DJ Results for the Year Ended 31 December 2022
Irish Residential Properties REIT plc (IRES) Results for the Year Ended 31 December 2022 24-Feb-2023 / 07:00 GMT/BST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
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24 February 2023
Final Results
Irish Residential Properties REIT Plc
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2022
Irish Residential Properties REIT plc ("I-RES" or the "Company"), an Irish real estate investment company focused on residential rental accommodation, today issues its annual results for the year from 1 January 2022 to 31 December 2022.
Key Financial and Operational Highlights
-- I-RES continued to experience strong demand for its high-quality properties, with occupancy across itsportfolio increasing to 99.4% (99.1% at 31 December 2021), generating strong recurring cashflows.
-- Broadly stable operating performance despite the ongoing inflationary environment, with net rental incomemargin of 77.5% for the full year.
-- Delivered portfolio growth, adding 238 units during the year through the purchase of 108 units atAshbrook and the successful delivery of 69 units at Tara View and 61 units at the School Yard, which have leased upquickly.
-- I-RES continued to deliver on its value maximising portfolio management and recycling strategy with thedisposal of 128 units at Hampton Wood at an attractive yield of 3.5%, above the value at December 2021 and originalcost. This proactive capital management brings our LTV at year end to 43.3%.
-- As of 31 December 2022, I-RES' portfolio comprised 3,938 high-quality residential rental homes andancillary commercial space (31 December 2021: 3,829), with a total value of EUR1.5 billion at a gross yield of 5.9%,representing a slight yield expansion of 0.3% on 2021 and resulting in IFRS NAV per share of 160.0 cents (2021:166.5 cents).
-- Total revenue grew by 6.5% to EUR84.9 million for the year driven by I-RES' portfolio growth, organicrental growth and strong occupancy levels. I-RES's portfolio is a competitive value offering with professionalservice provided to residents and rent estimated to be c.11% below market.
-- Net rental income increased to EUR65.7 million, representing an increase of 4.3% from the previous year.Adjusted EPRA earnings were EUR36.6 million, down 1.1% on 2021 due predominantly to increased interest costs as aresult of the increasing interest rate environment in the second half of the year.
-- I-RES recently entered into interest rate hedging arrangements in relation to its Revolving CreditFacility ("RCF") which has resulted in 72% of the Company's total drawn debt being fixed. In addition to thehedging arrangement, I-RES has no debt maturities until April 2026 and which extend out to 2032.
-- The Board intends to declare a dividend of 2.81 cents per share for the period ended 31 December 2022 on,or about, 24 February 2023.
-- Demonstrated strong governance with addition of further expertise to the Board and delivered progress onESG commitments, including refinement of strategy, carbon reduction plans and social impact initiatives.
Margaret Sweeney, I-RES' Chief Executive Officer, said: "2022 represented another year of delivery for I-RES. Despite the challenging macroeconomic backdrop, the financial and operational performance of the business was strong, demonstrating the resiliency of our business model and the commitment of our people. Our occupancy levels increased year-on-year to 99.4%, supported by the robust market demand for our high-quality professionally managed apartments. We also continued to execute on our growth strategy, adding 238 homes with strong sustainability credentials in excellent locations. This portfolio growth, coupled with our strong occupancy levels and organic rental growth delivered overall revenue growth of EUR84.9 million for the year, a 6.5% increase on 2021 and an increase in net rental income of 4.3% to EUR65.7 million.
We successfully completed the internalisation of the management company - a significant strategic milestone for the business. I-RES is now a fully integrated Irish company and operating platform which is unique in the Irish market. This has allowed us to invest in our people and technology, place an enhanced focus on our resident service standards and further embed sustainability across all aspects of the business. This investment will enable us to enhance our resident experience, while also delivering for all our stakeholders.
There is a significant shortage of good quality private rental accommodation available as highlighted in recent reports, to service a continually strong and growing population, economy and jobs market. We are pleased to have added 130 new homes at an investment of c.EUR70 million in 2022. With our strong balance sheet and disciplined capital management including recycling of capital, I-RES is committed to delivering on its mission of investing in the provision of professionally managed quality homes for the Irish market. Allied with supportive market fundamentals, the Company remains in a resilient position due to its high quality, irreplaceable property portfolio in proven locations, and our more affordable pricing proposition provides additional resilience through the cycle.
As we look ahead, we are strongly placed to continue to execute on our vision for the business. Our experienced team, high-quality portfolio, robust balance sheet and strong liquidity levels mean we are very well positioned to navigate an uncertain new landscape, whilst continuing to deliver for our investors and our stakeholders."
For the year ended 31 December 2022 31 December 2021 % change Operating Performance Revenue from Investment Properties (EUR millions) 84.9 79.7 6.5% Net Rental Income (EUR millions) 65.7 63.0 4.3% Adjusted EBITDA (EUR millions) 54.2 51.7 4.8% Financing costs (EUR millions) (16.8) (13.9) 21.0% Adjusted EPRA Earnings before non-recurring costs (EUR millions)(1) 36.6 37.0 (1.1%) Deduct: Non-recurring costs (EUR millions)(2) (5.7) (5.4) EPRA Earnings (EUR millions)(1) 30.9 31.6 (2.2%) Add: (Decrease)/Increase in fair value of investment properties (EUR millions) (45.6) 34.9 Add: Gain on disposal of investment property (EUR millions) 2.8 0.9 Add: Gain on derivative financial instruments (EUR millions) 0.0 0.1 (Loss)/Profit (EUR millions) (11.9) 67.5 Basic EPS (cents) (2.2) 12.8 EPRA EPS (cent) 5.8 6.0 Adjusted EPRA EPS for non-recurring costs per share (cents)(1) 6.9 7.0 Interim Dividend per share (cents) 2.30 2.91 Proposed Dividend per share (cents) 2.81 3.08 Portfolio Performance Total Number of Residential Units 3,938 3,829 2.8% Overall Portfolio Occupancy Rate(1) 99.4% 99.1% Overall Portfolio Average Monthly Rent (EUR)(1) 1,750 1,678 4.3% As at 31 December 2022 31 December 2021 % change Assets and Funding Total Property Value (EUR millions) 1,499.0 1,493.4 0.4 % Net Asset Value (EUR millions) 847.4 881.4 (3.8%) IFRS Basic NAV per share (cents) 160.0 166.5 (3.8%) Group Total Gearing 43.3% 40.7 % 2.6 % Gross Yield at Fair Value(3) 5.9% 5.6 % EPRA Net Initial Yield 4.2% 4.2 % Other Market Capitalisation (EUR millions) 587.7 887.4 Total Number of Shares Outstanding 529,578,946 529,453,946 Weighted Average Number of Shares - Basic 529,560,795 527,412,302
(1) For definitions, method of calculation and other details, refer to the Financial Review.
(2) The non-recurring costs of EUR5.7 million (31 December 2021: EUR5.4 million) and general and administrative expenses of EUR11.5 million (31 December 2021: EUR11.1 million) incurred in 2022 totals the general and administrative expense costs of EUR17.2 million reflected in the Consolidated Financial Statements for the year ended 31 December 2022 (31 December 2021: EUR16.5 million).
(3) Excluding fair value of development land and investment properties under development.
Chairman's Statement
A Year of Continued Strong Performance
I-RES has delivered another resilient operational and financial performance in 2022. We continued to execute on our investment strategy, including investment in the delivery of two new developments (130 homes) and the acquisition of Ashbrook (108 homes), whilst also adding value from our existing portfolio through active asset management and capital recycling.
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We continue to see strong demand for rental accommodation across the Irish residential markets as steady employment levels, along with sustained population growth, fuels a growing need for housing in Ireland. As evidenced by low resident turnover, strong occupancy and strong rent payment performance, I-RES is well positioned as we head into the new calendar year.
The macroeconomic and geopolitical environment changed significantly in the second half of 2022, with the ECB responding to elevated levels of inflation with a series of aggressive rate hikes leading to a notable effect on demand and supply of credit in the euro area and global equity markets downturns. Despite these effects, residential real estate markets, particularly in Ireland have been resilient and the unique underlying strength of the Irish economy together with population growth is providing a strong underpin to our sector and business over the long term.
Significant Strategic Progress
The Board made the decision to internalise as it believes it is an important strategic and financial objective at this point in the Company's evolution and is in the best interests of shareholders.
I-RES' business is now a wholly Irish operating business, following the acquisition of the management company and transition of services from Canada during 2022. We have strengthened our team with several senior management appointments and supported this by continued investment in new technology. This has created a unique proposition in the Irish market and further capitalises on our position as the leading rental provider of choice.
All exceptional costs associated with this internalisation process have now been incurred in the financial periods up to 30 June 2022 and no further exceptional costs are anticipated. As previously outlined by the Company at the time of announcing its intention to proceed with the internalisation process, we believe internalisation will generate greater value for shareholders in the long term.
Continued Delivery on our Growth Strategy
As at 31 December 2022, the Group had a portfolio of 3,938 residential units across 37 properties in the Dublin region and one property in Cork. The Group added a total of 238 homes to the portfolio in 2022, of which 130 were new residential units brought to the market by I-RES through our development projects at School Yard, Dublin 1 and Tara View, Dublin 4. 92% are leased at market rent and are contributing to NAV and the income base.
In 2022, we continued to be proactive on our asset and capital management strategy. During the year, the Group disposed of 128 units at Hampton Wood in Finglas, for EUR54.5 million which represented a strong return on investment and demonstrated the value we can create from the selective recycling of assets.
We will continue to evaluate opportunities to further optimise our portfolio and strengthen our position as the leading provider of private rented residential homes in Ireland, while maintaining a disciplined approach to capital allocation.
Building a Sustainable and Responsible Business
Environmental, social and governance ("ESG") considerations continue to take focus across our business, influencing our operations and investment decision making. As a Board, we regularly engage with our stakeholders to inform our decisions and ensure that as their focus on ESG, particularly climate change matters grow, I-RES continues to respond to their evolving expectations. We have taken important steps towards the development of a carbon reduction roadmap for the portfolio. We have committed to reducing our scope 2 emissions by 10% and scope 1 emissions by 30% in 2023. I-RES' ambition is to reduce our carbon emissions in line with the ambition and commitment of the Paris Climate Agreement. In addition to setting ambitious targets the Group has conducted a review of our sustainability strategy in order to maintain pace with the quickly evolving area of sustainability and to ensure we continue to deliver on our commitments.
Our employees are the backbone of our business and diversity across the Board, management and employees as well as organisation culture is a key focus area of the Board. With that in mind, we have appointed Tom Kavanagh as the Non-Executive Director with direct responsibility for Workforce Engagement. Tom has met in person with employees across the business to listen to their views as well as engaging with management on the annual Employee Satisfaction Survey, which we are delighted to say significantly exceeded all comparator benchmarks. The Company has received recognition for its already diverse and inclusive workplace achieving a Silver Award from Investors in Diversity as well as for its Board and Management diversity. Responsibility and transparency are central to good governance and in turn are central to our strategy. The Company strives to provide clear communication and transparent disclosure to all stakeholders. We were delighted to see a year-on-year improvement in our overall scoring in the Global Real Estate Sustainability Benchmark ("GRESB"), an industry-leading global assessor of the ESG performance of real estate assets. We also retained our EPRA sBPR Gold Award for Sustainability Best Practice Reporting and we continuously review ratings and benchmarks to promote transparency to all stakeholders.
As one of Ireland's leading providers in the mid-market residential sector, we strive to increase availability in the market and raise the living standard by providing professionally operated and high-quality rented accommodation. Our investment strategy is focused on family-friendly urban locations which feature community facilities, delivered to high standards, with good public transportation links, well developed educational and social infrastructure and sustainable employment opportunities where people want to live, work and build their lives.
Robust Balance Sheet
I-RES has an unmatched high quality, modern portfolio of residential properties with the portfolio achieving rental growth of 6.5% in 2022 through continued investment in new supply and regulated increases in rents and with the underlying strength in demand and cash flow from our investment properties unchanged. The Company remains well positioned with a good debt structure, no short-term obligations and good visibility of future financing costs as 72% of total drawn debt is locked in at fixed low rates of interest. The Company has an additional EUR143 million available for investment within its committed credit facilities at an attractive rate. The Group's Total Gearing as of 31 December 2022 was 43.3% (31 December 2021: 40.7%). The Group takes a pro-active approach towards managing total gearing and ensuring it remains below the 50% maximum permitted under the Irish REIT Regime.
Dividends
The Company continues to see strong year-on-year recurring income which feeds through to our dividend policy, an important contributor to shareholder returns. We recognise the importance of the dividend to our shareholders and we aim to maintain a stable dividend policy compliant with the Irish REIT regime whereby, subject to having sufficient distributable reserves, I-RES is required to distribute at least 85% of the Property Income of its Property Rental Business for each financial year to shareholders via dividends. As part of this, the Company paid an interim dividend of 2.30 cents per share for the six months ended 30 June 2022. It is the intention of the Board to declare an additional dividend of 2.81 cents per share for the year ended 31 December 2022.
Outlook
The outlook for the business remains positive, as demand for professionally managed homes continues to far outstrip supply. This is best illustrated by our continued strong occupancy levels and strong financial performance for the year. This should continue to underpin our revenue growth trajectory and resilient portfolio valuations.
Ireland's GDP growth is expected to outpace all other EU countries again in 2023 with the European Commission forecasting 4.9% growth0F(1). Unemployment levels reached a low of 4.3% in December 20221F(2) which is a positive signal for continued strength across rent collections.
Despite the Irish Government's continued focus on increasing housing supply, there remains a clear and significant supply and demand imbalance across all tenures of the housing market in Ireland, with increased costs and interest rates putting further pressure on the viability of delivering new supply.
Our experienced team, high-quality portfolio, strong customer base and robust balance sheet mean we are very well positioned to weather the economic headwinds we are facing and positioned to continue to take advantage of favourable underlying market factors. We believe the structural drivers of demand for private rental residential accommodation - including population growth, strong inward investment and economic growth - will continue to underpin the robust demand for our high-quality professionally managed homes over the long term. As a Board, we continually monitor our performance and our strategic focus continues to be on driving long-term risk adjusted returns for shareholders and the Board is confident that I-RES has the right strategy and business model in place to continue to deliver long-term returns for shareholders.
The Board would like to thank our residents who are central to our business, as well as our shareholders, banking partners and employees for your continuing support. We would also like to thank our CEO, Margaret Sweeney and the I-RES management team for their leadership and enormous effort and commitment in delivering strong performance in 2022 while at the same time undertaking the delivery in a very tight timeframe of a very significant internalisation of the operations of the business and during a time of significant macroeconomic uncertainty. The success of our business is very much due to our very committed employees and key partners and the Board thanks them for their significant contributions.
Declan Moylan
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Chairman 1. European Commission Winter 2022 Economic Forecast 2. CSO
Chief Executive's Statement
Overview
2022 has been a year of positive change for I-RES, successfully delivering a number of key strategic milestones that will set the foundation for the business to deliver in the years ahead. We completed the successful internalisation of the management company and now have a fully integrated Irish company, led by a proven management team with experience through various economic cycles. The new organisation structure and operating platform will enable us to leverage our competitive strengths in capital-lite active asset management and sustainable operations, creating long-term value for shareholders. In 2022, we have reached record levels of revenue and delivered on a significant portion of our growth pipeline together with disciplined capital management, while also identifying and closing on accretive capital recycling opportunities.
2022 Financial & Operational Performance
In 2022, our revenue increased by 6.5%, due to the introduction of new assets, and organic rental growth backed by our consistently high occupancy levels. Net Rental Income increased to EUR65.7 million, with a stabilised margin of 77.5%, showing the strength of the business's fundamentals as well as continued and active cost management initiatives and discipline, despite inflationary pressures. Our Adjusted General and Administrative costs remained flat year on year at EUR11.5 million. Adjusted EBITDA grew to EUR54.2 million, an increase of 4.8% year on year, showing the strong consistent cash generation of the business. EPRA Earnings remained relatively flat year on year, with the decrease of EUR0.7 million, largely attributable to increases in interest costs and non-recurring costs from internalisation.
Our residential occupancy rate has remained strong, increasing to 99.4% as at 31 December 2022 (31 December 2021: 99.1%), underpinned by strong property management and attractive market fundamentals in the Irish residential rental sector. This high occupancy level, coupled with increased rental income streams resulted in our Average Monthly Rent ("AMR") per unit increasing to EUR1,750. The portfolio is c.11% below market rents according to our independent valuers, demonstrating the resilience of our income profile and representing opportunity in the medium term.
At year end, the portfolio consisted of 3,938 (31 December 2021: 3,829) high-quality residential rental homes, with associated commercial space and development sites. The portfolio had a total value of EUR1,499 million, representing an increase of EUR5.6m from 2021. The main drivers of this increase were the delivery of Tara View and The School Yard into the portfolio along with the acquisition of 108 units at Ashbrook. However, the total portfolio value was slightly offset by a revaluation loss of EUR45.6 million for the year ended 31 December 2022 and this downward movement was due to upward pressure on yields, impacted by the higher interest rate environment that was evident during the second half of the year. The Group's IFRS NAV as at 31 December 2022 amounted to EUR847.4 million (EUR881.4 million at 31 December 2021) resulting in IFRS NAV per share of 160.0c (2021: EUR166.5c).
Despite some yield expansion arising mainly from increasing interest rates, the underlying fundamentals remain strong as is evident in our financial performance for the year and supported by favourable structural market dynamics such as continued population growth, low unemployment levels, strong economic growth, as well as a significant undersupply of housing in Dublin. Allied with these supportive market fundamentals, the Company remains in a resilient position due to its high-quality, irreplaceable property portfolio in proven locations and our more affordable pricing proposition, which provides additional resilience through the cycle.
