Preliminary Results

GREEN REIT PLC 

PRELIMINARY RESULTS FOR THE YEAR TO 30 JUNE 2017

10% NAV growth driven by development profits and increased underlying earnings

Dublin, 18 September, 2017 - Green REIT plc, ("Green REIT" or the "Company"), the Irish property investment company, today announces its results for the year ended 30 June 2017.

KEY FINANCIAL HIGHLIGHTS

§ 9% increase in EPRA NAV to €1.66 per share, underpinning a 12.9% total return in the period

§ 12% increase in contracted annual rent to €68.9 million, including €8 million per annum in new rent from developments and €2.4 million per annum from investment properties

§ Revaluation surpluses of €97 million, of which €47 million is from new developments

§ 33% growth in EPRA Earnings to €33 million and 31% increase in EPRA EPS to 4.8 cents per share

§ LTV remains low at 20.2%, with undrawn facilities at year end of €82 million providing further capital for deployment into development pipeline

§ Proposed full year dividend of 5 cents per share, a 9% increase over prior year, equating to 3% on June 2017 NAV

STRATEGIC & OPERATIONAL HIGHLIGHTS

§ Substantial value and income created through development completions, with expanded development programme and potential to deliver a further €11 million of annual rent

- Completion and full letting of office developments at 32 Molesworth Street and Building H in Central Park, adding €6.5 million to contracted annual rent and 6 cents/€41 million to EPRA NAV

- Commenced construction of Building I in Central Park, with completion in Q1 2019 of this 9,000 square metre (97,000 square feet) office building

- 164 acres of additional lands acquired at Horizon Logistics Park, with a further 30 acres contracted post year end, bringing total land holding to circa 300 acres, providing short, medium and longer term optionality

- Fourth new unit completed at Horizon Logistics Park, with 2 further pre-let units totalling 11,800 square metres (127,000 square feet) under construction and 2 further units to commence shortly

- Barclays Bank Ireland plc signed up at €62 per square foot at One Molesworth Street for over 50% of the office space, at an annual rent of €2.4 million

- €8.0 million of new contracted annual rent added from developments in the year to 30 June 2017, or €11.9 million including lettings completed since year end Potential future development of a minimum of 350,000 square feet at Central Park, post Building I

§ Successful asset management initiatives driving record WAULT

- €2.4 million of new annual rent secured through new lettings on our investment properties

- Lease renegotiations agreed on €4.4 million of annual contracted rent, principally with Bank of America Merrill Lynch in Central Park (€2.3 million) and the Irish Government at 76-78 Harcourt Street (€1.0 million)

- WAULT of 8 years across the portfolio, a record high for the Company

- EPRA occupancy rate of 98.5% (30 June 2016: 98.3%)

- Dublin 2 and 4 offices 12% reversionary, with an average contracted rent per square foot of €43 versus €49 average ERV per square foot at 30 June 2017

Gary Kennedy, Chairman of Green REIT plc, commented: "This has been another year of strong results for the Company, with a significant contribution to both income and NAV from our development schemes. Our strategic focus continues to be on driving risk adjusted returns for shareholders, and we look forward to the further contributions to come from the completion and letting of our high quality buildings, against the backdrop of a robust office and logistics occupier market in Dublin."

Pat Gunne, Chief Executive of Green Property REIT Ventures, added: "The market backdrop in Ireland continues to provide us with opportunity, particularly around our development assets, which are achieving considerable letting success ahead of expectations. The strong levels of foreign investment into Ireland, demonstrated by the ongoing success of IDA Ireland in attracting international projects, is one of the key factors encouraging us to expand upon our existing development programme as we continue to successfully de-risk our current pipeline."

ENDS

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 7831 3113

Jonathan Neilan Giles Barrie

Patrick Berkery Claire Turvey

[email protected] 

About Green REIT plc

Green REIT plc is an Irish Real Estate Investment Trust ("REIT") and is listed on the Irish and London Stock Exchanges. The Company was the first REIT established in Ireland following the introduction of REIT legislation by the Irish Government. The Company's stated strategy is to create a property portfolio consisting primarily of commercial property in Ireland to deliver income and capital growth through opportunistic investments, active property management and prudent use of debt finance. Please visit www.greenreitplc.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

It gives me pleasure to communicate another positive set of results for the Company for the year to 30 June 2017, a year of strong operational performance.

Development pipeline delivering ahead of plan

The year to 30 June 2017 saw the completion of our first two office developments in Dublin, both of which were fully let during the year and have made a significant contribution to both net asset value and to income, ahead of our forecasts. Since 30 June 2017 we have further de-risked our office development pipeline through the pre-letting to Barclays Bank Ireland plc of over half of the office space at One Molesworth Street, which is due for completion at the end of 2017.

Our strategy of developing the highest quality office buildings in the best locations in Dublin is paying off, and has led to the attraction of high calibre tenants. Our contracted rent and the security of our income are at Company highs, which supports our progressive dividend policy, with an increase in this year's proposed dividend by 9% over the prior year. Our guidance of a dividend of 4% on net asset value post the completion and letting of our development programme remains.

The substantial progress that we have made in de-risking our office development pipeline underpinned our decision to proceed with our next office development, Building I in Central Park, where construction commenced at the end of June. The building, comprising 9,000 square metres (97,000 square feet) of lettable space, is due for completion in the first quarter of 2019 and its construction highlights our confidence in the prospects for the Dublin office market.

We look forward to the completion of One Molesworth Street at the end of this year and 5 Harcourt Road in the first quarter of 2018, and to the contribution of both, in terms of net asset value and rental income.

The year to 30 June 2017 was also a busy and progressive year at Horizon Logistics Park. We completed an additional unit and leased it to DFS, we commenced construction of a new unit for Kuehne + Nagel and we acquired a further 164 acres of prime logistics development land in December 2016. Since year end we have commenced the construction of a further unit for a luxury goods retailer. We look forward to further developing this strategic land holding in what many consider to be the best located logistics land in Dublin, with easy access to Dublin Airport, the M50 orbital motorway and Dublin Port.

Strong recurring earnings and NAV growth

Through new lettings achieved on our completed development assets and across our investment properties, along with successful asset management initiatives, EPRA Earnings grew by 33% year-on-year to €33.0 million (2016: €24.9 million) or to 4.8 cents per share (2016: 3.7 cents per share). The positive contributions made by both EPRA Earnings and revaluation surpluses on our properties, particularly from our development schemes, has seen strong growth in EPRA NAV per share of 9.1% for the year to 165.6 cents, with a total return for the year of 12.9%.

Ireland - Positive macroeconomic backdrop continues

The Irish economy has continued to experience strong economic growth, with all of the key indicators trending positive. Employment growth for the year to March 2017 was 3.5%, with Dublin based office employment growing at 5.7%. The unemployment rate dropped to 6.3% in August 2017, from 8.3% in June 2016. This compares with a peak of 15.2% in early 2012. Investment and consumer spending are the main drivers of economic growth, with core investment growth of 13.6% and core domestic demand growth of 5.4% in 2016 (source: Goodbody).

On the FDI front the IDA results for the first half of 2017 announced that job approvals, their key metric, was up 22% versus the first half of 2016, with 93% of IDA clients ranking growth prospects for their Irish companies from Good to Excellent. FDI has played a key role in the recovery of the Irish economy and continues to do so.

The country's debt to GDP ratio continues to fall below the EU average, with only a minor government deficit expected for 2017. Eurozone interest rates remain low, and are expected to continue to remain low for some time, while the Irish government 10 year bond rate stood at 72 basis points at 30 June 2017, both of which continue to be supportive of commercial property yields.

