YEW.L Regulatory News (YEW)

4 September 2019

Yew Grove REIT plc

(the "Company" or "Yew Grove")

Interim results for the six months ended 30 June 2019

Yew Grove REIT plc (LSE:YEW, Euronext Dublin:YEW), an Irish commercial property REIT which started trading on both Euronext Dublin and London Stock Exchange on 8 June 2018, is today reporting its unaudited consolidated results for the six months ended 30 June 2019 (the "Period").

Strategic Highlights

Financial Highlights

Jonathan Laredo, Chief Executive Officer, commented:

"In just over a year since our IPO we have made significant progress on our objectives: we have committed the capital raised in 2018 and established a €100 million share issuance programme of which €10 million has been placed and deployed alongside additional debt capital; we have commenced quarterly distributions to our shareholders; we have a number of asset management projects underway; and we have a strong pipeline of investments to deliver our investment targets.

"Yew Grove REIT is the only Irish REIT focussed on the office and industrial sectors of the real estate market outside of Dublin's traditional central business district. This area of the market continues to combine attractive purchase yields and rising rent levels. These trends align with Yew Grove REIT's differentiated strategy, targeting well tenanted commercial real estate and I look forward with a high degree of optimism to the second half of our first full year of active operations."

Enquiries:

Notes to editors:

Yew Grove REIT plc, quoted on the London Stock Exchange's AIM and Euronext Growth Dublin, is an Irish commercial real estate company invested in a diversified portfolio of Irish commercial property. Yew Grove has a particular focus on well-tenanted commercial real estate assets comprising of office and industrial assets outside of Dublin's Central Business District. Yew Grove's highly experienced team has a proven track record in commercial property investment in Ireland and internationally and is focused on delivering results. Its investment approach is strategic, not speculative, principally on assets that are let, pre-let or to be let after refurbishment. Shareholders are provided with stable, long-term income from a diverse portfolio of commercial property comprising well-tenanted real estate in strategic centres let to Irish government entities and other state bodies, IDA Ireland supported and other FDI companies, and larger corporates.

Chairman's Statement

I am delighted to introduce the interim report and consolidated financial statements of Yew Grove REIT plc for the six months ended 30 June 2019.

Market review

In our chosen markets (institutional grade office and industrial buildings outside of the traditional Dublin Central Business District (Dublin 2 and 4,"CBD")) the first half of 2019 was notable for demand from tenants for large, Grade A floorplates (Source: Cushman & Wakefield Dublin Office research Q2 & Q1). In Dublin, the markets in and around the North Docks (Dublin 1, 3 and 7) ("Core+") dominated this activity in quarter one 2019 ("Q1") and accounted for over 63% of the city centre take up, as demand for mega leases (100,000+ sq ft) from the central bank and technology companies meant that the take up of new leases was approximately twice the size of that in the traditional CBD. In the first half of the year net vacancy (after taking account of pre lets and reservations) fell to 5.4% in the traditional city centre and 3.9% across the expanded city centre (admittedly affected by the very low vacancy rates in the IFSC). Vacancy rates across the rest of our markets are also healthy and shrinking; sitting at 6.8% in suburban Dublin, at a low of 4.1% in Galway, 5.98% in Cork and only in Limerick where there is a real overhang of older, smaller buildings is the vacancy in double digits, at 12.3% (Source: Cushman & Wakefield research Q2 for Dublin & Cork, Q1 for Limerick & Galway). This increase in tenant demand linked to low vacancy rates especially in larger more modern buildings has led to increased construction activity, especially in Dublin and Cork, increases in planning applications across the country and the beginning of construction in Galway. The low level of available good quality space despite existing construction activity and the continued pressure from tenants suggests that rents in the traditional CBD for Grade A space will stabilise or may edge up. Good quality larger buildings in Dublin fringes, the South Docks and good suburban locations should continue to rise. Across the rest of the country rents are now reaching a level where most over rental has been eliminated and especially in those locations which are popular with expanding foreign direct investors ("FDIs") (principally software, and in the broader pharmaceutical markets) we are seeing upward pressure on rents feed through in reviews and new lettings.

