22 March 2021
Yew Grove REIT plc
(the "Company" or, together with its subsidiaries, the "Group")
Results for the year ended 31 December 2020
The Company is today reporting its audited condensed consolidated results for the year ended 31 December 2020 (the "Period").
Strategic Highlights
• Portfolio investment properties independently valued on 31 December 2020 at €141.9 million, reflecting an annualised rent roll of €10.9 million at Period end.
• 100% rent collections for both Q4 2020 and Q1 2021.
• Quarterly dividend payments continued with total dividends per ordinary share of 5.15 cents declared from 2020 earnings.
• Purchased six further buildings during the Period for €25.3 million.
• Asset management has enhanced the Company's property portfolio and revenue, 40,000 square feet of office vacancy being let in early July 2020 and 20,000 square feet the day after the Period end.
• Significant pipeline of potential acquisitions in excess of €100 million identified.
Financial Highlights
• Net Asset Value ("NAV") per ordinary share was 100.03 cents as at 31 December 2020 (31 December 2019: 98.52 cents).
• Portfolio valuation on 31 December 2020 of €141.9 million (31 December 2019: €115.8 million).
• Period end valuation shows an increase of €3.3 million or 2.5% in like for like value (value of properties owned at year end compared to the aggregate of their 2019 year end valuation and the price of 2020 property purchases).
• Annualised rent roll of €10.9 million at Period end (31 December 2019: €8.9 million), increasing to €11.3 million from 1 January 2021.
• Period net revenues were €10.6 million, including €0.15 million of lease surrender premium payments. Excluding lease surrender premium payments, this shows an increase of 41% on 2019.
• Expenses were stable at €3.1 million (2019 €3.0 million) while the portfolio grew 22.6%.
• EPRA earnings per share ("EPS") of 5.49 cents, 94% declared as dividends.
• Dividends of 5.15 cents per share declared from Period earnings.
• Target LTV increased from 25% to 40% following the EGM in Q3 2020. Credit facility drawings increased from €20.8 million to €38.6 million over the Period, leaving additional undrawn headroom of €15.0 million as at 31 December 2020.
Portfolio Highlights
The Group's properties as at the Period end benefit from attractive leases:
• Strong tenant covenants: 66% FDI, 26% Government and other state bodies, 4% large enterprises and 4% SME by rent roll.
• Gross yield at fair value of 7.7%, with a gross reversionary yield of 8.7% (7.7% and 8.7% respectively as at 31 December 2019).
• Reversionary rent roll of €12.4 million.
• Weighted average unexpired lease term of 4.1 years to break and 7.2 years to expiry.
Jonathan Laredo, Chief Executive Officer, commented:
"For more than a year we have all had to come to terms with the effect of the pandemic on everyday life. Normal social interactions have been curtailed, working, shopping, travel, visiting friends and family have all been affected in a way that is unprecedented in most of our lifetimes. Despite this, and despite the challenges this presented to our business, we have managed to grow our portfolio, reduce vacancy, increase the rent roll and improve our profitability and begin the process of greening our portfolio. I am proud of the efforts put in by everyone who works for Yew Grove and I am pleased that the results presented today are a validation of our strategy and the investments made so far.
"The Company has continued to perform well and the management team is ambitious and focused on growth. We continue to evaluate a pipeline of accretive investment opportunities and are exploring a range of funding options in that regard, including potentially raising equity."
MAR information
This announcement is released by Yew Grove REIT plc and contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.
For further information contact:
| Yew Grove REIT plc
| +353 1 485 3950 |
| Jonathan Laredo, Chief Executive Officer |
|
| Charles Peach, Chief Financial Officer |
|
| Michael Gibbons, Chief Investment Officer |
|
| Goodbody Stockbrokers UC | +353 1 667 0400 |
| Joint Broker & Euronext Growth Advisor |
|
| David Kearney, John Flynn, Edel O'Reilly, Ronan Bransfield | |
| Liberum Capital Limited |
|
| Joint Broker & Nomad | +44 20 3100 2000 |
| Richard Crawley, Jamie Richards | |
| IFC Advisory Limited | +44 203 934 6630 |
| Financial PR | |
| Tim Metcalfe, Graham Herring |
|
Notes to editors
Yew Grove REIT plc, quoted on the London Stock Exchange's AIM market and on the Euronext Growth Market in Dublin, is an Irish commercial real estate company invested in a diversified portfolio of Irish commercial property. Yew Grove has a particular focus on well-tenanted commercial real estate assets comprising of office and industrial assets outside of Dublin's Central Business District.
Yew Grove's highly experienced team has a proven track record in commercial property investment and asset management in Ireland and internationally and is focused on delivering results. Its investment approach is strategic, not speculative, principally on assets that are let, pre-let or to be let after refurbishment. Shareholders are provided with stable, long-term income from a diverse portfolio of commercial property comprising well-tenanted real estate in strategic centres let to Irish government entities and other state bodies, IDA Ireland supported and other FDI companies, and larger corporates.
Chair's Statement
Activity
The year 2020 was a year few of us will forget and one in which commercial considerations were secondary to the global tragedy created by the COVID-19 pandemic. Despite this, I am pleased that the Company made progress across a number of its key objectives. Whilst operating in a challenging environment and remotely, through a stop-start economy, the Company has managed to improve the quality of its portfolio of properties, maintain the quality of its tenant base, maintain collections at industry peer leading levels and pay a progressive quarterly dividend to its shareholders.
The disruption of the financial markets meant that the share issuance we had hoped to complete in the first half of 2020 was no longer possible and, as such, our share programme expired. Our shareholders approved a one-year extension for a full 100 million share issuance programme in May 2020.
For most of the year the Company's focus was on asset management, working with our tenants to ensure that those buildings that were unoccupied were secured and that protocols were in place to ensure that the buildings that were still being used would be safe for all occupiers. The health and welfare of our staff, tenants and suppliers remains a key priority for the Company as we navigate through this pandemic. As announced last year, the equity that was raised in late 2019 was invested in February 2020 through the acquisition of the properties at Millennium Park in Naas along with a debt facility from Allied Irish Banks, p.l.c. ("AIB").
The disruption to normal activity meant that a number of asset management projects were unavoidably delayed. Vacant properties remained unoccupied for longer than expected, many rent reviews and re-gears took longer than normal and the property market was effectively halted for most of the second and third quarters of the year, which delayed the sale of our non-core properties. The effect of the Government mandated lockdowns meant that our non-food retail tenants (approximately 2% of the rent roll) suffered a closure of their businesses and a cessation of all income. We worked with those tenants to help bridge that financial stress with the result that our collections in the second, third and the fourth quarter continued to be very strong at just below 100%.
Notwithstanding all of this we were successful in selling another of the four remaining non-core properties as well as a smaller property which was vacant following a lease surrender negotiated earlier in the year. We also succeeded in letting the vacant property at Millennium Park in Naas and completed a lease on the first floor of our vacant Cork Airport property. These sales and lettings reduced our net vacancy to under 7%1 and increased the rent roll to €10.9[1] million by year end.
As the property markets began to reopen in the final quarter, the pipeline of potential investments grew and it became more important to increase our capital available for investment. At an extraordinary general meeting ("EGM") in September 2020, our shareholders approved a proposal to increase our targeted leverage to 40% from 25%. In late December 2020, an amended facility to effect the increase in targeted leverage was agreed with AIB.
Sustainability was a major focus for the business in 2020 with the roll out of a long-term building improvement programme across our portfolio. I look forward to this being a continued future focus as we work with our occupiers to make the buildings not only better places to work but also, as importantly, reduce their environmental footprint.
Board
I would like to thank each member of the Board for their commitment during the year and I look forward to working with them for the benefit of the Company and its shareholders. The Board are responsible for creating and maintaining the Company's strong culture and collegiate values and ensuring these are understood and shared by all employees and with all of our business relationships.
Management, Colleagues and Shareholders
On behalf of the Board, I would like to thank the management team and our colleagues for their continued hard work and energy over the past year. It has been a busy and demanding year and continues to be as the Company grows in 2021. Our success will be driven by the dedication and commitment of this team.
Finally, to our shareholders for their confidence and commitment, we look forward to continuing to expand our business and to continue to return value to our shareholders.
[1] Prior to year end, the Cork Airport property letting was agreed which started on 1 January 2021. This increased the annualised rent roll to €11.3 million and reduced vacancy to 4.1% the day after year end.
Chief Executive Officer's Statement
I am pleased to report the results for the Company for the year ended 31 December 2020.
In 2020, we had to focus on asset management rather than capital growth. Our contracted rent roll increased from €8.9 million at 31 December 2019 to €10.9[2] million at year end. The increase reflects the completion of the acquisition at Millennium Park in Naas and effective asset management in letting vacancy and capturing reversion through rent reviews and lease re-gears.
The gross yield at fair value (the return that the Company earns from its contracted rent at current valuation) was 7.7% at 31 December 2019 and, despite the positive effects of the year end valuation, the gross yield remains 7.7% at this year end. The portfolio is still reversionary, with our external valuer, Lisney Limited ("Lisney" or the "Valuer"), estimating the reversionary yield at 8.7% (circa €12.4 million) which will continue to underpin distributions to our shareholders.
The exigencies of the financial markets meant that we were unable to issue shares during 2020 and thus were unable to take advantage of our operational leverage. Our cost base is relatively static and a growth in market capitalisation will increase revenue at a far faster rate than costs, thereby increasing profitability available to our shareholders by way of distribution. I hope that some of this value can be captured during 2021 as we make use of the increased facility from our lender, AIB, although some of that benefit will be absorbed by the costs of moving our listing from the junior Euronext Growth market of Euronext Dublin to the Main Securities Market of Euronext Dublin, as required under the Irish real estate investment trust ("REIT") legislation. I also hope that if market conditions permit we can take advantage of the share issuance programme and issue more shares before June 2021.
Dividends
I am pleased that, despite all of the challenges during 2020, the Company maintained its quarterly dividend and increased the payment each quarter. The dividend for the final quarter (1.40 cents per share declared after the year end) brings the dividend declared for the period, fully covered by EPRA earnings, to 5.15 cents per share. The dividend is underpinned by a high-quality rent roll and effective asset management that has reduced vacancy. We expect more disposals of non-core assets (smaller properties purchased as a part of the seed portfolio at the Company's initial public offering ("IPO") in June 2018) and the capture of increasing reversion as rent reviews, which were delayed during 2020, are agreed this year.
Review of activity
During the year, the Company completed the purchase of six buildings in Millennium Park in Naas and sold a vacant building on Holly Avenue in South Dublin and one of our non-core properties on the outskirts of South West Dublin. Both sales achieved a net gain which in aggregate was €0.1 million and 5.0% over the June 2020 valuation.
Our plans to raise equity during the year were derailed by the pandemic and the sharp sell-off across the capital markets in the second quarter. While equity markets did stabilise later in the year it was decided that an equity issue was not a viable option especially because many property vendors put sale plans on hold until the fourth quarter of the year.
The Company focused on rolling out its Environment, Sustainability and Governance ("ESG") strategy and asset management. Both were affected by lockdowns, which delayed or prevented travel and kept most of our offices empty, but notwithstanding the brake on activity I am pleased to say we have made credible progress on both fronts. Despite the pandemic, the results of our asset management have helped the business to an excellent performance. Our principal focus was on rent collection, continuing the sale of non-core properties, filling vacancy and re-underwriting the potential pipeline in the markets in which we operate to ensure that our operating assumptions and strategy were still fit for purpose.
As a result of that focus and the excellent quality of our tenant base, rent collections held up very well and stand comparison with the best in the European property market and particularly with any company that has substantial exposure to offices. While our ability to let vacant space was negatively affected by the pandemic, we succeeded in signing a number of new leases and reducing vacancy from 14.3% post the acquisition of the Millennium Park portfolio to 6.9% at year end. We also managed to complete the sale of another non-core building in December. At year end we were engaged in a number of rent reviews and re-gear discussions, with progress slow as most counterparties and advisers continued to work from home.
However, I am confident that as these rent reviews and re-gears are completed the benefits of an increased rent roll and extended WAULT across our portfolio will continue to feed through to an improved balance sheet and profit and loss account.
Post balance sheet events
The Company has from admission, on 8 June 2018, been quoted on the AIM market of the London Stock Exchange and the Euronext Growth market in Dublin. Under the REIT rules, the Company has until May 2021 to list its shares on the main market of a recognised stock exchange in an EU member state in order to retain its REIT status. Given that the Revenue Commissioners are vested with authority to exercise their discretion to extend that deadline, earlier in the year the Company approached the Revenue Commissioners to discuss an extension of that deadline to 31 May 2022 in order that the Company can better manage the commitments before it. The Revenue Commissioners confirmed that, based on the specific circumstances, they are agreeable to such an extension. Notwithstanding that agreement, the Board has instructed the Company to complete a listing on the Main Securities Market of Euronext Dublin in the first half of 2021. The Company has selected advisers and delivered a first draft of its prospectus to the Central Bank of Ireland on 9 February 2021. The Company will continue to retain its quote on the AIM market of the London Stock Exchange.
On 1 January 2021, the Company's previously agreed letting of 20,268 sq. ft. (the first floor) of Unit 2600, Cork Airport Business Park to Alter Domus Fund Services Ireland Limited ("Alter Domus") along with 79 car parking spaces took effect.
On 4 February 2021, the Company held an EGM at which the resolutions intended to facilitate the migration of the Company's participating securities from the CREST System to the central securities depository system operated by Euroclear Bank SA/NV and to make certain changes to the Company's Articles of Association were duly passed by shareholders.
On 23 February 2021, the Company declared the payment of an interim dividend for the fourth quarter of 2020 ended 31 December 2020 of €1,562,011 for 1.40 cents per share. This will be paid to shareholders on 7 April 2021.
On 25 February 2021, the Company announced that it had agreed a new lease for the entirety of the Gateway Three building on East Wall Road in Dublin to the Electricity Supply Board ("ESB") group.
On 18 March 2021, an agreement was made to finance the construction of an adjoining building to its currently owned Building C at the IDA Business and Technology Park at Athlone, Westmeath, which the tenant has agreed to lease on completion. The Company has established a 100% owned subsidiary, Yew Grove HoldCo One Limited, for this purpose.
Property Valuation
Despite the difficulties and uncertainties created by COVID-19 I am pleased to say that the value of the portfolio held up well. Our properties have increased in value over the year (after accounting for capital expenditure) by €3.4 million, which exceeds the costs of acquiring the Millennium Park portfolio (approximately €2.1 million), and has helped increase our fully diluted EPRA Net Tangible Assets ("EPRA NTA").
I have set out some detail on the portfolio performance by asset type to shed more light on how our properties performed in 2020 and give some insight for future performance in 2021 and beyond.
The portfolio can be analysed into office buildings, industrial buildings and the four remaining non-core properties (three legacy smaller mixed-use buildings and the retail units in the Bridge Centre in Tullamore):
a) Industrial buildings:
Our industrial buildings appreciated by 5.5% over the year, showing a valuation improvement in both halves of the year. Given some of the impressive increases seen in the UK and elsewhere in Europe and the increasingly small levels of vacancy in all but the smallest and oldest buildings across the country, the Irish market consensus is that 2021 will see a further increase in both rents and values in this sector and I fully concur with that view.
b) Office buildings:
Our office portfolio also increased in value, by some 1.9%. However, this raw number does not tell the full story:
i. our buildings in Cork (at the Airport Business Park and in Mallow) and in Millennium Park in Naas benefited from our asset management in letting vacancy and improving Estimated Rental Value ("ERV") through new lease agreements, which saw the value of those properties increase by 6.3%.
ii. across most of the rest of the office portfolio, valuations were broadly unchanged from last year (increasing by 0.04%) and 2021 will be a pivotal year for this part of our activity as I expect the positive effects of the Company's active asset management to continue feeding through to valuations (driven predominantly by positive rent reviews and re-gears than letting of vacant space) and I am also positive on the future of the office, especially in regional Ireland.
c) Non-core buildings:
The unsold non-core properties in aggregate fell in value by 0.8%, almost entirely because of the write down of retail units and despite new leases being signed in the Bridge Centre in July and Listowel in November 2020. During the second half of 2020 we sold two smaller industrial units, each at a profit relative to their mid-year valuations although at a loss of €162,000 to the value shown in December 2019.
As Ireland recovers from the COVID-19 pandemic the future of the suburban and regional office should become clearer. In my view, the combination of strong fundamentals, low net vacancy for the sort of offices required by larger companies and government bodies and existing rents, which largely are still below the level required to trigger new construction, will continue to see a market in which rents rise. This combined with institutional buyers increasingly looking for secure sources of income in a world where interest rates are expected to remain lower for longer will help to keep discount rates at their current levels and possibly drive some tightening. In summary, I am confident that once through the worst of COVID-19 we will see our office valuations increase.
Finance
Despite the lack of capital growth, the Company's income and balance sheet have proved resilient. Rental income grew to €10.9 million from €9.9 million (an increase of 9.6%), reflecting the increased size of the estate. Against this administration costs were tightly managed. The costs attributable to running the Company rose from €3.0 million to €3.1 million (an increase of 2.8%) while the portfolio grew by 23%. This included a fall in total employment costs of 9.6% despite two additional employees being hired during 2020. As is reflected in the financial analysis below, our portfolio has grown in value by 22.6% over the year, our contracted rent roll has grown by 22.5% and our reversionary rent roll has grown by 22.9%. I am pleased that despite the headwinds of a global pandemic the Company has maintained its positive momentum.
The overall impact of the year's performance resulted in an EPRA EPS of 5.49 cents per share on a fully diluted basis, as compared with last year's performance of 7.02 cents per share by the same measure. The reason for the apparent relative under performance is explained by the distorting effect of €2.0 million lease surrender income earned in 2019 (which accounted for earnings of 1.86 cents per share). The underlying 2020 performance and increase over 2019 (after adjusting for the surrender income) was creditable considering the challenges created by the pandemic and I look forward to building on this in 2021.
At year end, the Company had debt facility drawings of €38.6 million and cash and cash equivalents of
€10.4 million, giving a loan to value ("LTV") of 27.2% and a net debt LTV of 19.8%. Our shareholders approved an increase in the targeted LTV from 25% to 40% on 30 September 2020 and a new facility was negotiated and agreed with AIB in late December and, as such, the loan balances and the LTV are likely to increase during 2021.
The positive valuations described above meant that the Group's fully diluted NAV increased from 98.41 cents per share in December 2019 and 97.22 cents per share in June 2020 to 99.77 cents per share at year end. The Company also declared progressive quarterly dividends which, together with the final dividend of 1.40 cents per share will mean that shareholders will have received 5.15 cents per share from 2020 earnings.
Irish Commercial Real Estate Market
The Irish Commercial Real Estate ("CRE") market was, like all property markets, hugely affected by the pandemic. After a record first quarter, commercial activity almost ground to a halt as the Government locked down the country in an attempt to control the spread of infection. The lack of international travel for most of the year meant that transactions (investments, lettings, new construction) which depended on advisers or executives flying into Ireland to complete due diligence on properties or portfolios had to be delayed or abandoned. The almost universal move by office workers to work from home challenged the orthodoxy on the importance and/or necessity of offices, particularly city centre offices. Most fundamentally, the pandemic accelerated trends that were already evident in the wider economy, such as the move to a digital economy. For those sectors in which the Company is active (office and industrial) we saw divergent shifts.
Industrial
Notwithstanding the difficulties of operating within a partially closed economy, the industrial sector saw one of its busiest years. Take up in Dublin was almost 3% up on 2019, with the fourth quarter having the highest quarterly take up over 5 years. Prime rents rose during the year to over €10.50 per sq. ft. and vacancy fell to an almost unprecedented 2%[3]. The global focus on industrial property saw prices increase and yields compress to 4.7% in the year[4]. Forecasts for 2021 are for more rent increases and further yield compression.
