermore, under the Articles, one third of all Directors must retire by rotation each year and may seek re-election. However, in keeping with best corporate governance practice, all Directors intend to seek re-election each year at the AGM. GOVERNANCE60 Corporate governance report (continued) Details of the remuneration of Directors are set out in the Report of the Remuneration Committee on pages 67 to 71. The composition of the Board is reviewed regularly to ensure that the Board has an appropriate mix of expertise and experience. The Articles of the Company provide that the number of Directors that may be appointed cannot be fewer than two or greater than ten and that two Directors present at a Directors' meeting shall be a quorum. The Company has established a policy on induction procedures for new directors. On appointment, new directors are provided with induction training. Board and Committee performance An externally facilitated evaluation will be completed every three years. A self-evaluation is completed every year. The annual self-evaluation of the Board and Committees took place in the first quarter of 2016. This evaluation reviewed the balance of skills, experience, independence and knowledge of the Board on the Company, its diversity, including gender, how the Board works together as a unit, and other factors relevant to its effectiveness. Individual evaluation of Directors aimed to show whether each Director continues to contribute effectively and to demon- strate commitment to the role (including commitment of time for Board and Committee meetings and any other duties). Directors’ attendance at Board and Committee meetings Directors’ attendance at Board meetings  The Board was satisfied with the performance, skills, and experience of its members for the financial year under review. Due to Internalisation and investment activity, there were yet again an unusually high number of meetings and as a result some members had to attend ad hoc meetings by telephone. As at the date of this report, there are seven Directors on the Board, five of whom are non-executive. Daniel Kitchen (the Chairman), Colm Barrington (the Senior Independent Director), Stewart Harrington and Terence O'Rourke are each considered independent for the purposes of legal requirements and any applicable governance codes. William Nowlan also serves the Company in an advisory capacity. This number of directors is considered by the Board to be sufficiently small to allow efficient management of the Company while being large enough to ensure an appropriate mix of skills and backgrounds. The Board has a strong focus on property investment management to allow it access to a good knowledge base. This is balanced with some diversity of background, extensive experience of quoted companies and strong financial skills. Further details of the background and qualifications of the Board are given in the Directors’ biographical details report on pages 50 to 52. Name Daniel Kitchen Colm Barrington Thomas Edwards-Moss Stewart Harrington Kevin Nowlan William Nowlan Terence O'Rourke For financial year ended 31 March 2016: For financial year ended 31 March 2015: Number of meetings held while a Board member Number of meetings attended while a Board member Number of meetings held while a Board member Number of meetings attended while a Board member 17 17 7 17 7 17 17 17 17 7 17 7 13 17 17 17 - 17 - 17 17 16 14 - 16 - 15 16 HIBERNIA REIT PLCANNUAL REPORT 2016            61 Directors’ attendance at Board Committee meetings  For financial year ended 31 March 2016: For financial year ended 31 March 2015: Number of meetings held while a Board member Number of meetings attended while a Board member Number of meetings held while a Board member Number of meetings attended while a Board member 5 5 5 1 1 1 1 1 1 1 1 5 5 5 1 1 1 1 1 1 1 1 5 5 5 1 1 1 1 n/a n/a n/a n/a 5 5 5 1 1 1 1 n/a n/a n/a n/a Committees of the Board The Board has established three committees: the Audit Committee, the Remuneration Committee and the Nominations Committee. The duties and responsibilities of each of these committees are set out clearly in written terms of reference, which have been approved by the Board. These are available on the Company’s website http://www. hiberniareit.com/about-us/corporate-governance.aspx. Audit Committee Colm Barrington Terence O'Rourke Stewart Harrington Nominations Committee Daniel Kitchen Colm Barrington Stewart Harrington Terence O'Rourke Remuneration Committee Colm Barrington Stewart Harrington Daniel Kitchen Terence O’Rourke Where appropriate the Board also establishes Board Committees on an ad hoc basis to deal with specific matters that arise throughout the year. The membership of such committees will depend on the purpose for which it is established and will take into account the skills and experience required. The Statement of Directors’ Responsibilities is set out on page 75. Senior Independent Non-Executive Director The Company has appointed Colm Barrington as the Senior Independent Director. The role of the Senior Independent Director is mainly to: • provide a sounding board for the Chairman and to serve as an inter- mediary for the other Directors when necessary. • facilitate shareholders if they have concerns which contact through the normal channels of Chairman, Executive Management has failed to resolve or for which such contact is inappropriate. • to discuss with non-executive Directors the Chairman’s performance, taking into account the view of executive directors (if any). • to listen to the views of major shareholders in order to help develop a balanced understanding of any issues and concerns of major shareholders. GOVERNANCE                  62 Corporate governance report (continued) H I B E R N I A R E I T P L C A N N U A L R E P O R T 2 0 1 6 Audit Committee Chairman of the Audit Committee: Terence O’Rourke Members of the Committee: Colm Barrington, Stewart Harrington Chairman’s report Report of the Audit Committee The Audit Committee is chaired by Terence O'Rourke, who is an inde- pendent non-executive Director and is considered by the Board to have sufficient financial experience and sufficient understanding of finan- cial reporting and accounting principles. All members of the Audit Committee are independent non-executive directors, appointed by the Board for a period of up to three years. The Audit Committee is constituted in compliance with the UK Code, the AIC Code, the Irish Code and the Articles regarding the composition of the Audit Committee. The Audit Committee is responsible for: • monitoring the financial reporting process • monitoring the effectiveness of internal control and risk manage- ment systems • monitoring the statutory audit of the annual and consolidated financial statements and the work on the interim report • review and monitor the independence of the statutory auditor, and the provision of additional services by the auditor The full Terms of Reference for the Audit Committee are published on the Group’s website, http://www.hiberniareit.com/about-us/corporate-governance. aspx. Of particular note in this financial year was the Internalisation of the Investment Manager and the resultant impact on processes and con- trols. As the Audit Committee previously had oversight of the role of the Investment Manager, this change had less impact than might have been expected. The most important part of our work on this transaction came from the due diligence and legal framework as well as the accounting for the transaction. The Committee met five times during the year. We also carried out our second self-evaluation and this examined both our own work and our interactions with external assurance such as the external auditor and valuers. We are satisfied that the Audit Committee has the right balance of skills and resources, has been able to work effectively and has received all the support and response it has required from both management and the external providers. We are also satisfied that the level of scrutiny of public announcements is sufficient and effective. There were no issues arising from this evaluation. During the year we bedded down the investment property portfolio, working on enhancing controls and oversight. We worked with the external auditor and valuers to ensure the proper recognition of significant issues such as Internalisation and the fair value of properties. In the coming financial year the property portfolio is expected to continue to grow as the Group leverages its equity, and the Audit Committee will continue its oversight of the audit engagement and the Group and Company’s financial reporting and risk management processes. Terence O’Rourke 2 June 2016 63 The Audit Committee meets regularly, in alignment with the financial reporting calendar. The Audit Committee requests the attendance of various relevant parties as required. The parties met were as follows: Invitee Deloitte CBRE Reason for attendance The independent auditor attends to present its plans in respect of the annual audit and interim review, its analysis of the risks it sees in the Group, the results of its audit and review(s), and its recommendations for improvements in systems and controls. The independent valuers meet the Audit Committee to discuss their work and the significant assumptions in relation to the property valuations. From this the Audit Committee can make recommendations to the Directors in relation to their assessment of property valuations Representatives of the Company Representatives of the Company, such as the CFO, the COO and the Risk and Compliance Officer (“RCO”) meet the Audit Committee in order to present the financial statements, any significant judgements and areas of uncertainty, the risks and measures in place to mitigate those risks, and any other matters as requested by the Audit Committee. Principal responsibilities of the Audit Committee The principal responsibilities of the Audit Committee and the key areas of discussion in 2015/16 were as follows: Principal responsibilities Key areas discussed in 2015/2016 Reporting and external audit • Monitoring the integrity of the Group and • Key documents of internalisation, interim and Company financial statements and any other formal announcement relating to the Company’s financial performance, business model and strategy; review significant financial reporting issues and all other material disclosure obligations. • Policy on the supply of non-audit services by the external auditor, taking into account any relevant ethical guidance on the matter. • Review and discussion of the external auditor’s audit plan and ensuring that it is consistent with the Group's overall risk management system. • Assessment of the external auditor’s performance, qualifications, expertise, resources, independence and their terms of reference, approval of their fees and the review of external audit reports to ensure that where deficiencies in internal controls have been identified that appropriate and prompt remedial action is taken. • Review of all reports to recommend to the Board that the annual report and financial statements, taken as a whole, is fair balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and perfor- mance, business model and strategy. annual results reviewed. • Interim review plan for September 2015 and the audit plan for the financial year ending 31 March 2016 reviewed with external auditor, including the engagement letters. • Met the auditor both with and without the presence of management. Considered audit scope, risks assessment, results and recommendations. Discussed materiality. • Review of significant items of judgement and recommendations to the Board in terms of reporting for specific items; newly adopted accounting policies reviewed. • Review of Group forecasts and cash flow projections particularly with regard to going concern and viability assessments. • Review of compliance with covenants and other significant risk ratios. • Reviewed the supply of non-audit services by the auditor and engaged KPMG for tax services. • Met with the valuers’. Discussed the valuation approach, methods used, interaction with manage- ment, availability of information and access to the properties. • Cash positions and depositary review. GOVERNANCE64 Corporate governance report (continued) Risk and internal control Other Principal responsibilities Key areas discussed in 2015/2016 • Review of the adequacy and effectiveness of the Group’s internal financial controls and internal control and risk management systems in par- ticular with regard to the changes arising from Internalisation. • Reviewed the risk management framework developed by the Risk and Compliance Officer for the Group. • This included an overview of the risk management structure, the risk appetite, the impact of the main risks and risk reporting. • Assess the principal risks of the Group. • Review of the risk register. • Review the disclosures made on risk and inter- nal control in the annual report. • Procedures on the management and security of information technology. • Verification that procedures in place comply with applicable legislation, the Listing Rules and the Irish REIT Regime guidelines. • The review of the operation of the Company's procedures for the detection of fraud, bribery, and compliance. • Monitoring the necessity or otherwise of an internal audit function on an ongoing basis. • Discussed the need to carry out a risk assessment on IT security. Agreed to complete risk assessment in 2016/17 together with actions to be implemented. • Review of the Audit Committee’s effectiveness. • Gap analysis of compliance with the Irish Corporate Governance Annex to the UK Corporate Governance Code (“Irish Code), UK Corporate Governance Code 2014 (“UK Code”) and the Association of Investment Companies Code of Corporate Governance (“AIC Code”). • Review the Committee’s terms of reference and • Compliance overview of REIT related measures. performance. • Review of all correspondence with regulators. • Self-evaluation completed. The significant issues considered by the Audit Committee during the financial year ended 31 March 2016 and the action taken by the Committee are set out opposite: HIBERNIA REIT PLCANNUAL REPORT 201665 Significant issues considered Action taken by Committee Valuation of the investment portfolio The Group works to ensure all the information provided to the independent valuers, CBRE, is complete and correct and that the results of their valuation judgements are in line with expectations based on whether their assessment of the market and knowledge of the properties. It also reviews whether the valuation methods, estimated rental value and market based yields and residual value method for development properties, are relevant and appropriate to the individual property circumstances. The Audit Committee challenges the assumptions made, considers the independence of the valuers and reviews the results of these valuations. It considers whether any amendments need to be made to the valuation amounts, e.g. in recognition of effects arising from the accounting policy on the recognition of rental incentives. Windmill Lane development joint arrangement Hibernia REIT entered into its first joint arrangement during the financial year. The Audit Committee reviewed management’s treatment of the arrangement and its approach to recognising the assets and liabilities and profits or losses of the arrangement. Internalisation Performance related payments Management prepared a detailed memorandum examining the accounting implications for the internal- isation transaction which the Audit Committee has reviewed, challenged and agreed the accounting treatment. This assessment detailed how the various payments under the share purchase agreement were accounted for. The conclusions reached and the basis for these are outlined in Note 2.f to the financial statements. As part of the settlement of the business acquisition relating to the former Investment Manager, the Company is obliged to make payments contingent on Group performance and in line with those that would have been due under the performance fees calculation within the Investment Management Agreement. The Audit Committee has reviewed these calculations and provisions relating to these amounts and con- firmed Management’s estimates. Recognition of payments relating to lease surrenders During the financial year, the Group received substantial amounts relating to lease breaks. The Audit Committee reviewed Management’s recognition criteria and approach as set out in accounting memoranda and concurred with their assessment. Re-appointment of the external auditor The Audit committee has recommended to the Board that the statutory audit firm Deloitte, should be re-appointed for the coming financial year. Under the Articles of the Company, the reappointment will be tabled at the Annual General Meeting for shareholder approval. The committee has reached this recommendation after due consideration of the auditor’s qualification, expertise and resources, effectiveness and independence. In the course of arriving at this recommendation the Audit Committee completed a detailed assessment of these factors including the key points below: • Confirmation with the auditor that there are no issues concerning its status as a Statutory Auditor or the designation of the audit engagement partner as a responsible individual. • The independence and objectivity of the audit partner and senior audit staff especially in its interaction with management. • The quality of the audit partner and audit staff from a technical accounting and auditing perspective, including their industry knowledge and their specialist technical expertise. • Whether issues were raised at the right time by the appropriate level of audit staff with the appropriate Company staff and in particular the level and quality of communication with the Audit Committee. The outcome of this assessment confirmed that the auditor was per- forming well, adding value to the control process, had a good relation- ship with both Audit Committee and management and was sufficiently independent and technically qualified to justify the recommendation to re-appoint. Deloitte were appointed as first statutory auditor to the Company in 2013. The Audit Committee will keep their tenure under review in light of best practice and upcoming legislation. In accordance with Section 383(2) of the Companies Act 2014 the auditor has expressed its willingness to continue in office. Therefore, the Board intends to recommend the reappointment of the auditor at the 2016 AGM in accordance with article 53 of the Articles of Association of the Company. GOVERNANCEInternal audit The Audit Committee has reviewed the business model under which the Company operates and decided, in light of the nature, scale, com- plexity and range of operations of the Company, the Committee does not believe that an internal audit function is required at present and instead it will rely on its own and the Group’s internal monitoring procedures, any internal audit functions in key service providers, on reviews by the Depositary, and on external audit comment. As an internal audit function has not been established, the Audit Committee will consider annually (in accordance with the UK Code) whether there is a need for an internal audit function and make a recommen- dation to the Board. Depositary The Group had €23m (31 March 2015: €139m) in cash at the financial year end. The depositary is responsible for monitoring the safe keeping of these assets in accordance with the Group’s policy on cash management. Approval of reports The Annual Report and Financial Statements were considered in draft on 17 May 2016. The Preliminary Statement, which included consoli- dated financial statements, was approved by the Board on 23 May 2016. The Annual report was approved by the Board on 2 June 2016. 66 Corporate governance report (continued) Non-audit work carried out by the external auditor during the financial year ended 31 March 2016 The external auditor has carried out a significant amount of work during the financial year ended 31 March 2016 which is non-audit in nature. Non audit services during the financial year arose in two main areas: Advice in connection with the acquisition of WK Nowlan REIT Management Limited and Nowlan Property Limited: 46% (€83k) of non-audit fees related to work by the external auditor. The Audit Committee consider that the engagement of the external auditor on this project was both appropriate and reasonable. The Committee is also of the opinion that the under- taking of this assignment by the external auditors is not inconsistent with its work as external auditor and does not pose a threat to the auditor’s independence and objectivity. Tax advisory services: 54% (€99k) of non-audit fees related to tax advice. This advice was provided by Deloitte, albeit by partners and staff unrelated to the audit engagement team. The Group used Deloitte in these cases as their knowledge of the Group’s structure and activities complemented and expedited the advice they were being asked to give. While the Committee is of the opinion that the undertaking of this work does not compromise the independence or objectivity of the external auditor, it recommended that tax advice for regular tax issues as well as future projects is sought from other providers. Accordingly, the Group appointed KPMG as their retained tax advisers in March 2016. The quantum of the non-audit fees is deemed non-substantial relative to the overall size of Deloitte’s firm-wide fee income. Deloitte is a tenant of Hardwicke House, which is an investment property of the Group. Deloitte were in situ when the Group acquired its interest in the building and all lease arrangements are at arm’s length. Deloitte occupies some space in this property and therefore pays rent to the Group. As a result of their consideration of the above facts, the Audit Committee concluded that the independence and objectivity of the external auditor has not been compromised. HIBERNIA REIT PLCANNUAL REPORT 201667 Remuneration Committee Chairman of the Remuneration Committee: Mr Colm Barrington Members of the Committee: Mr Daniel Kitchen, Mr Stewart Harrington, Mr Terence O’Rourke Constitution The Remuneration Committee was established in February 2016 following the internalisation of the Investment Manager. The Remuneration Committee is responsible for ensuring that the Company’s overall remuneration policy is consistent with the strategic objectives of the Company and takes account of risk management implications. The Remuneration Committee is responsible for oversight of remuneration across the Company with specific regard for Directors and senior man- agement. The terms of reference are compliant with the UK Corporate Governance Code 2014 (the “UK Code”) and are available on the Company’s website at http://www.hiberniareit.com/about-us/corporate-governance.aspx. Chairman’s report Dear Shareholder, On behalf of my colleagues on the Remuneration Committee, I am pleased to present the first Remuneration Committee Report of the Group for the financial year ended 31 March 2016. amendments to compensation packages until this is done. Part of this incentive arrangement is a Long Term Incentive Plan or “LTIP”. This plan aims to encourage staff retention and align their interests with those of the Group through the payment of a percentage of performance related rewards through shares in the Company. Internalisation related payments are outside the remit of this committee. These were determined before the Group or Company had employees or a remuneration committee. The payments were agreed in the share purchase agreement for the acquisition of the Investment Manager and were approved by the shareholders of the Company at the Extraordinary General Meeting of the Company held on 27 October 2015. We therefore refer the reader to Note 5 to the financial statements which provides further information on this. The Remuneration Committee met for the first time in February 2016. The first action of the Remuneration Committee was to implement a remuneration policy. This is summarised below as part of this report. Colm Barrington On behalf of the Remuneration Committee 2 June 2016 The Company completed the acquisition of the Investment Manager (the “Internalisation”) on 5 November 2015 and the transfer of the employees at the end of December 2015. Kevin Nowlan and Thomas Edwards-Moss were appointed as the first executive directors of the Company on 5 November 2015. During the Internalisation process an external benchmarking exercise was carried out on key management personnel, including executive directors, and salaries set at or slightly below market assessments. Mercer was engaged to carry out this review. Incentive arrangements are in a transitionary period, and were agreed as part of the Internalisation process as submitted to shareholders at our EGM on 27 October 2015. Until the end of the Investment Management contract period in November 2018, variable incentive payments for staff internalised will be principally funded out of the performance fee that would have been due under this contract. At the end of this period, a full revision of the remuneration policy will be implemented. In the meantime, while there may be some review of salaries related to market increases, there will be no substantial GOVERNANCE68 Corporate governance report (continued) Directors’ remuneration policy report The following section sets out the Directors’ remuneration policy. This policy is to be submitted as an advisory resolution to the AGM of the Company to be held on 26 July 2016. The policy is reproduced here to provide ease of reference for shareholders. As an Irish company, Hibernia REIT plc is not subject to the UK Directors’ Remuneration Reporting Regulations. However, in line with best practice, the Group is committed to applying the require- ments on a voluntary basis insofar as is practicable under Irish legis- lation. As the Company cannot rely on UK statutory provisions, the resolution submitted to the AGM is advisory in nature. The annual remuneration report is also submitted to the AGM on a similar basis. Remuneration policy The main aim of the remuneration policy is to align the interests of the Executive Directors and key management team members with the strategy and aims of the Group. Pay is intended to be both competitive and appropriate. The policy takes into account the regulatory environ- ment, governance standards, the economic status and industry best practice. Remuneration principles • Support the strategy • Promote sound risk management • Motivate and retain key individuals without paying more than is required • Align the interests of directors and shareholders in long term returns and NAV creation Remuneration elements Base salary • Provides the basis for the overall market remuneration package and takes account of the role and skills of the individual • It is determined by reference to market comparatives where available and takes account of industry standards, size and complexity, and the Company’s progress towards its objectives. • There is no maximum amount but increases will normally be in line with industry comparatives unless a change in scope of activity or responsibility warrants a reconsideration of the amount • It is not performance linked Pension • Provides a basis for post-retirement remuneration in line with com- parable remuneration packages • Scheme is a defined contribution one with an independent pension provider and a 5% Company contribution must be matched by a 5% personal contribution • It is Company policy not to develop a defined benefits scheme Benefits • The purpose is to provide market typical benefits for an overall effective remuneration package • Executive Directors receive permanent health and life insurance • Other benefits may be provided at the discretion of the remuneration committee either as a once-off or on an on-going basis • Executive Directors may also be eligible to join all-employee schemes up to the relevant approved limits Interim bonus plan • As a result of Internalisation, the bonus plan will be funded