Active Asset Management and Portfolio Optimisation
In 2022, we continued to execute against our growth strategy along with disciplined capital management by adding incremental and sustainable value to our portfolio. We grew our portfolio unit count by c.3% in 2022 through accretive investment in acquisitions and new developments, whilst also recycling capital through selective disposals that generated attractive returns on investment for the business. Through acquisitions and development, we added 238 homes to the portfolio. We introduced 69 highly sustainable A rated apartments and townhouses at Tara View, 85% of which are now leased. At The School Yard, we delivered 61 LEED Gold sustainability accredited apartments which were fully leased shortly after launch, further underlining the market demand for high-quality rental accommodation. We acquired 108 units at Ashbrook, where a further 44 apartments are currently being developed under a fixed price contract, with delivery scheduled for H2 2023.
We executed asset recycling which generated value for both the business and our shareholders, continuing our focus on active portfolio and disciplined capital management. We disposed of 128 units at Hampton Wood, for EUR54.5 million, representing a significant return on our original investment. We recently began a sales process of the five townhouses at Tara View, which were non-core, in late 2022. Since year end, the Company has decided to strategically dispose of the development site at Rockbrook. Looking ahead, the Company continually reviews all of the assets and their performance, while also examining opportunities that are aligned with our disciplined capital allocation strategy.
Disciplined Capital Management
The Company's strategy continues to be supported by a robust balance sheet and strong liquidity position, with no debt maturing until April 2026 and debt repayments laddered from 2026 to 2032. The Group's Total Gearing as of 31 December 2022 stood at 43.3% (31 December 2021: 40.7%). The year-on-year increase in total debt can be largely attributed to the acquisition of Tara View, the completion of The School Yard development and the acquisition of Ashbrook. The Company has no further material capital commitments other than the delivery of Phase 2 of Ashbrook, forecast to be delivered in H2, 2023. This is a fixed forward contract with remaining consideration of EUR24.1 million. The Group continues to take a pro-active approach towards balance sheet management and maintaining total gearing within the target level.
In December 2022, we executed on EUR275 million of interest rate swaps in relation to our Revolving Credit Facility, converting this portion of the facility into a fixed interest rate of 2.5% plus margin of 1.75%. This is in addition to the Company's existing c.EUR200 million equivalent of Private Placement Notes, which are fully fixed with a weighted average fixed interest cost of 1.92% (inclusive of swap costs and excluding transaction costs). The net result is that 72% of the Company's drawn debt is now fixed and, given the current macroeconomic market backdrop and with interest rates continuing to rise, we view this as a proactive measure that provides us with increased certainty on our borrowing costs and greater visibility on our capital expenditure over the medium-term. This brings our Weighted Average Cost of Debt to 2.6% for the year ended 31st December 2022. Notably, this is well below our Gross Yield of 5.9% as at 31 December 2022.
Our People & Technological Innovation
The completion of the internalisation in 2022 has brought together an experienced and very talented team in I-RES, who bring knowledge and skills coming from diverse backgrounds, in terms of nationality and experience. We have a very positive culture evidenced by extremely high levels of employee satisfaction and commitment compared with benchmarks, and we recognise the need to continue strengthening our culture and values to ensure retention and attraction of important talent for our business. We implement clear policies, utilise clear lines of communication and measure employee satisfaction and engagement through our employee survey. We have a strong culture underpinned by values which are at the centre of everything we do every day and in no small part due to the diverse and inclusive structure of our board, management and employees.
In I-RES, we support our employees though the provision of a good working environment, a focus on training and development, health and wellbeing initiatives and opportunities for personal development.
Our industry is transforming into one that is driven and shaped by data and technology with rapid customer behaviour change and reporting requirements. Scaling digital capabilities is already taking root at I-RES through our recent investment in a best in class, cloud-based ERP system which has provided us uniquely with an integrated operating platform which we are utilising to unlock operational and service efficiencies and drive revenue growth. We see enhancing digital capabilities as a success factor, not only for property management and resident services, but for sustainability planning and reporting.
Creating Value Responsibly
Our commitment remains on embedding sustainable and responsible business practices which is aligned with the long-term approach we take to investing in new supply, operating and maintaining our properties; while also informing how we service and interact with all our stakeholders such as our residents, employees, partners and the wider community in which we operate.
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As always, we actively work towards aligning our business strategy and objectives with ESG measures that are important to growing a long-term sustainable business. Thus, our overarching goal is to ensure that we run our business with sustainability at the centre of our strategy, asset management and operations and ensuring we deliver on our commitments. In light of this and given the Company's significant transformation over the last 18 months, we undertook a complete review of our sustainability strategy, tying together a comprehensive review of the current market backdrop with a detailed analysis of the Company's pre-existing strategy. This review highlights several key areas where we can improve, and where we can look to maximise opportunities, and further information will be detailed in our stand-alone ESG Report to be published later in the year.
In conjunction with our sustainability strategy review, we have made critical steps towards the development of a carbon reduction roadmap for our portfolio. We have set the ambitious targets of reducing our scope 1 and scope 2 carbon emissions by 30% and 10% respectively in 2023 and we believe we are well positioned to achieve this target. We continue our work towards our goal to reduce our carbon emissions in line with the ambition and commitment to the Paris Climate Agreement.
We have strategically invested in a modern young portfolio of assets with an average age of 13.1 years, which has supported our residents in saving on energy costs during the recent volatile period. We will be able to leverage this strong starting position as we continue to develop out our targets for carbon emission reduction across our portfolio. In Ireland, each apartment's energy use is contracted directly by the residents with providers. We use green energy sources for our property common areas and we have also started a joint project with residents in our portfolio to collect data for their energy use too. We will continue to assess new technologies, partner engagement and other measures to collect data on our energy consumption with the aim of having 100% coverage in 2 years. We have no waste going to landfill with great success on recycling and have active communication, training and engagement plans operating with our employees and residents through our Green Ambassadors programme.
In 2022, we achieved some significant sustainability milestones. We were delighted to retain our EPRA Sustainability Best Practices Recommendations ("sBPR") Gold Award. We also improved our overall scoring in Global Real Estate Sustainability Benchmark ("GRESB"), an industry-leading global assessor of the ESG performance of real estate assets by 6 percentage points against last year. We continuously review ratings and benchmarks to promote transparency to all stakeholders, thus we have completed our first submission to Carbon Disclosure Project ("CDP"). We are focused on initiatives which will improve our score over the coming years. Our ambition is to continue to improve these scores on an annual basis, ensuring that our ESG performance is transparent. This transparency also provides stakeholders with the confidence that we are turning our commitments and targets into action and that we are delivering on our ambition to be a sustainability leader in our sector.
All of this progress reflects our continued commitment to further enhance our ESG practices for the benefit of our people, our residents and our communities, as well as further signifying our ambition to continuously be aware of our impact on the planet in carrying out our business.
Market Backdrop
Housing in Ireland remains a significant societal challenge as the significant imbalance of supply and demand persists. In 2021, the Government published its "Housing For All" policy, which sets out its vision for the future of housing in Ireland. One of the core strategic objectives of the policy is to increase supply by 300,000 units (including 54,000 affordable homes for purchase or rent and over 90,000 social homes) over the nine years to 2030. This objective equates to approximately 33,000 housing completions per year; however, recent estimates from the Housing Commission suggest that Ireland needs up to 62,000 new homes per year until 2050 to meet demand. Just under 30,000 units were delivered in 2022, and whilst a very welcome increase of 45% on 2021, it is evident that supply is likely to continue to lag demand over the medium term. The Government will require both an increase in capacity and enhanced cooperation with the private sector, including increased investment, in order to deliver on its objective.
In the current macroeconomic environment of rising costs and supply chain pressures, it is difficult for contractors to price the likely cost of a future development. Lengthy and difficult planning permission and detailed design specifications from the outset add significant complexity to scale developments. Furthermore, rising interest rates add to uncertainty over borrowing costs. With these dynamics posing a challenge to viability, the Government and real estate sector in Ireland are focused on a range of initiatives to improve the environment for rental and to buy going forward, including changes to planning laws, innovation in construction techniques and financial supports.
In 2021, legislation was introduced which capped rent increases at 2% per annum, where the Harmonised Index of Consumer Prices ("HICP") inflation is higher, in all Rent Pressure Zones. The regulatory period continues to the end of 2024. Our rental growth of 6.5% in 2022 is driven by two sources - renewals and reletting which are capped per the legislation, and delivery of new schemes with rents in line with current market. Our average rents across our portfolio are estimated to be c.11% below market rents per independent valuers estimates and in Dublin where most of our properties are located our average rents are c.13% below the Q2 2022 RTB quarterly rent index(3). 3. RTB, Q2 2022 Rent Index Report
Outlook
We are conscious that the year ahead will be impacted by ongoing macroeconomic challenges and geo-political uncertainty. Despite these headwinds, we believe the market fundamentals that support our business remain very strong. Our homes continuously see a high level of demand which is evidenced by our exceptional occupancy rates. This demand for high-quality residential accommodation is supported by underlying structural drivers such as continued population growth, strong employment levels, strong underlying economic growth ahead of European average and Ireland's ability to remain an attractive location for FDI.
I-RES will continue to play a key role in delivering housing solutions to the Irish market over the long term. We are acutely aware of the challenges our residents may face with inflationary pressures and cost of living increases and we are focused on ensuring our residential units with full service represent value-for-money in modern energy-efficient properties. The security and longevity of our income is important to ensuring visibility on our income stream and underpins our dividend policy.
Although we are seeing yield expansion across real estate markets, yield spreads in Ireland have been considerably wider than in many other European markets3F(4). In addition, many sectors, particularly the residential sector in Ireland see a significant undersupply and demonstrate exceptionally strong fundamentals which in turn is helping to sustain rental cashflows and returns.
I-RES is well positioned to meet the challenges of rising inflation, increased cost of living, energy prices and interest rate rises, whilst capitalising on the powerful fundamentals and growth drivers that exist in the private rental sector. These market drivers, coupled with the clear strengths of the business, high-quality rental accommodation, strong liquidity position, robust balance sheet and extended debt maturity profile, positions the business to continue to deliver for our investors and our stakeholders in the period ahead.
I would like to thank our many partners and stakeholders who support us every day to make this business a success. In particular, I would like to thank our management and employees, the team dedicated to providing high standards of service and supporting our residents who are central to our business, with unstinting commitment despite the many challenges of today's environment. I am grateful to the support we receive from our shareholders, funding partners and business partners on an ongoing basis.
Finally, I would like to thank our Chairman and Board for their support and guidance as well as their focus on the strategic development of this company underpinned by strong governance.
Margaret Sweeney
Chief Executive Officer 4. CBRE Ireland Outlook 2023 Financial Review
The financial year under review represents a very significant year for I-RES. I would firstly like to thank all my colleagues, residents, advisors, funding partners, vendors and shareholders in supporting a milestone year for the Company. We have achieved record levels of revenue, completed the internalisation of the management company, a significant strategic milestone for the business and delivered on a significant portion of our pipeline while also identifying and closing on accretive capital recycling opportunities.
Revenue for 2022 was EUR84.9 million, 6.5% ahead of 2021. This was driven by the delivery of our pipeline of assets at Tara View and the School Yard, the acquisition of Ashbrook, increased occupancy and organic rental growth. On a like for like basis revenue increased 4% reflective of the legislative cap on rental increases - boosted by increased occupancy which stood at 99.4% at year end and full year impact of Phoenix Park acquisition. This strong occupancy level demonstrates the underlying fundamental demand for well managed private rental accommodation in Ireland, particularly in Dublin.
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DJ Results for the Year Ended 31 December 2022 -5-
Adjusted EBITDA grew 4.7% to EUR54.2 million, driven by the strong operational performance of the business. EPRA Earnings decreased marginally in the year to EUR30.9 million primarily due to costs associated with internalisation. Adjusted EPRA earnings have reduced by 1.1%, driven by our higher financing costs. Our total investment property portfolio has risen to EUR1.5 billion, driven by the delivery on a number of assets noted above but offset by a fair value loss of EUR45.6 million representing a softening of yields in the market.
The Group currently has two financing facilities, c.EUR200 million of Private Placement Notes and a EUR600 million Revolving Credit Facility (RCF). The private placement notes were executed in 2020. At year end, EUR457 million of the RCF was drawn. In light of the increasing interest rate market and volatility, on 14 December 2022, the Company entered into hedging arrangements in respect of its Revolving Credit Facility (RCF), specifically interest rate swap agreements aggregating to EUR275 million until maturity of the facility, converting this portion of the facility into a fixed interest rate of 2.5% plus margin of 1.75%. This is in addition to the Company's existing c.EUR200m equivalent of Private Placement Notes, which is fully fixed with a weighted average fixed interest rate of 1.92% (inclusive of swap costs and excluding transaction costs). As of the year end, approximately 72% of the Company's drawn debt is now fixed against interest rate volatility. The remaining 28% of our drawn facilities is variable based on EURIBOR.
The proposed additional dividend for the year is 2.81 cent per share, taking the total dividend for the year to 5.11 cent per share. This is a decrease of 12% which is primarily driven by a reduction in our interim dividend earlier this year which reflected the impact of the one-off costs associated with the internalisation and also the increase in financing costs incurred as a result of increasing interest rates in the second half of the year.
Operational and Financial Results
Net Rental Income and Profit for the year ended
31 December 2022 31 December 2021
EUR'000 EUR'000
Operating Revenue
Revenue from investment properties(1) 84,857 79,744
Operating Expenses
Property taxes (1,078) (712)
Property operating costs (18,042) (15,992)
(19,120) (16,704)
Net Rental Income ("NRI") 65,737 63,040
NRI margin 77.5% 79.1%
Adjusted general and administrative expenses(2) (11,406) (11,049)
Share-based compensation expense (117) (276)
Adjusted EBITDA(3) 54,214 51,715
Non-recurring costs(2) (5,748) (5,430)
Depreciation of property, plant and equipment (536) (519)
Lease interest (222) (232)
Financing costs (16,803) (13,886)
EPRA Earnings 30,905 31,648
Gain on disposal of investment property 2,795 905
Net movement in fair value of investment properties (45,599) 34,934
Gain on derivative financial instruments 35 59
Taxation 44 -
(Loss)/Profit for the Year (11,820) 67,546
(1) Vacancy loss of EUR1.2 million (31 December 2021: EUR1.5 million) for the year ended 31 December 2022.
(2) The non-recurring costs of EUR5.7 million and general and administrative expenses of EUR11.5 million incurred in 2022 totals the general and administrative expense costs of EUR17.2] million reflected in the Consolidated Financial Statements for the year ended 31 December 2022.
(3) Adjusted EBITDA represents earnings before lease interest, financing costs, depreciation of property, plant and equipment, gain or loss on disposal of investment property, net movement in fair value of investment properties, gain or loss on derivative financial instruments and non-recurring expenses to show the underlying operating performance of the Group.
Operating Revenue
For the year ended 31 December 2022, total operating revenue increased to EUR84.9 million, a 6.5% increase compared to the previous year. This significant increase is driven by the acquisition of 108 units at Ashbrook and the development of 69 and 61 units at Tara View and the School Yard respectively. Increasing occupancy and organic rental growth also aided I-RES surpassing EUR80 million in revenue for the first time.
Net Rental Income
The NRI margin has been presented as the Company believes this measure is indicative of the Group's operating performance. For the year ended 31 December 2022, NRI margin decreased by 1.6% to 77.5%. One component of this reduction is increased property taxes incurred by the Group due to additional units being brought into scope for local property tax. Post-acquisition of the "Manager", the external Property Management Fee (PMF) terminated and was replaced by employee and IT costs. We have seen some moderation in the margin due to increased employee, utilities and repairs and maintenance costs. We are aware of the continued cost pressures facing all businesses and are continuing on our path of cost optimisation and margin control into 2023.
Adjusted General and Administrative ("G&A") Expenses
Adjusted G&A expenses include costs such as employees' salaries, director fees, professional fees for audit, legal and advisory services, depository fees, property valuation fees, insurance costs and other general and administrative expenses. Non-recuring costs explained below are not included in this caption. G&A has increased slightly in the period due to additional spend on depository fees, professional fees and insurance.
Non-recurring costs
Non-recurring G&A costs total EUR5.7 million for the first 6 months of 2022. No additional non-recurring costs were incurred in the second half of the year. These costs are primarily legal, IT programme, consulting and investment bank advisory fees that relate to the termination of the Investment Management Agreement and other one off third-party advisory services. As noted in the 2021 annual report, we estimated EUR1.8 million of non-recurring costs for 2022 associated with Internalisation (not including the Transitional Services Agreement fees (TSA)). We ultimately recorded EUR4.4 million of costs in 2022 in relation to termination of the Investment Management Agreement. This expense item increased from our earlier estimates due to higher than anticipated legal costs and additional IT costs associated with the complex nature of the internalisation and IT projects. These costs include costs associated with CBI approval for the acquisition of IRES Fund Management Limited, costs associated with this acquisition, legal and investment bank advisory fees, implementation of our new property management and financial reporting system and a complex data migration from CAPREIT IT systems. In addition, the transitional services agreement with CAPREIT totalled EUR1.3 million.
Net movement in fair value of Investment Properties
I-RES recognises its investment properties at fair value at each reporting period, with any unrealised gain or loss on remeasurement recognised in the profit or loss account. For the year ended 31 December 2022, the fair value loss on investment properties of EUR45.6 million is mainly attributed to a softening of yields driven by wider market fundamentals including increased interest rates. Our Gross Yield was 5.9% at year-end compared against a weighted average cost of debt of 2.6%.
Financing Costs
Financing costs, which include the amortisation of certain financing expenses, interest and commitment fees, increased for the year ended 31 December 2022 to EUR16.8 million from EUR13.9 million in 2021. The financing costs have increased as a result of higher borrowings in 2022, driven by drawdowns to fund the Ashbrook acquisition, School Yard development and completion of the Tara View acquisition. Financing costs were also impacted by interest rate rises in the latter part of the year. Capital recycling is also used to manage our financing costs and we disposed of Hampton Wood for EUR54.5 million with the proceeds used to repay the RCF.