This story is not unique to the Dublin market. Both Cork and Limerick also recorded banner years, with only Galway, where the lack of new construction and suitable vacancy continued to depress activity, recording a quiet year. In Cork take up was on a run rate to be the best year since 2005 with the vacancy rate falling to 3.5% of which only 23% is grade A5. The market is described as suffering an acute shortage of space with only two sites of greater than 50,000 sq. ft available and the only new construction currently being design and build. In Limerick gross vacancy is running at 6.5% which is the lowest for a number of years, with only 24% of that being grade A and more than 50% of the total vacant space reserved. Again, there is an acute shortage of large high quality space, and while there has been some speculative development in Shannon, all of that is now reserved. Take up in Galway has been muted, largely because of the lack of any available space. There is only one building of greater than 50,000 sq. ft. available to rent and despite the delivery of one new building in Parkmore, vacancy rates stand at 5.3% of which 45% is Grade A.[5]
Office
The office market by contrast was negatively affected by COVID-19, although our views of the future of the office are rosier than one might expect just looking at headlines. Take up in the Dublin market was down almost 47% on 2019. The impact of the pandemic on occupier activity is made manifest when one sees that over 60% of that take up occurred within the first quarter of the year. Even though the fourth quarter saw a revival of activity it was still the lowest fourth quarter number in a decade. Whilst the overall numbers were terrible, almost 37% of all activity occurred in the suburbs, although the suburbs accounted for only 30% of the fourth quarter letting. Overall vacancy across the city has risen to 9.1%, with city centre standing at 8.5%, grade A at 7.5% and suburban vacancy rising to 10.2% principally concentrated in the south eastern and western suburbs4.
Whilst prime rents have softened, suburban rents stayed broadly where they were at the beginning of the year. Investment activity was muted. Total investment spend was €3.6 billion for the year, substantially down from 2019. Of that circa €1.4 billion was in offices. Despite the lack of transactions there was little effect on discount rates with city centre prices unaffected and prime yields unchanged at 4%.
Regional markets were similarly affected. There is speculative development in Galway and Cork but after a flurry of activity over the past couple of years, there is nothing further in Limerick. In Cork city centre, development continues apace with work beginning on the second phase of Navigation Square, and the imminent completion of Horgan's Quay and Penrose Dock. Those developments will have added almost 600,000 sq. ft. of prime office space to a market which historically has had annual take up of less than half of that. However, the developments have driven new and increased demand from those multi-nationals and other large occupiers which had seen Cork as a natural site for business but one which was too constrained by the available floorplates of high quality offices. Overall net vacancy rates have increased to 12.2% on a gross basis but after taking account for reservations and pre-signed transactions net vacancy sits at 8.4%5. Both prime and suburban rents saw small upticks during the year and early indications are that the city centre, with effective rents of €30 to €35, is proving a draw, not only to tenants who need large, high quality space, but as importantly to larger institutional investors.
In Limerick the positive momentum of the past two years was slowed by the effective shutdown but notwithstanding the slowdown in take up, availability fell by 29% from 2019. Gross vacancy stood at 9.9% with net vacancy at just below 6.6% and only half of the available space of the grade A standard. The vacancy rate is one of the lowest on record. Unlike Galway and Cork, there is no development currently in Limerick City or in Shannon, but forward development plans suggest that if the market returns to normality then that would be kick started.
In Galway take up has been very low, but this is more to do with the lack of vacancy in large floor plates than a moribund occupier market. The vacancy rate of 4.9% and the acute shortage of available space, with less than 100,000 sq. ft. of grade A quality space available means that it is difficult for businesses to expand and has hampered Galway's ability to attract new foreign direct investment ("FDI") which require office space5. This has, after many years, been addressed. The construction at Bonham Quay and Crown Plaza are the first major new developments outside of the Parkmore IDA park. Early indications are that both are proving very attractive to tenants and on delivery should help reignite the office take up in Galway which has stagnated over the past few years.
Sustainability
2020 was the first full year in which the Company rolled out its ESG strategy. In summary, some of our activities were affected by COVID-19, most especially in our planned interactions with local communities in the areas of the country where we have properties, but the Company still made significant strides in assessing the impact its buildings have on the environment and has started a multiyear plan to reduce that impact, including working with tenants to understand better how we can jointly improve the environmental impacts of the buildings we own and they occupy and to improve the common areas of, and external spaces associated with, those buildings for the benefit of all occupants.
Outlook
The Irish economy, driven by the resilient FDI sectors such as life sciences and technology, has been one of the best performing globally even as the domestic economy suffered a worse slow down than most in Europe. As the country emerges from lockdown it is likely that the recovery will be sharp and the continued performance of the key FDI sectors should produce yet another strong year despite the headwinds that will be generated by Brexit.
Even with the complications caused by travel bans and market shutdowns the IDA Ireland still managed to generate almost as many foreign direct investments in 2020 as in 2019 and with the easing of lockdowns, which will begin between spring and late summer 2021, we should expect an acceleration of demand.
I expect the industrial sector to have another excellent year with the principal issue being the availability of quality stock and an increase in build and design across the country. In offices, the market will be slow until a clear and timetabled route out of lockdowns can be mapped. However, that is just a question of time. In my view, there is no doubt that the office has a future, but as employers and employees include the flexibility to work both in an office and from home, it will be different from its past. In our markets I expect a greater stratification of offices into those seen as attractive and deserving of a premium and those which are acceptable but will trade back from the very best. Because the ERVs on our offices still sit well below the levels which would trigger new development (and even further below the levels required for premium builds) and because appropriate space is still in short supply, I expect our office rents to keep rising.
The Company will continue to focus on growing its capital and portfolio and will focus activity on those parts of the industrial and office markets which we believe will generate the optimal mix between yield and value growth that will continue to enhance distributions to our shareholders and the strength of the balance sheet underpinning their investments.
2 Prior to year end a lease was agreed for part of our Cork Airport building which started on 1 January 2021. This increased the annualised rent roll to €11.3 million and vacancy to 4.1% the day after year end.
3 CBRE Dublin Industrial Logistics and MarketView Q4 2020
4 Dublin Office MarketView Q4 2020
5 Cushman And Wakefield MarketBeat Q3 2020
Financial Review
In the context of a property company in a year of pandemic, our results for the year were positive. Our debt facility was increased by 84% and the property portfolio by 23%. Group net assets grew from €109.9 million to €111.6 million at year end, rental income grew from €9.9 million (€7.9 million excluding lease surrender) to €11.4 million[6] and administrative costs remained controlled at €3.1 million when compared with €3.0 million in 2019. Our total expense ratio ("TER") fell from 3.7% in 2020 to 2.9% in the year.
Net Asset Value
The net assets of the Group increased by €1.7 million, a rise of 1.5% over the year. The Company increased its available debt facility by €24.5 million to €53.6 million, which was partially deployed on a further €25.3 million of property assets. Valuation gains on the Group's portfolio over the year were €1.2 million, inclusive of property purchase costs of €2.1 million incurred on acquisitions. The vast majority of the net rental income was distributed to shareholders as quarterly property income distributions.
Income statement
Net rental income for the year was €10.7 million, with the contracted rent roll rising by €2.0 million. The strong rental collections throughout the year supported the Company's decision to increase its LTV target, which was approved by shareholders in September 2020. A comparison of contracted rent roll for properties owned on 31 December 2019 with 31 December 2020 shows an increase of 22.5% while contracted rent roll on properties bought during the year rose by 40%, the majority of which was due to the leasing of vacancy at Millennium Park. As mentioned below in the Portfolio Review, there were lease events which increased the income from some of the Company's properties, and with our reversionary portfolio we expect further increases over the coming years.
Administrative expenses over the year were €3.1 million. There were two additional hires: one in order to internalise the Company's company secretarial function which was previously provided by an external provider, and another to provide analytical property support. The Company Secretary internalisation was completed this year, and the Company will look at continuing to internalise other roles currently provided by third parties in the future if they offer control and cost benefits.
Dividends
Following last year's initiation of quarterly dividends, dividends paid in the year were 4.79 cents per share, a fall of 1.88 cents per share on the dividend paid in 2019 (0.02 cents per share when the 2019 special dividend is excluded) and fully covered by EPRA earnings. The Company has had a quarterly dividend schedule in place since March 2019 and continues to target distributing its EPRA earnings to shareholders in this manner if prudent and legally permissible. Dividends were paid throughout the year.
Investment properties
The property portfolio value was €141.9 million at 31 December 2020, up from €115.8 million the prior year. Realised and unrealised gains on the property portfolio were €1.3 million for the year (notwithstanding the costs of property purchases), which includes the gain on sale on two of our smaller properties. Capital expenditure not recharged to tenants was €0.1 million. As at 31 December 2020, the portfolio had 25 properties, with an average value of €5.7 million. The remaining smaller legacy non-core properties that were a part of the IPO seed portfolio will be marketed over the coming year and the proceeds redeployed in more institutional properties.
Borrowings
Over the year the Company amended its revolving debt facility with AIB, increasing it by 84% from €29.1 million to €53.6 million, and the drawn amount increased from €20.8 million to €38.6 million over the year. Net debt at the end of the year was €28.2 million. The Company's shareholders approved increasing the Company's target LTV from 25% to 40% at EGM in September 2020, following which the debt facility was extended and amended. The maturity was extended from December 2020 to December 2024, extendible by a further year, and the margin is reduced for periods when the LTV is below 35%. The interest coverage covenants remain consistent but the REIT Cost Cover covenant has been removed. As at 31 December 2020, the Company had undrawn facilities of €15.0 million. The LTV increased from 18.0% to 27.2% over the year and is expected to rise again as pipeline assets are purchased. The Company remained fully compliant with its facility covenants throughout the year.
Liquidity
The Company has maintained strong reserves throughout the year, finishing the year with cash of
€10.4 million and €15.0 million of available debt facilities. The majority of this is expected to be applied in the purchase of further properties, the Company's property pipeline being a multiple of this amount.
Share capital
The Company received agreement from its shareholders in May 2020 for a one year extension, 100 million share issuance programme, which has yet to be accessed. Shares in issuance remained at 111.6 million.
[1] Prior to year end a lease for part of our Cork Airport building was agreed which started on 1 January 2021. This increased the annualized rent roll to €11.3 million and vacancy to 4.1% the day after year end.
Portfolio Review
Portfolio characteristics at a glance:
|
| 31 Dec 2020 | 31 Dec 2019 | 1 Jan 2021* |
| Contracted rent roll | €10.9m | €8.9m | €11.3m |
| Portfolio ERV | €12.4m | €10.1m | €12.4m |
| Portfolio value | €141.9m | €115.8m | €141.9m |
| Gross yield at fair value | 7.7% | 7.7% | 7.9% |
| Gross reversionary yield | 8.7% | 8.7% | 8.7% |
| Number of properties | 25 | 23 | 25 |
| WAULT to Break/Lease end | 4.1/7.2 years | 4.6/8.1 years | 4.2/7.5 years |
| Vacancy by ERV | 6.9% | 7.7% | 4.1% |
· Portfolio increase via acquisitions from €115.8 million to €141.9 million at 31 December 2020: a 23% increase.
· Two buildings were sold in 2020 (Value €2.2 million).
· Portfolio Location: 53% (2019: 42%) of contracted rent roll generated by buildings within the Dublin catchment area.
· Portfolio Quality: 96% (2019: 96%) of contracted rent roll secured by Government, FDI and Large Enterprise tenants.
· Sectoral Exposure: 76% (67%) of contracted rent roll generated from office, 19% (2019: 26%) from industrial and 5% (2019: 7%) from non-core portfolio. 36% of rent roll in Life Sciences, 26% Government & 17% Finance & Business Services.
* 1 January 2021 figures include the Alter Domus lease at Unit 2600 Cork Airport, 1/1/2021
|
| Property | Type | Location | Value (€'000) | Contracted Rent Roll (€'000) | Gross Yield at Fair Value | Reversionary Rent Roll (€'000) | Gross Reversionary Yield | WAULT to lease break (years) | WAULT to lease end (years) | Portfolio Vacancy |
| 1 | One Gateway | Office | Dublin | 19,300 | 1,306 | 6.8% | 1,495 | 7.7% | 1.6 | 2.7 | 0.4% |
| 2 | Letterkenny | Office | North West | 15,670 | 1,437 | 9.2% | 1,458 | 9.3% | 7.3 | 7.3 | 0.0% |
| 3 | Three Gateway | Office | Dublin | 14,540 | 913 | 6.3% | 1,181 | 8.1% | 1.0 | 1.0 | 0.0% |
| 4 | Teleflex | Office | Midlands | 11,580 | 948 | 8.2% | 851 | 7.3% | 7.8 | 10.7 | 0.0% |
| 5 | Birch House MP | Office | Dublin Catchment | 8,200 | 697 | 8.5% | 697 | 8.5% | 9.5 | 14.5 | 0.0% |
| 6 | Unit 2600, Cork Airport[7] | Office | Cork | 6,950 | 0 | 0.0% | 689 | 9.9% | - | - | 100.0% |
| 7 | Chestnut House MP | Office | Dublin Catchment | 6,200 | 507 | 8.2% | 576 | 9.3% | 2.9 | 2.9 | 0.0% |
| 8 | IDA Athlone Block B | Industrial | Midlands | 6,075 | 530 | 8.7% | 530 | 8.7% | 2.2 | 12.2 | 0.0% |
| 9 | IDA Athlone Unit B2 | Industrial | Midlands | 5,550 | 483 | 8.7% | 483 | 8.7% | 2.7 | 13.7 | 0.0% |
| 10 | Ashtown Gate Block C | Office | Dublin | 4,990 | 395 | 7.9% | 396 | 7.9% | 3.2 | 4.9 | 0.0% |
| 11 | Ashtown Gate Block B | Office | Dublin | 4,780 | 405 | 8.5% | 374 | 7.8% | 2.1 | 8.4 | 0.0% |
| 12 | IDA Waterford Block A | Office | South East | 4,150 | 353 | 8.5% | 424 | 10.2% | 2.6 | 14.0 | 0.0% |
| 13 | IDA Athlone Block A | Industrial | Midlands | 3,640 | 270 | 7.4% | 313 | 8.6% | 4.9 | 8.0 | 0.0% |
| 14 | Hazel House MP | Office | Dublin Catchment | 3,460 | 341 | 9.8% | 335 | 9.7% | 2.8 | 4.4 | 0.0% |
| 15 | Willow House MP | Office | Dublin Catchment | 3,300 | 222 | 6.7% | 316 | 9.6% | 3.7 | 4.8 | 18.6% |
| 16 | Ash House MP | Office | Dublin Catchment | 3,270 | 326 | 10.0% | 331 | 10.1% | 0.5 | 5.5 | 0.0% |
| 17 | IDA Athlone Block C | Industrial | Midlands | 3,215 | 280 | 8.7% | 253 | 7.9% | 3.8 | 8.8 | 0.0% |
| 18 | Airways Unit 8 | Industrial | Dublin | 3,100 | 160 | 5.2% | 291 | 9.4% | 5.1 | 10.1 | 0.0% |
| 19 | Blackwater House | Office | Cork | 2,860 | 235 | 8.2% | 343 | 12.0% | 3.7 | 3.7 | 29.0% |
| 20 | Airways Unit 7 | Industrial | Dublin | 2,760 | 160 | 5.8% | 258 | 9.4% | 4.5 | 9.5 | 0.0% |
| 21 | Beech House MP | Office | Dublin Catchment | 2,170 | 222 | 10.2% | 221 | 10.2% | 1.6 | 6.7 | 0.0% |
| 22 | Unit L2 Toughers | Industrial | Dublin Catchment | 1,930 | 170 | 8.8% | 211 | 10.9% | 2.1 | 2.1 | 0.0% |
| 23 | Old Mill Lane | Mixed Use | South West | 1,690 | 247 | 14.6% | 159 | 9.4% | 5.7 | 8.0 | 0.0% |
| 24 | Bridge Centre | Retail | Midlands | 1,625 | 209 | 12.9% | 161 | 9.9% | 7.1 | 8.4 | 0.0% |
| 25 | Canal House | Mixed Use | Midlands | 920 | 107 | 11.6% | 55 | 6.0% | 6.0 | 6.0 | 0.0% |
|
|
| Total |
| 141,925 | 10,922 | 7.7% | 12,403 | 8.7% | 4.1 | 7.2 | 6.9%1 |
[1] Prior to year end a lease for part of our Cork Airport building was agreed which started on 1 January 2021. This increased the annualized rent roll to €11.3 million and vacancy to 4.1% the day after year end.
At year end, the Company's property portfolio had 25 properties throughout Ireland. Lisney as external valuer valued the portfolio at €141.9 million as at 31 December 2020 (2019: €115.8 million), reflecting a gross yield at fair value of 7.7% (2019: 7.7%) and gross reversionary yield of 8.7% (2019: 8.7%).
Company Portfolio Objectives & Policy
The Company's investment strategy is to invest in and manage a diversified portfolio of industrial and office property assets in its target geographical market securing high quality income from quality tenant covenants.
The investment objectives are constrained by the following risk limits:
· No single property shall exceed 25% capital value of the total assets.
· Income receivable from one tenant (except Government) shall not exceed 35% of the total rental income.
· At least 90% of the Company's assets will be invested in office and industrial assets and the REIT will not invest in the residential, retail, or service assets.
· No more than 20% of the total assets of the Company may be invested in properties outside its geographic target market.
· The Company will not engage in speculative development, however, it will consider financing construction against pre-lets and/or agreements to lease to meet current tenants' expansionary plans.
Investment Activity 2020
The COVID-19 pandemic and national lockdowns have had a major impact on investment activity across the portfolio in 2020. However, the Company completed the purchase of six office buildings at Millennium Park, Naas and sold two of its non-core assets in the year.
Millennium Park
The acquisition of a portfolio of six office buildings at Millennium Park in Naas was completed in February 2020 at a purchase price of €25.3 million, which represented a net initial yield of 5.80% after accounting for purchase costs.
The portfolio is a part of the Millennium Park, Naas development, situated approximately 40 minutes' drive from both Dublin City Centre and Dublin Airport. At the time of exchange, it was expected to benefit from the upgrade of the M7 motorway and significantly improved access from the new M7 interchange at Millennium Park. That interchange was completed during 2020.
The portfolio has 141,000 sq. ft. of modern offices over six buildings, as well as circa 770 car parking spaces and a six-acre greenfield site. All six of the office buildings are tenanted by multinationals, large Irish enterprises and governmental bodies. The combined leases at acquisition had a weighted average unexpired lease term (WAULT) to break of approximately 2.5 years and to lease expiry of approximately five years. Through asset management we have managed to increase these to 4.5 years and 7.5 years respectfully. The annual rent roll for the portfolio at purchase was circa €1.6 million and by the end of 2020 this had grown to €2.3 million.
Non-Core Property Disposals
During 2020, the Company continued to divest its non-core properties and disposed of one of these assets together with a smaller industrial unit which had become vacant during the year.
The Company agreed the surrender of a lease at 13 Holly Avenue, Stillorgan Industrial Estate, Dublin. This industrial building of 16,990 sq. ft. was one of two inter-connected buildings (the other half was under separate ownership) which was solely occupied by DiaSorin Ireland Limited (an Italian biotech multinational that had been acquired by the American Standard Group) ("DiaSorin"). Under a surrender agreement, DiaSorin paid a sum in lieu of all rent due for the residual term of the lease and a further agreed amount for dilapidations. The property, which was fitted as a high specification med-tech industrial space, was sold with vacant possession in November 2020 for €1.46 million, In addition to the sale value, the Company received a further €426,603 in dilapidations and surrender premium from the surrender negotiations outlined earlier.