princi- pally by the performance fee arrangements per the Investment Management Agreement until its expiry in November 2018: up to 15% of the performance fee due to the vendors of the Investment Manager will be set aside to fund the bonus plan • It is contingent on the continuing performance of service by the individuals concerned • It includes an LTIP arrangement, applicable only to non-vendor service providers and employees which is being established • It does not include directors and employees who were vendors of the Investment Manager and who are compensated under the terms of the share purchase agreement subject to clawback in the event of an early departure as described in Note 5 to the financial statements. Future bonus plan Prior to the expiry of the interim arrangements under Internalisation, the Remuneration Committee will develop a new bonus plan linked to long term performance of employees including executive directors as well as to that of the Group and undertake a consultation exercise with key shareholders. All new employees will enter this plan and existing employees, including executive directors, will transfer into the new arrangement in November 2018. Prior to the finalisation of this plan, separate arrangements will be made for new employees in the interim. The details have not yet been developed but are under consideration by the Committee and will be submitted in an advisory capacity for approval at a future AGM. Remuneration throughout the Group The remuneration for all staff in the Group is based on the same prin- ciples and arrangements as described above relating to executive directors. HIBERNIA REIT PLCANNUAL REPORT 201669 Non-Executive Director remuneration policy Non-Executive Directors are paid fees at a level sufficient to attract individuals of the calibre and qualifications required to manage the business of the Group effectively. Fees should be appropriate to the size and complexity of the organisation, the time commitment required and the qualifications and experience of the individual appointed. Annual report on remuneration for the financial year ended 31 March 2016 Directors’ remuneration The Non-Executive Directors do not have service contracts but do have letters of appointment which reflect their responsibilities and commitments. Executive Directors have service contracts. Fees for Non-Executive Directors are agreed by the Board following recommendation from the remuneration committee. Fees for the Chairman are determined by the committee. Only basic fees are paid, no performance related element is considered appropriate. Reasonable expenses will be reimbursed where appropriate. Training and induc- tion are provided where relevant. Succession planning Succession planning is one of the responsibilities of this committee. The Group has a flat structure as it is a small team and therefore the focus is on personal development in order to encourage employees to become competent across disciplines to provide some level of support across functions. We have also recognised the contribution of more experienced individuals who are nearing retirement and wish to work on a more relaxed and flexible basis. These individuals provide exper- tise and support that would otherwise be difficult and expensive to source. Non-Executive Directors’ remuneration Name Daniel Kitchen Colm Barrington Stewart Harrington William Nowlan* Terence O'Rourke Totals Non-Executive Directors’ remuneration The Non-Executive Directors were appointed for an initial term of three years. The Company may lawfully terminate a Non-Executive Director's appointment with immediate effect in certain circumstanc- es, including where a Non-Executive Director has breached the terms of his letter of appointment and no compensation would be payable to a Non-Executive Director in such event. Annual Fee Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 €'000 100 50 50 50 50 300 100 50 50 50 50 300 100 50 50 - 50 250 *William Nowlan also earned €50,000 for advice given to the Company under a consulting contract. He was also a vendor of the Investment Manager and received payments under the Share Purchase Agreement as disclosed in Note 5 to the financial statements. GOVERNANCE                  70 Corporate governance report (continued) Executive Directors’ remuneration As discussed above, performance based payments to all employees, including Executive Directors, are met out of arrangements under the internalisation agreement. These are described as “Cash Bonus” and “LTIP” in the table below. A description of the LTIP arrangements is provided in a separate section below. There are no other performance related payment arrangements during the period remaining under the Investment Management Agreement. Payments to Executive Directors in the period from the date of appointment (5 November 2015) to 31 March 2016 are as follows: Executive Directors’ remuneration (audited)  Kevin Nowlan Thomas Edwards-Moss Total Salary €'000 125 83 208 Benefits Cash Bonus* €'000 €'000 - 123 8 8 16 LTIP* €'000 - 123 Pension €'000 19 13 32 Total €'000 152 350 502 123 123 * Mr Kevin Nowlan was one of the vendors of the Investment Manager and therefore receives no variable compensation as he is compensated under the Internalisation Share Purchase Agreement as disclosed in Note 5 to the financial statements. Both Mr Kevin Nowlan and Mr Thomas Edwards-Moss were appointed on 5 November 2015. Conditions of employment Executive Directors have service contracts with the Company which can be terminated on six months notice by the individual. The Committee may determine bonus entitlements that should apply, if any, in the year of departure. The departure of Kevin Nowlan within the interim bonus arrangement period may trigger clawback arrange- ments under the criteria described in Note 5 to the consolidated financial statements. Mr Thomas Edwards-Moss may be subject to vesting conditions under the LTIP scheme. If an Executive Director ceases to be employed by reason of ill health, injury, redundancy, disability a change of control of the Group or by virtue of any other reason at the Committee’s discretion, the extent to which awards may vest or be clawed back may be adjusted by the Committee. Executive Directors’ contracts are available for shareholders to view at the AGM. Fixed remuneration arrangements Executive Directors’ annual salary and other fixed remuneration arrangements  Kevin Nowlan Thomas Edwards-Moss Total These conditions apply from 5 November 2015. Salary €'000 300 200 500 Benefits Pension €'000 €'000 19 17 36 45 30 75 Total €'000 364 247 611 HIBERNIA REIT PLCANNUAL REPORT 2016            71 Performance related remuneration scheme (“PRR”) All employees internalised in the financial year, including executive directors, are entitled to participate in the performance related remu- neration scheme, save Mr Kevin Nowlan and Mr Frank O’Neill who, as a vendors of the Investment Manager, are compensated through the internalisation arrangements as disclosed in Note 5 to the Financial Statements. An interim scheme applies in the period to the expiry of the Investment Management Agreement. During this period there is a fixed PRR in place, which is dependent on the level of performance of the Group. This scheme is funded out of the performance fees and hence directly linked to any performance fees earned. 50% of any amount payable will be paid to employees in cash; the other 50% will be awarded in shares, which will vest in three years from the start of the financial year to which they relate. In addition to the PRR which is dependent on the Group perform- ance, a discretionary amount may be paid which is dependent on the employee’s performance. Nominations Committee Chairman of the Nominations Committee: Daniel Kitchen Members of the Committee: Colm Barrington, Stewart Harrington, Terence O’Rourke Separate arrangements may be set up for any employees who join the Group post Internalisation. Report of the Nominations Committee Interests of Directors and Secretary in share capital 31 March 2016 31 March 2015 Ordinary shares % of Company Ordinary shares % of Company Daniel Kitchen 100,883 0.01% 100,000 Colm Barrington 1,100,000 0.16% 1,100,000 Stewart Harrington 100,706 0.01% 100,000 William Nowlan 2,650,589 0.39% 600,000 Terence O'Rourke 151,059 0.02% 150,000 Kevin Nowlan* 4,249,237 0.62% 147,620 0.01% 0.16% 0.01% 0.09% 0.02% 0.02% Thomas Edwards-Moss* Company Secretary, Chartered Corporate Services 95,921 0.01% 95,250 0.01% - - - - * Kevin Nowlan and Thomas Edwards-Moss are executive directors and were appointed on 5 November 2015. William Nowlan and Kevin Nowlan are related. The interests disclosed above include both direct and indirect interests in shares. There have been no changes in the beneficial and non-beneficial shareholdings of the Directors between 31 March 2016 and the date of this report. The Nominations Committee met once during the financial year ended 31 March 2016. The Nominations Committee is chaired by Daniel Kitchen, who is also the Non-Executive Chairman. All members of the Nominations Committee are Independent Non-Executive Directors, appointed by the Board for a period of up to three years. The Nominations Committee is constituted in compliance with the UK Code and Irish Stock Exchange Annex, the AIC Code and the Articles regarding the composition of the Nominations Committee. The Nominations Committee is responsible for the appointments to the Board and meets at least once in a financial year and as otherwise directed. The Terms of Reference for the Nominations Committee, which were updated in light of the revisions to the UK Code, are avail- able on the Group’s website at http://www.hiberniareit.com/about-us/ corporate-governance.aspx, were confirmed in January 2016 as effective and sufficient. An evaluation of the Committee’s work was carried out in the first quarter of 2016. Given that there have been no appointments made to the Board during the period other than Mr Kevin Nowlan and Mr Thomas Edwards-Moss as a result of the Internalisation of the Investment Manager, the work of the Committee has been limited. However, this self-assessment found that the Committee is satisfied that there is the right mixture of skills involved on the Committee that the processes in place to make new appointments are appropriate and in line with best practice. GOVERNANCE    72 Corporate governance report (continued) The Committee reviewed the time and attention given by the Directors to their duties and were satisfied that each Director has been adequately carrying out his duties as a director of the Company and complies with the requirements of the UK Code and Companies Act 2014. Diversity The Group recognises the importance of diversity, not only in gender but in background and experience. As a young company, the selection process has focused on people with strong experience in relevant fields that can provide the necessary support to ensure we grow confidently and to help fill gaps in internal expertise. We do not believe that selection on gender alone should be a basis; we prioritise diversity of candidate qualification and experience and, where possible, consider gender as a secondary basis. The organisation will continue to build this into recruitment policies in the future. The Nominations Committee keep this in mind in considering appointments. The Nominations Committee may not be chaired by the Chairman when it is dealing with the matter of succession to the chairmanship of the Company. Management structure The management of the Group is structured over the following main areas: Board of Directors Investment Committee Objective: To consider all investment decisions Meets: fortnightly Members: • Kevin Nowlan (CEO) • Tom Edwards-Moss (CFO) • Richard Ball (CIO) • Frank O’Neill (COO) • William Nowlan • Stewart Harrington • Frank Kenny (Senior Adviser) Development Committee Portfolio Operations Committee Finance and Investor Relations Objective: To monitor all developments planned and in progress Meets: fortnightly Members: • Kevin Nowlan (CEO) • Tom Edwards-Moss (CFO) • Richard Ball (CIO) • Frank O’Neill (COO) • Frank Kenny (Senior Adviser) Objective: To manage the assets in the portfolio Meets: fortnightly Members: • Kevin Nowlan (CEO) • Richard Ball (CIO) • Frank O’Neill (COO) • William Nowlan • Frank Kenny (Senior Adviser) Objective: To monitor financial management, capital use, debt facilities and investor relations Meets: fortnightly Members: • Kevin Nowlan (CEO) • Tom Edwards-Moss (CFO) • Richard Ball (CIO) • Frank O’Neill (COO) • William Nowlan • Frank Kenny (Senior Adviser) The senior management team on 31 March 2016 were: Kevin Nowlan Chief Executive Officer/ Executive Director Richard Ball Chief Investment Officer Tom Edwards-Moss Chief Financial Officer/ Executive Director Frank Kenny Senior Adviser Sean O’Dwyer Risk and Compliance Officer Frank O’Neill Chief Operations Officer Group’s assets and to provide or procure the provision of various account- ing, administrative, reporting, record keeping, regulatory and other services to the Group. The management team has discretionary authority to enter into transactions for and on behalf of the Group subject to certain reserved matters that require the consent of the Board. The management team ensures that all Directors receive, in a timely manner, all relevant management, regulatory and financial information. Representatives of management, as well as the executive directors, are invited to attend Board meetings where applicable, thus enabling the Directors to probe further on matters of interest. In addition to the above, Mr. Mark Pollard commenced on 5 May 2016 in the role of Director of Development. Internal controls The management team is responsible for the running of the Group’s business under the supervision of the Board. Two members of the man- agement team are also Executive Directors. The management team is delegated to acquire properties on behalf of the Group, to manage the The Board acknowledges it is responsible for maintaining the Group’s system of internal control and risk management in order to safeguard the Group’s assets. Such a system is designed to identify, manage and mitigate financial, operational and compliance risks inherent to the Group. The system is designed to manage rather than eliminate the HIBERNIA REIT PLCANNUAL REPORT 201673 risk of failure to achieve business objectives and can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Group’s internal control system is built on certain fundamental principles, and is subject to review by the Board. The following are the principles under which the internal control system operates: • a defined schedule of matters reserved to the Board • a detailed authorisation process • risk metrics and risks reporting at each scheduled meeting • formal documentation of all significant transactions • business and financial planning to include cash flows and scenario analysis covering a period of three financial years forward on a rolling basis Risk management The Company considers risk management to be a very important matter. The Board and the Audit Committee deal with risk management on behalf of the Company as part of the regular monitoring of the business. The Board has put in place procedures designed to ensure that all applicable risks pertaining to the Company can be identified, monitored and managed at all times. These procedures are carried out as part of the duties of the management team and are kept under review by the Audit Committee and the Board. The Company’s risk management function has the following objectives: (a) Safeguard the assets of the Company and identify and manage • robust assessment of property investment decisions liabilities; • performance assessment versus budget on total and individual project basis (b) Maintain a risk register; (c) Maintain the efficiency and effectiveness of the Company's • benchmarking of performance against external sources, i.e. the Investment Property Databank (IPD) Much of the Policies and Procedures Manual is carried across from the Investment Manager but has been reviewed in light of the new corporate structure. This manual sets out financial reporting and other procedures and policies of the Group and addresses the respective authority levels and responsibilities of the Group, the authorisations required to effect those transactions, and the necessary controls to ensure that only appropriately authorised individuals in the Group can approve a transaction. In particular, the Policies and Procedures Manual establishes the necessary controls and authority levels to manage the Group’s property portfolio. Other controls and authorities in the Policies and Procedures Manual include those in relation to the management of risk, property portfolio management, property valu- ations, and the maintenance of registers and other administrative matters. The Group maintains a register of errors and breaches which is a mechanism to detect and deal with failings or weaknesses which may or may not be significant, but which could result in loss to the Group. This register records incidents of error or potential error arising from various sources such as attempted fraud, external service providers and internal controls. During the financial year ended 31 March 2016 there were four such breaches recorded, none of which resulted from a failure in internal controls or in material losses. Apart from this procedure, revisions in internal controls resulted from ongoing work at improving systems, for example in the preparation of financial statements, revisions were made to checklists and approval processes both in light of additional accounting policies and best practice. operations; (d) Ensure the reliability and completeness of all accounting, financial and management information; and (e) Ensure compliance with its internal policies and procedures as well as all applicable laws and regulations. The Company has appointed a Risk and Compliance Officer (“RCO”) to undertake this function. The RCO is responsible for monitoring and managing the key risks of the Company and is independent from those persons involved in the operations of the Company. Risk is managed through a Risk Framework which is prepared, mon- itored and reported on by the RCO who reports to the Audit Committee and to the Board at each quarterly Board meeting. The Risk framework includes a risk matrix that measures risks against agreed limits. The RCO is also responsible for the compilation of, maintenance and review of the risk register. In this Risk Register risks are identified, assessed and any gaps are considered for mitigation. The Risk Register is updated and reviewed by the Board at least annually or more frequently if specifically required. The RCO reports quarterly to the Board on the adequacy and effectiveness of the risk management process. This includes the identification of deficiencies and the status of any remedial action required. No specific matters have been escalated to the Board as of this date. The Company is satisfied that the risk management function has the necessary authority, resources, expertise and access to relevant infor- mation to fulfil its role. Further information on the principal risks are given on pages 45 to 48. GOVERNANCE74 Corporate governance report (continued) Model Code on share dealing Voting rights The Company must comply with the Model Code which imposes restrictions on share dealings for the purposes of preventing the abuse, or suspicion of abuse, of inside information by Directors and other persons discharging managerial responsibilities within the Company. The Board is responsible for taking all proper and reasonable steps to ensure compliance with the Model Code by the Directors and others to whom the Model Code is applicable. The Company has in place a share dealing code which gives guidance to the Directors, the management team, any persons discharging managerial responsibilities as defined in regulation 12(8) of the Market Abuse Regulations and persons identified by the Board to fulfil this role, and anyone listed on the Company’s Insider List on the pre-clear- ance notification procedures to be followed when dealing in the shares of any class of the Company or any other type of securities issued by or related to the Company. Communications with shareholders The Board intends to continue to communicate with shareholders on a regular basis. General meetings The Company holds a general meeting each year as its Annual General Meeting in addition to any other meeting in that year. Not more than 15 months shall elapse between the date of one Annual General Meeting and that of the next. The Directors are responsible for the convening of general meetings. Information is distributed to shareholders at least 20 business days prior to such meetings to ensure compliance with the Articles and the UK Code. Quorum No business other than the appointment of a chairman shall be transacted at any general meeting unless a quorum is present at the time when the meeting proceeds to business. Two members present in person or by proxy shall be a quorum. (a) Votes of Members: Votes may be given either personally or by proxy. Subject to any rights or restrictions for the time being attached to any class or classes of shares, on a show of hands every member present in person and every proxy shall have one vote, so, however, that no individual shall have more than one vote, and on a poll every Member shall have one vote for every share carrying voting rights of which he is the Holder. The Chairman shall be entitled to a casting vote where there is an equality of votes. (b) Resolutions: Resolutions are categorised as either ordinary or special resolutions. The essential difference between an ordinary resolution and a special resolution is that a bare majority of more than 50% of the votes cast by members voting on the relevant resolution is required for the passing of an ordinary resolution, whereas a qual- ified majority of more than 75% of the votes cast by members voting on the relevant resolution is required in order to pass a special resolution. Matters requiring a special resolution include for example: • altering the Objects of the Company; • altering the Articles of Association of the Company; and • approving a change of the Company's name. Other The Company discloses information to the market as required by the Central Bank of Ireland, the Irish Stock Exchange and the Financial Conduct Authority including inter alia: • periodic financial information such as annual and half yearly results. • price-sensitive information, which might be a significant change in the Company’s financial position or outlook, unless a reason is present not to (e.g. prejudicing commercial negotiations). • information regarding major developments in the Company’s activities. • information regarding dividend decisions. • any changes at board level must be announced immediately once a decision has been made. • information in relation to any significant changes notified to the company of shares held by a substantial shareholder. The Company will make an announcement if it has reason to believe that a leak may have occurred about any on-going negotiations of a price-sensitive nature. Any board decisions which might influence the share price must be announced before the start of trading next day. Information relayed at a shareholders’ meeting which could be price-sensitive must be announced no later than the time the information is delivered at the meeting. In relation to any uncertainty regarding the communication of a particular matter, advice will be sought from the Company’s sponsors and/or legal adviser(s). HIBERNIA REIT PLCANNUAL REPORT 2016Directors’ responsibility statement 75 The Directors, whose names and details are listed on pages 50 to 52 are responsible for preparing the Annual Report and Financial Statements in accordance with applicable laws and regulations. Irish Company law requires the Directors to prepare financial state- ments for each financial period. Under that law the Directors are required to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards as adopted by the EU (“IFRSs”) and in accordance with the provisions of the Companies Act 2014. The Group and Company financial statements are required by law and IFRSs to present fairly the financial position and performance of the Group and Company: the Companies Act 2014 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the Company as at the financial year end date and of the profit or loss of the Company for the financial year and otherwise comply with the Companies Act 2014. In preparing the Annual Report, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state that Group and Company financial statements comply with applicable International Financial Reporting Standards as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The directors are responsible for ensuring that the Group and Company keeps or causes to be kept adequate accounting records which: • correctly explain and record the transactions of the Group and Company; • enable at any time the assets, liabilities, financial position and profit or loss of the Group and Company to be determined with reasonable accuracy; • enable them to ensure that the financial statements and Directors’ report comply with the Companies Act 2014; • enable the financial statements to be audited; and • prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and, as regards the Group financial statements, Article 4 of the IAS Regulation, and the Listing Rules of the Irish and London Stock Exchanges. Directors are also responsible for safeguarding the assets of the Company and the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. In accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 (“the Transparency Regulations”), the Directors are also required to include a management report containing a fair review of the business and a description of the principal risks and uncertain- ties facing the Group. The Directors are also required by applicable law and the Listing Rules issued by the Irish Stock Exchange to prepare a Report of the Directors and reports relating to Directors’ remuneration and corporate governance that comply with that law and those Rules. The Directors confirm that they have complied with the above requirements in preparing the Annual Report. Each of the Directors, whose names and functions are listed on pages 50 to 52, confirms that, to the best of each person’s knowledge and belief: • the Annual report and financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position for the Group and Company as at 31 March 2016 and of the result for the financial year then ended; and • the Report of the Directors includes a fair review of the development and performance of the Group’s business and the state of affairs of the Group and Company at 31 March 2016, together with a description of the principal risks and uncertainties facing the Group; and • the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the performance, strategy and business model of the Group and Company. This responsibility statement was approved by the Board of Directors on 2 June 2016 and is signed on their behalf by: Mr Kevin Nowlan Chief Executive Officer Mr Thomas Edwards-Moss Chief Financial Officer GOVERNANCE76 Independent auditor’s report to the members of Hibernia REIT plc Opinion on financial statements of Hibernia REIT plc In our opinion the financial statements: • give a true and fair view of the assets, liabilities and financial position of the Group and the Company as at 31 March 2016 and of the Group’s profit for the financial year then ended; and • have been properly prepared in accordance with the relevant financial reporting framework and in par- ticular, with the requirements of the Companies Act 2014 and, as regards the group financial statements, Article 4 of the IAS Regulation. The financial statements comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Statement of Financial Position, the Consolidated and Company Statement of Changes in Equity, the Consolidated and Company Statement of Cash Flows and the related notes 1 to 33 and (a) to (p). The financial reporting framework that has been applied in the preparation of the Group and parent Company financial statements is Irish law and IFRSs as adopted by the European Union. Going concern and the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the group As required by the Listing Rules we have reviewed the Directors’ statement contained within Note 2 to the financial statements that the Group is a going concern. We have nothing material to add or draw attention to in relation to: • the Directors' confirmation on page 44 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; Our assessment of risks of material misstatement • the disclosures on pages 45 to 48 that describe those risks and explain how they are being managed or mitigated; • the Directors’ statement in Note 2.