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Edited Transcript of HBRN.I earnings conference call or presentation 23-May-19 8:00am GMT

Full Year 2019 Hibernia REIT PLC Earnings Call

Jun 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Hibernia REIT PLC earnings conference call or presentation Thursday, May 23, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Edwina Governey

Hibernia REIT Plc - Interim CIO & Senior Investment Manager

* Justin Dowling

Hibernia REIT Plc - Director of Property

* Kevin Nowlan

Hibernia REIT Plc - CEO & Director

* Mark Pollard

Hibernia REIT Plc - Director of Development

* Thomas Edwards-Moss

Hibernia REIT Plc - CFO & Director

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Conference Call Participants

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* Benjamin Paul Richford

Crédit Suisse AG, Research Division - Research Analyst

* Colin Grant

Davy, Research Division - Real Estate Analyst

* Colm Lauder

Goodbody Stockbrokers, Research Division - Real Estate Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen. Welcome to the Hibernia REIT preliminary results call. My name is Todd, and I'll be coordinating your call today. (Operator Instructions)

I will now hand it over to today's host, Kevin Nowlan, CEO, to begin. Kevin, please go ahead.

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [2]

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Good morning to those here in the room and those on the line, and thank you for joining this presentation to discuss Hibernia's full year results for the year ended 31st of March 2019. I'm joined here by Tom Edwards-Moss, our Chief Financial Officer; Edwina Governey, our interim Chief Investment Officer; our Director of Developments, Mark Pollard; and our Director of Property, Justin Dowling.

Looking at the agenda on Slide 3, you will see we plan to cover off the following areas. Our financial results, an update on market conditions, a review of disposals and acquisitions in the period, an update on activity on our development pipeline. We'll take a look at the key portfolio management initiatives underway, and we'll end with some thoughts on the longer-term outlook. There'll be time at the end for those in the room and on the line to ask any questions you may have.

Just before we get into the detail of the presentation, let me make a few headline comments. I'm pleased to be reporting on a year where our performance has been ahead of the benchmark of the MSCI Ireland property index, making us the best performer in the index over the past year and over the past 3 years. In March, we delivered our 2 major development projects, at 1 Sir John Rogerson's Quay and 2 Windmill Lane, which marked the completion of Windmill Quarter, our new 430,000-square-foot cluster in the South Docks.

The market fundamentals will remain positive, both in the broader economy, where growth continues to be strong, supported by high levels of job creation and foreign direct investment, and focusing in on the Dublin property markets. We are continuing to see record levels of office take-up, strong interest from international investors and occupiers and limited delivery of high-quality centrally located space. Our portfolio is well-placed to deliver gains for shareholders both in the short-term through the considerable reversionary potential of our portfolio and the letting of completed schemes. In the longer-term, our development pipeline has the potential to deliver substantial gains as we bring our expertise to bear, which we will talk more about today.

What you'll also hear more about today is our continued disciplined approach to recycling capital, where we see opportunities to deliver enhanced returns to shareholders, whether that be through disposals, acquisitions, investments in development projects or the return of capital. Hibernia's long-term approach, development expertise and intensive asset management capabilities will continue to deliver a strong performance in the coming years.

Turning now to Slide 4 and a brief summary of the key metrics of this reporting period. The value of the portfolio rose 7.9% in the year compared to 6.6% in the previous year. The gain was predominantly driven by the completion of 2 Windmill Lane and 1 Sir John Rogerson's Quay, and the agreement to let the whole of 1 Sir John Rogerson's Quay to Hubspot. It also reflects an increase in the value of our residential portfolio, as strong demand from PRS buyers drives down yields in this market segment.

Total property return was 11.6% for the year, over 400 basis points ahead of our benchmark of the MSCI Ireland Index, which was up 7.5% in the period, indicating the upside that our development activities can deliver for shareholders.

EPRA NAV per share grew 8.9% and EPRA earnings per share by 40.4%. And total accounting return, reflecting growth in EPRA NAV per share and increasing dividend paid, was 11.1%.

Looking at Slide 5, the key business highlights of the year were: the completion of two major development projects and making progress on our development pipeline, the completion of 1 Sir John Rogerson's Quay and 2 Windmill Lane delivered 172,000 square feet of Grade A city center office and marks the completion of our cluster of assets at the Windmill Quarter.

Planning ground at Marine House & Harcourt Square has increased the size of our office pipeline by 7%. We've also boosted our mixed-use pipeline through acquisitions at Newlands Cross and Slaney Road.