Despite this increased demand from tenants the first quarter was relatively quiet from a transaction perspective. Sales activity picked up in quarter two 2019 ("Q2") with a total of €770 million in office transactions of over €1 million in the first half of the year (Source: CBRE market view Dublin Office, Q2 2019). The market expectation is that the second half of 2019 will be much healthier and this is also reflected in our pipeline of potential investments. Market sentiment was mixed at the beginning of the year with the ongoing Brexit debate driving increased demand from new and prospective tenants but casting a pall over the general economic outlook and dampening investment transaction activity. That began to change in Q2, most clearly when Green REIT announced that it was for sale. Following a competitive sales process Green REIT announced it had agreed a sale to Henderson Park Capital which is due to complete later this year at, or slightly above, NAV. This pricing should be supportive of the market generally.

The industrial market is also principally about tenant take up. Here demand is mostly from e-commerce, logistics, pharmaceuticals and food (Source: CBRE mid-year review of outlook 2019). What little development activity there has been (principally Cork and Dublin) is largely driven by specific demand and generally there is little vacancy in good quality, larger (40,000+ sq ft) buildings. Rents in this segment have been one of the best performing asset classes in Irish commercial property over the past few years and that is expected to continue. Despite or perhaps because of this, there is little sales activity other than in older, smaller buildings (1,000-2,500 sq. ft) (Source: Cushman and Wakefield Industrial market snapshot, Q1 2019) driven by owner occupiers and a few buildings built to investor specifications. Construction costs are rising and allied to the continued demand for larger, more modern buildings we expect this to produce continued upward pressure on rents.

Portfolio activity

The first half of 2019 was one of consolidation for the Group. We completed the purchases of a building on the IDA Ireland Park in Waterford and another on the Cork Airport Business Park, both increasing the portfolio outside Dublin. The Group was busy with asset management, general improvements to the corporate infrastructure and in July 2019 the organisation of a €100 million share placement programme recently approved by shareholders, of which the €10 million issued just after the Period end was the first tranche. This coincided with a July 2019 increase in the Group's revolving debt facility of €9.12 million, of which an additional €4.5 million was drawn.

During the Period the Company completed its first development project for a tenant in Athlone, successfully reduced the vacancy by floor area across the portfolio to 1.7% from 2.5% at 2018 year end (this does not take the Cork Airport business Park property into account. At 30th June 2019 the Company agreed a surrender agreement with the tenant to terminate their lease early, following which they would vacate the building); and completed three rent reviews, in each case at or above the levels we had targeted when acquiring the buildings.

As previously announced, the Company agreed terms on a surrender of a lease at its property located in Cork Airport Business Park in return for a payment of €3.0 million in respect of dilapidations and rent foregone. The Group revenue for the Period of €5.7 million includes €2.0 million of this lease surrender, the remainder being for dilapidations The Board remains confident in the medium term re-letting prospects for the building that was refurbished in 2015 to a high standard and includes a 163-space car park.

The Group's owned and committed portfolio at 30 June 2019 benefited from the following attractive characteristics:

Financial review

During the Period the Group acquired two additional investment properties for €11.5 million plus costs and completed the development of a car park for its tenant in Athlone. The Company's external valuer, Lisney, re-valued the Company's properties at 30 June 2019 at €90.475 million, showing an increase in property assets of 16% from €77,915 million as at December 2018 reflecting fair value gains and purchases in the Period. The net increase in fair value gains excluding costs associated with properties purchased during the Period was €0.8 million.

The Group LTV increased from 8% to 20% over the Period with headroom of €1.7 million on its revolving debt facility at Period end.

The Period end EPRA NAV of 103.98 cents per share represents an 3.8% increase on the 31 December 2018 EPRA NAV of 100.18 cents per share. The Period end EPRA NAV including the declared and subsequently paid dividend would have been 100.75 cents per share.

The Group's revenues for the Period were €5.7 million, including €2 million of lease surrender premium payments from the Cork Airport property. Excluding lease surrender premium payments, the Group's revenues increased by 42% from H2 2018.

Expenses excluding variable remuneration reserves were €1.2 million as compared with H2 2018 comparable expenses of €1.8 million. While the Company's headcount over the Period increased from five to six employees, this additional expense will be partially offset by the internalisation of certain previously out-sourced activities.

Of the €3.3 million of net income (excluding lease surrender dilapidations payments) for the period, 97% was declared as distributions via ordinary and special dividends. €1 million of the lease surrender dilapidations payments received has been retained to support the refurbishment of the Cork Airport property.