(d) to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and • the Directors' explanation on page 54 as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern. The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team: Risk of material misstatement How the scope of our audit responded to the risk Valuation of investment properties The appropriate valuation of the Group’s investment properties requires significant judgement to be made by the Directors with advice from the external valuer and Management. Refer also to Note 17 of the consol- idated financial statements. • We obtained an understanding and assessed the design of the controls the Board has implemented over the valuation process. • We considered the basis used by the Group for the valuation of investment properties in light of the Group’s valuation policy and the requirements of IFRS. • We compared the valuation of each investment property held to the val- uation report prepared by the external valuer and considered any adjust- ments made in light of the Group’s accounting policies and the require- ments of IFRS. • We assessed the competence, independence and integrity of the external valuer. • We discussed with management and with the external valuer the significant assumptions used in the valuation process, including estimated rental value and market based yields, and considered these assumptions in accordance with available market data. HIBERNIA REIT PLCANNUAL REPORT 201677 Our assessment of risks of material misstatement Risk of material misstatement How the scope of our audit responded to the risk Performance fees (Share based payments) The performance fee calculation is complex in nature which increases the risk of error. A portion of the performance fees settlement is via shares in the Company and there- fore must be recorded in accord- ance with the requirements of share based payments. • We obtained an understanding and assessed the design of the Group’s controls over the calculation and approval of the performance fee. • We considered the inputs to the performance fee calculation and where appropriate we have compared the inputs to entity data or market data. • We have examined the calculation of the performance fee to evaluate whether it is consistent with the investment management agreement. • We examined the accounting treatment for performance fees to consider the accounting charge recorded has been accounted for in accordance with the requirements of IFRS. • We obtained an understanding of the transaction and the proposed accounting treatment and evaluated whether the proposed treatment was consistent with the Group’s accounting policies and the requirements of IFRS. • We obtained audit evidence in respect to the nature and substance of the transaction by reviewing the transaction documentation including the Share Purchase Agreement. • We evaluated the disclosures of the transaction in the financial statements for compliance with IFRS. Refer also to Note 23 of the consol- idated financial statements. Acquisition of the investment manager During the financial year the Group acquired its investment manager in a transaction whose consideration consisted of both cash and shares of the Group and included a payment in relation to future services. The recognition of this transaction required signifi- cant judgement by the Directors. The risk relates to the appropriate accounting treatment and disclo- sure of the consideration and the future service value of the trans- action within the financial statements. Refer also to Note 5 of the consoli- dated financial statements. The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee set out on page 65. Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters. FINANCIAL STATEMENTS78 Independent auditor’s report to the members of Hibernia REIT plc (continued) A N N U A L R E P O R T 2 0 1 6 Our application of materiality We define materiality as the magnitude of misstatement that makes it probable that the economic decisions of a reasonably knowledgeable person, relying on the financial statements, would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. We determined planning materiality for the Group to be €8,250,000 (2015: €7,000,000) which is below 1% of net assets. We agreed with the Audit Committee that we would report to the Committee any audit differences in excess of €410,000 (2015: €350,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. An overview of the scope of our audit Our audit scope focused on the Company and its subsidiaries listed in note 31 to the financial statements. The subsidiaries were subject to a full scope audit. We determined the materiality with reference to the size of the subsidiary which was lower than Group Materiality. Opinion on other matters prescribed by the Companies Act 2014 Directors’ Report and Corporate Governance Statement In our opinion the information given in the Directors’ Report is consistent with the financial statements and based on the work undertaken in the course of the audit the description in the Corporate Governance Statement of the main features of the internal control and risk management systems in relation to the financial reporting process and the information required under Regulation 21(2)(c), (d), (f), (h) and (i) of the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006 (S.I. No. 255 of 2006) are consistent with the financial statements and have been prepared in accordance with section 1373 Companies Act 2014. Based on our knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified any material misstatements in this information. In our opinion, the information required pursuant to section 1373(2)(a), (b), (e) and (f) Companies Act 2014 is contained in the Company’s Corporate Governance Statement. Adequacy of explanations received and accounting records: • We have obtained all the information and explanations which we consider necessary for the purposes of our audit. • In our opinion, the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited. • The parent Company Statement of Financial Position is in agreement with the accounting records. Matters on which we are required to report by exception Our duty to read other information in the Report Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is: • materially inconsistent with the information in the audited financial statements; or • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or • otherwise misleading. In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual Report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements. HIBERNIA REIT PLC79 Directors’ remuneration Under the Listing Rules of the Irish Stock Exchange we are required to review the six specified elements of disclosures in the report to shareholders by the board on Directors’ remuneration. Under the Companies Act 2014 we are required to report to you if, in our opinion, the disclosures of Directors’ remuneration and transactions specified by law are not made. We have nothing to report arising from our review of these matters. Corporate Governance Statement We reviewed the Corporate Governance report for compliance with the following provisions of Section C “Accountability” of the UK Corporate Governance Code: C1.1; C.2.1 and C3.1 – C3.7. We have nothing to report arising from our review of these matters. Respective responsibilities of Directors and auditor As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view and otherwise comply with the Companies Act 2014. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements This report is made solely to the Company’s members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s 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 and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Groups and the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsist- encies, we consider the implications for our report. Brian Jackson For and on behalf of Deloitte Chartered Accountants and Statutory Audit Firm Dublin Date: 2 June 2016 FINANCIAL STATEMENTS80 Consolidated income statement For the financial year ended 31 March 2016 Revenue Direct property costs Net property income Revaluation of investment properties Other gains and (losses) Total income after revaluation gains and losses Expense Investment manager fee - base Performance related payments Administration expenses Total operating expenses Operating profit Finance income Finance expense Profit before tax Income tax Profit for the financial year Earnings per share Basic earnings per share (cent) Diluted earnings per share (cent) The notes on pages 85 to 125 form an integral part of these consolidated financial statements Financial year ended 31 March 2016 Financial year ended 31 March 2015 Notes €'000 €'000 7 32,786 18,769 (2,497) (725) 30,289 18,044 17 8 5 9 12 12 13 15 15 125,056 80,809 (171) 7,691 155,174 106,544 - (6,069) (8,696) (4,690) (5,772) (1,584) (14,765) (12,046) 140,409 94,498 153 399 (4,240) (1,974) 136,322 92,923 475 (691) 136,797 92,232 20.2 20.1 18.4 18.3 HIBERNIA REIT PLCANNUAL REPORT 2016 Consolidated statement of comprehensive income For the financial year ended 31 March 2016 81 Financial year ended 31 March 2016 Financial year ended 31 March 2015 Notes €'000 €'000 Profit for the financial year 136,797 92,232 Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Gain on revaluation of property 23 323 Items that may be reclassified subsequently to profit or loss Net fair value (loss) on hedging instruments entered into for cash flow hedges 23 (112) Total other comprehensive income 211 - - - Total comprehensive income for the financial year attributable to owners of the Company 137,008 92,232 The notes on pages 85 to 125 form an integral part of these consolidated financial statements. FINANCIAL STATEMENTS      82 Consolidated statement of financial position As at 31 March 2016 Assets Non-current assets Property, plant and equipment Investment Property Other financial assets Trade and other receivables Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Non-current assets classified as held for sale Total current assets Total assets Equity and liabilities Capital and reserves Issued capital and share premium Other reserves Retained earnings Total equity Non-current liabilities Financial liabilities Trade and other payables Total non-current liabilities Current liabilities Trade and other payables Payable due for investment property Total current liabilities Total equity and liabilities IFRS NAV per share (cent) Diluted IFRS NAV per share EPRA NAV per share 31 March 2016 31 March 2015 Notes €'000 €'000 16 17 19 20 20 21 22 23 24 25 26 2,946 - 927,656 641,296 365 11,666 152 - 942,633 641,448 18,880 23,187 42,067 3,921 45,988 9,046 139,048 148,094 18,499 166,593 988,621 808,041 672,398 657,987 6,136 218,040 896,574 5,772 89,375 753,134 72,724 - 72,724 - - - 26 19,323 - 19,323 12,210 42,697 54,907 988,621 808,041 27 27 27 131.6 130.7 130.8 112.4 111.6 111.8 The notes on pages 85 to 125 form an integral part of these consolidated financial statements. The consolidated financial statements on pages 80 to 125 were approved and authorised for issue by the Board of Directors on 2 June 2016 and signed on its behalf by: Mr Kevin Nowlan Chief Executive Officer Mr Thomas Edwards-Moss Chief Financial Officer HIBERNIA REIT PLCANNUAL REPORT 2016 Consolidated statement of changes in equity 83 Balance at start of financial year Profit for the financial year Total other comprehensive income Transactions with owners of the Company, recognised directly in equity Dividends Issue of ordinary shares for cash Share issue costs Share based payments Financial year ended 31 March 2016 Notes Share capital Share premium Retained earnings Other reserves Total €'000 €'000 €'000 €'000 €'000 67,032 590,955 89,375 5,772 753,134 - - - - 136,797 - 136,797 - 211 211 67,032 590,955 226,172 5,983 890,142 14 22 22 11 - - - - - - 1,093 13,318 (8,121) - (11) - - - - (8,121) - (11) 153 14,564 Balance at end of financial year 68,125 604,273 218,040 6,136 896,574 Financial year ended to 31 March 2015 Notes Share capital Share premium Retained earnings Other reserves Total €'000 €'000 €'000 €'000 €'000 Balance at start of financial year 38,500 333,312 (846) - 370,966 Total comprehensive income for the financial year Profit for the financial year Total other comprehensive income Transactions with owners of the Company, recognised directly in equity Dividends Issue of ordinary shares for cash Share issue costs Share based payments - - - - 92,232 - 38,500 333,312 91,386 14 22 22 - - (2,011) 28,532 271,052 - - (13,409) - - - - - - - - - - 92,232 - 463,198 (2,011) 299,584 (13,409) 5,772 5,772 Balance at end of financial year 67,032 590,955 89,375 5,772 753,134 The notes on pages 85 to 125 form an integral part of these consolidated financial statements. FINANCIAL STATEMENTS 84 Consolidated statement of cash flows For the financial year ended 31 March 2016 Cash flows from operating activities Profit for the financial year Adjusted non cash movements: Revaluation of investment properties Other gains and losses Share based payments Prepaid remuneration Depreciation Rental income (payable)/paid in advance Finance (income)/expense Income tax Operating cash flow before movements in working capital (Increase) in trade and other receivables Increase in trade and other payables Net cash flow from operating activities Cash flows from investing activities Purchase of fixed assets Cash paid for investment property Sale of investment property Purchase of non-current assets classified as held for sale Proceeds from the sale of non-current assets classified as held for sale Net proceeds from loans Business acquisition (Net of acquired cash) Prepaid remuneration Tax paid Net finance income and expense Net cash flow absorbed by investing activities Cash flow from financing activities Dividends paid Borrowings drawn Arrangement fee paid Derivatives premium Proceeds from the issue of ordinary share capital  Share issue costs Net cash inflow from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents start of financial year (Decrease) in cash and cash equivalents Net cash and cash equivalents at end of financial year The notes on pages 85 to 125 form an integral part of these consolidated financial statements. Notes Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 136,797 92,232 (125,056) (80,809) (2,312) 5,925 4,191 65 (1,807) 4,087 (475) 21,415 (3,005) 8 (7,691) 5,772 - - 9 1,575 691 11,779 (1,061) 3,369 18,418 14,087 (46) - (208,159) (457,409) 4,951 - 12,226 3,476 237 (7,104) (384) (2,813) - (541) 6,297 2,681 - - - (1,421) (197,616) (450,393) (8,121) 75,529 (3,718) (342) (2,011) - (500) - - (11) 299,584 (13,409) 63,337 283,664 (115,861) (152,642) 139,048 291,690 (115,861) (152,642) 23,187 139,048 16 28 28 5 14 25 25 22 22 HIBERNIA REIT PLCANNUAL REPORT 2016    Notes forming part of the Annual Report 85 1. General information Hibernia REIT plc, the “Company”, together with its subsidiary and associated undertakings as detailed in Note 31 (the “Group”), is engaged in property investment (primarily commercial) in the Irish (primarily 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 Company was incorporated on 13 August 2013 and registered as a public limited company on 8 November 2013. The registered number of the Company is 531267. The Ordinary Shares of the Company are listed on the primary listing segment of the Official List of the Irish Stock Exchange (the ‘‘Irish Official List’’) and the premium listing segment of the Official List of the UK Listing Authority (the ‘‘UK Official List’’ and, together with the Irish Official List, the ‘‘Official Lists’’) and are traded on the regulated markets for listed securities of the Irish Stock Exchange and the London Stock Exchange plc (the ‘‘London Stock Exchange’’). 2. Basis of preparation a. Statement of compliance The consolidated financial statements of Hibernia REIT plc have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, which comprise standards and interpretations approved by the International Accounting Standards Board (IASB), and the Companies Act 2014. IFRS as adopted by the EU differ in certain respects from IFRS as issued by the IASB. The Group has not early adopted any forthcoming IASB 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 accounting The consolidated financial statements have been prepared on a going concern basis, in accordance with IFRS and the IFRS Interpretations Committee (IFRIC) interpretations as adopted by the European Union and the Companies Act 2014. The Group financial statements therefore comply with Article 4 of the EU IAS Regulation. The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of investment properties, 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 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 this statement and are satisfied that the Group is appropriately capitalised. The Group has a cash balance as at 31 March 2016 of €23m (31 March 2015: €139m), is generating positive operating cash flows and, as discussed in Note 25, has in place a revolving credit facility with an undrawn balance of €325m at 31 March 2016 (31 March 2015: €100m). The Group has assessed its liquidity position and there are no reasons to expect that the Group will not be able to meet its liabilities as they fall due for the foreseeable future. e. Basis of consolidation The financial statements incorporate the consolidated financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is assessed based on the Company’s: • power over the investee; • exposure to variable return from its involvement with the investee; and • ability to use its powers to affect returns. When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. FINANCIAL STATEMENTS 86 Notes forming part of the Annual Report (continued) 2. Basis of preparation (continued) 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 cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Business combinations  Acquisitions of subsidiaries and businesses are accounted for under the acquisition method. The consideration transferred in a business combination is measured at fair value. The assets and liabilities acquired in the business combination are recognised at their fair value with the exception of deferred tax assets or liabilities related to employee benefit arrangements (measured according to IAS 12 and IAS 19) and assets that are classified as held for sale (measured according to IFRS 5). Acquisition related costs are expensed as incurred. Where the consideration transferred by the Group includes a contingent asset or liability, the contingent consideration is measured at its acquisition date fair value and included as part of the consideration transferred in a business combination. The subsequent accounting for changes in the measurement of these contingent assets or liabilities depends on the classification of the contingency. For example, contingent fees recognised under acquired contracts would be measured as a change in the value of the trade receivable or payable and the movement recognised in profit and loss.  All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.  Joint arrangements  A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is established when no one entity has control of the arrangement on its own; all of the entities involved in the arrangement control it collectively. The Group enters into such arrangements to facilitate joint development of properties in its portfolio of investment properties. The arrangements are bound by contractual agreements and may be accounted for as either a joint venture or joint operation. These arrangements are reviewed at each accounting period to ensure that control continues to be joint and that, where entities are involved, reclassification into subsidiary or associate companies is not required. A joint arrangement is classified as a joint venture when the Group has rights to the net assets of the arrangement rather than to the individual assets and liabilities, revenues and expenses. Otherwise the joint arrangement is classified as a joint operation. This classification is based upon an assessment of the structure and legal form of the arrangement. The Group accounts for joint ventures using the equity method, the Groups share of the joint venture is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets. The Group’s share of profit or loss includes its share of the investee's profit or loss and the Group’s other comprehensive income includes its share of the investee's other comprehensive income.  Where the joint arrangement is recognised as a joint operation, the Group recognises its share of assets and liabilities held jointly as well as its share of revenues and expenses according to the IFRS applicable to the items being recognised. f. 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: Classification of Starwood joint arrangement Hibernia REIT plc has entered into a joint arrangement to develop the Windmill Lane site. The site is co-owned through its subsidiary, Hibernia REIT Holding Company Limited, and the development is managed through a jointly owned development company, the Windmill Lane Development Company Limited. The Directors have examined the overall arrangements and concluded that as the joint arrangement is not structured through a separate legal vehicle and that the parties have rights to the specific assets and liabilities of the arrangement, it should be accounted for as a joint operation. Accordingly, the Group has recognised its share of the assets, liabilities, income and expenditure. HIBERNIA REIT PLCANNUAL REPORT 201687 2. Basis of preparation (continued) Internalisation of the Investment Manager  On 5 November 2015, the Company completed the internalisation of the Investment Manager. The internalisation has occurred by the acquisition of the entire issued share capital of the parent company of the Investment Manager, Nowlan Property Limited, and the Investment Manager held otherwise than by the parent company. As part of the agreement, the Company assumed the expenses of the Investment Manager for the period from 1 April 2015 to completion of the internalisation. The main components of the transaction were: A. A payment for the fair value of the net assets of the acquired companies, the “Acquirees”; B. A payment calculated by reference to the base fee due under the Investment Management Agreement; and C. Payments in future periods which reference performance related fees, NAV increases and joint venture fees payable under the Investment Management Agreement. Part A has been determined to be a business combination and has been accounted for under the acquisition method. 88.75% of the payments under B and C above are conditional on the completion of service by vendors remaining part of the Management Team of the Company until November 2018, with one third of payments vesting annually on the anniversary of the deal completion. The remaining 11.25% relates to payments to vendors that are not part of the Management Team. The Directors have considered the accounting for these payments and determined that B and C substantially represent a transaction separate to the acquisition of WK Nowlan REIT Management Limited and Nowlan Property Limited, together the “Acquirees”, as they remunerate employees and contractors who were former owners for future services. This decision is based on the provisions included in the share purchase agreement that require those owners subject to these conditions to continue to provide services to the Group until expiration of the agreement in November 2018. Failure to comply with these provisions will result in clawback of the payments. This clawback is reduced by one third on each anniversary of the agreement until November 2018. The amount paid under part B which the Directors have identified as for future services, €13.4m, is therefore treated as a prepayment in the financial statements and recognised over the period during which the services it is dependent on are provided. These services will be provided from the completion date (5 November 2015) to November 2018. €1.8m has been recognised in the income statement for the financial year ended 31 March 2016. The balance paid to vendors who are not obliged to provide services, €1.7m, was recognised immediately as an expense, and is included in other gains and losses. Payments made in subsequent periods under part C are recognised over the period that the Group receives the benefit of the services to which they relate. Amounts not relating to services provided will be expensed as incurred. As a material item, the accounting for this transaction constitutes a significant judgement by the Directors. Further details can be found in Note 5 to these financial statements. There were no other items of significant judgement that might have a material impact on the consolidated financial statements at 31 March 2016. FINANCIAL STATEMENTS88 Notes forming part of the Annual Report (continued) 2. Basis of preparation (continued) g. Key estimates The preparation of financial information requires the use of certain critical accounting estimates. Although these estimates are based on the Board’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. The following are the key estimates which were made in respect of this financial information. 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, 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 of investment properties The Group’s investment properties are held at fair value and were revalued at 31 March 2016 by the external valuer, CBRE Limited, a firm employing qualified valuers in accordance with the Royal Institution of Chartered Surveyors Valuation — Standards (January 2014) (the “Red book”). Further information on the valuations and the sensitivities is given in Note 17. 