We have demonstrated our commitment to disciplined allocation of capital, having realized EUR 100 million from the sale of New Century House and 77 Sir John Rogerson's Quay. EUR 40 million of this has been reinvested in new acquisition opportunities, while EUR 35 million is being returned to shareholders. Both our rental income and weighted average unexpired lease terms are arising despite the sale of assets. Contracted rent of almost EUR 58 million is 3% ahead of last year. There's also been a 3% extension in the WAULT to break/expiry, which now stands at 7.5 years.

Our balance sheet is in good shape, with net debt of EUR 217 million and cash and undrawn facilities of EUR 143 million. The debt refinancing we completed in December has also increased the maturity profile of our borrowings and diversified the sources of our debt funding. We also continued to deliver meaningful growth in our dividend, which, at EUR 0.035 for the year, is up 17% on the previous year.

Looking ahead on Slide 6. The Dublin market backdrop remains favorable, underpinned by continued economic growth and job creation and strong occupier demand, particularly for larger lettings. Gross office take-up in the first quarter this year was a record 1.4 million square feet following the record 3.9 million square feet of space contracted in 2018, and the supply of new office space continues to be limited relative to demand. We expect near-term income upside in our portfolio from renting unlet space with an estimated rental value of almost EUR 11 million. This includes the now-completed 2 Windmill Lane and 2 Cumberland Place when it completes in the first half of next year. There's also further reversionary potential of EUR 3.7 million in our in-place office portfolio through rent reviews either under way or coming up soon.

Looking at longer term, our redevelopment at Marine House, Clanwilliam Court and Harcourt Square can help us add another 260,000 square feet of space to the portfolio.

As Tom will review in more detail, these opportunities have the potential to deliver an incremental EUR 17.5 million in rent and almost EUR 170 million of profit once they come to fruition. And there are also significant potential mixed-use schemes at Newlands Cross and Slaney Road.

Capital discipline remains a focus, and we will continue to recycle capital to enhance returns to shareholders through investment in acquisition or development projects where we see value or through returning funds to shareholders. You will be aware of the EUR 25 million buyback program we announced back in April, and that is all being driven by an experienced team backed by cash and undrawn facilities of EUR 143 million and a lower cost operating structure following the expiry of our external Investment Management Agreement in November 2018.

Now I'd like to hand over to Tom, who will take you through the financials.

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Thomas Edwards-Moss, Hibernia REIT Plc - CFO & Director [3]

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Thank you, Kevin, and good morning. On the financial side, it's been a very positive year both in terms of the results we're reporting today, but also because of the successful refinancing of our debt for the long term.

Turning first to Slide 8 and the financial highlights for the period. Portfolio value grew 7.9% on a like-for-like basis to just shy of EUR 1.4 billion, driven in particular by our development portfolio and residential assets. There was a modest increase in net debt and loan-to-value remains broadly flat on the year due to the increase in portfolio value. Our net assets grew by almost 10% to over EUR 1.2 billion, and the net asset value per share of EUR 1.733 a share was up 8.9% in the year. Net rental income grew over 16% to EUR 53.3 million, primarily because of lettings and developments completed in the prior year. As mentioned, there were significant revaluation gains, particularly from our development assets and also our residential assets. And EPRA earnings grew 41.6% to EUR 27.5 million due to the uplift in net rental income going straight to the bottom line and also from a modest reduction in costs. We've declared a dividend per share today of EUR 0.02, bringing the total dividend for the year to EUR 0.035 per share, which equates to 90% of our EPRA earnings, in line with our policy.

Turning now to Slide 9 and looking a little bit more -- in a little bit more detail at the movement in EPRA NAV per share in the year. Unsurprisingly, the main driver of the uplift has been the property portfolio, and you can see here that the gain was split equally between the investment properties and the development properties. Disposal gains and other costs broadly cancel each other out, and there was a modest increase in NAV from earnings less dividends, leading to an overall uplift of 8.9%, taking the NAV per share at March 2019 to EUR 1.733.

And looking at the EPRA earnings movement since March 2018, overall EPRA earnings per share grew 41.6% in the year to EUR 27.5 million. The key drivers of this were: the greater rent on account of the developments completed in the year, shown in light blue on the left; and also the increase in rent from new lettings and rent reviews completed in the remainder of the portfolio. Costs reduced, and we expect this to continue to go -- to happen in 2020 following the expiry of the IMA.