Financial Results and Position

Summary Financial Information

Continued moderate gearing level

Our gearing level remained relatively unchanged year-on-year, at 20.2% (30 June 2016: 20.6%). During the year we agreed terms with Ulster Bank Ireland to join Barclays Bank Ireland as a revolving credit facility lender, increasing the total commitment under the facility from €150 million to €210 million, on the same terms. This additional commitment will fund further capital expenditure on our development projects.

Our intended gearing level continues to be 25%, post the completion and letting of our development assets, but as always we remain opportunistic in our outlook, which could lead to higher or lower gearing levels depending upon market conditions and opportunities.

Dividends

The Board expects to declare a dividend in respect of the year to 30 June 2017 of 5 cent per share, or a total dividend payout of €34.6 million, to be paid in the fourth quarter of 2017. This represents 100% of the EPRA Earnings for the year to 30 June 2017 plus a further €1.6 million from reserves, and is an increase of 10.4% on the prior year dividend.

The dividend expected to be declared is split as follows:

The Investment Manager

In May 2017 the Company confirmed that the Investment Manager Agreement in place with Green Property REIT Ventures since the launch of the Company in July 2013 will be renewed in July 2018, on the same terms, for a further three year renewal period. We welcome the certainty that this brings and the Board looks forward to continuing to work with the management team to add further value for shareholders through the completion of development properties, growing our income and dividends, and exploiting further opportunities that may arise in the coming years.

The Board has approved the payment of a Performance Fee of €5.7 million to the Investment Manager for the year to 30 June 2017, in line with the formula set out in the Investment Manager Agreement. The Performance Fee will be settled by the issuance of 4,007,197 new ordinary shares to the Investment Manager by the Company in quarter four of 2017. 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 and will therefore not be entitled to this year's dividend.

Outlook

We remain focused on delivering attractive risk adjusted returns to shareholders. The total return to shareholders for the year to 30 June 2017 of 12.9%, while maintaining moderate levels of gearing and speculative property development, highlights this focus. It also highlights both the quality of our portfolio and the experience of the management team.

Decisions made early in the Company's life are delivering ahead of plan, in particular the completion and letting of our development schemes, which were a key driver of the Company's strong performance for the year to 30 June 2017 and will contribute further in the years ahead. At the same time, we have further strengthened our income, growing our contracted rent significantly and enhancing the security of our income streams through a combination of long term new lettings and renegotiation of existing leases.

The value and income created through our development completions to date have encouraged us to proceed with the construction of the next building in Central Park, and to continue with our rolling programme of developing further logistics units at Horizon Logistics Park. All of this feeds through to our progressive dividend policy, another important aspect of shareholder returns.

The Board recognises that a continuation of the current favourable macroeconomic backdrop is an important dynamic in the context of delivering further on our objectives. While there continues to be uncertainty in many areas, the domestic Irish economy continues to grow in a sustained manner and FDI flows remain strong. This in turn is driving the occupier market, while the continuing low interest rate environment remains supportive of real estate values.

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

Gary Kennedy

Chairman

18 September 2017

Investment Manager's Review

Prime real estate with strong tenants on secure leases in a growth economy

Having commenced its first development scheme in April 2015, at what was an early point in the current cycle, the Company completed its first two Dublin office developments during the year to 30 June 2017. We were very happy to secure such high calibre tenants as Maples FS and Allied Irish Banks plc, at 32 Molesworth Street and Building H in Central Park respectively, the combined rent from which is €6.4 million per annum.

The Company's flagship office development at One Molesworth Street is due for completion towards the end of this year, with over half of the office space let since year end to Barclays Bank Ireland plc, at a strong rent of €670 per square metre (€62 per square foot) with 12 years to the first break option. The Company's other Dublin city centre office scheme at 5 Harcourt Road is progressing well and is due for completion in the first quarter of 2018, while construction of Building I in Central Park commenced in late June, with delivery of the building due in the first quarter of 2019. We remain confident that these buildings will deliver strong returns to shareholders when completed and with further high quality tenancies secured.

On the logistics front our organic growth strategy at Horizon Logistics Park is working well, as we combine pre-lettings with a measured level of speculative development on a rolling basis. On acquisition of the park in late 2013 the annual rental income was €0.9 million per annum. The units built and let since then and the units under construction will increase the annual rent to an estimated €4.5 million. Having exchanged contracts in September 2017 for the acquisition of a further circa 30 acres of land, the Company's total strategic land holding at Horizon is now approximately 300 acres. We look forward to developing these lands over the short, medium and longer term, against a backdrop of strong economic growth in Ireland and the potential benefit that may accrue to the logistics sector post Brexit.

Robust office occupier market with manageable supply

Latest reports show that office take-up in Dublin remains robust, with gross take-up of 149,000 square metres (1.6 million square feet) in the first six months of the year, the strongest performance for nine years. Vacancy rates in Dublin continue to fall, standing at 6.5% for overall vacancy at June 2017 (8.3% in June 2016) and 7.4% for the South Suburbs (June 2016: 10.4%). We are seeing lettings concluding quickly and tenant incentives flat or reducing.

On the supply side 48% of the stock of space under construction in Dublin at the end of quarter 2 2017 was either pre-let or reserved. Given the robust levels of take-up and the visibility around new supply, we would continue to describe supply levels as manageable.

1. PORTFOLIO SUMMARY

§ Increase of 12.4% in annual contracted rent to €68.9 million at 30 June 2017

§ Lettings completed since year end increased annual contracted rent further to €72.8 million

§ Record WAULT of 8 years across the portfolio

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

§ Dominated by high grade office assets (81%)

§ 98.5% EPRA occupancy rate (30 June 2016: 98.3%)

§ Value by sector: 81% offices, 10% retail, 5% mixed use and 4% logistics

§ Portfolio is 5% reversionary at 30 June 2017 with €68.9 million annual contracted rent versus €72.5 million annual ERV (both excluding developments in progress)

§ Diversified tenant base, with 43% of contracted rent from Financial Services, 22% from technology, media and telecommunications ("TMT") and 15% from retail

§ Top 10 tenants account for 54% of contracted rent, with our largest tenant (AIB) accounting for 13.5% of the total

§ Yields:

¹ Calculated as contracted rent at 30 June 2016/17 over the June 2016/17 valuation plus notional purchaser's costs

2. PORTFOLIO VALUATION

The valuation of the portfolio rose to €1.38 billion at 30 June 2017, which reflects a 12.6% increase in the value of assets held throughout the year to that date. Acquisitions during the year were limited to approximately 164 acres of additional adjoining land at Horizon Logistics Park, valued at €12.7 million at 30 June 2017, a marginal increase on its acquisition cost.

On a sectoral basis, the logistics assets saw a 35.4% increase in value, due to the completion and letting of Unit B2 (DFS), an increase in rental values and a reduction in yields for the income producing element. In addition, the construction of Unit D2 (pre-let to Kuehne + Nagel) has commenced. The city centre office portfolio saw a 9.9% increase in value; suburban offices saw an 18.8% increase due in the main to the completion of Building H in Central Park and the letting of the building to AIB. One Albert Quay in Cork saw an increase of 11.5%, with a 7.6% increase in the value of our retail holdings in the year.

In the period from June 2016 to June 2017 we saw the portfolio equivalent yield increase from 5% to 5.2%. This is predominantly due to recently completed developments at Horizon Logistics Park and Building H in Central Park, which are currently subject to rent free periods. The portfolio now has a WAULT of 8 years (7.8 years in June 2016) and has gone from 93% prime to 94%.