As mentioned above, on 14 December 2022, the Company entered into hedging arrangements in respect of its Revolving Credit Facility. Interest rate swap agreements aggregating to EUR275 million until maturity of the facility have been entered into with a number of the counterparties forming the syndicate of banks in the RCF. These arrangements convert EUR275 million of the facility into a fixed interest rate of 2.5% plus margin of 1.75%. At 31 December 2022, EUR457 million was drawn from the EUR600 million facility.
In 2020, I-RES entered into a cross-currency swap to (i) hedge the US-based loan of USD USD75 million into EUR68.9 million effective 11 March 2020 and (ii) convert the fixed interest rate on the US-based loan to a fixed Euro interest rate, maturing on 10 March 2027 and 10 March 2030. Hedge accounting has been applied for the cross- currency swap.
Property Portfolio Overview
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DJ Results for the Year Ended 31 December 2022 -6-
The following table provides details of the Group's property portfolio as at 31 December 2022.
Average Monthly Rent Occupancy
Property Location # of # of Units Commercial Space Owned (AMR) Per Unit Rent (per sqm
Buildings Owned(1) (sq.m.)(1) per month) (1)(2)
(1)(2)(3)
Total South Dublin 12 1,123 6,851 EUR 1,908 EUR 24.1 98.5%
Total City Centre 7 480 3,062 EUR 1,898(4) EUR 24.9 99.6%(4)
Total West City 3 409 - EUR 1,722 EUR 22.6 99.6%
Total North Dublin 9 877 - EUR 1,628(4) EUR 21.0 99.1%(4)
Total West Dublin 6 999 14,753 EUR 1,637(4) EUR 20.4 99.8%(4)
Cork 1 50 - EUR 1,392 EUR 17.4 100.0%
Total Portfolio 38 3,938 24,666 EUR1,750(4)(5) EUR 22.3 99.4%(4)
(Stabilised)
(1) As at 31 December 2022.
(2) Based on residential units.
(3) AMR is calculated as actual monthly residential rents, net of vacancies, as at the stated date, divided by the total number of residential units owned in the property. Actual monthly residential rents, net of vacancies, as at 31 December 2022 was EUR6,857,213 divided by 3,938 units (which is the total units available for lease as at 31 December 2022) resulting in AMR of EUR1,750. Refer to pages 15 to 16 for further discussion on average monthly rent per apt. and occupancy.
(4) Refer to pages 15 to 16 for further discussion on average monthly rent per apt. and occupancy. The calculations exclude 9 units provided to house Ukrainian refugees and 6 units at Bakers Yard that were not available for rent from total properties owned as they are due to be sold as part of our Part V obligations.
(5) I-RES's external valuers indicated that I-RES's current rents (on a weighted average basis for the portfolio) as at 31 December 2022 are estimated to be approximately below market by c.11%%.
Portfolio Management
The Company continues to explore opportunities for growth and our long-term strategy is focused on delivering growth for the business through;
-- Investing in future supply of new homes through partnerships with developers of Private Rented Sector("PRS") assets
-- Acquisitions of completed assets at accretive yields
-- Development of new supply on I-RES owned sites.
During 2022, we have delivered on each aspect of our strategy as further detailed below. Moving forward we will continue to assess opportunities as they arise. Given the current market fundamentals of rising interest rates, market volatility and capital allocation we continue to also explore opportunities to recycle capital in the business as evidenced by the disposal of our property at Hampton Wood.
Ashbrook, Clontarf, Dublin 3 (152 Residential Units)
I-RES entered into two contracts in December 2021 for the acquisition of 152 residential units located in Ashbrook, Clontarf, Dublin. 86 units were acquired on closing in January 2022 with a further 22 units acquired in May 2022. The Company has committed to acquire 44 new apartments under a fixed price forward purchase contract, with delivery anticipated in Q4, 2023. The remaining consideration is EUR24.1 million.
The property is located in the north Dublin suburb of Clontarf. The scheme occupies an attractive position close to Dublin City Centre (circa 4km), with easy access to the M50 motorway. There are excellent public transport links to the City Centre, with Clontarf and Killester train stations within walking distance and high frequency bus services at the entrance to the property. Clontarf is a much sought after and mature residential location, providing some of Dublin's finest amenities, including schools, sporting facilities, parks, local shopping and employment.
School Yard, Portland Street North, Dublin 1 (61 Residential Units)
This development of 61 residential units at a site adjacent to Bakers Yard has been completed for a total consideration of EUR21.8 million (including VAT but excluding other transaction costs). All units in the development have now been leased with residents moving in from the end of July. School Yard has been delivered to LEED Gold certification, with all units BER rated A and serve as an important blueprint for future schemes. This specification will help drive down energy consumption, improve efficiency and create healthier living places for our residents. The property is located within a 20 minute walk of Dublin city centre and has easy access to the IFSC and Docklands areas as well as universities. It is well serviced by bus networks.
Forward Purchase Contract at Merrion Road, Dublin 4 - Tara View (69 Residential Units)
I-RES entered into a contract on 16 November 2018 for the forward purchase of 69 residential units at Merrion Road at a cost of EUR47.1 million (including VAT but excluding other transaction costs). Construction commenced in 2019 and we closed on the acquisition in August 2022.
The property is located in a prime waterfront position circa 7km from Dublin City and is well serviced by Dublin Bus and DART rail services. The property is located close to excellent amenities including schools, universities and numerous hospitals (St. Vincent's University Hospital, Blackrock Clinic) in the immediate vicinity. The area also benefits from a number of leisure facilities with Elm Park Golf and Sports Club, Railway Union Sports Club and Blackrock Park on its doorstep.
Value creation from existing assets
We continue to identify opportunities to create value from our existing asset base. In August, we completed the disposal of our Hampton Wood development of 128 units in Finglas for EUR54.5 million. This represents a significant return on our investment and highlights the returns we can create from our asset management strategy.
We are also in the process of selling 5 non-core houses at our Tara View development. At the year end, we had completed the disposal of 1 house for a price c.EUR1.2 million and subsequent to year end we have completed the disposal of an additional house for consideration of c.EUR1.2 million. We expect the remaining units to complete shortly. Since year end, the Company has decided to strategically dispose of the development site at Rockbrook.
Financing and Capital Structure
I-RES takes a proactive approach to its debt strategy to ensure the Group has laddering of debt maturities and the Group's leverage ratio and interest coverage ratio are maintained at a sustainable level.
Our capital structure remains strong, with LTV at 43.3%. which is below the 50% maximum allowed by the Irish REIT Regime and the Group's debt financial leverage ratio. I-RES seeks to use gearing to enhance shareholder returns over the long term.
Our debt facilities are made up of our EUR600 million Revolving Credit Facility (RCF) and the circa EUR200 million (Euro Equivalent) Private Placement Notes. On 11 February 2022, the Company exercised an option for an extension of our RCF with all five banks (Ulster Bank Ireland DAC, Bank of Ireland, Allied Irish Bank, Barclays Bank plc and HSBC Bank plc) for the entire EUR600 million facility with a new maturity date of 18 April 2026. On 18 July, Ulster Bank Ireland DAC assigned its portion of the facility agreement to Allied Irish Banks PLC as part of its exit from the Irish market.
The Private Placement Notes were closed in March 2020 and are made up of EUR130 million fixed interest and USD75 million which I-RES on closing entered into a cross currency interest rate swap with a weighted average fixed interest rate of 1.92% inclusive of swap costs and excluding transaction costs. The maturity of the notes is laddered over circa six, nine and eleven-year maturities, with the first repayment due in March 2027.
As previously noted, on 14 December 2022, the Company entered into hedging arrangements in respect of its Revolving Credit Facility. Interest rate swap agreements aggregating to EUR275 million until maturity of the facility have been entered into with a number of the counterparties forming the syndicate of banks in the RCF. These arrangements convert EUR275 million of the facility into a fixed interest rate of 2.5% plus margin of 1.75%. Therefore, in conjunction with the Private Placement Notes, approximately 72% of the Company's total drawn debt is fixed against interest rate volatility as at 31 December 2022.
The Group has a weighted average debt maturity of 4.2 years and no debt maturities before April 2026. The weighted average cost of debt is 2.61% for 2022 including deferred financing costs (31 December 2021: 2.30%). I-RES also has undrawn committed facilities of EUR143 million available under the RCF for investment and EUR7 million of cash and cash equivalents as at 31 December 2022. Beyond the remaining EUR24.1 million for the forward purchase of 44 residential units at Ashbrook, there is no other current capital commitments.
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DJ Results for the Year Ended 31 December 2022 -7-
I-RES's borrowings are as follows:
As at 31 December 2022 31 December 2021
EUR'000 EUR'000
RCF Committed Facility 600,000 600,000
Less: Drawdowns 457,020 420,020
Available RCF Borrowing Capacity 142,980 179,980
Euro denominated Private Placement notes 130,000 130,000
USD denominated Private Placement notes(1) 70,107 65,882
Weighted Average Cost of Debt(2) 2.61% 2.33 2.30 %
%
(1) The principal amount of USD notes is USD75 million. The movement relates to foreign exchange movements. I-RES has entered into cross currency swap to fix this at EUR68.9 million.
(2) Includes commitment fee of 0.7% per annum charged on the undrawn portion of the RCF facility and deferred financing cost amortised per annum
Summary and outlook
2022 has been a very positive year for I-RES, underlined by a strong operational performance with significant growth in our rental income and delivery of growth in the portfolio. We have also completed the internalisation of the business and continue to enhance our technological platform. We head into 2023 well placed to deal with the headwinds we face. We have actively managed our balance sheet including the recent interest rate swaps giving us a significant portion of our debt fixed with no maturities until 2026. We are well positioned going into 2023 with our excellent operational model, robust balance sheet and strong underlying market fundamentals.
Brian Fagan
Chief Financial Officer
24 February 2023
Business Performance Measures
The Group, in addition to the Operational and Financial results presented above, has defined business performance indicators to measure the success of its operating and financial strategies:
Average Monthly Rent ("AMR")
AMR is calculated as actual monthly residential rents, net of vacancies, as at the stated date, divided by the total number of residential units owned in the property. Through active property management strategies, the lease administration system and proactive capital investment programmes, I-RES increases rents as market conditions permit and subject to applicable laws. It has been presented as the Company believes this measure is indicative of the Group's performance of its operations.
Occupancy
Occupancy rate is calculated as the total number of residential units occupied over the total number of residential units owned as at the reporting date. I-RES strives, through a focused, hands-on approach to the business, to achieve occupancies that are in line with, or higher than, market conditions in each of the locations in which it operates. Occupancy rate is used in conjunction with AMR to measure the Group's performance of its operations.
AMR and Occupancy
Properties owned prior to
Total Portfolio 31 December 2021 Properties Acquired After 31
(Like for Like December 2021
properties)
2022 2021 2022 2021
As at 31
December AMR Occ. AMR Occ. AMR AMR Occ. AMR Occ. AMR AMR Occ.
change % change %
% % % % %
Residential EUR1,750 99.4% EUR1,678 99.1% 4.3% EUR1,730 99.8% EUR1,678 99.1% 3.1% EUR1,980 92.0%
The Group's AMR increased by 4.3% at 31 December 2022 to EUR1,750, while residential occupancy remained high at 99.4%, indicative of the strong market fundamentals in the Irish residential rental sector. The increase in AMR is due to the increase in occupancy from 99.1% to 99.4% and the higher rental at our new premium assets, The School Yard and Tara View. For like for like properties, the AMR increased to EUR1,730 per residential unit as at 31 December 2022, up 3.1% from EUR1,678 at 31 December 2021 due to higher occupancy and organic rental growth. AMR is used as a measure for the sustainable year over year changes in revenue. For properties acquired after 31 December 2021, occupancy is 92.0%, this is below our overall level of occupancy due to a small number of units which are currently being leased up at our new Tara View development.
During the period, circa 14% of the portfolio units were turned and where applicable we applied rental increases in line with regulations.
Gross Yield at Fair Value
Gross Yield is calculated as the Annualised Passing Rents as at the stated date, divided by the fair market value of the investment properties as at the reporting date, excluding the fair value of development land and investment properties under development. Through generating higher revenue compared to the prior year and maintaining high occupancies, I-RES' objective is to increase the Annualised Passing Rent for the total portfolio, which will positively impact the Gross Yield. It has been presented as the Company believes this measure is indicative of the rental income generating capacity of the total portfolio.
Gross Yield at Fair Value
As at 31 December 2022 31 December 2021
(EUR'000) (EUR'000)
Annualised Passing Rent(1) 87,401 81,393
Aggregate fair market value as at reporting date 1,477,178 1,450,635
Gross Yield at Fair Value 5.9% 5.6%
(1) 31 December 2022 Annualised Passing rent consist of residential annualised passing rent of EUR82.6 million and commercial annualised passing rent of EUR4.8 million.
The portfolio Gross Yield at Fair Value was 5.9% as at 31 December 2022 compared to 5.6% as at 31 December 2021, excluding the fair value of development land and investment properties under development. The current Gross Yield at Fair Value of 5.9% has increased from the last valuation date of 31 December 2021 due to an increased passing rent being achieved by the Group and a reduction in the market value of our properties at 31 December 2022.
EPRA Net Initial Yield
As at 31 December 2022 31 December 2021
(EUR'000) (EUR'000)
Annualised passing rent 87,401 81,393
Less: Operating expenses(1) (property outgoings) (19,665) (17,093)
Annualised net rent 67,736 64,300
Notional rent expiration of rent-free periods -
Topped-up net annualised rent 67,736 64,300
Completed investment properties 1,477,168 1,450,635
Add: Allowance for estimated purchaser's cost 76,369 75,372
Gross up completed portfolio valuation 1,553,537 1,526,007
EPRA Net Initial Yield 4.4 4.2
EPRA topped-up Net Initial Yield 4.4 4.2
(1) Calculated based on the net rental income to operating revenue ratio of 77.5% for 2022 (79.1% for 2021).
EPRA Earnings per Share
EPRA Earnings represents the earnings from the core operational activities for the Group. It is intended to provide an indicator of the underlying performance of the property portfolio and therefore excludes all components not relevant to the underlying and recurring performance of the portfolio, including any revaluation results and profits/(losses) from the sale of properties. EPRA EPS is calculated by dividing EPRA Earnings for the reporting period attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the reporting period. It has been presented as the Company believes this measure is indicative of the Group's performance of its operations.
EPRA Earnings per Share
For the year ended 31 December 2022 31 December 2021 (Loss)Profit for the year (EUR'000) (11,820) 67,546 Adjustments to calculate EPRA Earnings exclude: Gain on disposal of investment properties (EUR'000) (2,795) (905) Changes in fair value on investment properties (EUR'000) 45,599 (34,934) Changes in fair value of derivative financial instruments (EUR'000) (35) (59) EPRA Earnings (EUR'000) 30,949 31,648 Non-recurring costs (EUR'000) 5,748 5,430 Adjusted EPRA Earnings before non-recurring costs (EUR'000) 36,697 37,078 Basic weighted average number of shares 529,560,795 527,412,302 Diluted weighted average number of shares 529,953,506 528,130,822 EPRA Earnings per share (cents) 5.8 6.0 Adjusted EPRA EPS before non-recurring costs per share (cents) 6.9 7.0 EPRA Diluted Earnings per share (cents) 5.8 6.0
A decrease in EPRA Earnings to EUR30.9million (31 December 2021: EUR31.6 million) is principally due to higher financing costs and costs incurred as a result of non-recurring items.
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Adjusted EPRA EPS was 6.9 cents for the year ended 31 December 2022 compared to 7.0 cents for the same period last year. The primary driver of this reduction is the increase in our financing costs, particularly in the latter part of 2022 due to interest rate rises.
EPRA Net Asset Value
In October 2019, EPRA introduced three EPRA NAV metrics to replace the then existing EPRA NAV calculation that was previously being presented. The three EPRA NAV metrics are EPRA Net Reinstatement Value ("EPRA NRV'), EPRA Net Tangible Asset ("EPRA NTA") and EPRA Net Disposal Value ("EPRA NDV"). Each EPRA NAV metric serves a different purpose. The EPRA NRV measure highlights the value of net assets on a basis. EPRA NTA assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability. No deferred tax liability is calculated for I-RES as it is a REIT and taxes are paid at the shareholder level on distributions. Any gains arising from the sale of a property are expected either to be reinvested for growth or 85% of the net proceeds are distributed to shareholders to maintain the REIT status. Lastly, EPRA NDV provides the reader with a scenario where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liabilities.
EPRA NAV per Share
31 December 2022
As at EPRA NRV EPRA NTA(1) EPRA NDV(2)
Net assets (EUR'000) 847,353 847,353 847,353
Adjustments to calculate EPRA net assets exclude:
Fair value of derivative financial instruments (EUR'000) (4,764) (4,764) -
Fair value of fixed interest rate debt (EUR'000) - - 40,612
Real estate transfer costs (EUR'000)(3) 76,368 - -
EPRA net assets (EUR'000) 918,957 842,589 887,965
Number of shares outstanding 529,578,946 529,578,946 529,578,946
Diluted number of shares outstanding 529,578,946 529,578,946 529,578,946
Basic Net Asset Value per share (cents) 160.0 160.0 160.0
EPRA Net Asset Value per share (cents) 173.5 159.1 167.7
31 December 2021
As at EPRA NRV EPRA NTA(1) EPRA NDV(2)
Net assets (EUR'000) 881,440 881,440 881,440
Adjustments to calculate EPRA net assets exclude:
Fair value of derivative financial instruments (EUR'000) - - -
Fair value of fixed interest rate debt (EUR'000) - - (10,008)
Real estate transfer tax (EUR'000)(3) 75,372 - -
EPRA net assets (EUR'000) 956,812 881,440 871,432
Number of shares outstanding 529,453,946 529,453,946 529,453,946
Diluted number of shares outstanding 529,498,519 529,498,519 529,498,519
Basic Net Asset Value per share (cents) 166.5 166.5 166.5
EPRA Net Asset Value per share (cents) 180.7 166.5 164.6
(1) Following changes to the Irish REIT legislation introduced in October 2019, if a REIT disposes of an asset of its property rental business and does not (i) distribute the gross disposal proceeds to shareholders by way of dividend, subject to having sufficient distributable reserves; (ii) reinvest them into other assets of its property rental business (whether by acquisition or capital expenditure) within a three-year window (being one year before the sale and two years after it); or (iii) use them to repay debt specifically used to acquire, enhance or develop the property sold, then the REIT will be liable to tax at a rate of 25% on 85% of the gross disposal proceeds. For the purposes of EPRA NTA, the Company has assumed any such sales proceeds are reinvested within the required three-year window.