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 make reference to market evidence and recent transaction prices for similar properties. The Directors must be satisfied that the valuation of the Group’s properties is appropriate for inclusion in the accounts. The fair value of the Group’s properties is based on the valuation provided by CBRE. This valuation is based on future cash flows from rental income both for the current lease period and future estimated rental values. In accordance with the Group’s policy on lease incentives, the valuation provided by CBRE is adjusted by the fair value of the rental income accruals ensuing from the recognition of these incentives. The total reduction in the external valuers’ investment property valuation in respect of these adjustments was €2.6m (31 March 2015: €2.2m). No further adjustments were required for the financial year ended 31 March 2016. There were no other key estimates that might have a material impact on the consolidated financial statements at 31 March 2016. HIBERNIA REIT PLCANNUAL REPORT 201689 3. Application of new and revised International Accounting Standards (IFRS) Adoption of new standards The following standards are effective for the first time in the current financial year, due to changes in the business structure, and have been adopted: • IFRS 11 Joint Arrangements • IAS 16 Property, Plant and Equipment • IAS 19 Employee Benefits (2011) Prospective Accounting changes The following standards and interpretations to existing standards have been published by the International Accounting Standards Board (“IASB”) and, to the extent indicated, have been adopted by the European Union (“EU”) and will be mandatory for future accounting periods. The Company has not early adopted these standards or interpretations. • IAS 1 Presentation of Financial Statements amendments remove certain impediments to preparers in exercising their judgement in presenting their financial reports and is effective for annual periods beginning on or after 1 January 2016. • IAS 7 Statement of Cash flows amendments to clarify disclosures and is effective for annual periods beginning on or after 1 January 2017. (Subject to EUR endorsement) • IFRS 9 Financial Instruments was issued in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes a revised classification and measurement model, a forward looking ‘expected credit loss’ impairment methodology and modifies the approach to hedge accounting. Unless early adopted, the standard is effective for accounting periods beginning 1 January 2018. (Subject to EU endorsement) • IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities, and IAS 28 Investment in Associates and Joint Ventures are amended for accounting periods beginning on or after 1 January 2016 to clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture. (EU endorsement currently halted) • IFRS 11 Accounting for Acquisitions of Interests in Joint Operations amends IFRS 11 to require an acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3 Business Combinations) to apply all the of the business combinations principles of IFRS 3 except where they conflict with guidance in IFRS 11 and disclose the information required by IFRS 3 and other IFRS for business combinations. This is effective for accounting periods beginning on or after 1 January 2016. • IAS 12 Income taxes, amendments to deferred tax recognition. Effective for periods beginning on or after 1 January 2017. (Subject to EU endorsement) • IFRS 14 Regulatory Deferral Accounts, applies to an entity's first annual IFRS financial statements for a period beginning on or after 1 January 2016, permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for 'regulatory deferral account balances' in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements. (Will not be EU endorsed) • IFRS 15 Revenue from Contracts with Customers, provides a single, principles based five-step model to be applied to all contracts with customers and is applicable to an annual reporting period beginning on or after 1 January 2018. (Subject to EU endorsement) • IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets, which are effective for accounting periods beginning on or after 1 January 2016, clarify acceptable methods of depreciation and amortisation. IAS 16 Property, Plant and Equipment and IAS 41 Agriculture are amended for accounting periods starting on or after 1 January 2016 to include and define “bearer plants” within property, plant and equipment. • IFRS 16 Leases, sets out the principles for the recognition, measurement, presentation and disclosure of leases. It is effective for annual periods commencing on or after 1 January 2019 and supersedes IAS 17 Leases and SIC 15: Operating leases - Incentives. (Subject to EU endorsement) • IAS 27 Separate Financial Statements is amended to permit investments in subsidiaries, joint ventures and associates to be optionally accounted for using the equity method in separate financial statements for accounting periods beginning on or after 1 January 2016. • Investment entities: applying the consolidation exception (amendments to IFRS 10 and 12 and IAS 28) addresses issues in applying the consolidation exception for investment entities and is effective for period commencing on or after 1 January 2016. • Annual Improvements to IFRS: 2012-2015 cycle (effective for accounting periods beginning on or after 1 July 2016); FINANCIAL STATEMENTS90 Notes forming part of the Annual Report (continued) A N N U A L R E P O R T 2 0 1 6 3. Application of new and revised International Accounting Standards (IFRS) (continued) IFRS 15 may have a future impact on revenue recognition and related. 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. It is therefore expected that there will be no material impact from the adoption of IFRS 15. IFRS 16: Leases 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. The reminder of these amendments are not expected to have a material impact on the Group’s consolidated financial statements. 4. Significant accounting policies a. Revenue recognition Revenue consists of rental income on the Group’s investment properties and interest income on loans and receivables. Revenue is recognised in the Consolidated 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 Rental income arises on properties which are included as investment properties in the Consolidated Statement of Financial Position and which are leased out under operating leases. Rental income from operating leases is recognised in the Consolidated Income Statement on an accrual basis as revenue on a straight line basis over the lease term. Rent received in advance is deferred in the Consolidated Statement of Financial Position and recognised in the period to which it relates to. Rental income also arises on the Group’s non-current assets classified as held for sale. This income is an immaterial and decreasing amount as the Group continues its programme of selling these assets in the short term and is therefore seeking vacant possession where possible. This income is included in the “Other” segment for reporting purposes. Where adjustments to rent or a review under a lease is unsettled at the reporting date, these are included in income based on a reasonable estimate of the expected settlement amount and then adjusted to the actual amount when settlement is reached. Surrender payments for early lease terminations are reflected, net of any costs such as dilapidation or legal costs relating to the lease, in the accounting period in which the surrender took place. Service charges and other sums receivable from tenants are recognised on an accrual basis by reference to the stage of completion of the relevant service or transactions at the reporting date. These services generally relate to a 12 month period. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all of the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rental income from operating leases is recognised on a straight-line basis over the term of the lease. Therefore when the Group provides incentives to its tenants the incentives are recognised over the lease term on a straight line basis. These incentives can be a rent free period at the commencement of the lease, a reduced rent for a period, an assumption of lessee costs or other incentives negotiated. All such incentives are recognised as an integral part of the net consideration agreed for the use of the leased asset, irrespective of the incentive’s nature or form. The aggregate cost of such incentives is recognised as a reduction of rental income on a straight-line basis over the lease term. The lease term is either the period to the expiry date of the lease or to the next break point, i.e. where there is a legal right for the tenant to break the lease. The value of the resulting accrual is included within the respective property value in the Consolidated Statement of Financial Position. Details on all aspects of rental payments and concessions under leases are provided to the external valuers at each reporting date for their consideration in assessing the fair value of the properties concerned. b. Direct property costs Direct costs comprise service charges and other costs directly recoverable from tenants and non-recoverable costs directly attributable to investment properties and other revenue streams. HIBERNIA REIT PLC91 4. Significant accounting policies (continued) c. Foreign currencies transactions and balances Transactions in currencies other than Euro are recognised at the rates of exchange prevailing on the dates of the transactions. At the end of each period, monetary amounts denominated in foreign currencies are re-translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing when the fair value was determined. Non-monetary items carried at historical cost are reported using the exchange rate at the date of the transaction. Exchange differences on monetary items are recognised in profit or loss in the period in which they arise. d. Finance income and expense Interest income and expense is recognised in the Consolidated Income Statement. Income for all interest-bearing financial instruments is recognised using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and of allocating the interest income, interest expense and fees paid and received over the relevant period. e. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of investment properties which take a considerable length of time to get ready 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 borrowing costs are recognised in the profit and loss account as they occur. f. Employee benefits Retirement benefit costs and termination benefits Payments to the Group’s defined contribution retirement benefits plan are recognised as an expense when employees have rendered the service which entitles them to the contribution. A liability for termination payments is recognised at the earlier of when the Group can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs. Short term and long term employee benefits A liability is recognised for benefits accruing to employees in respect of all elements of remuneration, annual leave, and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service. Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid for the related service. Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made for the Group in respect of services provided by the employees up to the reporting date. g. Provisions A provision is recognised if, as a result of a past event, the Group has a present obligation (legal or constructive) that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows (in most cases, the risk free rate) at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third-party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. h. Expenses Expenses are recognised in the Consolidated Income Statement on an accrual basis. FINANCIAL STATEMENTS92 Notes forming part of the Annual Report (continued) 4. Significant accounting policies (continued) i. Share-based payments A share-based payment is a transaction in which the entity receives goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity. Equity-settled share based payments are measured at the fair value of the equity instruments on the grant date. Details regarding the determination of the fair value of equity-settled share based transactions are set out in Note 11. The fair value determined at the grant date of the equity-settled share based payment is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of equity instruments which will vest, with a corresponding increase in equity. 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 equity-settled employee share benefits reserve. Fair value movements between the grant and issue date are recognised at each accounting date. Equity settled share based transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be measured reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service. The fair value of the relevant services is recognised as an expense over the accounting period in which they are incurred. j. Taxation Hibernia REIT plc elected for Real Estate Investment Trust (REIT) status on 11 December 2013. As a result, the Company will not pay Irish corporation tax on the profits and gains from qualifying rental business in Ireland provided it meets certain conditions. Corporation tax is still payable as normal in respect of income and gains from the Group’s residual business (generally any non-investment property rental business). The Group is also liable to pay other taxes such as VAT, capital gains tax, relevant contracts tax, local property tax, property rates, payroll taxes and foreign taxes as normal. Current tax Current tax is the expected tax payable on the taxable income or loss for the period, using tax rates enacted or substantially enacted at the reporting date, and any adjustment in taxes payable in respect of the previous periods. Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse using tax rates enacted or substantially enacted at the reporting date. k. Joint arrangements A joint arrangement is an arrangement over which two or more parties have joint control. Joint control is established when no one entity has control of the arrangement on its own; all of the entities involved in the arrangement control it collectively. The Group enters into such arrangements to facilitate joint development of properties in its portfolio of investment properties. The arrangements are bound by contractual agreements and may be accounted for as either a joint venture or joint operation. These arrangements are reviewed at each accounting period to ensure that control continues to be joint and that, where entities are involved, reclassification into subsidiary or associate companies is not required. A joint arrangement is classified as a joint venture when the Group has rights to the net assets of the arrangement rather than to the individual assets and liabilities, revenues and expenses. Otherwise the joint arrangement is classified as a joint operation. This classification is based upon an assessment of the structure and legal form of the arrangement. The Group accounts for joint ventures using the equity method, the Groups share of the joint venture is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets. The Group’s share of profit or loss includes its share of the investee's profit or loss and the Group’s other comprehensive income includes its share of the investee's other comprehensive income. Where the joint arrangement is recognised as a joint operation, the Group recognises its share of assets and liabilities held jointly as well as its share of revenues and expenses according to IFRS applicable to the items being recognised. HIBERNIA REIT PLCANNUAL REPORT 201693 4. Significant accounting policies (continued) l. Investment properties Investment properties are properties held to earn rental income and/or for capital appreciation (including property under construction for such purposes). Properties are treated as acquired at the point at which the Group assumes the significant risks and rewards of ownership. This occurs when: (1) (2) (3) It is probable that the future economic benefits that are associated with the investment property will flow to the Group; There are no material conditions which could affect completion of the acquisition; and The cost of the investment property can be measured reliably Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are included in the Consolidated Income Statement in the period in which they arise. Investment properties and properties under development are professionally valued on a twice yearly basis or as required by qualified external valuers using inputs that are observable either directly or indirectly for the asset in addition to unobservable inputs and are therefore classified at level 3. The valuation of investment properties is further discussed above under Note 2.(g). The valuations of investment properties and investment properties under development are prepared, as recommended by the Society of Chartered Surveyors, in accordance with the RICS Valuation – Professional Standards (the 'Red Book') January 2014. When the Group begins to redevelop an existing investment property, or property acquired as an investment property, for future use as an investment property, the property remains an investment property and is accounted for as such. Expenditure on investment properties is capitalised only when it increases the future economic benefits associated with the property. All other expenditure is charged to the Consolidated Income Statement. Interest and other outgoings, less any income, on properties under development are capitalised. Borrowing costs, that is interest and other costs incurred in connection with borrowing funds, are recognised as part of the costs of an investment property where directly attributable to the purchase or construction of that property. Interest capitalised is calculated on development outgoings using the cost of funds specifically borrowed for a particular development or the weighted average cost of general Group borrowings. Fair value for investment properties under development is based on the Group’s external professional valuers’ assessment of future value, with an appropriate adjustment for the costs of completion and remaining risk, based on market conditions at the reporting date. In accordance with the Group’s policy on revenue recognition (Note 4.a), the value of accruals in relation to the recognition of lease incentives under operating leases over the term of the lease is included in the fair value assessment of the investment property to which the accrual relates. Where amounts are received from departing tenants in respect of “dilapidation “, i.e. compensation for works that the tenant was expected to carry out at the termination of a lease but the tenant, in agreement with the Group, pays a compensatory sum in lieu of carrying out this work, the Group applies these amounts to the cost of the property. The value of the work to be done is therefore reflected in the fair value assessment of the property when it is assessed at the end of the period. An investment property is de-recognised on disposal, i.e. when the significant risks and rewards are transferred outside the Group’s control, or when the investment property is permanently removed from use and no future economic benefits are anticipated from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Consolidated Statement of Comprehensive Income in the period in which the property is de-recognised. FINANCIAL STATEMENTS94 Notes forming part of the Annual Report (continued) 4. Significant accounting policies (continued) m. Property, plant and equipment Owned property which is occupied by the Group for its own purposes is de-recognised as investment property at the date occupation commenced and at the fair value at that date. Property used for administration purposes is stated in the Consolidated Statement of Financial Position at its revalued amount, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ from materially from those that would be determined using fair values at the end of each accounting period. Any revaluation increase from this property is recognised in other comprehensive income and accumulated in equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to the profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount of this property arising on revaluation is recognised in profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued property is recognised in profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation reserve is transferred directly to retained earnings. Fixtures and fittings are stated at costs less accumulated depreciation and impairment losses. Depreciation is recognised so as to write off the cost or value of assets less their residual value over their useful lives. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The estimated useful lives for the main asset categories are: Land and buildings Fixtures and fittings/ Leasehold improvements Office and computer equipment 50 years 5 years 3 years Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. Where there is no reasonable expectation that ownership will be retained at the end of the lease term, then they are depreciated over the shorter of the lease term or their useful life. An item of property, plant or equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the use of the asset. Any gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss. n. Non-current assets classified as held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use as an investment property. Non-current assets are treated as acquired at the point at which the Group assumes the significant risks and rewards of ownership. This occurs when: • It is probable that the future economic benefits that are associated with the asset will flow to the Group; • There are no material conditions which could affect completion of the acquisition; and • The cost of the asset can be measured reliably. Assets fall into this category only when the sale is highly probable and the asset is available for immediate sale in its present condition. The Group must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classifi- cation. Non-current assets classified as held for sale are measured at the lower of their acquisition cost and fair value less costs to sell. HIBERNIA REIT PLCANNUAL REPORT 201695 4. Significant accounting policies (continued) o. Financial instruments Financial assets and liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instruments. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and liabilities (other than financial assets or liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or liabilities, as appropriate, on initial recognition. Transaction costs attributable to the acquisition of financial assets or liabilities at fair value through profit or loss are recognised immediately in the Consolidated Income Statement. The fair value of a financial instrument 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 in the principal, or in its absence, the most advantageous market to which the Group has access at that date. Quoted prices are used where possible. If these cannot be observed, then valuation techniques which maximise the use of relevant observable inputs are used. The valuation techniques used incorporate the factors that market participants would take into account in pricing a transaction; for example, recent market evidence from similar instruments, pricing models, discounted cash flow analysis or other commonly used valuation techniques. Where the Group enters into a written option, i.e., an option that is written into a contract with no net settlement (i.e. it will be settled with a non-financial asset, an investment property) the relevant investment property will be included at its full fair value while the fair value of the written option is classified as a payable. Financial assets and liabilities Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss (FVTPL)’, ‘held-to-ma- turity investments’, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. Financial assets ‘at fair value through profit or loss’ has two subcategories which are determined at initial recognition: • Designated. This includes any financial asset to be measured at fair value with fair value changes in profit or loss. • Held for trading. The second category includes financial assets that are held for trading. Purchases and sales of financial assets in a regular way, i.e. within timeframes established by regulation or convention in the marketplace, are recognised and de-recognised on a trade date basis. Effective interest method: The Group uses the effective interest method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans are recorded at fair value plus transaction costs when acquired. They are subsequently accounted for at amortised cost using the effective interest method. Impairment allowances for loans and receivables are created if there is objective evidence that it will not be possible for the entire amount which is due under the original contractual arrangements to be recovered. Allowances for loans and receivables are calculated where there is objective evidence with regard to loan defaults, the structure and quality of the loan portfolio as well as macroeconomic parameters, on an individual basis. Losses expected as a result of future events, no matter how likely, are not recognised. Individual loans: Impairment allowance is calculated as the difference between the carrying value of the asset and the present value of the expected future cash flows using the original effective interest rate. The increase in the present value of an adjusted receivable which occurs over time is shown as interest income. In assessing the need for impairment on loans and receivables, the Group takes into account the expected cash flows from the realisation of collateral. FINANCIAL STATEMENTS96 Notes forming part of the Annual Report (continued) 4. Significant accounting policies (continued) Derecognition: When the cash flows from a loan are considered to have expired, or where no further cash flows are expected to be received on the loan in the case where the underlying property asset has been recognised as an investment property or non-current assets classified as held for sale, the original asset is de-recognised and a new asset is recognised, initially measured at fair value. Any difference between the carrying value of the original asset and the fair value of the new asset on initial recognition is recognised within other gains and losses in the Consolidated Income Statement. p. Derivatives The Group utilises derivative financial instruments to hedge interest rate exposures. Derivatives designated as hedges against interest risks are accounted for as cash flow hedges. Hedge relationships are documented at inception. This documentation identifies the hedge, the item being hedged, the nature of the risks being hedged and how the effectiveness is measured during its duration. Hedges are measured for effectiveness at each accounting date and the accounting treatment of changes in fair value revised accordingly. The Group’s cash flow hedges are against variability in interest costs and the effective portion is recognised in equity in the hedging reserve, with the ineffective portion being recognised in profit or loss within finance costs. The time value of option contracts at recognition is recorded as a financial asset and amortised to profit or loss over the period hedged. q. Financial liabilities The Group has borrowing facilities in place both as general facilities and secured on specific projects. These borrowings are measured initially at fair value, after taking into account transaction costs, and carried at amortised cost, with all attributable costs either charged to profit or loss or capitalised into investment property costs as appropriate. All costs are based on the effective interest rate method. r. Trade receivables and payables Trade receivables and payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method. Where there is objective evidence of loss, appropriate allowances for any irrecoverable amounts are recognised in the Consolidated Income Statement. s. Cash and cash equivalents Cash and cash equivalents includes cash at banks in current accounts, deposits held at call with banks and other highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. t. Equity and share issue costs The equity of the Company consists of ordinary shares issued. Shares issued are recorded at the date of issuance. The par value of the issued shares is recorded in the share capital account. The excess of proceeds received over the par value is recorded in the share premium account. Direct issue costs in respect of the issue of shares are accounted for in the retained earnings reserve, net of any related tax deduction. Direct issue costs include: • Costs of preparing the prospectus • Accounting, tax and legal expenses • Underwriting fees • Valuation fees in respect of the shares and of other assets Costs that relate to the listing itself (e.g. stock exchange registration costs) are not directly attributable to the share issue and are expensed. u. Dividends 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. v. Net Asset Value (NAV) The IFRS NAV is calculated as the value of the Group’s assets less the value of its liabilities based on IFRS measures. EPRA NAV is calculated in accordance with the European Public Real Estate Association (EPRA) Best Practice Recommendations: December 2014. The EPRA Net Asset Value per share includes investment property, other non-current asset investments and trading properties at fair value. For this purpose, non-current assets classified as held for sale are included at fair value. It excludes the fair value of movement financial instruments and deferred tax and related good will. HIBERNIA REIT PLCANNUAL REPORT 201697 5. Internalisation of the Investment Manager Acquisition of the Investment Manager, WK Nowlan REIT management Limited (the “Internalisation”) 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”). This transaction was carried out in order to internalise the investment management function. Under the terms agreed and as per the share purchase agreement, the transaction was structured to take effect from 1 April 2015 and consequently no base fees were payable under the Investment Management Agreement from that date and the Company assumed the expense of the Investment Manager from 1 April 2015. The income statement has been presented on this basis. Total payments in cash and shares made relating to the Internalisation totalled €21.1m (fair value €22.6m). The composition of these amounts is explained below. This transaction is also discussed under Note 2.