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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Yew Grove Reit Plc | LSE:YEW | London | Ordinary Share | IE00BDT5KP12 | ORD SHS EUR0.01 (CDI) |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 1.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
TIDMYEW
RNS Number : 9457S
Yew Grove REIT PLC
22 March 2021
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 EUR141.9 million, reflecting an annualised rent roll of EUR10.9 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 EUR25.3 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 EUR100 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 EUR141.9 million (31 December 2019: EUR115.8 million).
-- Period end valuation shows an increase of EUR3.3 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 EUR10.9 million at Period end (31 December 2019: EUR8.9 million), increasing to EUR11.3 million from 1 January 2021.
-- Period net revenues were EUR10.6 million, including EUR0.15 million of lease surrender premium payments. Excluding lease surrender premium payments, this shows an increase of 41% on 2019.
-- Expenses were stable at EUR3.1 million (2019 EUR3.0 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 EUR20.8 million to EUR38.6 million over the Period, leaving additional undrawn headroom of EUR15.0 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 EUR12.4 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 yewgrovereit@investor-focus.co.uk 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 EUR10.9[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 EUR11.3 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 EUR8.9 million at 31 December 2019 to EUR10.9[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 EUR12.4 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 EUR0.1 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 EUR1,562,011 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 EUR3.4 million, which exceeds the costs of acquiring the Millennium Park portfolio (approximately EUR2.1 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 EUR162,000 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 EUR10.9 million from EUR9.9 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 EUR3.0 million to EUR3.1 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 EUR2.0 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 EUR38.6 million and cash and cash equivalents of
EUR10.4 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 EUR10.50 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 A(5) . 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 suburbs(4) .
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 EUR3.6 billion for the year, substantially down from 2019. Of that circa EUR1.4 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 EUR30 to EUR35, 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 space(5) . 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 EUR11.3 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 EUR109.9 million to EUR111.6 million at year end, rental income grew from EUR9.9 million (EUR7.9 million excluding lease surrender) to EUR11.4 million[6] and administrative costs remained controlled at EUR3.1 million when compared with EUR3.0 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 EUR1.7 million, a rise of 1.5% over the year. The Company increased its available debt facility by EUR24.5 million to EUR53.6 million, which was partially deployed on a further EUR25.3 million of property assets. Valuation gains on the Group's portfolio over the year were EUR1.2 million, inclusive of property purchase costs of EUR2.1 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 EUR10.7 million, with the contracted rent roll rising by EUR2.0 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 EUR3.1 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 EUR141.9 million at 31 December 2020, up from EUR115.8 million the prior year. Realised and unrealised gains on the property portfolio were EUR1.3 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 EUR0.1 million. As at 31 December 2020, the portfolio had 25 properties, with an average value of EUR5.7 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 EUR29.1 million to EUR53.6 million, and the drawn amount increased from EUR20.8 million to EUR38.6 million over the year. Net debt at the end of the year was EUR28.2 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 EUR15.0 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
EUR10.4 million and EUR15.0 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 EUR11.3 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 EUR10.9m EUR8.9m EUR11.3m ------------------- ------------------- ------------------- Portfolio ERV EUR12.4m EUR10.1m EUR12.4m ------------------- ------------------- ------------------- Portfolio value EUR141.9m EUR115.8m EUR141.9m ------------------- ------------------- ------------------- 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 4.1/7.2 years 4.6/8.1 years 4.2/7.5 years end ------------------- ------------------- ------------------- Vacancy by ERV 6.9% 7.7% 4.1% ------------------- ------------------- -------------------
-- Portfolio increase via acquisitions from EUR115.8 million to EUR141.9 million at 31 December 2020: a 23% increase.
-- Two buildings were sold in 2020 (Value EUR2.2 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 Contracted Gross Reversionary Gross WAULT WAULT Portfolio (EUR'000) Rent Yield Rent Roll Reversionary to to lease Vacancy Roll at (EUR'000) Yield lease end (EUR'000) Fair break (years) Value (years) 1 One Gateway Office Dublin 19,300 1,306 6.8% 1,495 7.7% 1.6 2.7 0.4% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- North 2 Letterkenny Office West 15,670 1,437 9.2% 1,458 9.3% 7.3 7.3 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Three 3 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% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Birch House Dublin 5 MP Office Catchment 8,200 697 8.5% 697 8.5% 9.5 14.5 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Unit 2600, Cork 6 Airport[7] Office Cork 6,950 0 0.0% 689 9.9% - - 100.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Chestnut House Dublin 7 MP Office Catchment 6,200 507 8.2% 576 9.3% 2.9 2.9 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- IDA Athlone Block 8 B Industrial Midlands 6,075 530 8.7% 530 8.7% 2.2 12.2 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- IDA Athlone 9 Unit B2 Industrial Midlands 5,550 483 8.7% 483 8.7% 2.7 13.7 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Ashtown Gate Block 10 C Office Dublin 4,990 395 7.9% 396 7.9% 3.2 4.9 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Ashtown Gate Block 11 B Office Dublin 4,780 405 8.5% 374 7.8% 2.1 8.4 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- IDA Waterford Block South 12 A Office East 4,150 353 8.5% 424 10.2% 2.6 14.0 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- IDA Athlone Block 13 A Industrial Midlands 3,640 270 7.4% 313 8.6% 4.9 8.0 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Hazel House Dublin 14 MP Office Catchment 3,460 341 9.8% 335 9.7% 2.8 4.4 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Willow House Dublin 15 MP Office Catchment 3,300 222 6.7% 316 9.6% 3.7 4.8 18.6% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Ash House Dublin 16 MP Office Catchment 3,270 326 10.0% 331 10.1% 0.5 5.5 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- IDA Athlone Block 17 C Industrial Midlands 3,215 280 8.7% 253 7.9% 3.8 8.8 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Airways 18 Unit 8 Industrial Dublin 3,100 160 5.2% 291 9.4% 5.1 10.1 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Blackwater 19 House Office Cork 2,860 235 8.2% 343 12.0% 3.7 3.7 29.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Airways 20 Unit 7 Industrial Dublin 2,760 160 5.8% 258 9.4% 4.5 9.5 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Beech House Dublin