Looking at the overall return from standing investments in the portfolio, approximately 50% can be attributed to income growth and 50% to capital growth. If the recently completed developments are included, income growth accounts for approximately 40% and capital growth for 60%.

PORTFOLIO VALUATION ANALYSIS

3. NEW LETTINGS

In the year to 30 June 2017 the Company entered into new leases with total new contracted rent of €10.4 million per annum, €8.0 million of which came from the letting of development assets. Adding to that the €3.9 million of new annual rent secured from two pre-lettings completed since 30 June 2017, the total rent secured from new lettings since 1 July 2016 is €14.2 million, covering 44,000 square metres (474,000 square feet) of lettable space.

New Lettings Summary

Year to 30 June 2017

Lettings completed since 30 June 2017

Details of the principal new lettings are as follows:

32 Molesworth Street, Dublin 2 - Maples FS - €1.7m contracted annual rent

32 Molesworth Street was the first office redevelopment completed by the Company, which was let in its entirety to Maples FS in December 2016. The lease extends to 3,000 square metres (32,300 square feet) in total, with an annual contracted rent of €1.7 million, on a 20 year lease at a blended rent of €557 per square metre (€51.70 per square foot), with a break clause in the tenant's favour on the 10th and 15th anniversaries of the lease.

The rent secured for best space in the building equates to approximately €56 per square foot. This letting was 14% ahead of our then most recent rental estimates.

Building H, Central Park, Dublin 18 - Allied Irish Banks - €4.8m contracted annual rent

In May 2017 the Company signed a lease with Allied Irish Banks plc ('AIB') for the entirety of its newly completed office building at Central Park in Dublin 18.

The letting comprises 14,701 square metres (158,244 square feet) of lettable space on a 20 year lease from May 2017, with a tenant break option at the end of year 12. The annual rent payable by AIB is €4.8 million, which equates to €291 per square metre (€27 per square foot). AIB is entitled to a 12 month rent free period under the terms of the agreement.

This letting, which is the Company's single biggest letting by annual rent and by lettable area, brought the total contracted rent in Central Park to €23.7 million per annum, with full occupancy throughout the 79,000 square metres (850,000 square feet) of lettable space in the office park. The annual rent secured of €4.8 million was 10.4% ahead of our then most recent rental estimate of €4.35 million, driven by a combination of the lettable area being greater by 770 square metres (8,244 square feet) and the rent per square foot being €2 or 8% ahead of expectations.

One Molesworth Street, Dublin 2 - Barclays Bank Ireland - €2.4m contracted annual rent

Subsequent to financial year end the Company signed an agreement with Barclays Bank Ireland plc ('Barclays') to lease 3,437 square metres (37,000 square feet) of lettable space at its flagship development at One Molesworth Street in Dublin 2.

The letting covers two and a half floors of a total of five floors of office space, with Barclays having an option up to practical completion over a further half a floor, which if taken up would bring the letting to approximately 4,200 square metres (45,000 square feet). The lease duration is 20 years, with a tenant break option at the end of year 12. The annual rent payable by Barclays is €2.4 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 market level rent free period at the outset of the lease. The rent per square foot secured of €62 was 12.7% ahead of our then most recent rental estimate of €55 per square foot.

Following the letting to Barclays of 55% of the total office space, the remaining office space to be let comprises the balance of the third floor (subject to the Barclays option as set out above) and the fourth and fifth floors, totalling 2,900 square metres (31,000 square feet). The remainder of the building, including the 1,672 square metres (18,000 square feet) of retail space at ground and lower ground level, will be ready for fit out in Q4 2017.

Horizon Logistics Park, Dublin Airport

§ DHL - Unit B1 - lease signed with DHL Supply Chain (Ireland) Limited, part of the global logistics group DHL, for unit B1 in Horizon Logistics Park in October 2016. This newly built warehouse unit comprises 4,125 square metres (44,400 square feet) and was completed in May 2016. The annual rent agreed is €0.4 million, equating to €91.50 per square metre (€8.50 per square foot).

§ Kuehne + Nagel - Unit D2 - during the year we agreed a pre-letting for new space to be built at Horizon Logistics Park for Kuehne + Nagel, the global transport and logistics company, for a purpose built 7,400 square metres (80,000 square feet) unit at an annual rent of €0.8 million. Kuehne + Nagel also has options on two additional units of 3,700 square metres (40,000 square feet) each. The construction of the new unit commenced in May 2017 and is due for completion in quarter two of 2018. 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, which we plan to refurbish and re-let.

§ DFS - Unit B2 - lease signed with DFS Trading Limited ('DFS'), the UK furniture retailer. The unit comprises 3,100 square metres (33,300 square feet) and was completed in April 2017. The annual rent payable by DFS is €0.3m, which equates to €98 per square metre (€9.10 per square foot), on a 15 year lease term and with a tenant break option at the end of year 10.

§ Luxury goods retailer - post year end an agreement for lease was signed on a specialised design and build project which will be a very prestigious addition to the park, and which illustrates our ability to secure major FDI projects in this sector of the market. See below for further information. 

The total contracted annual rent roll in Horizon has grown from €0.9 million at the time of acquisition to €3.6 million, a fourfold expansion, and will increase to an estimated €4.5 million when two additional speculative units are complete and let, where construction is due to commence shortly.

This letting momentum at Horizon Logistics Park reflects the confidence of these high calibre tenants in the park, as well as the outlook for the logistics sector in Ireland, and bodes well for our overall strategy of organically growing value and income at the logistics park.  

4. DEVELOPMENT PROJECTS

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

Development activity since 30 June 2017:

(i) Building I in Central Park

In July 2017 the Company announced that it had commenced the construction of Building I in Central Park, Leopardstown, Dublin 18. This follows the completion and successful letting of the entirety of the adjacent Building H, to Allied Irish Banks plc in May 2017.

Building I will extend to approximately 9,000 square metres (97,000 square feet) of lettable space, together with 156 basement car parking spaces, and will be available in its entirety or on a floor-by-floor basis. Having already excavated the double level basement car park as part of the development of the adjacent Building H, Building I is scheduled for delivery in Q1 2019.

(ii) Unit D3 at Horizon Logistics Park

In August 2017 the Company signed an agreement for lease with a luxury goods retailer for a purpose built unit at Horizon Logistics Park, which is due for completion in the third quarter of 2018. This high specification unit will comprise 4,400 square metres (47,000 square feet) with a mix of office and logistics space, with an estimated rent of €1.5 million per annum, which will be a significant boost to the income at the logistics park. The lease to be entered into at completion of the unit will be a 20 year lease with no break options.

5. ACQUISITIONS AND DISPOSALS

Acquisition - Additional Lands at Horizon Logistics Park, Dublin Airport

In December 2016 the Company acquired approximately 164 acres of land adjacent to its existing holding at Horizon Logistics Park at Dublin Airport, for a contract price of €12.3 million. The acquisition brought the Company's total land holding at Horizon Logistics Park to approximately 264 acres. The transaction increases the Company's strategic land holding adjacent to Dublin Airport at a time when demand and rental values for well-located modern logistics units are increasing.

Since 30 June 2017 the Company has exchanged contracts to acquire a further circa 30 acres of lands adjacent to its holdings at Horizon Logistics Park, at a contract price of €2.8 million.