(f) Significant judgements. The Internalisation was completed in three separate parts: Amounts paid to related parties are included in Note 32. a. Business acquisition On 5 November 2015 the Company acquired 100% of the share capital of the Acquirees as described in Note 2.(f). The purpose of this business combination was to internalize the investment management of the Group. €0.1m profit has been consolidated in relation to these entities since acquisition. The following table shows the NAV and fair value of the Acquirees at the date of acquisition. Nowlan Property Limited NAV WK Nowlan REIT Management Assets Property, plant and equipment Cash and cash equivalents Trade receivables - due from Hibernia REIT plc Group companies - other Total assets Liabilities Trade and other payables Net assets *Fair value basis for the acquisition Book value €'000 Fair value* €'000 478 478 242 933 7,079 22 242 933 7,079 22 8,754 8.754 (1,824) (1,824) 6,930 6,930 Total consideration paid for the assets of the Acquirees was €6.9m which is equivalent to the fair value of the net assets acquired and no goodwill was recognised as part of the business combination. FINANCIAL STATEMENTS                    98 Notes forming part of the Annual Report (continued) 5. Internalisation of the Investment Manager (continued) Calculation of fair value Asset / Liability Carrying value Assumptions Property, plant and equipment Depreciated cost Trade and other receivables / Trade and other payables Amortised cost The Directors considered that the fair value of the property, plant and equipment at the acquisition date was the net book value. The carrying value of trade and other receivables and trade and other payables is considered a reasonable approximation of fair value due to their short term nature. Cash and cash equivalents Amortised cost Carrying value is fair value as all balances are on demand. b. Remuneration for future services The second part of the Internalisation transaction was the payment of €14.2m, the “Initial payment”, 50% by way of ordinary shares and 50% by way of cash. The fair value of this payment was €15.1m due to the movement in the share price that is disclosed in Note 11. The cash impact was €7.1m with the balance paid by the issue of 6m shares. This payment was made subject to clawback arrangements for those vendors who remain tied to the Company by employment or service contracts. These payments vest by one third on each anniversary of the acquisition date until November 2018. €13.4m was recognised as prepaid remuneration of which €1.8m was recognised in the Consolidated Income Statement in the financial year ended 31 March 2016 and €11.6m is included in trade receivables (Note 20). The balance of the payment, €1.7m was recognised in expenses in the financial year ended 31 March 2016. c. Future performance payments The third element of consideration for Internalisation was the payment of performance fees due under the original Investment Management Agreement and other top-up amounts, by an equivalent payment annually to the vendors of the Investment Manager, contingent for the majority of vendors on the fulfilment of service obligations. The performance fee due for 2016 is €6.1m. Under arrangements made at the time of the internalisation, 85% of this is due to the vendors, representing €5.1m (the remainder being used to incentivise non vendor staff). Together with top up payments due of €0.3m the total due to vendors is €5.4m. The payments at b and c above, while remuneration in nature due to the existence of clawback and vesting conditions, are not under the discretion of the Remuneration Committee but were determined in the share purchase agreement for the acquisition of the Invest- ment Manager and were approved by the shareholders of the Company at the Extraordinary General Meeting of the Company held on 27 October 2015. HIBERNIA REIT PLCANNUAL REPORT 201699 6. Operating segments The Group is organised into six business segments, against which the Group reports its segmental information, being “Office assets”, “Industrial assets”, “Residential assets”, “Office Development assets”, “Other assets” (non-core assets) and “Central assets and costs”. The segment “Central assets and costs” has been added for the financial year ended 31 March 2016 to reflect the new operating structure post internalisation of the Investment Manager and includes the previously unallocated assets and items of income and expenditure as well as the operating segment which was previously external in the Investment Manager. All of the Group’s operations are in the Republic of Ireland. Operating segments are reported in a manner consistent with the reporting to the Board of Directors of the Company which is the chief operating decision maker of the Group. 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 equiv- alents to the appropriate segment. The Group’s key measure of underlying performance of a segment is total income after revaluation gains and losses which comprises revenue (rental and interest income), property outgoings, revaluation of investment properties and other gains and losses. Total income after revaluation gains and losses includes rental income which is used as the basis to report key measures such as EPRA Net Initial Yield (“NIY”) and EPRA “Topped Up” NIY, which measure the cash passing rent returns on the market value of investment properties before and after an adjustment for the expiration of rent free period or other lease incentives respectively. Group consolidated segment analysis For the financial year ended 31 March 2016 Rental income Interest income Revenue Property outgoings Total property income Office assets €'000 27,176 - 27,176 (716) 26,460 Industrial assets Residential assets Office Development assets €'000 €'000 €'000 524 - 524 (86) 438 4,835 - 4,835 (1,029) 3,806 81 - 81 (666) (585) Other assets €'000 170 - 170 - 170 Central assets and costs Group consolidated position €'000 €'000 - - - - - 32,786 - 32,786 (2,497) 30,289 Revaluation of investment properties 59,589 1,968 7,168 56,331 - - 125,056 Other gains and losses Total income (260) - - 343 85,789 2,406 10,974 56,089 2,136 2,306 (2,390) (2,390) (171) 155,174 Investment manager fee - base Performance related payments Administration expenses Total operating expenses Operating profit/(loss) Net finance cost Profit before tax Income tax -   - - - 85,789 - 85,789 - -   - - - 2,406 - 2,406 - -   - - - -   - - - - - - (6,069) (8,696) - (6,069) (8,696) - (14,765) (14,765) 10,974 56,089 2,306 (17,155) 140,409 - 10,974 - - 56,089 (38) - 2,306 513 (4,087) (4,087) (21,242) 136,322 - 475 Profit for the financial year 85,789 2,406 10,974 56,051 2,819 (21,242) 136,797 Total segment assets 655,752 12,400 115,180 155,930 10,565 38,794 988,621 Investment properties 645,671 12,400 114,571 155,014 - - 927,656 FINANCIAL STATEMENTS                                                      100 Notes forming part of the Annual Report (continued) 6. Operating segments (continued) Group consolidated segment analysis For the financial year ended 31 March 2015 Rental income Interest income Revenue Property outgoings Total property income Office assets €'000 15,997 - 15,997 (253) 15,744 Industrial assets Residential assets Office Development assets Other assets €'000 €'000 €'000 440 - 440 (140) 300 196 - 196 (104) 92 - - - (116) (116) Central assets and costs Group consolidated position €'000 €'000 - - - (38) (38) - - 17,112 1,657 18,769 (725) 18,044 80,809 7,691 (38) 106,544 (4,690) (5,772) (1,584) (4,690) (5,772) (1,584) (12,046) (12,046) €'000 479 1,657 2,136 (74) 2,062 - 2,732 4,794 -  - - - Revaluation of investment properties 66,750 (4) 2,551 11,512 Other gains and losses Total income - 82,494 - 296 10,059 12,702 (5,100) 6,296 Investment manager fee - base - - - -  - - -  -  - - - - Performance fee Administration expenses Total operating expenses Operating profit/(loss) Net finance cost Profit before tax Income tax expense Profit for the financial year  - - - 82,494 - 82,494 - 296 12,702 6,296 4,794 (12,084) - - - 296 - 12,702 6,296 - - - 4,794 - (1,575) (13,659) (691) 94,498 (1,575) 92,923 (691) 82,494 296 12,702 6,296 4,794 (14,350) 92,232 Total segment assets 475,877 10,319 66,500 88,600 18,651 148,094 808,041 Investment properties 475,877 10,319 66,500 88,600 - - 641,296 HIBERNIA REIT PLCANNUAL REPORT 2016                                                                                      7. Revenue Rental income Surrender premia Gross rental and related income Interest income from loans and receivables Revenue 101 Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 27,886 4,900 32,786 - 14,712 2,400 17,112 1,657 32,786 18,769 Rental income arises from the Group’s investment properties. Interest income arises from the recognition of the effective interest rate on the loans and receivables in accordance with the accounting policy described in Note 4(d). Rental income includes €1.3m in relation to the spreading of lease incentives (31 March 2015: €1.4m). Surrender premia relate to the surrender of a lease in Guild House for a total payment of €8.8m. €4.9m is included in surrender premia as above. €2.3m related to top-up amounts for sub-leases and is included in deferred income. It will be released to profit or loss over the term of the relevant sub-leases, all of which terminate by the end of March 2017. €0.7m has been recognised in the financial year ended 31 March 2016. The remaining €1.6m related to dilapidations payable on Guild House and is included as part of the development and refurbishment expenditure in Note 17. 8. Other gains and losses Gains on recognition of investment property Gain on sale of investment property Fair value movement of written call option Gains on sales of non-current assets classified as held for sale Other gains and losses Other gains and losses Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 - 176 - 2,136 (2,483) 10,059 - (5,100) 2,732 - (171) 7,691 Other gains and losses includes a €2.4m charge relating to the Internalisation of the Investment Manager comprising approximately €1.7m relating to payments to vendors relating to the base management fee buyout which were not restricted as discussed in Note 5 and amounts relating to the recognition of the difference between the fair value of assets acquired and the fair value of shares issued. FINANCIAL STATEMENTS102 Notes forming part of the Annual Report (continued) 9. Administration expenses Operating profit for the financial year has been stated after charging / (crediting): Non-Executive Directors' fees Professional valuers' fees Prepaid remuneration expense Depositary fees Registrar fees Pre-Internalisation Investment Manager costs Depreciation “Top-up ” Internalisation expenses for financial year Other administration expenses (including staff costs) (Note 10) Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 300 388 1,802 310 40 1,240 65 304 4,247 250 218 - 218 28 - - - 870 Total 8,696 1,584 All fees paid to Non-Executive Directors are for services as directors. Non-Executive Directors receive no other benefits other than William Nowlan who also receives €50,000 per annum in consulting fees under terms agreed as part of the Internalisation. He did not receive a Director’s fee in the previous financial year. Further information on Directors’ Emoluments can be found in the Directors’ Remuneration report on pages 67 to 71 of the Annual Report. Prepaid remuneration recognised re-Internalisation relates to the recognition of payments to vendors 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. Pre-internalisation Investment Manager Costs: Any costs incurred by the Investment Manager in respect of the period from 1 April 2015 to the date of Completion (being costs of the nature to be assumed by the Company post completion) were recognised by the Company on completion as agreed as part of the transaction. Professional valuers’ fees are paid to CBRE Ireland in return for their services in providing independent valuations of the Group’s properties on an at least twice yearly basis. Professional valuers’ fees are charged at 0.02% of the portfolio value for each of the interim and final year end valuations. This is agreed in advance on each valuation exercise through a letter of engagement. CBRE Ireland, a private unlimited company, is part of a worldwide group where fee revenues from valuation and appraisal services as reported in May 2016 constitute approximately 6% of total revenue. Auditor’s remuneration (excluding VAT) Audit of the Group financial statements Review of half year report Other assurance services Tax advisory services Other non-audit services Total Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 85 15 7 167 8 282 85 15 2 97 226 425 HIBERNIA REIT PLCANNUAL REPORT 2016103 10. Employment The average monthly number of persons (including Executive Directors) directly employed during the financial year since the Internalisation of the Investment Manager was 11. Administration – at the financial year end The staff costs for the above employees were: Wages and salaries Social insurance costs Employee share based payment expense (Note 11) Pension costs – defined contribution plan Total Financial year ended 31 March 2016 Financial year ended 31 March 2015 Number Number 13 - €'000 1,215 122 455 101 1,893 €'000 - - - - - No amount of salaries and other benefits is capitalised into investment properties. 11. Share based payments a. The Internalisation of the Investment Manager Under the terms of the Internalisation of the Investment Manager share purchase agreement, a part of the payment was made in shares of the Company. The issue price of €1.17605 per share was determined by reference to the average share price for twenty days prior to 1 April 2015. 10.9m shares were issued on 10 November 2015 when the price was €1.318. The fair value of these shares is set out below. Shares issued in the transactions comprising “Internalisation” of the Investment Manager Contracted price € Number of shares Price at issue date € (FV) Difference 1.17605 1.31800 Total shares issued 12,858,727 10,933,826 14,410,782 1,552,055 Further details on these shares are disclosed in Notes 5 and 22. b. Employee long term incentive plan Awards will be granted to non-vendor individuals who became employees of the Group through the Internalisation under a bonus plan which includes both cash elements and elements of long term incentive payments, which are share based (the “Performance Related Remuneration Scheme” or “PRR”). Until the expiry of the Performance Fee arrangements in November 2018, the PRR will be funded entirely by deductions of up to 15% from any Performance Fees payable to the vendors. Any shares awarded under the PRR will be held in trust until the third anni- versary of the start of the year to which they relate. The number of shares is calculated at market value on the date of allocation and the fair value of the award is equal to the share price on the allocation date. The charge recognised in the consolidated income statement for the financial year ended 31 March 2016 is €0.5m. There was no charge in the prior financial year. Shares are forfeited should the person leave the Group prior to the vesting date subject to “good leaver” provisions. Any shares forfeited are transferable to the vendors. FINANCIAL STATEMENTS   104 Notes forming part of the Annual Report (continued) 12. Finance income and expense The effective interest expense on borrowings arises as a result of the recognition of interest expense, commitment fees, arrangement fees and the amortisation of the time value of hedging costs on the Group’s revolving credit facility and on the debt facility relating to the Windmill Lane joint operation (Note 18). Interest income on cash and cash equivalents Effective interest expense on borrowings Finance expense on payable due for investment property Finance income and expense Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 153 (2,822) (1,418) €'000 399 (897) (1,077) (4,087) (1,575) Interest costs capitalised in the financial year were €0.1m (31 March 2015: €nil) in relation to the Windmill Lane joint operation. The capitalisation rate used is the effective interest rate on the cost of borrowing applied to the portion of investment that is financed. 13. Income tax expense Income tax on residual income Tax on the disposal of non-core assets Over provision in respect of prior periods Income tax credit / (expense) for financial year Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 (30) (186) 691 475 (5) (686) - (691) The net income tax credit in the financial year arises from an over provision in respect of prior financial years. The tax expense during the prior financial year arose in respect of income and gains from the Group’s residual business, the sale of non-core assets. Reconciliation of income tax expense for the financial year Profit/(loss) before tax Tax charge on profit at standard rate of 12.5% Non-taxable revaluation surplus REIT tax-exempt rental profit Other (Additional tax rate on Non-Core) Income tax expense for the financial year Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 136,322 92,923 17,040 (15,632) (1,408) (475) 11,615 (10,721) (547) 344 (475) 691 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. HIBERNIA REIT PLCANNUAL REPORT 2016 14. Dividends Interim dividend for the financial year ended 31 March 2016 of 0.7 cent per share (31 March 2015:0.3 cent per share) Proposed final dividend for the financial year ended 31 March 2016 of 0. 8 cent per share (31 March 2015:0.5 cent per share) 105 Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 4,769 2,011 5,486 3,352 The Board has proposed a final dividend of 0.8 cent (31 March 2015: 0.5 cent) per share which is subject to approval by shareholders at the Annual General Meeting and has therefore not been included as a liability in these consolidated financial statements. This dividend will be paid on 2 August 2016 to shareholders on the share register as at 8 July 2016. All of this proposed final dividend of 0.8 cent per share will be a PID in respect of the Group’s tax exempt property rental business (31 March 2015: 0.45 cent). The total dividends, interim paid and proposed for the financial year ended 31 March 2016 are 1.5 cent per share (31 March 2015: 0.8 cent per share) or €10.3m (31 March 2015: €5.4m). 15. Earnings per share There are no convertible instruments, options, warrants or ordinary shares that are issued upon the satisfaction of specified conditions as at the financial year ended 31 March 2016. However, the Company has established a reserve of €5.9m 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 (Note 5). It is estimated that approximately 4.6m ordinary shares (31 March 2015: 4.5m shares) will be issued calculated on an issue price of €1.2899. The dilutive effect of these shares is disclosed below. The calculations are as follows: Weighted average number of shares Issued share capital at beginning of financial year Shares issued during the financial year Shares in issue at end of financial year Weighted average number of shares Estimated additional shares due for issue for long term incentive plan/ performance fee Diluted number of shares Basic and diluted earnings per share 31 March 2016 '000 670,317 10,934 31 March 2015 '000 385,000 285,317 681,251 670,317 675,784 500,690 4,550 4,664 680,334 505,354 31 March 2016 €'000 31 March 2015 €'000 Profit/(loss) for the financial year attributable to the owners of the Company  136,797 92,232 Weighted average number of ordinary shares (basic) Weighted average number of ordinary shares (diluted) Basic earnings per share (cent) Diluted earnings per share (cent) '000 675,784 680,334 '000 500,690 505,354 20.2 18.4 20.1 18.3 FINANCIAL STATEMENTS106 Notes forming part of the Annual Report (continued) 16. Property, plant and equipment Carrying value at start of financial year Additions: Transferred from investment property at fair value 1 Acquired on acquisition of investment manager Acquisitions Depreciation Revaluations included in other comprehensive income Carrying value at end of financial year Office and computer equipment Leasehold improvements and fixtures and fittings Land and buildings €'000 €'000 €'000 - - - Total €'000 - 2,400 242 46 (65) 323 2,400 - - (20) 323 2,703 - 37 8 (13) - 32 - 205 38 (32) - 211 2,946 1: On 17 July 2015 the Group commenced occupation of part of the South Dock House property. The fair value of this is recognised in property, plant and equipment from this date. Revaluations of this property are now recognised in other comprehensive income in accordance with the Group’s accounting policy on property, plant and equipment (Note 4.m). 17. Investment properties Fair value category Office and residential Level 3 €'000 Development Industrial Level 3 €'000 Level 3 €'000 Total Level 3 €'000 Carrying value at start of financial year 542,377 88,600 10,319 641,296 Additions: Property purchases Development and refurbishment expenditure1 Revaluations included in income statement Disposals: 136,236 17,272 66,757 - 19,960 56,331 - 136,236 111 1,968 37,343 125,056 Transferred to property, plant and equipment as owner-occupied Property sale2 Carrying value at end of financial year (2,400) - - (9,875) - - (2,400) (9,875) 760,242 155,016 12,398 927,656 1: The Group received €1.6m in relation to a dilapidation costs payment due to a tenant surrender of their lease on Guild House. This has been applied to the development and refurbishment costs on this property and therefore reduces the cost of this property. 2: The vendor of the Windmill Lane site was granted an option when the Group purchased the site to buy into 50% of the future development project at the original purchase price plus 50% of any development costs spent to the date of purchase. This option has been exercised resulting in the disposal of 50% of the Group’s stake in the Windmill Lane site and the formation of a joint arrangement. HIBERNIA REIT PLCANNUAL REPORT 2016107 17. Investment properties (continued) Fair value category Carrying value at start of financial year Additions: Property purchases Investment properties recognised on de-recognition of loans1 Development and refurbishment expenditure2 Revaluations included in income statement 31 March 2015 Office and residential Level 3 €'000 - Development Industrial Level 3 €'000 - Level 3 €'000 - Total Level 3 €'000 - 412,714 76,578 10,338 499,630 48,684 11,678 69,301 - 510 11,512 - (15) (4) 48,684 12,173 80,809 Carrying value at end of financial year 542,377 88,600 10,319 641,296 1: During the financial year, certain loans which were acquired by the Group were recognised as investment properties and accounted for in accordance with the accounting policies set out in Note 4(l). 2: The €11.7m of development and refurbishment expenditure on office and residential includes €13.5m in relation to the expenditure on Wyckham Point and a dilapidation receipt for One Dockland Central (Previously Commerzbank House). The valuations used in order to determine fair value for the investment properties in the consolidated financial statements are determined by CBRE, the Group’s independent valuers, and are in accordance with the provisions of IFRS 13. CBRE has agreed to the use of their valuations for this purpose. Some of the inputs to the valuations are defined as “unobservable” by IFRS 13. As discussed in Note 2. (g) above, property valuations are inherently subjective as they are made on the basis of assumptions made by the valuer. For these reasons, and consistent with EPRA’s guidance, the Group has classified the valuations of its property portfolio as Level 3 as defined by IFRS 13. The methods that are applied for fair value measurements categorised within Level 3 of the fair value hierarchy is the yield methodology using market rental values capi- talised with a market capitalisation rate or yield or other applicable valuation technique. In addition, a reduction of €2.6m (31 March 2015: €1m) has been recognised in the valuation as the effect of the recognition policy on rental incentives. There were no transfers between levels during the financial year. Approximately €0.1m interest was capitalised in relation to the Windmill joint operation (31 March 2015: €nil). Reconciliation of the independent valuers’ valuation report amount to the carrying value of investment property in the consolidated statement of financial position: Valuation per Valuers’ certificate 50% Windmill joint arrangement Owner occupied (South Dock House at 30%) Adjustment for Forum carpark Income smoothing adjustment Investment property balance at financial year end 31 March 2016 31 March 2015 €'000 €'000 953,830 643,460 (20,875) (2,703) - (2,596) - - (1,200) (964) 927,656 641,296 FINANCIAL STATEMENTS        108 Notes forming part of the Annual Report (continued) 17. Investment properties (continued) Information about fair value measurements using unobservable inputs (Level 3). The valuation techniques used in determining the fair value for each of the categories of assets is market value as defined by VPS4 of the Red Book 2014, being the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, and is in accordance with IFRS 13. Included in the inputs for the valuations above are future development costs where applicable. The tables below show a summary of the quantitative inputs for the fair value determination as at 31 March 2016 and 31 March 2015 and sensitivity information for each category. Quantitative Information The following information has been used in calculating the fair value of investment properties at 31 March 2016 and 31 March 2015. Information on fair value inputs  Fair value at 31 March 2016 Office assets Industrial assets Residential assets Development assets Fair value at 31 March 2015 Office assets Industrial assets Residential assets Development assets Inputs Lowest in range Highest in range €m 646 Annual rent € per sq. ft. ERV € per sq ft Equivalent Yield 12 Annual rent € per sq. ft. ERV € per sq ft Equivalent Yield € 16.00 € 23.55 4.87% € 5.04 € 3.75 7.36% € 76.81 € 52.00 6.20% € 5.04 € 5.75 7.36% 115 Equivalent Yield 4.40% 4.60% 155 Equivalent Yield 5.25% 5.50% Inputs Lowest in range Highest in range €m 475 Annual rent € per sq. ft. ERV € per sq ft Equivalent Yield 10 Annual rent € per sq. ft. ERV € per sq ft Equivalent Yield € 14.45 € 22.50 5.00% € 4.22 € 2.75 7.63% € 45.50 € 48.00 6.13% € 5.12 € 5.20 7.63% 67 Equivalent Yield 4.50% 4.75% 89 Equivalent Yield 5.40% 6.50% HIBERNIA REIT PLCANNUAL REPORT 2016                                                                  109 17. Investment properties (continued) Sensitivity analysis Estimated rental values and market observed yields are key inputs into the valuation models used. For example, completed properties are valued mainly using a term and reversion model, i.e. the present values of future cash flows from expected rental receipts are calculated. For the existing rental contract or “term” this is the expected rents from tenants over the period to the next lease break option or expiry. After this period, the “reversion”, estimated rental values are used to calculate cash flows based on expectations from current market conditions. Thus a decrease in the estimated rental value will decrease the fair value. Similarly, an increase in the yield will decrease the fair value. There are interrelationships between these rates as they are determined by market rate conditions. Most of the Group’s properties are valued on this or a basis using similar assumptions. Across the entire portfolio of investment properties, a 1% increase in yield would have the impact of a €183m (31 March 2015: €139m) reduction in fair value whilst a 1% decrease in yield would result in a fair value increase of €272m (31 March 2015: €201m). This is further analysed by property class, as follows: Property class Office assets Development assets Residential assets Industrial assets Total Property class Office assets Development assets Residential assets Industrial assets Total 31 March 2016 Change in fair value +1% Yield Change in fair value -1% Yield €’000 €’000 (121,700) 179,392 (39,693) (20,350) (1,349) 57,661 32,919 1,750 (183,092) 271,722 31 March 2015 Change in fair value +1% Yield Change in fair value -1% Yield €’000 €’000 (88,200) (36,290) (13,660) (1,058) 128,783 52,820 18,400 1,370 (139,208) 201,373 FINANCIAL STATEMENTS110 Notes forming part of the Annual Report (continued) 18. Joint arrangement The Group enters into joint arrangements in order to manage its development risk exposures. During the financial year, the Group entered into its first joint operation as described below. Windmill Lane Partnership Nature of activity: Development of the Windmill Lane site Principal place of business: South Dock House, Hanover Quay, Dublin D02 XW94 Name Registered address/ Country of Incorporation Group relationship Directors Windmill Lane Development Company Limited South Dock House, Hanover Quay, Dublin D02 XW94, Ireland 50% held through Hibernia REIT Holding Company Limited Richard Ball, Kevin Nowlan, Sarah Broughton, Thomas Tolley Company Secretary Castlewood Corporate Services Limited Nature of business Property development During the financial year affiliates of Starwood Capital Group LP exercised their written call option to buy back into the development of the Windmill Lane site as a 50:50 joint arrangement partner at purchase price, leading to the formation of the Windmill Lane Partnership (“WLP”). Development work has commenced and WK Nowlan REIT Management Limited is acting as asset manager and development manager to WLP, and it is planned that Hibernia REIT plc will take over this role. The transaction, is recognised in the consolidated financial statements as a joint operation and as such the Group recognises its share of assets and liabilities held jointly as well as its share of revenues and expenses according to the IFRS applicable to the items being recognised. The Group is entitled to a proportionate share of the rental income received and bears a proportionate share of the joint operations costs. 