GRN.L Regulatory News (GRN)

PRELIMINARY RESULTS FOR THE YEAR TO 30 JUNE 2018

Development completions adding substantially to 11% profit growth;

€600m future development pipeline;

EPRA NAV per share 179 cent

Dublin, 18 September, 2018 - Green REIT plc, ("Green REIT" or the "Company"), the Irish property investment company, today announces its results for the year ended 30 June 2018.

§ Profitable capital recycling from retail to logistics and offices

§ Development success a key driver to profit and income growth

§ Income security at an all-time high of 8.8 years

§ Positive outlook underpinned by €600 million future development pipeline and favourable economic growth trajectory

KEY FINANCIALS

§ Profit for the period up 11% to €144.2 million (2017: €129.8 million). 10% uplift in EPS to 20.8 cent (2017: 18.9 cent)

§ 12.4% increase in rental income to €67.9 million (2017: €60.4 million)

§ EPRA NAV per share up 8% to €1.79 per share, post payment of 2.6 cent per share interim dividend in March 2018 and an increase in stamp duty from 2% to 6% in October 2017 (8 cent NAV impact)

§ Total return 13.4% (2017: 12.7%) based on growth in EPRA NAV and dividends paid

§ Portfolio valued at €1,424 million (2017: €1,381 million)

§ Property revaluation surpluses of €109.2 million, 16% higher than the prior year

§ 12% growth in EPRA Earnings to €37 million and 11% increase in EPRA EPS to 5.3 cent per share

§ LTV remains low at 15.5%, with undrawn facilities at year end of €139 million providing further capital for deployment into development pipeline

§ Proposed full year dividend of 5.3 cent per share, a 6% increase over prior year, equating to 3% on June 2018 NAV. Guidance of a dividend of 4% per annum on NAV post current development programme remains

STRATEGIC & OPERATIONAL HIGHLIGHTS

PROFITABLE CAPITAL RECYCLING FROM RETAIL TO LOGISTICS AND OFFICES

- Sale of Westend Retail Park in June 2018 for €147.7 million, representing a 55% profit on cost

- Retail exposure reduced to less than 1% of total portfolio value

- €260 million of disposals (75% of which was retail) since inception, at a 57% profit on cost

- Logistics approaching 8% of portfolio value post the current phase of development, with a target sectoral allocation in excess of 20% over the medium to longer term as Horizon Logistics Park is developed out

DEVELOPMENT SUCCESS A KEY DRIVER TO PROFIT AND INCOME GROWTH

- €10.4 million of new contracted annual rent added from developments in the year to 30 June 2018, with a further €1.7 million added post period end

- Current and completed development programme, generating 8.4% yield on cost, accounts for 28% of portfolio value, with 84% de-risked through lettings

- Completion of flagship One Molesworth Street, Dublin 2, adding €5.3 million to contracted annual rent and 6.1 cent/€42.3 million to NAV in FY18

- Completion and full letting of 5 Harcourt Road, Dublin 2, adding €3.1 million of contracted annual rent and 2.9 cent/€20.4 million to NAV in FY18

- Construction of Building I in Central Park well underway, totalling 9,000 square metre (97,000 square feet) of office space, with completion in Q1 2019

- Potential future development of 37,200 square metres (400,000 square feet) at Central Park, post Building I

- Completion of three further units at Horizon Logistics Park, including an 80,000 square foot unit for Kuehne + Nagel. Construction of two further speculative units to commence shortly, along with a large purpose built unit of 115,000 square feet for Bunzl (subject to planning) 

- Further 28 acres of land acquired at Horizon Logistics Park, bringing total land holding to circa 300 acres, providing short, medium and longer term optionality

INCOME SECURITY AT ALL-TIME HIGH OF 8.8 YEARS

- WAULT of 8.8 years across the portfolio, a record high for the Company

- Contracted annual rent of €71.7 million at 30 June 2018, including €10.4 million in new rent from developments and €1.1 million from investment properties. Further increased to €74.3 million following additional letting activity since 30 June 2018

- Eight rent reviews settled, achieving an 11%/€1.2 million annual rental uplift to €12.5 million

- €1.1 million of new annual rent secured through new lettings on our investment properties

- Breaks not exercised by tenants with total annual rent of €5 million, with seven years of additional term certain at Central Park (€2.2 million annual rent) and nine years in George's Court (€2.3 million annual rent)

- Period end EPRA vacancy rate of 4.4% (30 June 2017: 1.5%), subsequently reduced to 2.8% through lettings secured since 30 June 2018

- 5% reversionary potential across the standing portfolio

Positive outlook underpinned by €600 million FUTURE development pipeline and FAVOURABLE economic growth trajectory

- Future development pipeline with an end value projection of €600 million, 43% greater than value of programme to date and with an estimated €37 million annual rent roll

- 7.2% expected yield on cost for future developments, highly accretive to shareholder value

- Demand for high quality office and logistics space remains robust, with four of the top 10 Dublin office occupiers having major additional requirements

- Irish economic growth set to continue, supporting real estate markets and underpinning our positive outlook

Gary Kennedy, Chairman of Green REIT plc, commented: "Our strategic focus continues to be on driving risk adjusted returns for shareholders. This has been another year of strong contributions from our development schemes both to NAV and to the income base which drives our dividends. We have further reweighted the portfolio towards our key sectors of offices and logistics, through effective capital recycling, and we look forward to creating additional value by capturing the development potential at Central Park and Horizon Logistics Park."

Pat Gunne, Chief Executive of Green Property REIT Ventures, added: "The past 12 months has been great for us on all fronts, particularly our development success across our major office projects and our profitable capital recycling programme from the retail sector into logistics, where we believe there are strong growth prospects. The Irish property market remains well supported by our growth economy, our expanding employment base, and a diverse international investor set which continues to find our market attractive, underpinning our positive outlook."

Contacts

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

Niall O'Buachalla, COO

+353 (0) 1 2418400

FTI Consulting (IR and PR to the Company)

Dublin London

+353 (0) 1 7650800 +44 (0) 20 7727 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 Report

The year to 30 June 2018 was another year of strong growth and positive operational performance for the Company, with an increase in EPRA NAV per share of 8% and with EPRA Earnings up 12% on the prior year. Total return, as measured by growth in EPRA NAV and dividends paid to shareholders in the year, was a healthy 13.4% (2017: 12.7%).

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

Strong momentum, income creation and returns from our development pipeline

Having completed our first two office developments in Dublin in the year to 30 June 2017, two further office developments were completed in the year to 30 June 2018, namely One Molesworth Street and 5 Harcourt Road, both in the core of Dublin city centre. Our strategy of developing the highest quality office buildings in the best locations in Dublin continues to attract the highest calibre occupiers. This is particularly evident at One Molesworth Street, our flagship office building, which exceeded our expectations from both a design and a financial perspective. The completion and letting of these schemes has made a significant contribution both to net asset value and to income, well ahead of our forecasts, while substantially de-risking our office development pipeline.

We look forward to the completion of Building I in Central Park in South Dublin in the first quarter of 2019, adding a further 9,000 square metres (97,000 square feet) to the business park and increasing it to 88,300 square metres (950,000 square feet) of lettable space, with a projected annual rent roll, including Building I, of €27.3 million. Subject to letting progress at Building I, we will assess further development of our landholding in Central Park, which is capable of accommodating an additional 37,200 square metres (400,000 square feet) of lettable office space, competing for high quality occupiers against the backdrop of a strong occupational market.

Elsewhere on the development front, we have seen a strengthening in momentum at Horizon Logistics Park, beside Dublin Airport, which we consider to be the best located logistics land in Dublin, with easy access to Dublin Airport, the M50 orbital motorway and Dublin Port. Having initially acquired three units with €0.9 million of annual rent and 112 acres of land in late 2013, we are now headed towards €6.3 million of annual rent from twelve units, and have a landholding of approximately 300 acres. We intend to continue our strategy of building a moderate level of speculative units at Horizon Logistics Park, while at the same time competing for larger and/or more specialised purpose built units, with a view to creating a logistics park of international scale and exceptionally high quality. We believe that we are well positioned at Horizon Logistics Park to take advantage of the strength of the real economy in Ireland, the increasing online retail penetration levels in Ireland and expansion opportunities that may arise from Brexit.

Sale of Westend Retail Park - rebalancing of portfolio, effective capital recycling

In June 2018 we completed the sale of Westend Retail Park in Blanchardstown, Dublin 15, for a cash consideration of €147.7 million, broadly in line with the €147.1 million valuation of the property at 31 December 2017. The annual contracted rent from the property was €8.5 million, representing 11% of the Company's then annual contracted rent and it represented 10% of the Company's total portfolio valuation based on the 31 December 2017 valuations.

The net proceeds from the sale were applied in reducing the Company's revolving credit facility, thereby providing access to debt capital for future development opportunities at Central Park and Horizon Logistics Park.

The disposal of Westend Retail Park, representing a 55% profit on cost, is in line with our stated strategy of recycling a portion of our capital to invest in higher return development projects in sectors where we see more attractive future growth opportunities, while maintaining a moderate gearing level. As a result of this strategic disposal, retail now comprises less than 1% of the overall portfolio value (30 June 2017: 10%).

Successful new lettings and active asset management underpin progressive dividend strategy

We continue to drive contracted rent, focusing on the quality and security of our income, with WAULT at a company high of 8.8 years at 30 June 2018, all of which is supportive of our progressive dividend strategy. Our guidance of a dividend of 4% per annum on net asset value post the completion and letting of our development programme remains unchanged.

The Board plans to declare a further dividend in respect of the year to 30 June 2018 of 2.7 cent per share, or €18.8 million, to be paid in October 2018. Added to the interim dividend of 2.6 cent per share paid in February 2018 this represents a total dividend for the year of 5.3 cent per share, or 100% of EPRA Earnings for the year to 30 June 2018.

Ireland - continued economic outperformance

All of the key indicators continue to follow a positive trajectory in Ireland, and the economy is growing at a pace that is well ahead of the Eurozone average.

The labour market continues to strengthen, with employment growth of 3.4% in the year to June 2018. The economy has generated 383,000 net new jobs over the past seven years, representing a 20% cumulative increase since the Q3 2011 low. The level of total employment reached a new record high of 2.3 million in Q2 2018, nearly 1% higher than the pre-crisis peak in Q4 2007. Employment growth continues to be driven by the broad services and construction sectors, which bodes well for the Company's office portfolio and future development schemes. The fact that Ireland is once again seeing net inward migration is also encouraging.

Core domestic demand growth is expected to be 4.8% in 2018, up from 2.6% in 2017, and is forecast to increase by 4% in 2019 and by 3.9% in 2020 (source: Goodbody), well ahead of forecast Eurozone averages, and with consumer spending and construction continuing to be the main drivers of economic growth in that period.

With CPI inflation at 0.7% for the year to August 2018, wage growth of 2.4% in the year to March 2018 and growth in retail sales volumes of 7% in the twelve months ended June 2018, the outlook for consumer spending looks positive, which we see as supportive for the logistics sector, one of the Company's strategic areas of focus.

FDI inflows remain strong, with FDI companies accounting for 10% of total employment in Ireland in 2017, attracted to Ireland by its EU market access, stable corporate tax environment, young and well-educated population and its attractiveness as a workplace for overseas talent.

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

10 year bond rate stood at 90 basis points at the end of August 2018, up on the 72 basis point level at 30 June 2017, but at levels which remain supportive of commercial property yields, given the significant yield gap which we monitor closely.

Financial results and position

Summary financial information

Robust balance sheet

Our loan to value level of 15.5% at 30 June 2018 reflects the reduction in the balance on our revolving credit facility ('RCF') from the sale of Westend Retail and Office Park, which completed in June 2018. This provides us with €139 million of headroom on the RCF for investment in our developments in progress and for future development at Central Park and Horizon Logistics Park.

Since 30 June 2018 we have put in place a new RCF, with a maturity date of September 2022 and with an option to extend by a further year, at a reduced margin. This low cost and flexible financing will be 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.

Stamp Duty increase

In October 2017 the Irish Government increased the rate of stamp duty on commercial real estate transactions from 2% to 6% as part of its 2018 Budget, with immediate effect. This unexpected and significant tax increase caused a one-off reduction in the value of the Company's property portfolio and NAV of €55.5 million, or 8 cent per share. The higher rate of stamp duty does not appear to be impacting adversely on Irish real estate transaction volumes.

Board composition and renewal

Thom Wernink completed his service as a non-executive director with effect from the conclusion of the Company's AGM on 1 December 2017. I would like to thank Thom for his contribution to the Company from its inception in mid-2013 and in particular during the busy time when the core portfolio was assembled. Rosheen McGuckian was co-opted to the Board for a three year term with effect from 1 January 2018 and will be put forward for election at the Company's next AGM in December 2018. This appointment followed a process assisted by an external search consultancy. Rosheen has also joined the Board's Audit Committee. Rosheen is an experienced board director and business leader who has successfully operated at a senior management level in Ireland and who will bring significant expertise to our Board. On behalf of the Board I would like to thank Rosheen for her positive contribution to date.

Investment Manager performance fee

The Board has approved the payment of a performance fee of €7.8 million to the Investment Manager for the year to 30 June 2018, in line with the provisions of the Investment Manager Agreement. The performance fee will be settled by the issuance of 5,114,736 new ordinary shares to the Investment Manager by the Company in quarter four of 2018. These shares will be subject to the lock-in provisions set out in the Investment Manager Agreement, which prohibit the sale of these shares for up to up to 42 months from their issue date, ensuring an alignment of shareholders' interests. These new shares will be issued after the ex-dividend date in late September 2018 and will therefore not be entitled to dividends in respect of the year to 30 June 2018.

Outlook

Our focus remains on delivering attractive risk adjusted returns to shareholders, as highlighted by the total return to shareholders for the year to 30 June 2018 of 13.4%, achieved with moderate levels of both gearing and speculative property development.

As was also the case in the prior year, the completion and letting of development schemes were a key driver of the Company's strong performance for the year to 30 June 2018, and will contribute further in the years ahead at our substantial landholdings at Central Park and Horizon Logistics Park.

The Irish economy continues to grow in a sustained manner and FDI flows remain strong. This is underpinning a robust occupier market in our key sectors of offices and logistics, while the continuing low interest rate environment remains supportive of real estate values. Whilst Brexit may potentially be a headwind for the wider Irish economy, we continue to see it as an opportunity for our particular area of business, which is heavily weighted towards Dublin offices.

We continue to operate in a stable capital markets environment, where we see increased levels of core international capital bidding for prime Irish real estate and continue to carefully monitor the capital markets environment both in Ireland and abroad.

Sectorally, we continue to allocate more capital to logistics, at Horizon Logistics Park, and have substantially reduced the Company's exposure to retail to below 1% of value through the sale of Westend Retail Park.

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. We remain confident in the Company's prospects as we look forward to the year ahead.

Gary Kennedy

Chairman

18 September 2018

Business Review

1. PORTFOLIO SUMMARY

§ Annual contracted rent of €71.7 million, net of the €8.5 million reduction in annual rent following the sale of Westend Retail Park (30 June 2017: €68.9 million)

§ 3 lettings/pre-lettings completed since year end further increased annual contracted rent to €74.3 million

§ 4.4% EPRA vacancy rate (30 June 2017: 1.5%), reduced to 2.8% through lettings secured since 30 June 2018

§ Record WAULT of 8.8 years across the portfolio

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

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

§ Value by sector: 89% offices, 6% logistics, 4% mixed use and

§ Portfolio is 5% reversionary at 30 June 2018

§ Diversified tenant base: 48% financial services, 20% TMT, 6% logistics, 6% retail trade and 5% each from government and professional services

§ Top 10 tenants account for 56% of contracted rent, with our largest tenant (AIB) accounting for 13% of the total

§ Yields:

¹ Calculated as contracted rent at 30 June 2017/18 over the June 2017/18 valuation plus notional purchaser's costs

2. PORTFOLIO VALUATION

· Portfolio value €1.42 billion at 30 June 2018, an increase of 15.3% in the value of assets held throughout the year to that date, gross of capital expenditure

· Revaluations of €109.2 million for the full year, comprising €61.4 million from developments and €47.8 million from investment properties

· Revaluations are net of capital expenditure in the year of €75.5 million, of which €71.1 million was incurred on developments and €4.4 million on standing assets

· Disposed of €158.1 million of non-core or lower growth assets during the year (Westend Retail Park and Arena Centre residential units)

· Acquisitions during the year added €13.5 million to the 30 June 2018 valuations

· 8.8% increase in value in the 6 months to 30 June 2018 for assets held throughout that period, gross of capital expenditure

· Increase in commercial stamp duty rate from 2% to 6% in October 2017 impacted valuations by €55.5 million

An analysis of the movement in portfolio valuation in the year to 30 June 2018 is as follows:

The main individual valuation movements in the year to 30 June 2018 were:

§ One Molesworth Street, Dublin 2: Gross increase in value by €59.3 million on 30 June 2017 value, or €42.3 million net of capital expenditure of €17.0 million in the period. Of the €42.3 million uplift, €36.7 million is development profit, while €5.6 million is the uplift since completion in Q4 2017. The uplift was due to the elimination of construction risk, along with long term lettings to Barclays Bank Ireland, Goshawk, TD Securities, The Ivy and Le Pain Quotidien, at rental levels ahead of valuer ERVs at 30 June 2017. The equivalent yield reduced from 5.25% in June 2017 to 4.20% at December 2017 and to 4.1% at June 2018, while the ERV for the building increased slightly from €5.3 million at December 2017 to €5.4 million at June 2018;

§ 5 Harcourt Road, Dublin 2: €33.3 million valuation increase gross of capital expenditure of €12.9 million in the period, or a €20.4 million uplift net of capital expenditure. The building was valued as a completed investment property for the first time at 30 June 2018, with the benefit of the letting of the entirety of the 50,280 square foot building, at 7% ahead of ERV, to WeWork, with a lease term of 20 years and with no tenant break options;

§ 2 Burlington Road, Dublin 4: €8.5 million valuation increase in the year, driven by the settlement of a rent review in the period which saw a 6% increase in rent, a minor element of yield compression from 4.4% in June 2017 to 4.2% at June 2018 and an increase in the ERV from €55 per square foot to €56 per square foot between December 2017 and June 2018;

§ Building H, Central Park, Dublin 18: €15.0 million valuation increase gross of capital expenditure of €1.2 million in the period, or €13.8 million net of capital expenditure. The uplift was driven by a contraction in equivalent yield from 5.3% to 4.8% in the year and the expiry of the rent free period granted to AIB, the tenant occupying the entire building of 158,244 square feet;

§ 32 Molesworth Street, Dublin 2: €6.1 million valuation increase, net of capital expenditure of €1 million, due primarily to a reduction in the equivalent yield from 4.6% to 4%, reflecting the movement in prime Dublin office yields in the period, and with a 5% increase in valuer ERV in the period; and

§ One Albert Quay, Cork: €5.7 million valuation increase in the year to June 2018 as a result of an increase in ERV by 10% to €5.1 million, with an increase in letting activity in the Cork market and a contraction in equivalent yield from 5.9% to 5.75%.

PORTFOLIO VALUATION ANALYSIS

Note: the % movements above do not reflect capital expenditure incurred in the respective accounting periods. Capital expenditure in the period to 30 June 2018 is set out in the table on page 10.

3. NEW LETTINGS

In the year to 30 June 2018 the Company entered into new leases with total new contracted rent of €11.5 million per annum, €10.4 million of which came from the letting of development assets, across a total of 26,750 square metres (288,000 square feet) of lettable space.

Since financial year end, a further three lettings have been completed. The remaining office space at One Molesworth Street, comprising the balance of the third floor (7,800 square feet), was let to Banking Payments Federation Ireland; a re-letting of vacant space in George's Quay Plaza to Huawei was also completed, and a pre-letting, subject to planning permission being obtained, has been concluded with Bunzl at Horizon Logistics Park for a purpose built new unit of 10,700 square metres (115,000 square feet).

New Lettings Summary - Year to 30 June 2018

* 18 months is the rent-free equivalent of a contribution by the Company to the tenant's fitout of the building

New lettings since 30 June 2018

Details of the principal new lettings in the year to 30 June 2018 and to the date of this statement are as follows:

One Molesworth Street, Dublin 2: €5.3 million total contracted annual rent

§ Four new office lettings to Barclays, Goshawk Aviation, TD Securities and Banking Payments Federation Ireland brought the office space to full occupancy.

§ Following the lettings to The Ivy and to Le Pain Quotidien, totalling 1,140 square metres (12,304 square feet), one retail unit of 820 square metres (8,800 square feet) remains to be let.

§ We are proud to confirm that the building has been awarded LEED Platinum certification, the highest LEED sustainability rating level.

I. Barclays Bank Ireland - €2.4 million contracted annual rent

In August 2017 the Company signed an agreement with Barclays Bank Ireland plc ('Barclays') to lease 3,460 square metres (37,251 square feet) of lettable space at One Molesworth Street in Dublin 2.

The letting covers the first, second and half of the third floor of a total of five floors of office space. The lease duration is 20 years, with a tenant break option at the end of year 12. The annual rent payable by Barclays is €2.36 million, which equates to €670 per square metre (€62 per square foot) per annum for office space and €4,000 per car space per annum, with the tenant entitled to a 12 month rent free period from the outset of the lease in February 2018. The rent per square foot secured of €62 was 13% ahead of our then most recent rental estimate of €55 per square foot.

II. Goshawk Aviation - €0.87 million contracted annual rent

In October 2017 the Company agreed a 20 year lease, with a tenant break option at the end of year 13, with Goshawk Management (Ireland) Limited ('Goshawk') for 1,220 square metres (13,144 square feet) of lettable space, comprising the fourth floor. The annual rent payable by Goshawk is €0.87 million, which equates to €700 per square metre (€65 per square foot) per annum for office space and €4,000 per car space per annum, with the tenant entitled to a nine month rent free period from the outset of the lease in February 2018. The rent per square foot secured of €65 was 18.2% ahead of our then most recent rental estimate of €55 per square foot.

III. TD Securities - €0.76 million contracted annual rent

In March 2018 the Company signed an agreement with TD Global Finance Unlimited Company to lease 985 square metres (10,559 square feet) of lettable space. TD Global Finance Unlimited Company is an Irish subsidiary of The Toronto-Dominion Bank and a part of the TD Securities business. The letting comprises the fifth floor of the building on a 20 year lease and with a tenant break option at the end of year 13. The annual rent payable is €0.76 million, with the tenant entitled to a nine month rent free period from the outset of the lease in March 2018.

IV. The Ivy - €0.55 million contracted annual rent

The Company signed an agreement with The Ivy restaurant group, for its first restaurant outside the UK, in early 2017 which was subject to certain planning conditions being satisfied. These conditions were satisfied in late 2017 and the agreement became unconditional at that point. The restaurant is located in the ground and lower ground floors of the building, with frontage onto both Dawson Street and Molesworth Street, and comprises 890 square metres (9,578 square feet) of lettable space. The lease term is 20 years, with no breaks, at an annual contracted rent of €0.55 million and with 12 months' rent free granted to the tenant from February 2018. The Ivy commenced trading in late July 2018.

V. Le Pain Quotidien - €0.24 million contracted annual rent

In February 2018 the Company signed an agreement with Le Pain Quotidien to lease the 253 square metres (2,726 square feet) ground floor café unit adjacent to The Ivy on Molesworth Street. The annual rent is €240,000, with a rent free period of 12 months from February 2018. The lease term is 20 years, with a tenant break in year 15.

VI. 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 (7,800 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.

5 Harcourt Road, Dublin 2 - €3.1m contracted annual rent

In June 2018 the Company signed an agreement with a subsidiary of WeWork Companies Inc ("WeWork") to lease the entirety of 5 Harcourt Road, Dublin 2. WeWork is the world's largest provider of collaborative workspaces, and guarantees the lease obligations. This newly developed office building in Dublin city centre comprises 4,670 square metres (50,300 square feet) of lettable space over seven floors. WeWork signed a 20 year lease with no break options, at an annual rent of €3.1 million. The rent per square metre for the first five years is €645 (€60 per square foot), which increases to €700 per square metre (€65 per square foot) for years six to ten inclusive, after which the first rent review will take place. The rent commencement date is September 2018 and the Company is making a cash contribution equivalent to 18 months of rent free to the tenant towards their fitout costs.

Horizon Logistics Park, Dublin Airport

The year to 30 June 2018 was a busy and successful one at Horizon Logistics Park, where the total contracted annual rent roll has grown from €0.9 million at acquisition to €4.1 million at 30 June 2018.

During the year we completed the construction of a new purpose built 82,200 square foot unit for Kuehne + Nagel (€0.81 million annual rent) as well as two speculative units of 78,200 square feet in total, one of which we let in June 2018 (€0.32 million annual rent. Letting details are as follows:

§ Unit D2 - Kuehne+Nagel - €0.8 million contracted annual rent

In Q2 of 2018 we completed this purpose built unit of 7,640 square metres (82,200 square feet) for Kuehne + Nagel, the global transport and logistics company, under a pre-letting agreement entered into in the prior financial year. Kuehne + Nagel also has options for the construction of two additional units of 3,700 square metres (40,000 square feet) each. As part of this transaction, Kuehne + Nagel, which is an existing tenant in the logistics park, will vacate its current 4,200 square metre (45,000 square feet) unit at a point in the future, at which point we will refurbish and re-let the unit.

· Unit D5 - Fastway Couriers - €0.3 million contracted annual rent

Napier Couriers Limited, which trades as Fastway Couriers, took a lease of this unit of 3,200 square metres (34,200 square feet) at a rent of €102.70 per square metre (€9.54 per square foot), or €320,000 per annum, with a lease term of 15 years and with a break option in year 10.

We also acquired an additional 30 acres of land, bringing the Company's total landholding at the park to approximately 300 acres.

We are nearing the completion of a purpose built unit for a luxury goods retailer, which will add €1.45 million to our contracted rent. Since 30 June 2018 we have 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, which when completed in late 2019 will add €1.14 million to the Company's annual rent. Also since year end, encouraged by the strength in occupier demand that we are seeing for high quality modern logistics units, we have commenced the construction of two further speculative units, totalling 5,400 square metres (58,000 square feet) of lettable space, due for completion in Q3 2019.

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

This letting momentum at Horizon Logistics Park reflects the confidence of these 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 at what will be Ireland's premier logistics park, through the supply of modern, high quality units.  

We look forward to further developing this strategic land holding at what we consider to be the best located logistics land in Dublin, with easy access to Dublin Airport, the M50 orbital motorway and Dublin Port.

4. DEVELOPMENT PROJECTS

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

5. ASSET MANAGEMENT

Rent reviews

During the year to 30 June 2018 we completed eight rent reviews, achieving an uplift of €11% or €1.2 million to annual rent. The new rents achieved overall were 1.3% ahead of ERV. Three of the reviews completed were at our George's Quay Estate, where we achieved an 11% uplift to €7.3 million per annum on 137,400 square feet of lettable space. On the other five reviews settled we achieved an uplift of 10% to €5.2 million per annum on 123,400 square feet of lettable space.

Lease breaks not exercised

In the year to 30 June 2018 tenant break options were not exercised on €5 million of the Company's annual contracted rent, adding to security of income by 11 years in the case of a block in Central Park and by 9 years at George's Court, and contributing to the Company's record high of 8.8 years total WAULT. We see this as an expression of confidence by our tenants in the quality and location of our buildings, and an endorsement of our maintenance capital expenditure programme at our Central Park and George's Quay estates, our two largest holdings by value.

6. ACQUISITIONS AND DISPOSALS

Acquisition - Additional Lands at Horizon Logistics Park, Dublin Airport - €2.8 million

In September 2017 the Company acquired a further 30 acres of land, approximately, near to its existing holding at Horizon Logistics Park at Dublin Airport, for a contract price of €2.8 million. The acquisition brought the Company's total land holding at Horizon Logistics Park to approximately 300 acres, of which an estimated 262 acres is capable of development.

Acquisition - Mount Street 40% minority interest - €10 million

In February 2018 the Company acquired the 40% interest in 85-93 Mount Street, Dubin 2, which was held by a third party, thereby giving the Company 100% ownership of the building. The price paid for the 40% interest was €10 million.

Disposal - Residential units at Arena Centre, Tallaght - €9.25 million

In October 2017 the Company disposed of its 63 apartments in the Arena Centre in Tallaght, retaining the balance of this mixed-use asset comprising retail units, a hotel, offices and apartments. The apartments were sold for €9.25 million, which was broadly in line with their then value. This price reflected a profit on original cost in late 2013 of 130%.

Disposal - Westend Retail Park - €147.7 million

In June 2018 the Company disposed of Westend Retail and Office Park in Blanchardstown, Dublin 15, for cash consideration of €147.7 million, which was broadly in line with the most recent valuation of the property of €147.1 million at 31 December 2017. The annual contracted rent from the property was €8.5 million. The disposal represented a 55% profit on cost and is in line with our stated strategy of recycling a portion of our capital to invest in higher return development projects in Horizon Logistics Park and Central Park, while maintaining balance sheet discipline.

7. FINANCIAL REVIEW

Four Year Summary

Note: includes the Company's 50% interest in Central Park for FY 2015.

11.1% growth in Total Profit

Total profit of €144.2 million for the year to 30 June 2018 was 11.1% ahead of total profit in the prior year, driven by an increase in EPRA Earnings (net rental profit) of 11.7% to €36.9 million (2017: €33.0 million) and an increase in net revaluation uplifts of 11% to €107.3 million (2017: €96.7 million).

On a per share basis the basic EPS for the year was 20.8 cent (2017: 18.9 cent), with EPRA EPS of 5.3 cent (2017: 4.8 cent).

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

Looking at growth in underlying earnings, EPRA Earnings pre performance fee in the year to 30 June 2018 were €44.7 million, 15.4% ahead of the same number in the prior year of €38.7 million. This €6 million increase was driven by rental income growth of €7.4 million, which was offset by net cost increases of €1.4 million, €1.0 million of which relates to the increase in the Investment Manager base fee, which is calculated on NAV.

8.6% growth in NAV to €1.25 billion

The Company's IFRS NAV grew by 8.6% in the year, from €1,152.2 million to €1,251.6 million, or from 166.9 cent per share to 180.3 cent per share before dilution. EPRA NAV per share grew by 8% in the year from 165.6 cent to 178.9 cent.

The main drivers of the growth in IFRS NAV in the year to 30 June 2018 are analysed as follows:

Please see page 34 and the Supplementary Information on page 72 for further EPRA Performance Measures.

Total Return of 13.4% for the year

The total return to shareholders in the year to 30 June 2018, measured as the increase in EPRA NAV plus dividends paid in the period, was 13.4%, comprising 8.8% from EPRA NAV increase plus 4.6% from dividends paid.

Rental income

Rental income grew by 12.4% in the year to 30 June 2018, driven by new income from lettings secured on our development schemes completed in the prior and current years, which added €7.1 million, along with a contribution of €2.6 million from increased rents arising from rent review settlements. These increases were offset in part by a reduction of €2.0 million from property disposals in the current and prior years and a €1.2 million reduction in the current year due to vacancy at parts of the George's Quay Estate, part of which has been re-let since 30 June 2018.

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

A summary of the main movements in rental income year-on-year is as follows:

Cost analysis:

§ Property outgoings: Property outgoings of €2.55 million were €0.13 million/5.3% higher than the prior year cost of €2.42 million, due mainly to (i) a higher level of agents' fees in connection with the settlement of rent reviews (ii) an increase in void costs as a result of certain parts of George's Quay Estate lying vacant during the year and (iii) write-offs of bad debts in respect of certain retail tenants at Westend Retail Park and Arena Centre. These cost increases were offset in part by a reduction in legal costs and in running cost of the Arena Centre apartments, which were sold in October 2017.

§ Administrative expenses: Administrative expenses decreased by €0.3 million or 13% to €2.1 million (2017: €2.4 million), due mainly to a reduction in depositary costs as a result of a fee renegotiation, and a reduction in legal fees due to a higher level of corporate level legal activity in the prior year.

§ Investment Manager fees: The base fee charged in the year was €11.8 million (2017: €10.8 million), with the increase in the fee reflecting the increased EPRA NAV of the Company on which the base fee is calculated, from €1,150 million to €1,251 million. 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. The details of the performance fee provision for the year of €7.8 million (2017: €5.7 million) are set out in further detail in note 17 to the financial statements.

Gearing and debt structure

A summary profile of the Company's debt at 30 June 2018 is as follows:

The Company's gearing level remains low, with property LTV of 15.5% at 30 June 2018, down from 20.2% at 30 June 2017. During the year to June 2018 we drew down €82 million on the revolving credit facility ('RCF') to fund our development schemes and acquisitions, and made repayments of €140 million, mainly from the sale of Westend Retail Park, ending the financial year with €71 million owing on the RCF. 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

Since 30 June 2018 we have 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

§ 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.

On the basis of the extended term of the new RCF, and incorporating the extension options in both facilities, the maturity profile of the Company's debt is as follows:

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, and were in a positive position for the Company of €0.4 million at 30 June 2018 (30 June 2017: €2.2 million).

Our Market

Economic Overview- Ireland continues to outperform

Ireland looks set to be one of the strongest performing economies in Europe again in 2018, with core domestic demand forecast to be 4.8%, up from 2.6% in 2017. This trend looks set to continue, with a 4% growth forecast for 2019 and 3.9% for 2020, driven predominantly by strong employment growth. The composite Markit PMI was 57.7 in May 2018, indicating strong momentum in the economy.

Strong growth in employment

In January 2018 the unemployment rate stood at 6.1% and as at August 2018 it was 5.6%. At the end of quarter two, the total number of people employed stood at 2.3 million, which is a rise of 3.4% year-on-year and equates to an additional 1,000 new jobs per week. At the end of Q2 2018, the construction sector was the fastest growing at +14% year-on-year, followed by accommodation and food services +11% year-on-year and administration and support services +10% year-on-year. Overall employment growth in the year to June 2018 was strong at 3.4%.

Total numbers employed as a result of FDI investment was 210,443 people as at the end 2017. The IDA, the government body charged with attracting FDI to Ireland, registered 19,851 new jobs created in 2017. As at end of H1 2018, they have recorded 139 distinct investments which are expected to create 11,300 positions. Not surprisingly, growth in FDI employment is centred in the cities, with 55% recorded in Dublin, 12% in Cork, 7% in Galway and 5% in the west of Ireland. In the period 2012-2017, it is estimated that over 40% of FDI employment was in the technology sector, followed by business services (16%), financial services (13%), pharmaceuticals (13%) and biotechnology (6%). Ireland has clearly been the beneficiary of strong economic growth in the US, with 72% of FDI employment coming from this region. It does however mean that we are susceptible to any slowing in US economic growth and further changes to tax policy that might be introduced.

Upward inflation pressure but strong consumer demand

Although it remains relatively low, inflation in Ireland is beginning to trend upwards. In the year to August 2018, headline CPI was +0.7%, with the main drivers being housing, water, electricity, gas & other fuels which were up +6.4%, alcohol and tobacco +2.9%, restaurants and hotels +2.1% and education +1.5% . The forecast is for house price inflation of +8.7% for 2018. As we move towards full employment, wage inflation is forecast to be 2.5% for 2018. While wage growth is a positive for consumer spending, it does raise some concern about ongoing competitiveness. Consumer spending continues to be strong, with retail sales growth of 5.5% in the year to July 2018 (by volume), and if car sales are excluded, growth was 2.9% in that period. Combined with strong employment growth, reducing unemployment and growth in real wages, the outlook for consumer spending remains positive. 

The SCSI recently published construction cost inflation stats which show 4% cost increase in the half year to June 2018 and with a forecast for 7.4% cost inflation for the full year. This will bring construction prices back to the level they were at in the first half of 2006. Inflation in this sector is being driven by wage inflation, a skills shortage and cost increases in raw materials, particularly steel and timber. This sector now employs 137,700 workers, having dropped from 242,000 at its peak to 80,900 in 2009, and remains 43% below the last cycle peak.

Goods exports continue to perform strongly, up +9.5% year-on-year to H1 2018 to €69.2 billion while goods imported are up +2.0% year-on-year in the same period (nominal value). This has produced a trade surplus of €28 billion (+22.8% year-on-year) (nominal value), driven by strength particularly in the chemical sector.

Latest estimates as at April 2018 suggest that Ireland's total population has increased by 64,500 people to 4.9 million people, driven by an acceleration in the rate of immigration, from 84,600 (2017) to 90,300 (year-on-year to April 2018) and a fall in emigration from 64,800 (2017) to 56,300 (year-on-year to April 2018).

Improvement in Government finances

Irish Government debt to GDP is forecast to be 64% by the end of 2018. In addition, the cost of servicing government debt has fallen 25% since its peak in 2012 through the reduction in debt levels and refinancing of debt at lower cost. It is expected that Government revenues and expenditure will be balanced for 2018, with tax revenues 5.5% higher in the first seven months of the year than in 2017, providing further fiscal flexibility. The household savings rate remains high, at 9.8% of net disposable income at the end of Q1 2018, and household net worth is now 1% ahead of previous cycle peak at €727 billion.

The Central Statistics Office has produced an updated register of residential completions and for 2017 it recorded 14,446 completions, some way off the estimated 30,000 required per annum. The residential property price index recorded growth in prices of 12% in the year to June 2018.

Real estate investment market

Total investment spend in the first six months of 2018 was €1.9 billion which is three times the level for the same period in 2017, with an expectation of a total for 2018 of in excess of €3 billion (2017: €2.6 billion).

Demand for the traditional office, retail and logistics/industrial sectors remains strong, with alternative asset classes including the private rented residential sector also seeing strong demand. The buyer group continues to be predominantly international, with Irish investors accounting for 27% of acquisitions, German investors for 18%, South Korea for 15%, USA for 10%, UK for 2%, and with the remainder undisclosed.

By sector, offices remain the most popular sector, accounting for 46% of capital deployed in the first half of 2018, followed by residential at 25%, retail at 12%, mixed use at 14%, industrial at 1% and other at 2%.

The top ten investment transactions in the first half of 2018, representing 66% of total acquisitions, are as follows:

Prime Equivalent Yields - 65 bps reduction in Dublin prime office yields over the last year

Over the year to July 2018 the main movement in yields of note was the reduction from 4.65% to 4.00% for prime Dublin city centre offices. Over the last six months prime equivalent yields have remained stable, with the exception of multi-family residential, where the yield has dropped by 0.25%. As we look forward, yields are generally trending stable, with the exception of prime industrial and offices in Cork CBD, which is trending stronger. The movement in sectoral yields between July 2017 and July 2018 was as follows:

(Source: CBRE)

Property Returns - stabilising at 6.9%

The MSCI index recorded total returns for the year to June 2018 for Ireland of 6.9% across all property sectors (2017: 6.5%; 2016: 12.4%). Income is now a larger component of returns, accounting for 4.7% compared to capital growth at 2.1%. The logistics/industrial sector continues to outperform, with a total return of 8.1%, followed by offices at 7.4% and retail at 4.8% for the year to June 2018. 

Occupier Markets

Dublin Offices - strong letting activity continues

Office leasing activity in Dublin remains very strong. The first half of 2018 saw 163,500 square metres (1.8 million square feet) of gross take-up. 2018 full year expectations are for in excess of 279,000 square metres (3 million square feet) , compared with 330,700 square metres (3.6 million square feet) of gross take-up in 2017. This level of take-up is well ahead of the long run annual average of 185,800 square metres (2 million square feet). There were 105 lettings in the first half of 2018, 77% of which were in the city centre and 19% in the south suburbs.

The top 10 letting deals in Dublin in the first half of 2018 is as follows:

Dublin City Centre - dominated by TMT

As can be seen from the top 10 lettings detailed above, the TMT sector continues to dominate take-up, accounting for 43% of leasing activity in the first half of 2018. This compares to 36.5% of total take-up in 2017.

Take-up by sector in Dublin for the first six months of 2018 was as follows:

South Dublin

Leasing activity in South Dublin was also strong in the first half of 2018, with 30,760 square metres (331,097 square feet) of lettings, accounting for 19% of total lettings in Dublin in the period. Take-up by sector for the first six months in South Dublin was as follows:

Strong levels of demand across Dublin

Tenant demand across greater Dublin is currently running at record levels, with 360,000 square metres (3.9 million square feet) of existing requirements. This compares to 235,000 square metres (2.5 million square feet) of demand as at the end of 2017.

The greater Dublin office vacancy rate stood at 6.2% at the end of H1 2018, up slightly from 6.1% at the end of 2017. In the same period, the Dublin 2/4 vacancy rate was 5.5% and the grade A Dublin 2/4 vacancy rate was 2.7% (previously 5.7% and 3% respectively at the end of 2017). In South Dublin the overall vacancy rate was 8.3% at the end H1 2018, with the grade A vacancy rate at 6.8%. These rates are both up from 6% and 6.7% respectively at the end of 2017, due to vacancy coming through in some existing buildings in Cherrywood Business Park and in Sandyford.

Stable prime rents in Dublin city centre

Prime rents in the core of Dublin city centre have remained stable at €700 per square metre (€65 per square foot). Average grade A rents currently stand at €592to €619 per square metre (€55 to €57.50 per square foot). In South Dublin, prime rents currently stand at €307 per square metre (€28.50 per square foot).

There is currently 371,600 square metres (4 million square feet) by gross development area of office space under construction in Dublin city centre across 31 schemes, down from 406,200 square metres (4.4 million square feet) in February 2018. For the full year in 2018, 85,800 square metres (0.9 million square feet) is due for completion, and of this 76% has already been let.

In addition, there is currently 75,000 square metres (0.8 million square feet) under construction across seven projects in the suburbs, 34% of which has already been let.

Cork office market

The total take-up in the Cork office market was 7,690 square metres (82,441 square feet) for the first half of 2018. This would suggest an estimated annualised level of in the order of 15,000 square metres (161,500 square feet) for the full year, down from 19,000 square metres (205,000 square feet) in 2017. Demand remains good, limited only by a lack of supply of modern, grade A accommodation.

The current Cork vacancy rate is 10.2% (Feb 2018: 10.5%), or 11% in the city centre and 9.8% in the suburbs. The high vacancy rate in the city centre reflects a number of buildings that are older and requiring refurbishment.

There are two schemes currently under construction in Cork city centre, Block A Navigation Square and 85 South Mall, totalling 15,468 square metres (166,500 square feet), of which 75% is already pre-let to Clearstream at Navigation Square and to KPMG and Forcepoint at 85 South Mall.

Top Cork city centre rents are now €350 per square metre (€32.50 per square foot), up from €323 per square metre (€30 per square foot) in February 2018, while incentive packages range between 12-18 months. Prospects for further rental growth are strong, due to the limited availability of grade A accommodation and limited speculative development. It is expected that Block B Navigation Square will commence construction in September 2018 on a speculative basis. This will extend to 6,968 square metre (75,000 square feet) and the quoting rent is likely to be approximately €377 per square metre (€35 per square foot).

Logistics & Industrial sector

Take-up in the logistics/industrial sector reached 108,900 square metres (1.2 million square feet) in the first half of 2018, down 10% on the same period in 2017. Momentum is good, however, with a number of deals going through legal due diligence, so indications are that there will be a strong second half to 2018. In the first half of 2018 there were 98 transactions, 61% of which were lettings and the remainder were sales.

Demand is steady and predominantly coming from e-commerce (courier and parcel delivery services) and from the food sector. Latest research would suggest there is in the order of 64,000 square metres (689,000 square feet) of existing demand.

Prime rents in Dublin are stable at €102 per square metre (€9.50 per square foot), but forecast to rise to €110 per square metre (€10.20 per square foot) by the end of 2018.

There remains a limited number of developers who are building speculatively, so delivery of new build Grade A units continues to be restricted.

For the first half of 2018 investment in the logistics/industrial sector accounted for 1% of the total capital deployed, and prime Dublin yields are stable at 5.50%. 

Sources:

1. CBRE research reports and department.

2. JLL research reports

3. Knight Frank research reports

4. Central Statistics Office website

5. IDA website

6. Investec research

7. Goodbody research

8. Davy research

9. Central Bank of Ireland

PORTFOLIO ANALYSIS

RENTAL INCOME

(1) Excludes ERV of development assets under construction at 30 June 2018

(2) Excludes vacant ERV of €3.5m. Total ERV €78.8m at 30 June 2018

LEASE LENGTHS & VACANCY

(1) Unexpired Term/ WAULT is the rent-weighted average remaining term on leases to lease expiry/ break date (whichever comes first). Excludes short term licences.

(2) Excludes ERV of development assets under construction at 30 June 2018

CONTRACTED RENTS VERSUS ESTIMATED MARKET RENTS (ERVs) (1)

(1) Let properties only. Excludes residential, hotel and car space rent (where applicable)

SECTORS BY VALUE

LOCATIONS BY VALUE

CONTRACTED RENT BREAKDOWN BY TENANT BUSINESS SECTORS

TOP 10 OCCUPIERS BY CONTRACTED RENT

(1) Unexpired Term/ WAULT is the rent-weighted average remaining term on leases to lease expiry/ break date (whichever comes first). Excludes short term licences

EPRA PERFORMANCE MEASURES

Consistent with other public real estate companies we include recommended best practice performance measures as defined by the European Public Real Estate Association ("EPRA"). Further analysis and calculations are set out in the Supplementary Information on page 72:

Principal Risks 

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, which are set out below.

External Risks

Internal Risks

Green REIT plc

Consolidated statement of comprehensive income

Green REIT plc

Consolidated statement of financial position

as at 30 June

The accompanying notes are an integral part of these financial statements.

Green REIT plc

Consolidated statement of changes in equity

The accompanying notes are an integral part of these financial statements.

Green REIT plc

Consolidated statement of cash flows

for the year ended 30 June