The Company also sold Units F4 & F5 at Centrepoint Business Park, Clondalkin, County Dublin, for €950,000. The transaction, which completed in early December, sold at 11% ahead of the 30 June 2020 independent valuation.
Portfolio
Excepting non-core assets, the portfolio consists of industrial and office properties, with a high quality tenant base generating a high yielding income at current valuation levels.
The portfolio has 824,940 sq. ft. of total space. The office sector represents 60.9% by area of the portfolio (502,705 sq. ft.) of which approx. 53.5% (268,846 sq. ft.) is located within the Dublin catchment area.
The industrial sector represents 34.3% by area of the portfolio (283,056 sq. ft.) of which approx. 43.0% (121,686 sq. ft.) is located within the Dublin catchment area. The balance (161,370 sq. ft.) is located within the IDA Business & Technology Park, Athlone.
The non-core portfolio represents 39,179 sq. ft. or 4.7% of the portfolio by area and these units are in buildings where retail tenants are ancillary to the anchor tenants which are government agencies.
Overall, the vacancy rate of the portfolio by area at year end was 6.4% or 52,395 sq. ft. primarily from Unit 2600 at Cork Airport and Blackwater House.
Portfolio Asset Management
Birch House, Millennium Business Park, Naas, Co. Kildare
In July 2020, the Company leased Birch House to Aldi Stores (Ireland) Ltd. Birch House is a modern three-storey office block designed by Scott Tallon Walker and has 40,333 sq. ft. of open plan space constructed around a three-storey atrium. The building is in the Millennium Business Park, in Naas, County Kildare, where the Company owns another five buildings, all of which are let. The lease for the building plus 156 car park spaces is for a fifteen-year term with a break option at the end of year ten and at a headline annual rate of €16.50 per sq. ft. plus €200 per car park space, equating to an annual rent of €696,694 per annum.
Unit 2600 Cork Airport Business Park, Cork
In December 2020, the Company signed a lease for 20,268 sq. ft. (the first floor) of Unit 2600, Cork Airport Business Park to Alter Domus including 79 car parking spaces. The lease, which is for a fifteen-year term beginning 1 January 2021, with a break option at the end of year five and year ten, was agreed at a headline rate of €16.50 per sq. ft. with a separate licence for 79 car spaces at a rent of €200 per car space per annum. The lease facilitates Alter Domus' ongoing expansion of their Cork operations and will generate an annual combined rent of €350,000 for the Company.
Block A, IDA Waterford Business & Technology Park, Waterford
Also, in December 2020, the Company consented to a tenant's request to exercise an option to renew the lease of the second-floor office suite (9,777 sq. ft.) within Block A, IDA Waterford Business & Technology Park, Holycross, Waterford. The tenant, SE2 Information Services Limited ("SE2"), has been in occupation since 2015 and opted for a further five-year term (including an option to break at the end of the third year) with a 2% uplift in annual rent.
Unit A, IDA Business & Technology Park, Athlone, Co. Meath
The Company also agreed to the partial surrender and re-letting of 10,540 sq. ft. of first floor space within Unit A, IDA Business and Technology Park Athlone. The building had been wholly let to Signature Orthopaedics Europe Limited (a subsidiary of an Australian med-tech company) and the surrendered space has been leased to KCI Manufacturing Unlimited Company (a subsidiary of 3M) ("KCI"). The tenant, KCI, already occupies Buildings B1 and B2 which are adjacent to this building and thee new letting satisfies KCI's immediate expansion plans. The lease was for a five-year term, which is coterminous with KCI's other leases in B1 and B2. The agreed rent of €9.29 per sq. ft. is at current market value producing a 25% uplift to the Signature Orthopaedics Europe Limited rent for the surrendered space.
The Bridge Centre, Tullamore
In July 2020, the Company agreed a new lease for the vacant Unit 24 in the Bridge Centre, Tullamore. The space is a prime 750 sq. ft. ground floor unit with main square frontage. The lease to EBS d.a.c. is for a ten-year term with a break at the end of year five. The annual rent of €33.33 per sq. ft. is in line with our pre COVID-19 estimate of ERV of prime space within the Bridge Centre.
Two further leases, both in this same shopping centre were also agreed. The first, to An Post, is an extension to their current lease for Units 23 and 23a. These comprise a prime 2,260 sq. ft. unit to the front of the Bridge Centre with offices on first floor level. The lease was agreed at €28.53 per sq. ft. for a ten-year term. The second new lease for Unit 11 (1,193 sq. ft.) was agreed with Byron Distribution Limited, again for a ten-year term and at €27.07 per sq. ft. All the Company's units at the Bridge Centre are now fully let. These units in the Bridge Centre produce an average rent of €25.65 per sq. ft. with a WAULT to break and expiry of approximately seven and eight years respectfully.
Asset Management
In addition to these new leases, six rent reviews were triggered in 2020. A rent review agreed at Millennium Park in Naas set a headline rent of €17.75 per sq. ft. A further review at Block A Waterford added a combined €70,000 rent to the portfolio, equating to a 0.6% increase for the Company that will take effect in 2021. Negotiations of four further rent reviews from 2020 are ongoing.
The Company agreed a re-gear of the OPW lease for 12,290 sq.ft. of office space at our property in Old Mill Lane, Listowel. The re-gear removed the July 2022 break option, extending the lease to July 2027 in exchange for a circa €4 per sq.ft. reduction in rent.
Several break options which crystalised during 2020 were not exercised despite the impact of the pandemic. A number of extension options were exercised, including the ESB in Gateway One and Gateway Three and SE2 in Waterford (as mentioned above). The combined effect of these events has helped to preserve the WAULT on the portfolio.
Principal Risks and Uncertainties
The Company's Board has overall responsibility for the establishment and oversight of the Company's risk management framework to ensure that its strategy can be successfully implemented. The Audit Committee is responsible for developing and monitoring the Company's risk management policies, as set out in the governance statement. Risk management policies are established to identify and analyse the risks and emerging risks faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. All of these policies are regularly reviewed in order to reflect changes in market conditions and the Company's activities.
The Company's risk register, reviewed by the Audit Committee, records key risks and emerging risks across the Company's current and future investment, operations, information technology, governance, economic and strategic areas of activity. Emerging risks that have required new entries on the register in 2020 have been indicated with * in the tables below. The register assesses the likelihood and impact of risks as well as their direction in order to monitor progress in managing and mitigating them. A register of material errors and breaches is also maintained and no material breaches were noted during the financial year.
The Board
The Board has overall responsibility for maintaining and monitoring the Group's systems for risk management and internal control. The Board reviews and approves the risk appetite of the Company.
The Audit Committee
The Board has charged the Audit Committee with reviewing the adequacy and effectiveness of the Company's internal control (including financial control) and risk management systems. The Audit Committee assesses management's risk measurement and control.
Executive Management
Executive management have day to day responsibility for ensuring the Board's strategy with regards to risk management, measurement and reporting is implemented. In addition, they identify and provide assessment of current and future risks the Company may face for the Board's review.
Internal Audit
The Audit Committee considers the nature, scale, complexity and range of operations of the Company.
The internal finance team maintains internal control processes, disaster recovery processes and a business continuity programme which is reviewed on a regular basis. Based on the Committee's assessment of the foregoing controls within the Company, combined with the current size of the Company, the Audit Committee has recommended to the Board that it does not believe it is necessary to establish an internal audit function at this time. The Board concurs with the Audit Committee's recommendation not to establish an internal audit function for the Company at this time. The Audit Committee will continue to review this position annually and make appropriate recommendations to the Board.
The Company's assets are primarily office and industrial commercial properties in Ireland. The principal risks it therefore faces are related to the Irish commercial property market in general, the Company's operating environment and individual properties and tenants. The Board has carried out a robust assessment of the principal risks and sets out below the principal risks and uncertainties that the Company is exposed to and that may impact performance in the coming financial year. The Company proactively identifies, assesses, monitors and manages these risks. Some risks are not yet known and some that are not currently deemed material may turn out to be material in the future. The material risks and uncertainties identified, along with their strategic impact on the business and mitigating factors, have been outlined.
| Risk Grouping | Risks | Mitigants
| Commentary | Covid | momentum |
| Strategic | Inappropriate Strategy. * The cyclicality of the property market or investor and tenant demands may change, requiring the Company to modify its strategy to mitigate an adverse impact on shareholder returns. |
The Board reviews the Company's strategy annually and considers whether any change may be needed in the light of current or forecast market conditions. The Board has property, financial markets and accounting professionals to advise on strategy changes in their specific areas. |
The low retail exposure, high rent collection and leasing activity in 2020 have helped the Company's performance. Changes in office usage post COVID-19, changing occupier requirements need to be closely monitored. |
The COVID-19 pandemic has required the Company to monitor both shareholder interest in the Company, tenants' interest in the Company's properties and the collection and valuation performance of the Company's properties closely. The Board has reviewed stressed scenarios to ensure the Company's strategy remains valid in adversity. |
Stable |
|
| Reputational damage* The Company's ability to attract high calibre staff and service providers, protect itself from malicious actions (fraud, cybercrime) and maintain its regulatory standing may be challenged by reputationally damaging news or events. |
The Company has a strong system of internal controls and the Audit Committee reviews compliance and internal controls. The Company has increased its efforts on communicating its performance and intentions with current and future shareholders as well as other stakeholders. A formal PR plan has been implemented to ensure the Company is not misunderstood and has a platform from which to respond to reputationally damaging news. |
The Executive management view decisions made from the perspective of all stakeholders as required under the UK Code to understand how the Company might be viewed by others. |
The Board is aware that following the pandemic the Company and its comparables will be reviewed in the light of their performance (financial, social and environmental) under testing times, providing an opportunity to enhance the Company's reputation. | Stable |
|
| Inappropriate capital structure. The Company is financed by equity and debt and is reliant on compliance with its debt covenants and ability to raise further equity capital for its operational activity. |
The Company's property assets are valued independently with oversight from the Valuation Committee. The Board reviews the Company's debt covenant compliance at each quarterly Board meeting and reviews financial forecasts of the Company's performance. The Audit Committee and the Board review the Company's going concern status and expected shareholder returns, including cash and financing sensitivities. The Company's shareholders approved a 100 million share issuance program in H2. The Board has reviewed the company's equity capital raising plans for 2021 to allow the Company the best opportunity for continuing its growth. |
The Company's collections and property value relative stability have demonstrated the financing in 2020 to be appropriate. Following Board and shareholder approval the Company's target LTV was increased from 25% to 40% in Q3, allowing the Company to continue to execute on its pipeline while the equity capital markets have been closed in 2020. The Company has conducted meetings with current and potential shareholders to ascertain the future support for equity capital raising when markets open. |
| Stable |
|
| Inability to grow the Company Lack of growth in the Company's equity might prevent further liquidity or additional shareholder participation in the Company's shares, making them less attractive. If the Company does not grow, its operational leverage (it could grow substantially without a proportionate increase in administrative costs) would be wasted. |
The Company has received agreement at EGM to raise a further 100 million shares before May 2021 and has consulted with its brokers to establish a plan to access the capital markets when they are attractive for the Company. The Board has reviewed the Company's register in order to ensure equity capital providers that are under-represented are a focus for marketing the Company's shares. |
The Board see the growth of the Company via raising further equity capital as key to the Company's success. |
The rebalancing of the economy in response to the pandemic will play a significant part in determining the chief drivers of equity interest. Until clear sight of the pandemic stabilising or receding is available, the markets may remain closed and the rebalancing may be more severe. | Increasing |
|
| Reliance on incorrect information and analysis.* Decisions made on poor or flawed information, weak due diligence or inappropriate advice could lead to reputational and financial loss. |
A formal due diligence and proposal process is required for all purchases, sales, significant asset management and tenant leasing. The Company maintains an independent record of property transactional and leasing information to provide market comparisons for potential actions. All decisions above require Investment Committee approval, with Board approval required for particular decisions. |
A number of the Company's properties are multi-tenanted or grouped, allowing the Company more accurate data-points from first-hand evidence of leasing and asset management terms from its own tenants. |
The lower investment and leasing activity in 2020 has led to less transactional evidence for decision making. | Increasing |
| Economic | Weakening Economy A weakening national economy puts pressure on rents and tenants, reduces the availability of debt financing and brings more onerous debt financing terms. Fewer buyers for the REIT's properties. |
The REIT's tenants are mostly Government and foreign direct investment, reducing reliance on the local economy. The REIT assets are judged on the levels of local vacancy. The REITs assets are mostly in areas of low net vacancy where pressure on rentals is upward, providing some protection against falling rents. Targeted properties are majority tenanted by stronger tenants with demand and businesses not just dependant on the local economy. |
The Company undergoes frequent forecasting, scenario forecasting and stress testing to understand the potential impact of capital, economic and portfolio changes. The economic indicators to date have shown that while the local economy has been badly economically affected in 2020, the FDI sector has continued to grow, albeit at a reduced pace. |
The length and severity of the pandemic will be the key driver of immediate economic stress. This will continue to be led by the timing and efficacy of immunity measures and local restrictions on movement. | Increasing |
|
| Weak FDI demand Risk of falling demand from Foreign Direct Investment tenants. |
The Company's acquisition policy requires alternative use planning. The Company monitors and aims to understand Foreign Direct Investment trends in advance. |
The Company follows FDI flows closely, and the Board's Chair has direct FDI experience as a recent and senior member of IDA Ireland.
|
| Stable |
|
| Interest rates Debt facility margins and costs may increase. Interest rate risk may increase. |
The Company will seek to mitigate the impact of interest rate rises on any future debt facility. The Company's finance manual includes mitigating policies for hedging interest rate risk. |
|
The increase in government support for financing through the pandemic has helped to keep current and expected interest rates lower. | Stable |
| Regulatory | Brexit As the impact of the Brexit agreement is felt the land bridge across the UK to mainland Europe may become increasingly expensive for tenants. |
The key risk areas by sector (agriculture, food manufacture) are avoided in the REIT portfolio. Tenants are assessed on the volume of their sales to the UK or supplies from the UK at rental or acquisition, and by their use of the land bridge across the UK to mainland Europe. Targeted properties are majority tenanted by stronger tenants. |
The negotiation of the Brexit agreement has shown that its impact may lead to a number of significantly different outcomes. The Company continues to watch this closely with a view increasingly on the medium term and long-term impacts. |
| Increasing |
|
| Taxation management and reform The Company is required to comply with local taxation laws, EU securities legislation and the Companies Act 2014, all of which may be amended. |
The Company's finance team demonstrates the Group's compliance with the REIT rules to the Board quarterly. The Amendments introduced to the 2019 Finance Act have ensured the Board have continued to take advice on the potential taxation changes from the Company's advisors. The Company is a participatory member of EPRA and management attend industry briefings. |
|
The Board has reviewed the impact of forward looking expected and increasingly stressed projections on the Company's compliance. The increased cost of the pandemic may later place a heavier taxation burden on the Company. | Stable |
|
| Taxation planning* Emerging risk the Company may attract a tax charge if not listed on the main market of an EU Member State recognised exchange within 3 years of May 2018. |
The Company has been granted up to a year's extension for the listing requirement, dependent on its situation. The Company is planning to list on an EU main board as soon as is practical. | The Company has started the process of listing it shares on the Main Securities Market of Euronext Dublin with a view of completing this in H1 2021. |
| Increasing |
| Property | Company asset valuation Property assets outside the Dublin Central Business District may lack recent comparable transactions or benchmarks, resulting in misleading valuations. |
The Company has a separate Valuation Committee to ensure the most capable valuers are used. The Valuation Committee can change the valuer and use more than one valuer for the portfolio. The property team keep a record of comparables from acquisition to share with the valuer. |
This risk has increased through the pandemic, as fewer investment and leasing transactions have occurred. |
The pandemic has led to valuers occasionally being unable to inspect buildings, and appending material uncertainty clauses to their valuations. | Increasing |
|
| Property concentration (excessive exposure) Aggregation of property location, tenant, building use and tenant sectors may expose the Company to increased risk. |
The Company's investment committee reviews each asset individually and against the aggregated portfolio on purchase or later significant capital expenditure. The Company seeks to maintain a suitably diverse portfolio of properties and tenants, paying regard to the tenant's credit quality. Significant purchases, lease amendments or capital expenditure are matters reserved for the Board. |
The Company has sought to maintain diversity across its portfolio since IPO, and any future growth would seek to further enhance this. |
The pandemic's impact has led to a significant divergence of returns across sectors and industries and the risk remains elevated, with some sectors facing a more challenging backdrop for the next few years. | Stable |
|
| Tenant behaviour pattern (collections) Risk that the Company's current or future tenants fail to make payments due in a full or timely manner, which could affect the Company's dividends. |
Tenants' covenant strength and prior rental performance is reviewed at purchase, the property management group conduct regular tenant meetings and tenant financial reviews. From the onset of the COVID-19 pandemic the Company has been monitoring collections on a daily basis around rent payment dates, reporting on collections and monitoring any changes in tenant payment behaviour. |
The Company has been encouraged by the collections to date, particularly when compared with the broader market as it has shown the benefits of a strong credit focus on tenants and counterparties as well as beneficial relationships with its tenants. |
The Company's rent collections process has been refined throughout the pandemic, which has found the Company's tenant strategy to be highly effective. | Stable |
|
| Tenant property use* The COVID-19 pandemic may change current and future tenants' workplace requirements. |
The Company contacted all tenants to ascertain their current and expected use of leased properties. A number of tenants' employees have been working from home, the future continuation of which is uncertain, as is the use of a more regional 'hub and spoke' approach to office working. |
While few decisions have been made by tenants and there is little consensus in the market on future office use the Company will continue to support its tenants continued best use of its properties. |
| Increasing |
|
| Poor execution of development or re-furbishment projects The risk that development or refurbishment is under budgeted, overly lengthy or inappropriate.
|
Prior to re-furbishment, the CIO will propose a re-furbishment plan in accordance with the Acquisition policy for approval. Contractors are engaged in accordance with the Company's outsourcing policy which requires competing bids, pre-set timelines and budgets to identify failings and replace contractors if necessary. |
The Company does relatively little development, and only with strict cost and risk management parameters. |
2020 re-furbishment has, while light, been delayed by the movement and work restrictions imposed by Government in response to the pandemic. | Stable |
|
| Ineffective asset management Failing to manage the Company's property assets could lead to increased vacancy, longer void periods and lower rental yields. |
The property management group establish early, on-going relationships with tenants to understand their accommodation needs. Each property has an asset management plan to ensure the tenant and Company work together in this regard. Asset management is reported weekly on all properties to the Executive Directors. |
The lack of equity capital raising in 2020 has increased the Company's focus on its asset management and interactions with existing tenants. |
The different opinions of market participants on the future path of the pandemic and its impact on tenant space and building requirements have required the Company to be flexible with its short and longer term asset management plans. | Increasing |
| Operational | Loss of key staff. The Company relies upon a small team to implement its strategy and run all day to day operations. Loss of employees, or inability to recruit suitable employees could result in poor decision making and underperformance. |
The Board and Company's remuneration policy is designed to incentivise performance and be aligned with shareholders' interests. All employees report to a Board member to provide frequent feedback to the Executive Directors and Board. |
The Company has had no turnover of employees in its life, and in 2020 expanded the LTIP scheme to additional employees.
|
Efforts are made to support employees' safety and well-being through the COVID-19 pandemic. | Reducing |
|
| Business interruption. Events outside of the Company's control may harm the operational, strategic and financial goals of the Company. |
The Company is a flexible employer, having had employees working from the office or at home since IPO. The Company has a daily confirmation on each employee's operational effectiveness. The Company's IT systems (corporate, property management, financial reporting) have been implemented with remote and multiple users in mind and have performed throughout the pandemic.