19. Other financial assets Derivatives at fair value Loans carried at amortised cost Loans to other entities Balance at end of financial year - current 31 March 2016 31 March 2015 €'000 €'000 213 152 - 365 - 152 - 152 Derivatives at fair value are the Group’s hedging instruments on its borrowings. The Group has hedged up to €100m of its revolving credit facility by a combination of caps and swaptions to limit the EURIBOR interest rate element of interest payable to 1%. A similar arrangement is in place on the Windmill debt facility. Further details on the Group’s accounting policy on derivatives can be found in Note 4. (p) and on its borrowings in Note 25. The derivatives covering the revolving credit facility have a nominal value of 100m in total. The Windmill Lane cap has a maximum nominal value of €45m based on a schedule of estimated drawings or €6m at 31 March 2016. Loans and receivables at the financial year end consists of one loan on which the Group holds a property as collateral. The Directors consider that no impairment charge is necessary. HIBERNIA REIT PLCANNUAL REPORT 2016 20. Trade and other receivables Non-current Prepaid remuneration1 Property income receivables Balance at end of financial year – non current Current Investment property prepaid Due from sale of non-current assets classified as held for sale Prepaid remuneration 1 Receivable from loan redemptions Property income receivables Prepayments Tenant fit-out Income tax refund due VAT refundable Balance at end of financial year – current 111 31 March 2016 31 March 2015 €'000 €'000 7,124 4,542 11,666 326 5,955 4,444 137 2,807 1,253 2,861 427 670 18,880 - - - - 1,467 - 3,613 1,911 660 - - 1,395 9,046 Balance at end of financial year – total 30,546 9,046 1: This consists of the balance of the payment to service providers relating to the Internalisation transaction (Note 5) There are no amounts past due. The Directors consider that the carrying value of trade and other receivables approximates to their fair value. The amounts receivable from the sale of other non-current assets held for sale relate to monies due from the sale of a number of non-core properties acquired as part of the Dorville loan portfolio. In addition, approximately €2.9m is due from tenants for fit-out works and €4.4m which is included in property income receivables and receivable over two years relating to agreed payments under a lease surrender. The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments and tax refunds due. 21. Non-current assets classified as held for sale Balance at beginning of financial year Recognised during the financial year Acquisition costs Sold during the financial year Balance at end of financial year 31 March 2016 31 March 2015 €'000 €'000 18,499 - - (14,578) - 22,993 541 (5,035) 3,921 18,499 Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. The Directors have assessed the fair value of these assets by reviewing the sales prices achieved on similar assets and the expected sales price as determined by the selling agent in preparing their disposal plans. Assets sold to date have achieved at least their acquisition price on an individual basis and in total a profit of approximately €2.1m (31 March 2015: €2.7m) before tax and after costs has been achieved. The Directors have therefore concluded that the fair value of these assets is at least their carrying value. FINANCIAL STATEMENTS112 Notes forming part of the Annual Report (continued) 22. Issued capital and share premium Balance at beginning of financial year Shares issued during the financial year Share capital 31 March 2016 Share premium Total Share capital 31 March 2015 Share premium Total €'000 €'000 €'000 €'000 €'000 €'000 67,032 590,955 657,987 38,500 333,312 371,812 1,093 13,318 14,411 28,532 271,052 299,584 Costs associated with the issue - - -  - (13,409) (13,409) Balance at end of financial year 68,125 604,273 672,398 67,032 590,955 657,987 Shares issued during the financial year as follows: Business acquisition Settlement of performance fee due for 2015 financial year Prepaid remuneration Contract price € 1.17605 No of shares Price on issue date € 1.31800 1,174,625 998,788 1,316,402 4,580,443 3,894,769 5,133,305 7,103,659 6,040,269 7,961,075 Total shares issued (10 November 2015) 12,858,727 10,933,826 14,410,782 All of these shares were issued on 10 November 2015 and the associated costs were €11,000. Further details on the issue of these shares can be found in Note 5. Authorised share capital Authorised Allotted, called up and fully paid In issue at financial year end 2016 2015 No of shares '000 No of shares '000 1,000,000 1,000,000 681,251 670,317 681,251 670,317 All of these shares are of the same class and carry equal voting rights and rank equally for dividends. The company has no securities in issue conferring special rights with regard to the control of the company. Under the terms of the agreement under which the Group internalised the Investment Manager, the vendors are entitled to certain deferred contingent payments which are, for the most part, equivalent to the performance fees which would have been due under the Investment Management Agreement. These amounted to €5.9m at the financial year end (31 March 2015: €5.8m) and are all payable in shares (Note 23). A further 4.6m shares are expected to be issued in relation to these payments. HIBERNIA REIT PLCANNUAL REPORT 2016                23. Other reserves (net of income tax) Property revaluation Cash flow hedging Other reserves Balance at end of financial year a. Properties revaluation reserve Balance at beginning of financial year Increase arising on revaluation of properties Balance at end of financial year 113 31 March 2016 31 March 2015 €'000 €'000 323 (112) 5,925 - - 5,772 6,136 5,772 31 March 2016 31 March 2015 €'000 €'000 - 323 323 - - - In July 2015 the Group moved its headquarters to a section of South Dock House. At that date the Group de-recognised this portion (33%) of the asset as an investment property and recognised it in owner occupied property at fair value. Subsequent remeasurement to fair value is made through other comprehensive income or loss. On disposal, that portion of the properties revaluation reserve relating to the premises sold is transferred directly to retained earnings. No income tax arises on this item. b. Cash flow hedging reserve Balance at beginning of financial year (Loss) arising on fair value of hedging instruments entered into for cash flow hedges Balance at end of financial year 31 March 2016 31 March 2015 €'000 €'000 - (112) (112) - - - The cash flow hedge reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instru- ments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss consistent with the Group’s accounting policy. No income tax arises on this item. Cumulative gains or losses arising on changes in fair value of hedging instruments that have been tested as ineffective and reclassified from equity into profit or loss during the financial year are included in the following line items: Finance loss Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 17 - FINANCIAL STATEMENTS114 Notes forming part of the Annual Report (continued) 23. Other reserves (net of income tax) (continued) c. Other reserves Balance at beginning of financial year Performance related payments provided Settlement of prior year performance related payment Balance at end of financial year 31 March 2016 31 March 2015 €'000 €'000 5,772 5,925 (5,772) - 5,772 - 5,925 5,772 Other reserves comprise represented amounts reserved for the issue of shares in respect of performance related payments. These are discussed further in Note 5. During Internalisation of the Investment Manager, it was agreed that 3,894,659 shares would be issued at a price of €1.17605 or €4.6m. A transfer of €537,000 was made to provide for performance payments to non-vendor staff and a further €654,349 was provided against taxes that would have been payable in the Investment Manager prior to the dividend being paid to its shareholder. For further information on the internalisation transaction see Note 5. 24. Retained earnings and dividends on equity instruments Balance at beginning of financial year Profit for the financial year Share issuance costs Dividends paid Balance at end of financial year 31 March 2016 31 March 2015 €'000 €'000 89,375 136,797 (11) (8,121) (846) 92,232 - (2,011) 218,040 89,375 In August 2015, a dividend of 0.5 cent per share (total dividend €3.4m) was paid to the holders of fully paid ordinary shares. In January 2016 a dividend of 0.7 cent per share (total dividend €4.8m) was paid to the holders of fully paid ordinary shares. The Directors propose a final dividend of 0.8 cent per share to be paid to shareholders in August 2016. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these consolidated financial statements. The total estimated dividend to be paid is €5.5m. The Directors confirm that the Company complies with the dividend payment conditions contained in the Irish REIT legislation as described in the Director’s Report on page 53 to 54. HIBERNIA REIT PLCANNUAL REPORT 201625. Financial liabilities Balance at beginning of financial year Bank finance drawn during the financial year Arrangement fees and other costs Amortised interest Balance at end of financial year The maturity of borrowings is as follows: Less than 1 year Between 2 and 5 years Over 5 years Total 115 31 March 2016 31 March 2015 €'000 €'000 - 75,529 (3,718) 913 72,724 (119) 72,843 - 72,724 - - - - - - - - - In November 2015, the Group entered into a new €400m revolving credit facility (“RCF”) with Bank of Ireland, Barclays Bank Ireland PLC and Ulster Bank Ireland Limited, secured against a corporate level debenture. The new RCF, which has a five year term, replaces the existing €100m facility which was due to mature in August 2017.  First ranking security for the Revolving Credit Facility is given by way of floating charges granted by the Company and its subsidiary, Hibernia REIT Finance Limited, over all of the Group’s assets and also by way of a fixed charge granted by the Company over the shares in each of its subsidiaries as may from time to time exist. The amount presented in the financial statements is net of initial arrangement fees and associated costs. In December 2015 the Group entered into a €46.7m non-recourse debt facility with Deutsche Bank AG, London Branch secured on the Windmill Lane joint operation. The facility has a three year term, with an option to extend for a further year, and will be used to fund the development works at 1 Windmill Lane. In early 2016, at the request of the joint operation partners, the facility was downsized to €44.2m. The Group’s exposure to this facility is 50%. €4.2m was paid in arrangement fees and related costs for these two facilities during the financial year ended 31 March 2016. Interest and fees relating to the Windmill facility are capitalised into development costs. All costs related to financing arrangements are amortised into the effective interest rate. The Directors confirm that all covenants have been complied with and are kept under review. All borrowings are denominated in Euro. All borrowings are subject to 6 months or less interest rate changes and contractual re-pricing rates. In addition, the Group has entered into derivative instruments so that EURIBOR exposure is capped at 1% in accordance with the Group’s hedging policy (Note 19). FINANCIAL STATEMENTS 116 Notes forming part of the Annual Report (continued) 26. Trade and other payables Current Accrued investment property costs Fair value of derivatives Rent deposits and early payments Investment management fee payable -base Trade and other payables PAYE/PRSI payable Tax payable 31 March 2016 31 March 2015 €'000 €'000 9,130 - 5,551 - 4,323 103 216 687 5,100 1,920 1,625 2,153 36 689 Balance at end of financial year – current 19,323 12,210 Trade and other payables are interest free and have settlement dates within one year. Derivatives have been restated at fair value. The Directors consider that the carrying value of the remainder of trade and other payables approximates to their fair value. 27. IFRS and EPRA Net Asset Value per share IFRS net assets at end of financial year Ordinary shares in issue IFRS NAV per share (cent) Ordinary shares in issue Estimated additional shares for performance related payments Diluted number of shares Diluted IFRS NAV per share (cent) IFRS net assets at end of financial year Net mark to market on financial assets Revaluation of non-current assets classified as held for sale EPRA NAV EPRA NAV per share (cent) 31 March 2016 31 March 2015 €'000 €'000 896,574 753,134 681,251 670,317 131.6 112.4 681,251 670,317 4,550 4,664 685,801 674,981 130.7 111.6 31 March 2016 31 March 2015 €'000 €'000 896,574 753,134 129 457 - 1,445 897,160 754,579 130.8 111.8 The Company has established a reserve of €5.9m (31 March 2015: €5.8m) against the issue of 4.6m ordinary shares relating to shares due to issue for payments due to the vendors of the Investment Manager and employees as detailed in Note 5. The issue price will be 1.2899, calculated on the average closing price for twenty days prior to 31 March 2016. The closing price on 31 March 2016 was 1.302. HIBERNIA REIT PLCANNUAL REPORT 2016 28. Cash flow statement Purchase of investment property Property Purchases Development and Refurbishment Expenditure Change in deposits paid for investment property Change in prepayment for investment property Payable for investment property Change in accrued investment property costs Cash paid for investment property Business acquisition Cash paid in Internalisation transaction Of which is prepaid remuneration Cash paid for business acquisition Cash received in transaction Net cash movement in business acquisition 117 Financial year ended 31 March 2016 Financial year ended 31 March 2015 Note €'000 €'000 17 17 20 20 26 136,236 499,630 37,343 - 326 42,697 (8,443) 12,173 (11,010) - (42,697) (687) 208,159 457,409 Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 (8,278) 7,104 (1,174) 1,411 237 -  - - - - Internalisation was paid for in a combination of shares and cash as discussed in Note 5. 29. Financial instruments and risk management a. Financial risk management objectives and policy The Group has to take calculated risks in order to realise strategic goals and this exposes the Group to a variety of financial risks. These include, but are not limited to, market risk (including interest and price risk), liquidity risks and credit risk. These financial risks are managed in an overall risk framework by the Board, in particular by the CFO, and monitored and reported on by the Risk and Compliance Officer. The Group monitors market conditions with a view to minimising the volatility of the funding costs of the Group. The Group uses derivative financial instruments such as interest rate caps and swaptions to manage the financial risks associated with the underlying business activities of the Group. FINANCIAL STATEMENTS 118 Notes forming part of the Annual Report (continued) 29. Financial instruments and risk management (continued) b. Financial assets and financial liabilities The following table shows the Group’s financial assets and liabilities and the methods used to calculate fair value. Asset/ Liability Carrying value Level Method Assumptions Cash and cash equivalents Amortised cost 1 Cash value The fair value of cash and cash equivalents held at amortised cost have been calculated by discounting the expected cash flows at prevailing interest rates. Loan and receivables Amortised cost 3 Assessed in relation to collateral value Valuation of collateral is subjective based on agents guide sales prices and market observation of similar property sales were available Trade and other receivables Amortised cost 2 Cash value Financial liabilities Amortised cost 2 Discounted cash flow Derivative financial instruments Trade and other payables Fair value 2 Calculated price Amortised cost 2 Cash value Most of these are receivables in relation to the sale of properties, prepayments or income tax refunds and therefore there is no objective information of any loss and they are expected to be recoverable in the short term. No discounting is therefore applied The fair value of financial liabilities held at amortised cost have been calculated by discounting the expected cash flows at prevailing interest rates. The fair value of derivative financial instruments is calculated using pricing based on observable inputs from financial markets These are all accruals and will settle in the short term based on their cash value and therefore no discounting is applied The carrying value of non-interest-bearing financial assets and financial liabilities and cash and cash equivalents approximates their fair values, largely due to their short-term maturities. c. Fair value hierarchy Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly • Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value are not based on observable market data HIBERNIA REIT PLCANNUAL REPORT 2016119 29. Financial instruments and risk management (continued) The following tables present the classification of financial assets and liabilities within the fair value hierarchy and the changes in fair values measurements at Level 3 estimated for the purposes of making the above disclosure. Level 2016 Loans and receivables At fair value At amortised cost Carrying value Fair value 2 3 2 1 2 2 Level 2 3 2 3 2 2 Trade and other receivables Loans Derivatives at fair value Cash and cash equivalents Financial liabilities Trade and other payables Trade and other receivables Loans Cash and cash equivalents Derivative financial instruments Financial liabilities Trade and other payables Movements of level 3 fair values Balance at beginning of financial year Transfers into level 3 Transfers out of level 3 Purchases, sales, issues and settlement Purchases Sales Written call option1 Repayments Fair value movement Amortisation Balance at end of financial year €'000 €'000 €'000 €'000 €'000 30,546 152 - 23,187 - - - - 213 - - - 53,885 213 - - - - (72,724) (19,323) (92,047) 30,546 30,546 152 213 23,187 (72,724) (19,323) (37,949) 152 213 23,187 (72,724) (19,323) (37,949) At fair value At amortised cost Carrying value Fair value €'000 €'000 2015 Loans and receivables €'000 9,046 152 139,048 - - - - - - - (5,100) - - - - - - - - - (49,807) (49,807) 148,246 (5,100) €'000 9,046 152 €'000 9,046 152 139,048 139,048 - (5,100) - (49,807) 93,339 - (5,100) - (49,807) 93,339 31 March 2016 31 March 2015 €'000 €'000 631,248 68,563 - - (2,400) (22,993) 173,579 550,603 (9,875) 5,100 - 130,156 - - (5,100) (47,250) 85,768 1,657 927,808 631,248 1: Included in this balance is the written call option in 2015 related to the joint operation partner’s option to purchase 50% of the Windmill Lane site at cost This reconciliation includes investment property which is described further in Note 17 to these consolidated financial statements. FINANCIAL STATEMENTS                120 Notes forming part of the Annual Report (continued) 29. Financial instruments and risk management (continued) d. Risk management The Group has identified exposure to the following risks: (a) Market risk (b) Credit risk (c) Liquidity risk The policies for managing each of these and the principal effects of these policies on the results for the financial year are summarised below: (a) Market risk Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks. The Group has no financial assets or liabilities denominated in foreign currencies. The Group’s financial assets currently principally comprise mainly short term bank deposits and trade receivables. Financial liabilities comprise short term payables and bank borrowings. Therefore the primary market risk is interest rate risk. Bank borrowing interest rates are based on short term variable interest rates and the Group has hedged against increasing rates by entering into interest rate caps to restrict EURIBOR interest costs to 1%. Exposure to interest rates is limited to the exposure of its earnings from uninvested funds and borrowings. There were no uninvested funds from the Company’s capital raises at the financial year-end (31 March 2015: €139m). Borrowings were €75.6m (31 March 2015: €nil). While interest rates remain at historic lows, the hedging strategy means there is minimal impact on earnings of EURIBOR rate increases over 1%. The Group’s drawings under its facilities were based on a EURIBOR rate of 0% and therefore the impact of a rise in EURIBOR to 1% for a full year would be approximately €0.8m (31 March 2015: The impact of a 10% rate change with no hedging was estimated to be c. €40,000). (b) Credit risk Credit risk is the risk of loss of principal or loss of a financial reward stemming from a counterparty’s failure to repay a loan or otherwise meet a contractual obligation. Credit risk is therefore, for the Group and Company, the risk that the counterparties underlying its assets default. The Group’s main financial asset is cash and cash equivalents. Cash and cash equivalents are held with major Irish and European institutions. The Board has established a cash management policy for these funds which it monitors regularly. This policy includes ratings restrictions, BB or better, and related investment thresholds, €25-50m with individual institutions dependent on rating, to avoid concentration risks with any one counterparty. The Company has also engaged the services of a Depositary to ensure the security of the cash assets. Concentration of risk in receivables: Approximately €6.0m (31 March 2015: €5.1m) of the balance of trade and other receivables relates to funds due from the sale of properties. These amounts are therefore secured on the properties as title will not be released until the funds have been received on completion. In addition, approximately €2.9m is due from tenants for fit-out works and €4.4m for surrender premia. The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments and tax refunds due. The maximum amount of credit exposure is therefore: Financial assets Trade and other receivables Cash and cash equivalents Balance at end of financial year 31 March 2016 31 March 2015 €'000 €'000 365 30,546 23,187 152 9,046 139,048 54,098 148,246 HIBERNIA REIT PLCANNUAL REPORT 2016121 29. Financial instruments and risk management (continued) (c) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures that it has sufficient available funds to meet obligations as they fall due. Net current assets at the financial year end were: Net current assets at the financial year end 31 March 2016 31 March 2015 €'000 €'000 26,665 111,686 The following tables show total liabilities due as compared with funds available. No account is taken of trade and other receivables due, rent income due under operating leases, or other cash in-flows. Only trade payables relating to cash expenditure are included, the balances relate either to non-cash items or deferred income. Trade and other payables Financial liabilities Payable for investment property Total liabilities due Funds available: Cash and cash equivalents Revolving credit facility undrawn Total funds available Net funds available 31 March 2016 €'000 19,323 72,724 31 March 2015 €'000 5,190 - - 42,697 92,047 47,887 23,187 325,000 139,048 100,000 348,187 239,048 256,140 191,161 FINANCIAL STATEMENTS122 Notes forming part of the Annual Report (continued) 29. Financial instruments and risk management (continued) Listed below are the contractual maturities of the Group’s financial liabilities: Group At 31 March 2016 Carrying amount €’000 Contractual cash flows €’000 6 months or less €’000 6-12 months €’000 1-2 years €’000 2-5 years €’000 76,155 82,619 4,642 9,130 4,642 9,130 626 4,426 9,130 89,927 96,391 14,182 782 216 - 998 1,563 79,648 - - - - 1,563 79,648 Group At 31 March 2015 Carrying amount €’000 Contractual cash flows €’000 6 months or less €’000 - - 4,503 43,384 47,887 4,503 43,384 47,887 - 3,814 687 4,501 6-12 months €’000 - 689 42,697 43,386 1-2 years €’000 2-5 years €’000 - - - - - - - - Non derivatives Borrowings Trade payables Payable for investment property Total Non derivatives Borrowings Trade payables Payable for investment property Total e. Capital management The Group manages capital in order to ensure its continuance as a going concern. As the Group grows it is planned to finance up to 40% of the market value of the Group’s assets out of borrowings in order to enhance the return on equity for its shareholders. This percentage may increase to 50% under the REIT regime and so the Group may modify this leverage from time to time taking into account current prevailing economic and market conditions. Any alteration in this leverage ratio would be an amendment to the investment policy and therefore require a shareholder vote. This leverage ratio will be monitored in the regular financial reporting and prior to entering into any borrowing arrangements in order to ensure this policy is maintained. Capital comprises share capital, reserves and retained earnings as disclosed in the Consolidated and Company Statement of Changes in