Following the Period end €10 million of new equity and part of the €9.12 million increased debt facility raised in July 2019 were used to acquire three industrial buildings in Athlone. These new acquisitions will bring the overall portfolio value to over €103 million, with a contracted rent roll of €8 million as at August 2019.

Dividends

The Company paid an inaugural dividend in respect of its first period of trading and instituted its quarterly dividend policy in 2019, declaring dividends in March 2019 and June 2019 of 1.10 cents and 3.23 cents respectively. The dividend declared in June 2019 and paid in July 2019 included a special dividend of 1.86 cents per share following a lease surrender received during the period. Distributions to shareholders during the Period (including the interim dividend declared in June 2019) amounted to 4.33 cents per ordinary share).

Governance

The Board met a number of times in the Period for its quarterly meetings, to consider property purchases and to agree dividends for 2018 and 2019 to date. The Board reviewed the January 2019 amendments to UK Corporate Governance Code, and the Company's compliance with them. All of the Board committees met during the Period, the Remuneration Committee agreed the initial grant of awards under the Company's Long Term Incentive Plan.

Outlook

Despite headwinds in the Irish property market there is continued growth and opportunity within it. The evidence in our markets suggests that we are in a rising market, with demand for properties outstripping supply and tenants with robust businesses in expansion mode; a backdrop supportive of continued improvements to rents, take up and vacancy. We have sought to take advantage of these opportunities and will continue to do so.

Against this, there is continued risks in the macro environment, most newsworthy of these is the increasing possibility of a 'no deal' Brexit. The UK Government has actively briefed the markets about the potentially disastrous effect a 'no deal' Brexit would have on the Irish economy. That has led to a fall in the share prices of a number of Irish companies, and a fall in investor optimism. Whilst a 'no deal' Brexit is not good for Ireland, it is far from clear that it would be as bad as is currently suggested and it is still unclear that it would affect the Irish office/industrial commercial property market negatively. Ireland is much more dependent on the US and wider European markets for exports of goods and services that are minimally dependant on, or exposed to, the UK. Our current portfolio is specifically selected to avoid tenants dependant on the UK.

Perhaps more significantly there are macro-economic signals increasingly suggesting the global boom driven by the post-global financial crisis recovery may have ended or is coming to an end. If so global economic growth is expected to slow, and the implications for Ireland (an open economy with significant exposure to the US and European economies) will be reflected in its GDP. One implication would be a slowing of demand for Irish property by Foreign Direct Investors. However, given the country has little excess capacity for the existing demand for offices or industrial buildings, and no overhang of suitable space we do not see this as the precursor to a collapse in the commercial property market.

From an investment perspective a cooling global and European economy means that the era of low interest rates is likely to persist for some time and as such, property, especially property that yields a significant premium to base rates, will continue to be a popular investment.

In summary, the short-term outlook is likely to see significant volatility as Brexit and its various contortions continues to roil the markets. It is likely that this may have a dampening effect on investors, and for a time prices and values. The medium-term outlook is still good, although perhaps a little less optimistic than at this time 12 months ago. Even with the political and potential macro-economic headwinds mentioned above, the Company has continued to invest well, manage its portfolio profitably and grow by raising further debt and equity capital. Our pipeline of potential acquisitions in our key geographical markets over the next twelve months stands at over €125 million of well tenanted industrial and office properties, and looks very encouraging with discussions regarding €60 million of properties at a more advanced stage. I look forward with confidence to the remainder of the second half of the year.

On behalf of the Board of Yew Grove REIT PLC I would like to thank all of our shareholders for their continuing support and trust that our activities over the next few years will reward you.

Barry O'Dowd

Chairman

4 September 2019

Unaudited Condensed Consolidated Statement of Financial Position

As at 30 June 2019

The Unaudited Condensed Consolidated Financial Statements on pages 12 to 29 were approved by the Board of Directors on 4 September 2019 and were signed on its behalf by:

Unaudited Condensed Consolidated Statement of Comprehensive Income

For the six-month period to 30 June 2019

Unaudited Condensed Consolidated Statement of Changes in Equity

For the six-month period to 30 June 2019

For the period from 5 April 2018 (date of incorporation) to 31 December 2018

Unaudited Condensed Consolidated Statement of Cash Flow

(1) As at 30 June 2018, the Company had agreed the purchase of Buildings One and Three Gateway, with payment due on 2 July 2018. On that date €26.1m was held in escrow with the Company's solicitors pending transfer to the vendor following for the acquisition of these buildings. This amount is included in other receivables at 30 June 2018. These funds were released to the vendor on 2 July 2018.