(2) Deferred tax is assumed as per the IFRS balance sheet. To the extent that an orderly sale of the Group's assets were undertaken over a period of several years, during which time (i) the Group remained a REIT; (ii) no new assets were acquired or sales proceeds reinvested; (iii) any developments completed were held for three years from completion; and (iv) those assets were sold at 31 December 2022 valuations, the sales proceeds would need to be distributed to shareholders by way of dividend within the required time frame or else a tax liability amounting to up to 25% of distributable reserves plus current unrealised revaluation gains could arise for the Group.
(3) This is the purchaser costs amount as provided in the valuation certificate. Purchasers' costs consist of items such as stamp duty on legal transfer and other purchase fees that may be incurred and which are deducted from the gross value in arriving at the fair value of investment for IFRS purposes. Purchasers' costs are in general estimated at 9.96% for commercial and 4.46% for residential.
Sustainability
We have continued to deliver and make good progress on our ESG commitments. We were delighted to retain our EPRA Sustainability Best Practices Recommendations ("sBPR") Gold Award. We also improved our overall scoring in Global Real Estate Sustainability Benchmark ("GRESB"), an industry-leading global assessor of the ESG performance of real estate assets by 6 percentage points against last year. We continuously review ratings and benchmarks to promote transparency to all stakeholders, thus we have completed our first submission to CDP. We are focused on initiatives which will improve our score over the coming years.
In light of the internalisation completing in the period and to ensure we keep pace with an evolving ESG landscape, we undertook a review of our sustainability strategy. The strategy review consisted of a detailed analysis of incumbent sustainability priorities throughout each element of our business functions. The review identified areas in which the incumbent strategy is working well and where the Company can look to maximise its opportunities. Additionally, the Company has also invested in new technology to digitalise operation processes, resident engagement, and reducing the use of paper, as part of our ongoing effort to reduce our carbon footprint and enhance the resident experience.
Net Zero
We are acutely aware of the role I-RES must play in the transition to becoming a low carbon economy. To ensure we are keeping pace with the transition, we have now completed a carbon emissions baseline assessment of our portfolio, which is the critical first step to understanding our carbon footprint. Utilising this baseline assessment as the foundation, we have been able to set the ambitious target of a 30% reduction in Scope 1 and a 10% reduction of Scope 2 emissions for 2023. Further details will be provided in our Annual ESG report.
We have strategically invested in a portfolio of modern assets, with a weighted average age of 13.1 years and 86%4F (5) with Building Energy Ratings (BER) within A to C grades. Our scope 2 indirect greenhouse gas emissions for 2022 were 112 metric tons of CO?, a 25.8% reduction on an absolute basis (2021: 151 metric tons of CO?)5F(6). The like-for-like energy consumption in 2022 decreased by 19% year on year, driven by the net zero initiatives we are delivering. We adopted an 100% renewable energy procurement strategy in 2021 which results in a neutral market-based carbon emission total for the Company.
Our two new developments, delivered in 2022, have achieved high sustainability credentials. At School Yard (Bakers Yard) we have delivered 61 homes, which marks the delivery of Ireland's first LEED-certified residential building. Tara View, a development where we delivered 69 residential units is built to be nZEB compliant with BER A ratings and a highly sustainable fitout.
We are members of Green Building Council Ireland and are engaging in assessments across our assets to continue to improve on our energy utilisation. We have a comprehensive programme in place including communication with residents in relation to energy utilisation, waste minimisation and recycling as well as a continuous improvement programme. Additionally, we have made good progress on All-Ireland Pollinator Plan across our portfolio with further delivery planned for the coming years.
Our People
We want to ensure I-RES is a great place to work and it is our responsibility to continue to invest in our employees and to champion an inclusive and diverse culture that attracts, retains and provides growth opportunities to employees. With this in mind, we continuously develop and expand on our initiatives for training and development, health and wellbeing, talent attraction and retention. In 2022 there was a particular focus on sustainability training, which was undertaken by almost all employees. Additionally in 2022, I-RES Board member Tom Kavanagh was appointed Director with direct responsibility for workforce engagement and arranged meetings with all staff.
The Board and management were pleased to be recognised as 1 of only 2 Irish companies to receive the highest award recognition by European Women on Boards for gender diversity. In addition, the Company and its employees were pleased to be awarded with the Investors in Diversity Silver Award from the Irish Centre for Diversity. I-RES currently has 49% female employees across the Company and our people come from a broad range of nationalities and possess a wide range of cross-sectoral skills and expertise. 5. Based on updated calculation methodology post internalisation 6. Based on buildings under full operation control by i-RES, 2021 includes additional buildings brought intoscope which were not previously reported on
Supporting Our Communities
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As part of I-RES' ongoing effort to support communities in which it operates, we were pleased to support the Red Cross Ukraine Emergency Appeal by providing fully serviced homes to Ukrainian refugees. We are also supporters of the Dragons at the Docks fundraising programme for homeless and other charities with EUR1.1 million raised by the charity within five years. We also continued our strong engagement with national peace-building organisation Co-Operation Ireland. At our development in Tallaght, we have leased space to Tallaght University Hospital. The Hospital transformed the space into a Day Surgery facility alleviating the pressure from the main Hospital. This has proven to be a great initiative for both I-RES and the Hospital providing essential services to the community. The space consists of 25 medical bays and 4 operating theatres which can facilitate a combined total of 8 surgeries a day. I-RES has been working with Tallaght University Hospital since 2019 and look forward to continuing our partnership. We also support several other organisations to identify local needs and economic support that is targeted and relevant to the local areas that we operate. For example, in 2022 we renewed our title sponsorship of Naomh Olaf GAA Club in Sandyford, which has a strong diversity and sustainability ethos, for the next five years. We will continue working with key stakeholders to target the sustainability matters and opportunities where we can make the greatest impact.
Market Update
Market Fundamentals Remain Supportive
The pace of growth in Ireland's domestic economy slowed during the year. The combination of rising inflation, supply chain issues and rising interest rates impacted consumer demand and business confidence. However, Ireland experienced strong GDP growth and retains the highest GDP growth rate in the EU in 2022 at 12.2%, while EU GDP growth as a whole is 3.5%. Ireland is expected to continue to grow at the highest rate in the EU in 2023 at a rate of 4.9%, while many EU countries are expected to achieve growth below 1%6F(7).
CPI rose steadily higher throughout the year, reaching a peak of 9.2% in October, it softened slightly to 8.9% and 8.2% in November and December respectively7F(8). With the maintenance of price stability in the euro area the main priority of the ECB, interest rates were increased in order to curb demand and bring inflation back down to 2% over the medium term. The ECB raised interest rates by 50bps during its final 2022 meeting in December, which marked the fourth-rate increase, following two consecutive 75bps after their initial 50bps hike in the middle of 2022. The deposit facility, refinancing rate and marginal lending are at levels which have not been seen in fourteen years.
FDI Is The Key Growth Driver
Ireland continues to be an outlier in its ability to continually attract Foreign Direct Investment ("FDI") and create jobs. Key export sectors, labour market and tax revenue have continued to perform strongly in 2022 driven mostly by the pharmaceutical and ICT sectors. During a period of slowdown in tech employment, the IDA Ireland ("IDA"), the state agency responsible for attracting FDI into Ireland, reported significant investment growth in 2022, with FDI employment creation plans reaching record levels.
Supply Remains Constrained
The housing market in Ireland continue to see strong demand resulted in a supply and demand imbalance due to constrained supply. The Government's "Housing for All" plan forecasts demand for housing at 33,000 units annually between 2021 and 2030. However, to date, delivery has been below this level. The primary trends driving this long-term demand are:
-- The growth in population in Ireland. Preliminary results of the 2022 census detail a population increaseof 7.6% since 2016.
-- Continued success in attracting Foreign Direct Investment. The FDI-related employment level is at itshighest level at a total of 301,000 jobs. This represented a 9% growth year-on-year for FDI-related jobs inIreland.
-- Supply remains constrained. New housing completions have edged closer to the Government's target comingin at an estimated 30,000 for 2022. While this is a positive movement in the number of completions, the CBI expect27,000 and 30,000 completions in 2023 and 2024 respectively, which is still below the level which is needed to meetthe exceptionally high demand. Although completions have increased in 2022 new dwelling commencement figuresdropped to approximately 27,000 in 2022, down 12% from 2021's annual figure8F(9).
We continue to see strong demand from a wide range of customers. The availability of rental homes both in Dublin and nationwide are at record lows which enabled us to maintain a consistently strong occupancy level of over 99% and an increasing average lease term with an ability to apply 2% rental growth year-on-year in accordance with the legislation. 7. EU Commission Winter 2023 Economic Forecast 8. CSO 9. Housing Agency Ireland
Regulatory Landscape
The Residential Tenancies (Deferment of Termination Dates of Certain Tenancies) Act 2022 came into effect on 29 October 2022. This is a temporary piece of legislation which covers a set period of time known as the 'winter emergency period' from 30 October 2022 to 31 March 2023 and was introduced in an attempt to stymie the expected increase in homelessness over the winter period due to the acute supply constraints that exist in the residential sector. Under this legislation, certain tenancies which were due to terminate between 30 October 2022 and 31 March 2023 will have the tenancy termination date deferred. None of these protections apply to a tenant who does not fulfil their obligations, for example not paying their rent or engaging in anti-social behaviour. Under these circumstances, the usual rules apply in relation to ending a tenancy.
Under current legislation rent increases are restricted to 2% per annum, where Harmonised Index of Consumer Prices ('HICP') inflation is higher, in all Rent Pressure Zones. The legislation applies to renewals of pre-existing let properties only and allows new schemes to be brought to market and let at market rents.
The Government's "Housing for All" policy, published in 2021 which sets out its vision for the future of housing in Ireland and has a core objective of increasing supply by 300,000 units (including 54,000 affordable homes for purchase or rent and over 90,000 social homes) over the nine years to 2030, remains in place. The target of 33,000 completions per annum has not yet been met with 2022 seeing just under 30,000 completions, evidence that the Government will require both an increase in the capacity and enhanced cooperation with the private sector, including increased investment in order to deliver on this objective.
Rental Index
The Irish Residential Property Price Index ("RPPI") increased by 7.8% nationally in the year, compared to an increase of 14.2% in 2021. Overall, the national index is 6.2% lower than its highest level in 2007. In Dublin, residential property prices saw an increase of 6% in the year, while property prices outside Dublin were 9.3% higher than a year earlier.
The Residential Tenancies Board ("RTB") reported annual rent inflation of 8.2% in the year to Q2 2022. Year-on-year price inflation in rents for new tenancies was 8.8% for Dublin to Q2 2022. The standardised average monthly rents in Q2 2022 were EUR1,464 nationally and EUR2,011 in Dublin9F(10).
Fundamentally, there is still a significant undersupply of homes, with the number of properties listed for rent on Irish property listing site DAFT.ie at the beginning of February 2023 at just 1,100 homes nationwide - down 22% year-on-year - and an unprecedented number in a series extending back to the start of 20060F(11). The average number of homes available to rent nationwide at any point in time over the 15-year period 2006-2021 was nearly 8,500.
Real Estate Investment
The real estate investment environment for all asset classes has shifted in response to ECB raising rates to address the inflationary environment resulted in increased debt costs and lower returns on leveraged portfolios. The total Real Estate investment in Ireland has slowed in 2022 with spend reported at EUR6.0 billion, which compares to the EUR5.5 billion full year investment in 2021, a 9% rise in total volume11(12). (Source: CBRE).
Investment into the Residential Sector accounted for EUR2.0 billion (33% of the total) in 2022, with over 70% of this capital focused on multifamily housing stock in the Dublin area11. Core investors are encouraged by the fact that yield spreads are considerably wider than in many other European markets and that many sectors of the Irish market are severely undersupplied and continually show exceptionally strong fundamentals, which in turn is helping to sustain rental cashflows and returns. While global markets remain volatile, real estate pricing will continue to be impacted by the macro drivers that currently dominate. In the medium-term, however, we believe that PRS market in Ireland remains a compelling area for investment. 10. RTB Q2 2022 Rent Index 11. Daft Rental Price Report Q4 2022 12. CBRE Ireland Outlook 2023 Principal risks and uncertainties
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The Directors of the Company set out below the principal risks and uncertainties that I-RES is currently exposed to and that may impact performance in the coming financial year. I-RES proactively identifies, assesses, monitors and manages these risks. The principal risks and uncertainties, along with their strategic impact on the business and mitigating factors, have been outlined below. I-RES has also provided its belief on how the risk has trended during the year ended 31 December 2022.
Geopolitical Instability, Economy and Inflation
Risk
Continuing heightened levels of global instability in economic and geopolitical arenas lead to a general
weakening of the Irish economy and increasing inflation.
High
Strategic Reduced economic activity could have a negative impact on business performance, asset values and net
Impact rental income, which could affect cash flows going forward. In addition, inflationary increases in
respect of input cost and payroll in excess of rent inflation would put downward pressure on NRI and
earnings.
On an ongoing basis there is active monitoring of business performance, economic and macro environment
reviews and residential sector developments, with reports to the Board on a regular basis. The Board
regularly considers the impact of the wider economic and macro-outlook and its impact on I-RES's
strategy and budgetary processes. We continue to monitor the impact that changes in inflation and
interest rates are having on our sector. I-RES's business is primarily focused on the greater Dublin
Mitigation area, which continues to be economically resilient. Demand for I-RES properties continues to far outstrip
Strategy supply, with occupancy of 99.4% as at 31 December 2022, (99.1% at 31 December 2021). There is also strong
continuing focus on active cost control within the day-to-day business operations. The Company retains
its strong financial position, with a robust balance sheet and ample liquidity. The business has entered
into interest rate hedging arrangements in relation to its Revolving Credit Facility ("RCF") which has
resulted in 72% of I-RES's total drawn debt being fixed at 31 December 2022. I-RES has no debt maturities
until April 2026 with laddering out to 2032.
Increasing
The continuing level of global uncertainty, particularly in the European context and the economic
Risk Trending implication of the Russian invasion of Ukraine, has had a knock-on impact on key economic metrics. While
Since the impact of covid and related pandemic concerns has reduced over the last year the continuing
31 December uncertainties are being reflected in impacts such as increasing interest rates, unstable energy costs and
2021 high inflation levels.
Operating cost pressures will continue to emerge during 2023 in response to ongoing inflationary
pressures.
Political, Regulatory and Legislative change
Risk
The government may introduce legislation, including tax and rent legislation, that has an adverse impact
on the performance of I-RES.
High
There is a clear need for stability in relation to all aspects of the regulatory, policy and planning
environment, to enable companies to accurately factor in the market backdrop in their investment and
operational decision-making. There is currently a range of structural issues relating to the provision of
housing which is resulting in a supply imbalance in the market. The delivery of affordable residential
housing remains a key challenge and there will continue to be a requirement for well capitalised
companies who can both fund large scale developments and professionally manage these residential units
upon completion.
Strategic
Impact Changes in policies or regulatory requirements can delay or prevent investment decisions and impact on
the attractiveness of Ireland as a preferred destination for domestic and international investment.
Changes in Government policies can materially impact on sector performance. The industry currently faces
an environment of increasing costs of financing and operation, while at the same time having legislative
constraints on revenues. Also, if there are changes to tax policies and/or the tax treatment of I-RES's
income, these may decrease the attractiveness of the Company as an investment to current or potential
shareholders.
Also, as legislation changes, we may have to incur incremental costs to comply with new requirements,
such as staff training, modification of procedures and technology systems and consultations with
professional advisors.
I-RES takes account of current regulations, rent legislation, as well as the wider economic environment,
in considering I-RES's strategy, investment decisions, expectations of financial performance and growth.
If any new legislation is enacted, relevant staff will receive training and education in order to ensure
compliance with regulations and legislation.
Mitigation
Strategy I-RES also monitors and manages costs keeping in mind any limitations on revenue growth.
The Company engages a public affairs firm to advise in relation to these matters, as well as actively
participating in industry groups to ensure ongoing consultation and engagement with relevant authorities,
regulators and government departments on significant policy and regulatory matters likely to impact on
the Company's affairs.
Increasing
There continues to be a significant supply constraint in the Irish housing market, coupled with
Risk Trending increasing demand due to population growth and other demographic factors. In September 2021, the
Since Government introduced a new housing policy to 2030, "Housing for All - a New Housing Plan for Ireland",
which is a multi-annual, multi-billion-euro plan to "improve Ireland's housing system and deliver more
31 December homes of all types for people with different housing needs". However, housing continues to be a
2021 significant political issue and the Government continues to look to identify measures to increase direct
supply of social and affordable housing including in partnership with the private sector.
Growth pipeline
Investment opportunities may become limited and as a result I-RES may not grow its number of apartments
Risk relative to the past if there is a lack of development and acquisition opportunities. Additionally,
investment opportunities could be limited if they become overly costly or there is excess demand.
If growth opportunities are limited, it may impact I-RES's ability to generate growing returns for its
shareholders.