Equity. At 31 March 2016 the capital of the Company was €897m (31 March 2015: €753m). There are no external capital requirements on the Group currently. However, as the Company is now self-managed it is applying for authori- sation under the Alternative Investment Fund regulations. Once this approval is in place, it will be required to maintain 25% of its fixed overheads as capital. Under the Irish REIT regime, the Group must distribute at least 85% of its property income by way of a Property Income Distribution (“PID”). Therefore, capital available for business growth will not be augmented by dividend policy. To grow the business, the Group must therefore consider the need to seek further capital in the market given both the inability to grow reserves and the restriction on its borrowings as a source of increasing its portfolio size as discussed above. The Company’s share capital is publicly traded on the London and Irish Stock Exchanges. In order to ensure the proper management of the share register, the Group employs the services of a share registrar, Capita Registrars (Ireland) Limited t/a Capita Asset Services. The Directors review and approve the valuations as part of their review of the financial statements. The Group’s policy is to recognise transfers into and out of the fair value hierarchy levels as of the date of the event or change in circumstance that caused the transfer. HIBERNIA REIT PLCANNUAL REPORT 2016123 30. Operating leases receivables Future aggregate minimum rentals receivable (to the next break date) under non-cancellable operating leases are: Operating lease receivables due in: Less than one year Between two and five years Greater than five years 31 March 2016 31 March 2015 €'000 €'000 30,592 82,245 80,808 20,457 41,469 24,412 193,645 86,338 The Group leases its investment properties under operating leases. The weighted average unexpired lease term (‘WAULT’) at 31 March 2016, excluding residential properties and weighted on contracted rents, based on lease expiry date was 9.3 years or 5.6 years based on the next tenant break option date (31 March 2015: 7.8 years and 3.9 years). These calculations are based on all leases entered into at 31 March 2016, i.e. including pre-lets. 31. Investment in subsidiary undertakings The Company has the following interests in ordinary shares in the following subsidiary undertakings at 31 March 2016. These subsidiaries are fully owned and consolidated within the Group. Registered address / Country of incorporation Shareholding / Number of shares held Directors Name Dockland Central Limited (previously Lamourette Limited) Hibernia REIT Finance Limited Hibernia REIT Holding Company Limited Mayor House Basement Management Limited WK Nowlan REIT Management Limited South Dock House, Hanover Quay, Dublin D02 XW94, Ireland South Dock House, Hanover Quay, Dublin D02 XW94, Ireland South Dock House, Hanover Quay, Dublin D02 XW94, Ireland South Dock House, Hanover Quay, Dublin D02 XW94, Ireland South Dock House, Hanover Quay, Dublin D02 XW94, Ireland 100%/2 100%/10 100%/1 100%/2 100%/300,000 Nowlan Property Limited Wyckham Point (Block 3) Owners’ Management Company Limited by Guarantee South Dock House, Hanover Quay, Dublin D02 XW94, Ireland South Dock House, Hanover Quay, Dublin D02 XW94, Ireland 100%/100 N/A The Group has no interests in unconsolidated subsidiaries. Company Secretary Castlewood Corporate Services Limited Castlewood Corporate Services Limited Castlewood Corporate Services Limited Castlewood Corporate Services Limited Castlewood Corporate Services Limited Nature of business Property management Financing activities Holding property interests Property management Development and management of real estate Castlewood Corporate Services Limited Castlewood Corporate Services Limited Holding company Property management Richard Ball, Kevin Nowlan, Frank O'Neill Richard Ball, Kevin Nowlan, Frank O'Neill, Thomas Edwards-Moss Richard Ball, Kevin Nowlan, Frank O'Neill Richard Ball, Kevin Nowlan, Frank O'Neill Frank Kenny, Frank O’Neill, Kevin Nowlan, William Nowlan, Kevin Murphy, Richard Ball, Thomas Edwards-Moss Kevin Nowlan, William Nowlan, Frank O’Neill Richard Ball, Kevin Nowlan, Thomas Edwards-Moss, Frank O’Neill FINANCIAL STATEMENTS124 Notes forming part of the Annual Report (continued) 32. Related parties a. Subsidiaries All transactions between the Company and its subsidiaries are eliminated on consolidation. b. Internalisation of the Investment Manager The Group completed the Internalisation of its management team on 5 November 2015. Under the Irish and UK Listing Rules, the transaction was classified as a related party transaction (a ''Related Party Transaction'') by virtue of (i) the relationship between the Company and the Investment Manager; (ii) the relationship between the Company, the Investment Manager and William Nowlan (a Director of the Company, a director of the Investment Manager and the holder of 25 per cent. of the issued share capital of Nowlan Property Limited); and (iii) the fact that William Nowlan, Kevin Nowlan, Frank O'Neill and Frank Kenny may, for the purposes of this particular transaction, be regarded as being persons exercising significant influence over the Company by virtue of such persons constituting the majority of the directors of the Investment Manager, and each of William Nowlan, Kevin Nowlan, Frank O'Neill and Frank Kenny also being vendors in respect of the transaction. Consequently, the transaction required the approval of the Shareholders at an Extraordinary General Meeting, which was held on 27 October 2015. In addition to Shareholder approval, the transaction was also conditional upon, amongst other things, the conditions to completion set out in the Share Purchase Agreement having been satisfied (or, if capable of being waived, waived by the Company) and the relevant regulatory approvals from the Central Bank of Ireland having been obtained. Amounts paid and payable to related parties under this transaction were (at fair value and including shares and cash): NAV purchase of the Acquirees: Kevin Nowlan €2.9m, William Nowlan €1.4m, Frank Kenny €1.9m, Frank O’Neill €0.6m. Prepaid remuneration: Kevin Nowlan €5.6m, William Nowlan €2.8m, Frank Kenny € 3.8m, Frank O’Neill €1.1m. Performance related payments and top-ups due for 2016: Kevin Nowlan €2.0m, William Nowlan €1.0m, Frank Kenny €1.4m, Frank O’Neill €0.4m. Further details on this transaction may be found in Note 5 of these financial statements. c. Other related party transactions WK Nowlan Property Limited was an 80% owned subsidiary of Nowlan Property Limited until 5 August 2015 when it was transferred at its net asset value to a company owned and controlled by the Shareholders of Nowlan Property Limited. During the financial year WK Nowlan Property Limited was engaged on an arm’s length basis to carry out receivership, project management, agency and due diligence services across the Group’s loan and property portfolios. The fees earned by WK Nowlan Property Limited for these services were benchmarked on normal commercial terms and totalled €1.3m for the financial year to 31 March 2016 (31 March 2015: €0.7m). In addition, costs totalling €0.1m were also recharged to the Group by WK Nowlan Property Limited during the financial year (and included in this figure is €23k of costs relating to services provided by Kirsty Foynes, the wife of Kevin Nowlan. These services related to the preparation for sale, by the Receiver, of apartments held in the non-core Dorville portfolio).  An amount of €0.1m was owed to WK Nowlan Property Limited at the financial year end. In March 2016 the Group acquired Marine House and as a result became the landlord of WK Nowlan Property Limited who, in 2013, had agreed lease terms with the previous owner on normal commercial terms. The Group received rent of €6k from WK Nowlan Property Limited during the financial year. The Group also recharged to WK Nowlan Property Limited €5k of miscellaneous costs during the financial year to 31 March 2016.  No amounts were owed to the Group from WK Nowlan Property Limited at the financial year end. William Nowlan is Chairman of WK Nowlan Property Limited. William Nowlan and Frank O’Neill are both shareholders in WK Nowlan Property Limited along with Kevin Nowlan. As part of his consultancy agreement with the Company, William Nowlan is entitled to €50k in consulting fees for the financial year ended 31 March 2016. William Nowlan also receives a fee of €50k per annum in relation to his role as a non-executive director. As part of his consultancy agreement with the company, Frank Kenny is entitled to €200k in fees for the financial year ended 31 March 2016. €66k was paid to Frank Kenny during the year with the remainder outstanding at the financial year end. The Group acquired Dundrum View, an apartment block in Dundrum, Dublin 14 at a contracted price of €28.05m during the financial year. Frank Kenny held a 1.9% holding in this asset while other family members held a further 1.1%. Thomas Edwards-Moss rents an apartment from the Group at market rent and paid €17k in rent during the financial year. For further information on Directors’ emoluments please refer to the Directors’ Remuneration Report on pages 67 to 71 of this Annual Report. HIBERNIA REIT PLCANNUAL REPORT 2016125 32. Related parties (continued) d. Key management personnel In addition to the Executive and Non-Executive Directors, the following are the key management personnel of the Group: Richard Ball Mark Pollard Sean O’Dwyer Frank O’Neill Chief Investment Officer Director of Development Risk and Compliance Officer Chief Operations Officer The remuneration of the Non-Executive Directors during the financial year was as follows: Short term benefits Post-employment benefits Other long-term benefits Share-based payments Termination payments Total for the financial year Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 300 250 - - - - - - - - 300 250 The remuneration of the Executive Directors and the key management personnel during the financial year from the date of the Internalisation of the Investment Manager was as follows: Short term benefits Post-employment benefits Other long-term benefits Share-based payments Termination payments Total for the financial year Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 871 63 - 254 - 1,188 - - - - - - The remuneration of Directors and key management is determined by the remuneration committee having regard to the performance of individuals and market trends. 33. Events after the reporting period The Directors have proposed a final dividend of 0.8 cent per share or €5.5m that is subject to approval at the AGM to be held on 26 July 2016. Other than this, there were no significant events after the reporting date. FINANCIAL STATEMENTS        126 Company statement of financial position As at 31 March 2016 Assets Non-current assets Property, plant and equipment Investment property Investment in subsidiaries Loans to subsidiaries Other financial assets Trade and other receivables Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Non-current assets classified as held for sale Total current assets Total assets Equity and liabilities Capital and reserves Issued capital and share premium Other reserves Retained earnings Total equity Non-current liabilities Financial liabilities Trade and other payables Total non-current liabilities Current liabilities Financial liabilities Trade and other payables Payable due for investment property Total current liabilities Total equity and liabilities 31 March 2016 31 March 2015 Notes €'000 €'000 c d e f g h h i j k l m n m n 2,946 - 906,781 641,296 6,930 15,298 203 11,662 - 3,984 - - 943,820 645,280 17,754 21,183 38,937 3,921 42,858 5,428 138,652 144,080 18,499 162,579 986,678 807,859 672,398 657,987 6,136 211,857 890,391 5,772 89,249 753,008 72,145 5,772 77,917 - 18,370 - 18,370 - - - - 12,154 42,697 54,851 986,678 807,859 The notes on pages 129 to 136 form an integral part of these Company financial statements. The company financial statements on pages 126 to 136 were approved and authorised for issue by the Board of Directors on 2 June 2016 and signed on its behalf by: Mr Kevin Nowlan Chief Executive Officer Mr Thomas Edwards-Moss Chief Financial Officer HIBERNIA REIT PLCANNUAL REPORT 2016 Company statement of changes in equity For the financial year ended 31 March 2016 127 Financial year ended 31 March 2016 Share capital Share premium Retained earnings Other reserves Total €'000 €'000 €'000 €'000 €'000 Balance at beginning of financial year 67,032 590,955 89,249 5,772 753,008 Total comprehensive income for the financial year Profit for the financial year Total other comprehensive income Transactions with owners of the Company, recognised directly in equity Dividends Issue of ordinary shares for cash Share issue costs Share based payments - - - - 130,740 - 130,740 - 211 5,983 211 883,959 67,032 590,955 219,989 - - - - - - 1,093 13,318 (8,121) - (11) - - - - (8,121) - (11) 153 14,564 Balance at end of financial year 68,125 604,273 211,857 6,136 890,391 Financial year ended to 31 March 2015 Share capital Share premium Retained earnings Other reserves Total €'000 €'000 €'000 €'000 €'000 Balance at beginning of financial year 38,500 333,312 (962) Total comprehensive income for the financial year Profit for the financial year Total other comprehensive income Transactions with owners of the Company, recognised directly in equity Dividends Issue of ordinary shares for cash Share issue costs Share based payments - - - - 92,222 - 38,500 333,312 91,260 - 28,532 - - - (2,011) 271,052 (13,409) - - - - - - - - - - - 5,772 370,850 92,222 - 463,072 (2,011) 299,584 (13,409) 5,772 Balance at end of financial year 67,032 590,955 89,249 5,772 753,008 The notes on pages 129 to 136 form an integral part of these Company financial statements. FINANCIAL STATEMENTS 128 Company statement of cash flows For the financial year ended 31 March 2016 Cash flows from operating activities Profit for the financial year Adjusted non cash movements: Revaluation of investment properties Other gains and losses Performance related payments Prepaid remuneration Rental income (payable)/paid in advance Depreciation Finance (income)/expense Income tax Operating cash flow before movements in working capital (Increase) in trade and other receivables Increase in trade and other payables Net cash flow from operating activities Cash flows from investing activities Purchase of fixed assets Cash paid for investment property Sale of investment property Purchase of non-current assets classified as held for sale Proceeds from the sale of non-current assets classified as held for sale (Increase)/decrease in loans to subsidiaries Business acquisition Prepaid remuneration Income tax paid Finance income and expense Net cash flow absorbed by investing activities Cash flow from financing activities Dividends paid Borrowings drawn Arrangement fee paid re bank facility Derivatives premium Proceeds from the issue of ordinary share capital  Share issue costs Net cash inflow from financing activities Net (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of financial year (Decrease) in cash and cash equivalents Net cash and cash equivalents at end of financial year The notes on pages 129 to 136 form an integral part of these Company financial statements. Notes Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 130,740 92,222 (118,948) (80,809) o o (2,530) 5,925 4,191 (1,807) 65 2,945 (514) 20,067 (2,149) 206 (7,691) 5,772 - 9 - 1,575 691 11,769 (1,056) 3,355 18,124 14,068 (46) - (203,158) (496,034) 14,752 - - (23,534) 12,226 (11,314) (1,174) (7,104) (349) (2,261) 6,297 63,933 - - - (1,421) (198,428) (450,759) (8,121) 75,000 (3,718) (315) (2,011) - (500) - - (11) 299,584 (13,409) 62,835 283,664 (117,469) (153,027) 138,652 291,679 (117,469) (153,027) 21,183 138,652 HIBERNIA REIT PLCANNUAL REPORT 2016    Notes to the company financial statements 129 a. Accounting policies and critical accounting estimates and judgements The Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and with those parts of the Company’s Act 2014 applicable to companies reporting under IFRS. The financial statements reflect the financial position of the Company only and do not consolidate the results of any subsidiaries. The financial statements have been prepared under the historical cost convention, as modified to include the fair valuation of investment properties, certain financial instruments and land and buildings. The significant accounting policies of the parent company are the same as those of the Group which are set out in Note 4 to the consolidated financial statements on pages 90 to 96 of the Group’s Annual Report. The Company’s investments in its subsidiaries that are not classified as held for sale are stated at cost less any impairment. If the investment is classified as held for sale, the Company accounts for it at the lower of its carrying value and fair value less estimated costs to sell. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the financial year. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. A description of the key estimates and significant judgements is set out in Note 2 (f) to the consolidated financial statements on page 86 to 87 of the Group’s Annual Report. Impairment review of shares in Group undertakings The Company reviews its shares in Group undertakings for impairment at each reporting date. Impairment testing involves the comparison of the carrying value of the investment with its recoverable amount. The recoverable amount is the higher of the investment’s fair value or its value in use. Value in use is the present value of expected future cash flows from the investment. 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. Impairment testing inherently involves a number of judgemental areas: the preparation of cash flow forecasts for years that are beyond the normal requirements of management reporting; the assessment of the discount rate appropriate to the business; estimation of the fair value of the investment; and the valuation of the separable assets comprising the overall investment in the Group undertaking. The use of reasonably possible alternative assumptions would not materially impact the carrying value of the Company’s shares in Group undertakings. b. Operating profit Operating profit for the financial year is stated after charging: Non-Executive Directors' fees Professional valuers' fees Prepaid remuneration expense Depositary fees Registrar fees Pre-internalisation Investment Manager Costs Depreciation “Top-up ”internalisation expenses for financial year Other administration expenses Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 300 388 1,802 310 40 1,240 65 304 3,954 250 218 - 218 28 - - - 846 8,403 1,560 FINANCIAL STATEMENTS130 Notes to the company financial statements (continued) b. Operating profit (continued) Auditors’ remuneration For further information on Auditors‘ remuneration, please refer to Note 9 of the consolidated financial statements. Employment For further information on employment, please refer to Note 10 of the consolidated financial statements. c. Property, plant and equipment For further information on property, plant and equipment please refer to Note 16 of the consolidated financial statements. d. Investment properties Office and residential Level 3 Group €'000 Development Industrial Total Level 3 Group €'000 Level 3 Group €'000 Level 3 Group €'000 Carrying value at start of financial year 542,377 88,600 10,319 641,296 Additions: Property purchases Development and refurbishment expenditure1 Revaluations included in income statement Disposals: 136,236 17,272 66,757 - 19,960 45,374 - 136,236 111 1,968 37,343 114,099 Transferred to property, plant and equipment as owner occupied Property sale Carrying value at end of financial year (2,400) - - (19,793) - - (2,400) (19,793) 760,242 134,141 12,398 906,781 1 The Group received €1.5m in relation to a dilapidation costs payment due to a tenant surrender of their lease on Guild House. This has been applied to the development and refurbishment costs on this property and therefore reduces the cost of this property. Office and residential Level 3 €'000 31 March 2015 Development Industrial Total Level 3 €'000 Level 3 €'000 - - - Level 3 €'000 - Carrying value at start of financial year Additions: Property purchases Investment properties recognised on de-recognition of loans Development and refurbishment expenditure Revaluations included in income statement Carrying value at end of financial year 412,714 76,578 10,338 499,630 48,684 11,678 69,301 542,377 - 510 11,512 88,600 - (15) (4) 48,684 12,173 80,809 10,319 641,296 Note 17 to the Group Financial Statements contains further information in relation to the Company’s investment property. All Group investment properties are held directly by the Company save the Windmill Lane development property which is held in a joint operation through the Company’ s subsidiary, Hibernia REIT Holding Company Limited. HIBERNIA REIT PLCANNUAL REPORT 2016131 e. Investment in subsidiary For further information on the subsidiary acquired during the financial year, please refer to Note 5 of the consolidated financial statements. f. Loans to subsidiary Balance at beginning of financial year Loan advances Loan repayments Interest income at effective interest rate Balance at end of financial year 31 March 2016 31 March 2015 €'000 €'000 3,984 17,172 (6,982) 1,124 68,416 93,107 (161,711) 4,172 15,298 3,984 The majority of the above balance, €15.3m is due from Hibernia REIT Holding Company Limited in relation to short term funding supplied for the Windmill Lane development project. These loans are all at book value which the Directors consider approximates fair value due to their short term nature. g. Other financial assets Derivatives at fair value 31 March 2016 31 March 2015 €'000 €'000 203 - Other financial assets consist of the fair value of the Company’s hedging instruments. Note 19 of the Group financial statements contains further information on these instruments. h. Trade and other receivables Non-current Prepaid remuneration Deferred income Balance at end of financial year – non current Current Due from sale of non-current assets classified as held for sale Prepaid remuneration Arrangement fee Property income receivables Due from tenants re fitouts Prepayments Income tax refund due VAT refundable Balance at end of financial year – current 31 March 2016 31 March 2015 €'000 €'000 7,123 4,539 11,662 5,955 4,444 - 2,806 2,861 779 349 560 17,754 - - - 1,467 - - 1,911 - 655 - 1,395 5,428 Balance at end financial year – total 29,416 5,428 There are no amounts past due. The Directors consider that the carrying value of trade and other receivables approximates to their fair value. The amounts receivable from the sale of non-current assets classified as held for sale relate to monies due from the sale of a number of properties which were contracted at the financial year end. Apart from this amount, there is no concentration of credit risk with respect to trade receivables as the balance relates mainly to either prepayments or refunds due on taxes. FINANCIAL STATEMENTS132 Notes to the company financial statements (continued) i. Non-current assets classified as held for sale For further information on non-current assets classified as held for sale refer to Note 21 of the consolidated financial statements. j. Issued share capital and share premium For information on issued share capital refer to Note 22 of the consolidated financial statements k. Other reserves For further information on other reserves refer to Note 23 of the consolidated financial statements. l. Retained earnings Balance at beginning of financial year Profit for the financial year Share issuance costs Dividends paid Balance at end of financial year For further information on retained earnings refer to Note 24 of the consolidated financial statements. m. Financial liabilities Balance at beginning of financial year Bank finance drawn during the financial year Arrangement fees and other costs Amortised interest Balance at end of financial year The maturity of non-current borrowings is as follows: Less than one year Between 2 and 5 years Over 5 years Total For further information on financial liabilities refer to Note 25 of the consolidated financial statements. 