|
The Company has been tested by the COVID-19 pandemic. All employees can work remotely, the Company's collections have improved throughout the year and valuations have been stable. Travel restrictions have slowed some asset management and due diligence processes. The Company can continue to operate independently of its offices, demonstrated by an office move in Q3. |
| Increasing |
|
| Cyber-attack* Theft or denial of the Company's data and management systems. |
The Company maintains a de-centralised hardware approach, with suitable back-up to prevent irretrievable corruption of data. The Company seeks to maintain strong security around its data. |
The Company has increased cyber-security awareness training for all employees and hardened other areas of security while remote working is prevalent. |
| Increasing |
| Environmental | Sustainability Emerging risk that the Company's assets and operating or economic model may be adversely affected by legislative or sustainability requirements. |
The Company has established an executive Sustainability Policy and Sustainability committee to ensure environmental risks are identified and mitigated. The Company measures and manages its properties' environmental impact directly. The property management group review each property to ensure this is affected. |
All refurbishment projects include environmental considerations to ensure buildings are maintained to current standards Building management systems are being agreed with most tenants to monitor and respond to energy usage. |
| Stable |
|
| Climate change Failure to respond appropriately and sufficiently to climate change makes the Company's buildings less attractive and may not meet the Company's shareholders expectations. |
The Company's sustainability committee reviews these risks to adapt the Company's portfolio to address tenant and stakeholder requirements.
|
Climate change is now considered to be a principal risk given its increasing importance to all stakeholders and the impact of real estate on the environment. |
| Increasing |
Consolidated Statement of Comprehensive Income
For the financial year ended 31 December 2020
|
|
|
| Year ended 31 December 2020 |
| Year ended 31 December 2019 |
|
|
|
Notes | € |
| € |
| Total Rental and related income |
|
|
|
| |
| Rental income
| 3 | 11,364,978 |
| 9,946,724 | |
| Property expenses
| 4 | (712,479) |
| (527,948) | |
|
Net Rental and related income
Fair value gains/(loss) on investment properties Realised gain on disposal of investment properties
|
5 5 |
10,652,499
1,166,063 135,534 |
|
9,418,776
(768,283) 123,174
| |
|
Total income after revaluation gains and losses |
|
11,954,096 |
|
8,773,667 | |
|
|
|
|
|
| |
| Expenditure |
|
|
|
| |
| Administration expenses | 6 | (2,880,829) |
| (2,949,241) | |
| Expected credit loss on financial assets | 16 | (175,583) |
| - | |
| AIFM fees
| 7 | (75,000)
|
| (95,833) | |
| Finance costs
| 8 | (1,814,610)
|
| (669,384) | |
|
Total expenditure |
|
(4,946,022) |
|
(3,714,458) | |
|
|
|
|
|
| |
|
|
|
|
|
| |
| Profit before taxation |
|
7,008,074 |
|
5,059,209 | |
|
Income tax |
10 |
- |
|
- | |
|
|
|
|
|
| |
| Profit for the financial year |
| 7,008,074 |
| 5,059,209 | |
|
Total comprehensive income for the financial year attributable to the owners of the Group |
|
7,008,074 |
|
5,059,209 | |
|
EPRA earnings for the year
Basic earnings per share (cent) Diluted earnings per share (cent) EPRA earnings per share Diluted EPRA earnings per share
|
11
11 11 11 11 |
6,136,655
6.28 6.26 5.50 5.49 |
|
5,704,318
6.24 6.23 7.03 7.02 | |
Consolidated Statement of Financial Position
| As at 31 December 2020 |
Notes |
2020 € |
|
2019 € |
|
|
|
|
|
|
| Non-current assets Investment properties Property, plant & equipment Interest in joint venture Trade and other receivables
|
13 14 15 16 |
141,925,000 239,416 3,473 793,333 |
|
115,790,000 4,717 3,473 - |
|
|
| 142,961,222 |
| 115,798,190 |
| Current assets Trade and other receivables |
16 |
1,076,579 |
|
3,527,754 |
| Cash and cash equivalents | 17 | 10,721,464 |
| 14,577,461 |
|
|
|
|
|
|
| Total current assets |
| 11,798,043 |
| 18,105,215 |
|
|
|
|
|
|
| Total assets |
| 154,759,265 |
| 133,903,405 |
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities Trade and other payables
|
18 |
(4,724,215) |
|
(3,577,657) |
| Non-current liabilities Trade and other payables Borrowings
|
18 19 |
(153,379) (38,278,594) |
|
- (20,403,207) |
| Total liabilities |
| (43,156,188)
|
| (23,980,864)
|
| Net assets |
| 111,603,077 |
| 109,922,541 |
|
Equity
|
|
|
|
|
| Share capital
| 20 | 1,115,722 |
| 1,115,722 |
| Share premium | 21 | 39,409,322 |
| 39,409,322 |
| Other reserves | 21 | 293,627 |
| 125,222 |
| Retained earnings
| 21 | 70,784,406 |
| 69,272,275
|
|
|
|
|
| 1 |
| Total equity |
| 111,603,077 |
| 109,922,541 |
|
|
|
|
|
|
|
IFRS NAV per ordinary share (cents)
Diluted IFRS NAV per ordinary share (cents)
EPRA NTA per ordinary share (cents) |
12
12
12 |
100.03
99.77
99.77 |
|
98.52
98.41
98.41 |
Consolidated Statement of Changes in Equity
For the financial year ended to 31 December 2020
|
|
Notes |
Share capital account |
Share premium |
Retained earnings |
Other Reserves |
Total equity |
|
| € | € | € | € | € | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at 1 January 2020 |
| 1,115,722 | 39,409,322 | 69,272,275 | 125,222 | 109,922,541 |
| Adjustment to retained earnings |
| - | - | (151,634) | - | (151,634) |
| Total comprehensive income |
| - | - | 7,008,074 | - | 7,008,074 |
| Share based payments expense | 24 | - | - | - | 168,405 | 168,405 |
| Equity Dividends paid | 22 | - | - | (5,344,309) | - | (5,344,309) |
| As at 31 December 2020 |
| 1,115,722 | 39,409,322 | 70,784,406 | 293,627 | 111,603,077 |
Consolidated Statement of Changes in Equity
For the financial year ended to 31 December 2019
|
|
Notes |
Share capital account |
Share premium |
Retained earnings |
Other Reserves |
Total equity |
|
| € | € | € | € | € | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at 1 January 2019 |
| 750,000 | 4,000,000 | 70,383,180 | - | 75,133,180 |
| Total comprehensive income |
| - | - | 5,059,209 | - | 5,059,209 |
| Ordinary share capital issued |
| 365,722 | 35,409,322 | - | - | 35,775,044 |
| Share issue costs |
| - | - | (1,026,614) | - | (1,026,614) |
| Share based payments expense |
| - | - | - | 125,222 | 125,222 |
| Equity Dividends paid | 22 | - | - | (5,143,500) | - | (5,143,500) |
| As at 31 December 2019 |
| 1,115,722 | 39,409,322 | 69,272,275 | 125,222 | 109,922,541 |
Consolidated Statement of Cash Flow
|
|
|
| ||
|
| Notes | Year ended 31 December 2020 |
| Year ended 31 December 2019 |
|
|
|
|
|
|
| Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
| Profit before taxation |
| 7,008,074 |
| 5,059,209 |
| Adjustments for: |
|
|
|
|
| Depreciation Fair value (gains)/ losses on investment properties Gain on disposal of investment property |
5 5 | 28,220 (1,166,063) (135,534) |
| 858 1,552,378 (123,174) |
| Finance costs (Increase) in trade and other receivables Increase in trade and other payables Equity share based payments Corporation Tax paid | 8
24 | 1,814,610 (1,380,439) 733,899 168,405 - |
| 669,384 (2,962,651) 1,069,370 125,222 - |
| Net cash inflow from operating activities |
| 7,071,172 |
| 5,390,596 |
|
|
|
|
|
|
| Cash flows from investing activities |
|
|
|
|
| Purchase of investment properties Development Proceeds on disposal of investment properties Purchase of property, plant and equipment Distribution from fund | 13 13 13 14
| (24,823,330) (120,607) 2,340,534 (13,287) 280,236 |
| (39,546,096) (831,283) 1,073,174 (5,575) - |
| Net cash outflow from investing activities |
| (22,336,454) |
| (39,309,780) |
|
|
|
|
|
|
| Cash flows from financing activities |
|
|
|
|
| Proceeds from the issue of ordinary share capital Issue costs(1) Proceeds from loans and borrowings Interest paid Repayment of principal portion of lease liabilities Equity dividends paid | 20 21 19 19
22 | - - 17,805,638 (1,032,044) (20,000) (5,344,309) |
| 35,775,044 (1,026,614) 14,591,200 (523,219) - (5,143,500) |
| Net cash inflow from financing activities |
| 11,409,285 |
| 43,672,911 |
|
|
|
|
|
|
| Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year |
| (3,855,997) 14,577,461 |
| 9,753,727 4,823,734 |
| Cash and cash equivalents at the end of the year | 17 | 10,721,464 |
| 14,577,461 |
For the financial year ended 31 December 2020
(1) Issue costs represent the Company's contribution to costs of issuing ordinary share capital for the financial year.
Company Statement of Financial Position
As at 31 December 2020
|
|
Notes | 2020 € |
| 2019 € |
| Non-current assets Investment properties Property, plant & equipment Trade and other receivables |
13 14 16 |
141,925,000 239,416 793,333
|
|
115,790,000 4,717 - |
|
|
| 142,957,749 |
| 115,794,717 |
| Current assets Trade and other receivables |
16 |
757,218 |
|
3,232,119 |
| Cash and cash equivalents | 17 | 10,439,802 |
| 14,086,632 |
|
|
|
|
|
|
| Total current assets |
| 11,197,020 |
| 17,318,751 |
|
|
|
|
|
|
| Total assets |
| 154,154,769 |
| 133,113,468 |
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities Trade and other payables
|
18 |
(4,387,245) |
|
(3,044,870) |
| Non-current liabilities Trade and other payables Borrowings
|
18 19 |
(153,379) (38,278,594) |
|
- (20,403,207) |
| Total liabilities |
| (42,819,218) |
| (23,448,077) |
| Net assets |
| 111,335,551 |
| 109,665,391 |
|
Equity
|
|
|
|
|
| Share capital
| 20 | 1,115,722 |
| 1,115,722 |
| Share premium | 21 | 39,409,322
|
| 39,409,322 |
| Other reserves | 21 | 293,627 |
| 125,222 |
| Retained earnings
| 21 | 70,516,880 |
| 69,015,125 |
|
|
|
|
|
|
| Total equity |
| 111,335,551 |
| 109,665,391 |
|
|
|
|
|
|
|
IFRS NAV per ordinary share (cents)
Diluted IFRS NAV per ordinary share (cents)
EPRA NTA per ordinary share (cents) |
|
99.79
99.53
99.53 |
|
98.29
98.18
98.18 |
The Company reported a profit of €6,846,064 (2019: €5,033,567) for the year ended 31 December 2020.
Company Statement of Changes in Equity
For the financial year to 31 December 2020
|
|
Notes |
Share capital account |
Share premium |
Retained earnings |
Other reserves |
Total equity |
|
| € | € | € | € | € | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at 1 January 2020 |
| 1,115,722 | 39,409,322 | 69,015,125 | 125,222 | 109,665,391 |
| Total comprehensive income |
| - | - | 6,846,064 | - | 6,846,064 |
| Share based payments expense | 24 | - | - | - | 168,405 | 168,405 |
| Equity Dividends paid | 22 | - | - | (5,344,309) | - | (5,344,309) |
| As at 31 December 2020 |
| 1,115,722 | 39,409,322 | 70,516,880 | 293,627 | 111,335,551 |
Company Statement of Changes in Equity
For the financial year to 31 December 2019
|
|
Notes |
Share capital account |
Share premium |
Retained earnings |
Other reserves |
Total equity |
|
| € | € | € | € | € | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As at 1 January 2019 |
| 750,000 | 4,000,000 | 70,151,672 | - | 74,901,672 |
| Total comprehensive income |
| - | - | 5,033,567 | - | 5,033,567 |
| Ordinary share capital issued |
| 365,722 | 35,409,322 | - | - | 35,775,044 |
| Share issue costs |
| - | - | (1,026,614) | - | (1,026,614) |
| Share based payments expense |
| - | - | - | 125,222 | 125,222 |
| Equity Dividends paid | 22 | - | - | (5,143,500) | - | (5,143,500) |
| As at 31 December 2019 |
| 1,115,722 | 39,409,322 | 69,015,125 | 125,222 | 109,665,391 |
Company Statement of Cash FlowFor the year ended 31 December 2020 |
|
|
| ||||
|
|
Year ended 31 December 2020 |
|
Year ended 31 December 2019 |
| |||
|
| Notes | € |
| € |
| ||
|
|
|
|
|
|
| ||
| Cash flows from operating activities |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
| Profit before taxation |
| 6,846,064 |
| 5,033,567 |
| ||
| Adjustments for: |
|
|
|
|
| ||
| Depreciation Fair value (gains)/losses on investment properties Gain on disposal of investment property |
5 5 | 28,220 (1,166,063) (135,534) |
| 858 1,552,378 (123,174) |
| ||
| Finance costs (Increase) in trade and other receivables Increase in trade and other payables Equity share based payments | 8
24 | 1,814,610 (1,178,605) 903,242 168,405 |
| 669,384 (2,703,643) 770,364 125,222 |
| ||
| Net cash inflow from operating activities |
| 7,280,339 |
| 5,324,956 |
| ||
|
|
|
|
|
|
| ||
| Cash flows from investing activities |
|
|
|
|
| ||
| Purchase of investment properties Development Proceeds on disposal of investment properties Purchase of property plant and equipment Distribution from fund | 13 13 13 14
| (24,823,330) (120,607) 2,340,534 (13,287) 280,236 |
| (39,546,096) (831,283) 1,073,174 (5,575) 34,500 |
| ||
| Net cash outflow from investing activities |
| (22,336,454) |
| (39,275,280) |
| ||
|
|
|
|
|
|
| ||
| Cash flows from financing activities |
|
|
|
|
| ||
| Proceeds from the issue of ordinary share capital | 20 | - |
| 35,775,044 |
| ||
| Issue costs(1) | 21 | - |
| (1,026,614) |
| ||
| Proceeds from loans and borrowings Interest paid Repayment of principal portion of lease liabilities Equity dividends | 19 19
22 | 17,805,638 (1,032,044) (20,000) (5,344,309) |
| 14,591,200 (523,219) - (5,143,500)
|
| ||
| Net cash inflow from financing activities |
| 11,409,285 |
| 43,672,911 |
| ||
|
|
|
|
|
|
| ||
| Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year |
| (3,646,830) 14,086,632 |
| 9,722,587 4,364,045 |
| ||
| Cash and cash equivalents at the end of the year | 17 | 10,439,802 |
| 14,086,632 |
| ||
(1) Issue costs represent the Company's contribution to costs of issuing ordinary share capital for the financial year.
Notes to the Consolidated Financial Statements
1. Accounting policies
1.1 General information
Yew Grove REIT plc (the "Company", registered number 623896), together with entities controlled by the Company (its subsidiaries) (together the "Group"), is engaged in investing in a diversified portfolio of Irish commercial property with a view to maximising its shareholder returns.
The Company is a public limited company, incorporated and domiciled in Ireland. The registered address of the Company is 1st Floor, 57 Fitzwilliam Square, Dublin 2.
The ordinary shares of the Company are listed on the Euronext Growth market (formerly the Enterprise Securities Market) of Euronext Dublin and the Alternative Investment Market of the London Stock Exchange.
1.2 Trading period
The consolidated financial statements for the Group and Company shown herein are for the financial year ended 31 December 2020 with comparatives for the financial year ended 31 December 2019.
The results are inclusive of the parent company (Yew Grove REIT plc) and its subsidiary companies controlled by the Company.
1.3 Going concern
Based on financial projections which extend beyond twelve months from the date of the approval of these financial statements, the Directors consider that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors have concluded that they should prepare the consolidated and company financial statements on a going concern basis.
1.4 Basis of preparation
The statements of the Group and Company for the financial year ended 31 December 2020 have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU") and the Companies Act 2014.
The financial statements of the Group and Company have been prepared on the historical cost basis, except for investment properties that are measured at fair value.
The financial statements of the Group and Company are presented in Euro, which is also the functional currency of the Company.
Standards not affecting the reported results and financial position
The Group and Company applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2020. The Group and Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Amendments to IFRS 3: Definition of a Business
The amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that, together, significantly contribute to the ability to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group or Company but may impact future periods should the Group or Company enter into any business combinations.
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform
The amendments to IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments have no impact on the consolidated financial statements of the Group or Company as it does not have any interest rate hedge relationships.
Amendments to IAS 1 and IAS 8 Definition of Material
The amendments provide a new definition of material that states, "information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity." The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated or Company financial statements of, nor is there expected to be any future impact to the Group or Company.
Conceptual Framework for Financial Reporting issued on 29 March 2018
The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and to assist all parties to understand and interpret the standards. This will affect those entities which developed their accounting policies based on the Conceptual Framework. The revised Conceptual Framework includes some new concepts, updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements of the Group or Company.
Amendments to IFRS 16 COVID-19 Related Rent Concessions
On 28 May 2020, the IASB issued COVID-19-Related Rent Concessions - amendment to IFRS 16 Leases. The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a COVID-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the COVID-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification. The amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted. This amendment had no impact on the consolidated financial statements of the Group or Company.
1.5 Significant accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the assets or liabilities affected in future periods.
In the process of applying the Company's and Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the Consolidated or Company financial statements:
(a) Significant judgements
The following are the significant judgements, apart from those involving estimations (which are presented separately below), that the Directors have made in the process of applying the accounting policies and that have the most significant effect on the amounts recognised in the Group and Company financial statements.
Operating lease contracts - the Group as lessor
The Group/Company has acquired investment properties which are subject to commercial property leases and licences with tenants. The Group/Company has determined, based on an evaluation of the terms and conditions of the arrangements, particularly the duration of the lease terms and minimum lease payments, that it retains all the significant risks and rewards of ownership of these properties and so accounts for these leases as operating leases.
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.
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 measurements in its entirety, which are described as follows:
(i) Fair value hierarchy applied
(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
(b) Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
(c) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
(ii) Property is treated as acquired or disposed of when the significant risks and rewards of ownership have been assumed or relinquished by the Group/Company. This occurs when:
(a) it is probable that the future economic benefits that are associated with the property will flow to the Group/Company;
(b) there are no material conditions which could affect completion of the acquisition; and
(c) the cost of the investment property can be measured reliably.
(iii) Additions to property consist of construction, re-development, refurbishment and other directly attributable costs such as professional fees, expenses and capitalised interest where applicable.
(iv) Property is initially measured at cost including related acquisition costs, and subsequently valued by the Group's Valuers at its respective fair value at each reporting date (30 June and 31 December). The difference between the fair value of a property at the reporting date and its carrying value prior to the external valuation is recognised in the Consolidated Statement of Comprehensive Income as a fair value gain or loss.
(v) Share based payment fair value at grant date is estimated using a Monte Carlo simulation pricing model, taking into account the terms and conditions upon which the options are granted.
Control
The IFRS 10 control model focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee, and ability to use its power to affect those returns. In particular, IFRS 10 requires the Group to consolidate investees that it controls on the basis of de facto control. In accordance with IFRS 10, the Group's assessment of control is performed on a continuous basis and the Group reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of the control model.
(b) Analysis of sources of estimation uncertainty
The key future assumptions, and other key sources of estimation uncertainty for the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Fair value of investment property
The market value of investment property ("property") would normally be determined by a real estate valuation expert to be the estimated amount for which a property should exchange on the date of the valuation in an arm's length transaction. Properties are valued on an individual basis.