Medium
Strategic I-RES may not meet its performance targets if it cannot continue to grow its overall portfolio, or if
Impact there are material cost overruns in excess of budget estimates for development or maintenance works,
unanticipated delays in securing planning permissions or delays in timelines for construction works
associated with new development or maintenance projects.
I-RES has continued to be a sought-after investor for new investment opportunities that arise in the
market. The Company has deep market knowledge and has established strong industry relationships, which
can provide for new growth opportunities. Additionally, I-RES has dedicated staff focused on identifying
and evaluating a pipeline of acquisition and development opportunities.
I-RES focuses on a three-pronged strategy for growth. This involves acquisitions, development
Mitigation opportunities within existing assets and partnering with developers in relation to new development
Strategy opportunities.
However, there are clear sectoral issues with the current underlying economic challenges facing
residential property developers that are significantly constraining the availability of an active
pipeline of relevant development projects. These are driven by factors such as revenue constraints,
escalating construction costs, increasing interest rates, accelerating inflation, ongoing planning
challenges and constriction in the capital available to fund schemes.
Increasing
Completed assets at competitive cost are currently in limited supply and new supply is coming online more
slowly than expected. Growth opportunities will be there in the medium to long term for organisations
with a strong balance sheet, access to capital and a proven record of successful acquisition and
integration of new assets into a professionally run portfolio. However, in the short to medium term this
impacts on current growth opportunities.
I-RES currently has reduced exposure in respect of construction cost escalation in this area as the only
active project I-RES currently is involved with is due to complete in the second half of 2023 on
conclusion of phase 2 of the Ashbrook development.
I-RES will monitor and adapt to impacts on the supply of construction labour and materials, both for
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developments operations and any ongoing repair and maintenance related activity.
Risk Trending
Since
31 December
2021
Access to Capital
Risk
The ability to access capital may become limited, which would impact the growth strategy of I-RES.
Medium
Strategic
Impact If I-RES is unable to source debt financing at attractive rates or raise equity, it may not be able to
meet its growth objectives through acquisitions and development or preserve its existing assets through
maintenance or capital expenditures.
The CEO and CFO have developed relationships with lenders, both in Ireland and internationally, which
provide ongoing financing possibilities for I-RES.
The quality of I-RES's property portfolio and the gearing target of 45% on total assets (particularly
Mitigation apartments) are attractive credit characteristics for potential lenders, which to date have facilitated
Strategy the raising of debt financing. I-RES currently has a Revolving Credit Facility of up to EUR600 million and
Private Placement Notes of c.EUR200 million.
I-RES invests in properties that generate a strong rate of return for its investors and, in turn,
increases the attractiveness of its shares and dividends. I-RES actively manages its liquidity needs and
monitors capital availability.
Increasing
As at 31 December 2022 I-RES had drawn on its credit facility in the amount of EUR457 million and Notes
Private Placement of c.EUR200 million. I-RES continues to monitor liquidity needs to ensure that future
capital requirements are anticipated and met within the limits of its leverage thresholds.
Risk Trending
Since Based on its financial position and performance, as well as its relationships with lenders and current
31 December and potential investors, I-RES believes that it can obtain debt financing and to raise equity should a
2021 qualifying project be identified.
Cost of Capital, Interest Rate Increases and Loan to Value Ratio
Risk A fundamental facet of I-RES' business relates to the cost of capital it deploys and its leverage level.
Interest rate increases and/or property valuation decreases, result in higher debt service costs and
restriction of future leveraging opportunities due to its regulatory requirement to maintain LTV below
50%.
Medium
I-RES is exposed to risks associated with availability of capital (equity and debt) and movements in
interest rates on its floating rate bank debt, as well as movements in property valuations.
Strategic Significant increases in interest rates and the cost of equity, could affect I-RES's cash flow and its
Impact ability to meet growth objectives or preserve the value of its existing assets. Elevated interest rates
clearly represent a significant downside risk as it impacts both on the costs of existing borrowing, the
cost of raising new funding and the viability and return available from new opportunities in the market.
Additionally, property valuations are inherently subjective but also driven by market forces. A
contraction in property values could make I-RES too highly geared, which could result in higher interest
costs and potential covenant breaches.
I-RES has a proven record of strong financial results. Strong results, combined with being in a
residential industry with a strong underlying market, helps manage our ability to meet shareholders'
expectations and thus, the cost of equity.
As noted in the access to capital heading, I-RES has developed strong relationships with lenders, both in
Ireland and internationally, which provide ongoing financing possibilities for I-RES.
The Company's Revolving Credit Facility is EUR600 million with the interest margin fixed at 1.75%, plus the
one-month EURIBOR rate. On 11 February 2022, the Company exercised an option for an extension for the
entire EUR600 million facility with the new maturity date of 18 April 2026.
Mitigation I-RES completed a private placement of Notes of circa EUR200 million equivalent in March 2020, with a
Strategy weighted average fixed interest rate of 1.92%, inclusive of swap costs. The Notes have a laddered
maturity over six-, nine- and eleven-years, with the first repayment due in 2027. As of 31 December 2022,
the Company has c.EUR7 million of cash and EUR147 million of committed undrawn debt under its Revolving
Credit Facility. I-RES maintains an active programme of engagement with its debt and equity providers,
including an ongoing Investor Relations programme.
I-RES's loan to value ratio was 43.3% as at 31 December 2022, below the 50% maximum allowed under the
Irish REIT rules and the financial covenants under I-RES's debt agreements. The Company also manages its
headroom on its interest coverage ratio.
I-RES closely monitors property values by updating its property valuations twice annually using two
independent property valuation firms.
Increasing
Capital markets in the early part of 2023 continue to be constrained in terms of overall liquidity.
Risk Trending 2022 saw a succession of interest rate increases by central banks across the world to address rising
Since inflation. This included the European Central Bank who raised their rates for the first time in 11 years.
31 December While there are some positive indicators that the level of volatility may be stabilising given the
2021 continuing uncertainty, the risk of further increases continues to persist.
The valuation of the portfolio as at 31 December 2022, when compared to year end 2021 has increased,
albeit this is driven by acquisition activity. A fair value loss has been recorded in the year ended 31
December 2022 which has negatively impacted the loan to value ratio. The decrease in valuation is due to
a softening of yields particularly driven by the previously mentioned interest rate increases.
Concentration Risk
Risk
The Dublin market experiences material circumstances that results in lower occupancy or demand for rental
properties.
Medium
Strategic
Impact A lack of geographical or asset diversification could lead to a material financial impact to I-RES in the
event of a decrease in occupancy or lower rents in the Dublin market.
Dublin has continued to be an economically resilient market, with a continuing demand for accommodation
reflected in our high occupancy rates. The existing portfolio is diversified across various districts
within Dublin, providing a geographical spread across the greater Dublin area. Further capacity is
expected to come online in the second half of 2023 on completion of the next phase of the Ashbrook
development.
Mitigation The Company also owns property in Cork and continues to consider opportunities that may arise over time
Strategy in other areas of Ireland with strong economic fundamentals.
The Board continuously reviews and receives updates on economic, demographic, social, legal and policy
changes or trends that could impact on I-RES's strategy and business performance.
There is ongoing monitoring of both supply and demand for rental apartments in operating areas where
I-RES's investment properties are located, with reporting on key metrics around investment performance
and risk, as well as compliance with I-RES's stated investment policy, on a quarterly basis to the Board.
Risk Trending
Since
31 December
2021
Stable
Residential real estate and economic fundamentals in key urban areas in Ireland continue to remain strong
including continued population growth.
The level of concentration in Dublin market is within I-RES's risk appetite given the diversity of
locations across the city and county, as well as the ongoing growth in investment, population and
economic activity in the Greater Dublin Area.
Acquisition Risk
Risk
Investment decisions may be made without consideration of all risks and conditions.
Medium
Strategic
Impact Investment assets may decrease in value or result in material unanticipated expenditures after
acquisition because of unknown risks and conditions at the time of purchase, including structural
deficiencies or non-compliances with building code.
The Board must approve material development opportunities prior to commencement and all material
contracts are executed by the Board. The CEO and Board reviews and approves investment proposals for over
EUR1m, including consideration of risks during the due diligence process. A full review is completed in
respect of the anticipated current and future income expectations and operational costs associated with
acquiring and managing assets.
Mitigation I-RES engages subject matter experts in conducting financial, legal, operational, technical and
Strategy environmental due diligence on every investment opportunity (both acquisitions and development projects)
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to determine it fits with I-RES's stated investment policy. The Company has in place framework agreements
with third party experts for conducting technical and engineering studies and investigations on potential
acquisitions, developments, or forward purchase contracts as well as engaging specialist property lawyers
to conduct legal due diligence and to advise on purchase and development contracts.
Risk Trending Stable
Since
31 December I-RES's due diligence practices have not changed since last year as they continue to be consistent with
2021 industry norms and align with I-RES's risk appetite.
Cybersecurity and Data Protection
Risk Failure to have in place appropriate cyber security and data governance frameworks and arrangements, both
internally and with its service providers, could result in the Group's data being subject to a
cybersecurity attack leading to disruption of service and/or loss of confidential commercial or personal
information.
Medium
Failing to have in place and comply with appropriate cyber security data protection requirements and
Strategic practices could lead to outcomes, such as disruption of service unauthorised access to data and possible
Impact fraudulent activities surrounding confidential/non-public business information or personal data,
particularly that belonging to I-RES's residents. This could result in direct losses to stakeholders,
penalties to I-RES for non-compliance, potential liability to third parties and reputational damage to
I-RES. Inadequate security on systems by IT providers could result in cybersecurity breaches.
I-RES continues to monitor for threats posed from the external cyber risk landscape and to invest in our
controls around information technology. As part of the internalisation process, there has been a
significant focus on cyber capability and IT resilience, with the development of an enhanced Cyber
Security Framework during 2022. This framework forms the basis for future iterations of I-RES's Cyber
Strategy.
I-RES is responsible for data privacy and protection as a data processor and remains adaptable either
itself or through its sub processors to ongoing technological and legislative change. Employees receive
regular awareness training on cybersecurity, privacy and data protection.
Mitigation
Strategy Access to personal data is controlled through physical measures (e.g. locked offices and storage
locations, alarm monitoring, cameras), administrative measures (e.g. data minimization, data retention
policies, data destruction practices and audits) and IT security measures (e.g. password protection,
firewalls, antivirus software, intrusion detection and encryption). Cyber security personnel and
third-party consultants/advisors are engaged where required, to assist with assessing the IT environment
and cyber risks.
I-RES maintains cybersecurity insurance coverage and continues to monitor and assess risks surrounding
collection, processing, storage, disclosure, transfer, protection and retention/destruction practices for
personal data.
Stable
As technological change has occurred at a rapid pace, the inherent risks surrounding cybersecurity and
data protection have also evolved and continue to evolve at an equally rapid pace. European Union Data
Protection legislation (e.g. General Data Protection Regulation and ePrivacy) is increasing in
prescriptiveness, obligation and administration. Additionally, issues such as vendor risk complexities
phishing and social engineering attempts, continue at an accelerating pace due to criminal online
"business models" focusing on high volume/quick hit ransomware deployment and basic financial fraud via
wire transfer.
Risk Trending
Since
31 December
2021
Regulatory and Legal Compliance
Risk
Potential breaches of laws and regulations could result in litigation or investigations, the imposition
of significant fines, sanctions, loss of REIT status, adverse operational impact and reputational damage.
Low
Strategic
Impact I-RES is subject to a wide variety of laws and regulations (including those applicable to it as a listed
company) which vary in complexity, application and frequency of change. Non-compliance, depending on the
scale of the incident, can result in significant impacts including penalties/loss of regulated status.
There is proactive monitoring of I-RES's compliance with the rules and regulations across key areas of
activity, including the REIT rules and Tax legislation. This includes an independent tax review of
compliance with the REIT rules. The results of these compliance reviews are reported to senior
management, the Audit Committee and the Board on a quarterly basis, at a minimum.
Mitigation Within the business there are legal, risk and compliance personnel who monitor both compliance with
Strategy current requirements and any impending or emerging changes in rules and regulations or tax policies that
may impact on the organisation.
There is ongoing monitoring of I-RES's compliance with the rules and regulations affecting I-RES status
and regular reviews of how I-RES's planned operations may impact compliance with these rules. The results
of these compliance reviews are reported to the Board on a quarterly basis, at a minimum.
Risk Trending Stable
Since
31 December I-RES does not believe the risk of non-compliance has changed from last year and the Audit Committee
2021 continues its review and monitoring as well as taking expert advice when necessary.
Environmental Sustainability
Risk Failure to respond appropriately and sufficiently to environmental sustainability risks or failure to
benefit from the potential opportunities could lead to adverse impact on reputation, property values and
shareholder returns.
Medium
There is an increasing exposure to environment and climate-related risks across the portfolio.
Strategic The environmental risks/opportunities include, but are not limited to, management of resource use
Impact (energy, water), waste disposal, material sourcing and use, greenhouse gas emissions and other impacts
from operating, maintaining and renovating our properties.
The climate-related risks/opportunities include, but are not limited to, more extreme and volatile
weather events, changes in regulations or government policies, reputation management, market demand
shifts, developing technology and investor pressure and expectations.
The Board of the Company has in place a sustainability committee (the "Board Sustainability Committee")
which among other duties is responsible for developing and recommending to the Board the Company's ESG
strategy, policies, risks, targets and investment required to achieve the Company's ESG strategy.
Additional working groups have been established to drive management, asset level ESG strategy and monitor
environmental and sustainability metrics. There is active engagement between the working groups and the
Mitigation Board.
Strategy
The Company produces an ESG Report annually with key data and performance points, which are externally
assured and has recently completed a materiality assessment, a key tool to deliver on its multi-year ESG
strategy. There is ongoing monitoring of both supply and demand for rental apartments in operating areas
where I-RES's investment properties are located, with reporting on key metrics around investment
performance and risk, as well as compliance with I-RES's stated investment policy, on a quarterly basis
to the Board.
Stable
Risk Trending The Company and the Board continue to monitor the Company's environmental sustainability performance and
Since mitigating actions and will continue to monitor for changes to legislation, regulation and policy
31 December impacting environmental and sustainability issues.
2021
Additionally, the Company benchmarks its environmental, social and governance (ESG) reporting against
industry benchmarks.
Major Safety, Health or Environmental or Asset loss incident
Risk
Failure to respond appropriately to a Major Safety, Health, Environmental incident or to the loss of a
material asset leading to adverse impact on reputation, property values and shareholder returns.
Medium
Failure to respond appropriately to a major site-based incident and in particular, failure to identify,
mitigate and/or react effectively to a major health, safety, or security incident, leading to:
- Serious injury, illness, or loss of life
Strategic - Delays to major building projects
Impact
- Access restrictions to our properties resulting in loss of income
- Inadequate response to regulatory changes
- Reputational impact
Could result in impacts in terms of loss of income, impact on share price, loss of stakeholder confidence
and criminal/civil proceedings.
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Health and Safety is a core consideration in all management activity and the protection of the health and
safety of our tenants, staff and the public are an area of continual focus. I-RES complies with relevant
regulation in particular in key areas such as fire safety and housing standards.
The operations team is staffed by experienced industry professionals who are based on site at the
locations they are responsible for. In addition to ongoing monitoring of our sites, procedures also
include an annual safety assessment at letting unit level. This team is also supported where necessary by
Mitigation specialist contractors/suppliers in respect of the ongoing maintenance of our sites. There is also
Strategy ongoing engagement on Health and Safety issues with Owner Management Companies ("OMC's") and Managing
Agents on sites not wholly managed by I-RES.
All sites are fitted with fire detection systems which are subject to ongoing monitoring and quarterly
testing.
Emergency response arrangements are in place as part of the business continuity and crisis management
framework and are aligned to best practice procedures.
Stable
The Company has a proven record of the successful management of its portfolio of properties over an
extended period. With successful completion of the internalisation process all elements of this activity
are now within the direct control of I-RES. The safe management of our sites in compliance with relevant
regulations and requirements remains a key and ongoing priority for the organisation.