(2) On 8 June 2018 all of the Yew Tree Investment Fund (in Members Voluntary Liquidation) Class A shares were redeemed.

(3) On 8 June 2018 the Company subscribed to 8,329,422 €1 B ordinary shares in the Yew Tree Investment Fund (in Members Voluntary Liquidation) for €8,329,422, the €8,329,422 proceeds were used to fully repay the Yew Tree Investment Fund's (in Members Voluntary Liquidation) outstanding loan subsequent to acquisition. The current period amount is repayment of interest on the current Loan Facility (Note 15).

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Accounting policies

1.1 General information

Yew Grove REIT plc (the "Company", registered number 623896), together with entities controlled by the Company (its subsidiaries) (together the "Group"), is engaged in investing in a diversified portfolio of Irish commercial property with a view to maximising its shareholder returns.

The Company is a public limited company, incorporated and domiciled in Ireland. The registered address of the Company is 4th Floor, 76 Lower Baggot Street, Dublin 2.

The ordinary shares of the Company were admitted to trading on the Euronext Growth Market (formerly the Enterprise Securities Market) of Euronext Dublin and the Alternative Investment Market of the London Stock Exchange on 8 June 2018.

1.2 Trading period

The Unaudited Condensed Consolidated Financial Statements of the Company's reporting period are for the six-month period to 30 June 2019.

The results are inclusive of the parent company (Yew Grove REIT plc), its subsidiary company and its joint venture (Note 20) for the six-month period to 30 June 2019.

1.3 Going concern

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 the report. For this reason the Directors adopt the going concern basis of accounting in preparing the Condensed Consolidated Financial Statements.

1.4 Basis of preparation

The Condensed Consolidated Financial Statements for the six-month period to 30 June 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union. The Group Condensed Interim Consolidated Financial Statements should be read in conjunction with the Report and Consolidated Financial Statements for the period ended 31 December 2018. 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 Report and Consolidated Financial Statements for the period ended 31 December 2018 except where amended for IFRS 15, IFRS 16 and IFRS 2. They do not include all disclosures that would otherwise be required in a complete set of financial statements.

The information for the year ended 31 December 2018 does not constitute statutory accounts as defined in the Companies Act 2014. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts: their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 391 of the Companies Act 2014.

The accounting policies noted below are consistent with those of the Company's annual financial statements which are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and the Companies Act 2014.

The interim figures for the period ended 30 June 2019 and the comparative results for the period 5 April 2018 to 30 June 2018 are unaudited but have been reviewed by the independent auditor whose report is set out on page 11 of this report. The interim financial statements herein are non-statutory financial statements for the purposes of the Companies Act 2014 and are approved by the Directors for issue on 4 September 2019.

The Condensed Consolidated Financial Statements are presented in Euro, which is the Company's functional currency and the Group's presentational currency.

Changes in accounting policies 

Revenue Recognition

During the period the Company received revenue for which an accounting policy had not previously been disclosed. The Company adopted the below policy which is added to the Group's current Revenue Recognition policy in line with IFRS 15 Contracts with Customers.

Surrender Premia

Where the Group receives a surrender premium from a tenant for the early termination of a lease, the profit, net of any then agreed costs associated with dilapidation and legal costs relating to that lease, is recognised in the Accounting Period in which the surrender took place.

Share Based Payments

Share Based Payments

The long term incentive plan arrangement ("LTIP") between the Company and its Executive Management is accounted for as an equity settled share based payment arrangement. The initial and only outstanding grants under this plan were made on 15 February 2019. On that date the Company estimated the fair value of each granted instrument and the number of equity instruments for which service, market and non-market performance conditions are expected to be satisfied. This initial estimate of the total share-based payment cost is expensed over the vesting period.

Subsequent to this initial recognition and measurement, the estimate of the number of equity instruments

for which the service and non-market performance conditions are expected to be satisfied will be revised

during the vesting period, (the period from 15 February 2019 to 15 February 2022). Ultimately, the share-based payment cost is based on the fair value of the number of equity instruments to be issued on satisfaction of these conditions (see note 21 for further details).

IFRS 16 Leases

In the current year, the Group adopted IFRS 16 Leases for the first time. The date of initial application of IFRS 16 for the Group is 1 January 2019. It introduces significant changes to lessee accounting by removing the distinction between operating and finance leases and requires the recognition of a right-of-use asset and a lease liability at commencement of all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. The Group is not party as a lessee to material property and equipment leases. The Group does act as a lessor. Details of the Group's accounting policies under IFRS 16 are set out below.

Lease contracts - the Group as lessor

The Group has acquired investment properties which are subject to commercial property leases with tenants. The Group has determined, based on an evaluation of the terms and conditions of these lease arrangements, particularly the duration of the lease terms and minimum lease payments, that it retains substantially all of the risks and rewards incidental to ownership of these leased properties. Income from these leases is recognised in line with IFRS 15 Revenue from Contracts with Customers, recognition is from the date on which the company becomes a contractual party to the lease. A Lease is derecognised at the termination of the lease or when the company is no longer a contractual party to the lease.

Lease contracts - the Group as lessee

The Group assesses whether a contract is a lease or contains a lease at inception of the lease contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (less than €5 thousand per annum). For these short-term leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liability of leases other than short term leases is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise:

The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

The Group did not make any such adjustments during the period presented.

Right-of-use assets are amortised over the shorter period of lease term or useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The Group does not have any leases that include purchase options or transfer ownership of the underlying asset.

For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as peppercorn ground leases), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within Expenses in the consolidated statement of comprehensive income. As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement. The Group has not used this practical expedient.

Approach to transition

The Group has applied IFRS 16 using the modified retrospective approach, without restatement of the comparative information.

Financial impact

The application of IFRS 16 to leases previously classified as operating leases under IAS 17 did not result in any changes for the recognition of right-of-use assets and lease liabilities. Leases are expensed to the Statement of Comprehensive Income on a straight-line basis.

2. Revenue

Gross rental income represents amounts receivable from tenants under leases associated with the Group's property business. Licence income represents amounts under licences receivable from tenants associated with the licensing of the Group's car park spaces. Service charge income relates to contributions from tenants of the Group's buildings for property expenses of the occupied buildings. Service charge income receivable from tenants is recognised as revenue in the period in which the related expenditure is recognised.

During the period the company agreed terms on the surrender of a lease at its property Office Block, Unit 2600, in Cork Airport Business Park. The lease surrender took effect on 30 June 2019. Of the €3 million surrender premium agreed, €2 million was for lease surrender and €1 million for dilapidations.

3. Property expenses

Property expenses include service charges and other costs directly recoverable from tenants, and non-recoverable costs directly attributable to the Group's properties. Service charge expenses typically include security, insurance, maintenance and other costs of managing the buildings due from and recharged to tenants.

4. Gains on investment properties

A valuation of the Group's properties as at 30 June 2019 was completed by Lisney Limited ("Lisney") as external independent Valuer. Lisney prepared the valuation on the basis of market value in accordance with the Royal Institution of Chartered Surveyors ("RICS") Valuation - Global Standards (June 2017). Their valuation was subsequently reviewed by the Valuation Committee and is used unadjusted in these statements.

During the period the company agreed terms on the surrender of a lease at its property Office Block, Unit 2600, in Cork Airport Business Park. The Company recognised a gain from the €1 million dilapidations paid under the lease surrender premium. While it is expected that this will be used for works on this property, at the date of these financial statements 4 September 2019 there were no committed works agreed on the vacated property.

5. Impairment of Goodwill

Goodwill in the period ended 30 June 2018 arose on the acquisition of 100% of the class B ordinary share capital of Yew Tree Investment Fund (in Members Voluntary Liquidation). The fair value of unamortised loan facility costs with a book value of €238,750 included in trade receivables was estimated to have a recoverable amount of €nil at the acquisition date. This gave rise to goodwill of €238,750 at the date of acquisition. The goodwill was subsequently reviewed for impairment and an impairment charge was taken to the Condensed Consolidated Statement of Comprehensive Income.

The recoverable amount of the trade receivable and prepayments was determined based on a level 3 fair value hierarchy. The fair value was determined based on company only information available at the date of acquisition.

None of the goodwill is expected to be deductible for income tax purposes.