The valuation of the Group and Company's properties as at 31 December 2020 was completed by Lisney Limited ("Lisney") as external independent Valuer. Lisney prepared the valuation on the basis of market value in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation - Global Standards (January 2020). Their valuation was subsequently reviewed by the Valuation Committee.
The Group and Company's investment properties will next be valued by the Group's Valuers as at 30 June 2021. The valuers will continue to use recognised valuation techniques and the principles of IFRS 13 for the valuation as at 30 June 2021 and 31 December 2021. Refer to note 13 for further disclosure on the recognised valuation techniques.
The Board's Valuation Committee conducts a detailed review of each property valuation, the underlying valuation assumptions and the valuation process used by the valuer to ensure that valuation assumptions are valid and have been applied as set out below. Property valuations are complex and involve data which is not publicity available and a degree of judgement. Each valuation is based upon key assumptions, particularly estimated rental values and market-based yields. The valuation approach to on-going developments and material refurbishments is on a residual basis and factors such as the assumed timescale, the assumed future development costs 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.
The Directors are satisfied that the valuations of the Group and Company's properties are appropriate for inclusion in the Consolidated and Company financial statements. The fair value of the Group and Company's properties accurately reflects the valuation provided by Lisney and no changes to Lisney's valuation were made by the valuation committee. The valuation is based on the future cashflows from rental income both for the current lease period and future estimated rental values, adjusted for expected void periods and appropriate discount rates.
Calculation of loss allowance
When measuring expecting credit loss ("ECL") the Group/Company uses reasonable and supportable forward-looking information, which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other. Loss given default is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows from collateral and integral credit enhancements.
Probability of default constitutes a key input in measuring ECL. Probability of default is an estimate of the likelihood of default over a given time horizon, the calculation of which includes historical data, assumptions and expectations of future conditions.
1.6 Rental and related income
The Group's main source of revenue is the leasing and licensing of properties. Lease and licence revenue is recognised over the period of the lease or licence contracts. Rental income is recognised as revenue at the time and amount governed by the lease or licence in place with the customer.
The Group recognised revenue from the following major activities:
• Operating lease income from the Group's investment properties;
• License income from licencing of the Group's car park spaces;
• Service charge income from contributions received from tenants relating to property expenses.
Revenue is measured based on the consideration to which the Group's expects to be entitled in a contract with a customer and excludes amounts collected on behalf of third parties.
Rental income
The Group receives rental income from tenants under leases associated with the Group and Company's properties. Rental income is recognised on a straight-line basis over the term of the lease.
Where a rent-free period is included as an incentive in a lease the rental income foregone is allocated evenly over the period from the first day of the lease to the earlier of termination date of the lease or first break option of the lease. Where a lease incentive takes the form of an incentive payment to a tenant the resultant cost is amortised evenly over the remaining life of the lease to its earliest termination date. The sum of unamortised incentives is included in trade and other receivables and is released over the term of the relevant leases. Lease adjustments such as rent reviews are included when the rent review or adjustment has been completed and agreed with the tenant.
License income
License income represents amounts under licences receivable from tenants associated with the licensing of the Group's car park spaces. License income is recognised over the term of the license. License adjustments such as reviews or extensions are included when the licence review, extension or adjustment has been completed and agreed with the tenant.
Service charge income
Service charge income from tenants are recognised as revenue in the period in which the related expenditure is incurred.
Surrender Premium
Where the Group receives a surrender premium from a tenant for the early termination of a lease, the proceeds, net of any then agreed costs associated with dilapidation and legal costs relating to that lease, is recognised in the accounting period in which the surrender took place.
1.7 Direct lease costs
Direct lease costs incurred in the negotiation and arrangement of new leases to tenants are initially capitalised and are then recognised as an expense over the period from the date of the lease to the earliest termination date of the lease.
1.8 Finance income and finance costs
The Group's finance income and finance costs include interest income, interest expense, commitment fees and related charges. Interest income or expense is recognised using the effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and costs 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.
1.9 Taxation
Income tax expense comprises current and deferred tax. It is recognised in profit or loss except insofar as it applies to business combinations or to items recognised in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Yew Grove REIT plc has elected for Real Estate Investment Trust ("REIT") status and on 21 May 2018 gave notice to Revenue that it was the principal company of a group REIT following the acquisition of the entire share capital of the Yew Tree Investment Fund plc (Dissolved). 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.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are only recognised where it is probable that the amounts will be recoverable.
1.10 Leases
The Group and Company lease its head office, other than that they are not party to any other material leases. The Group and Company do act as a lessor. Details of the Group's and Company's accounting policies under IFRS 16 are set out below.
Lease contracts - the Group and Company as lessor
The Group has acquired investment properties which are subject to commercial property leases with tenants. The Group has determined, based on an evaluation of the terms and conditions of these lease arrangements, particularly the duration of the lease terms and minimum lease payments, that it retains substantially all of the risks and rewards incidental to ownership of these leased properties. Income from these leases is recognised on a straight-line basis, recognition is from the date on which the company becomes a contractual party to the lease. Any lease incentives are recognised over the life of the lease. A lease is derecognised at the termination of the lease or when the company is no longer a contractual party to the lease.
Lease contracts - the Group and Company as lessee
The Group assesses whether a contract is a lease or contains a lease at inception of the lease contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (less than €5,000). For these short-term leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.
The lease liability of leases other than short term leases is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise:
• fixed lease payments (including in substance fixed payments), less any lease incentives;
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
• the amount expected to be payable by the lessee under residual value guarantees;
• the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
• the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used).
• a lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
Right-of-use assets are amortised over the shorter period of lease term or useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The Group does not have any leases that include purchase options or transfer ownership of the underlying asset.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as peppercorn ground leases), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within property expenses in the consolidated statement of comprehensive income. As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient.
1.11 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 Statement of Comprehensive Income.
(i) Cash and cash equivalents
Cash and cash equivalents include cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Group and Company in the management of its short-term commitments.
(ii) Trade and other receivables and trade and other payables
Trade receivables include amounts due from tenants. Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Trade and other payables include amounts due to third party suppliers and prepaid rent amounts received from tenants in advance.
Trade and other receivables and trade and other payables are initially measured at transaction value and subsequently measured at amortised cost using the effective interest rate method. The Group applies the simplified approach to trade receivables for which expected credit loss uses the lifetime expected credit allowance. The Group has no material exposure to bad debts beyond those identified in the financial statements, as the majority of the Group's rental income is from State bodies or FDI entities as they have good credit standing. The payment and credit performance of these tenants is closely monitored, while probability of default exists, accordingly the expected credit loss is regarded as immaterial.
(iii) Loans and borrowings
Loans are initially recorded at fair value plus transaction costs. They are subsequently accounted for at amortised cost.
1.12 Investment
Investments in subsidiaries are held at cost. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. If any such indication of impairment exists, the Company makes an estimate of its recoverable amount. When the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is written down to its recoverable amount. In the opinion of the Directors the shares in subsidiaries are worth at least the amounts at which they are stated in the balance sheet.
Basis for consolidation
The consolidated financial statements include the financial statements of the holding company (Yew Grove REIT plc) and all subsidiary companies as at 31 December 2020. Control is achieved when the Company has the power over the investee, exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the investor's returns. The results of subsidiaries acquired or disposed of during the financial period are included in the Consolidated Statement of Comprehensive Income from the effective date of control or to the effective date of loss of control as appropriate. All intragroup transactions, assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Upon acquisition of a business, fair values are attributed to the identifiable net assets acquired. The Group's accounting policy in relation to goodwill is set out in note 1.21.
There were no subsidiaries acquired in the current year.
Yew Tree Investment Fund plc (Dissolved)
The consolidated financial statements for the period ended 31 December 2018 included the results of Yew Tree Investment Fund plc (Dissolved) from the date of acquisition of 8 June 2018 to the date of loss of control on 27 July 2018 following the appointment of a liquidator. The liquidation of Yew Tree Investment Fund plc completed on 3 September 2020.
1.13 Property, Plant and Equipment
Fixtures and fittings and computer equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is recognised 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:
- Office and computer equipment 3 years
- Fixtures and fitting 5 years
1.14 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. Acquisition-related costs are expensed as incurred.
Investments in subsidiaries are held at cost. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. If any such indication of impairment exists, the Company makes an estimate of its recoverable amount. When the carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is written down to its recoverable amount. In the opinion of the Directors the shares in subsidiaries are worth at least the amounts at which they are stated in the balance sheet.
1.15 Interest in Joint Ventures
A joint venture is an arrangement whereby the parties that have joint control and have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exits only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of joint ventures are incorporated in the Group and Company financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5.
An investment in a joint venture is accounted for using the equity method from the date on which the investee becomes a joint venture.
1.16 Foreign currency
Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the Statement of Financial Position date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated at the rates of exchange ruling at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. The resulting exchange differences are dealt with in the Consolidated Statement of Comprehensive Income.
1.17 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (a qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale) are included in the cost of the asset. All other borrowing costs are recognised in the Consolidated Statement of Comprehensive Income in the period in which they are incurred.
1.18 Pension
Annual contributions payable to the Group's pension scheme are charged to the Statement of Comprehensive Income in the period to which they relate.
1.19 Share Based Payments
The long term incentive plan arrangement ("LTIP") between the Company and its Executive Management is accounted for as an equity-settled share-based awards granted under these arrangements are measured at the fair value of the award at the date of grant. The cost of the award is charged to the consolidated income statement over the vesting period of the awards based on the probable number of awards that will eventually vest, with a corresponding credit to shareholders' equity.
The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the share-based payment reserve. When these shares vest they are assessed for tax purposes at the current market share price and employee taxes are generally settled through payroll in cash. Employees therefore receive the number of shares net of taxes at vesting date. Share-based payments that are cash-settled are remeasured at fair value at each accounting date. At the end of each reporting period, the Group revises its estimate of the number of equity instruments expected to vest.
1.20 Share issue cost
Costs directly attributable to issuing new shares are deducted from retained earnings net of any related tax deduction. All other costs are recognised in the Statement of Comprehensive Income in the period in which they are incurred.
1.21 Goodwill
Goodwill arising on the acquisition of a subsidiary is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer's previously held equity interest (if any) in the entity over the net fair value of the identifiable net assets recognised.
Goodwill is not amortised but is reviewed for impairment at least annually. Any impairment loss is recognised immediately in the Consolidated Statement of Comprehensive Income and is not subsequently reversed. Any gain on a bargain purchase is recognised in the statement of comprehensive income immediately.
1.22 Impairment of financial assets
The Group applies a three-stage expected credit loss model ("ECL") in relation to the impairment of its financial assets carried at amortised cost except for trade receivables for which the simplified approach is applied in accordance with IFRS 9. The ECL is used to account for expected credit losses and changes in those ECL at each reporting date to reflect changes in credit risk since initial recognition of the financial assets.
The expected credit loss is charged against the respective financial asset and recognised in the Consolidated Statement of Comprehensive income.
The three stages that determine the amount of impairment to be recognised as expected credit losses at each reporting date are as follows:
(i) Stage 1: Credit risk has not increased significantly since initial recognition - recognised 12 months ECL;
(ii) Stage 2: Credit risk has increased significantly since initial recognition - recognise lifetime ECL;
(iii) Stage 3: Financial asset is credit impaired - recognise lifetime ECL.
The 12 months ECL is calculated by multiplying the possibility of a default occurring in the next 12 months by the total (lifetime) ECLs that would result from that default. Lifetime expected credit losses are the present value of expected credit losses that arise if a borrower defaults on its obligation at any point throughout the terms of the financial asset.
Definition of default
The Group considers the following as constituting events of default for internal credit risk management purposes as experience indicates that financial assets that meet the following criteria are generally not recoverable:
- When there is a breach of financial covenants by the debtor; and
- Information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group, in full (without taking into account any collateral held by the Group).
Write off
The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery.
2. Operating Segments
The Group is organised into two business segments, against which the Group reports its segmental information. These are Office Assets (including retail and mixed-use buildings) and Industrial Assets. All of the Group's operations are in the Republic of Ireland. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, who has been identified as the Board of Directors of the Company. The split between industrial and office is determined by the building type which is acquired and the activities of the occupants.
Unallocated income and expenses are items incurred centrally which are neither directly attributable nor reasonably allocable to individual segments. Unallocated assets are cash and cash equivalents, and certain other assets.
The Group's key measures of performance of a segment are net rental income and the movement in fair value of properties, as these measures illustrate and emphasize that segment's contribution to the reported profits of the Group and the input of that segment to earnings per share. By focusing on these prime performance measures, other key statistical data such as capital expenditure and one-off exceptional items are separately highlighted for analysis and attention.
Revenue as stated in the Consolidated Statement of Comprehensive Income relates to rental income from its investment in commercial properties held by the Group, license income from the licensing of the Group's car park spaces and service charges received by its subsidiary management companies.
Major Customers
Gross rental income includes rents of €3.9m (2019: €4.6 million, inclusive of lease surrender income) which arose from the Group's three largest tenants in each year; these contributed more than 10% of the Group's revenue. No other single tenant contributed more than 10% of the Group's revenue in either 2020 or 2019.
2. Operating Segments (Continued)
|
|
Office Assets |
Industrial Assets |
Total | Unallocated expenses and assets | Group Total |
| |
|
| |||||||
|
| 2020 | 2020 | 2020 | 2020 | 2020 |
| |
|
| € | € | € | € | € |
| |
| Year ended 31 December 2020 |
|
|
|
|
|
| |
| Rental income and related income | 8,874,797 | 2,334,800 | 11,209,597 | 155,381 | 11,364,978 |
| |
| Property expenses | (674,963) | (37,516) | (712,479) | - | (712,479) |
| |
| Net rental income | 8,199,834 | 2,297,284 | 10,497,118 | 155,381 | 10,652,499 |
| |
|
|
|
|
|
|
|
| |
| Fair value (loss)/gains on investment properties | (18,937) | 1,185,000 | 1,166,063 | - | 1,166,063 |
| |
| Realised gain on disposal of Investment properties | - | 135,534 | 135,534 | - | 135,534 |
| |
| Net fair value movement | (18,937) | 1,320,534 | 1,301,597 | - | 1,301,597 |
| |
|
|
|
|
|
|
|
| |
| Expected credit loss on financial assets | (95,172) | (80,411) | (175,583) | - | (175,583) |
| |
| Operating expenses | - | - | - | (4,770,439) | (4,770,439) |
| |
|
|
|
|
|
|
|
| |
| Profit before tax | 8,085,724 | 3,807,407 | 11,623,132 | (4,615,058) | 7,008,074 |
| |
|
|
|
|
|
|
|
| |
| As at 31 December 2020 |
|
|
|
|
|
| |
| Investment properties | 115,655,000 | 26,270,000 | 141,925,000 | - | 141,925,000 |
|
|
| Office Assets | Industrial Assets |
Total | Unallocated expenses and assets | Group Total |
|
| 2019 | 2019 | 2019 | 2019 | 2019 |
|
| € | € | € | € | € |
| Year ended 31 December 2019 |
|
|
|
|
|
| Rental income and related income
| 8,382,108 | 1,564,616 |
9,946,724 | - | 9,946,724 |
| Property expenses | (500,365) | (27,583) |
(527,948) | - | (527,948) |
| Net rental income | 7,881,743 | 1,537,033 |
9,418,776 | - | 9,418,776 |
| Fair value (loss)/gains on investment properties | (1,063,004) | 294,721 |
(768,283) | - | (768,283) |
| Realised gain on disposal of Investment properties | - | 123,174 |
123,174 | - | 123,174 |
| Net fair value movement | (1,063,004) | 417,895 |
(645,109) | - | (645,109) |
|
|
|
|
|
|
|
| Operating expenses | - | - |
- | (3,714,458) | (3,714,458) |
|
|
|
|
|
|
|
| Profit before tax | 6,818,739 | 1,954,928 | 8,773,667 | (3,714,458) | 5,059,209 |
|
|
|
|
|
|
|
| As at 31 December 2019 |
|
|
|
|
|
| Investment properties | 88,200,000 | 27,590,000 | 115,790,000 | - | 115,790,000 |
3. Rental and related income
|
| 31 December 2020 € | 31 December 2019 € |
| Gross rental income License income Service charge income Lease surrender premium Other income | 10,285,213 314,475 347,628 150,161 267,501 | 7,337,846 243,015 365,863 2,000,000 - |
| Net rental income | 11,364,978 | 9,946,724 |
Gross rental income represents amounts receivable from tenants under leases associated with the Group's property business. License income represents amounts under licences receivable from tenants associated with the licensing of the Group's car park spaces. Service charge income relates to contributions from tenants of the Group's buildings for property expenses of the occupied buildings. Service charge income receivable from tenants is recognised in the period in which the related expenditure is recognised. Income from subsidiary management companies consisting of service charge income and other income in the period was €459,748.
During the year, the Company agreed terms on the surrender of a lease at its property at Holly Avenue, Stillorgan, Dublin for €426,603, of which €126,603 was for lease surrender and €300,000 (note 5) was for dilapidations. The lease surrender was completed on 8 May 2020. Two additional surrender amounts totalling €23,558 were received from tenants who gave notice to break their leases in 2021. In 2019 €2,000,000 was received for the surrender of a lease at Cork Airport Business Park with a further €1,000,000 (note 5) in dilapidations.
Other income includes the sale of car parking spaces by one of the management companies and the proceeds of the voluntary liquidation of Yew Tree Investment Fund plc (Dissolved) which was finalised in the period.
4. Property expenses
|
| 31 December 2020 € | 31 December 2019 € |
| Service charge expenses Direct property costs Car park costs | 297,739 388,740 26,000 | 329,552 172,396 26,000 |
| Total | 712,479 | 527,948 |
Property expenses include service charges and other costs directly recoverable from tenants, and non-recoverable costs directly attributable to the Group's properties. Service charge expenses typically include security, insurance, maintenance and other costs of managing the Company's buildings due from and recharged to tenants. Direct property costs have increased due to increased portfolio size and some vacancy in the portfolio.
5. Fair value Gains/(Losses) on investment properties
|
| 31 December 2020 € | 31 December 2019 € |
| Fair value gains/(losses) on investment properties (1) Realised gain on disposal of investment property | 1,166,063 135,534 | (768,283) 123,174 |
| Total | 1,301,597 | (645,109) |
(1) The fair value gains/(losses) on investment properties includes a gain on lease surrender dilapidation premium of €300,000 (2019: €784,095).
A valuation of the Group's properties as at 31 December 2020 was completed by Lisney Limited ("Lisney") as external independent valuer. Lisney prepared the valuation on the basis of market value in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation - Global Standards (January 2020). Their valuation was subsequently reviewed by the Valuation and Audit Committees.
During the year the group disposed of two properties, see note 13.
6. Administration expenses
Profit before tax for the financial year has been stated after charging:
|
| 31 December 2020 € | 31 December 2019 € |
| Staff costs (Note 9) Independent Non-executive Directors (Note 24) Listing expenses Property valuation fees Property management fees Legal and consultancy fees Independent accountant fees Audit and interim review fees Depository fees Broker, marketing, and promotion Other costs | 1,429,088 230,000 14,868 86,500 80,564 213,484 - 75,000 48,063 316,433 386,829 | 1,581,426 230,000 18,859 69,000 88,842 195,746 57,912 75,000 57,601 138,390 436,465 |
| Total | 2,880,829 | 2,949,241 |
Staff costs represents total remuneration and other benefits paid to employees for the financial year. Further information on Directors' remuneration can be found in note 24.
Other costs include items such as the general expenses, insurance, company secretarial fees, donations and non-recoverable VAT expenses.