Disposal - Parkway Retail Park, Limerick

In March 2017 the Company disposed of Parkway Retail Park in Limerick. The contract price was €23.0 million, in line with the 31 December 2016 valuation. The contract price reflected a profit to the Company of 64% on the cost of the property, which was acquired in late 2013 for €14.0 million. This sale brought the proceeds from the Company's disposal programme to €97.7 million, broadly in line with target. The total profit realised from the sale of the five properties was €41.1 million, or 73% on purchase cost, an effective recycling of capital and strengthening of the Company's portfolio, which we now consider to be 94% prime.

6. FINANCIAL REVIEW

The year to 30 June 2017 saw strong growth in underlying earnings and a positive contribution to profits from revaluation surpluses, particularly on the Company's development properties. EPRA Earnings grew by 33.1% to €33.0 million for the year, while revaluation surpluses were €96.7 million, with a total profit of €129.8 million (2016: €145.5 million). On a per share basis the total EPS for the year was 18.9 cents (2016: 21.5 cents), with EPRA EPS of 4.8 cents (2016: 3.7 cents).

The Company's NAV grew by 9.9% in the year, from €1,048.0 million to €1,152.2 million, or from 153.9 cents per share to 166.9 cents per share before dilution. EPRA NAV per share grew by 9.1% in the year from 151.8 cents to 165.6 cents.

Four Year Summary

Note: includes the Company's 50% interest in Central Park for FY 2014 and FY 2015.

Earnings per Share ("EPS")

While total EPS for the year reduced by 12.1% from 21.5 cents to 18.9 cents, the EPRA EPS component, which measures EPS on rental profit only, increased by 1.1 cents per share or by 31.1% from 3.7 cents to 4.8 cents. In the year to 30 June 2016 EPRA EPS accounted for 17% of total EPS while it accounted for 25% of total EPS in the year to 30 June 2017. This rebalancing is as a result of the moderation in the rate of growth in property values in Ireland as the Irish commercial real estate market has stabilised. This is illustrated by the total returns from Irish commercial real estate as measured by IPD/MSCI, which decreased from 19.5% in calendar 2016 to 10.0% in the year to 30 June 2017.

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

NAV Growth

NAV increased from €1,048.0 million at 30 June 2016 to €1,152.2 million, an increase of 9.9% year-on-year, or from 153.9 cent per share to 166.9 cent per share (both basic). The main drivers of the growth in basic NAV per share are analysed as follows:

Please see Appendix 1 for further EPRA Performance Measures.

Rental Income

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

Note: 2016 includes the Company's 50% share of Central Park rents from 1 July 2015 to 8 January 2016 (the date the Company acquired full control) of €4.4 million, to facilitate a like-for-like comparison

The main movements in rental income year-on-year were as follows:

Property Outgoings

Property outgoings of €2.4 million were €1.9 million or 44% lower than the prior year cost of €4.3 million (including the Company's 50% share of Central Park costs for the period from 1 July 2015 to 8 January 2016 of €0.4 million), due in the main to a reduction of €0.8 million in the level of agents' fees expensed in the current year, which is explained firstly by the reduced level of lease events dealt with in the current year, where the year to 30 June 2016 was a very active year for lease renegotiations, and secondly by the Company's policy of amortising agents' fees on new lettings over the period to the earliest termination of each lease. We also saw a reduction in vacancy costs of €0.3 million on our retail assets due to new lettings and a reduction of €0.2 million in repair costs.

Administrative Expenses

Administrative expenses decreased by €0.3 million or 12% from €2.7 million in the year to 30 June 2016 to €2.4 million in the year to 30 June 2017. The prior year total included €0.9 million of one-off business combination costs relating to the acquisition of PIMCO's 50% interest in Central Park in January 2016. Stripping these out of the prior year costs, the like-for-like recurring costs in the prior year were €1.8 million, or €0.6 million lower than the current year total of €2.4 million. The increases year-on-year arose mainly on legal fees, internal audit fees, depositary fees and stock exchange fees.

For the year ahead we would expect total administrative costs to be in the order of €2.2 million.

Investment Manager Fees

The base fee charged in the year was €10.8 million (2016: €9.7 million), with the increase in the fee reflecting the increased EPRA NAV of the Company on which the base fee is calculated. In the year from 30 June 2016 to 30 June 2017 EPRA NAV increased from €1,048.0 million to €1,149.9 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 €5.7 million (2016: €13.9 million) are set out in further detail in note 18 to the financial statements.

Gearing and Debt Profile

The Company's gearing level, as measured by property LTV, was relatively unchanged year-on-year, decreasing marginally from 20.6% to 20.2%. This level of gearing is within the range guided over the previous reporting periods, and is expected to increase towards 25% as the Company deploys further capital to complete its development schemes.

The Company has two loan facilities in place, one with Bank of Ireland secured on the Central Park assets, and a revolving credit facility with Barclays Bank Ireland and Ulster Bank Ireland with floating security over the Company's other assets. Ulster Bank Ireland entered the revolving credit facility during the financial year, agreeing to lend €60 million alongside Barclays, thereby increasing the limit of the facility from €150 million to €210 million. Adding this to the Bank of Ireland facility on Central Park, which is fully drawn at €150 million, the Company's total debt commitments are €360 million.

The Company's all-in annual debt cost stood at 1.8% at 30 June 2017, with a weighted average debt maturity of 2.8 years.

A summary profile of the Company's debt at 30 June 2017 is as follows:

During the year hedging was put 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 €2.24 million at 30 June 2017.

7. OUTLOOK & PRIORITIES FOR THE YEAR AHEAD

The market continues to absorb the implications of the UK's decision to exit the EU. Whilst acknowledging that it is potentially a headwind for the Irish economy, we have also been clear that we consider it an opportunity for our area of business, which is heavily weighted towards Dublin offices.

The Dublin office occupier markets remain healthy. The record take-up level in the second quarter of 2017 bodes well for those who have capital invested in the higher risk and reward area of office development in Dublin. Our recent successes at One Molesworth Street, with the signing of Barclay's Bank Ireland for over half of the office space, and securing AIB for the entirety of our newly completed building at Central Park, demonstrate that point clearly. At the same time, in Dublin the industry is developing speculative space equivalent to approximately 7% of our total market, well ahead of EU averages, so it is a time to remain disciplined in assessing risk around new speculative capital allocation decisions.

There are various perspectives on just how much Brexit has impacted on the latest take up figures, but the fact is that those international companies that are expanding in Ireland, be it from the financial services, professional services or TMT sectors, are using Ireland as a base for servicing their European business platforms. Accessing the EU through a proven English speaking and pro-business country such as Ireland must weigh heavily and favourably on those crucial investment decisions. While Ireland's 12.5% corporation tax rate is often cited as the predominant force in this context, it is one of a number of other factors, such as availability of workforce, and critically at this juncture, certainty of access to the EU market. Constraining factors include the inadequate provision of residential accommodation, which is a political priority, together with education facilities and infrastructure, both of which require investment and creative solutions.

On the capital markets front, the interest rate environment has remained relatively benign, with longer term interest rates best assessed off the 10 year Irish sovereign bond yield, remaining close to historic lows. Despite the tensions at geopolitical level around the globe, sustained low interest rates will likely offer continued support to real estate values, as a considerable gap remains between longer term interest rates and property yields, both in Dublin and across Europe. In fact, Ireland, and Dublin in particular, stands out as a market where yields for the best quality office assets may see further compression, which is in line with our views expressed in the Company's interim results in February of this year. Whilst we were very much out on a limb on that point at that time, there is now a growing consensus that yields will tighten as new investment stock comes to the market this coming autumn- winter season. As was our view in February 2017, bifurcation between prime and secondary assets continues to widen in terms of value and liquidity.