Risk Trending
Since
31 December
2021
Consolidated Statement of Financial Position
(Unaudited) (Audited)
As at 31 December 2022 Note 31 December 2022 31 December 2021
EUR'000 EUR'000
Assets
Non-Current Assets
Investment properties 5 1,498,998 1,493,405
Property, plant and equipment 7 8,718 9,212
Derivative financial instruments 19 6,340 -
1,514,056 1,502,617
Current Assets
Other current assets 8 6,297 14,168
Derivative financial instruments 19 1,474 931
Cash and cash equivalents 15 6,965 10,347
14,736 25,446
Total Assets 1,528,792 1,528,063
Liabilities
Non-Current Liabilities
Bank indebtedness 10 453,738 416,622
Private placement notes 11 198,237 193,740
Lease liability 23 8,268 9,090
Derivative financial instruments 19 - 3,961
660,243 623,413
Current Liabilities
Accounts payable and accrued liabilities 9 12,797 15,414
Derivative financial instruments 19 9 -
Security deposits 7,974 7,796
Lease liability 23 416 -
21,196 23,210
Total Liabilities 681,439 646,623
Shareholders' Equity
Share capital 14 52,958 52,945
Share premium 504,583 504,470
Share-based payment reserve 1,201 1,093
Cashflow hedge reserve 19 5,633 (348)
Retained earnings 282,978 323,280
Total Shareholders' Equity 847,353 881,440
Total Shareholders' Equity and Liabilities 1,528,792 1,528,063
IFRS Basic NAV per share 28 160.0 166.5
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
(Unaudited) (Audited)
For the year ended 31 December 2022 Note 31 December 2022 31 December 2021
EUR'000 EUR'000
Operating Revenue
Revenue from investment properties 16 84,857 79,744
Operating Expenses
Property taxes (1,078) (712)
Property operating costs (18,042) (15,992)
Net Rental Income ("NRI") 65,737 63,040
General and administrative expenses 17 (17,154) (16,479)
Share-based compensation expense 13 (117) (276)
Net movement in fair value of investment properties 5 (45,599) 34,934
Gain on disposal of investment property 2,795 905
Gain on derivative financial instruments 19 35 59
Depreciation of property, plant and equipment 7 (536) (519)
Lease interest 6 (222) (232)
Financing costs 18 (16,803) (13,886)
(Loss)/Profit before taxation (11,864) 67,546
Taxation 21 44 -
(Loss)/Profit for the Year (11,820) 67,546
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss:
Cash flow hedges - effective portion of changes in fair value 11,375 4,737
Cash flow hedges - cost of hedging deferred (144) 378
Cash flow hedges - reclassified to profit or loss (5,250) (5,386)
Other Comprehensive income/(loss) for the year 5,981 (271)
Total Comprehensive (Loss)/Income for the Year Attributable to Shareholders (5,839) 67,725
Basic (Loss)/Earnings per Share (cents) 27 (2.2) 12.8
Diluted (Loss)/Earnings per Share (cents) 27 (2.2) 12.8
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
Share- Cashflow
Share Share Retained
For the year ended 31 December 2022 Note Capital Premium Earnings based hedge Total
payments Reserve
Reserve
(Unaudited) EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Shareholders' Equity at 1 January 2022 52,945 504,470 323,280 1,093 (348) 881,440
Total comprehensive income for the year
Loss for the year - - (11,820) - - (11,820)
Other comprehensive income for the year - - - - 5,981 5,981
Total comprehensive loss for the year - - (11,820) - 5,981 (5,839)
Transactions with owners, recognised directly in equity
Long-term incentive plan 13 - - - 117 - 117
Share issuance 14 13 113 9 (9) - 126
Dividends paid 22 - - (28,491) - - (28,491)
Transactions with owners, recognised directly 13 113 (28,482) 108 - (28,248)
in equity
Shareholders' Equity at 31 December 2022 52,958 504,583 282,978 1,201 5,633 847,353
Share- Cashflow
For the year ended 31 December 2021 Note Share Share Retained based hedge Total
Capital Premium Earnings payments Reserve
Reserve
(Audited) EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Shareholders' Equity at 1 January 2021 52,507 500,440 287,656 1,169 (77) 841,695
Total comprehensive income for the year
Profit for the year - - 67,546 - - 67,546
Other comprehensive loss for the year - - - - (271) (271)
Total comprehensive income for the year - - 67,546 - (271) 67,275
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Transactions with owners, recognised directly in equity Long-term incentive plan 13 - - - 276 - 276 Share issuance 14 438 4,030 352 (352) - 4,468 Dividends paid 22 - - (32,274) - - (32,274) Transactions with owners, recognised directly in 438 4,030 (31,922) (76) - (27,530) equity Shareholders' Equity at 31 December 2021 52,945 504,470 323,280 1,093 (348) 881,440
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
(Unaudited) (Audited)
For the year ended 31 December 2022 Note 31 December 2022 31 December 2021
EUR'000 EUR'000
Cash Flows from Operating Activities:
Operating Activities
(Loss)/Profit for the Year (11,820) 67,546
Adjustments for non-cash items:
Fair value adjustment - investment properties 5 45,599 (34,934)
Gain on disposal of investment property (2,795) (905)
Depreciation of property, plant and equipment 7 536 519
Amortisation of other financing costs 23 1,998 1,644
Share-based compensation expense 13 117 276
Gain on derivative financial instruments 19 (35) (59)
Allowance for expected credit loss 725 626
Straight-line rent adjustment 5 588 1,113
Interest accrual relating to derivatives 23 9 -
Income taxes 21 (44) -
(Loss)/Profit adjusted for non-cash items 34,878 35,826
Net income relating to financing and investing activities 23 15,027 12,474
Changes in operating assets and liabilities 23 (3,314) 4,785
Income taxes paid 21 (7) -
Net Cash Generated from Operating Activities 46,584 53,085
Cash Flows from Investing Activities
Net proceeds from disposal of investment property 4 54,932 4,359
Deposits on acquisitions (3,855) (5,470)
Acquisition of investment properties (79,155) (56,442)
Development of investment properties 5 (4,632) (9,361)
Investment property enhancement expenditure 5 (8,769) (11,002)
Direct leasing cost 5 (4) (149)
Purchase of property, plant and equipment 7 (44) (9)
Acquisition of subsidiary, net of cash acquired 12 1,093 -
Net Cash Used in Investing Activities (40,434) (78,074)
Cash Flows from Financing Activities
Financing fees 23 (1,610) (830)
Interest paid 23 (15,453) (12,825)
Credit Facility drawdown 23 93,000 89,500
Credit Facility repayment 23 (56,000) (23,500)
Interest rate swap payments (698) -
Lease payment 6 (406) (396)
Proceeds on issuance of shares 23 126 4,468
Dividends paid to shareholders 22 (28,491) (32,274)
Net Cash Generated from/(Used in) Financing Activities (9,532) 24,143
Changes in Cash and Cash Equivalents during the Year (3,382) (846)
Cash and Cash Equivalents, Beginning of the Year 10,347 11,193
Cash and Cash Equivalents, End of the Year 6,965 10,347
The accompanying notes form an integral part of these consolidated financial statements Notes to Consolidated Financial Statements 1. General Information
Irish Residential Properties REIT plc ("I-RES" or the "Company") was incorporated in Ireland on 2 July 2013. On 16 April 2014, I-RES obtained admission of its ordinary shares to the primary listing segment of the Official List of Euronext Dublin and to trading on the main market for listed securities of Euronext Dublin. I-RES' registered office is South Dock House, Hanover Quay, Dublin 2, Ireland. The ordinary shares of I-RES are traded on the main market for listed securities of Euronext Dublin under the symbol "I-RES". 2. Significant Accounting Policiesa. Basis of preparation
This financial information has been derived from the information to be used to prepare the Group's consolidated financial statements for the year ended 31 December 2022 in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"), IFRS Interpretations Committee ("IFRIC") interpretations and those parts of the Companies Act 2014 applicable to companies reporting under IFRS. The financial information for the years ended 31 December 2022 and 31 December 2021 has been prepared under the historical cost convention, as modified by the fair value of investment properties, derivative financial instruments at fair value and share options at grant date through the profit or loss in the consolidated statement of profit or loss and other comprehensive income.
The financial information presented herein does not amount to statutory financial statements that are required by Section 347 of the Companies Act 2014 to be annexed to the annual return of the Group. The financial information does not include all the information and disclosures required in the annual financial statements. The purpose of this financial information is for the provision of information to shareholders. The statutory financial statements for the year ended 31 December 2021 have been attached to the annual return of the Company and filed with the Registrar of Companies. The audit report on those statutory financial statements was unqualified and did not contain any matters to which attention was drawn by way of emphasis. The statutory financial statements for the year ended 31 December 2022 will be annexed to the next annual return of the Group and filed with the Registrar of Companies.
This announcement has been prepared on the basis of the results and financial position that the Directors expect will be reflected in the audited statutory accounts when these are completed. The preliminary announcement has been approved by the Board of Directors. It is expected that the annual report and statutory consolidated financial statements for the year ended 31 December 2022 will be approved by the Directors and reported on by the auditors in March 2023.
The consolidated financial statements of the Group are prepared on a going concern basis of accounting. The consolidated financial statements of the Group have been presented in Euro, which is the Company's functional currency.
The consolidated financial statements of the Group cover the 12-month period from 1 January 2022 to 31 December 2022.
The Group has not early adopted any forthcoming International Accounting Standards Board ("IASB") standards. Note 2 (t) sets out details of such upcoming standards.
Going concern
The Group meets its day-to-day working capital requirements through its cash and deposit balances. The Group's plans indicate that it should have adequate resources to continue operating for the foreseeable future. The Group has a strong consolidated statement of financial position with sufficient liquidity and flexibility in place to manage through the potential headwinds in the current market. The Group can draw an additional EUR101 million from its RCF (as defined below in note 10) while maintaining a maximum 50% Loan to value ratio as at 31 December 2022, as required by REIT legislation. As at 31 December 2022, the current undrawn RCF amount is EUR143 million. The Group generated positive cashflows from operations for the year ended 31 December 2022. Accordingly, the Directors consider it appropriate that the Group adopts the going concern basis of accounting in the preparation of the consolidated financial statements.
'2. Significant Accounting Policies (continued) b. Basis of consolidation
These consolidated financial statements incorporate the financial statements of I-RES and its subsidiaries, IRES Residential Properties Limited, IRES Fund Management Limited and IRES Residential Properties (Tara View) Limited. I-RES controls these subsidiaries by virtue of its 100% shareholding in the companies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
Subsidiaries
Subsidiaries are entities controlled by I-RES. I-RES controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect these returns through its power over the entity. The financial information of subsidiaries (except owners' management companies) is included in the consolidated financial statements from the date on which control commences until the date on which control ceases. I-RES does not consolidate owners' management companies in which it holds majority voting rights. For further details, please refer to note 24. c. Investment properties and investment properties under development
Investment properties
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The Group considers its income properties to be investment properties under IAS 40, Investment Property ("IAS 40") and has chosen the fair value model to account for its investment properties in the consolidated financial statements. Under IFRS 13, Fair Value Measurement ("IFRS 13"), fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Investment properties are treated as acquired at the time when the Group assumes the significant risks and returns 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 acquired when the buyer has assumed control of ownership and the contract has been completed.
Investment properties comprise investment interests held in land and buildings (including integral equipment) held for the purpose of producing rental income, capital appreciation or both, but not for sale in the ordinary course of business.
All investment properties are initially recorded at cost, which includes transaction and other acquisition costs, at their respective acquisition dates and are subsequently stated at fair value at each reporting date, with any gain or loss arising from a change in fair value recognised through profit or loss in the consolidated statement of profit or loss and other comprehensive income for the period. Gains and losses (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) arising on the disposal of investment properties are also recognised through profit or loss in the consolidated statement of profit or loss and other comprehensive income.
The fair value of investment properties is determined by qualified independent valuers at each reporting date, in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation Standards and IFRS 13. Each independent valuer holds a recognised relevant professional qualification and has recent experience in the locations and segments of the investment properties valued. At each reporting date, management undertakes a review of its investment property valuations to assess the continuing validity of the underlying assumptions, such as future income streams and yields used in the independent valuation report, as well as property valuation movements when compared to the prior year valuation report and holds discussions with the independent valuer.
'2. Significant Accounting Policies (continued)
'c) Investment properties and investment properties under development (continued)
Investment properties under development
Investment properties under development include those properties, or components thereof, that will undergo activities that will take a substantial period of time to prepare the properties for their intended use as income properties.
The cost of a development property that is an asset acquisition comprises the amount of cash, or the fair value of other consideration, paid to acquire the property, including transaction costs. Subsequent to the acquisition, the cost of a development property includes costs that are directly attributable to these assets, including development costs and borrowing costs. These costs are capitalised when the activities necessary to prepare an asset for development or redevelopment begin and continue until the date that construction is substantially complete and all necessary occupancy and related permits have been received, whether or not the space is leased. Borrowing costs are calculated using the Company's weighted average cost of borrowing.
Properties under development are valued at fair value by qualified independent valuers at each reporting date with fair value adjustments recognised in profit or loss in the consolidated statement of profit or loss and other comprehensive income. In the case of investment property under development, the valuation approach applied is the "residual method", with a deduction for the costs necessary to complete the development together with an allowance for the remaining risk.
Development land
Development land is also stated at fair value by qualified independent valuers at each reporting date with fair value adjustments recognised in profit or loss in the consolidated statement of profit or loss and other comprehensive income. In the case of development land, the valuation approach applied is the comparable sales approach, which considers recent sales activity for similar land parcels in the same or similar markets. Land values are estimated using either a per acre or per buildable square foot basis based on highest and best use. Such values are applied to the Group's properties after adjusting for factors specific to the site, including its location, highest and best use, zoning, servicing and configuration.
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 residents to meet their rental obligations over the entire life of their leases, the estimation of the expected rental income in the future, an assessment of a property's ability to remain an attractive technical configuration to existing and prospective residents 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 macroeconomic 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 these factors, the ultimate valuation the Group places on its investment properties is subject to some uncertainty and may not turn out to be accurate, particularly in times of macroeconomic 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. See note 5 for a detailed discussion of the significant assumptions, estimates and valuation methods used.
'2. Significant Accounting Policies (continued) d. Property asset acquisition
At the time of acquisition of a property or a portfolio of investment properties, the Group evaluates whether the acquisition is a business combination or asset acquisition. The Group accounts for business combinations using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.
The Group has an option to apply a 'concentration test' that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
When an acquisition does not represent a business as defined under IFRS 3, the Group classifies these properties, or portfolio of properties, as an asset acquisition. Identifiable assets acquired and liabilities assumed in an asset acquisition are measured initially at their fair values at the acquisition date. Acquisition-related transaction costs are capitalised to the property. e. Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and mainly comprise of its leased head office, head office fixtures and fittings and information technology hardware. These items are depreciated on a straight-line basis over their estimated useful lives: the right of use building has a useful life of 20 years and the fixtures and fittings have a useful life ranging from three to five years. f. Business combinations
Business combinations are accounted for using the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. The identifiable assets and liabilities are measured and recorded at fair value at the date of acquisition. The cost of acquisition is measured as the total amount of consideration transferred, measured at the acquisition date. Acquisition costs are expensed as incurred.
Goodwill is recognised when the aggregate of the consideration transferred and any non-controlling interest is greater than the fair value of the net identifiable assets at the acquisition date. If the consideration transferred is lower than the fair value of the net assets of the subsidiary acquired, it is recognised as a bargain purchase and the difference is recognised in the Statement of Profit or Loss and other comprehensive income. g. IFRS 9, Financial Instruments ("IFRS 9")
Financial assets and financial liabilities
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Under IFRS 9, financial assets and financial liabilities are initially recognised at fair value and are subsequently accounted for based on their classification as described below. Their classification depends on the purpose for which the financial instruments were acquired or issued, their characteristics and I-RES' designation of such instruments. The standards require that all financial assets and financial liabilities be classified as fair value through profit or loss ("FVTPL"), amortised cost or fair value through other comprehensive income ("FVOCI").
'2. Significant Accounting Policies (continued)
'g) IFRS 9, Financial Instruments ("IFRS 9") (continued)
Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset when:
. the contractual rights to the cash flows from the financial asset expire; or
. it transfers the rights to receive the contractual cash flows in a transaction in which either:
- substantially all of the risks and rewards of ownership of the financial asset are transferred; or
- the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
The Group enters into transactions whereby it transfers assets recognised in its consolidated statement of financial position but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.
Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
Classification of financial instruments
The following summarises the classification and measurement I-RES has elected to apply to each of its significant categories of financial instruments:
Type Classification Measurement Financial assets Cash and cash equivalents Held to Collect Amortised cost Other receivables Held to Collect Amortised cost Derivative financial instruments FVTOCI Fair value through other comprehensive income Financial liabilities Bank indebtedness Other financial liabilities Amortised cost Private placement notes Other financial liabilities Amortised cost Accounts payable and accrued liabilities Other financial liabilities Amortised cost Security deposits Other financial liabilities Amortised cost Derivative financial instruments FVTOCI Fair value through other comprehensive income
2. Significant Accounting Policies (continued)
'g) IFRS 9, Financial Instruments ("IFRS 9") (continued)
Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments with an original maturity of three months or less. Interest earned or accrued on these financial assets is included in other income.
Other receivables
Such receivables arise when I-RES provides services to a third party, such as a resident and are included in current assets, except for those with maturities more than 12 months after the consolidated statement of financial position date, which are classified as non-current assets. Loans and other receivables are included in other assets initially at fair value on the consolidated statement of financial position and are subsequently accounted for at amortised cost.
Other liabilities
Such financial liabilities are initially recorded at fair value and subsequently accounted for at amortised cost and include all liabilities other than derivatives. Derivatives are at fair value through other comprehensive income ("OCI").
FVTPL
Financial instruments in this category are recognised initially and subsequently at fair value. Gains and losses arising from changes in fair value are presented within gain on derivative financial instruments in the consolidated statement of income and comprehensive income in the period in which they arise. Financial assets and liabilities at FVTPL are classified as current, except for the portion expected to be realised or paid more than 12 months after the consolidated statement of financial position date, which is classified as non-current. Derivatives are categorised as FVTPL unless designated as hedges.
Derivative financial instruments and hedge accounting
The Group utilises derivative financial instruments to hedge foreign exchange risk and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are remeasured at fair value, with changes generally recognised through profit or loss.
The Group designates certain derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, hedge accounting is used in line with IFRS 9. The effective portion of changes in the fair value of the derivative is recognised in OCI and accumulated in the hedging reserve. The effective portion of changes in the fair value of the derivative that is recognised in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.
2. Significant Accounting Policies (continued)
'g) IFRS 9, Financial Instruments ("IFRS 9") (continued)
For all hedged forecast transactions, the amount accumulated in the hedging reserve is reclassified to financing costs in the same period or periods during which the hedged expected future cash flows affect profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve are immediately reclassified to profit or loss. h. IFRS 16, Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.
As a lessee
When the Group acts as a lessee, at commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset. In addition, the right-of-use asset is periodically reduced by impairment losses, if any and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and the type of asset leased.
2. Significant Accounting Policies (continued)
'h) IFRS 16, Leases (continued)
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Lease payments included in the measurement of the lease liability comprise the following:
- fixed payments, including in-substance fixed payments;
- variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
- amounts expected to be payable under a residual value guarantee; and
- the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded through profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group presents right-of-use assets that do not meet the definition of investment property in 'Property, plant and equipment' and lease liabilities in 'Lease liability' in the statement of financial position.
As a lessor
When the Group acts as a lessor, it determines at lease commencement whether each lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards incidental to ownership of the underlying assets. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of the assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset, the present value of lease payments and any option included in the lease. The Group has determined that all of its leases are operating leases.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease.