Turning to Slide 11 and looking at the financial capacity of the business. On the left-hand side, you can see there is substantial financial capacity, almost EUR 180 million of undrawn facilities at March 2019 or around EUR 140 million net of committed CapEx; and this CapEx will mostly be spent in the next year and will drive the NAV up -- the LTV up to closer to 20%. On the right-hand side, you can see our investment spend by year, including acquisitions and disposals, but also development CapEx and returns of capital. And the red line is the net spend. You can see how this has trended downwards as the cycle has progressed. In the financial year to 2020, we expect around 35 -- we have received EUR 35 million from the sale of 77 Sir John Rogerson's Quay, which we will be returning to shareholders, and we're about EUR 5 million into the EUR 25 million buyback that we announced.

On Slide 12, looking at the refinancing of our debt in more detail. And at the bottom of the chart, you can see how this is shown graphically. Prior to December 2018, we had a EUR 400 million revolving credit facility, which matured in November 2020. It was on a secured basis, and we have replaced this with revolving credit facility of EUR 320 million, which matures in December 2023, and EUR 75 million of private placement notes.

Overall, this refinancing increases the average term to maturity of our debt by almost 4 years, 5.4 years at March 2019. And the unsecured structure gives the widest possible range for funding options in future. Overall interest costs remain broadly unchanged due to the reduction in commitment fees on the revolving credit facility.

Looking now at growth in distributable income on Slide 13. On the left-hand side, you can see the growth we've delivered in net rental income. And on the right-hand side, you can see the growth in dividends per share over the last 4 years, and the red line shows the EPRA earnings per share. This year, we're paying dividends based on our policy, paying 90% -- or 85% to 90% of rental profits or EPRA earnings, and we intend to continue to do this in the future. More broadly, we expect growth in distributable income to continue, driven in particular by the growth in net rental income, as we will outline in the following slide, which shows the potential growth in incremental rent roll in the near term.

Starting on the left of the slide, you can see that at March 2019, there was around EUR 57.6 million of contracted rent. The vacancy in the portfolio -- in the investment portfolio can add up to another EUR 4.4 million, based on value of ERVs March 2019, but then further EUR 3.7 million of reversionary potential within the portfolio, of which EUR 2.1 million is already under review and the remainder is mostly due to review in the next 18 months. There's also around EUR 3.6 million of vacancy in our completed developments -- recently completed developments, most notably at 2 Windmill Lane. And then our committed development at Cumberland Place, which should finish next year, is expected to add a further EUR 2.8 million of income.

Taking all this together, there is potential uplift in contracted rents over our March 2019 number of over 25% in the near term. And this doesn't include any of the potential uplift from our longer-term development pipeline. Though we have to recognize that there will some rent loss for a period if we are to undertake these projects, in particular Clanwilliam Court and Harcourt Square.

Turning to Slide 15 now, which shows the potential gains to come from our committed and completed schemes, being 2 Windmill Lanes and 2 Cumberland Place. Based on values assessment, there is around EUR 11 million of profit to come, assuming a 4.8% yield and around EUR 55 per square foot of rent for the space. And for reference, the cap rate at March 2019 on 1 Cumberland Place was 4.5%; and at 1 Windmill Lane, it is below 4.5%. So there may be some more upside to come upon letting the buildings.

Looking now on Slide 16, the potential gains to come from the longer-term office pipeline. This is really to give you some idea of the value potential within the portfolio that's based on the 3 main office developments only, all of which are now valued on a residual basis. Based on the values assessment at current market conditions, there is around EUR 260 million of capital expenditure invested in these schemes. And assuming a 4.4% yield and an estimated rental value of EUR 57 a square foot, there will be development gains of almost EUR 170 million and incremental net rent of over EUR 17 million to make on these 3 projects. And it's worth noting this doesn't include any contribution from our mixed-use pipeline of Newlands Cross and Slaney Road.

So on Slide 17, the key messages to leave you with. Seeing strong performance in the year, and we are continuing to outperform the market. Our income is growing and costs are reducing, which is resulting in growing dividends, and we expect this to continue. We have substantial financial firepower, and the balance sheet is now set up for the long term. And we are highly return focused. We recycled significant capital in the year and are returning the excess proceeds to shareholders.

And looking ahead, our priority continues to be to grow our income through lettings and rent reviews in the near term, and we will maintain our capital discipline and are proposing a capital reorganization to increase our flexibility to capital management. And looking further out, the portfolio has significant value to unlock in the medium to longer term.