21 MP Office Catchment 2,170 222 10.2% 221 10.2% 1.6 6.7 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Unit L2 Dublin 22 Toughers Industrial Catchment 1,930 170 8.8% 211 10.9% 2.1 2.1 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Old Mill Mixed South 23 Lane Use West 1,690 247 14.6% 159 9.4% 5.7 8.0 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Bridge 24 Centre Retail Midlands 1,625 209 12.9% 161 9.9% 7.1 8.4 0.0% ------------ ----------- ---------- ---------- ----------- ------ ------------- ------------- ---------------- --------------------- ---------- Canal Mixed 25 House 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 EUR11.3 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 EUR141.9 million as at 31 December 2020 (2019: EUR115.8 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 EUR25.3 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 EUR1.6 million and by the end of 2020 this had grown to EUR2.3 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 EUR1.46 million, In addition to the sale value, the Company received a further EUR426,603 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 EUR950,000. 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 EUR16.50 per sq. ft. plus EUR200 per car park space, equating to an annual rent of EUR696,694 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 EUR16.50 per sq. ft. with a separate licence for 79 car spaces at a rent of EUR200 per car space per annum. The lease facilitates Alter Domus' ongoing expansion of their Cork operations and will generate an annual combined rent of EUR350,000 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 EUR9.29 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 EUR33.33 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 EUR28.53 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 EUR27.07 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 EUR25.65 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 EUR17.75 per sq. ft. A further review at Block A Waterford added a combined EUR70,000 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 EUR4 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 Board reviews The low retail The COVID-19 Stable * the Company's exposure, high pandemic has The cyclicality strategy annually rent collection required the of the property and considers and leasing Company to market or investor whether any activity in monitor both and tenant change may 2020 have helped shareholder demands may be needed in the Company's interest in change, requiring the light of performance. the Company, the Company current or Changes in tenants' interest to modify its forecast market office usage in the Company's strategy to conditions. post COVID-19, properties mitigate an The Board has changing occupier and the collection adverse impact property, requirements and valuation on shareholder financial need to be performance returns. markets and closely monitored. of the Company's accounting properties professionals closely. to advise on The Board has strategy changes reviewed stressed in their specific scenarios to areas. ensure the Company's strategy remains valid in adversity. Reputational Stable damage* The Company The Executive The Board is The Company's has a strong management aware that ability to system of internal view decisions following the attract high controls and made from the pandemic the calibre staff the Audit perspective Company and and service Committee of all stakeholders its comparables providers, reviews compliance as required will be reviewed
protect itself and internal under the UK in the light from malicious controls. The Code to understand of their actions (fraud, Company has how the Company performance cybercrime) increased its might be viewed (financial, and maintain efforts on by others. social and its regulatory communicating environmental) standing may its performance under testing be challenged and intentions times, providing by reputationally with current an opportunity damaging news and future to enhance or events. shareholders the Company's as well as reputation. 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. Inappropriate Stable capital structure. The Company's The Company's The Company property assets collections is financed are valued and property by equity and independently value relative debt and is with oversight stability have reliant on from the Valuation demonstrated compliance Committee. the financing with its debt The Board reviews in 2020 to covenants and the Company's be appropriate. ability to debt covenant Following Board raise further compliance and shareholder equity capital at each quarterly approval the for its operational Board meeting Company's target activity. and reviews LTV was increased financial from 25% to forecasts 40% in Q3, of the Company's allowing the performance. Company to The Audit continue to Committee execute on and the Board its pipeline review the while the equity Company's going capital markets concern status have been closed and expected in 2020. shareholder The Company returns, including has conducted cash and financing meetings with sensitivities. current and The Company's potential shareholders shareholders approved a to ascertain 100 million the future share issuance support for program in equity capital H2. The Board raising when has reviewed markets open. the company's equity capital raising plans for 2021 to allow the Company the best opportunity for continuing its growth. Inability to Increasing grow the Company The Company The Board see The rebalancing Lack of growth has received the growth of the economy in the Company's agreement at of the Company in response equity might EGM to raise via raising to the pandemic prevent further a further 100 further equity will play a liquidity or million shares capital as significant additional before May key to the part in determining shareholder 2021 and has Company's success. the chief drivers participation consulted with of equity interest. in the Company's its brokers Until clear shares, making to establish sight of the them less a plan to access pandemic attractive. the capital stabilising If the Company markets when or receding does not grow, they are is available, its operational attractive the markets leverage (it for the Company. may remain could grow The Board has closed and substantially reviewed the the rebalancing without a Company's register may be more proportionate in order to severe. increase in ensure equity administrative capital providers costs) would that are be wasted. under-represented are a focus for marketing the Company's shares. Reliance on Increasing incorrect A formal due A number of The lower information diligence and the Company's investment and analysis proposal process properties and leasing .* is required are multi-tenanted activity in Decisions made for all purchases, or grouped, 2020 has led on poor or sales, significant allowing the to less flawed information, asset management Company more transactional weak due diligence and tenant accurate evidence for or inappropriate leasing. data-points decision making. advice could The Company from first-hand lead to reputational maintains an evidence of and financial independent leasing and loss. record of property asset management transactional terms from and leasing its own tenants. information to provide market comparisons for potential actions. All decisions above require Investment Committee approval, with Board
approval required for particular decisions. Economic Weakening Economy Increasing A weakening The REIT's The Company The length national economy tenants are undergoes frequent and severity puts pressure mostly Government forecasting, of the pandemic on rents and and foreign scenario will be the tenants, reduces direct investment, forecasting key driver the availability reducing reliance and stress of immediate of debt financing on the local testing to economic stress. and brings economy. The understand This will continue more onerous REIT assets the potential to be led by debt financing are judged impact of capital, the timing terms. Fewer on the levels economic and and efficacy buyers for of local vacancy. portfolio changes. of immunity the REIT's The REITs assets The economic measures and properties. are mostly indicators local restrictions in areas of to date have on movement. low net vacancy shown that where pressure while the local on rentals economy has is upward, been badly providing some economically protection affected in against falling 2020, the FDI rents. Targeted sector has properties continued to are majority grow, albeit tenanted by at a reduced stronger tenants pace. with demand and businesses not just dependant on the local economy. Weak FDI demand Stable Risk of falling The Company's The Company demand from acquisition follows FDI Foreign Direct policy requires flows closely, Investment alternative and the Board's tenants. use planning. Chair has direct The Company FDI experience monitors and as a recent aims to understand and senior Foreign Direct member of IDA Investment Ireland. trends in advance. Interest rates Stable Debt facility The Company The increase margins and will seek to in government costs may increase. mitigate the support for Interest rate impact of interest financing through risk may increase. rate rises the pandemic on any future has helped debt facility. to keep current The Company's and expected finance manual interest rates includes lower. mitigating policies for hedging interest rate risk. Regulatory Brexit Increasing As the impact The key risk The negotiation of the Brexit areas by sector of the Brexit agreement is (agriculture, agreement has felt the land food manufacture) shown that bridge across are avoided its impact the UK to mainland in the REIT may lead to Europe may portfolio. a number of become increasingly Tenants are significantly expensive for assessed on different outcomes. tenants. the volume The Company of their sales continues to to the UK or watch this supplies from closely with the UK at rental a view increasingly or acquisition, on the medium and by their term and long-term use of the impacts. land bridge across the UK to mainland Europe. Targeted properties are majority tenanted by stronger tenants. Taxation management Stable and reform The Company's The Board has The Company finance team reviewed the is required demonstrates impact of forward to comply with the Group's looking expected local taxation compliance and increasingly laws, EU securities with the REIT stressed legislation rules to the projections and the Companies Board quarterly. on the Company's Act 2014, all The Amendments compliance. of which may introduced The increased be amended. to the 2019 cost of the Finance Act pandemic may have ensured later place the Board have a heavier taxation continued to burden on the take advice Company. on the potential taxation changes from the Company's advisors. The Company is a participatory member of EPRA and management attend industry briefings. Taxation planning* The Company Increasing Emerging risk The Company has started the Company has been granted the process may attract up to a year's of listing a tax charge extension for it shares on if not listed the listing the Main Securities on the main requirement, Market of Euronext market of an dependent on Dublin with