With tapering being increasingly debated at policy level for both the US Federal Reserve and the European Central Bank, the resulting rise in interest rates is likely at some point to reduce the flow of capital being allocated to real estate as an asset class. This would lead to a continuation of this theme of bifurcation, with the usual flight to quality real estate in times of capital retrenchment. How long this will take is uncertain, but it may become a bigger discussion point over the next 12 to 24 months.

Sectorally, at this point the decision to allocate more capital to logistics, at Horizon Logistics Park, and at the same time to reduce the Company's exposure to retail, looks very much to be the right decision. The Company continues to employ further capital into logistics development, and the increased land holding at Horizon provides the option to play out this very exciting opportunity in a sector which benefits from the expansion of internet shopping, and the potential opportunities from Brexit as border and trade issues get resolved.

As always, our focus is very much on delivering attractive risk adjusted returns for shareholders, with discipline in balance sheet management, both through the Company's capital structure and exposure to development, is of paramount importance in achieving this key objective.

We look to the year ahead with confidence.

Stephen Vernon Pat Gunne

Executive Chairman Chief Executive

Green Property REIT Ventures DAC Green Property REIT Ventures DAC

18 September 2017

Our Market

Economic Overview

GDP growth in Ireland for the calendar year 2016 was 5.2%, and the first half of 2017 has seen a continuation of positive trends in the key macroeconomic indicators. The consensus forecast is that GDP growth will be 4.3% for the full year for 2017 and 3.1% for 2018, both well ahead of Eurozone averages. The composite PMI continues to show sustained growth, and for July was at 57.0.

The uninterrupted reduction in the unemployment rate continues, with the seasonally adjusted unemployment rate for August 2017 at 6.3%, down from 8.3% in June 2016. These levels compare with a peak of 15.2% in February 2012, with the number of people employed now within 5% of the all-time peak. The forecast is that Ireland will reach full employment (circa. 5% unemployment) by the end of 2018.

Household debt was 214% of disposable income in Q4 2009 and currently stands at 141%, with disposable income now ahead of the previous high in Q4 2008. The savings rate has remained relatively constant and currently stands at 6.8%. Finally, Irish household net worth fell by €285 billion during the financial crisis, an estimated €221 billion of which has been recovered to date.

While there are concerns that Brexit will impact negatively on domestic export businesses, to date this has not come through in the numbers. Nominal goods exported are up 7.3% year-on-year in H1 2017, resulting in a trade surplus of €20.8 billion for the year, which is 19% higher than the previous year. The export component of the services PMI has been over 50 for eight successive readings, which is positive when the negative impact on exports from the recent weakening of Sterling versus Euro are considered. In fact, exports to the UK have grown by 14.1% year-on-year to June 2017, much of which relates to the chemical sector. 

In 2016 the IDA secured a total of 244 investments into Ireland, with total FDI-related employment now at a record level of over 200,000 people, or 10% of the total workforce. IDA research shows that 48% of new jobs created are concentrated in Dublin, 14% in Cork and 10% in Galway. To the half year point in 2017 the IDA reported 114 new investments and job approvals, up 22% compared with H1 2016. While there are many risks associated with Brexit, it does also offer opportunity for Ireland to benefit from further FDI investment and recent announcements of growth and relocations, particularly in the financial services sector, have been positive in that regard.

Total tax receipts for Ireland for the six months to June 2017 are up 10% year-on-year, and the forecast is for a government deficit of 0.1% of GDP for 2017 and a small surplus in 2018. With the level of national debt remaining high, spending and tax policies are expected to remain relatively prudent in the coming years. In May of 2017 the Irish Government completed a successful IPO of part of one of our pillar banks, Allied Irish Banks, and NAMA has reduced its balance sheet by 80% since its foundation and recently revised its lifetime profit guidance upwards to €3 billion.

Inflation in Ireland remains muted, with headline CPI of 0% year-on-year to June 2017. That said, we expect to see inflation emerging as a trend as we move closer to full employment.

The total population of Ireland has increased by 12% in the last decade and currently stands at 4.7 million (census 2016), with 55% of the population under 40 years of age.

The heightened level of uncertainty brought about by the new Administration in the US, particularly around potential corporate tax reform, and concerns about European politics, appear to have abated for the time being. The biggest unknown and concern presently is Brexit and how it is likely to impact on the Irish economy. While the Dublin office market is likely to be a beneficiary of Brexit, the impact on the real economy, and particularly for the agricultural sector, is unlikely to be known for some time.

Capital Markets

The commercial investment market has been more subdued in the first half of 2017, with total asset sales of €800 million, compared with €2.95 billion for the first half of 2016 and €4.5 billion for the full year to December 2016. The anticipated pull back in volumes is as a result of bank de-leveraging winding down and the longer term view being taken by recent buyers, many of whom are institutional, with the resulting reduction in the level of re-trading of assets. The 15-year average volume of sales in a six-month period is €760 million, so we are now seeing a normalised market turnover emerging. As we look forward there is approximately €1.3-1.5 billion of assets either on the market or coming to the market in the autumn period, so the likelihood is that total asset sales in the calendar year 2017 will reach in the order of €2 billion.

The private equity funds that were the early buyers of real estate in Ireland in this cycle, continue to be active where loan books are trading. Overall, they are net sellers but in the main their portfolios have assets located throughout the country and often comprise small lot sizes.

Demand remains strong, with new entrants still emerging. That said, investors are mainly focused on core locations and Grade A quality buildings, and there has been a dearth of this type of product on the market in the year to date. On the other hand we are seeing thin demand for secondary assets and secondary locations. Due to the shortage of prime stock and the desire of some funds to diversify, we are also seeing investors looking at alternatives including forward funding of speculative and pre-let office developments in Dublin, investing in the private rental residential sector and in build-to-rent student accommodation.

The top 10 investment transactions in the first half of 2017, which account for 47% of the total capital deployed, were as follows:

In the six month period to June 2017 offices accounted for 38% of capital deployed, retail for 24%, mixed use for 12%, hotel for 8%, industrial for 8% and the remaining 10% is classed as other uses.

In the same period 61% of assets were acquired by Irish buyers, with North America accounting for 9%, UK for 6%, Germany for 3% and the remainder is of unknown origin. We have seen an increase in the number of Irish buyers, led predominantly by Irish institutions, albeit at reduced average lot sizes.

While prime yields remain stable, all are generally trending stronger as can be seen in the table below. We have seen evidence of further yield compression in prime office yields in mainland Europe, for example Paris at 3.00%, Frankfurt at 3.50%, Madrid at 3.75% and Amsterdam at 4.00%. This compares with 4.65% for the Dublin office market, which is attractive when the supply/demand fundamentals and strong economic growth are considered. In addition, with long term bond yields at 0.72% (at 30 June 2017), there is a growing feeling that prime yields may in fact be keener than the quoted level, but to date a lack of transactional evidence has kept the headline numbers unchanged.

Prime Equivalent Yields (Dublin):

Source: CBRE

Property Returns

The MSCI index recorded total returns for H1 2017 for Ireland of 5% across all property sectors (6.3% in H1 2016). On an annualised basis to June 2017 this reflects 10.0% compared with 19.5% for the same period in 2016. These moderating returns, while still healthy, illustrate that the market has stabilised and is at a mature phase in the cycle. This compares to the UK, where returns were 4.7% in the same period.