Auditor's remuneration
|
|
31 December 2020 € |
31 December 2019 € | |
| Company Audit of the Company financial statements Other assurance services Tax advisory services Other non-audit services |
45,000 20,000 - - |
45,000 20,000 - - | |
| Company total | 65,000 | 65,000 | |
|
Group Audit of the Group financial statements Other assurance services Tax advisory services Other non-audit services |
10,000 - - - |
10,000 - - - | |
| Group total | 75,000 | 75,000 | |
Other assurance services relates to the review of the Interim Report.
7. AIFM Fees
|
| 31 December 2020 € | 31 December 2019 € |
| AIFM Fees | 75,000 | 95,833 |
| Total | 75,000 | 95,833 |
The Company is required, as a REIT, to have an alternative investment fund manager ("AIFM"). The Company has agreed with Ballybunion Capital, an AIFM authorised by the Central Bank of Ireland, for Ballybunion Capital to act as the external AIFM of the Group, subject to overall supervision of the AIFM by the Board. The fees above are paid to the AIFM in accordance with the service level agreement between the AIFM and the Company.
8. Finance costs
|
|
31 December 2020 € |
31 December 2019 € |
| Effective interest expense on borrowings Extinguished borrowing costs on loan amendment Interest on lease liability | 1,383,995 430,178 437 | 669,384 - - |
| Total | 1,814,610 | 669,384 |
The effective interest expense on borrowings arises as a result of the recognition of interest expense, commitment fees and arrangement fees using the effective interest rate method.
In December 2020 the Company agreed a new debt facility. Capitalised costs from the prior facility which had been due to expire in December 2021 were extinguished (note 19).
9. Employment
The average monthly number of employees (including Directors and excluding Non-Executive Directors) directly employed during the year to 31 December 2020 in the Company was seven (2019: six), there were no additional employees in the Group.
| Total employees and officers at financial year end: |
2020 Number |
2019 Number |
| At financial year end: Executive Directors Office staff Non-Executive Directors |
3 5 4 |
3 3 4 |
| Total employees and officers | 12 | 10 |
The staff costs for the above employees were:
|
|
31 December 2020 € |
31 December 2019 € |
| Wages and salaries Bonus accrual Social insurance cost Pension costs - defined contribution plan Share based payments and other benefits (Note 24) Other benefits - Health insurance | 698,675 280,529 68,251 159,232 205,913 16,488 | 577,901 633,429 62,991 163,445 133,321 10,339 |
| Total staff costs | 1,429,088 | 1,581,426 |
|
Independent Non-Executive Directors (Note 24) |
230,000 |
230,000 |
Staff costs are allocated to administration expenses during the financial year.
10. Income tax
Current tax: current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Yew Grove REIT plc has elected for Real Estate Investment Trust ("REIT") status under section 705E of the 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 which was €nil (2019: €nil).
|
|
31 December 2020 € |
31 December 2019 € |
| Income tax on residual income Current year charge | - - | - - |
| Income tax expense for the financial year | - | - |
Reconciliation of the income tax expense for the financial year
|
|
31 December 2020 € |
31 December 2019 € |
| Profit before tax Tax charge on profit at standard rate of 12.5% Non-taxable revaluation surplus REIT tax-exempt profits Other (charge on subsidiary undertakings) | 7,008,074 876,009 - (876,009) - | 5,059,209 632,401 - (632,401) - |
| Income tax expense for the financial year | - | - |
The Directors confirm that in their opinion having conducted due enquiries the Group and the Company have remained in full compliance with the Irish REIT rules and regulations up to and including the date of the approval of this report.
11. Earnings per share and EPRA Earnings per share
|
WEIGHTED AVERAGE NUMBER OF SHARES |
31 December 2020 € |
31 December 2019 € | |
| Issued share capital at beginning of the financial year | 111,572,210 | 75,000,000 | |
| Shares issued during the financial year | - | 36,572,210 | |
| Share in issue at financial year end | 111,572,210 | 111,572,210 | |
| Weighted average number of shares | 111,572,210 | 81,095,292 | |
| Share based payments payable - dilutive effect | 293,628 | 125,222 | |
| Diluted number of shares | 111,865,838 | 81,220,514 | |
|
BASIC AND DILUTED EARNINGS PER SHARE |
31 December 2020 € |
31 December 2019 € |
| Profit for the financial year attributable to the owners of the Group | 7,008,074 | 5,059,209 |
|
|
€ |
€ |
| Weighted average number of ordinary shares (basic) Weighted average number of ordinary shares (diluted) Basic earnings per share (cent) | 111,572,210 111,865,838 6.28 | 81,095,292 81,220,514 6.24 |
| Diluted earnings per share (cent) | 6.26 | 6.23 |
11. Earnings per share and EPRA Earnings per share (Continued)
Earnings per share
The basic and diluted earnings per ordinary share of 6.28 and 6.26 cents per share (2019: 6.24 and 6.23) is based on the profit for the financial year of €7,008,074 and on 111,572,210 ordinary shares (2019: €5,059,209 and on 81,095,292 ordinary shares) being the weighted average number of shares in issue for the year.
|
EPRA Earnings per share
|
31 December 2020 € |
31 December 2019 € |
| Profit for the financial year | 7,008,074 | 5,059,209 |
| Adjusted for: Change in the fair value of investment property (Gain) on disposal of investment property Borrowing costs extinguished (Note 20) |
(1,166,063) (135,534) 430,178 |
768,283 (123,174) - |
| Total EPRA earnings | 6,136,655 | 5,704,318 |
| EPRA EPS (Basic) EPRA EPS (Diluted) | 5.50 5.49 | 7.03 7.02 |
12. IFRS and EPRA NTA per share
The IFRS NAV is calculated as the value of the Group's assets less the value of its liabilities based on IFRS measures. EPRA NTA is calculated with accordance with the European Real Estate Association ("EPRA") Best Practice Recommendations: October 2019.
EPRA net tangible assets ("EPRA NTA") assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred taxation.
|
|
31 December 2020 € |
31 December 2019 € |
| IFRS net assets at end of financial year Ordinary shares in issue | 111,603,077 111,572,210 | 109,922,541 111,572,210 |
| IFRS NAV per ordinary share (cents) | 100.03 | 98.52 |
| Ordinary shares in issue | 111,572,210 | 111,572,210 |
| Diluted number of shares | 111,865,838 | 111,697,432 |
| Diluted IFRS NAV per share (cents) | 99.77 | 98.41 |
|
|
31 December 2020 € |
31 December 2019 € |
| IFRS net assets at end of financial year Net market to market on financial assets | 111,603,077 - | 109,922,541 - |
| EPRA NTA | 111,603,077 | 109,922,541 |
| EPRA NTA per share (cent) | 99.77 | 98.41 |
13. Investment properties
a) Group and Company
|
|
31 December 2020 € |
31 December 2019 € | |
| Opening balance Property purchases Disposal of property Development expenditure Lease surrender dilapidations premium Fair value (loss)/gain on investment properties | 115,790,000 27,353,330 (2,205,000) 120,607 (300,000) 1,166,063 | 77,915,000 39,546,096 (950,000) 831,282 (784,095) (768,283) | |
| Closing fair value | 141,925,000 | 115,790,000 | |
In 2020 the Group acquired a portfolio of six office buildings at Millennium Park, Naas, County Kildare for €27.4 million (vendor price €25.3 million and transaction costs of €2.1 million). In 2019 a deposit of €2.5 million had been paid for the purchase of these buildings.
The Group disposed of two properties in 2020. The first was an industrial unit at Holly Avenue, Stillorgan, which was vacated in May 2020 with a lease surrender dilapidation premium of €300,000 received. The unit was sold for €1.46 million and had a carrying value of €1.35 million in November 2020 at sale. The second was Unit F4/F5 at Centrepoint Business Park, Clondalkin, County Dublin, this unit was sold for €950,000, and had a carrying value of €855,000 in December 2020 at sale. There was a net gain on these two properties of €135,000 after disposal costs and derecognition of their carrying value.
During the year the Group also completed capital works on buildings in Letterkenny and Waterford.
In 2019 the Group acquired Office Block A, located in the IDA Waterford Business and Technology Park, Butlerstown, Waterford for €4.3 million (vendor price of €4 million and transaction costs of €308 thousand) and Office Block, Unit 2600, located in the Cork Airport Business Park, Cork for €8 million (vendor price of €7.5 million and transaction costs of €505 thousand). A portfolio of three industrial buildings at the IDA Business and Technology Park, Garrycastle, Athlone was acquired for €14 million (vendor price of €13 million and transaction costs of €960 thousand) and an Office building at the IDA Ireland Business and Technology Park, Garrycastle, Athlone for €13 million (vendor price of €12 million and transaction costs of €1 million)
In 2019 the Group disposed of an industrial property, at Heather Road, Sandyford for €1.1 million. The carrying value of the building was €950 thousand, showing a net gain of €123 thousand after disposal costs and derecognition of its carrying value.
A valuation is conducted on the Group's owned properties on 30 June and 31 December each year based upon the key assumptions of estimated rental values and market-based yields. In determining fair value, the valuers refer to market evidence and recent transaction prices for similar properties.
The Directors are satisfied that the valuation of the Group's properties is appropriate for inclusion in the accounts. The fair value of the Group's properties owned at 31 December 2020 is based on the valuation provided by the external independent Valuers, Lisney. This valuation is prepared on the basis of market value in accordance with the Royal Institution of Chartered Surveyors Valuation - Global Standards (January 2020) and the principles of IFRS 13. In this report the Valuer had particular regard to the impact of COVID-19 on the valuation process, and technical guidance from the Society of Chartered Surveyors Ireland ( the "SCS") in interpreting the RICS Red Book for this event. The Valuer, as required by the SCS, has included in his Valuation Report a 'material uncertainty' clause in the valuation of the retail element of the Company's investment property portfolio, which amounts to 1.4% of the total in value terms. Subsequent to the valuation date the SCS has advised that it may no longer be appropriate to use this clause in favour of a "market conditions" clause.
13. Investment properties (Continued)
Fair value
The valuation technique used in determining the fair value of the Group's property assets is market value as defined by the Royal Institution of Chartered Surveyors Valuation Standards (January 2020), 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. This is in accordance with IFRS 13.
The main inputs for property valuation using a market-based capitalisation approach are the ERV ("Estimated Rental Value") and equivalent yield. ERV is a valuer's opinion as to the open market rental value of a property on a valuation date which could reasonably be expected to be the achievable rent for a new letting of that property on the valuation date. ERVs are not generally directly observable and therefore classified as Level 3 inputs. Equivalent yields depend on the valuer's assessment of market capitalisation rates and are therefore Level 3 inputs. There were no transfers between fair value levels in 2020 and 2019.
Details of the Group's investment properties and information about the fair value hierarchy using unobservable inputs (Level 3) at 31 December 2020:
|
|
|
| Range | ||
| Asset Class | Market value | Input | Low | Median | High |
| Commercial Property Assets | €141.9 million | ERV per sq. ft. | €4.00 | €16.38
| €29.00 |
| Equivalent yield % | 6.48% | 7.70% | 10.17% | ||
at 31 December 2019:
|
|
|
| Range | ||
| Asset Class | Market value | Input | Low | Median | High |
| Commercial Property Assets | €115.8 million | ERV per sq. ft. | €4.00 | €12.00
| €33.34 |
| Equivalent yield % | 6.49% | 7.77% | 10.09% | ||
Sensitivity of measurement to variance of significant unobservable inputs
A decrease in the ERV will decrease the fair value. An increase in equivalent yield will decrease the fair value. There are interrelationships between these rates as they are partially determined by market rate conditions.
The table below shows the sensitivity of the Group's properties to changes in equivalent yield and ERV, which have been identified as key sensitivities by the Directors. A change in long term vacancy rates was not considered significant and was not therefore tested, as the Group's long-term vacancy rates are low and lease contracts are long in duration.
Across the entire portfolio of investment properties, a 0.25% increase in equivalent yield would have the impact of a €4.9 million (2019: €4.0 million) reduction in fair value whilst a 0.25% decrease in equivalent yield would result in a fair value increase of €5.3 million (2019: €4.2 million). A 5% increase in ERV would have the impact of a €6.0 million (2019: €5.0 million) increase in fair value, whilst a 5% decrease in ERV would result in a fair value decrease of €6.3 million (2019: €5.1 million).
13. Investment properties (Continued)
At 31 December 2020
|
|
| Market Value | Value +5% in ERV | Value -5% in ERV | Value +0.25% Equivalent Yield | Value -0.25% Equivalent Yield |
|
|
|
| € | € | € | € |
|
|
|
|
|
|
|
|
| Commercial property assets |
| €141.9m | 6.0m | (6.3m) | (4.9m) | 5.3m |
|
|
|
|
|
|
|
|
| Total |
|
| 6.0m | (6.3m) | (4.9m) | 5.3m |
At 31 December 2019
|
|
| Market Value | Value +5% in ERV | Value -5% in ERV | Value +0.25% Equivalent Yield | Value -0.25% Equivalent Yield |
|
|
|
| € | € | € | € |
|
|
|
|
|
|
|
|
| Commercial property assets |
| €115.8m | 5.0m | (5.1m) | (4.0m) | 4.2m |
|
|
|
|
|
|
|
|
| Total |
|
| 5.0m | (5.1m) | (4.0m) | 4.2m |
14. Property, plant & equipment
a) Group and Company
At 31 December 2020:
|
| Computer | Fixtures & | Right-of-use |
|
| Costs | Equipment | Fittings | Asset | Total |
|
| € | € | € | € |
| At 1 January 2020 | 5,575 | - | - | 5,575 |
| Additions | 3,287 | 10,000 | 249,632 | 262,919 |
| Disposals | - | - | - | - |
| At 31 December 2020 | 8,862 | 10,000 | 249,632 | 268,494 |
|
Accumulated Depreciation |
|
|
|
|
| At 1 January 2020 | (858) | - | - | (857) |
| Charge for the year | (2,424) | (833) | (24,963) | (28,220) |
| At 31 December 2020 | (3,282) | (833) | (24,963) | (29,078) |
|
|
| |||
|
Net Book Value 31 December 2020 | 5,580 | 9,167 | 224,669 | 239,416 |
| Net Book Value 31 December 2019 | 4,717 | - | - | 4,717 |
In 2020 the Company entered a lease for its head office. The right-of-use asset is the Company's office, there is a corresponding lease liability disclosed in other creditors (Note 18).
14. Property, plant & equipment (Continued)
a) Group and Company
At 31 December 2019:
|
| Computer |
|
| Costs | Equipment | Total |
|
| € | € |
| At 1 January 2019 | - | - |
| Additions | 5,575 | 5,575 |
| Disposals | - | - |
| At 31 December 2019 | 5,575 | 5,575 |
|
Accumulated Depreciation |
|
|
| At 1 January 2019 | - | - |
| Charge for the year | (858) | (858) |
| At 31 December 2019 | (858) | (858) |
|
|
| |
|
Net Book Value 31 December 2019 | 4,717 | 4,717 |
| Net Book Value 31 December 2018 | - | - |
15. Interest in joint venture (Group)
Details of the Group's only joint venture at the end of the reporting year were as follows:
| Name of joint venture | Address/Country of Incorporation | Nature of the business | Investment | Votes controlled by the Company | Carrying amount 31 December 2020 |
| Ashtown Management Company Limited (Joint venture) | Friends First House, Cherrywood Science & Technology Park, Loughlinstown, Co. Dublin, Ireland | Private Limited Company. Management of common areas | Ashtown Management Company Limited (Joint venture) | 50% | €3,473 |
This joint venture is accounted for using the equity method in these consolidated financial statements as set out in the Group's accounting policies in note 1.
The share of profits attributable to the Group for the year ended 31 December 2020 and the prior year ended 31 December 2019 are as follows;
|
|
31 December 2020 € |
31 December 2019 € |
| Share of joint venture profits for the year | - | - |
15. Interest in joint venture (Continued)
The joint venture broke-even for the year ended 2020 (2019: break-even). Summarised financial information in respect of the results of the joint venture to 31 December 2020 is as follows:
|
|
31 December 2020 € |
31 December 2019 € | |
| Revenue Expense Profit post tax from continuing operations Profit for the year | 563,368 (563,368) - - | 306,908 (306,908) - - | |
| Total comprehensive income | - | - | |
The balance sheet value of the Company's interest in a joint venture as at 31 December 2020 is as follows:
|
|
31 December 2020 € |
31 December 2019 € | |
| Cash and cash equivalents Trade and other payables | 448,024 (441,078) | 61,126 (54,180) | |
| Net assets | 6,946 | 6,946 | |
16. Trade and other receivables
| a) Group
Current |
31 December 2020 € |
31 December 2019 € |
| Trade receivables and prepayments Taxation debtors - VAT recoverable Deposit paid Expected credit loss allowance Tenant lease incentives Other receivables | 251,976 252,303 - (175,583) 92,893 654,990 | 634,879 231,311 2,530,000 - - 131,564 |
| Total | 1,076,579 | 3,527,754 |
Non-current
|
| 31 December 2020 € | 31 December 2019 € |
| Tenant lease incentives | 793,333 | - |
| Total | 793,333 | - |
Trade receivables include amounts due from tenants for rental and service charges. The ECL allowance is calculated according to the provision matrix and totals €175,583 related to trade receivables. The balance of trade and other receivables has no concentration of credit risk as it covers mainly prepayments. The Directors therefore consider the carrying value of trade and other receivables approximates to their fair value.
In 2019 a deposit of €2.53 million had been paid for the purchase of six buildings at Millennium Park, Naas which completed in February 2020.
16. Trade and other receivables (Continued)
Where a rent-free period is included as an incentive in a lease, the rental income foregone is allocated evenly over the period from the date of the lease to the earliest termination date of the lease. Where a lease incentive takes the form of an incentive payment to a tenant the resultant cost is amortised evenly over the remaining life of the lease to the earliest termination date. The balance included in trade and other receivables is the sum of these unamortised incentives which will be released over the term of the relevant leases to their earliest termination date.
The other receivables balance includes costs that have been incurred by the company and can be recovered from tenants under the terms of existing leases along with deposits, lease renewal costs which are recognised over the life of the lease and other amounts recoverable. Management company receivables are also included.
| b) Company
Current |
31 December 2020 € |
31 December 2019 € |
| Trade receivables and prepayments Taxation debtors - VAT recoverable Deposit paid Expected credit loss Tenant lease incentive Other receivables | 251,976 252,303 - (175,583) 92,893 335,629 | 214,390 231,311 2,530,000 - - 256,418 |
| Total | 757,218 | 3,232,119 |
Non-current
|
| 31 December 2020 € | 31 December 2019 € |
| Tenant lease incentive | 793,333 | - |
| Total | 793,333 | - |
17. Cash and cash equivalents
a) Group
|
| 31 December 2020 € | 31 December 2019 € | |
| Cash and cash equivalents | 10,721,464 | 14,577,461 | |
b) Company
|
| 31 December 2020 € | 31 December 2019 € | |
| Cash and cash equivalents | 10,439,802 | 14,086,632 | |
Of the cash balance as at 31 December 2020 €3,255,070 (2019: €2,311,076) is classified as restricted cash. The Company's facility agreement requires rent paid in advance on secured properties to be collected in a rent account controlled by the facility provider. The amount of this cash as at 31 December 2020 was €2,447,732 (2019: €778,352). Rent in excess of accrued facility interest is released at each quarterly facility interest payment date to an account controlled by the Group. Dilapidation amounts held by the Group on secured properties total an additional €807,338 (2019: €1,000,000) which was similarly held as restricted cash at the year end in accordance with facility banking covenants.
The management of cash and cash equivalents is discussed in detail in note 26.