EU Member State its situation. a view of completing recognised The Company this in H1 exchange within is planning 2021. 3 years of to list on May 2018. an EU main board as soon as is practical. Property Company asset Increasing valuation The Company This risk has The pandemic Property assets has a separate increased through has led to outside the Valuation the pandemic, valuers Dublin Central Committee as fewer investment occasionally Business District to ensure the and leasing being unable may lack recent most capable transactions to inspect comparable valuers are have occurred. buildings, transactions used. The and appending or benchmarks, Valuation material resulting in Committee can uncertainty misleading change the clauses to valuations. valuer and their valuations. use more than one valuer for the portfolio. The property team keep a record of comparables from acquisition to share with the valuer. Property Stable concentration The Company's The Company The pandemic's (excessive investment has sought impact has exposure) committee reviews to maintain led to a Aggregation each asset diversity across significant of property individually its portfolio divergence location, tenant, and against since IPO, of returns building use the aggregated and any future across sectors and tenant portfolio on growth would and industries sectors may purchase or seek to further and the risk expose the later significant enhance this. remains elevated, Company to capital with some sectors increased risk. expenditure. facing a more The Company challenging seeks to maintain backdrop for a suitably the next few diverse portfolio years. 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. Tenant behaviour Stable pattern Tenants' covenant The Company The Company's (collections) strength and has been encouraged rent collections Risk that the prior rental by the collections process has Company's current performance to date, been refined or future tenants is reviewed particularly throughout fail to make at purchase, when compared the pandemic, payments due the property with the broader which has found in a full or management market as it the Company's timely manner, group conduct has shown the tenant strategy which could regular tenant benefits of to be highly affect the meetings and a strong credit effective. Company's dividends. tenant financial focus on tenants reviews. From and counterparties the onset of as well as the COVID-19 beneficial pandemic the relationships Company has with its tenants. been monitoring collections on a daily basis around rent payment dates, reporting on collections and monitoring any changes in tenant payment behaviour. Tenant property Increasing use* The Company While few decisions The COVID-19 contacted all have been made pandemic may tenants to by tenants change current ascertain their and there is and future current and little consensus tenants' workplace expected use in the market requirements. of leased on future office properties. use the Company A number of will continue tenants' employees to support have been working its tenants from home, continued best the future use of its continuation properties. of which is uncertain, as is the use of a more regional 'hub and spoke' approach to office working. Poor execution Stable of development Prior to The Company 2020 re-furbishment or re-furbishment re-furbishment, does relatively has, while projects the CIO will little development, light, been The risk that propose a and only with delayed by development re-furbishment strict cost the movement or refurbishment plan in accordance and risk management and work is under budgeted, with the parameters. restrictions overly lengthy Acquisition imposed by or inappropriate. policy for Government approval. in response Contractors to the pandemic. 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. Ineffective Increasing asset management The property The lack of The different Failing to management equity capital opinions of manage the group establish raising in market participants Company's property early, on-going 2020 has increased on the future assets could relationships the Company's path of the lead to increased with tenants focus on its pandemic and vacancy, longer to understand asset management its impact void periods their and interactions on tenant space and lower rental accommodation with existing and building yields. needs. Each tenants. requirements property has have required an asset the Company management to be flexible plan to ensure with its short the tenant and longer and Company term asset work together management in this regard. plans. Asset management is reported weekly on all properties to the Executive Directors. Operational Loss of key Reducing staff. The Board and The Company Efforts are The Company Company's has had no made to support relies upon remuneration turnover of employees' a small team policy is designed employees in safety and to implement to incentivise its life, and well-being its strategy performance in 2020 expanded through the and run all and be aligned the LTIP scheme COVID-19 pandemic. day to day with shareholders' to additional operations. interests. employees. Loss of employees, All employees or inability report to a to recruit Board member suitable employees to provide could result frequent feedback in poor decision to the Executive making and Directors and underperformance. Board. Business Increasing interruption. The Company The Company Events outside is a flexible has been tested of the Company's employer, having by the COVID-19 control may had employees pandemic. harm the working from All employees operational, the office can work remotely, strategic and or at home the Company's financial goals since IPO. collections of the Company. The Company have improved has a daily throughout confirmation the year and on each employee's valuations operational have been stable. effectiveness. Travel restrictions The Company's have slowed IT systems some asset (corporate, management property and due diligence management, processes. financial The Company reporting) can continue have been to operate implemented independently with remote of its offices, and multiple demonstrated users in mind by an office and have performed move in Q3. throughout the pandemic. Cyber-attack* Increasing Theft or denial The Company The Company of the Company's maintains a has increased data and management de-centralised cyber-security systems. hardware approach, awareness training with suitable for all employees back-up to and hardened prevent other areas irretrievable of security corruption while remote of data. The working is Company seeks prevalent. to maintain strong security around its data. Environmental Sustainability Stable Emerging risk The Company All refurbishment that the Company's has established projects include assets and an executive environmental operating or Sustainability considerations economic model Policy and to ensure buildings may be adversely Sustainability are maintained affected by committee to to current legislative ensure standards or sustainability environmental Building management requirements. risks are systems are identified being agreed and mitigated. with most tenants The Company to monitor measures and and respond manages its to energy usage. properties' environmental impact directly. The property management group review each property to ensure this is affected. Climate change Increasing Failure to The Company's Climate change respond sustainability is now considered appropriately committee reviews to be a principal and sufficiently these risks risk given to climate to adapt the its increasing change makes Company's importance the Company's portfolio to all stakeholders
buildings less to address and the impact attractive tenant and of real estate and may not stakeholder on the environment. meet the Company's requirements. shareholders expectations.
Consolidated Statement of Comprehensive Income
For the financial year ended 31 December 2020
Year ended Year ended 31 December 31 December 2020 2019 EUR EUR 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 10,652,499 9,418,776 Fair value gains/(loss) on investment properties 5 1,166,063 (768,283) Realised gain on disposal of investment properties 5 135,534 123,174 -------------- -------------- 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 11 6,136,655 5,704,318 Basic earnings per share (cent) 11 6.28 6.24 Diluted earnings per share (cent) 11 6.26 6.23 EPRA earnings per share 11 5.50 7.03 Diluted EPRA earnings per share 11 5.49 7.02
Consolidated Statement of Financial Position
2020 2019 As at 31 December 2020 Notes EUR EUR Non-current assets Investment properties 13 141,925,000 115,790,000 Property, plant & equipment 14 239,416 4,717 Interest in joint venture 15 3,473 3,473 Trade and other receivables 16 793,333 - --------------- --------------- 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 18 (153,379) - Borrowings 19 (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 12 100.03 98.52 (cents) 12 99.77 98.41 Diluted IFRS NAV per ordinary share (cents) 12 99.77 98.41 EPRA NTA per ordinary share (cents)
Consolidated Statement of Changes in Equity
For the financial year ended to 31 December 2020
Share capital Share Retained Other Total Notes account premium earnings Reserves equity ------------------- EUR EUR EUR EUR EUR ------------------- ------------- ------------------- ------------------- -------------- ---------- ------------ 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
Share capital Share Retained Other Total Notes account premium earnings Reserves equity ------------------- EUR EUR EUR EUR EUR ------------------- ------------- ------------------- ------------------- -------------- ---------- ------------ 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 Year ended 31 December 31 December 2020 2019 ------------- ------------- Cash flows from operating activities Profit before taxation 7,008,074 5,059,209 Adjustments for: Depreciation 28,220 858 Fair value (gains)/ losses on investment properties 5 (1,166,063) 1,552,378 Gain on disposal of investment property 5 (135,534) (123,174) Finance costs 8 1,814,610 669,384 (Increase) in trade and other receivables (1,380,439) (2,962,651) Increase in trade and other payables 733,899 1,069,370 Equity share based payments 24 168,405 125,222 Corporation Tax paid - - Net cash inflow from operating activities 7,071,172 5,390,596 Cash flows from investing activities Purchase of investment properties 13 (24,823,330) (39,546,096) Development 13 (120,607) (831,283) Proceeds on disposal of investment properties 13 2,340,534 1,073,174 Purchase of property, plant and equipment 14 (13,287) (5,575) Distribution from fund 280,236 - ------------- ------------- 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 20 - 35,775,044 Issue costs(1) 21 - (1,026,614) Proceeds from loans and borrowings 19 17,805,638 14,591,200 Interest paid 19 (1,032,044) (523,219) Repayment of principal portion of lease liabilities (20,000) - Equity dividends paid 22 (5,344,309) (5,143,500) Net cash inflow from financing activities 11,409,285 43,672,911 Net (decrease)/increase in cash and cash equivalents (3,855,997) 9,753,727 Cash and cash equivalents at beginning of year 14,577,461 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
2020 2019 EUR EUR Notes Non-current assets Investment properties 13 141,925,000 115,790,000 Property, plant & equipment 14 239,416 4,717 Trade and other receivables 16 793,333 - --------------- --------------- 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 18 (153,379) - Borrowings 19 (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 99.79 98.29 (cents) 99.53 98.18 Diluted IFRS NAV per ordinary share (cents) 99.53 98.18 EPRA NTA per ordinary share (cents)
The Company reported a profit of EUR6,846,064 (2019: EUR5,033,567) for the year ended 31 December 2020.
Company Statement of Changes in Equity
For the financial year to 31 December 2020
Share capital Share Retained Other Total Notes account premium earnings reserves equity ------------------- EUR EUR EUR EUR EUR ------------------- ------------- ------------------- ------------------ -------------- ---------- ------------- 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
Share capital Share Retained Other Total Notes account premium earnings reserves equity ------------------- EUR EUR EUR EUR EUR ------------------- ------------- ------------------- ------------------- -------------- ---------- ------------ 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 Flow For the year ended 31 December 2020 Year ended Year ended
31 December 31 December 2020 2019 Notes EUR EUR -------------- ------------------ Cash flows from operating activities Profit before taxation 6,846,064 5,033,567 Adjustments for: Depreciation 28,220 858 Fair value (gains)/losses on investment properties 5 (1,166,063) 1,552,378 Gain on disposal of investment property 5 (135,534) (123,174) Finance costs 8 1,814,610 669,384 (Increase) in trade and other receivables (1,178,605) (2,703,643) Increase in trade and other payables 903,242 770,364 Equity share based payments 24 168,405 125,222 Net cash inflow from operating activities 7,280,339 5,324,956 Cash flows from investing activities Purchase of investment properties 13 (24,823,330) (39,546,096) Development 13 (120,607) (831,283) Proceeds on disposal of investment properties 13 2,340,534 1,073,174 Purchase of property plant and equipment 14 (13,287) (5,575) Distribution from fund 280,236 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 19 17,805,638 14,591,200 Interest paid 19 (1,032,044) (523,219) Repayment of principal portion of lease liabilities (20,000) - Equity dividends 22 (5,344,309) (5,143,500) Net cash inflow from financing activities 11,409,285 43,672,911 Net (decrease)/increase in cash and cash equivalents (3,646,830) 9,722,587 Cash and cash equivalents at beginning of year 14,086,632 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 EUR5,000). 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 EUR3.9m (2019: EUR4.6 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)
Unallocated Group Total Office Industrial expenses Assets Assets Total and assets 2020 2020 2020 2020 2020 EUR EUR EUR EUR EUR 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 ------------ ----------- ------------ ------------ ------------ Unallocated Office Industrial expenses Assets Assets Total and assets Group Total 2019 2019 2019 2019 2019 EUR EUR EUR EUR EUR 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 EUR 2019 EUR -------------------------- ----------------- ------------ Gross rental income 10,285,213 7,337,846 License income 314,475 243,015 Service charge income 347,628 365,863 Lease surrender premium 150,161 2,000,000 Other income 267,501 - -------------------------- ----------------- ------------ 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 EUR459,748.