Stripping out transactions and development in the period, the main driver of returns from standing investments is the income return and ERV growth. The top performing sector with a total return of 3% was industrial, followed by office and retail at 2%. The MSCI all-property equivalent yield (as at June 2017) has fallen from 5.8% when we last reported in February 2017, to 5.6%.

Occupier Markets

Dublin Offices

Tenant demand and the resulting leasing activity has been exceptional in the first six months of 2017. Total take-up in H1 2017 in Greater Dublin reached 150,000 square metres (1.6 million square feet) (H1 2016: 90,000 square metres (965,000 square feet)), of which 24% was in the suburbs. On an annualised basis this would equate to 300,000 square metres (3.2 million square feet) in gross terms. If this were to be achieved, it would surpass the total take-up for 2016 of 246,000 square metres (2.65 million square feet) and would be well ahead of the 10 year average of 186,000 square metres (2 million square feet) per annum.

When the Dublin market is compared to the 6 main regional cities in the UK, from 2012-2016 the total gross take-up in Dublin was 60% of the combined total gross take-up in those six regional cities. In H1 2017, Dublin accounted for 74% of the combined take-up in those regional cities, which demonstrates the dynamic nature of the occupier market in Dublin.

In the first half of 2017 large space occupiers have dominated take-up, with 48% of lettings being space over 4,700 square metres (50,000 square feet) and 24% being space between 1,900 and 4,700 square metres (20,000 and 50,000 square feet). The norm in the Dublin market would be in the order of 70% of take-up (by size) in a given period being space of less than 930 square metres (10,000 square feet), so the current strong take-up levels can be attributed to a number of large lettings.

Gross take-up in H1 2017, by sector was as follows:

Dublin City Centre

Dublin Suburbs (all)

Of the total take-up in the suburbs, 45% in the first half of 2017 was in the south suburban market. This was particularly boosted by the 13,900 square metre (150,000 square feet) letting by the Company of Building H Central Park to AIB in May.

Looking towards the remainder of 2017, with the volume of deals currently in legal due diligence and office agents reporting 250,000 square metres (2.7 million square feet) of current demand, this year looks set to be a record year for leasing activity.

There is no doubt that Brexit is starting to have a positive impact on tenant demand for offices, and this is likely to increase over time as decisions are made by corporates around their post-Brexit operating strategy. It has been reported that JP Morgan has acquired a 12,100 square metre (130,000 square feet) building currently under construction in the South Docks of Dublin, and certain other recent lettings would appear to be facilitating Brexit relocations. In addition there are a number of other occupiers, mostly in the financial services sector, either looking to expand or new entrants currently carrying out due diligence on the Dublin market. It is still early days in the Brexit negotiations but we are now starting to see demand translating into actual lettings.

The greater Dublin office vacancy rate continued to decline, and currently stands at 6.5%, down from 6.6% when we reported in February 2017. In Dublin 2/4 (core city centre) the overall vacancy rate is 5%, and the Grade A vacancy rate is 2%. The vacancy rate in the south suburbs is 7.4% (Feb 2017: 8.4%) and the Grade A vacancy rate is 5.5% (Feb 2017: 5.9%). 

There is currently 441,800 square metres (4.76 million square feet) of gross office development under construction in Dublin city centre, over 34 schemes, of which 37% or 163,000 square metres (1.75 million square feet) is pre-let or in legals. Of this, 142,000 square metres (1.53 million square feet) is due for completion in 2017 and 62% of the 2017 completions have been pre-let or are in legals. The remainder is due for completion in 2018 and 2019.

In addition, there is currently 33,700 square metres (363,000 square feet) under construction in four projects in the suburbs, of which 6,500 square metres (70,000 square feet) is due to be delivered in 2017, with the remainder in 2018/19.

Prime headline rents in Dublin city centre have remained static in the last 6 months and currently stand at €673 per square metre (€62.50 per square foot), while rents in the south suburbs have also remained static at €296 per square metre (€27.50 per square foot). Market commentators are suggesting modest single digit rental growth for 2017.

Cork Office Market

The total take-up in the Cork office market reached 1,255 square metres (13,455 square feet) in Q1 2017, down from 21,500 square metres (231,000 square feet) for calendar year 2016. The lack of take-up continues to be due to the limited amount of Grade A buildings available.

The current vacancy rate stands at 10% (end 2016: 11.5%) and much of this is older, obsolete space with little Grade A space available to let.

The Capitol Cinema site at Grand Parade is now complete and comprises a mixed retail and office scheme (50:50) with office rent of €323 per square metre (€30 per square foot) being achieved. The building was recently sold to a German fund, Real IS, for approximately €46 million, reflecting a net initial yield of 5.50%, which is a further endorsement for the prime Cork market. As there is such tight supply of Grade A buildings it is anticipated that the Cork market will see rents reaching €376 per square metre (€35 per square foot) in the next 18 months.

There is a new scheme due to commence in the coming weeks on Albert Quay, not far from the Company's office building at One Albert Quay. The site extends to 2.25 acres and the intention is to build four buildings with a total area of 28,800 square metres (310,000 square feet). The first, known as Block A will extend to 13,200 square metres (142,000 square feet) and is due to be completed by the end of 2018. In addition, there is a further 186,000 square metres (2 million square feet) in the Greater Cork area where a planning permission is granted, but where delivery is likely to be measured as developers will potentially require pre-lettings in order to obtain funding.

Retail

Retail sales data in Ireland is mixed and there is no doubt that the sector is generally under pressure, with competition coming from internet retailers due particularly to the weakening of Sterling versus the Euro. That said, most areas are recording moderate growth, assisted by the general improvement in the economy and employment growth. Data from the Central Bank of Ireland shows that e-commerce expenditure (in cash terms) was up 21.2% year-on-year in H1 2017.

The volume of retail sales was up by 4.1% in the year to June 2017, and if motor sales are excluded this increases to 7.1%. The increase in the value of sales is more modest, showing an increase in the year of just 1.6%. The strongest performers are in the Household Equipment and the Books, Newspapers, Stationery and Other Goods categories, while the weakest performer is Motor & Fuel. The consumer sentiment index, while down on the high of January 2016, is still ahead of the series average and a general commentary from retail agents is that footfall in major centres is up year-on-year.

The MSCI index is showing that the ERV for Grafton Street, Dublin's main retail thoroughfare, is up 9% in the year to June 2017 and 5.5% overall for the sector. Prime rents on Grafton Street currently stand at €6,300 per square metre (€585 per square foot), Dundrum Town Centre is at €4,500 per square metre (€418 per square foot) and Blanchardstown Shopping Centre is at €3,000 per square metre (€278 per square foot) (all in terms of Zone A/ITZA).

A lack of available premises to let is limiting expansion plans for many retailers. Recent openings include Homesense in Westend Retail Park, Dublin 15 and at Capitol Cinema in Cork, Urban Decay on Grafton Street, Lifestyle Sports and Smiggle in Blanchardstown Shopping Centre, and Sportsdirect has opened its first store on North Earl Street in Dublin city centre, with the expectation that it will open further stores.

New retail development remains limited to extensions to existing centres, with no new commencements in the six months to June 2017. 

Industrial and Logistics Sector

Take-up to the half year point in 2017 reached 121,000 square metres (1.3 million square feet), which is consistent with take-up for the same period in 2016. Supply of modern facilities continues to be constrained and is the main focus of demand.

In the six month period to June 2017 there were 83 transactions (full year 2016; 183), of which 54% were lettings and 46% were sales of vacant units to owner occupiers. In the period 43% of lettings were of space between 1,900 and 4,700 square metres (20,000 to 50,000 square feet) and 28% were of space between 4,600 and 9,300 square metres (50,000 and 100,000 square feet). The remaining 11% was for space under 1,900 square metres (20,000 square feet) and there were no lettings over 9,300 square metres (100,000 square feet). 