On modification of a contract that contains a lease component and a non-lease component, I-RES allocates the consideration in the contract to each of the components on the basis of their relative stand-alone prices.
Tenant inducements
Incentives such as cash, rent-free periods and move-in allowances may be provided to lessees who enter into a lease. The incentives are written off on a straight-line basis over the term of the lease as a reduction of rental revenue.
2. Significant Accounting Policies (continued)
h) IFRS 16, Leases (continued)
Early termination of leases
When the Group receives rent loss payments from a tenant for the early termination of a lease, it is reflected in the accounting period in which the rent loss payment occurred.
Expected credit loss
The Group recognises a loss allowance for expected credit losses on trade receivables and other financial assets. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. Loss allowances for trade receivables (including lease receivables) are always measured at an amount equal to lifetime ECLs. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment, that includes forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.
For individual residential customers, the Group has a policy of writing off the gross carrying amount when the financial asset is 30 days past due based on historical experience of recoveries of similar assets. For individual commercial customers, the Group has a policy of writing off the gross carrying amount when the financial asset is 60 days past due based on historical experience of recoveries of similar assets. i. IFRS 15, Revenue from Contracts with Customers ("IFRS 15")
I-RES retains substantially all of the risks and benefits of ownership of its investment properties and therefore accounts for leases with its tenants as operating leases. Rent represents lease revenue earned from the conveyance of the right to use the property, including access to common areas, to a lessee for an agreed period of time. The contract also contains a performance obligation that requires I-RES to maintain the common areas to an agreed standard. This right of use and performance obligation is governed by a single rental contract with the tenant. In accordance with IFRS 16 Leases, I-RES has evaluated the lease and non-lease components of its rental revenue and has determined that common area maintenance services constitute a single non-lease element, which is accounted for as one performance obligation under IFRS 15 and is recognised separately to Rental Income as Revenue under IFRS 15 Revenue from Contracts with Customers.
Rental revenue includes amounts earned from tenants under the rental contract which are allocated to the lease and non-lease components based on relative stand-alone selling prices. The stand-alone selling prices of the lease components are determined using an adjusted market assessment approach and the stand-alone selling prices of the service components are determined using the input method based on the expected costs plus an estimated market-based margin for similar services.
Rental income from the operating lease component is recognised on a straight-line basis over the lease term in accordance with IFRS 16 Leases. When I-RES provides incentives to its tenants, the cost of such incentives is recognised over the lease term, on a straight-line basis, as a reduction of revenue.
2. Significant Accounting Policies (continued)
i) IFRS 15, Revenue from Contracts with Customers ("IFRS 15") (continued)
Revenue from maintenance services represents the service component of the REIT's rental contracts and is accounted for in accordance with IFRS 15, Revenue from Contracts with Customers ("IFRS15"). These services consist primarily of the recovery of utility, property and other common area maintenance and amenity costs where I-RES has determined it is acting as a principal.
These services constitute a single non-lease component, which is accounted for as one performance obligation under IFRS 15 as the individual activities that comprise these services are not distinct in the context of the contract. The individual activities undertaken to meet the performance obligation may vary from time to time but cumulatively the activities undertaken to meet the performance obligation are relatively consistent over time. The tenant simultaneously receives and consumes the benefits provided under the performance obligation as I-RES performs and consequently revenue is recognised over time, typically on a monthly basis, as the services are provided. j. Operating segments
The Group operates and is managed as one business segment, namely property investment, with all investment properties located in Ireland. The operating segment is reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, which has been identified as the I-RES Board. k. Statement of cash flows
Cash and cash equivalents consist of cash on hand and balances with banks. Investing and financing activities that do not require the use of cash or cash equivalents are excluded from the consolidated statement of cash flows and are disclosed separately in the notes to the consolidated financial statements. Interest paid is classified as financing activities. l. Income taxes
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain criteria are met.
I-RES elected for REIT status on 31 March 2014. As a result, from that date I-RES does not pay Irish corporation tax on the profits and gains from its qualifying rental business in Ireland, provided it meets certain conditions.
Corporation tax is payable in the normal way in respect of income and gains from any residual business (generally including any property trading business) not included in the Property Rental Business. I-RES is liable to pay other taxes such as VAT, stamp duty, land tax, local property tax and payroll taxes in the normal way.
Deferred tax
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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.
2. Significant Accounting Policies (continued)
'l) Income taxes (continued)
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. m. Equity and share issue costs
The equity of I-RES consists of ordinary shares issued. Shares issued are recorded at the date of issuance. Direct issue costs in respect of the issue of shares are accounted for as a deduction from retained earnings. The excess consideration for shares above nominal value is recorded as share premium. n. Net asset value ("NAV")
The NAV is calculated as the value of the Group's assets less the value of its liabilities, measured in accordance with IFRS and in particular will include the Group's property assets at their fair value assessed independently by valuers. o. Share-based payments
I-RES has determined that the options and restricted share units issued to senior executives qualify as "equity-settled share-based payment transactions" as per IFRS 2. In addition, any options issued to the directors and employees also qualify as equity-settled share-based payment transactions. The fair value of the options measured on the grant date will be expensed over the graded vesting term with a corresponding increase in equity. The fair value for all options granted is measured using the Black-Scholes model.
The grant-date fair value of restricted share units issued to senior employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The fair value for all restricted share units granted is measured using a Monte Carlo simulation. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. p. Property taxes
Property taxes are paid annually and recognised as an expense evenly throughout the year. q. Security deposits
Security deposits are amounts received from tenants at the beginning of a tenancy. When a tenant is no longer in possession of the property, the Group will assess whether there was damage to the property above normal wear and tear for which deductions may be made to their deposit. Once the inspections and repairs are calculated, the remaining security deposit is returned to the tenant. r. Pension
The Company operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which a company pays fixed contributions into a separate entity. Once the contributions have been paid, the Company has no further obligations. The contributions are recognised as an expense when they are due. The amounts that are not paid are shown as accruals in the consolidated statement of financial position. The assets of the plan are held separately from those of the Company in an independently administered fund.
2. Significant Accounting Policies (continued) s. Assets held for sale
Non-current assets are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets are generally measured at the lower of their carrying amount and fair value less costs to sell. Impairment losses on initial calculation as held-for-sale and subsequent gains or losses on remeasurement are recognised in the consolidated statement of profit or loss and other comprehensive income. t. Impact expected from new or amended standards
The following standards and amendments are not expected to have a significant impact on reported results or disclosures of the Group and were not effective at the financial year end 31 December 2022 and have not been applied in preparing these consolidated financial statements. The Group will apply the new standards from the effective date. The potential impact of these standards on the Group is under review:
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
The amendments, as issued in 2020, aim to clarify the requirements on determining whether a liability is current or non-current and apply for annual reporting periods beginning on or after 1 January 2023. However, the IASB has subsequently proposed further amendments to IAS 1and the deferral of the effective date of the 2020 amendments to no earlier than 1 January 2024.
Classification of Liabilities as Current or Non-current (Amendments to IAS 1), IASB effective date 1 January 2023.
Under existing IAS 1 requirements, companies classify a liability as current when they do not have an unconditional right to defer settlement of the liability for at least twelve months after the end of the reporting period. As part of its amendments, the Board has removed the requirement for a right to be unconditional and instead, now requires that a right to defer settlement must have substance and exist at the end of the reporting period.
Definition of Accounting Estimates (Amendments to IAS 8), IASB effective date: 1 January 2023.
The amendments make a distinction between how an entity should present and disclose different types of accounting changes in its financial statements. Changes in accounting policies much be applied retrospectively while changes in accounting estimates are accounted for prospectively.
IFRS 17 Replaces IFRS 4 Insurance Contracts, IASB effective date: 1 January 2023.
IFRS 17 provides consistent principles for all aspects of accounting for insurance contracts. It removes existing inconsistencies and enables investors, analysts and others to meaningfully compare companies, contracts and industries.
The Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2), IASB effective date for IAS 1: 1 January 2023.
Under the amendments, an entity discloses its material accounting policies, instead of its significant accounting policies. To support the amendments, IASB has development guidance and examples to illustrate how the 'four-step materiality process' should be applied in IFRS Practice Statement 2.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12), effective date 1 January 2023.
The amendments clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. 3. Critical Accounting Estimates, Assumptions and Judgements
The preparation of the consolidated financial statements in accordance with IFRS requires the use of estimates, assumptions and judgements that in some cases relate to matters that are inherently uncertain and which affect the amounts reported in the consolidated financial statements and accompanying notes. Areas of such estimation include, but are not limited to, valuation of investment properties and valuation of financial instruments. Changes to estimates and assumptions may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates under different assumptions and conditions.
The valuation estimate of investment properties is deemed to be significant. See note 20(a) and note 5 for a detailed discussion of valuation methods and the significant assumptions and estimates used. 4. Recent Investment Property Acquisitions, Developments and Disposals
For the year 1 January 2022 to 31 December 2022
Investment property acquisitions
Total Acquisition
Property Acquisition Date Unit Count Region Costs
EUR'000
Ashbrook January/May 2022(1) 108 North Dublin 42,604
Tara View August 2022 69 South Dublin 48,043
177 90,647 1. 86 units were acquired in January 2022, a further 22 units were acquired in May 2022.
Completed development
Total
Total Costs Spent in 2022 Development
Property Unit Count Region
EUR'000 Cost spent to date
EUR'000
School Yard 61 City Centre 4,632 19,091(1) 1. Total development costs spent to date exclude costs spent prior to the construction phase and anyunrealised fair value movement recognised as part of the bi-annual valuation process.
Disposals
Name Unit Count Region Net proceeds from disposals
EUR'000
Hampton Wood 128 North Dublin 53,901
Tara View 1 South Dublin 1,031
129 54,932
For the year 1 January 2021 to 31 December 2021
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Investment property acquisitions
Acquisition Unit Total Acquisition
Property Date Count Region Costs
EUR'000
Phoenix Park January 2021 146 West Dublin 61,559
Richmond Gardens March 2021 1 City Centre 506
Bakers Yard March 2021 1 City Centre 277
148 62,342
'4. Recent Investment Property Acquisitions, Developments and Disposals (continued)
Properties under development
Total
Unit Total Costs Spent Development
Property Development Contract Date Count Region in 2021 Cost spent
EUR'000 to date
EUR'000
School Yard January 2020 61 City Centre 9,135 14,459
Disposals
Name Unit Count Other Land and Property Region Net proceeds from disposals
EUR'000
Tallaght Cross West - Unit C4 and Food Court West Dublin 1,598
Elm Park 7 South Dublin 2,755
7 4,353 5. Investment Properties
Valuation basis
Investment properties are carried at fair value, which is the amount at which the individual properties could be sold in an orderly transaction between market participants at the measurement date, considering the highest and best use of the asset, with any gain or loss arising from a change in fair value recognised through profit or loss in the consolidated statement of profit or loss and other comprehensive income for the year.
The Group uses Savills and CBRE as external independent valuers. The Group's investment property is rotated between these valuers on a periodic basis. The valuers fair valued all of the Group's investment properties as at 31 December 2022. The valuers employ qualified valuation professionals who have recent experience in the location and category of the respective properties. Valuations are prepared on a bi-annual basis at the interim reporting date and the annual reporting date.
The information provided to the valuers and the assumptions, valuation methodologies and models used by the valuers, are reviewed by management. The valuers meet with the Audit Committee and discuss directly the valuation results as at 30 June and 31 December. The Board determines the Group's valuation policies and procedures for property valuations. The Board decides which independent valuers to appoint for the external valuation of the Group's properties. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
Investment property producing income
For investment property, the income approach/yield methodology involves applying market-derived yields to current and projected future income streams. These yields and future income streams are derived from comparable property transactions and are considered to be the key inputs in the valuation. Other factors that are taken into account include the tenure of the lease, tenancy details and planning, building and environmental factors that might affect the property.
Investment property under development
In the case of investment property under development, the approach applied is the "residual method" of valuation, which is the valuation method as described above with a deduction for the costs necessary to complete the development together with an allowance for the remaining risk. At 31 December 2022, all investment property under development was completed and reclassified to investment property producing income.
During the year ended 31 December 2022, the Company incurred development costs of EUR4.6 million (31 December 2021: EUR9.1 million) relating to the properties under development.
'5. Investment Properties (continued)
Cumulative borrowing costs of EUR300,000 (EUR206,000 as at 31 December 2021) were included in capitalised development expenditures prior to their reclassification. The weighted average interest rate used to capitalise the borrowing costs was 1.80% (31 December 2021: 1.80%).
Development land
In the case of development land, the approach applied is the comparable sales approach, which considers recent sales activity for similar land parcels in the same or similar markets. Land values are estimated using either a per acre or per buildable square foot basis based on highest and best use. Such values are applied to the Group's properties after adjusting for factors specific to the site, including its location, zoning, servicing and configuration.
Information about fair value measurements using unobservable inputs (Level 3)
At 31 December 2022, the Group considers that all of its investment properties fall within Level 3 fair value as defined by IFRS 13. As outlined in IFRS 13, a Level 3 fair value recognises that the significant inputs and considerations made in determining the fair value of property investments cannot be derived from publicly available data, as the valuation methodology in respect of a property also has to rely on a number of unobservable inputs including technical reports, legal data, building costs, rental analysis (including rent moratorium), professional opinion on profile, lot size, layout and presentation of accommodation. In addition, the valuers utilise proprietary databases maintained in respect of properties similar to the assets being valued.
The Group tests the reasonableness of all significant unobservable inputs, including yields and stabilised net rental income ("Stabilised NRI") used in the valuation and reviews the results with the independent valuers for all valuations. The Stabilised NRI represents cash flows from property revenue less property operating expenses, adjusted for market-based assumptions such as market rents, short term and long term vacancy rates, bad debts, management fees and repairs and maintenance. These cashflows are estimates for current and projected future income streams.
Sensitivity analysis
Stabilised NRI and "Equivalent Yields" are key inputs in the valuation model used.
Equivalent Yield is the rate of return on a property investment based on current and projected future income streams that such property investment will generate. This is derived by the external valuers and is used to set the term and reversionary yields.
For example, completed properties are valued mainly using a term and reversion model. For the existing rental contract or term, estimated Stabilised NRI is based on the expected rents from residents over the period to the next lease break option or expiry. After this period, the reversion, estimated Stabilised NRI is based on expectations from current market conditions. Thus, a decrease in the estimated Stabilised NRI will decrease the fair value and an increase in the estimated Stabilised NRI will increase the fair value.
The Equivalent Yields magnify the effect of a change in Stabilised NRI, with a lower yield resulting in a greater effect on the fair value of investment properties than a higher Equivalent Yield.
For investment properties producing income and investment properties under development, an increase of 1% in the Equivalent Yield would have the impact of a EUR256.4 million reduction in fair value while a decrease of 1% in the Equivalent Yield would result in a fair value increase of EUR394.7 million. An increase between 1% - 4% in Stabilised NRI would result in a fair value increase from EUR14.8 million to EUR59.1 million respectively in fair value, while a decrease between 1% - 4% in Stabilised NRI would have the impact ranging from EUR14.8 million to EUR59.1 million reduction respectively. I-RES believes that this range of change in Stabilised NRI is a reasonable estimate in the next twelve months based on expected changes in net rental income.
The direct operating expenses recognised in the consolidated statement of profit or loss and other comprehensive income for the Group is EUR19.1 million for the year ended 31 December 2022 (31 December 2021: EUR16.7 million), arising from investment property that generated rental income during the period. The direct operating expenses are comprised of the following significant categories: property taxes, utilities, repairs and maintenance, wages, insurance, service charges and IT costs.
5. Investment Properties (continued)
The direct operating expenses recognised in the consolidated statement of profit or loss and other comprehensive income arising from investment property that did not generate rental income for the year ended 31 December 2022 and 31 December 2021 was not material.
An investment property is comprised of various components, including undeveloped land and vacant residential and commercial units; no direct operating costs were specifically allocated to the components noted above.
Quantitative information
A summary of the Equivalent Yields and ranges along with the fair value of the total portfolio of the Group as at 31 December 2022 is presented below:
As at 31 December 2022
Fair Value WA Stabilised NRI(1)
Type of Interest Rate Type(2) Max. Min. Weighted Average
EUR'000 EUR'000
Income properties 1,477,168 2,906 Equivalent Yield 5.75% 4.00% 4.80%
Development land(3) 21,830 n/a Market Comparable EUR123.4 EUR30.1 EUR117.5
(per sq ft.)
Total investment properties 1,498,998
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(1) WA Stabilised NRI is the NRI of each property weighted by its fair value over the total fair value of the investment properties ("WA NRI"). The WA Stabilised NRI is an input to determine the fair value of the investment properties.
(2) The Equivalent Yield disclosed above is provided by the external valuers.
(3) Development land is fair-valued based on the value of the undeveloped site per square foot.
As at 31 December 2021
Fair WA Stabilised NRI
Type of Interest Value (1) Rate Type(2) Max. Min. Weighted
Average
EUR'000 EUR'000
Income properties 1,450,635 2,875 Equivalent Yield 5.43% 3.90% 4.53%
Properties under 18,000 1,113 Equivalent Yield 4.25% 4.25% 4.25%
development
Average Development Cost (per sq EUR378.3 EUR378.3 EUR378.3
ft.)
Development land(3) 24,770 n/a Market Comparable EUR140.9 EUR27.5 EUR134.6
(per sq ft.)
Total investment 1,493,405
properties
(1) WA Stabilised NRI is the NRI of each property weighted by its fair value over the total fair value of the investment properties ("WA NRI"). The NRI is input to determine the fair value of the investment properties.
(2) The Equivalent Yield disclosed above is provided by the external valuers.
(3) Development land is fair-valued based on the value of the undeveloped site per square foot.