And with that, I'll hand it over to Edwina.

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Edwina Governey, Hibernia REIT Plc - Interim CIO & Senior Investment Manager [4]

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Thanks, Tom. On Slide 19, I'd like to take a look at the Irish economic backdrop, which remains favorable, and as the slide shows, economic momentum is expected to remain strong. In the table on the top left, you will see that core domestic demand, our preferred measure of growth, is forecast to grow by 4.5% this year and 3.7% in 2020. And the chart in the top right shows that sentiment in Ireland continues to indicate economic expansion. Ireland's unemployment rate was at an 11-year low of 4.6% in April, helped by strong growth in jobs created through FDI, which, as shown in the bottom left, created 3,700 jobs year-to-date. As can be seen in the bottom right, net migration has gained further momentum and is expected to continue to do so. This is welcome as a near full employment. However, this trend is likely to put further pressure on the already stressed housing market.

Looking more closely at property market trends on Slide 20, you will see that in the top left how take-up in the Dublin office market remains strong, particularly from larger lettings. And as Kevin said, we've had 1.4 million square feet of space taken already in the first quarter in a year where just 1.6 million square feet of new supply is expected to come to market. The vacancy rates in the CBD remains below 4% and -- sorry, in the city center remains below 4% and note, as shown at the top right, and it is in the suburbs, which aren't a focus for our portfolio, that you see the higher rates of vacancy.

On the bottom left of Slide 20, you can see an analysis of take-ups over the past 3 years in sub-50,000-square-foot category. What this shows is that while large or jumbo lettings have garnered headlines, take-up has remained relatively healthy and consistent in the sub-50,000-square-foot category. If you look at the bottom right of the slide, you will see that we expect continuing high levels of demand, with active demand for space slightly lower than at the same time last year due to the satisfaction of Facebook and Salesforce leases, but still at a healthy 4.2 million square feet at the end of March.

On Slide 21, we take a look at just how much of a take-up Dublin has become. The big 5 TMT occupier companies account for 8% of stock in Dublin compared to 2% in London. And you will see how for a company like Facebook, Dublin is now a bigger location than London. To right of the slide, you'll see how tech companies accounted for 5 of the top 10 deals in the 12 months to March. You will also note that there is a strong focus on the city center for these tech tenants.

Slide 22 shows our expectations of new office supply in Dublin out to 2022. For 2019, anticipated supply in the CBD, shown on the left-hand chart, is just 800,000 square feet, which compares to the 10-year average CBD take-up of 1.3 million square feet, and the 2.8 million square feet that was taken up in CBD last year. Even when you include the suburbs and look at the whole of Dublin, as shown on the right-hand side, the story remains one where anticipated supplies for the next 4 years is generally below the 10-year average of -- take-up of 2.3 million square feet and with considerable space in 2019, 2020 and 2021 already pre-let.

On Slide 23 are some key points on the Dublin investment market. At the top left, you will see that yields in the office market have held steady in the last 12 months. There has, however, been further compression in the -- in both the residential and industrial markets of 40 basis points. And with a lot of international investors targeting PRS investments in Ireland, there may be potential for residential yields to tighten further. At the top right, we look at Knight Frank's estimation of the amount of capital looking to be deployed in the Dublin investment market. They see EUR 3 billion for offices, EUR 4 billion for PRS and a total of EUR 8.5 billion in capital, largely from international investors looking for opportunities in Dublin. As the table at the bottom of the slide shows, all of the top 10 office investment deals in the last year involved international capital, with investors from Europe, the U.S. and Asia all investing in prime Dublin offices. Ireland is now firmly on the map for international institutional investors in a way that it wasn't in previous cycles.

Slide 25 provides a summary of our acquisitions and disposals in the period. We've acquired 3 assets for a total of EUR 40 million and disposed of 2 for EUR 100 million. We remain disciplined in our capital allocation. And as previously guided, where appropriate, we've sold properties and allocated the capital into opportunities where we expect better returns. The first disposal in the year was New Century House, an 80,000 square-foot office building located in the IFSC. We sold the property for EUR 65.3 million in July, significantly more than the EUR 47 million we paid in 2014. We also sold 77 Sir John Rogerson's Quay in March for EUR 35.5 million, and I will provide further detail on the sale on the next slide. Both New Century House and 77 Sir John Rogerson's Quay were sold for prices modestly ahead of their book value. You will already be familiar with the acquisitions completed in the period, which are detailed at the bottom of Slide 25. Slaney Road and Newlands were acquired on the basis of future potential for redevelopment, while 50 City Quay and a small residential acquisition were acquired as bolt-ons to existing ownerships.