During the year, the Company agreed terms on the surrender of a lease at its property at Holly Avenue, Stillorgan, Dublin for EUR426,603, of which EUR126,603 was for lease surrender and EUR300,000 (note 5) was for dilapidations. The lease surrender was completed on 8 May 2020. Two additional surrender amounts totalling EUR23,558 were received from tenants who gave notice to break their leases in 2021. In 2019 EUR2,000,000 was received for the surrender of a lease at Cork Airport Business Park with a further EUR1,000,000 (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 EUR 2019 EUR ------------------------- ----------------- ------------ Service charge expenses 297,739 329,552 Direct property costs 388,740 172,396 Car park costs 26,000 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 EUR 2019 EUR ------------------------------------------ ----------------- ------------ Fair value gains/(losses) on investment properties (1) 1,166,063 (768,283) Realised gain on disposal of investment property 135,534 123,174 ------------------------------------------ ----------------- ------------ Total 1,301,597 (645,109) ------------------------------------------ ----------------- ------------
(1) The fair value gains/(losses) on investment properties includes a gain on lease surrender dilapidation premium of EUR300,000 (2019: EUR784,095).
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 EUR EUR -------------------------------------- ----------------- ----------------- Staff costs (Note 9) Independent Non-executive Directors 1,429,088 1,581,426 (Note 24) 230,000 230,000 Listing expenses 14,868 18,859 Property valuation fees 86,500 69,000 Property management fees 80,564 88,842 Legal and consultancy fees 213,484 195,746 Independent accountant fees - 57,912 Audit and interim review fees 75,000 75,000 Depository fees 48,063 57,601 Broker, marketing, and promotion 316,433 138,390 Other costs 386,829 436,465 -------------------------------------- ----------------- ----------------- 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 31 December 2020 2019 EUR EUR ------------------------------------------------------- -------------- Company Audit of the Company financial statements 45,000 45,000 Other assurance services 20,000 20,000 Tax advisory services - - Other non-audit services - - --------------------------------------------- --------- -------------- Company total 65,000 65,000 --------------------------------------------- --------- -------------- Group Audit of the Group financial statements 10,000 10,000 Other assurance services - - Tax advisory services - - Other non-audit services - - --------------------------------------------- --------- -------------- 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 EUR 2019 EUR ----------- ----------------- ------------ 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 31 December 2019 2020 EUR EUR ------------------------------------------ -------------- ------------------- Effective interest expense on borrowings 1,383,995 669,384 Extinguished borrowing costs on loan amendment 430,178 - Interest on lease liability 437 - ------------------------------------------ -------------- ------------------- 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 2019 Number Number ------------------------------------------- ---------------------------- ------------------------------- At financial year end: Executive Directors 3 5 3 Office staff 4 3 Non-Executive Directors 4 ------------------------------------------- ---------------------------- ------------------------------- Total employees and officers 12 10 ------------------------------------------- ---------------------------- -------------------------------
The staff costs for the above employees were:
31 December 31 December 2020 2019 EUR EUR ------------------------------------------ -------------- -------------- Wages and salaries 698,675 577,901 Bonus accrual 280,529 633,429 Social insurance cost 68,251 62,991 Pension costs - defined contribution plan 159,232 163,445 Share based payments and other benefits (Note 24) 205,913 133,321 Other benefits - Health insurance 16,488 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 EURnil (2019: EURnil).
31 December 31 December 2020 2 019 EUR EUR ------------------------------------- -------------- -------------- 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 31 December 2020 2 019 EUR EUR -------------------------------------------- -------------- -------------- Profit before tax 7,008,074 5,059,209 Tax charge on profit at standard rate of 12.5% 876,009 632,401 Non-taxable revaluation surplus - - REIT tax-exempt profits (876,009) (632,401) Other (charge on subsidiary undertakings) - - -------------------------------------------- -------------- -------------- 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 31 December 2020 2019 EUR EUR ----------------------------------------- --------------- -------------- 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 ------------------------------------------ -------------- -------------- 31 December 31 December BASIC AND DILUTED EARNINGS PER SHARE 2020 2019 EUR EUR -------------------------------------------- -------------- -------------- Profit for the financial year attributable to the owners of the Group 7,008,074 5,059,209 -------------------------------------------- -------------- -------------- EUR EUR -------------------------------------------- -------------- -------------- Weighted average number of ordinary shares (basic) 111,572,210 81,095,292 Weighted average number of ordinary shares (diluted) 111,865,838 81,220,514 Basic earnings per share (cent) 6.28 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 EUR7,008,074 and on 111,572,210 ordinary shares (2019: EUR5,059,209 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 31 December 2020 2 019 EUR EUR -------------------------------------------- -------------- -------------- Profit for the financial year 7,008,074 5,059,209 Adjusted for: Change in the fair value of investment property (1,166,063) 768,283 (Gain) on disposal of investment property (135,534) (123,174) Borrowing costs extinguished (Note 20) 430,178 - -------------------------------------------- -------------- -------------- Total EPRA earnings 6,136,655 5,704,318 EPRA EPS (Basic) 5.50 7.03 EPRA EPS (Diluted) 5.49 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 31 December 2020 2 019 EUR EUR ------------------------------------- -------------- -------------- IFRS net assets at end of financial year 111,603,077 109,922,541 Ordinary shares in issue 111,572,210 111,572,210 ------------------------------------- -------------- -------------- 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 31 December 2020 2 019 EUR EUR ------------------------------------- -------------- -------------- IFRS net assets at end of financial year Net market to market on financial 111,603,077 109,922,541
assets - - ------------------------------------- -------------- -------------- 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 EUR 2 019 EUR ------------------------------------------------------- -------------- Opening balance Property purchases 115,790,000 77,915,000 Disposal of property 27,353,330 39,546,096 Development expenditure (2,205,000) (950,000) Lease surrender dilapidations premium 120,607 831,282 Fair value (loss)/gain on investment (300,000) (784,095) properties 1,166,063 (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 EUR27.4 million (vendor price EUR25.3 million and transaction costs of EUR2.1 million). In 2019 a deposit of EUR2.5 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 EUR300,000 received. The unit was sold for EUR1.46 million and had a carrying value of EUR1.35 million in November 2020 at sale. The second was Unit F4/F5 at Centrepoint Business Park, Clondalkin, County Dublin, this unit was sold for EUR950,000, and had a carrying value of EUR855,000 in December 2020 at sale. There was a net gain on these two properties of EUR135,000 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 EUR4.3 million (vendor price of EUR4 million and transaction costs of EUR308 thousand) and Office Block, Unit 2600, located in the Cork Airport Business Park, Cork for EUR8 million (vendor price of EUR7.5 million and transaction costs of EUR505 thousand). A portfolio of three industrial buildings at the IDA Business and Technology Park, Garrycastle, Athlone was acquired for EUR14 million (vendor price of EUR13 million and transaction costs of EUR960 thousand) and an Office building at the IDA Ireland Business and Technology Park, Garrycastle, Athlone for EUR13 million (vendor price of EUR12 million and transaction costs of EUR1 million)