31 March 2016 31 March 2015 €'000 €'000 89,249 130,740 (11) (8,121) (962) 92,222 - (2,011) 211,857 89,249 31 March 2016 31 March 2015 €'000 €'000 - 75,000 (3,718) 863 72,145 (169) 72,314 - 72,145 - - - - - - - - - HIBERNIA REIT PLCANNUAL REPORT 2016 n. Trade and other payables Non-current Payable to subsidiary Balance at end of financial year – non current Current Accrued investment property costs Fair value of derivatives Rent deposits and early payments Investment management fee payable -base Trade and other payables PAYE/PRSI payable Tax payable Balance at end of year - current Balance at end financial year - total For further information on trade and other payables refer to Note 26 of the consolidated financial statements. o. Cash flow statement Purchase of investment property Property purchases Development and refurbishment expenditure Change in deposits paid for investment property Payable for investment property Change in accrued investment property costs Cash paid for investment property Business acquisition Cash paid in internalisation transaction Of which is prepaid remuneration Cash paid for business acquisition 133 31 March 2016 €'000 31 March 2015 €'000 5,772 5,772 8,621 - 5,551 - 3,930 92 176 - - 687 5,100 1,920 1,625 2,097 36 689 18,370 12,154 24,142 12,154 Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 136,236 32,159 - 42,697 (7,934) 538,255 12,173 (11,010) (42,697) (687) 203,158 496,034 Financial year ended 31 March 2016 Financial year ended 31 March 2015 €'000 €'000 (8,278) 7,104 (1,174) -  - - Internalisation was paid for in a combination of shares and cash as discussed in Note 5 to the consolidated financial statements. FINANCIAL STATEMENTS134 Notes to the company financial statements (continued) p. Financial instruments and risk management The Company has identified exposure to the following risks: • Market risk • Credit Risk • Liquidity risk The substantial majority of these risks for the Group are held by the Company and managed at the Group level. Therefore, the policies for managing each of these and the principal effects of these policies on the results for the financial year are summarised in Note 29 of the Annual Report. The following tables measure the risks discussed on a Company only basis for the purpose of these discussions. The following tables present the classification of financial assets and liabilities within the fair value hierarchy and the changes in fair values measurements at Level 3 estimated for the Company only for the purposes of making the disclosures in Note 29 of the Annual Report. Assets held at level 3 include investment properties in addition to the loans and receivables. Trade and other receivables Loans Derivatives at fair value Cash and cash equivalents Financial liabilities Trade and other payables Trade and other receivables Loans Cash and cash equivalents Derivative financial instruments Financial liabilities Trade and other payables 2016 Loans and receivables Level At fair value At amortised cost Carrying value €'000 €'000 €'000 €'000 2 3 2 1 2 2 29,416 15,298 - - - 203 21,183 - - 65,897 2015 - - - 203 - - - - (72,145) (18,370) (90,515) 29,416 15,298 203 21,183 (72,145) (18,370) (24,415) Level Loans and receivables At fair value At amortised cost Carrying value €’000 5,428 3,984 138,652 - - - 2 3 2 3 2 2 €’000 €’000 - - - (5,100) - - - - - - - (49,751) (49,751) €’000 5,428 3,984 138,652 138,652 (5,100) (5,100) - (49,751) 93,213 - (49,751) 93,213 148,064 (5,100) Fair value €'000 29,416 15,298 203 21,183 (72,145) (18,370) (24,415) Fair value €’000 5,428 3,984 HIBERNIA REIT PLCANNUAL REPORT 2016                p. Financial instruments and risk management (continued) Fair value movements at level 3 Balance at beginning of financial year Transfers into level 3 Transfers out of level 3 Purchases, sales, issues and settlement Purchases Sales Written call option Advances Repayments Fair value movement Amortisation Balance at end of financial year 135 31 March 2016 €'000 31 March 2015 €'000 635,080 68,416 - - (2,400) (22,993) 168,395 (19,459) 5,100 17,172 (6,982) 124,048 1,124 643,710 - (5,100) - (138,719) 85,768 3,998 922,078 635,080 The Company has, in addition to the short term bank deposits and trade payables and receivables, loans to subsidiary financial assets, the risks of which correspond to the risks of the investment property portfolio discussed for the Group. Maximum credit risk exposure Financial assets Trade and other receivables Cash and cash equivalents Balance at end of financial year Liquidity risk Net current assets at the financial year-end Trade and other payables Financial liabilities Payable for investment property Total liabilities due Funds available: Cash and cash equivalents Revolving credit facility undrawn Total funds available Net funds available 31 March 2016 €'000 203 29,416 21,183 31 March 2015 €'000 - 5,428 138,652 50,802 144,080 31 March 2016 €'000 31 March 2015 €'000 24,488 107,728 31 March 2016 €'000 24,142 72,145 31 March 2015 €'000 54,851 - - 42,697 96,287 97,548 21,183 325,000 138,652 100,000 346,183 238,652 249,896 141,104 FINANCIAL STATEMENTS136 Notes to the company financial statements (continued) p. Financial instruments and risk management (continued) Listed below are the contractual maturities of the Company’s financial liabilities At 31 March 2016 Non derivatives Borrowings Trade payables Payable for investment property Total At 31 March 2015 Non derivatives Borrowings Trade payables Payable for investment property Total q. Dividends Carrying amount €’000 Contractual cash flows €’000 6 months or less €’000 6-12 months €’000 1-2 years €’000 2-5 years €’000 75,576 82,021 4,198 8,621 4,198 8,621 576 4,022 8,621 88,395 94,840 13,219 782 176 - 958 1,563 79,100 - - - - 1,563 79,100 - - 2,878 43,384 46,262 2,878 43,384 46,262 - 2,189 687 2,876 - 689 42,697 43,386 - - - - - - - - For information on the dividends refer to Note 14 of the consolidated financial statements r. Investment in subsidiary undertakings For information on the Company’s holdings in subsidiaries refer to Note 31 of the consolidated financial statements. s. Related parties Transaction with related parties are substantially the same as those disclosed in Note 32 of the consolidated financial statements. The only amount not relating to the Company is an amount of €0.2m of the fees earned by WK Nowlan Property Limited which was earned from the Company’s subsidiary, Hibernia REIT Finance Limited. t. Income statement of the parent company The parent company of the Group is Hibernia REIT plc. In accordance with Section 304 (2) of the Companies Act, 2014, the parent company is availing of the exemption of presenting its individual Income Statement to the Annual General Meeting and from filing it with the Registrar of Companies. The parent company’s profit after tax for the financial year ended 31 March 2016 determined in accordance with IFRS is €130.7m (31 March 2015: €92.2m). u. Events after the reporting date For information on events after the reporting date refer to Note 33 of the Consolidated Financial Statements. HIBERNIA REIT PLCANNUAL REPORT 2016Supplementary disclosures (unaudited) 137 European Public Real Estate Association (EPRA) performance measures EPRA performance measures are calculated according to the EPRA Best Practices Recommendations December 2014. EPRA performance measures are used in order to enhance transparency and comparability with other public real estate investment companies in Europe. EPRA has consulted with investors and preparers of information in order to compile its recommendations. Using these measures ensures that the Group’s investors can compare the Group’s performance on a like for like basis with other similar companies. EPRA measures are discussed in the Strategic Report on pages 3 to 48. Further detail on these measures is set out below, including their calculation and reconciliation to the financial statements where applicable. Table 1: Summary of EPRA performance measures Financial year ended 31 March 2016  Financial year ended 31 March 2015 € '000 cent per share € '000 cent per share EPRA Earnings EPRA NAV EPRA NNNAV EPRA NIY EPRA "topped-up" NIY EPRA vacancy rate EPRA cost ratio including vacancy costs EPRA cost ratio excluding vacancy costs - basic - diluted 10,024 10,024 1.5 1.5 3,961 3,961 897,160 896,917 130.8 130.8 754,579 754,218  3.8% 4.2% 4.8% 49.4% 45.1% 0.8 0.8 111.8 111.7 4.4% 4.9% 3.0% 74.6% 73.7% FINANCIAL STATEMENTS                                                                                                              138 Supplementary disclosures (unaudited) (continued) Calculation and explanation of EPRA performance measures (i) EPRA Earnings EPRA Earnings are presented as they are important for investors who want to assess the extent to which dividends are supported by recurring income. They indicate the extent to which current dividend payments are supported by earnings. IFRS Profit for the financial year after taxation Exclude: Changes in fair value of investment properties Profits or losses on the disposal of investment properties, development properties held for investment and other interests Profit or loss on disposals of non-core assets Loan income from asset disposals (net) Income tax on profit or loss on disposals Fair value of derivatives Impact of internalisation Weighted average number of shares Basic Potential shares to be issued re contingent payments Diluted number of shares EPRA Earnings per share (cent) Diluted EPRA Earnings per share (cent) Financial year ended 31 March 2016 Financial year ended 31 March 2015 € '000 € '000 136,797 92,232 (125,056) (90,868) (176) - (2,136) - (475) 17 1,053 (2,732) (454) 683 5,100 - 10,024 3,961 675,784 500,690 4,550 4,664 680,334 505,354 1.5 1.5 0.8 0.8 Impact of Internalisation: Internalisation was accomplished through the acquisition of the Investment Manager. This acquisition is discussed in detail in Note 5 to the Consolidated Financial Statements. For the purposes of EPRA Earnings, costs relating to this acquisition are deducted. HIBERNIA REIT PLCANNUAL REPORT 2016                                           139 In order to show the impact of items relating to the original external management structure and the subsequent Internalisation which will, to a large extent, cease to be a cost after November 2018, EPRA Earnings are shown below amended for these Internalisation related items: EPRA Earnings as calculated above Amounts charged re internalisation Prepaid remuneration amortised Performance related charges Financial year ended 31 March 2016 Financial year ended 31 March 2015 10,024 3,961 2,557 1,802 6,069 - - 5,772 Underlying earnings excluding effects of management charges 20,452 9,733 Weighted average number of shares Adjusted earnings per share (cent) (ii) EPRA NAV and EPRA NNNAV NAV per the financial statements Revaluation of other non-current assets held for sale Fair value of financial instruments EPRA NAV Deferred tax on the revaluation of other non-current assets held for sale Fair value of financial instruments EPRA NNNAV 675,784 500,690 3.0 1.9 Financial year ended 31 March 2016 Financial year ended 31 March 2015 € '000 cent per share € '000 cent per share 896,574 457 129 753,134 1,445 - 897,160 130.8 754,579 111.8 (114) (129) (361) - 896,917 130.8 754,218 111.7 Ordinary shares in issue Estimated additional shares due for issue from performance reserve Ordinary shares in issue including performance shares to be issued – "diluted" 681,251 4,550 685,802 670,317 4,664 674,981 The objective of these measures is to highlight the fair value of net assets on an on-going, long-term basis. Therefore assets which are not expected to crystallise in normal circumstances are excluded while trading properties are adjusted to their fair value. The Group presents its investment properties in its financial statements at fair value as allowed under IAS 40 and has no items not expected to crystallise in a long term investment property business model. EPRA NAV as calculated includes an adjustment for the revaluation of other non-current assets held for sale. Under the provisions of IFRS 5 these are held at the lower of cost or net realisable value. In order to make this adjustment the Directors have estimated the fair value based on expected sales value derived from sale of similar properties in the recent past and agents guide prices. As profits on these assets may be subject to tax, a deferred tax adjustment is made. The fair value of derivative instruments is excluded from NAV on the basis that these are hedging instruments and intended to be held to maturity. FINANCIAL STATEMENTS                                                                                                              140 Supplementary disclosures (unaudited) (continued) (iii) EPRA Net Initial Yield (EPRA NIY) and EPRA topped-up Net Initial Yield (EPRA topped-up NIY) EPRA NIY: This measures the inherent yield of the portfolio according to set guidelines to allow investors to compare real estate investment companies across Europe on a consistent basis, using current cash passing rent. The EPRA topped-up NIY measures yield based on rents adjusted for the expiration of lease incentives, i.e. on a contracted rent free year. The EPRA vacancy rate measures the value of vacant space expressed as a percentage of the total ERV. As at 31 March 2016 Office Residential Industrial Total Development €'000 €'000 €'000 €'000 €’000  Total  €’000 Investment property at fair value 645,671 114,571 12,400 772,642 155,014 927,656 Less: Development/refurbishment1 (31,840) - - (31,840) (155,014) (186,854) Completed property portfolio Allowance for purchasers costs 613,831 114,571 12,400 740,802 - 740,802 27,377 5,110 553 33,040 Gross up completed property portfolio 641,208 119,681 12,953 773,842 Annualised cash passing rental income2 Property outgoings 24,078 (645) 6,430 (1,226) 524 (97) 31,032 (1,968) Annualised net rents 23,433 5,204 427 29,064 Expiration of lease incentives and fixed uplifts 3,225 - - 3,225 "Topped-up" annualised net rent 26,658 5,204 427 32,289 EPRA NIY EPRA "topped-up" NIY 3.7% 4.2% 4.3% 4.3% 3.3% 3.3% 3.8% 4.2% 1 Once Dockland Central is included at 41% of floor space representing area being refurbished (31 March 2015: 77%) 2 Cash passing rent includes residential rents gross as property outgoings are included in the line below. Contracted rents are for in place only and therefore pre-lets or leases that commenced post financial year end are not included. HIBERNIA REIT PLCANNUAL REPORT 2016                                                                                    141 As at 31 March 2015 Investment property at fair value 475,877 66,500 10,319 552,696 88,600 641,296 Office Residential Industrial Total Development €'000 €'000 €'000 €'000 €’000  Total  €’000  Less: Development/refurbishment1 (39,978) (66,500) - (106,478) (88,600) (195,078) Completed property portfolio Allowance for purchasers costs 435,899 18,592 Gross up completed property portfolio 454,491 Annualised cash passing rental income Property outgoings Annualised net rents 20,000 (46) 19,954 Expiration of lease incentives and fixed uplifts 2,214 "Topped-up" annualised net rent EPRA NIY EPRA "topped-up" NIY (iv) EPRA costs 22,168 4.4% 4.9% - - - - - - - - 10,319 446,218 - 446,218 460 19,052 10,779 465,270 524 (121) 20,524 (167) 403 20,357 - 2,214 403 22,571 n/a n/a 3.7% 3.7% 4.4% 4.9% EPRA costs are calculated below. A table excluding internalisation related costs is also provided. However, some increase in remuneration costs to provide for variable remuneration for employees is anticipated post expiration of the current arrangements and therefore the amended costs ratios are only provided to show indicative impacts on ratios post November 2018. Total operating expenses under IFRS Direct property costs Costs recognised re internalisation EPRA costs including vacancy costs Direct vacancy costs EPRA costs excluding vacancy costs Gross rental income EPRA cost ratio including vacancy costs EPRA cost ratio excluding vacancy costs Financial year ended 31 March 2016 € '000 14,765 2,497 (1,053) Financial year ended 31 March 2015 € '000 12,046 725 - 16,209 12,771 1,429 167 14,780 12,604 32,786 17,112 49.4% 45.1% 74.6% 73.7% FINANCIAL STATEMENTS                                                                                                                    142 Supplementary disclosures (unaudited) (continued) Costs adjusted for internalisation EPRA costs including vacancy costs Prepaid remuneration amortised Performance related charges Adjusted costs (excluding internalisation effects) Direct vacancy costs Adjusted costs excluding direct vacancy costs Gross rental income Adjusted cost ratio Adjusted cost ratio excluding vacancy costs (v) EPRA vacancy rate Financial year ended 31 March 2016 Financial year ended 31 March 2015 € '000 € '000 16,209 12,771 (1,802) (6,069) - - 8,338 12,771 1,429 167 6,909 12,604 32,786 17,112 25.4% 21.1% 74.6% 73.7% This provides comparable and consistent vacancy data for investors based on the independent valuers’ assessment of ERV. The EPRA vacancy rate measures the value of vacant space expressed as a percentage of the total ERV. Annualised ERV vacant units1 Annualised ERV completed portfolio EPRA vacancy rate 1The part of One Dockland Central undergoing refurbishment is excluded from vacant and from completed Financial year ended 31 March 2016 Financial year ended 31 March 2015 € '000 € '000 2,092 43,815 751 25,326 4.8% 3.0% HIBERNIA REIT PLCANNUAL REPORT 2016                                                                        143 (vi) Analysis of lease expiration profile (a) Rent subject to lease break or expiry - passing rent at 31 March 2016 For period 31 March 2017 2018 2019-2021 Office Residential Industrial Total Percentage of passing rent Potential uplift at current ERV (b) Rent subject to open market review - passing rent at 31 March 2016 For period 31 March Office Residential Industrial Percentage of contracted rent Potential uplift at current ERV (vii) Like for like analysis €'m 8.3 6.4 - €'m 0.4 - 0.1 14.7 0.5 €'m 6.3 - 0.4 6.7 47.4% 1.0 1.6% 0.0 21.7% 1.3 2017 €'m 9.6 6.4 - 2018 2019-2021 €'m 1.8 - 0.4 €'m 12.7 - 0.1 16.0 2.2 12.8 51.6% 1.3 7.1% 0.3 41.2% 3.5 All properties have been purchased during the two year period ended 31 March 2016 therefore like for like reporting is not relevant for this period. Other disclosures Disclosures required under the Alternative Investment Fund Managers Directive (“AIFMD”) for Annual Reports of Alternative Investment Funds (“AIF”s) Material changes and periodic risk management disclosures All disclosure requirements to be made to investors prior to their investing in the Company are made on the Company’s website, www. hiberniareit.com. Financial information disclosures €0.2m has been included in other gains and losses (31 March 2015: €nil) relating to the sale of investment properties. Included within the unrealised gains disclosed under IFRS there is a total of €2.2m in unrealised losses. Remuneration disclosures Hibernia REIT plc has adopted a remuneration policy with the objective of aligning the interests of employees of the Group with the creation of long term value for the shareholders of Hibernia REIT plc. The remuneration paid takes account of the remuneration paid in similar organisations, the regulatory and governance framework and the current economic climate. Further details on the remuneration policy are in the Remuneration Report on pages 67 to 71 of the Annual Report. Performance related remuneration takes account of individual performance and the financial performance of Hibernia REIT plc. FINANCIAL STATEMENTS144 Supplementary disclosures (unaudited) (continued) Hibernia REIT plc assumed the remuneration expenses for all staff of the Investment Manager as part of the agreement on internalisation. The total remuneration paid to these staff in the financial year, all of whom are engaged in managing the Group activities, was €2,574,847 of which €1,670,048 comprised fixed remuneration and €904,799 comprised variable remuneration. The average number of staff employed during the financial year was 13. Occupiers representing over 0.5% of rent Tenant name Office of Public Works Twitter BNY Mellon Bank of Ireland DEPFA Bank plc HubSpot Ireland Limited Riot Games Limited AWAS Deloitte 1 Capita Life & Pension Services Ireland Limited O.D.S. Company Daqri International Limited Invesco Global Asset Management Limited JMC Van Trans Limited Park Rite Renaissance Services of Europe Limited Pay & Shop Ltd T/a Realex Payments Merrion Capital Holdings Limited Iconic Offices Crowe Horwath Bastow Charleton Cons. Limited Axa Global Distributors (Ireland) Limited Bearingpoint Ireland Limited Quinn McDonnell Pattison Limited ENI Insurance Limited Morgan Stanley Fund Services (Ireland) Limited Wella (UK) Limited Prudential Int. Services Limited Ellucian Ireland Limited 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 €'m 5.5 5.3 3.0 2.8 2.0 1.3 1.2 1.2 1.0 0.7 0.6 0.6 0.6 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 % 13.7 13.3 7.5 7.1 5.1 3.2 3.0 3.0 2.6 1.7 1.6 1.5 1.5 1.3 1.3 1.1 1.0 1.0 1.0 1.0 0.8 0.7 0.7 0.7 0.7 0.6 0.5 0.5 1 Deloitte is a tenant of Hardwicke House, which is an investment property of the Group. Deloitte were in situ when the Group acquired its interest in the building and all lease arrangements are at arm’s length. HIBERNIA REIT PLCANNUAL REPORT 2016Directors and other information 145 Depositary Registrar Principal legal advisers Corporate brokers BNP Paribas Securities Services (formerly Credit Suisse International, Dublin Branch) Trinity Point 10-11 Leinster Street South Dublin 2 Ireland Capita Registrars (Ireland) Limited t/a Capita Asset Services 2 Grand Canal Square Dublin 2 Ireland A&L Goodbody 25/28 North Wall Quay IFSC Dublin 1 Ireland Goodbody Stockbrokers Ballsbridge Park Ballsbridge Dublin 4 Ireland Credit Suisse International One Cabot Square London E14 40J United Kingdom Directors Secretary Daniel Kitchen (Chairman) Colm Barrington (Senior Independent Director) Thomas Edwards-Moss (CFO: Appointed 5 November 2015) Stewart Harrington Kevin Nowlan (CEO: Appointed 5 November 2015) William Nowlan Terence O'Rourke Castlewood Corporate Services Limited (Trading as Chartered Corporate Services) Taney Hall Eglinton Terrace Dundrum Dublin 14 Ireland Registered office South Dock House Hanover Quay Dublin 2 Ireland Company number 531267 Independent auditor Tax advisers Independent valuer Principal bankers Deloitte Chartered Accountants and Statutory Audit Firm Hardwicke House Hatch Street Dublin 2 Ireland KPMG 1 Stokes Place St. Stephen’s Green Dublin 2 Ireland CBRE Dublin 3rd Floor, Connaught House 1 Burlington Road Dublin 4 Ireland Bank of Ireland 50-55 Baggot Street Lower Dublin 2 Ireland 146 Glossary AIF is an Alternative Investment Fund AIFM is an Alternative Investment Fund Manager Cash passing rent is the gross property rent receivable on a cash basis as at the reporting date. It includes sundry items such as car parks rent and estimates of rents in respect of unsettled rent reviews. Contracted rent is the annualised rent adjusted for the inclusion of rent that is subject to a rental incentive such as a rent free or reduced rent year. Developer’s profit is the profit on cost estimated by valuers which is typically a percentage of developer’s costs, usually 20%. Development construction cost is the total costs of construction to completion, excluding site and financing costs. Finance costs are assumed at a notional 6% per annum by the valuers. DRIP or dividend reinvestment plan is a plan offered by the Group that allows investors to reinvest their cash dividends by purchasing additional shares on the dividend payment date. EPRA is the European Public Real Estate Association, which is the industry body for European REITs EPRA cost ratio (including direct vacancy costs) is the ratio of net overheads and operating expenses against gross rental income. Net overheads and operating expenses relate to all administrative and operating expenses net of any service fees, recharges or other income which is specifically intended to cover overhead and property expenses. EPRA cost ratio (excluding direct vacancy costs) is the same as above except it excludes direct vacancy costs. EPRA Earnings are the profit after tax excluding revaluations and gains and losses on disposals and associated taxation (if any). EPRA NAV per share is the EPRA NAV divided by the diluted number of shares at the financial year end. EPRA net assets (EPRA NAV) are defined as the IFRS assets excluding the mark to market on effective cash flow hedges and related debt instruments and deferred taxation on revaluations. EPRA NAV there- fore equals IFRS NAV in this instance. EPRA Net Initial Yield (NIY) is the cash passing rent generated by the investment portfolio, less estimated recurring irrecoverable prop- erty costs expressed as a percentage of the portfolio valuation as adjusted. The portfolio valuation is adjusted by the exclusion of devel- opment and residential properties and the addition of EPRA NNNAV is the EPRA NAV adjusted to reflect the fair value of debt and derivatives and to include deferred taxation on revaluations. EPRA Topped-up Net Initial Yield is calculated as the EPRA NIY but adjusting the cash passing rent for contractually agreed uplifts, where these are not in lieu of rental growth. EPRA vacancy rate is the Estimated Rental Value (ERV) of vacant space divided by the ERV of the whole portfolio, excluding developments and residential property. This is the inverse of the occupancy rate. EPS or Earnings per share is the profit after taxation divided by the weighted average number of shares in issue during the financial year Equivalent yield is the weighted average of the initial yield and rever- sionary yield and represents the return that a property will produce based on the occupancy data of the tenant leases. Estimated Rental Value (ERV) or market rental value is the external valuers’ opinion as to what the open market rental value of the property is on the valuation date, and which could reasonably be expected to be the rent obtainable on a new letting on that property on the valu- ation date. Fair value movement is the accounting adjustment to change the book value of the asset or liability to its market value. FRI Lease Full Repairing and Insuring lease Gross rental income is the accounting based rental income under IFRS. When the Group provides incentives to its tenants the incentives are recognised over the lease term on a straight line basis in accordance with IFRS. Gross rental income is therefore the cash passing rent as adjusted for the spreading of these incentives. In place portfolio is the portfolio of completed properties, i.e. excluding development and refurbishment projects. Internalisation refers to the acquisition of the Investment Manager and the ultimate elimination of reliance on the external investment management function through bringing these activities inside the Group. IPO is the Initial Public Offering, i.e. the first equity raising of the Company. IPD is the Investment Property Databank Limited which is part of the MSCI Group and produces as independent benchmark of property returns and which provides the Group with the performance information required in calculating the performance based management fee. Lease incentive is any consideration or expense, borne by the Group, in order to secure a lease. LEED (Leadership in energy and environmental design) is a Green Building Certification System developed by the U.S. Green Building Council (USGBC). Its aim is to be an objective measure of building sustainability. Like for like rental income growth is the growth in net rental income on properties owned through the current and previous periods under review. This growth rate includes revenue recognition and lease accounting adjustments but excludes properties held for development in either financial year or properties with guaranteed rental reviews. The Group does not present this statistic in this financial year as the last financial year was the first in which the Group held investment properties and therefore it does not have two full years of history to which to base this LTIP or Long Term Incentive Plan aims to encourage staff retention and align their interests with those of the Group through the payment of a percentage of performance related rewards through shares in the Company that vest after a future period of service. HIBERNIA REIT PLCANNUAL REPORT 2016147 Total shareholder return is the growth in share value over a period assuming dividends are reinvested to purchase additional units of stock. Transparency Regulations enhance the information made available about issuers whose securities are admitted to trading on a regulated market and further information is available on https://www.centralbank. ie/regulation/securities-markets/transparency/Pages/default.aspx. Under rented is the term used to describe where contracted rents are lower than ERV. This implies a positive reversion after expiry of the current lease contract terms. WAULT is weighted average unexpired lease term and is variously calculated to break, expiry or next review date Market Abuse Regulations are issued by the Central Bank of Ireland and can be accessed on https://www.centralbank.ie/regulation/securi- ties-markets/market-abuse/Pages/default.aspx. Model Code is a universal code of conduct, with comprehensive guide- lines and best practices which span the whole of Fixed Income, Currency and Commodity markets and can be accessed on https:// acifma.com/model-code. Net development value is the external valuers view on the end value of a development property when the building is fully completed and let. Net equivalent yield is the weighted average income return (after allowing for notional purchaser’s costs) a property will produce base on the timing of the income received. As is normal practice, the equiv- alent yields (as determined by the external valuers) assumes rent is received annually in arrears. Net reversionary yield is the expected yield after the rent reverts to the ERV. Net lettable or Net Internal Area (NIA) the usable area within a building measured to the internal face of the perimeter walls at each floor level Occupancy rate is the estimated rental value of let units as a percentage of the total estimated rental value of the portfolio, excluding devel- opment properties. Over rented is used to describe when the contracted rent is higher than the ERV. Property Income Distributions (PIDs) are dividends distributed by a REIT that are subject to taxation in the hands of the shareholders. Normal withholding tax still applies in most cases. REIT is a Real Estate Investment Trust as set out under section 705E of the Taxes Consolidation Act 1997. Reversion is the rent uplift where the ERV is higher than the contracted rent. RICS Valuation – Professional Standards (the 'Red Book') 2014 issued by the Royal Institute of Chartered Surveyors provides standards for preparing valuations on property. sq ft square feet Tenant or lease incentives are incentives offered to occupiers on entering into a new lease and may include a rent free or reduced rent period, or a cash contribution to fit-out. Under accounting rules the value of these incentives is amortised through the rental income on a straight line basis over the term of the lease or the period to the next break point. TMT sector is the technology, media and telecommunications sector. 148 Shareholders’ information Hibernia REIT plc website: http://www.hiberniareit.com Investor contacts Hibernia REIT plc South Dock House Hanover Quay Dublin D02 XW94 Phone: 00 353 (0) 1 536 9100 For investor queries please send an email to info@hiberniareit.com For media enquiries: media@hiberniareit.com HIBERNIA REIT PLCANNUAL REPORT 2016South Dock House Hanover Quay Dublin D02 XW94 info@hiberniareit.com www.hiberniareit.com 

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