Slide 26 gives some more details on 77 Sir John Rogerson's Quay, which I just mentioned was sold in March. 77 Sir John Rogerson's Quay was a 34,000-square-foot office building, which upon acquisition was let to IWG on a 25-year lease at a rent of EUR 50 per square foot, an asset management initiative that helps deliver an unleveraged IRR of over 15% on our investment.

And now I'll hand over to our Director of Development, Mark Pollard, for an updated on our development portfolio.

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Mark Pollard, Hibernia REIT Plc - Director of Development [5]

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Thanks, Edwina, and good morning to all. Slide 28 summarizes the status of our development schemes, with both 2WML and 1SJRQ completed before year-end and based on current ERVs, delivering profits on cost of over 40% and 90%, respectively. We invested EUR 39 million in acquiring these 2 buildings and invested a further EUR 80 million in construction to deliver 172,000 square feet of office space, a 12,000-square-foot gym and 7,000 square feet of food and beverage space for the Windmill Quarter. At 2 Cumberland Place, we are making excellent progress in constructing a new 50,000-square-foot office block that I'll come to shortly.

I'd now like to elaborate on progress in our clustering concept on Slide 29. At the Windmill Quarter, we now over 400,000 square feet of offices across 6 buildings. Our occupiers and their staff benefit from communal facilities and services, which are only possible because of the benefits of scale allowed by clustering. So we included a large gym, a dedicated app to share information with occupiers, and a town hall space that can be used for events. This is proving popular. With about one occupier event per week using the space in the last year and, of course, our own Windmill Live concert series, which kicked off in February. This was both a way of recognizing the musical heritage of the Windmill Lane location, and providing our occupiers with an exclusive opportunity to enjoy an intimate live performance from the Hothouse Flowers and Moya Brennan of Clannad, ably supported by young Dublin R&B artist, Erica Cody. The event was a resounding success, and next week, we'll have Gavin James as our Windmill Live performer. I stress that it's not that we're trying to be music promoters, but what this does show is that we do aspire to be more than just your everyday, run-of-the-mill landlord. We aim to work with our occupiers to deliver a best-in-class service that helps attract and engage their employees in this highly competitive recruitment market. The Windmill Quarter realizes these ambitions and as a result, as well as having rentalized with town hall space, we have exceeded initial office rent expectations and will be well placed to retain or find new occupiers in due course. We are delighted that Hubspot will move into 1SJRQ later this last year, and we're in the process of letting 60,000 square feet at 2WML, where we are currently seeing good levels of interest from potential occupiers.

On Slide 30, it's 2 Cumberland Place, where we are making excellent progress in constructing the new 50,000-square-foot office block adjacent to and linked with our existing 1 Cumberland Place office, which is home to Twitter and Travelport. The basement works are nearing completion, and we expect practical completion by the summer of next year, taking the total office space at this location to over 180,000 square feet.

Slide 31 lists our development pipeline. In the top section, you will see how we have the potential to expand from 273,000 square feet (sic) [278,000 square feet] to 538,000 square feet of space, at least 4 office developments. That can be achieved through the redevelopment of Marine House and Clanwilliam Court, which I'll look at on the next slide, and we have longer-term opportunities at Harcourt Square with the lease to the OPW expiring in 2022; and at One Earlsfort Terrace where we have planning permission for 2 extra floors, which would add another 6,000 square feet. Also shown are our 2 mixed-use schemes at Newlands and Slaney Road, which Edwina has already mentioned. It is the large-scale opportunities in our development pipeline, such as Harcourt Square, Clanwilliam and Newlands, which have the potential to deliver the considerable long-term upside for shareholders that Tom was pointing out earlier.

Slide 32 looks at our options at Clanwilliam Court and Marine House, where we split up lands for redevelopment given the different dates at which we expect to gain vacant possession. We have a planning application with DCC for the redevelopment of 3 blocks at Clanwilliam Court that would increase the available area from 93,000 to 141,000 square feet. That project could commence in late 2021, early 2022, when the building will become vacant. We hope to commence at Marine House in autumn 2020, delivering on the planning permissions secured to extend the building to 49,000 square feet, an extra 8,000 square feet. We aim to apply the clustering concept that has proved so successful at Windmill Quarter to these 2 developments and also at Harcourt Square, where there is potential for a 309,000-square-foot development.