In 2019 the Group disposed of an industrial property, at Heather Road, Sandyford for EUR1.1 million. The carrying value of the building was EUR950 thousand, showing a net gain of EUR123 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 EUR141.9 ERV per sq. Assets million ft. EUR4.00 EUR16.38 EUR29.00 ------------- ----------------- -------- --------- --------- Equivalent yield % 6.48% 7.70% 10.17% ------------- ----------------- -------- --------- ---------
at 31 December 2019:
Range Asset Class Market value Input Low Median High ------------- ----------------- -------- --------- --------- Commercial Property EUR115.8 ERV per sq. Assets million ft. EUR4.00 EUR12.00 EUR33.34 ------------- ----------------- -------- --------- --------- 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 EUR4.9 million (2019: EUR4.0 million) reduction in fair value whilst a 0.25% decrease in equivalent yield would result in a fair value increase of EUR5.3 million (2019: EUR4.2 million). A 5% increase in ERV would have the impact of a EUR6.0 million (2019: EUR5.0 million) increase in fair value, whilst a 5% decrease in ERV would result in a fair value decrease of EUR6.3 million (2019: EUR5.1 million).
13. Investment properties (Continued)
At 31 December 2020
Market Value Value Value Value Value +5% -5% +0.25% -0.25% Equivalent in ERV in Equivalent Yield ERV Yield EUR EUR EUR EUR Commercial property assets EUR141.9m 6.0m (6.3m) (4.9m) 5.3m Total 6.0m (6.3m) (4.9m) 5.3m ---------------------- ---------- -------- ------- ------------ -------------------
At 31 December 2019
Market Value Value Value Value Value +5% -5% +0.25% -0.25% Equivalent in ERV in Equivalent Yield ERV Yield EUR EUR EUR EUR Commercial property assets EUR115.8m 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 EUR EUR EUR EUR ---------------------- ---------------------- ---------------------- ----------------------- --------------------- 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 EUR EUR ----------------------------------- ---------------------- --------------------- 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 Address/Country Nature Investment Votes controlled Carrying venture of Incorporation of the by the amount business Company 31 December 2020 Friends First House, Cherrywood Private Science & Limited Technology Company. Ashtown Management Park, Loughlinstown, Management Ashtown Management Company Limited Co. Dublin, of common Company Limited (Joint venture) Ireland areas (Joint venture) 50% EUR3,473 ----------------------- ------------- -------------------- ----------------- -------------
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 31 December 2020 2 019 EUR EUR ----------------------------------- -------------- -------------- 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 31 December 2020 2 019 EUR EUR ---------------------------------------------------------- -------------- Revenue 563,368 306,908 Expense (563,368) (306,908) Profit post tax from continuing operations - - Profit for the year - - ---------------------------------------------- ----------- -------------- 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 EUR 2 019 EUR ---------------------------------------- -------------- Cash and cash equivalents 448,024 61,126 Trade and other payables (441,078) (54,180) ---------------------------- ----------- -------------- Net assets 6,946 6,946 ---------------------------- ----------- --------------
16. Trade and other receivables
a) Group Current 31 December 31 December 2020 2 019 EUR EUR ------------------------------------- -------------- -------------- Trade receivables and prepayments 251,976 634,879 Taxation debtors - VAT recoverable 252,303 231,311 Deposit paid - 2,530,000 Expected credit loss allowance (175,583) - Tenant lease incentives 92,893 - Other receivables 654,990 131,564 ------------------------------------- -------------- -------------- Total 1,076,579 3,527,754 ------------------------------------- -------------- --------------
Non-current
31 December 2020 31 December EUR 2 019 EUR ------------------------ ----------------- ------------ 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 EUR175,583 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 EUR2.53 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 31 December 2020 2 019 EUR EUR ------------------------------------- -------------- -------------- Trade receivables and prepayments 251,976 214,390 Taxation debtors - VAT recoverable 252,303 231,311 Deposit paid - 2,530,000 Expected credit loss (175,583) - Tenant lease incentive 92,893 - Other receivables 335,629 256,418 ------------------------------------- -------------- -------------- Total 757,218 3,232,119 ------------------------------------- -------------- --------------
Non-current
31 December 2020 31 December EUR 2 019 EUR ----------------------- ----------------- ------------ Tenant lease incentive 793,333 - ----------------------- ----------------- ------------ Total 793,333 - ----------------------- ----------------- ------------
17. Cash and cash equivalents
a) Group
31 December 31 December 2020 2 019 EUR EUR ---------------------------------------- ------------ Cash and cash equivalents 10,721,464 14,577,461 ---------------------------- ----------- ------------
b) Company
31 December 31 December 2020 2 019 EUR EUR ---------------------------------------- ------------ Cash and cash equivalents 10,439,802 14,086,632 ---------------------------- ----------- ------------
Of the cash balance as at 31 December 2020 EUR3,255,070 (2019: EUR2,311,076) 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 EUR2,447,732 (2019: EUR778,352). 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 EUR807,338 (2019: EUR1,000,000) 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 EUR 2 019 EUR --------------------------------- ------------------- -------------- Trade payables and accruals 3,275,168 3,061,571 Tenant lease incentives 771,450 385,633 Taxation creditors - PAYE/PRSI 28,911 22,698 Borrowings (note 19) 30,603 16,053 Lease obligations 76,690 - Other payables 541,393 91,703 --------------------------------- ------------------- -------------- Total 4,724,215 3,577,657 --------------------------------- ------------------- --------------
Non-current
31 December 2020 31 December EUR 2 019 EUR ----------------- ----------------- ------------ 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 31 December 2020 2 019 EUR EUR --------------------------------- -------------- -------------- Trade payables and accruals 2,938,198 2,528,784 Lease incentives 771,450 385,633 Taxation creditors - PAYE/PRSI 28,911 22,698 Borrowings 30,603 16,053 Lease obligations 76,690 - Other payables 541,393 91,703 --------------------------------- -------------- -------------- Total 4,387,245 3,044,870 --------------------------------- -------------- --------------
Non-current
31 December 2020 31 December EUR 2019 EUR ----------------- ----------------- ------------ 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 31 December 2020 2019 EUR EUR ------------------------ ------------ ------------ 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 EUR53,595,000 (2019: EUR29,074,000).