Prime rental levels have continued to grow, with a further 6% rental growth so far in H1 2017, following growth of 25% in 2016, and with prime rents currently standing at €99.50 per square metre (€9.25 per square foot). Despite this, there remains limited speculative development. While Brexit negotiations are at an early stage, it is felt that it may result in increased demand within the industrial and logistics sector, due to likely changes to the UK's trading arrangements with the EU.

Prime industrial/logistics yields remain stable at 5.50% and it accounted for 8% of the total investment spend in the first half of 2017.

Residential

There has been an increase in the housing output, which was up 25% year-on-year for 2016, with 14,932 units completed in the year. While completions are increasing, it is taking time to ratchet up and it is estimated that they represent roughly half of the current level of annual demand. As a result, there is a continued mismatch between demand and supply and it is likely to take some time before there is a balance. Consequently, house price inflation is evident, with a forecast of 7% growth for 2017 and 6% for 2018. Values today remain 25% off peak levels in 2007.

Planning permissions granted in Q1 2017 stood at 17,934 units, up 39% year-on-year, which is a positive sign that future completions are ticking up. The forecast is that there will be 16,000 completions in 2017 and 18,000 in 2018.

In Q2 2017 average rents nationally were €1,159 per month, which is up 11.8% year-on-year to June and is 56% above the trough of €742 per month in Q4 2011. In Dublin, average monthly rents in Q2 2017 were €1,707, which is 12.3% up year-on-year to June.

Sources:

1. CBRE research reports

2. JLL research reports

3. Central Statistics Office website

4. IDA website

5. Investec research

6. Goodbody research

7. Davy research

8. Ulster Bank PMI

9. Daft.ie

PORTFOLIO ANALYSIS

RENTAL INCOME

(1) Excludes ERV of development assets under construction at 30 June 2017

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 residential component in Arena Centre and short term licences

(2) Excludes ERV of development assets under construction at 30 June 2017

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

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

SECTORS BY VALUE (1)

(1) Net of purchasers' costs of 4.46%

LOCATIONS BY VALUE (1)

(1) Net of purchasers' costs of 4.46%

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 residential component in Arena Centre and short term licences

APPENDIX 1 - 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"):

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

Unaudited consolidated statement of comprehensive income

Green REIT plc

Unaudited consolidated statement of financial position

as at 30 June

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

Green REIT plc

Unaudited consolidated statement of changes in equity

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

Green REIT plc

Unaudited consolidated statement of cash flows

for the year ended 30 June

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

Green REIT plc

Notes

Notes to the Financial Statements

1 Basis of preparation and significant accounting policies

Basis of preparation

The financial information in this announcement was approved by the Board of Directors on 17 September 2017 and does not comprise statutory financial statements for the year ended 30 June 2017, within the meaning of the Companies Acts 2014. The statutory financial statements for the year ended 30 June 2017 will be finalised based on the information presented in this preliminary announcement and will be published on the Group's website and filed with the Companies Registration Office in due course.

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB), and the Companies Act 2014.

The following amendments were adopted by the Group for the first time in the current financial reporting period with no significant impact on the Group's result for the period or financial position:.

· Annual Improvements to IFRSs 2012-2015 cycle (effective date 1 January 2016)

· IAS 1 (amended) - Presentation of financial statements (effective date 1 January 2016)

· IAS 27 (amended) - Separate financial statements (effective date 1 January 2016)

· IFRS 10 (amended) - Consolidated financial statements (effective date 1 January 2016)

· IFRS 11 (amended) - Joint arrangements (effective date 1 January 2016)

A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 30 June 2017, and have not been applied in preparing these consolidated financial statements. The items that may have relevance to the Group are as follows:

· IFRS 15 - Revenue from contracts with customers (effective date 1 January 2018)

· IFRS 9 - Financial Instruments (effective date 1 January 2018)*

· IAS 7 (amended) - Statement of Cash Flows (effective date 1 January 2017)*

· IAS 12 (amended) - Income taxes (effective date 1 January 2017)*

· IFRS 2 (amended) - Classification and measurement of share-based payment transactions (effective 1 January 2018)*

· IAS 40 (amended)- Investment Property (effective date 1 January 2018)*

· Annual Improvements to IFRSs 2014-2016 cycle (effective date 1 January 2018)

· IFRS 16 - Leases (13 January 2016) (effective 1 January 2019)

* Not EU endorsed at the time of approval of the financial statements

The Group is in the process of assessing the impact of the new standards and interpretations on its financial reporting and currently intends to apply the new requirements from their EU effective dates.

The accounting policies set out below, as extracted from the 2016 Annual Report, have been applied to the consolidated financial statements.

Going concern

The Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future and that it is appropriate to prepare the consolidated financial statements on a going concern basis.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for investment properties, short term investments and derivatives, which are measured at fair value.

Functional and presentation currency

The financial information is presented in Euro, which is the Company's functional currency. All financial information presented in Euro has been rounded to the nearest thousand except where otherwise indicated.

Underlying pre-tax earnings

The European Public Real Estate Association ("EPRA") has issued Best Practices Recommendations, the latest update of which was issued in November 2016, which give guidelines for performance measures. EPRA Earnings is the profit after tax excluding investment and development property revaluations and gains or losses on disposals, changes in the fair value of financial instruments and associated close-out costs and their related taxation. These exclusions from EPRA Earnings are included in the "Capital and other" column of the statement of comprehensive income. EPRA Earnings will also include earnings from non-property operating activity should a real estate company be involved in such an activity. Underlying earnings consists of the EPRA Earnings measure.

Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods.

Information about critical judgements in applying accounting policies that have the most significant effect on amounts recognised in the consolidated financial statements is included in the accounting policies and the notes to the financial statements.

The key accounting estimate in these financial statements is the valuation of the property portfolio. This is discussed in further detail under the accounting policy for property valuation and in note 8.

Measurement of fair values

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

A number of the Group's accounting policies and disclosures require the measurement of fair values. When measuring the fair value of an asset or liability the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

Basis of consolidation

The Group's financial statements consolidate the financial statements of the Parent and of all subsidiary undertakings together with the Group's share of the results and net assets and joint ventures made up to 30 June 2017. The results of subsidiary undertakings acquired or disposed of in the year are included in the Group statement of comprehensive income from the date of acquisition or up to the date of disposal.

Control

The IFRS 10 control model focuses on whether the Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability to use its power to affect those returns. In particular, IFRS 10 requires the Group to consolidate investees that it controls on the basis of de facto control. In accordance with IFRS 10, the Group's assessment of control is performed on a continuous basis and the Group reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of the control model.

Subsidiaries

Subsidiaries are entities controlled by the Group (control exists when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity). The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Joint arrangements

Under IFRS 11, Joint arrangements, the Group classifies its interests in joint arrangements as either joint operations or joint ventures depending on the Group's rights to the assets and obligations for the liabilities of the arrangements. When making this assessment, the Group considers the structure of the arrangements, the legal form of any separate vehicles, the contractual terms of the arrangements and other facts and circumstances. When the Group has rights to the assets and obligations for the liabilities relating to an arrangement, it accounts for each of its assets, liabilities and transactions, including its share of those held or incurred jointly, in relation to the joint operation. When the Group has rights only to the net assets of an arrangement, it accounts for its interest using the equity method. Investments in joint ventures are accounted for using the equity method and are recognised initially at cost. The cost of such investments includes transaction costs.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in the statement of comprehensive income immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in the statement of comprehensive income.