And now let me hand over to our Director of Property, Justin Dowling, for a look at our portfolio management activities in the year.

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Justin Dowling, Hibernia REIT Plc - Director of Property [6]

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Thanks, Mark, and good morning, everyone. Slide 34 provides a high-level summary of the composition of our portfolio, which remains very much focused on Dublin city center office activity. Our in-place offices account for 84% of our EUR 1.4 billion portfolio value, with a further 11% from residential and 4% on industrial and land. Our total contracted rent roll's now EUR 57.6 million, of which EUR 50.4 million is accounted for by our offices. And the considerable upside that we believe sits within the portfolio is shown by the estimated rental value of EUR 72.5 million based on our most recent valuation.

Slide 35 looks at how the portfolio performance has improved over the past 12 months. Overall, the portfolio value grew by 8% or EUR 99 million on a like-for-like basis, notwithstanding the 2 buildings we sold. The biggest gains came from the transfer of both 1SJRQ and 2 Windmill Lane from the development bucket into the in-place portfolio following their completion in March. Residential performance was also strong, reflecting the broad tightening of yields in the PRS sector that had been referred to earlier, which meant that our residential assets increased in value by 10% in the year.

On Slide 36, we can look at some of the characteristics of the in-place office portfolio. One number that jumps out there is the increase the vacancy rate to 12%. The principal reasons for the increase in vacancy rate was completion of 2 Windmill Lane and tenants in The Forum building vacating. Together, these 2 events added 9 percentage points to the vacancy rate. On both cases, we're very confident of securing tenants in the near term at or above current ERV.

The industry split of the portfolio is shown in the middle bar chart, 55% coming from the TMT sector, reflecting Dublin's growing attractiveness as a European tech hub. Our top 3 tenants are Hubspot, accounting for 21% of the in-place portfolio; the Office of Public Works, accounting for 12% and Twitter, accounting for 10%. Other major tenants include ComReg, the ESB and Bank of New York Mellon.

On Slide 37, you can see how the work we have done on developing or repositioning our assets has contributed to our growing rent roll. Rent from buildings we have developed contributed EUR 27.5 million on rent last year compared to EUR 22.9 million from buildings we acquired. In addition, the assets we developed have a WAULT to break/expiry of 10.6 years, and 33% of them have cap and collars built in to the rental agreement, thereby derisking any future exposures to changes in market conditions.

Finally, in this section on Slide 38, I want to review our recent rental agreements and progress in rent reviews. The most significant deal in the period was the letting of the whole of 1SJRQ to Hubspot on a 20-year lease worth EUR 6.8 million per annum, with the tenant due to have fit-outs next month.

We reached agreement on the rent review of Publicis, a tenant in the Observatory building, at a rental level of 9% ahead of ERV prior to the review. We also have 9 active rent reviews across tenants in Hardwicke House, Montague House and Marine House. Contracted rent across 9 tenants is EUR 2.5 million per annum compared to current ERV of EUR 4.6 million, which is a nice indication of the opportunity we have to deliver on the reversionary potential of the portfolio.

And now I'd like to hand back to Kevin to wrap up.

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [7]

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Thanks, Justin. And just to wrap up with some final remarks on Slide 40.

The portfolio is continuing to outperform the wider Irish property market, helped by the delivery of our schemes at 1 Sir John Rogerson's Quay and 2 Windmill Lane, with good progress being made at 2 Cumberland Place. We remain committed to disciplined capital management to ensure we maximize returns for shareholders, including growing our dividend. The evidence continues to support our view that market conditions remain favorable, with strong demand from tenants and investors for space and that supply, particularly of high-quality office space located in the city center, remains limited. We're exceptionally well-placed to continue to benefit from available opportunities within our existing assets and where attractive deals present themselves. And with our clear strategy, talented team and low leverage, we are well positioned to deliver on our future plans.

Thank you very much for your patience and attention, and I would now like to hand back to the operator before we start taking your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Colin Grant calling from Davy.

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Colin Grant, Davy, Research Division - Real Estate Analyst [2]

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Well done on a very good set of numbers. First question for you really beyond the outlook for the office markets. You seem reasonably sanguine on the immense supply in the market and fairly relaxed on that side. And in terms of demand, the TMT demand in particular just continues to be very strong. What would be your outlook in terms of the potential for movements in rents in the markets, looking ahead over the next 12 months? Maybe start with that.