a) Group and Company 31 December 2020 31 December EUR 2 019 EUR ---------------------------------- ------------------- -------------- Balance at the beginning of the financial year Bank finance drawn during the financial year Bank finance repaid during the 20,419,260 5,852,235 financial year 19,805,638 14,591,200 Interest during the financial (2,000,000) - year (1,032,044) (523,219) Borrowing costs extinguished (430,178) - Borrowing costs (267,652) (185,976) Effective interest expense 1,814,173 685,020 ---------------------------------- ------------------- -------------- Balance at end of the financial year 38,309,197 20,419,260 Maturity of borrowings is as follows Less than one year 30,603 16,053 Between two and five years 38,278,594 20,403,207 ---------------------------------- ------------------- -------------- Total 38,309,197 20,419,260 Undrawn at end of the financial year 14,998,623 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 EUR53,595,000 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 EUR17.8m 2019: EUR14.5m) and there were loan repayments of EUR2.0m (2019: EURnil) during the period to 31 December 2020. The total interest paid was EUR1.0m (2019: EUR0.5m). As at 31 December 2020 EUR15.0m (2019: EUR8.3m) of the facility was undrawn, EUR38.6m (2019: EUR20.4m) 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 31 December 2020 2019 EUR EUR ------------------------------------------------ -------------------------- -------------------------- 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 31 December 2020 2019 Shares in issue 111,572,210 111,572,210 ========================== ========================== EUR EUR 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 EUR10,000,000 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 31 December 2020 2019 EUR EUR --------------------------------------- -------------- -------------- 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 - 825,000 Interim dividend for Q2 2019: 1.37 cent per share - 1,027,500 Special dividend* Q2 2019: 1.86 cent per share - 1,395,000 Interim dividend for Q3 2019: 1.38 cent per share - 1,173,000 Interim dividend for Q4 2019: 1.04 cent per share 1,160,351 Interim dividend for Q1 2020: 1.20 cent per share 1,338,867 Interim dividend for Q2 2020: 1.25 cent per share 1,394.653 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: 1,562,011 - 1.40 cent per share --------------------------------------- ----------
*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 EUR980,019 (2019: EUR1,358,154). 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 Nature of Membership Votes controlled of Incorporation the business by the Company Gateway Estate 2(nd) Floor, Management 2/3 99% of voting Management Company River House, of common rights Limited by Guarantee East Wall Road, areas Dublin 3, Ireland --------------------------- -------------- ----------- ----------------- Mallow Business Mallow Business Management 1/2 66% of voting Park Management Park, Gooldhill, of common rights Company Limited Mallow, Co. areas by Guarantee Cork, Ireland --------------------------- -------------- ----------- -----------------
The Group has a single joint venture:
Name of joint venture Registered Address/Country Nature of Votes controlled of Incorporation the business by the Company Ashtown Management Friends First House, Management Company Limited Cherrywood, Loughlinstown, of common by Guarantee Co. Dublin, Ireland 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 Nature of the Votes controlled of Incorporation business by the Company Naas Millennium C/O Tetrarch Capital Management of 13.8% of voting (East) Management Limited, Heritage common areas rights Company Limited House, 23 St. Stephen's by Guarantee Green, Dublin 2, Ireland --------------------------- -------------- ----------------- Naas Millennium C/O Tetrarch Capital Management of 12.23% of voting (West) Management Limited, Heritage common areas rights Company Limited House, 23 St. Stephen's by Guarantee Green, Dublin 2, Ireland --------------------------- -------------- ----------------- Osberstown Management C/O Tetrarch Capital Management of 3.87% of voting Company Limited Limited, Heritage common areas rights by Guarantee House, 23 St. Stephen's Green, Dublin 2, Ireland --------------------------- -------------- -----------------
Other related parties
No other related party transactions have been identified.
24. Directors' remuneration
31 December 31 December 2020 2 019 EUR EUR ---------------------------------------------- ------------- ------------- Remuneration - Independent Non-executive Directors 230,000 230,000 Remuneration - Executive Directors 375,012 375,012 Total Directors and Non-executive Directors remuneration Bonus accrual - Executive Directors 605,012 605,012 Pension defined contribution plan - Executive Directors Other benefits - Executive Directors 225,000 615,000 112,500 113,242 37,507 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 EUR68,475 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 EUR0.01 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 (EUR) 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 EUR99,930 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 31 December 2020 2 019 EUR EUR ------------------------------------- ------------- ------------- Operating lease rentals and licence income receivables due in: Less than one year Between two and five years 10,902,596 8,778,209 Greater that five years 25,889,070 20,983,091 10,225,170 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/ CARRYING CARRYING LEVEL VALUATION TECHNIQUE LIABILITY VALUE VALUE (EUR) --------------------- ------------ -------------- -------- ---------------------------------- 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 Trade and Amortised basis using the effective other receivables cost 251,976 3 interest rate method. --------------------- ------------ -------------- -------- ---------------------------------- The carrying amount of loans and borrowings held at amortised cost have been calculated by discounting the expected Loans and Amortised cashflows at prevailing interest borrowings cost 38,309,197 3 rates. --------------------- ------------ -------------- -------- ---------------------------------- 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 Trade and Amortised basis using the effective other payables cost 3,275,168 3 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 EUR38.6m (2019: EUR20.8m) was drawn at year end, EUR15.0m was undrawn as at 31 December 2020 (2019: EUR8.3m) 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 EUR0.39m (2019: EUR0.21m), and if the facility were fully drawn would be EUR0.54m (2019: EUR0.30m).