Investment properties

Investment property is property held either to earn rental income, or for capital appreciation (including future re-development) or for both, but not for sale in the ordinary course of business. The Group does not have any properties held for resale or trading purposes.

Investment property is initially measured at cost including related acquisition costs and subsequently valued by professional external valuers at their respective fair values at each reporting date. The difference between the fair value of an investment property at the reporting date and its carrying value prior to the external valuation is recognised in the statement of comprehensive income as a fair value gain or loss.

Any gain or loss on disposal of an investment property (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in the statement of comprehensive income.

Properties leased out to tenants under operating leases are included in investment property in the statement of financial position.

Investment properties are treated as acquired at the point where the Group assumes the significant risks and rewards of ownership which normally occurs when the conveyancing contract has been performed by both buyer and seller and the contract has been deemed to have become unconditional and completed. Investment properties are deemed to have been sold when the buyer has assumed the risks and rewards of ownership and the contract for sale has been completed.

Additions to investment properties consist of construction and other directly attributable costs such as professional fees and expenses and in the case of investment properties under development capitalised interest where applicable. The cost of self-constructed investment property includes the cost of materials and direct labour, any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalised borrowing costs. Where the Group begins to redevelop an existing investment property the property continues to be held as an investment property.

Properties that are currently being developed or that are to be developed in the near future are held as development properties. These properties are initially valued at cost. Any direct expenditure on development properties is capitalised and the properties are then valued by external valuers at their respective fair value at each reporting date.

The cost of properties in the course of development includes attributable interest and other associated outgoings. Interest is calculated on the development expenditure by reference to specific borrowings, where relevant, and otherwise on the average rate applicable to the relevant borrowings. Interest is only capitalised where development activity is taking place. A property ceases to be treated as a development property on practical completion.

External, independent valuers, having appropriate recognised and relevant professional qualifications and recent experience in the location and category of property being valued, value the Group's property portfolio at each reporting date, in accordance with the Royal Institution of Chartered Surveyors Valuation Standards ("RICS"). 

Key estimations of inherent uncertainty in investment property valuations

The fair values derived are based on anticipated market values for the properties, being the estimated amount that would be received from a sale of the assets in an orderly transaction between market participants.

The valuation of the Group's investment property portfolio is inherently subjective as it requires among other factors, assumptions to be made regarding the ability of existing tenants to meet their rental obligations over the entire life of their leases, the estimation of the expected rental income in to the future, an assessment of a property's ability to remain as an attractive technical configuration to existing and prospective tenants in a changing market and a judgement to be reached on the attractiveness of a building, its location and the surrounding environment. While these and other similar matters are market standard considerations in determining the fair value of a property in accordance with the RICS methodology they are all subjective assessments of future outturns and macro-economic factors which are outside of the Group's control or influence and therefore may prove to be inaccurate long term forecasts.

As a result of all of these factors the ultimate valuation the Group places on its investment properties is subject to some uncertainty which may not turn out to be accurate, particularly in times of macro-economic volatility.

The RICS property valuation methodology is considered by the Board to be the valuation technique most suited to the measurement of the fair value of property investments. It is also the primary measurement of fair value that all major and reputable property market participants use when valuing a property investment.

Rental income

Rental income from investment property is recognised on an accruals basis as revenue on a straight-line basis over the term of the lease. The Group considers this is the most representative systematic time pattern in which the benefits of ownership of the assets will accrue to the business. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

Where a rent free period is included as an incentive in a lease the rental income foregone is allocated evenly over the period from the date of the lease to the earliest termination date of the lease. Where a lease incentive takes the form of an incentive payment to a tenant the resultant cost is amortised evenly over the remaining life of the lease to its earliest termination date.

Contingent rents, such as turnover rents, and indexation adjustments are recorded as income in the periods in which they are earned. Rental concessions are recorded as adjustments to income in the rental periods to which the concession relates.

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

Details on all rental incentives are provided to the external valuers for their consideration during their review of the investment property valuation at each reporting date.

Service charge income is recognised in the period in which it is earned.

Direct lease costs

Direct lease costs incurred in the negotiation and arrangement of new leases to tenants are initially capitalised and are then recognised as an expense over the period from the date of the lease to the earliest termination date of the lease.

Finance income and finance costs

The Group's finance income and finance costs comprise interest income, interest expense, commitment fees and related charges. Interest income or expense is recognised using the effective interest method.

Tax

Current tax

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Green REIT plc elected for Group REIT status with effect from July 2013. As a result, the Group does not pay Irish corporation tax on the profits and gains from its property rental business provided it meets certain conditions.

Deferred tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse using tax rates enacted or substantively enacted at the reporting date.

Financial instruments

Non-derivative financial assets

The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through the statement of comprehensive income) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through the statement of comprehensive income, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. At 30 June 2017 the Group had the following non-derivative financial assets, which are classified as loans and receivables:

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

Trade and other receivables

Trade and other receivables are initially recognised at fair value, which is usually the original invoiced amount and subsequently carried at amortised cost using the effective interest method less provision made for impairment, if applicable.

The fair values of trade and other receivables are estimated at the present value of future cash flows, discounted at the market rate of interest at the measurement date. Short-term receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial. Fair value is determined at initial recognition and, where appropriate for disclosure purposes.

Non-derivative financial liabilities

All financial liabilities are recognised initially on the origination date, which is the date that the Group becomes a party to the contractual provisions of the instrument and are measured initially at fair value less initial direct costs and subsequently measured at amortised cost.

Fair value is calculated, for period end disclosure purposes, based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the measurement date.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

Derivative financial instruments

Derivatives are recognised initially at fair value; any directly attributable transaction costs are recognised in the statement of comprehensive income as they are incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in the statement of comprehensive income.

Share capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are charged to the retained earnings reserve.

Share based payments - performance fee

The performance fee arrangement between the Company and the Investment Manager is accounted for as an equity settled share based payment arrangement. The grant date is 1 July each year and on that date, the Company estimates the grant date fair value of each equity instrument and the number of equity instruments for which the service and non-market performance conditions are expected to be satisfied, resulting in the initial estimate of the total share based payment cost which is expensed over the vesting period.

Subsequent to 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 is revised during the vesting period, that is, the period from 1 July to 30 June. Ultimately, the share based payment cost is based on the fair value of the number of equity instruments issued upon satisfaction of these conditions (see note 19 for further details).

2 Operating segments

The Group is organised into four business segments, against which the Group reports its segmental information, being Office Assets, Retail Assets, Logistics Assets and Mixed Use Assets. All of the Group's operations are in the Republic of Ireland. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, who has been identified as the Board of Directors of the Company. For the period from 1 July 2015 to 8 January 2016, the date of acquisition, Central Park is presented on a proportional consolidation basis, with the period for which it was held as a joint venture then eliminated to reconcile total numbers back to the statement of comprehensive income.

Unallocated income and expenses are items incurred centrally which are neither directly attributable nor reasonably allocable to individual segments. Unallocated assets are cash and cash equivalents, and certain other assets.

The Group's key measures of underlying performance of a segment are net rental income and the movement in fair value of properties, as these measures illustrate and emphasise that segment's contribution to the reported profits of the Group and the input of that segment to earnings per share. By focusing on these prime performance measures, other key statistical data such as capital expenditure and once off exceptional items are separately highlighted for analysis and attention.

Information related to each reportable segment is set out in the table on the next page: