GRN.L Regulatory News (GRN)

INTERIM RESULTS FOR THE 6 MONTHS TO 31 DECEMBER 2018

Dublin, 26 February, 2019 - Green REIT plc, ("Green REIT" or the "Company"), the Irish property investment company, today announces its results for the six months ended 31 December 2018.

High quality portfolio delivering consistent returns

§ EPRA NAV per share up 2.2% to €1.83 per share, post payment of 2.7 cent per share dividend in October 2018. Increase of 3.7% gross of dividends paid in October 2018

§ 12.6% total return for the year to 31 December 2018 (year to 30 June 2018: 13.4%) based on growth in EPRA NAV and dividends paid

§ Profit for the period of €45.6 million (2017: €53.0 million) and EPS 6.5 cent (2017: 7.7 cent), reflecting moderating valuation uplifts Portfolio valued at €1,483 million (30 June 2018: €1,424 million), up 4.1% gross of capital expenditure

§ Property revaluation surpluses of €25.4 million (2017: €31.3 million)

§ EPRA Earnings of €21.7 million (2017: €22.1 million) or 3.1 cent per share (2017: 3.2 cent per share)

§ LTV remains low at 17.5% (30 June 2018: 15.5%), with undrawn facilities at period end of €101 million providing further capital for deployment into development pipeline

§ Interim dividend of 2.8 cent per share (2017: 2.6 cent interim dividend). Guidance of a dividend of 4% per annum on NAV post current development programme reaffirmed

Prime portfolio with income security of 8.7 years

§ WAULT of 8.7 years across the portfolio at 31 December 2018, maintaining a record high for the Company

§ 4% increase in contracted annual rent to €74.4 million (€71.7 million at 30 June 2018), or €75.5 million including the pre-letting agreement signed with Bunzl at Horizon Logistics Park

§ €2.9 million of new annual rent secured through 3 new lettings/pre-lettings on 12,900 square metres (139,100 square feet) signed in the period

§ Four rent reviews settled in the period, achieving a 37% (€0.8 million) annual rental uplift on the previous rent

§ Low EPRA vacancy rate of 3.5% (30 June 2018: 4.4%) at period end

§ 3% reversionary potential across the standing portfolio, or 7% across our Dublin city centre offices

€600 million accretive development pipeline

§ Strategic focus on NAV and income growth through development, supported by robust occupier demand and disciplined approach to capital allocation

§ Building I in Central Park, totalling 9,400 square metres (101,000 square feet) of office space, completing in Q1 2019. Top two floors reserved, with positive letting traction

§ Further €30 million invested in office and logistics developments (€19.9 million in offices, €10.1 million in logistics)

§ Completion of a unit at Horizon Logistics Park for a luxury goods retailer, adding €1.45 million to annual contracted rent

§ Construction of purpose-built unit of 10,700 square metres (115,000 square feet) for Bunzl commenced in February 2019

§ Two further units at Horizon Logistics Park due to complete in Q2 2019 (5,400 square metres/58,000 square feet)

§ €37 million of potential future rent from extensive future development pipeline, with a projected end value of €600 million

Strategic focus on prime offices and logistics

§ Portfolio dominated by offices (88% by value) and logistics (7% by value)

§ Target allocation to logistics in excess of 20% over the medium-to-longer term as Horizon Logistics Park, Ireland's premier logistics location, is developed out

§ Nine acres of additional land acquired at Horizon Logistics Park since 30 June 2018

Gary Kennedy, Chairman of Green REIT plc, commented: "The Company is well positioned to take advantage of further opportunities and to continue to deliver attractive risk-adjusted returns to its shareholders, underpinned by our high quality and well-located portfolio, the security of our income and our exciting development pipeline. While we remain alert to the prevailing wider economic and political uncertainty, Irish commercial real estate, particularly our sectors of focus, offices and logistics, continue to perform well."

Pat Gunne, Chief Executive of Green Property REIT Ventures, added: "The quality of our portfolio has never been stronger, and we continue to exploit value-accretive opportunities in both logistics and offices, through our active asset management and development programmes. The market remains supportive of our strategy, with prevailing values well-underpinned by healthy overseas and domestic demand for prime Irish commercial real estate."

Contacts

Green Property REIT Ventures DAC (Investment Manager to the Company)

Niall O'Buachalla, COO

+353 (0) 1 241 8400

FTI Consulting (IR and PR to the Company)

Dublin London

+353 (0) 1 765 0800 +44 (0) 20 3727 1000

Jonathan Neilan Giles Barrie

Patrick Berkery Claire Turvey

greenreit@fticonsulting.com 

Note on Forward-looking Statements

This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement. The Company will not undertake any obligation to release publicly any revisions or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.

CHAIRMAN'S UPDATE

Our strategy continues to deliver attractive risk-adjusted returns to shareholders through active asset management and property development, with a disciplined level of gearing.

Summary financial information

(Note: Change calculations are based on unrounded actual numbers)

Further progress with office and logistics developments delivering returns and income growth

We look forward to the completion of Building I in Central Park in South Dublin in the first quarter of 2019, adding a further 9,400 square metres (101,000 square feet) to the business park. The top two floors of the 7-storey building are now reserved for a tenant, with a lease due to be signed imminently. Subject to further letting progress at Building I, we will assess further development opportunities at our landholding in Central Park, which is capable of accommodating an additional 37,200 square metres (400,000 square feet) of lettable office space, which could add an estimated €12 million to the Company's annual rent.

Our development programme continues at a good pace at Horizon Logistics Park, which is beside Dublin Airport and considered the prime logistics location in Ireland, where our landholding comprises approximately 310 acres. Our strategy to develop a logistics park of international quality and scale through a moderate level of speculative development is progressing, while at the same time competing for larger purpose-built units. The new 10,700 square metre (115,000 square foot) unit for Bunzl, where construction commenced in February 2019, is a case in point.

Firm focus on driving income quality and security

We continue to grow the Company's contracted rent, focusing on the quality and security of our income, with a strong WAULT of 8.7 years at 31 December 2018, and with 97% occupancy, all of which supports our progressive dividend strategy and the value of the Company's properties.

We saw a strong rental performance in the six month period, where despite the sale of Westend Retail Park in June 2018, which had a contracted annual rent of €8.5 million, rental income of €34.4 million was 2.1% ahead of the same period in 2017 (€33.7 million). The loss of this retail rental income from Westend was more than offset by the new high quality and more secure rent generated at our office and logistics development schemes, and from uplifts in rental income achieved through rent reviews.

Dividends

The Board declared a dividend on 18 September 2018, in respect of the year to 30 June 2018, of 2.7 cent per share, or €18.7 million, which was paid on 19 October 2018, bringing the total dividends paid for that year to 5.3 cent per share, or 100% of EPRA Earnings. The Board intends to declare a dividend of 2.8 cent per share for the six months to 31 December 2018, equating to 84% of EPRA Earnings for the period. Our guidance of a dividend of 4% per annum on net asset value post the completion and letting of our current development programme remains unchanged.

Ireland - continued economic growth amid Brexit uncertainty

Amid the geopolitical uncertainty that prevails, the Irish economy continues to grow at a pace well ahead of the Eurozone average. Core domestic demand growth of 4.8% is estimated for 2018, up from 2.6% in 2017, with a forecast for 4.5% growth in 2019 and 3.7% in 2020 (source: Goodbody). These estimates assume an orderly Brexit, however, which is far from being a certain outcome at this point.

The labour market, a key driver of Irish economic growth, continues to strengthen, with employment growth estimated at 3.1% for 2018. There are now more people employed in Ireland than at any other time, with the unemployment rate at 5.3%, down from 6.4% in January 2018, and with an increase in net inward migration supporting labour market demand. FDI job creation remains strong, particularly among US technology companies in Dublin, attracted to Ireland by its EU market access, stable corporate tax environment and its attractiveness as a workplace for overseas talent.

Eurozone interest rates remain low and are expected to do so for some time, with the Irish government

10 year bond rate currently at below 90 basis points, a level which remains supportive of Irish commercial property yields and values. 

Moderate gearing, robust balance sheet

Having reduced our loan-to-value ('LTV') level to 15.5% at 30 June 2018 through the sale of Westend Retail Park in June 2018, borrowings increased by €38.3 million in the six months to 31 December 2018 as we continued to debt finance the Company's capital expenditure on our developments and our standing assets. Our LTV at 31 December 2018 is still modest at 17.5%, with €101 million of undrawn facilities for investment in our developments in progress and for future development at Central Park and Horizon Logistics Park.

In September 2018 we put in place a new revolving credit facility, which matures in September 2022 and which includes an option to extend by a further year. This low cost and flexible financing is being used to fund our development costs in the offices and logistics sectors, our two key areas of focus.

Our intended gearing level at this point in the cycle continues to be 25%, post the completion and letting of our development assets, but as previously stated we remain opportunistic in our approach, which could lead to higher or lower gearing levels depending upon market conditions and investment opportunities.

Outlook

Our focus remains on delivering attractive risk-adjusted returns to shareholders, with moderate levels of gearing and disciplined speculative property development. We remain committed to our progressive dividend policy, underpinned by our high quality and well-located portfolio, with secure income from leases to the highest calibre tenants.

The occupier market in our key sectors of offices and logistics remains strong, and we continue to operate in a stable capital markets environment which is attracting increasing levels of core international capital, attracted by the relative stability of lease structures and income, the quality of commercial real estate and prospects for growth.

We report these results at a time of heightened geopolitical uncertainty globally. While we have seen some positive impacts from Brexit on the Dublin office market, and within our property portfolio, the ultimate outcome of Brexit may potentially be a headwind for the Irish economy. We remain alert to this possibility, but despite this uncertainty we look forward to the period ahead with cautious optimism and believe that the Company continues to be well positioned to take advantage of further opportunities and to deliver attractive risk-adjusted returns to its shareholders.

Gary Kennedy

Chairman

26 February 2019

BUSINESS REVIEW

1. PORTFOLIO SUMMARY (see Appendix 1 for further analysis)

§ €74.4 million annual contracted rent (€71.7 million at 30 June 2018)

§ 3.5% EPRA vacancy rate (30 June 2018: 4.4%)

§ 8.7 years WAULT across the portfolio (8.8 years at 30 June 2018)

§ Dublin focus (95% by portfolio value), with our prime office building in Cork city our only non-Dublin asset

§ Portfolio dominated by high grade office assets in Dublin's core CBD and South Dublin

§ Value by sector: 88% offices, 7% logistics, 4% mixed use and

§ Portfolio is 3% reversionary at 31 December 2018

§ Diversified tenant base: 25% banking, 23% other financial services, 20% TMT, 6% logistics, 6% flexible offices, 5% retail trade, 5% government and 4% professional services

§ Top 10 tenants account for 54% of contracted rent, with our largest tenant (AIB) accounting for 13% of the total

§ Yields:

¹ Calculated as contracted rent at 31 December 2018/30 June 2018 over the 31 December 2018/30 June 2018 valuation plus notional purchaser's costs

2. PORTFOLIO VALUATION

§ Portfolio value €1.48 billion at 31 December 2018 (30 June 2018: €1.42 billion), an increase of 4.1% in the value of assets held throughout the six months to that date, gross of capital expenditure

§ Revaluations of €25.4 million for the six months (2017: €31.3 million), comprising €17.7 million from investment properties and €7.7 million from developments (2017: €0.4 million from investments and €30.9 million from developments)

§ Revaluations are net of capital expenditure in the six month period of €33.0 million (2017: €39.8 million), of which €29.9 million (2017: €35.1 million) was incurred on developments and €3.1 million (2017: €4.7 million) on standing assets

§ No disposals in the six months to 31 December 2018

§ Acquisition of five acres of land for €0.4 million at Horizon Logistics Park, with a further four acres acquired since 31 December 2018

An analysis of the movement in portfolio valuation in the six months to 31 December 2018 is as follows:

The main individual valuation movements in the six months to 31 December 2018 were:

§ One Molesworth Street, Dublin 2 (prime city centre office): Gross increase in value by €8.7 million/7.9% on 30 June 2018 valuation, to €119.2 million, or €3.8 million/3.4% net of capital expenditure of €5 million in the six month period. The uplift in value in the period reflects the letting to Banking Payments Federation Ireland completed in September 2018, rent free periods reducing and a slight reduction in equivalent yield by 2 basis points, from 4.10% to 4.08%, between June and December 2018;

§ 5 Harcourt Road, Dublin 2 (prime city centre office): Gross increase in value by €4.4 million/8.1% on 30 June 2018 valuation, to €58.6 million, or €3.1 million/5.6% net of capital expenditure of €1.3 million in the six month period. The uplift in value in the period reflects a reduction in the equivalent yield by 10 basis points, from 4.25% to 4.15%, between June and December 2018, driven by comparable evidence;

§ Fitzwilliam Hall, Dublin 2 (city centre serviced office): Valuation increased by €2.7 million/11.3% in the six months to 31 December 2018, to €26.9 million, as a result of the settlement of a rent review during the period at a rent which is 7% higher than the valuer's ERV, and 91% higher than the previous passing rent. The crystallisation of this significant reversion brought about a reduction in the equivalent yield from 5% to 4.8%;

§ Central Park, Dublin 18 (prime suburban offices): the total value of the Central Park estate increased by €17.9 million/4% on the 30 June 2018 valuation, from €442.2 million to €460.1 million. Net of capital expenditure in the period of €14.3 million, the increase in the total value of the estate was €3.6 million/1.0%, reflecting relatively stable rental values and yields. With regard to Building I, which is due to complete in Q1 2019, its value increased by €18 million, from €15 million at 30 June 2018 to €33 million at 31 December 2018, gross of capital expenditure in the period of €10 million, or by €8 million net of this capital expenditure;

§ George's Quay Estate, Dublin 2 (prime city centre office): the valuation of the Company's largest single holding in Dublin city centre increased by €6.7 million/1.8% from €361.3 million at 30 June 2018 to €368 million at 31 December 2018, with rental values stable and a minor reduction in equivalent yields in the six month period. Net of capital expenditure of €1.9 million in the period, mainly on fit-out, the increase in valuation was 1.3%;

§ Horizon Logistics Park (prime logistics at Dublin Airport): total value increased by €13.6 million/15.2% gross of capital expenditure in the period, from €90 million to €103.6 million. Net of capital expenditure in the period of €10.7 million, including €0.4 million for land acquisition, the increase in value between 30 June 2018 and 31 December 2018 was €3.0 million, or 3.3%;

§ One Albert Quay, Cork (prime city centre office): €4.5 million/5.8% valuation increase in the six months to 31 December 2018, from €76.8 million to €81.3 million, due mainly to yield compression. The equivalent yield reduced by 25 basis points from 5.75% to 5.50% between valuation dates, based on recent comparative evidence. In addition, almost all of the rent free periods granted to tenants have now expired.

PORTFOLIO VALUATION ANALYSIS

Note: the % movements above do not reflect capital expenditure incurred in the respective accounting periods. Capital expenditure in the six month period to 31 December 2018 is set out in Note 9.

3. ASSET MANAGEMENT

3.1 New Lettings

In the six months to 31 December 2018, the Company entered into new leases and licences with total new contracted rent of €2.9 million per annum, across a total of 12,900 square metres (139,100 square feet) of lettable space, as summarised below:

Details of the principal new lettings in the six months to 31 December 2018 are as follows:

I. Horizon Logistics Park - Bunzl Ireland Limited - €1.14 million contracted annual rent (when built)

In September 2018 we signed an agreement with Bunzl Ireland Limited (part of the Bunzl plc group), subject to planning permission, to construct a unit of 10,700 square metres (115,000 square feet) for them. This will add €1.14 million to the Company's annual rent when completed in the first quarter of 2020. Planning permission was subsequently obtained and construction commenced in mid-February 2019.

II. George's Court, Dublin 2 - Huawei - €0.92 million contracted annual rent

In September 2018 we signed a new lease with Huawei Ireland Limited for the fourth floor at George's Court in Dublin 2, comprising 1,520 square metres (16,332 square feet) on a 15 year lease with a break in year 10. The annual rent is €0.92 million, with a rent free period of four months to December 2018.

III. One Molesworth Street, Dublin 2 - Banking Payments Federation Ireland - €0.52 million contracted annual rent

In September 2018, the Company signed an agreement with Banking Payments Federation Ireland to lease the balance of the third floor, comprising 725 square metres (7,809 square feet), on a 25 year lease with no break options. The annual rent is €0.52 million, with a rent-free period of 12 months from September 2018. This letting brought the office element of the building to full occupancy.

3.2 Rent reviews

During the six months to 31 December 2018, we completed four rent reviews, delivering a 37% uplift of 37% (€0.8 million) to annual rent. The new rents achieved overall were 9.5% ahead of ERV at 30 June 2018. The rent reviews related to 8,630 square metres (92,900 square feet) of lettable space, of which 4,500 square metres (48,300 square feet) is city centre office space and 4,140 square metres (44,600 square feet) is a logistics unit at Horizon Logistics Park.

3.3 Acquisitions - additional lands at Horizon Logistics Park, Dublin Airport

In September 2018 the Company acquired a further 5 acres of land adjacent to its existing holding at Horizon Logistics Park at Dublin Airport, for a contract price of €385,000. Subsequent to the financial period end the Company acquired an additional 4 acres for a contract price of €325,000.

The acquisition brought the Company's total land holding at Horizon Logistics Park to approximately 310 acres, of which an estimated 263 acres is capable of development.

4. DEVELOPMENT PROJECTS

A summary of the Company's development schemes completed in the period and currently on site is as follows:

Horizon Logistics Park, Dublin Airport

We completed a purpose-built unit for a luxury goods retailer in September 2018, which added €1.45 million to our contracted rent. Encouraged by the strength in occupier demand that we are seeing for high quality modern logistics units, we commenced the construction of two further speculative units in August 2018, totalling 5,400 square metres (58,000 square feet) of lettable space, which are due for completion in the second quarter of 2019.

The pre-letting to Bunzl, described above, and the future letting of the two additional speculative units under construction, will increase the annual rent at Horizon Logistics Park to an estimated €6.3 million.

The letting momentum at Horizon Logistics Park reflects the confidence of high calibre tenants in the park and its superior location, as well as the outlook for the logistics sector in Ireland. It also bodes well for our overall strategy of organically growing value and income through the supply of modern, high quality units at what will be Ireland's premier logistics park.  

5. FINANCIAL REVIEW

Alternative performance measures

Various alternative performance measures, principally the best practice measures as defined by EPRA, are included in these interim results. They are included as, like other listed property companies, we believe that they are useful to readers of financial statements of real estate companies. Alongside the measures are, where applicable, their definition, calculations and an explanation of their relevance.

Total profit of €45.6 million for the period (2017: €53.0 million)

Total profit for the six months to 31 December 2018 was €45.6 million (December 2017: €53.0 million), and comprised EPRA Earnings (or net rental profit) of €21.7 million (2017: €22.1 million) and fair value movements of €23.9 million (2017: €30.9 million).

On a per-share basis, the basic EPS for the period was 6.5 cent (2017: 7.7 cent), with EPRA EPS of 3.1 cent (2017: 3.2 cent).

Looking at EPRA Earnings, which at €21.7 million were €0.4 million/1.8% lower, period-on-period, rental income was marginally ahead by €0.7 million, while operating and finance costs were €1.1 million higher, period-on-period.

The €0.7 million increase in rental income over the same period in the prior year was despite the sale in June 2018 of Westend Retail Park, which contributed €4.3 million to rent in the six months to 31 December 2017 and nothing in the current period following its disposal. The loss of this rental income was largely offset by contributions of €3.7 million to rental income from developments completed in the financial year ended 30 June 2018, and €0.4 million from Unit D3 in Horizon Logistics Park, which was completed in the period to 31 December 2018. In addition, the positive contribution from rent review settlements (€1.5 million, including back rent) and from the acquisition of the minority interest in Mount Street (€0.4 million) outweighed the net impact of vacant space at the George's Quay Estate (€0.7 million).

A summary of the drivers of rental income between the two periods is as follows:

Gross and net rental income is analysed as follows (excluding service charge income and expenditure):

Cost analysis:

Total costs were €1.1 million higher than in the same period in 2017, summarised as follows:

§ Property outgoings: Property outgoings of €1.55 million were €0.24 million/19% higher than the same period in 2017 (€1.31 million), due mainly to an increase in vacancy-related costs at George's Quay House and George's Court office buildings in Dublin city centre, and vacancy-related costs at One Molesworth Street as the building was being leased up. These cost increases were offset by savings on running costs of the apartments at Arena Centre which were sold in October 2017, and Westend Retail Park, sold in June 2018. 

§ Administrative expenses: Administrative expenses of €1.1 million were in line with the same period in the prior year, which were also €1.1 million.

§ Investment Manager fees: The base fee charged in the period was €6.3 million (2017: €5.8 million), with the increase in the fee reflecting the increased EPRA NAV of the Company on which the base fee is calculated. The base fee is calculated and paid calendar quarterly in cash on EPRA NAV at quarter end, on the basis of 1% per annum of EPRA NAV. No provision for a performance fee has been made at 31 December 2018, as the directors do not believe that a performance fee will be payable for the financial year ending 30 June 2019.

§ Finance costs: Finance costs of €3.7 million for the period were €0.4 million higher than the same period in 2017, with loan interest cost lower by €0.3 million, due largely to the application of the Westend Retail Park sale proceeds to reduce the RCF balance, while financing costs were €0.5 million higher due to a new RCF put in place in September 2018, with unamortised costs on the previous RCF being written off, and a higher level of commitment fees due to the reduced RCF balance following the sale of Westend Retail Park. The Company's interest rate swaps on €200 million of its debt came into force in October 2018, with swap interest costs of €0.2 million in the six months to 31 December 2018 (2017: nil).

A reconciliation of IFRS earnings and EPS to EPRA Earnings and EPRA EPS is as follows:

2.1% growth in IFRS NAV to €1.28 billion

The Company's IFRS NAV grew by 2.1% in the six month period, from €1,251.6 million to €1,278.5 million, or from 180.3 cent per share to 182.8 cent per share. EPRA NAV per share grew by 2.3% in the period, from 178.9 cent to 182.9 cent. This growth is net of dividends paid in October 2018 of €18.7 million, or 2.7 cent per share, in respect of the six months to 30 June 2018. The growth in EPRA NAV in the six months to 31 December 2018, excluding these dividends paid, was 3.7%.

The main drivers of the growth in IFRS NAV in the six months to 31 December 2018 are analysed as follows, with a reconciliation of IFRS Net Assets to EPRA Net Assets:

Please see Appendix 2 for further EPRA Performance Measures.

Total return of 12.6% for the year to 31 December 2018

The total return to shareholders in the year to 31 December 2018, measured as the increase in EPRA NAV plus dividends paid in the period, was 12.6%, comprising 9.5% from EPRA NAV increase plus 3.1% from dividends paid.

Gearing and debt structure

A summary profile of the Company's debt at 31 December is as follows:

In the event that the Company was to exercise the extension options within its facility agreements the extended maturity would be as follows:

The corresponding debt profile at 30 June 2018 was as follows:

The Company's gearing level remains low, with property LTV of 17.5% at 31 December 2018 (30 June 2018: 15.5%). During the six months to 31 December 2018 we drew down €38.3 million on the revolving credit facility to fund our development schemes and portfolio maintenance capital expenditure. The flexibility and low borrowing cost afforded by the RCF make it an attractive form of financing for the Company.

New revolving credit facility in place

In September 2018 we put a new RCF in place with Barclays Bank Ireland and with Wells Fargo, with the following key terms:

§ Limit of €210 million, with optionality to increase to €290 million;

§ Term of four years from September 2018 to September 2022, with the option to extend by a further year to September 2023;

§ Margin of 1.7% per annum when LTV is less than 10%, and 1.8% per annum when LTV exceeds 10%;

§ Commitment fee of 40% of applicable margin; and

§ Barclays and Wells Fargo to participate 50:50.

The other facility that the Company has is with Bank of Ireland and is secured on the Central Park assets. The facility is fully drawn at €150 million and matures in June 2021, with extendibility to June 2023.

The Company has hedging in place in the form of forward-starting interest rate swaps covering the period from October 2018 to October 2022, at a blended fixed rate of 0.074% per annum on €200 million. These swaps give the Company certainty around its maximum interest cost on €200 million of its debt for the period October 2018 to October 2022.

OUR MARKET 

Economic Overview

Core domestic demand is expected to have been in the order of 6% for 2018 when actuals are finalised (2017: 2.9%). Forecast growth in domestic demand for 2019 is 4.5%, suggesting another strong year for the Irish economy. To put this in context, the IMF are forecasting global growth for 2019 of 3.5% and 3.6% in 2020. The main drivers of growth in Ireland in 2018 were consumer spending, business investment and construction. 

The total number of people employed in Ireland reached an all-time high in Q3 of 2018 of 2.3 million people. The unemployment rate as at January 2019 was 5.7%, down from 6.4% at the end of 2017, and it continues to trend downwards towards full employment (estimated to be 4.5%). The rate of employment growth for 2018 is estimated at 2.3%, and is forecast to be 2.5% for 2019.

2018 was another strong year for Foreign Direct Investment ('FDI') into Ireland and for job growth in FDI businesses. IDA Ireland, the state agency responsible for attracting FDI to Ireland, announced the creation of 14,040 net new FDI jobs in 2018, its best year since 2000. There are now 230,000 people, or 10% of the total workforce, employed in FDI-related businesses. Companies from USA account for approximately three quarters of this employment.

Consumer price inflation remains muted at 0.5% for 2018, although it is set to rise to 0.9% in 2019. Looking ahead, given the forecast for employment growth of 2.5% in 2019 and for wage inflation of 3%, the outlook for consumer spending continues to be positive.

Tourism figures in 2018 were up 6.9% on 2017 and reached a record 10.6 million visitors, a positive for the retail, hotel and food and beverage sectors. Interestingly, 35.4% of all visitors came from the UK, despite Brexit uncertainty and weaker sterling, 35.9% came from Europe (excluding the UK), 22% from the US, 6.2% from Asia Pacific and 0.5% from other areas.

Ireland recorded a trade surplus of €4.8 billion in November 2018, up from €3.6 billion in the same month in 2017. Considering the January to November 2018 period, the trade surplus widened to €47.3 billion, from EUR 40.4 billion in the same period in 2017, as exports grew 14% to €128.5 billion and imports rose 12.3% to €81.2 billion.