The carrying value of the goodwill at the Condensed Consolidated Statement of Financial Position date was €nil.

6. AIFM fees

The Company is required as a REIT to have an alternative investment fund manager ("AIFM"). The Company has agreed with Ballybunion Capital, an AIFM authorised by the Central Bank of Ireland, for it to act as the external AIFM of the Company, subject to overall supervision of the AIFM by the Board. The fees above are fees paid to the AIFM in accordance with the service level agreement between the AIFM and the Company.

7. Finance costs

The effective interest expense on borrowings arises as a result of the recognition of interest expense, commitment fees and arrangement fees on borrowings.

8. Administration expenses

Profit before tax for the period has been stated after charging:

Staff costs represents total remuneration and other benefits paid to all employees for the period. Further information on Directors' remuneration can be found in note 21 to the Condensed Consolidated Financial Statements.

9. Earnings per share

The basic total profit per ordinary share of 5.81 cents per share is based on the profit for the period of €4,357,163 and on 75,000,000 ordinary shares, being the time weighted average number of shares in issue during the period in accordance with IAS 33 Earnings Per Share. The diluted earnings per share of 5.81 cents per share is based on the dilutive effect of the outstanding share based payments (Note 21).

The Company's basic and diluted total loss per ordinary share for the period from 5 April 2018 to 30 June 2018 of (2.01) cents per share was based on the loss for the period of €385,775 and on 19,215,117 ordinary shares, being the time weighted average number of shares in issue during the period in accordance with IAS 33.

10. Employment

The average monthly number of employees (including Directors) directly employed during the period to 30 June 2019 in the Group was 5.

Total employees at period end:

The staff costs for the above employees were:

Staff costs are allocated to administration expenses during the period. In the 2018 comparative period the company had no employees and no staff costs before Admission to trading on 8 June 2018, the staff costs shown for the comparative period are for employees during the period from 8 June 2018 to 30 June 2018. Staff bonus accrual reflects the increased likelihood of a staff bonus being due at year end following the lease surrender payment receipt in June.

11. Investment properties

During the six-month period to 30 June 2019 the Group acquired Office Block A, located in the IDA Waterford Business and Technology Park, Butlerstown, Waterford for €4,307,733 (vendor price of €4,000,000 and transaction costs of €307,733) and Office Block, Unit 2600, located in the Cork Airport Business Park, Cork for €8,005,107 (vendor price of €7,500,000 and transaction costs of €505,107). During the period the Group also completed the development of a car park on the IDA Athlone Business and Technology Park, Athlone. Westmeath.

An external independent valuation is conducted on the Group's owned properties on 30 June and 31 December each year, based upon the key assumptions of estimated rental values and market-based yields. In determining fair value, the valuers refer to market evidence and recent transaction prices for similar properties.

11. Investment properties (Continued)

The Directors are satisfied that the valuation of the Group's properties is appropriate for inclusion in the accounts. The fair value of the Group's properties owned at 30 June 2019 is based on the valuation provided by the external independent valuers, Lisney. This valuation is prepared on the basis of market value in accordance with the Royal Institution of Chartered Surveyors Valuation - Global Standards (June 2017) and the principles of IFRS 13 Fair Value. This valuation has not been adjusted by the directors in making their determination of the fair value of investment properties at 30 June 2019.

Fair value

The valuation technique used in determining the fair value of the property assets is market value as defined by the Royal Institution of Chartered Surveyors Valuation, being the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion. This is in accordance with IFRS 13.

The main inputs for property valuation using a market-based capitalisation approach are the Estimated Rental Value ("ERV") and equivalent yield. ERV is a valuer's opinion as to the open market rental value of a property on a valuation date which could reasonably be expected to be the achievable rent for a new letting of that property on the valuation date. ERVs are not generally directly observable and therefore classified as Level 3 inputs. Equivalent yields depend on the valuer's assessment of market capitalisation rates and are therefore Level 3 inputs. There were no transfers between fair value levels during the period.

Details of the Group's investment properties and information about the fair value hierarchy using unobservable inputs (level 3) at the end of the reporting period are as follows:

Sensitivity of measurement to variance of significant unobservable inputs

A decrease in the ERV will decrease the fair value. An increase in equivalent yield will decrease the fair value. There are interrelationships between these rates as they are partially determined by market rate conditions.

The table below shows the sensitivity of the Group's properties to changes in equivalent yield and ERV, which have been identified as key sensitivities by the directors. A change in long term vacancy rate was not considered significant and was not therefore tested, as the Group's long-term vacancy rates are low and lease contracts are long in duration.

Across the entire portfolio of investment properties a 0.25% increase in equivalent yield would have the impact of a €3.165 million reduction in fair value whilst a 0.25% decrease in yield would result in a fair value increase of €3.365 million, and a 5% increase in ERV would have the impact of a €4.225 million increase in fair value whilst a 5% decrease in ERV would result in a fair value decrease of €3.975 million.

This is analysed by property class, as follows:

12.  Cash and cash equivalents

13. Trade and other receivables

Trade receivables include amounts due from tenants for rental and service charges. The balance of trade and other receivables has no concentration of credit risk as it covers mainly prepayments. The Directors therefore consider the carrying value of trade and other receivables approximates to their fair value.

The trade receivables balance has increased from that shown for the comparative period, this is primarily due to an increase in pre-paid rent as the Company's property portfolio has grown.

14. Trade and other payables

Trade payables includes amounts due to third party suppliers and prepaid rent amounts received from tenants in advance. Accrued expenses include operational expense incurred but not yet invoiced to the company as at 30 June 2019. Trade and other payables are interest free and have settlement dates within one year. The Directors consider that the carrying value of the trade and other payables approximates to their fair value.

15. Borrowings

The Group has a revolving credit facility with Allied Irish Bank plc ("AIB"), secured by fixed and floating charges over certain property assets. The facility is €19,954,000 and can be repaid and re-drawn without penalty throughout its three year expected life. This loan facility was measured initially at fair value, after transaction costs, and carried at amortised cost, with all attributable costs charged to Condensed Consolidated Statement of Comprehensive Income over the life of the facility.

The loan facility was drawn down in 2018 and 2019 and there were no principal loan repayments during the period to 30 June 2019. Bank finance repaid during the period is the interest paid and due on the loan facility.

The Company stated in its Admission document the intention to target borrowings, following full investment of the net proceeds raised at Admission, of 25% loan-to-value ("LTV"). LTV is the ratio of drawn debt to the value of property investments, which at 30 June 2019 was 20.1%. Under the Irish REIT rules the REIT's borrowings must not exceed 50% of the value of its assets.

15. Borrowings (Continued)

Where debt is drawn to finance material refurbishments and developments on qualifying assets, the borrowing cost associated with this debt is capitalised. No amounts were capitalised during the period for this purpose. All costs related to finance arrangements are amortised using the effective interest rate.

All borrowings are denominated in Euro. All borrowings are subject to six months or less interest rate changes and contractual re-pricing rates.

16. IFRS and EPRA NAV per share

The IFRS NAV is calculated as the value of the Group's assets less the value of its liabilities based on IFRS measures. EPRA NAV is calculated with accordance with the European Real Estate Association ("EPRA") Best Practice Recommendations: November 2016.

EPRA net asset value ("EPRA NAV") is defined as the IFRS assets including properties and other investment interests at fair value and to exclude certain items not expected to crystallise in a long-term investment property business.

The Company's IFRS net asset value per ordinary share of 103.99 cents is based on equity shareholders' funds of €77,992,541 and on 75,000,000 ordinary shares, being the number of shares in issue at the period end.

17. Share Capital

The Group has authorised and issued share capital of 75m Ordinary Shares.

* share capital as at 30 June 2019 was fully paid. There is one class of ordinary share of one cent each.

18. Reserves

The equity of the Company consists of Ordinary Shares issued. The par value of the shares is recorded in the share capital account. The excess of proceeds received over the par value is recorded in the share premium account. Direct issue costs in respect of the issue of shares are accounted for in the retained earnings reserve, net of any related tax deduction. The share based payment reserve reflects awards made under the LTIP.

19. Distributions made and declared

The declared Q2 interim dividend on ordinary shares was declared on 26 June 2019 and paid to equity holders on 24 July 2019. This dividend was inclusive of a special dividend of 1.86 cent per share following the receipt of a lease surrender during the period.

20. Related Party Transactions and fees paid to Directors

Subsidiaries

All transactions between the Company and its subsidiaries are eliminated on consolidation.

The following lists the subsidiaries of the Group:

The following lists the joint ventures of the Group:

The joint venture had a break even result for the period to 30 June 2019.

Directors

The Directors are considered to be related parties. No Director had an interest in any transactions which are, or were, unusual in their nature or significant to the nature of the Company.

The Directors of the Group received remuneration, fees and other benefits from the Group for their services. Total amounts for the period were €428,798 of which €nil remained payable at the period end. No remuneration, fees or other benefits were paid to the Directors by any subsidiary or joint venture.

21. Directors' remuneration

The remuneration of Directors and key management is determined by the Remuneration Committee to reflect the performance of individuals and market trends. Other benefits paid to the three Executive Directors during the period includes health insurance. Defined contribution pension payments represent contributions on behalf of the three Executive Directors. All fees paid to Non-Executive Directors are for services as Directors to the Group, they receive no other benefits. There were no payments of compensation made to Directors for termination or loss of office.

Share based payments

In February 2019, the Remuneration Committee granted 1,125,000 share options to senior executives under the Long-Term Incentive Plan ("LTIP"). The exercise price of the options of €0.01 is equal to the nominal price of the shares on the date of grant. The options vest (30% if at lowest hurdle, 100% if at or above highest hurdle) if the Company's Net Asset Value ("NAV") growth is 10% - 20%, Dividend per Share is €0.06 - €0.075 per share and Total Shareholder Return ("TSR") is 10% - 15%.

Vesting is three years from the date of grant and requires the senior executive to still be employed by the Company on such date. If the lower hurdles are not met, the options lapse. The vested options must be exercised within 2 years of vesting. The fair value at grant date is estimated using a Monte Carlo simulation pricing model, taking into account the terms and conditions upon which the options were granted. There is no cash settlement of the options. The fair value of options granted during the six-month period to 30 June 2019 was estimated on the date of grant using the following assumptions:

Dividend yield (%) 6.14 

Expected volatility (%) 17.94

Risk-free interest rate (%) 1

Vesting period of share options (years) 2.87 

Grant date share price (€) 0.98

While the TSR linked option values calculated are based on market based assumptions, the NAV and dividend per share linked options, being non-market based, required management assumptions as to the probability of their respective hurdles being achieved.

For the six-month period ended 30 June 2019, the Group has recognised €50,198 of share-based payment expense in the Condensed Consolidated Statement of Comprehensive Income. 

22. Events after the reporting period

On 11 July 2019 the Company held an Extraordinary General Meeting ("EGM") at which the issuance and disapplication of pre-emption rights for a 12-month Share Issuance Programme of up to 100 million new shares was approved. Immediately following this EGM the Company placed the first tranche of the Share Issuance Programme of €10 million shares of nominal value €0.01 at a price of €1.00. The proceeds of the Share Issuance Programme and future tranches will be used to fund the acquisition of assets that fit the Company's investment policy.

On 11 July 2019 the Company agreed a €9.12 million increase to its three year floating rate revolving loan facility (the "Facility") with Allied Irish Banks, p.l.c. ("AIB") based upon a margin over-three month Euribor. The Facility is in place until December 2021 and is secured on certain of the Company's properties. This increase brings the total Facilities provided by AIB to €29.1 million, of which €17.2 million had been drawn as at the date of the interim report and Condensed Consolidated Financial Statements.

On 19 July 2019 the Company purchased a portfolio of three industrial buildings at the IDA Business and Technology Park, Garrycastle, Athlone (the "Portfolio"). The purchase price for this portfolio was €13 million, which represented a net initial yield of 7.6 per cent, after accounting for purchase costs and a potential reversionary yield in excess of 8 per cent. The purchase and associated costs were funded by the proceeds of the 10 million share issuance and a €4.5 million drawing on the Company's loan facility. Following this drawing the total drawn under the facility was €22.8 million.

On 24 July 2019 an interim dividend on ordinary shares which had been declared on 26 June 2019 was paid to equity holders. The interim dividend included a special dividend of 1.86 cent per share following a lease surrender received during the period. The total amount paid as the interim dividend was €2.4 million.

23. Capital commitments

The group has no material capital commitments at the Condensed Statement of Financial Position date.

24. Contingent Liabilities

The Group has not identified any contingent liabilities which are required to be disclosed in the Condensed Consolidated Financial Statements.