18. Trade and other payables
| a) Group |
31 December 2020 € |
31 December 2019 € |
| Trade payables and accruals Tenant lease incentives Taxation creditors - PAYE/PRSI Borrowings (note 19) Lease obligations Other payables | 3,275,168 771,450 28,911 30,603 76,690 541,393 | 3,061,571 385,633 22,698 16,053 - 91,703 |
| Total | 4,724,215 | 3,577,657 |
Non-current
|
| 31 December 2020 € | 31 December 2019 € |
| Lease obligation | 153,379 | - |
| Total | 153,379 | - |
Trade payables include amounts due to third party suppliers and prepaid rent amounts received from tenants in advance. Accrued expenses include operational expenses incurred but not yet invoiced to the Group as at 31 December 2020. Trade and other payables are interest free and have settlement dates within one year. The Directors consider that the carrying value of the trade and other payables approximates to their fair value.
Other payables includes a sinking fund received at the Millennium Park acquisition, this is payable to the Millennium Park estate fund for the liabilities of the estate's management companies.
| b) Company |
31 December 2020 € |
31 December 2019 € |
| Trade payables and accruals Lease incentives Taxation creditors - PAYE/PRSI Borrowings Lease obligations Other payables | 2,938,198 771,450 28,911 30,603 76,690 541,393 | 2,528,784 385,633 22,698 16,053 - 91,703 |
| Total | 4,387,245 | 3,044,870 |
Non-current
|
| 31 December 2020 € | 31 December 2019 € |
| Lease obligation | 153,379 | - |
| Total | 153,379 | - |
Trade payables includes amounts due to third party suppliers and prepaid rent amounts received from tenants in advance. Accrued expenses include operational expenses incurred but not yet invoiced to the Company as at 31 December 2020. Trade and other payables are interest free and have settlement dates within one year. The Directors consider that the carrying value of the trade and other payables approximates to their fair value.
Other payables includes a sinking fund received at the Millennium Park acquisition, this is payable to the Millennium Park estate fund for the liabilities of the estate's management companies.
18. Trade and other payables (Continued)
Group as a Lessee
The Group has a three-year lease contract for its head office which started in September 2020. The Group's obligations under its leases are secured by the lessor's title to the leased assets. Generally, the Group is restricted from assigning and subleasing the leased asset. The Group also held a property lease with a term of less than 12 months until September 2020. The Group applied the 'short-term lease' and 'lease of low-value assets' recognition exemptions for this lease.
The carrying amounts of the lease liabilities (included under interest-bearing loans and borrowings) and their movements during the year are shown below:
|
| 31 December 2020 | 31 December 2019 |
|
| € | € |
| As at 1 January 2020 | - | - |
| Additions | 249,632 | - |
| Accretion of interest | 437 | - |
| Payments | (20,000) | - |
| As at 31 December 2020 | 230,069 | - |
|
|
|
|
| Current | 76,690 |
|
| Non-current | 153,379 |
|
19. Borrowings
The Company agreed a revolving credit facility with Allied Irish Bank plc ("AIB"), secured by fixed and floating charges over certain property assets. The facility available as at 31 December 2020 was €53,595,000 (2019: €29,074,000).
| a) Group and Company |
31 December 2020 € |
31 December 2019 € |
| Balance at the beginning of the financial year Bank finance drawn during the financial year Bank finance repaid during the financial year Interest during the financial year Borrowing costs extinguished Borrowing costs Effective interest expense | 20,419,260 19,805,638 (2,000,000) (1,032,044) (430,178) (267,652) 1,814,173 | 5,852,235 14,591,200 - (523,219) - (185,976) 685,020 |
| Balance at end of the financial year
Maturity of borrowings is as follows Less than one year Between two and five years | 38,309,197
30,603 38,278,594 | 20,419,260
16,053 20,403,207 |
| Total
Undrawn at end of the financial year | 38,309,197
14,998,623 | 20,419,260
8,283,260 |
In December 2020 the Company amended the revolving credit facility with Allied Irish Bank plc ("AIB"). The facility maturity was extended from December 2021 to December 2024 (extendible by a further year), the property assets securing the facility were changed, the facility available was increased, and some covenants were removed. This facility of €53,595,000 can be repaid and re-drawn without penalty throughout its life. This facility was measured initially at fair value, after transaction costs, and carried at amortised cost, with all attributable costs charged to Consolidated Statement of Comprehensive Income over the life of the facility.
19. Borrowings (Continued)
The loan facility drawings in the year were €17.8m 2019: €14.5m) and there were loan repayments of €2.0m (2019: €nil) during the period to 31 December 2020. The total interest paid was €1.0m (2019: €0.5m). As at 31 December 2020 €15.0m (2019: €8.3m) of the facility was undrawn, €38.6m (2019: €20.4m) was drawn.
The Company stated in its admission document its intention to target borrowings, following full investment of the net proceeds raised at admission, of 25% loan-to-value ("LTV"). LTV is the ratio of drawn debt to the value of property investments, which at 31 December 2020 was 27.2% (2019:18.0%). During the year an EGM was held at which the Company's shareholders agreed to increase the LTV target from 25% to 40%. Under the Irish REIT rules a REIT's borrowings must not exceed 50% of the value of its assets.
All borrowings are denominated in euro. All borrowings are subject to six months or less interest rate changes and contractual re-pricing rates.
Net Debt and LTV
Net debt and LTV are key metrics in the Group. Net debt is redemption value of borrowings as adjusted by cash available for use. LTV is the ratio of net debt to investment property value at the measurement date.
|
| 31 December 2020 | 31 December 2019 |
| ||||||
|
| € | € |
| ||||||
| Cash and cash equivalents | 10,721,464 | 14,577,461 |
| ||||||
| Cash reserved* | (171,076) | - |
| ||||||
| Gross debts | (38,309,197) | (20,419,260) |
| ||||||
| Net debt at year end | (27,758,809) | (5,841,799) |
| ||||||
| Investment property at year end | 141,925,000 | 115,790,000 |
| ||||||
| Net Debt to value ratio | 19.6% | 5.1% |
| ||||||
| *These balances are not viewed as available funds for the purposes of the above calculation.
20. Share Capital
|
|
|
| ||||||
|
|
| 31 December 2020 |
| 31 December 2019 |
| ||||
|
|
|
|
|
|
| ||||
| Shares in issue |
| 111,572,210 |
| 111,572,210 |
| ||||
|
|
|
|
|
|
| ||||
|
|
| € |
| € |
| ||||
| Issue for cash 2018 |
| 750,000 |
| 750,000 |
| ||||
| Issue for cash 2019 |
| 365,722 |
| 365,722 |
| ||||
| In issue 31 December 2020 |
| 1,115,722 |
| 1,115,722 |
| ||||
The Group has a single class of ordinary shares of one cent each. 111.6 million authorised and issued shares where in issue at 31 December 2020. All issued shares were fully paid.
On 28 April 2020 the Company announced proposed details of an issuance program of up to 100 million new shares through a 12-month Share Issuance Programme. This issuance program was agreed at an EGM of the Company on 29 May 2020.
The Company had 100,000,000 unissued shares remaining under the 12-month share issuance program at 31 December 2020.
The Company's entire authorised share capital is €10,000,000 comprising 1,000,000,000 ordinary shares.
21. Reserves
The equity of the Company consists of Ordinary Shares issued. The par value of each share 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.
22. Distributions made and declared
| Cash dividends to the equity holders of the Company: |
31 December 2020 € |
31 December 2019 € |
| Dividends on ordinary shares declared and paid |
|
|
| Final dividend for 2018: 0.96 cent per share | - | 723,000 |
| Interim dividend for Q1 2019: 1.10 cent per share Interim dividend for Q2 2019: 1.37 cent per share Special dividend* Q2 2019: 1.86 cent per share Interim dividend for Q3 2019: 1.38 cent per share Interim dividend for Q4 2019: 1.04 cent per share Interim dividend for Q1 2020: 1.20 cent per share Interim dividend for Q2 2020: 1.25 cent per share | - - - - 1,160,351 1,338,867 1,394.653 | 825,000 1,027,500 1,395,000 1,173,000
|
| Interim dividend for Q3 2020: 1.30 cent per share | 1,450,438 |
|
| Total | 5,344,309 | 5,143,500 |
| Declared dividend on ordinary shares |
|
|
| Proposed Interim dividend for Q4 2020: 1.40 cent per share | 1,562,011 | - |
*A Q2 2019 special dividend was declared on 26 June 2019 and paid to equity holders on 24 July 2019. This dividend of 1.86 cent per share was paid following the receipt of a lease surrender during the year.
The proposed Q4 2020 interim dividend would result in dividends declared from 2020 earnings of 5.15 cents per share (2019: 6.75 cents per share). The proposed dividend had not been accounted for as a liability at year end. The Board approved the dividend on 23 February 2021 and it was due to be paid on 7 April 2021.
23. Related party transactions
The Directors are considered to be related parties.
On admission to the AIM and Euronext Growth markets the Executive Directors subscribed for shares in the Company at the issued price. They subscribed their post-tax proceeds from redemption of shares in the Yew Tree Investment Fund plc (Dissolved) and their shares of all incentive fees due from Parapet Capital Advisors' role as Investment Adviser to the AIFM of the Yew Tree Investment Fund plc (Dissolved). Concurrently the Non-Executive Directors subscribed for shares in the Company at the issued price.
The Directors made further subscriptions for shares at the issued price in the July and December share placings in 2019. In 2020 some Directors made further market purchases of shares.
The Directors of the Group received remuneration, fees and other benefits from the Group for their services. Total amounts for the financial year were €980,019 (2019: €1,358,154). No variable remuneration was paid to the Non-Executive Directors. No remuneration, fees or other benefits were paid to the Directors by any subsidiary or joint venture.
All transactions between the Company and its subsidiaries are eliminated on consolidation.
Key management personnel
The remuneration of key management personnel during the financial year is disclosed in note 24.
23. Related party transactions (Continued)
Subsidiaries, associates and joint ventures
All transactions between the Company and its subsidiaries are eliminated on consolidation. There is no equity issued by the subsidiaries. The subsidiaries are management companies which are limited by guarantee and do not have share capital. The subsidiaries of the Group are:
| Name of subsidiary | Registered Address/Country of Incorporation | Nature of the business | Membership | Votes controlled by the Company |
| Gateway Estate Management Company Limited by Guarantee
| 2nd Floor, River House, East Wall Road, Dublin 3, Ireland | Management of common areas | 2/3 | 99% of voting rights |
| Mallow Business Park Management Company Limited by Guarantee | Mallow Business Park, Gooldhill, Mallow, Co. Cork, Ireland | Management of common areas | 1/2 | 66% of voting rights |
The Group has a single joint venture:
| Name of joint venture | Registered Address/Country of Incorporation | Nature of the business | Votes controlled by the Company |
| Ashtown Management Company Limited by Guarantee | Friends First House, Cherrywood, Loughlinstown, Co. Dublin, Ireland | Management of common areas | 50% |
The joint venture had a break even result for the year to 31 December 2020.
Associates
During the year the Company acquired a portfolio of six office buildings at Millennium Park, Naas Co. Kildare, following which the Company has a holding in management companies associated with those properties, listed below. The Company does not exert control over these management companies, they have been classified as associates and do not form part of the consolidated Group. There is no equity issued by the associates as they are management companies are limited by guarantee not having share capital.
| Name of subsidiary | Registered Address/Country of Incorporation | Nature of the business | Votes controlled by the Company |
| Naas Millennium (East) Management Company Limited by Guarantee | C/O Tetrarch Capital Limited, Heritage House, 23 St. Stephen's Green, Dublin 2, Ireland
| Management of common areas | 13.8% of voting rights |
| Naas Millennium (West) Management Company Limited by Guarantee | C/O Tetrarch Capital Limited, Heritage House, 23 St. Stephen's Green, Dublin 2, Ireland
| Management of common areas | 12.23% of voting rights |
| Osberstown Management Company Limited by Guarantee | C/O Tetrarch Capital Limited, Heritage House, 23 St. Stephen's Green, Dublin 2, Ireland | Management of common areas | 3.87% of voting rights |
Other related parties
No other related party transactions have been identified.
24. Directors' remuneration
|
|
31 December 2020 € |
31 December 2019 € |
| Remuneration - Independent Non-executive Directors Remuneration - Executive Directors Total Directors and Non-executive Directors remuneration Bonus accrual - Executive Directors Pension defined contribution plan - Executive Directors Other benefits - Executive Directors | 230,000 375,012 605,012
225,000 112,500 37,507 | 230,000 375,012 605,012
615,000 113,242 24,900 |
| Total | 980,019 | 1,358,154 |
The remuneration of Directors and key management is determined by the Remuneration Committee in order to reflect the performance of individuals and market trends. Other benefits paid to the Executive Directors during the year include health insurance, death in service and illness insurance. Defined contribution pension payments represent contributions on behalf of the three Executive Directors. All fees paid to Non-Executive Directors are for services as Directors to the Group, they receive no other benefits. There were no payments of compensation made to any Directors for termination or loss of office.
Share based payments
In 2020, the Group has recognised €68,475 of share-based payment expense from the 2019 Long Term Incentive Plan ("2019 LTIP") award in the Consolidated Statement of Comprehensive Income. This award was made in 2019 and vests in 2022.
On 29 June 2020 the Remuneration Committee granted 785,000 share options to senior executives and staff under the 2020 Long Term Incentive Plan ("2020 LTIP"). The exercise price of these options of €0.01 is the nominal value of the underlying ordinary shares. The options' vesting is dependent on the Company's performance against two criteria, being Relative Total Shareholder Return ("TSR") for 50% of the options and Absolute Total Property Return for the remaining 50% of the options. The Company has set performance conditions for each criterion, 30% of options vest if performance is at the lower hurdle and 100% if at or above higher hurdle, the extent of vesting if performance is between the hurdles will be determined on a straight line basis.
Vesting for both 2019 LTIP and 2020 LTIP awards occurs three years after the date of grant and requires the senior executive and staff to still be employed by the Company on such date. If the lower hurdles are not met, the options lapse. The vested options must be exercised within seven years of grant. The fair value at grant date is estimated using a Monte Carlo simulation pricing model, taking into account the terms and conditions upon which the options were granted. There is no cash settlement of the grant. The fair value of options granted during the year to 31 December 2020 was estimated on the date of grant using the following assumptions:
Dividend yield (%) 5.67
Volatility (%) 38.44
Risk-free interest rate (%) 1.00
Vesting period of share options (years) 2.51
Grant date share price (€) 0.75
While the TSR linked option values calculated are based on market-based assumptions, the Absolute Total Property Return per share linked options, being non-market based, required management assumptions as to the probability of their respective hurdles being achieved.
In 2020, the Group has recognised €99,930 of share-based payment expense for the 2020 LTIP in the Consolidated Statement of Comprehensive Income.
25. Operating lease receivables
Future aggregate minimum rental receivables (to the next break date) under non-cancellable operating leases and licences are:
|
| 31 December 2020 € | 31 December 2019 € |
| Operating lease rentals and licence income receivables due in: Less than one year Between two and five years Greater that five years |
10,902,596 25,889,070 10,225,170 |
8,778,209 20,983,091 9,943,038 |
| Total | 47,016,835 | 39,704,338 |
The Group has both operating leases and operating licences. The operating licences are predominantly for car parking spaces and are less than one year in duration.
The Group leases its investment properties under operating leases. The weighted average unexpired lease term of these leases ("WAULT") at 31 December 2020 is 7.2 years to expiry (2019: 8.1 years). The weighted average unexpired lease term of these leases ("WAULT") at 31 December 2020 is 4.1 years to break (2019: 4.6 years).
These calculations are based on all lease and licences at 31 December 2020.
The Company produces internal weekly reports which include details of the next lease events for all its leases. Following distribution of this report the Company holds a weekly meeting at which each property, and the strategy for impending or future lease amendments is discussed. The principal strategies for managing risk of the Company's leases are: monitoring the creditworthiness and business models of existing tenants and their guarantors, arranging new leases with existing or new tenants, effecting rent reviews and lease amendments with existing tenants.
26. Financial instruments - risk management and fair value
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 |
CARRYING VALUE (€) |
LEVEL |
VALUATION TECHNIQUE | |
| Trade and other receivables | Amortised cost | 251,976 | 3 | All trade and other receivables that could be classified as financial instruments are short-term, the majority being less than three months in duration, and therefore face value approximates fair value on an amortised costs basis using the effective interest rate method. | |
| Loans and borrowings | Amortised cost | 38,309,197 | 3 | The carrying amount of loans and borrowings held at amortised cost have been calculated by discounting the expected cashflows at prevailing interest rates. | |
| Trade and other payables
| Amortised cost | 3,275,168 | 3 | All trade and other payables that could be classified as financial instruments are short-term, the majority being less than three months in duration, and therefore face value approximates fair value on an amortised cost basis using the effective interest rate method. | |
26. Financial instruments - risk management and fair value (Continued)
The Board has overall responsibility for the establishment and oversight of the Group's risk management framework. The Audit Committee is responsible for developing and monitoring the Group's risk management policies. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. All of these policies are regularly reviewed in order to reflect changes in the market conditions and the Group's activities.
The main risks arising from the Group's financial instruments are market risk, credit risk and 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:
i. Market risk
Market risk is the risk that the fair value or cashflows 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's financial assets mainly comprise of investment properties, and trade and other receivables and cash which are classified as financial assets. The Group has no financial assets or liabilities denominated in foreign currencies. Financial liabilities comprise short-term payables and bank borrowings. All of these items are denominated in Euro. The Group's primary market risk for financial instruments is interest rate risk.
a) Interest rate risk
Bank borrowing interest rates are based on short-term variable interest rates which the Group has chosen not to hedge. Exposure to interest rates is limited to the exposure of its earnings from uninvested funds and borrowings. The Group has a revolving credit facility with AIB of which €38.6m (2019: €20.8m) was drawn at year end, €15.0m was undrawn as at 31 December 2020 (2019: €8.3m) Interest due on the drawn amount of the facility will vary with changes in the underlying interest rate which may result in an increase in financing costs. The Group's drawings under its bank facility float at a margin over the higher of 3 months Euribor or 0% at drawing and quarterly reset dates and therefore the impact of a rise in 3 months Euribor to 1% for a full year on drawings as at 31 December 2020 would be approximately €0.39m (2019: €0.21m), and if the facility were fully drawn would be €0.54m (2019: €0.30m).
The Group is also exposed to interest rate risk on its cash and cash equivalents. There were €10.7m of uninvested Group funds held within Bank of Ireland, Allied Irish Bank and Societe Generale accounts at 31 December 2020 (2019: €14.6m). These balances attract low interest rates and therefore a relative increase or decrease in their interest rates would not have a material effect on the Consolidated Statement of Comprehensive Income.
b) Currency risk
The Company has a sterling bank account with Société Générale. As at 31 December 2020 the amount outstanding was GB£19,130 (2018: GB£6,202). This amount is judged sufficient to settle expected sterling payments due to service providers. As such, the Company had minimal foreign exchange exposure.
ii. Liquidity risk
Liquidity risk is the risk the Group may encounter difficulties in meeting the obligations associated with its financial liabilities settled by cash or other financial assets. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group monitors the level of expected cash inflows on trade and other receivables, together with expected cash outflows on trade and other payables and capital commitments.