The Group is also exposed to interest rate risk on its cash and cash equivalents. There were EUR10.7m of uninvested Group funds held within Bank of Ireland, Allied Irish Bank and Societe Generale accounts at 31 December 2020 (2019: EUR14.6m). 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 GBGBP19,130 (2018: GBGBP6,202). 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 6 months 6 to 1 to 2 2 to 5 More Total contractual Value or less 12 months years years than amount 5 years EUR EUR EUR EUR EUR EUR EUR -------------------- ----------- ----------- ----------- ---------- ----------- --------- ------------------ Borrowings 38,309,197 513,116 513,116 1,026,232 40,361,661 - 42,414,125 Trade payables 3,275,168 3,275,168 - - - - 3,275,168 Other payables 541,393 341,933 199,460 - - - 541,393 Lease liabilities 230,069 38,345 38,345 153,379 - - 230,069 -------------------- ----------- ----------- ----------- ---------- ----------- --------- ------------------ Total carrying amount 42,355,827 4,168,562 750,921 1,179,611 40,361,661 - 46,460,755 -------------------- ----------- ----------- ----------- ---------- ----------- --------- ------------------ 2019: Carrying 6 months 6 to 1 to 2 to 5 More Total contractual Value or less 12 months 2 years years than amount 5 years EUR EUR EUR EUR EUR EUR EUR ------------------ ----------- ----------- ----------- --------- ----------- --------- ------------------ Borrowings 20,419,260 297,440 297,440 594,879 20,419,260 - 21,609,018 Trade and other payables 3,561,604 3,344,401 201,150 - - - 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 EUR175,583 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 31 December 2020 2 019 EUR EUR ----------------------------- ------------ ------------ Trade and other receivables 1,076,579 3,477,065 Cash and cash equivalents 10,721,464 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 EUR111.6m (2019: EUR109.9m).
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 EUR1,562,011 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 EUR100,000. 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 EUR0.1 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 EUR1.2 million disclosed under IFRSs, there is a total of EUR1.6 million in unrealised losses and EUR2.8 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 EUR75,000 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 EUR1,131,408 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 A measurement of the growth in share value return for shareholders (assuming gross dividends are reinvested and share price appreciation) over a defined period. ---------------------------------------------- Weighted average An indicator of the average remaining life unexpired lease term of a lease or group of leases within the (" WAULT") portfolio. ---------------------------------------------- Gross yield at fair The contracted rent roll as at the stated value "FV" date, divided by the fair value of the investment properties as at the reporting date. ---------------------------------------------- Gross reversionary The ERV of a property or group of properties yield 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 (i) As EPRA earnings is used to measure the operational after performance of the tax 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 IFRS EPS (i) Earnings from core operational activities. per share 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 IFRS NAV (iii) Assumes that entities never sell assets and Reinstatement aims to represent the value required to rebuild Value ("NRV") the entity --------------- ------ ----------------------------------------------------- EPRA Net IFRS NAV (iii) Assumes that entities buy and sell assets, Tangible thereby crystallising certain levels of unavoidable Assets ("NTA") deferred tax. --------------- ------ ----------------------------------------------------- EPRA Net IFRS NAV (iii) Represents the shareholders' value under Disposal a disposal scenario, where deferred tax, Value ("NDV") financial instruments and certain other adjustments are calculated to the full extent of their liability, net of any resulting tax. --------------- ------ ----------------------------------------------------- EPRA Net NA (iv) Annualised rental income based on the cash Initial Yield rents passing at the balance sheet date, ("NIY") less non-recoverable property expenses, divided by the market value of the property with (estimated) purchasers' costs --------------- ------ ----------------------------------------------------- EPRA 'topped NA (iv) This measure incorporates an adjustment to up' Net Initial EPRA NIY for rent-free-periods or other unexpired Yield lease incentive discounted rent periods and stepped rents. --------------- ------ ----------------------------------------------------- EPRA Vacancy NA (v) Estimated Market Rental Value (ERV) of any Rate vacancy in the portfolio divided by the ERV of the whole portfolio --------------- ------ ----------------------------------------------------- EPRA cost IFRS operating (vi) Calculated using all administrative and operating ratios expenses expenses under IFRS net of service fees. It is measured including and excluding vacancy costs. --------------- ------ ----------------------------------------------------- EPRA Performance Measure 31 December 31 December 2020 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 26.4% 37.7% vacancy costs) EPRA Cost Ratio (excluding direct 23.5% 36.0% vacancy costs) ------------ ------------
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 EUR EUR EUR 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 EUR EUR EUR 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 31 December 2020 2019 EUR EUR 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 10,378,534 8,546,065 Property outgoings (414,740) (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 31 December 2020 2019 EUR EUR 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 31 December 2020 2019 EUR EUR IFRS Administrative/operating expense 2,880,829 2,949,241 Property management fees 80,564 88,842 Ground rent costs 728 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) 26.4% 37.7% EPRA Costs Ratio (excluding direct vacancy costs) 23.5% 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 EUR50m or an annual balance sheet total not exceeding EUR43m.
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 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) Registered office 1(st) Floor 57 Fitzwilliam Square Dublin 2, Ireland Company Secretary Tarryn Van Beek AIFM Ballybunion Capital Limited Ashley House Morehampton Road Dublin 4, Ireland Euronext Growth Goodbody Stockbrokers Adviser and Joint Ballsbridge Park Broker Ballsbridge Dublin 4, Ireland Nominated Adviser Liberum Capital Limited and Joint Broker Ropemaker Place 25 Ropemaker Street London EC2Y 9LY Legal Adviser William Fry to the Company Grand Canal Square as to Irish law Grand Canal Dock Dublin 2, Ireland Registrar Link Asset Services Link Registrars Limited 2 Grand Canal Square Dublin 2, Ireland Depositary and Société Générale Custodian S.A., Dublin Branch 3rd Floor, IFSC House IFSC Dublin 1, Ireland Valuer Lisney Limited St. Stephen's Green House Dublin 2, Ireland Auditor Deloitte Ireland LLP Chartered Accountants and Statutory Audit Firm Deloitte & Touche House 29 Earlsfort Terrace Dublin 2, Ireland
[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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END
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