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [3]

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Morning, Colin. I think the big issue going on in the market at the moment, particularly in the city center where we're focused, for example, this year there's only going to be 800,000 square feet of space delivered. And last year in the city center market [there was] 4 million square feet of take-up. So if we see similar take-up and demand this year that we saw last year, I think that undoubtedly there's going to end up being competition for space among occupiers, which is likely to result in some increase. So I don't think it's going to be significant. I think what you are probably going to see is longer term certains and less rent-free. And I think you're already starting to see that in the market. And I think it's interesting if you compare Dublin to London, we're starting to see term certains hitting 14 years, getting close to 14 years in Dublin on recent deals, whereas Dublin -- or London is around 5 years -- 5 to 6 years. So look, I think that's probably more the area you are going to see. I think there's more increase in delivery in 2020, where we're going to see about 1.7 million square feet of delivery. But again, the big positive in the way the leasing market is operating at the moment is that you've got some strong pre-leasing. Out of all the CBD space, almost 50% of that space is already pre-leased.

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Colin Grant, Davy, Research Division - Real Estate Analyst [4]

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Kevin, just moving on to the yield side of things. The direct market seems very well bid at the moment. Would you have a view in terms of the outlook on yields heading forward? I mean, it seems to be broadly around a 4% prime yield at the moment. But could you see that trending lower over the next 6, 12 months?

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [5]

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I might hand you over to Edwina Governey, our Interim Chief Investment Officer, to answer that question.

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Edwina Governey, Hibernia REIT Plc - Interim CIO & Senior Investment Manager [6]

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Can you hear me? I think there's a few office buildings in the market at the moment, I think it's been pretty consistent pricing at 4% recently. Some market commentators are expecting some minor yield compression, but I think we'd be relatively conservative in the office space on yields. And we think that 4% percent might hold rather than compress.

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Operator [7]

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We now have a question from Ben Richford calling from Crédit Suisse.

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Benjamin Paul Richford, Crédit Suisse AG, Research Division - Research Analyst [8]

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I just wondered, it looks like you're trading at this NAV discount. Green REIT's made a statement about selling up and you've been a net seller this year. Do you think you might look to be a bit more aggressive on making disposals and returning more capital to shareholders?

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [9]

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I will pass you over to Tom Edwards-Moss, our Chief Financial Officer, to answer that question.

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Thomas Edwards-Moss, Hibernia REIT Plc - CFO & Director [10]

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Ben, look, I think we are returns focused, as we've said several times in the presentation today. If we have excess in our portfolio, which we don't think are going to continue to hit our returns criteria and we think there's better value in recycling that capital and we can't find anything at attractive pricing that we want to buy, then yes, you could see us returning more money to shareholders. But I think we'll have to assess that as the year goes on.

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Benjamin Paul Richford, Crédit Suisse AG, Research Division - Research Analyst [11]

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Okay. And just a second question, how widely are you spreading your net? Are you looking -- you mostly got a bit of the mixed-use development schemes. Are you looking to do more in industrial to take advantage of that secular tailwind? Do you ever look at assets in Cork, for example? Would you make a move outside of Dublin? So a question on potential acquisitions beyond the core Dublin office.

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [12]

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I'll maybe deal with the first question -- or the second question first. I think we're a Dublin-focused fund. I think the proposition would have to be very attractive to see us going out of our sector at this point. And secondly, our investments in the industrial sector is more focused on the change of a lot of the industrial space, particularly the space close to the CBD, from industrial to residential. And that's really, I suppose, more of an opportunistic-type investment and where we see planning changes coming in the short to medium term that we think we can take advantage of.

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Operator [13]

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We have no further questions, so I'll hand back to you, Kevin.

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [14]

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Great. We'll take questions from the room now.

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Unidentified Analyst, [15]

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(inaudible) As a whole, the Dublin market vacancy rate is about [8.7%] and on your first slide, you talk about the vacancy rate of your newly completed schemes, which says it's greater than 65% let. So I was quite -- I was surprised that it wasn't nearly fully let, given the low vacancy rate. And then on Slide 14, then, I suppose a significant opportunity comes from a portion of your property being on let and therefore leased up. So why, in such a tight market, is there a portion of your portfolio not already leased?

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [16]

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Yes, well, there's -- there are 3 obvious reasons for that. 2 Windmill Lane only partly complete at the end of March, beginning of April. So that building is really suited for the floor-by-floor letting. So it's really only once the building's practically complete that you can really start engaging with the market. So we're having a very good engagement with the market at the moment, so I think you'll see that space leasing up quite quickly.