It is anticipated that there will be close to a balanced budget in Ireland in 2018 and 2019. Given this improvement, it is expected that the Government's capital spending plan will increase by 30% in 2019, following a 24% increase in 2018. Government debt to GDP continues to contract, standing at an estimated 63% at the end of 2018, below the Eurozone average of 98%.

New housing completions in Ireland reached an estimated 18,800 units in 2018, an increase of 30% on 2017 levels, and are forecast to increase to 22,000 units in 2019. This is still well behind current demand levels and problems remain to be resolved around viability, breadth of activity and affordability.

The most recent Tender Price Index (SCSI) shows that construction tender prices continue to rise steadily. The first half of 2018 saw an increase of 4% and the forecast for the second half would suggest that full year inflation will be in the order of 7.4%.

The impact that Brexit is likely to have on the Irish economy is still very uncertain, and will remain as such until we know whether we will see a 'hard Brexit', with no deal, or a 'softer Brexit', involving a deal between the EU and the UK, and until we understand the potential impact of the final outcome. The forecasts for the economy outlined above are predicated upon Brexit not having an adverse bearing on the Irish economy in 2019. 

Capital Markets

The total investment spend in Ireland in 2018 was €3.8 billion, up 46% on the same period in 2017 (€2.6 billion). One of the notable reasons for the strong increase in transactional activity was an increase in transactions in the Private Rental Sector ('PRS'). In 2017, PRS comprised 12% of total investment, which increased to 30% in 2018. Demand for the office sector remained strong, and office transactions accounted for 41% of total investment. Investment into retail, however, saw a sharp reduction in demand, down from 31% of the total invested in 2017 to 14% in 2018. While demand for logistics remains strong, it is still a small component of total investment, at 3.3%.

Sources of capital continue to diversify geographically, with the emergence of Asian capital in the market in 2018. That said, international buyers are predominantly focused on prime assets and locations, resulting in a divergence in demand and pricing between prime and secondary real estate. A geographical analysis of investors in the Irish market in 2018 is as follows:

One of the other notable characteristics of the market in 2018 was the number of large transactions. Over the year there were 21 deals greater than €50 million, and of these, 11 transactions were over €100 million. This compares with 3 deals over €100 million in 2017. The top ten investment transactions for 2018, representing 37% of total investment, were as follows:

 Top 10 investment transactions in 2018:

Prime Equivalent Yield - some yield compression evident

 (Source: CBRE, February 2019)

At the start of 2018 we saw yields for prime offices move in to 4%, and as the year progressed, transactional evidence resulted in yields contracting for prime Dublin South Suburbs, prime CBD Cork and for prime Dublin logistics. Yields for offices in CBD Dublin and Cork, as well as prime Dublin logistics, are trending stronger, indicating solid demand from multiple capital sources. The retail sector has seen some slippage, however, with the high street and the sector generally trending weaker.

Property Returns - strong total returns at 9.1%for Ireland in 2018

The MSCI index recorded total returns for the year to December 2018 for Ireland at 9.1% across all property sectors (2017: 6.4%). Income accounted for 4.8% of the return and Capital Growth for 4.1%. Of the traditional sectors, Industrial/Logistics was the outperformer with a total return of 12.4% followed by offices 9.3% and retail at 6.7%. 

Occupier Markets

The office leasing market had another record year of tenant demand. Gross take-up in 2018 in Dublin offices reached 363,060 square metres (3.9 million square feet). This is up 9.6% on 2017 levels (330,000 square metres/3.56 million square feet) and compares to a 10-year average of 185,800 square metres (2 million square feet).

The top 10 Dublin office lettings in 2018 were as follows:

The technology sector continues to dominate the letting market in Dublin, accounting for six of the top ten lettings above, and 51% of total gross take-up in Dublin for 2018 (36.5% in 2017).

Take-up by sector for Greater Dublin for 2018 was as follows:

Take-up in the Dublin South Suburbs reached 67,120 square metres (722,472 square feet) in 2018, accounting for 18% of the total leasing activity in Greater Dublin.

Take-up by sector in the Dublin South Suburbs in 2018 was as follows:

As we commence 2019, tenant demand remains strong with 139,300 square metres (1.5 million square feet) of lettings currently in legal due diligence and a further 323,300 square metres (3.5 million square feet) of current demand.

The vacancy rate for Greater Dublin remains unchanged at 6.1% when compared with June 2018. The Dublin 2/4 vacancy rate is 6.3% and the Grade A vacancy rate in Dublin 2/4 is 7.2% (December 2017: 5.4%). In Dublin South Suburbs the overall vacancy rate is 5.6% (December 2017: 6.7%) and the Grade A vacancy rate is currently 4.6% (December 2017: 6.7%).

Finally, prime Dublin office rents remain stable at €700 per square metre (€65 per square foot). In Dublin South Suburbs, prime office rents currently stand at €306 per square metre (€28.50 per square foot).

There is currently 424,000 square metres (4.6 million square feet) by gross development area of office space under construction in Dublin city centre across 35 schemes, up marginally from 406,200 square metres (4.4 million square feet) in February 2018. In 2019, 145,000 square metres (1.6 million square feet) is due for completion, approximately 64% of which is already let. In addition, 213,600 square meters (2.3 million square feet) of new office development delivered in 2018.

There is currently 87,700 square metres (944,000 square feet) of new offices under construction in eight projects in the suburbs, 39% of which has been pre-let.

 Cork Office Market

The Cork office market was very active during 2018, recording an estimated 39,950 square metres (430,000 square feet) of total take-up, more than double the 19,045 square metres (205,000 square feet) in 2017.

The vacancy rate in Cork at the end of Q3 2018 stood at 9.8% (Feb 2018: 10.5%). There is no current standing vacant office accommodation that would be classed as Grade A in the city centre, so the vacancy rate comprises mostly older buildings. There is, however, new Grade A office development under construction, with occupiers looking for modern space having no option but to take mid-development lettings in order to secure modern accommodation.

While there is currently 278,000 square metres (3 million square feet) of pipeline office development in Cork, schemes that have actually commenced on site extend to 32,950 square metres (354,670 square feet). 81% of the office developments are located in the city centre and include Block A Navigation Square (11,600 square meters/125,000 square feet) and 85 South Mall (4,300 square meters/46,000 square feet), both of which are scheduled to reach practical completion in early 2019.

Prime headline rents in Cork city centre are €350 per square metre (€32.50 per square foot), up from €323 per square metre (€30 per square foot) at the start of 2018. Recent lettings include:

· 85 South Mall - letting to Forcepoint International Technology Ltd at €350 per square metre (€32.50 per square foot).

· 85 South Mall - letting to KPMG at €323 per square metre (€30 per square foot).

· Navigation Square, Block A - letting to Clearstream at €350 per square metre (€32.50 per square foot).

The remainder of Block A and Block B in Navigation Square are expected to seek a rent in the order of €377 per square metre (€35 per square foot). In addition, it is anticipated that tenant incentives will start to reduce. Currently the standard is 15 to 18 months' rent free, which is expected to reduce to 12 to 15 months.

Logistics/Industrial Sector

Across Ireland, take-up in the Logistics/Industrial sector in 2018 was up 22% on 2017, and reached 304,530 square metres (3.3 million square feet). Lettings comprised 69% of total take-up, with sales of units to owner- occupiers comprising the balance. In total there were 178 deals in the year, of which 114 were lettings and 64 were sales.

There is currently tenant demand for 31,000 square metres (333,700 square feet) at this point in the year.

Vacancy rates in the top 25 modern logistics/industrial estates currently stands at 8%, with 8 out of the 25 estates having no vacancy.

Rents for prime logistics units in Dublin have remained steady at €106 per square metre (€9.85 per square foot), with some research houses suggesting up to 6.5% rental growth in 2019.

There continues to be good demand from investors for modern logistics units, however the sector still comprises only 3% of the total investment market. Over the last six months there has been yield compression in this sector, with prime yields currently at 5.1% and trending stronger.

It is anticipated that demand for modern logistics units will continue to grow as a result of the increase in e-commerce in Ireland, the strength of the pharmaceutical industry and overall economic growth. Brexit may also present further opportunities, as would the development of e-commerce order fulfilment facilities, of which there are none on the island of Ireland.

Sources:

1. CBRE research reports and research department

2. JLL research reports

3. Central Statistics Office website

4. IDA website

5. Investec research

6. Goodbody research

7. Central Bank of Ireland

8. Trading Economics

PRINCIPAL RISKS AND UNCERTAINTIES

The Board takes the view that adequately identifying and managing the risks to achieving our strategic objectives is key to the successful delivery of shareholder returns. The Board has divided the principal risks into External Risks, over which we have no influence, and Internal Risks, which we can influence, and which are set out below.

External risks

Internal risks

STATEMENT OF DIRECTORS' RESPONSIBILITIES FOR THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Statement of Directors' Responsibilities

The Directors confirm to the best of their knowledge that the condensed interim consolidated financial statements have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the Transparency Rules of the Central Bank of Ireland and with IAS 34 Interim Financial Reporting, as adopted by the EU, and to the best of their knowledge and belief:

a) the condensed interim consolidated financial statements comprising the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and related notes have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

b) the interim management report includes a fair review of the information required by:

· Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the period from 1 July 2018 to 31 December 2018 and their impact on the condensed interim consolidated financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place during the period from 1 July 2018 to 31 December 2018 and that have materially affected the financial position or performance of the entity during the period; and any changes in the related party transactions described in the last annual report that could do so.

Signed on behalf of the Board

Gary Kennedy Jerome Kennedy 26 February 2019

Chairman Director

Independent review report to Green REIT plc

Report on the condensed consolidated half year financial statements

Our conclusion

We have reviewed Green REIT plc's condensed consolidated half year financial statements (the "interim financial statements") in the half year report of Green REIT plc for the six month period ended 31 December 2018. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

The interim financial statements, comprise:

· the condensed consolidated statement of financial position as at 31 December 2018;

· the condensed consolidated statement of comprehensive income for the period then ended;

· the condensed consolidated statement of changes in equity for the period then ended;

· the condensed consolidated statement of cash flows for the period then ended; and

· the explanatory notes to the condensed consolidated half year financial statements.

The interim financial statements included in the half year report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Our responsibilities and those of the directors

The half year report, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland.

Our responsibility is to express a conclusion on the interim financial statements in the half year report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Central Bank of Ireland and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers

Chartered Accountants

26 February 2019

Dublin

Notes:

(a) The maintenance and integrity of the Green REIT plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Green REIT plc

Unaudited condensed consolidated statement of comprehensive income

For the six month period to 31 December 2018

Green REIT plc

Unaudited condensed consolidated statement of financial position

as at 31 December 2018

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

Green REIT plc

Unaudited condensed consolidated statement of changes in equity

for the period ended 31 December 2018

Green REIT plc

Unaudited condensed consolidated statement of cash flows

for the six month period to 31 December 2018

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

Green REIT plc

Notes

Notes to the condensed interim consolidated financial statements

1. Reporting entity

Green REIT plc (the 'Company') is a Company domiciled in Ireland. The address of the Company's registered office is 32 Molesworth Street, Dublin 2.

The Company's Ordinary Shares were listed on the main markets for listed securities on the Irish Stock Exchange and the London Stock Exchange on Thursday 18 July 2013.

These unaudited condensed interim consolidated financial statements as at and for the six months ended 31 December 2018 comprise the Company and its subsidiaries (together referred to as the 'Group' and individually as 'Group entities').

2. Basis of preparation

The Group condensed interim consolidated financial statements, which should be read in conjunction with the Annual Report for the year ended 30 June 2018, have been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and in accordance with International Accounting Standard 34, Interim Financial Reporting (IAS 34) as adopted by the European Union.

These results are unaudited but were reviewed by our auditors. The interim consolidated financial statements herein do not constitute the statutory financial statements of Green REIT plc, which were prepared as at and for the year ended 30 June 2018, were approved by the Board of Directors on 25 October 2018 and delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified. The next statutory financial statements will be prepared for the year ending 30 June 2019.

The preparation of the condensed interim consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of certain assets, liabilities, revenues and expenses together with disclosure of contingent assets and liabilities. Estimates and underlying assumptions are reviewed on an ongoing basis.

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than twelve months from the date of this report. For this reason, the Directors adopt the going concern basis of accounting in preparing these condensed interim consolidated financial statements.

3. Significant accounting policies

The accounting policies, significant judgements, key assumptions and estimates applied by the Group in these condensed interim consolidated financial statements are consistent with those applied in the 2018 Annual Report with the exception of the new standards effective for the first time in this financial period which are discussed below.

There are a number of new standards, amendments to standards and interpretations which are not yet effective for the period, and have not been applied in preparing these condensed interim consolidated financial statements. We are currently assessing the full impact of these amendments on the Group.

Impacts of standards effective from 1 July 2018

IFRS 9 - Financial Instruments

IFRS 9 replaces the provisions of IAS39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

The Group adopted IFRS 9 from 1 July 2018. The comparative figures have not been restated, which is in line with the transitional provisions. The impact of adopting the new standard is not material to the Group's consolidated financial statements and there was no adjustment to retained earnings on application at 1 July 2018.

IFRS 9 eliminates the previous IAS 39 categories for financial assets of held-to-maturity, loans and receivables and available-for-sale. Under IFRS 9, on initial recognition, a financial asset is classified as measured at amortised cost or fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVPL). On 1 July 2018 the Group assessed which business models apply to the financial assets held by the Group and has classified its financial instruments as follows:

Both trade and other receivables and cash and cash equivalents were classified as loans and receivables under IAS 39 and both are now classified at amortised cost as the Group's business model is to hold the financial asset to collect contractual cash flows and the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding

Trade receivables are also subject to the new expected credit loss model in IFRS 9. The Group has applied the simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for trade receivables.

IFRS 15 - Revenue from Contracts with Customers

The Group adopted IFRS 15 Revenue from Contracts with Customers' and the related 'Clarifications to IFRS 15 Revenue from Contracts with Customers' (hereinafter referred to as 'IFRS 15') which replaced IAS 18 'Revenue', IAS 11 'Construction Contracts', and several revenue-related interpretations from 1 July 2018. This results in some change to the accounting policies listed below. This standard applied to the accounting for service charge income but excluded rent receivable, the Group's primary income source, which is still within the scope of IAS 17. The adoption of the standard did not have a material impact on the condensed consolidated interim financial information included in this report.

Service charge income and expenditure are recorded as income over the period in which the services are rendered. Revenue is recognised over time because the tenants benefit from the services as soon as they are rendered by the Group. The actual service provided during each reporting period is determined using cost incurred as the input method.

Impact of standards in issue but not yet effective.

The Group has considered the impact of the new standard IFRS16 and interpretations on its financial reporting and currently intends to apply the new requirements from 1 July 2019. The principal impact will be on the additional disclosure required by IFRS16. As stated in the standard, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and accordingly the Group does not expect any material measurement change from the new standard.

The other new standards which have been issued and are not yet effective are not expected to have a material impact on the Group.

4. Operating segments

The Group is organised into four business segments, against which the Group reports its segmental information, being Office Assets, Logistics Assets, Mixed Use Assets and Retail 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.

Unallocated income and expenses are items incurred centrally which are neither directly attributable nor reasonably allocable to individual segments. Unallocated assets are certain 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 emphasise 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 once off exceptional items are separately highlighted for analysis and attention.

Information related to each reportable segment is set out on the following pages:

(1) Including service charge income

(2) Total cash and cash equivalents and short-term deposits at 31 December 2018 were €45.1 million (30 June 2018 €48.5 million) of which €6.6 million (30 June 2018: €11.1 million) is unallocated to operating segments in the table above. 

(1) Including service charge income

(2) Total cash and cash equivalents and short-term deposits at 31 December 2017 were €39.0 million (30 June 2017 €48.8 million) of which €11.6 million (30 June 2017: €10.2 million) is unallocated to operating segments in the table above. 

8 Taxation

As disclosed in the 2018 Annual Report, Green REIT plc elected for group REIT status with effect from July 2013. As a result, the Group does not pay Irish corporation tax on the profits and gains from qualifying rental business in Ireland provided it meets certain conditions.

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