26. Financial instruments - risk management and fair value (Continued)
Detailed below are the contractual maturities of the Group's financial liabilities;
| 2020: | Carrying Value
€ | 6 months or less
€ | 6 to 12 months
€ | 1 to 2 years
€ | 2 to 5 years
€ | More than 5 years € | Total contractual amount € |
| Borrowings Trade payables Other payables Lease liabilities | 38,309,197 3,275,168 541,393 230,069 | 513,116 3,275,168 341,933 38,345 | 513,116 - 199,460 38,345 | 1,026,232 - - 153,379 | 40,361,661 - - - | - - - - | 42,414,125 3,275,168 541,393 230,069 |
| Total carrying amount | 42,355,827 | 4,168,562 | 750,921 | 1,179,611 | 40,361,661 | - | 46,460,755 |
| 2019: | Carrying Value
€ | 6 months or less
€ | 6 to 12 months
€ | 1 to 2 years
€ | 2 to 5 years
€ | More than 5 years € | Total contractual amount € |
| Borrowings Trade and other payables | 20,419,260 3,561,604 | 297,440 3,344,401 | 297,440 201,150 | 594,879 - | 20,419,260 - | - - | 21,609,018 3,545,551 |
| Total carrying amount | 23,980,864 | 3,641,841 | 498,590 | 594,879 | 20,419,260 | - | 25,154,569 |
iii. Credit risk
Cash and cash equivalents: cash and cash equivalents are held with major Irish and European banking institutions. These banking institutions and their short term ratings are listed below (ratings for each are from Standard and Poors/Moody's/Fitch):
Société Générale has short term unsecured debt ratings of A-1/P-1/F1
Allied Irish Bank plc has short term unsecured debt ratings of A-2/P-1/F2
The Governor and Company of the Bank of Ireland has short term ratings of A-2/P-1/F2
Trade and other receivables: rents and licences are generally received monthly in advance or quarterly in advance from tenants. The balance of trade and other receivables has no concentration of credit risk as it comprises mainly prepayments.
The Group's exposure to credit risk is influenced mainly by the individual characteristics of its customers. Trade and other receivables relate mainly to the Group's property tenants. The day-to-day management of the Group's customers is managed by appointed property agents under the oversight of the Group's internal property management group.
The Group applies the simplified approach to trade receivables for which expected credit losses uses the lifetime expected credit allowance. The Group has no exposure to bad debts other than those disclosed in note 16 as the majority of the Group's rental income is from State bodies or FDI entities as they have good credit standing. The payment and credit performance of these tenants is closely monitored.
There was an expected credit loss in the year of €175,583 mainly as a result of difficulties encountered by tenants in trading during movement and trading restrictions as a result of the COVID-19 pandemic.
26. Financial instruments - risk management and fair value (Continued)
Detailed below are the carrying amount of the Group's financial assets as the maximum amount of exposure to credit risk;
|
| 31 December 2020 € | 31 December 2019 € |
| Trade and other receivables Cash and cash equivalents | 1,076,579 10,721,464 | 3,477,065 14,577,461 |
| Balance at end of year | 11,798,043 | 18,054,526 |
Capital management
The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The key performance indicators used in evaluating the achievement of strategic objectives are return on capital, growth in NAV and dividends to ordinary shareholders (dividend per share) as well as the total return of the Group's property portfolio.
Capital consists of share capital, reserves and retained earnings. At 31 December 2020 the equity of the Group was €111.6m (2019: €109.9m).
The Group seeks to leverage capital in order to enhance returns, refer to note 19 for further details.
The Group's issued share capital is publicly traded on the Euronext Growth market of Euronext Dublin and the Alternative Investment Market of the London Stock Exchange.
27. Contingent Liabilities
The Group has not identified any contingent liabilities which are required to be disclosed in the consolidated financial statements.
28. Events after the reporting period
On 1 January 2021 the Company's previously agreed letting of 20,268 sq. ft. (the first floor) of Unit 2600, Cork Airport Business Park to Alter Domus Fund Services Ireland Ltd along with 79 carparking spaces took effect.
On 4 February 2021 the Company held an Extraordinary General Meeting at which the resolutions intended to facilitate the migration of the Company's participating securities from the CREST System to the central securities depository system operated by Euroclear Bank SA/NV and to make certain changes to the Company's Articles of Association were duly passed by shareholders.
On 9 February 2021 the Company announced that it had started the process of listing on a main market of a recognised stock exchange in an EU member state. This is required by the Irish tax provisions governing REITs, the Company expects to be listed (on the Main Securities Market of Euronext Dublin) in the first half of 2021.
On 23 February the Company declared the payment of an interim dividend for the quarter ended 31 December 2020 of €1,562,011 for 1.40 cents per ordinary share. This will be paid to shareholders on 7 April 2021.
On 25 February the Company announced that it had agreed a new lease for the entirety of the Gateway Three building, East Wall Road, Dublin to the Electricity Supply Board ("ESB") group.
On 18 March 2021 an agreement was made to finance the construction of an adjoining building to its currently owned Building C at the IDA Business and Technology Park at Athlone, Westmeath, which the tenant has agreed to lease on completion. The Company has established a 100% owned subsidiary, Yew Grove HoldCo One Limited, for this purpose.
29. Capital commitments
It is expected that a car park will be built at the Waterford property with an estimated cost of €100,000. This commitment was taken on as part of the purchase of the Waterford property in 2019 and was due to be completed by December 2019, an extension until 2021 has been requested for this.
There are no other capital commitments at the Statement of Financial Position date.
Disclosures under AIFMD (unaudited)
Disclosure required under the Alternative Investment Fund Managers Directive ("AIFMD") for Reports of alternative investment funds ("AIFs") (unaudited)
Financial information disclosures
The Company realised a gain of €0.1 million on the sale of two of its investment properties in the financial year from 1 January 2020 to 31 December 2020. Within the total unrealised gains for the same period of €1.2 million disclosed under IFRSs, there is a total of €1.6 million in unrealised losses and €2.8 million in unrealised gains.
Material changes and periodic risk management disclosures
All disclosure requirements to be made to investors prior to investing in the Company are set out on the Company's website, www.ygreit.com.
Remuneration disclosures
The information provided below relates to Ballybunion Capital Limited, the alternative investment fund manager ("AIFM"), and not to Yew Grove REIT plc. The disclosure is required under AIFMD for reports of alternative investment funds ("AIFs").
The AIFM operates under the terms of its remuneration policy which has been developed with due regard to all relevant legislation and regulatory guidance. This remuneration policy is designed to:
· Promote sound and effective risk management
· Not encourage risk taking that is inconsistent with the risk profile, rules or investment policies of the REIT and
· Prevent conflicts of interest.
The AIFM charged a fixed annual fee of €75,000 for its services to the REIT for 2020. There is no variable element to this fee. Total remuneration paid by the AIFM to its staff for the year ended 30 June 2020 (most recent audited figures) was €1,131,408 which related to an average staff number of 10 during that period. All AIFM staff receive only contracted fixed remuneration where the payment and benefits thereof are not subject to the performance of the REIT. The average number of AIFM staff engaged in providing part-time services to the REIT during the reporting period was 5.
Alternative performance measures
The Group has applied the European Securities and Markets Authority (ESMA) 'Guidelines on Alternative Performance Measures' in this annual report and consolidated financial statements. An alternative performance measure ("APM") is a measure of financial or future performance, position or cashflows of the Group which is not a measure defined by International Financial Reporting Standards ("IFRS").
The following are the APMs used in this report together with information on their calculation and relevance.
| APM | Description |
| Contracted rent roll | Annualised cash rental income (net of car park licence income) being received as at the stated date
|
| Loan to value | Outstanding drawings under loan facilities as a percentage of the fair value of the investment properties
|
| Debt to equity gearing | Outstanding drawings under loan facilities as a percentage of the IFRS net asset value of the Group |
| Total shareholder return | A measurement of the growth in share value for shareholders (assuming gross dividends are reinvested and share price appreciation) over a defined period. |
| Weighted average unexpired lease term (" WAULT") | An indicator of the average remaining life of a lease or group of leases within the portfolio. |
| Gross yield at fair value "FV" | The contracted rent roll as at the stated date, divided by the fair value of the investment properties as at the reporting date. |
| Gross reversionary yield | The ERV of a property or group of properties as a percentage of their fair value. |
European Public Real Estate Association ("EPRA") Performance Measures (unaudited)
EPRA performance measures presented here are calculated according to the EPRA Best Practices Recommendations October 2019. EPRA performance measures are used in order to enhance transparency and comparability with other public real estate companies in Europe.
EPRA earnings and EPRA NAV measures are also included within the financial statements, in which they are audited, as they are important key performance indicators. All measures are presented on a consolidated basis only and, where relevant, are reconciled to IFRS measures as presented in the consolidated financial statements.
| EPRA Measure | IFRS measure | Note | Description |
| EPRA earnings | IFRS profit after tax | (i) | As EPRA earnings is used to measure the operational performance of the Group, it excludes all components not relevant to the underlying net income performance of the portfolio, such as the change in value of the underlying investments and any gains or losses from the sales of investment properties. |
| EPRA earnings per share | IFRS EPS | (i) | Earnings from core operational activities. A key measure of a company's underlying operating results from its property rental business and an indication of the extent to which current dividend payments are supported by earnings |
| EPRA Net Reinstatement Value ("NRV") | IFRS NAV | (iii) | Assumes that entities never sell assets and aims to represent the value required to rebuild the entity |
| EPRA Net Tangible Assets ("NTA") | IFRS NAV | (iii) | Assumes that entities buy and sell assets, thereby crystallising certain levels of unavoidable deferred tax.
|
| EPRA Net Disposal Value ("NDV")
| IFRS NAV | (iii) | Represents the shareholders' value under a disposal scenario, where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax.
|
| EPRA Net Initial Yield ("NIY") | NA | (iv) | Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property expenses, divided by the market value of the property with (estimated) purchasers' costs |
| EPRA 'topped up' Net Initial Yield | NA | (iv) | This measure incorporates an adjustment to EPRA NIY for rent-free-periods or other unexpired lease incentive discounted rent periods and stepped rents. |
| EPRA Vacancy Rate
| NA | (v) | Estimated Market Rental Value (ERV) of any vacancy in the portfolio divided by the ERV of the whole portfolio |
| EPRA cost ratios | IFRS operating expenses | (vi) | Calculated using all administrative and operating expenses under IFRS net of service fees. It is measured including and excluding vacancy costs. |
| EPRA Performance Measure | 31 December 2020 | 31 December 2019 |
| EPRA Earnings (note 11) | 6,136,655 | 5,704,318 |
| IFRS NAV (note 12) | 100.03 | 98.52 |
| EPRA Net Reinstatement Value (NRV) | 112.35 | 108.69 |
| EPRA Net Tangible Assets (NTA) | 99.77 | 98.41 |
| EPRA Net Disposal Value (NDV) | 99.77 | 98.41 |
| EPRA Net Initial Yield (NIY) | 6.4% | 6.6% |
| EPRA 'topped up' NIY | 6.7% | 6.8% |
| EPRA Vacancy Rate | 6.9% | 7.4% |
| EPRA Cost Ratios: EPRA Cost Ratio (including direct vacancy costs) EPRA Cost Ratio (excluding direct vacancy costs) |
26.4% 23.5% |
37.7% 36.0% |
i. EPRA Earnings
For calculations, please refer to note 11
ii. IFRS NAV
For calculations, please refer to note 12
iii. EPRA NRV, EPRA NTA and EPRA NDV
| As at 31 December 2020 | EPRA NRV | EPRA NTA | EPRA NDV |
|
|
| € | € | € |
|
| IFRS NAV | 111,603,077 | 111,603,077 | 111,603,077 |
|
|
Include: |
|
|
|
|
| Fair value of derivatives | - | - | - |
|
| Real estate transfer tax[8] | 14,078,960 | - | - |
|
| NAV performance measure | 125,682,037 | 111,603,077 | 111,603,077 |
|
| Diluted number of shares at financial year end | 111,865,838 | 111,865,838 | 111,865,838 |
|
| NAV per share at financial year end | 112.35 | 99.77 | 99.77 |
|
| As at 31 December 2019 | EPRA NRV | EPRA NTA | EPRA NDV |
|
|
| € | € | € |
|
| IFRS NAV | 109,922,541 | 109,922,541 | 109,922,541 |
|
|
Include: |
|
|
|
|
| Fair value of derivatives | - | - | - |
|
| Real estate transfer tax | 11,486,368 | - | - |
|
| NAV performance measure | 121,408,909 | 109,922,541 | 109,922,541 |
|
| Diluted number of shares at financial year end | 111,697,432 | 111,697,432 | 111,697,432 | |
| NAV per share at financial year end | 108.69 | 98.41 | 98.41 |
|
iv. EPRA Net Initial Yield (NIY) and EPRA "topped-up" NIY
|
| 31 December 2020 |
| 31 December 2019 |
|
| € |
| € |
| Investment property | 141,925,000 |
| 115,790,000 |
| Allowance for estimated purchasers' costs | 14,078,960 |
| 11,486,368 |
| Gross up completed property portfolio valuation | 156,003,960 |
| 127,276,368 |
|
Annualised cash passing rental income Property outgoings
| 10,378,534 (414,740) |
| 8,546,065 (198,396) |
| Annualised net rents | 9,963,794 |
| 8,347,669 |
| Rent free/other lease incentives | 543,108 |
| 368,935 |
| Topped-up net annualised rent | 10,506,902 |
| 8,716,604 |
|
EPRA NIY | 6.4% |
| 6.6% |
| EPRA "topped-up" NIY | 6.7% |
| 6.8% |
v. EPRA Vacancy rate
|
| 31 December 2020 |
| 31 December 2019 |
|
| € |
| € |
| Estimated Rental Value of vacant space | 853,550 |
| 750,952 |
| Estimated Rental Value of the whole portfolio | 12,403,015 |
| 10,092,357 |
| EPRA Vacancy Rate | 6.9% |
| 7.4% |
vi. EPRA Cost ratios
|
| 31 December 2020 |
| 31 December 2019 |
|
| € |
| € |
| IFRS Administrative/operating expense | 2,880,829 |
| 2,949,241 |
| Property management fees Ground rent costs
| 80,564 728 |
| 88,842 96 |
| EPRA Costs (including direct vacancy costs) | 2,799,537 |
| 2,860,303 |
| Direct vacancy costs | 306,974 |
| 130,160 |
| EPRA Costs (excluding direct vacancy costs) | 2,492,563 |
| 2,730,143 |
| IFRS Rental income | 10,599,687 |
| 7,580,860 |
| EPRA Costs Ratio (including direct vacancy costs) EPRA Costs Ratio (excluding direct vacancy costs) | 26.4% 23.5% |
| 37.7% 36.0% |
There are no administration costs capitalised in the year, the company does not have any construction contracts in place at year end.
Glossary
CBD: The central business district of a city.
Contracted rent roll: The annualised cash rental income (including car park licence income) being received as at the stated date.
Debt to Equity gearing: The ratio calculated by dividing the amount of drawn loans by the Net Asset Value of the Group.
Dublin Catchment Area: The geographic area within an approximately thirty-minute commute of the M50 motorway.
EPRA: The European Public Real Estate Association.
EPRA EPS: is calculated by dividing EPRA Earnings for the reporting period attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the reporting period. EPRA Earnings measures the level of income arising from operational activities. It is intended to provide an indicator of the underlying income generated from leasing and management of the property portfolio and so excludes components not relevant to the underlying net income performance of the portfolio such as unrealised changes in valuation and any gains or losses on disposals of properties.
ERV/Estimated Rental Value: A valuer's opinion as to the open market rental value of a property on a valuation date which could reasonably be expected to be the achievable rent for a new letting of that property on the valuation date. Colloquially referred to as market rent.
Foreign Direct Investment companies ("FDI"): Overseas companies that have established operations in Ireland, often with the assistance of IDA Ireland.
Gale Date: The day on which rent or interest is due.
Gross reversionary yield: The reversionary rent roll of a property or group of properties as a percentage of their fair value.
Gross yield at fair value: A calculation of the current expected cash rental return, being the contracted rent roll divided by the fair value of the investment property or properties.
Ireland: The Republic of Ireland
Loan to Value/LTV: The LTV is calculated by dividing the amount of drawn loans by the fair value of the Company's investment properties.
Net Initial Yield ("NIY"): Annualised rental income based on the cash rents passing at the balance sheet date, less non-recoverable property operating expenses, divided by the market value of the property, increased with (estimated) purchasers' costs.
Net valuation gain: The fair value gain over the period (from the shorter of the time to the last valuation or purchase). Purchases made since the last valuation are initially recognised at price including transaction costs.
Next rent reversion date: The earliest following date at which the Company could be expected to choose to re-let a property or re-set the rent at that property's ERV.
Property income: As defined in section 705A of the Taxes Consolidation Act, 1997. It means, in relation to a company or group, the Property Profits of the Company or Group, as the case may be, calculated using accounting principles, as: (a) reduced by the Property Net Gains of the Company or Group, as the case may be, where Property Net Gains arise, or (b) increased by the Property Net Losses of the Company or Group, as the case may be, where Property Net Losses arise.
Property Net Losses: As defined in section 705A of the Taxes Consolidation Act, 1997.
Property Net Gains: As defined in section 705A of the Taxes Consolidation Act, 1997.
Property Profits: As defined in section 705A of the Taxes Consolidation Act, 1997.
Property Rental Business: As defined in section 705A of the Taxes Consolidation Act, 1997.
Rent review: A clause often included in property leases that provides for a periodic adjustment of the rent of a property to the market level of rent.
Reversion: A term used to describe the difference in rent from that which is currently due on outstanding leases and the ERV. Under-rented properties have contracted rents lower than ERV, over-rented properties have contracted rents higher than ERV.
Reversionary rent roll: The annualised cash rental income (net of car park licence income) that would be received if the property or properties were leased at ERV.
Seed portfolio: The portfolio of investment properties owned by the Yew Tree Investment Fund (Dissolved) when it was purchased on 8 June 2018.
SME: As defined by Enterprise Ireland, an enterprise that has between 50 employees and 249 employees and has either an annual turnover not exceeding €50m or an annual balance sheet total not exceeding €43m.
State Body: a body established by legislation in the Republic of Ireland which is either entirely or majority owned by the Irish Government
Total expense ratio ("TER"): The ratio of the Company's annualised expenses, excluding transaction costs, financing costs and capital expenses as a percentage of the average net assets during that period.
Total shareholder return: The growth in share value over a period assuming all dividends are reinvested in shares of the Company when paid.
Vacancy: Lettable space owned by the Company which is not let or licenced to a tenant.
WAULT: Weighted average unexpired lease term
Corporate Information
| Directors
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| Barry O'Dowd (Chair, Independent Non-executive Director) Eimear Moloney (Independent Non-executive Director) Garry O'Dea (Independent Non-executive Director) Brian Owens (Independent Non-executive Director) Jonathan Laredo (Chief Executive Officer) Charles Peach (Chief Financial Officer) Michael Gibbons (Chief Investment Officer)
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| Registered office |
| 1st Floor 57 Fitzwilliam Square Dublin 2, Ireland
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| Company Secretary |
| Tarryn Van Beek
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| AIFM |
| Ballybunion Capital Limited Ashley House Morehampton Road Dublin 4, Ireland
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| Euronext Growth Adviser and Joint Broker |
| Goodbody Stockbrokers Ballsbridge Park Ballsbridge Dublin 4, Ireland
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| Nominated Adviser and Joint Broker |
| Liberum Capital Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY |
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| Legal Adviser to the Company as to Irish law |
| William Fry Grand Canal Square Grand Canal Dock Dublin 2, Ireland
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| Registrar |
| Link Asset Services Link Registrars Limited 2 Grand Canal Square Dublin 2, Ireland |
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Depositary and Custodian |
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Société Générale S.A., Dublin Branch 3rd Floor, IFSC House IFSC Dublin 1, Ireland
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| Valuer |
| Lisney Limited St. Stephen's Green House Dublin 2, Ireland
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| Auditor |
| Deloitte Ireland LLP Chartered Accountants and Statutory Audit Firm Deloitte & Touche House 29 Earlsfort Terrace Dublin 2, Ireland |
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[8] The Group has no goodwill or intangibles. This is the purchasers' costs amount as provided in the valuation certificate. Purchasers' costs consist of items such as stamp duty on legal transfer and other purchase fees that may be incurred, and which are deducted from the gross value in arriving at the fair value of investment and owner occupied property for IFRS purposes. Purchasers' costs are in estimated at 9.92% by the external valuer.
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