And then the other reason is The Forum building over in the North Docks and a lease broke at the end of March. So we've got work to do on that building to get it prepared for re-leasing. But again, good floor place and a good location, should lease up pretty quickly. So of our 12% vacancy, 9% comes from those 2 buildings. And they just happen to happen just at the end of our financial year and, hence, why the numbers look like they're large. But in reality, they actually -- I would think of them as opportunities because in reality, the way the market is working at the moment, I would be hopeful that we can outperform ERVs and hopefully drive valuation growth on these buildings.

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Unidentified Analyst, [17]

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You said that a lease broke in The Forum building. Was that something you were expecting?

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [18]

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It was something we were expecting and something that we flagged, yes.

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Colm Lauder, Goodbody Stockbrokers, Research Division - Real Estate Analyst [19]

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Colm Lauder, Goodbody. Kevin, well done, good set of results and I would say [outperformance in the market]. I think the 410 bps performance of the benchmark was pretty telling in terms of the year. And I'm sort of thinking, looking at the next stages in terms of your outperformance, one of comments in the results statement was how your valuers have given you an additional clip on the yields for the clustering effect at Windmill Lane. So despite Windmill Lane being completed in quite a considerable period of time and the gains locked in, now that the overall scheme comes through to give you 40 basis points. And thinking about the strategy, obviously you've deployed that to Windmill Lane and to Sir John. It's looking likely similar in Clanwilliam and then in Harcourt. Do you see this clustering effect as a sort of structure and an idea that you'll continue to develop forward that'll give you an advantage, perhaps, in quieter periods in the cycle?

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [20]

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I absolutely think so. I think we've regarded Windmill as a bit of an experiment from a Dublin perspective. I think the benefits you get when you put additional facilities in early buildings, you gain then in higher ERVs and rentals in the later buildings that you're actually delivering. So if you look at the net effect of our 1 Sir John Rogerson's Quay, I think it's been the standout performer in the South Docks. Over the last 3 years, from a letting perspective, and I think 2 Windmill Lane will be a strong performer as well because you're not only selling the building but you're also selling the gym, the town hall and we're just working in to put -- the delivery on the food and beverage offering now as well now, which is a big part of this. So look, I think as a concept I think we've proven it and I think -- we're excited about rolling it into Clanwilliam now, and it's a big part of the design -- base design that we're looking at in Harcourt Square. And I think as you finish it and as you spend more money on public realms, you end up getting benefits then both from ERV growth but also yield compression as you actually improve the overall district once you complete the whole Quarter.

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Colm Lauder, Goodbody Stockbrokers, Research Division - Real Estate Analyst [21]

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That would again suggest perhaps yields are -- the values and expectations on Harcourt now, those are probably conservative then in terms of the gains that might come through from that clustering space?

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [22]

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I think when you're working on development projects and you're working off residual valuations, I think if you look at our results and our value reviews on ERVs, we've consistently outperformed them over the last 3 years. And I would hope we continue to do that.

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Colm Lauder, Goodbody Stockbrokers, Research Division - Real Estate Analyst [23]

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Okay. And then just one other question, and perhaps it might be one for Tom, on the capital reorganization proposal for the AGM. And I think it ties in, Kevin, with one of your comments in terms of the impressive WAULTs that are being achieved or the -- certainly, the appealing WAULTs that are being achieved when you look at international capital of the Dublin market and the potential for further recycling. Could you maybe clarify this more what the expectations are around the capital reorganization proposal?

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Thomas Edwards-Moss, Hibernia REIT Plc - CFO & Director [24]

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Sure. Colm, so the -- as a relatively young company and as a company who's under the REIT regime is required to contribute most of our rental profits, we don't have a huge buffer of distributable profit at the moment to give to shareholders. And you need sort of reserves for doing either returns in capital or dividends. I think, therefore, a capital reorganization process is quite a long process. It involves both getting approval from, one, the shareholders but also going through a court process. So it feels like it's an inopportune time for us to do that just to give ourselves more capacity on the reserve side. So that isn't saying necessarily that we are going to do anything, but at least it means we will have the future flexibility if at some point we did have other excess capital that we wanted to return to shareholders. And that's really the reason for doing it now.

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Kevin Nowlan, Hibernia REIT Plc - CEO & Director [25]

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Great. That's the end of the questions in the room. Thank you very much, everyone, and we look forward to hopefully meeting you on the road.