5. Investment Properties (continued)
The following table summarises the changes in the investment properties portfolio during the periods:
Reconciliation of carrying amounts of investment properties
For the year ended 31 December 2022
Properties
Development
Income Properties Under Development
Land Total
EUR'000 EUR'000 EUR'000 EUR'000
Balance at the beginning of the year 1,450,635 18,000 24,770 1,493,405
Acquisitions 90,647 - - 90,647
Development expenditures - 4,632 - 4,632
Reclassification(1) 22,632 (22,632) - -
Property capital investments 8,769 - - 8,769
Capitalised leasing costs(2) (588) - - (588)
Direct leasing costs(3) (4) - - (4)
Disposal (52,264) - - (52,264)
Unrealised fair value movements (42,659) - (2,940) (45,599)
Balance at the end of the year 1,477,168 - 21,830 1,498,998
For the year ended 31 December 2021
Income Properties Development
Total
Properties Under Land
Development
EUR'000 EUR'000 EUR'000 EUR'000
Balance at the beginning of the year 1,346,683 8,901 24,770 1,380,354
Acquisitions 62,342 - - 62,342
Development expenditures - 9,135 56 9,191
Property capital investments 11,002 - - 11,002
Capitalised leasing costs(2) (1,113) - - (1,113)
Direct leasing costs(3) 149 - - 149
Disposal (3,454) - - (3,454)
Unrealised fair value movements 35,026 (36) (56) 34,934
Balance at the end of the year 1,450,635 18,000 24,770 1,493,405
(1) The development at School Yard was reclassified from properties under development to income properties upon completion in 2022.
(2) Straight-line rent adjustment for commercial leasing.
(3) Includes cash outlays for leasing.
The vast majority of the residential leases are for one year or less.
The carrying value of the Group investment properties of EUR1,499.0 million at 31 December 2022 (EUR1,493.4 million at 31 December 2021) was based on an external valuation carried out as at that date. The valuations were prepared in accordance with the RICS Valuation - Global Standards, 2020 (Red Book) and IFRS 13. 6. Leases
Leases as lessee (IFRS 16)
The Group has used an incremental borrowing rate of 2.48% to determine the lease liability. Information about leases for which the Group is a lessee is presented below.
Right-of-use assets
Land and Buildings
For the year ended 31 December 2022
(EUR'000)
Balance at the beginning of the period 9,070
Depreciation charge for the year (506)
Balance at the end of the year (Note 7) 8,564
Land and Buildings
For the year ended 31 December 2021
(EUR'000)
Balance at the beginning of the year 9,576
Depreciation charge for the year (506)
Balance at the end of the year (Note 7) 9,070
Amounts recognised in profit or loss
For the year ended 31 December 2022, I-RES recognised interest on lease liabilities of EUR222,000 (31 December 2021: EUR232,000).
Amounts recognised in statement of cash flows
For the year ended 31 December 2022, I-RES's total cash outflow for leases was EUR406,000. (31 December 2021: EUR396,000). Refer to note 23 for movements in the lease liability.
Lease as lessor
The Group leases out its investment property consisting of its owned residential and commercial properties as well as a portion of the leased property. All leases are classified as operating leases from a lessor perspective. See note 16 for an analysis of the Group's rental income. 7. Property, Plant and Equipment
Land and Buildings Furniture and Fixtures Total
(Note 6)
EUR'000 EUR'000 EUR'000
At cost
As at 1 January 2022 10,114 228 10,342
Additions - 44 44
Disposals - (41) (41)
As at 31 December 2022 10,114 231 10,345
Accumulated depreciation
As at 1 January 2022 (1,044) (86) (1,130)
Charge for the year (506) (30) (536)
Disposals - 39 39
As at 31 December 2022 (1,550) (77) (1,627)
As at 31 December 2022 8,564 154 8,718
Land and Buildings Furniture and Fixtures Total
(Note 6)
EUR'000 EUR'000 EUR'000
At cost
As at 1 January 2021 10,114 219 10,333
Additions - 9 9
As at 31 December 2021 10,114 228 10,342
Accumulated depreciation
As at 1 January 2021 (538) (73) (611)
Charge for the year (506) (13) (519)
As at 31 December 2021 (1,044) (86) (1,130)
As at 31 December 2021 9,070 142 9,212 8. Other Assets
As at 31 December 2022 31 December 2021
EUR'000 EUR'000
Other Current Assets
Prepayments(1) 2,429 2,242
Deposits on acquisitions(2) 2,462 10,099
Other receivables(3) - 466
Trade receivables 1,406 1,361
Total 6,297 14,168
(1) Includes prepaid costs such as OMC service charges, insurance and specific costs relating to preparing planning applications of development lands and costs associated with ongoing transactions.
(2) Includes deposit paid for Ashbrook Phase 2.
(3) Relates to levies received in respect of services to be incurred. 9. Accounts Payable and Accrued Liabilities
As at 31 December 2022 31 December 2021
EUR'000 EUR'000
Accounts Payable and Accrued Liabilities(1)
Rent - early payments 3,271 3,411
Trade creditors 689 726
Accruals(2) 8,745 10,799
Value Added Tax 92 478
Total 12,797 15,414
(1) The carrying value of all accounts payable and accrued liabilities approximates their fair value.
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(2) Includes property related accruals, development accruals and professional fee accruals, 10. Bank indebtedness
As at 31 December 2022 31 December 2021
EUR'000 EUR'000
Bank Indebtedness
Loan drawn down 457,020 420,020
Deferred loan costs (3,282) (3,398)
Total 453,738 416,622
The Revolving Credit Facility of EUR600 million is secured by a floating charge over assets of the Company, IRES Residential Properties Limited and a fixed charge over the shares held by the Company in its subsidiaries, IRES Residential Properties Limited and IRES Fund Management Limited, on a pari passu basis. This facility is being provided by Barclays Bank Ireland PLC, The Governor and Company of the Bank of Ireland, Allied Irish Banks, P.L.C. and HSBC Bank PLC. In July 2022, Ulster Bank Ireland DAC assigned its portion of the facility to Allied Irish Banks, P.L.C. as part of its exit of the Irish market.
The interest on the RCF is set at the annual rate of 1.75%, plus the one-month or three-month EURIBOR rate (at the option of I-RES). There are commitment fees charged on the undrawn loan amount of the RCF. The effective interest rate for the RCF is 2.67% (2021: 2.42%). On 14 December 2022, I-RES entered into hedging arrangements to fix the interest cost on EUR275m of the RCF. See further details in note 19.
'10. Bank indebtedness (continued)
On 11 February 2022, the Company exercised an option for an extension with all five banks (Ulster Bank Ireland DAC, Bank of Ireland, Allied Irish Bank, Barclays Bank plc and HSBC Bank plc) for the entire EUR600 million facility with a new maturity date of 18 April 2026. The extension included an arrangement fee of EUR1.6 million.
The financial covenants in relation to the RCF principally relate to Loan to Value and Interest Cover Ratio. I-RES has complied with all its debt financial covenants to which it was subject during the period. Loan to Value has remained below the required 50% at 43.3%. Interest Cover has remained above the requirement of 2.0x at 3.6x. 11. Private Placement Notes
On 11 March 2020, I-RES successfully closed the issue of EUR130 million notes and IRES Residential Properties Limited, its subsidiary, closed the issue of USD USD75 million notes on a private placement basis (collectively, the "Notes"). The Notes have a weighted average fixed interest rate of 1.92% inclusive of a USD/Euro swap and an effective interest rate of 2.07%. Interest is paid semi-annually on 10 March and 10 September.
The Notes have been placed in four tranches:
As at 31 December 31 December
2022 2021
Maturity Contractual interest Derivative EUR'000 EUR'000
rate Rates
EUR Series A Senior Secured 10 March 1.83% n/a 90,000 90,000
Notes 2030
EUR Series B Senior Secured 10 March 1.98% n/a 40,000 40,000
Notes 2032
USD Series A Senior Secured 10 March 3.44% 1.87% 46,738 43,922 (1)
Notes 2027
USD Series B Senior Secured 10 March 3.63% 2.25% 23,369 21,960 (2)
Notes 2030
200,107 195,882
Deferred financing costs, net (1,870) (2,142)
Total 198,237 193,740
(1) The principal amount of the USD Series A Senior Secured Notes is USD USD50 million.
(2) The principal amount of the USD Series B Senior Secured Notes is USD USD25 million.
The Notes are secured by a floating charge over the assets of the Group and a fixed charge over the shares held by the Company in IRES Residential Properties Limited on a pari passu basis.
The financial covenants in place in relation to the Private Placement Notes are aligned with the RCF. See note 10 for further details. 12. Business Combinations
On 29 January 2022, the Company and CAPREIT entered into binding legal agreements pursuant to which the Company exercised its right under the Investment Management Agreement and purchased 100% of the issued shares of IRES Fund Management Limited (the 'Investment Manager') on a liability free (other than liabilities in the ordinary course of business)/cash free basis for EUR1, effective from 31 January 2022 ("Completion"). The acquisition was deemed to be in the best interests of I-RES to internalise its management. The consideration is subject to adjustment pursuant to a completion accounts process. This includes an initial payment by the Company on completion of approximately EUR1.1 million in respect of cash acquired and a working capital adjustment, based on 31 January 2022 completion accounts. The below provides details on the consideration paid and/or payable as at 31 December 2022, as well as the fair values of the net assets acquired as at 31 January 2022.
'12. Business Combinations (continued)
Total
EUR'000
Current Assets
Prepaid expenses 8
Other receivables 1,044
Cash and cash equivalents 2,459
3,511
Current Liabilities
Accounts payable and accrued liabilities (1,947)
Other payables (198)
(2,145)
Identifiable Net Assets acquired 1,366
Total Consideration 1,366
Satisfied by Total
EUR'000
Cash paid on acquisition 1,131
Cash paid on completion 235
Total Consideration 1,366
No goodwill is attributed to the transaction as the total consideration equates to the identifiable net assets of the acquired entity. Additionally, no intangible assets have been identified.
No contingent liabilities were recognised on the acquisition completed during the period. The gross contractual value of other receivables as at the date of acquisition equates to its fair value.
The acquisition costs associated with the transaction are included in the non-recurring costs recorded in 2021 and 2022.
The effect on the profit and loss of the Group post acquisition or as if the acquisition had taken place for the full period is not practical to disclose given the relationship and current and historic transactions between the two entities. The effect on revenue for the Group post acquisition or as if the acquisition had taken place for the full period is nil given that the revenue recorded by IRES Fund Management Limited is directly related to I-RES. Post completion of the acquisition, I-RES no longer incurs an external Property Management and Asset Management Fee. These costs were historically paid to IRES Fund Management Limited, the entity acquired and therefore the profit or loss of IRES Fund Management is materially affected by transactions with the acquirer, I-RES. 13. Share-based Compensationa. Options
Options are issuable pursuant to I-RES' share-based compensation plan, namely, the long-term incentive plan ("LTIP"). For details on options granted under the LTIP, please refer to the statutory financial statements prepared for the year ended 31 December 2020 and 31 December 2021. As at 31 December 2022, the maximum number of additional options, or Restricted Share Units ("RSU") issuable under the LTIP is 20,594,128 (31 December 2021: 21,235,010).
LTIP
For the year ended WA exercise price(1) 31 December 2022 31 December 2021 Share Options outstanding as at 1 January 1.32 4,721,499 9,096,499 Issued, cancelled or granted during the period: Exercised or settled 1.01 (125,000) (4,375,000)(3) Share Options outstanding as at 31 December(2) 1.61 4,596,499 4,721,499 1. Weighted average exercise price for share options outstanding as at 1 January 2021 was 1.32 and 1.59 forshare options outstanding at 31 December 2021 2. Of the Share Options outstanding above, 4,596,499 were exercisable at 31 December 2022 (31 December 2021:3,855,999) from 15 November 2024 to 9 July 2026 with a range of exercise price of EUR1.489 to EUR1.71. 3. See note 24 for more details.
The fair value of options has been determined as at the grant date using the Black-Scholes model. b. Restricted Stock Unit Awards
Restricted Stock Units (RSUs) were first awarded in the year ended 31 December 2020. Under the Remuneration policy, recipients of RSUs are granted a variable number of equity instruments depending on their salary. The awards are subject to vesting against market and non-market based conditions. A summary of the awards is set out in the table below. All awards are outstanding at 31 December 2022.
EPS Growth TSR Performance
Date of award Number of awards
(% of award) (% of award)
27 March 2020 437,601 50% 50%
5 March 2021 335,820 50% 50%
5 August 2021 221,519 50% 50%
23 February 2022 685,402 50% 50%
10 August 2022 57,980 50% 50%
There is between a 24 month and 61 month holding period post vesting, but this is not subject to measurement as all conditions terminate on vesting. The LTIP awards are measured as follows:
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Market-based condition: The expected performance of I-RES shares over the vesting period is calculated using a Monte Carlo simulation. Inputs are share price volatility for I-RES and the average growth rate. These inputs are calculated with reference to relevant historical data and financial models. It should be recognised that the assumption of an average growth rate is not a prediction of the actual level of returns that will be achieved. The volatility assumption in the distribution gives a measure of the range of outcomes that may occur on either side of this average value. This is used to amortise the fair value of an expected cost over the vesting period. On vesting, any difference in amounts accrued versus actual is amended through reserves.
'13. Share-based Compensation (continued)
Non-market-based conditions: The fair value of the shares to be issued is determined using the grant date market price. The expected number of shares is calculated based on the expectations of the number of shares which may vest at the vesting date and amortised over the vesting period. At each reporting date, the calculation of the number of shares is revised according to current expectations or performance.
50% of the awards are subject to an EPS measure and 50% is subject to a TSR measure relative to constituents of the FTSE EPRA/NAREIT Europe Developed Index. Results and inputs are summarised in the table below:
2022 RSU Awards 2021 RSU Awards 2020 RSU Awards Fair value per award (TSR tranche) (per share) EUR0.70 to EUR0.75 EUR0.70 to EUR0.75 EUR0.57 Inputs Three year Risk free interest rate (%) 0.04% to 0.87% (0.69%) to (0.85%) (0.70%) Three year Historical volatility 26.84% to 28.26% 25.68% to 25.80% 22.21% Fair value per award (EPS tranche) (per share) EUR1.24 to EUR1.36 EUR1.22 to EUR1.33 EUR1.05 Inputs Two year Risk free interest rate (%) (0.17%) to 0.70% (-0.70%) to (-0.79%) (0.71%) Two year Expected volatility 23.42 to 29.08% 22.45% to 29.77% 24.06%
The expected volatility is based on historic market volatility prior to the issuance.
The total share-based compensation expense relating to options for the year ended 31 December 2022 was EUR24,000 (31 December 2021: EUR87,000) and total share-based compensation expense relating to restricted stock unit awards for the year ended 31 December 2022 was EUR93,000 (31 December 2021: EUR189,000). 14. Shareholders' Equity
All equity shares outstanding are fully paid and are voting shares. Equity shares represent a shareholder's proportionate undivided beneficial interest in I-RES. No equity share has any preference or priority over another. No shareholder has or is deemed to have any right of ownership in any of the assets of I-RES. Each share confers the right to cast one vote at any meeting of shareholders and to participate pro rata in any distributions by I-RES and, in the event of termination of I-RES, in the net assets of I-RES remaining after satisfaction of all liabilities. Shares are to be issued in registered form and are transferable.
The number of shares authorised is as follows:
For the year ended 31 December 2022 31 December 2021 Authorised Share Capital 1,000,000,000 1,000,000,000 Ordinary shares of EUR0.10 each
The number of issued and outstanding ordinary shares is as follows:
For year months ended 31 December 2022 31 December 2021 Ordinary shares outstanding, beginning of period 529,453,946 525,078,946 New shares issued 125,000 4,375,000 Ordinary shares outstanding, end of year 529,578,946 529,453,946 15. Cash and Cash Equivalents For the year ended 31 December 2022 31 December 2021 Cash and cash equivalents 6,965 10,347
Cash and cash equivalents include cash at bank held in current accounts. The management of cash is discussed in note 20. The Group holds funds in excess of its regulatory minimum capital requirement at all times. 16. Revenue from Investment Properties
I-RES generates revenue primarily from rental income from investment properties. Rental income represents lease revenue earned from the conveyance of the right to use the property, including access to common areas, to a lessee for an agreed period of time. The rental contract also contains an undertaking that common areas and amenities will be maintained to a certain standard. This right of use of the property and maintenance performance obligation is governed by a single rental contract with the tenant. I-RES has evaluated the lease and non-lease components of its rental revenue and has determined that common area maintenance services constitute a single non-lease element, which is accounted for as one performance obligation under IFRS 15 and is recognised separately to Rental Income.
31 December 2022 31 December 2021
EUR'000 EUR'000
Rental Income 72,688 68,966
Revenue from services 10,642 9,626
Car park income 1,527 1,152
Revenue from contracts with customers 12,169 10,778
Total Revenue 84,857 79,744 17. General and Administrative Expenses
31 December 2022 31 December 2021
EUR'000 EUR'000
General and administrative expenses 11,031 6,235
Asset Management fee 375 4,814
Total recurring general and administrative expenses 11,406 11,049
Non-recurring costs 5,748 5,430
Total General and administrative expenses 17,154 16,479
Recurring general and administrative expenses include costs such as director fees, executives' and employees' salaries, professional fees for audit, legal and advisory services, depositary fees, property valuation fees, insurance costs, asset management fee and other general and administrative expenses. Non-recurring G&A costs are primarily legal, consulting and advisory expenses that relate to the termination of the Investment Management Agreement, Internalisation of the Manager, Transitional Services Agreement fees to CAPREIT and other one off third-party advisory services. The external asset management fee terminated from 31 January 2022, the date IRES Fund Management Limited was acquired. 18. Financing costs
31 December 2022 31 December 2021
EUR'000 EUR'000
Financing costs on RCF 12,629 9,963
Financing costs on private placement debt 5,293 4,926
Foreign exchange loss/(gain) on private placement debt 4,225 4,497
Reclassed from OCI (5,250) (5,386)
Gross financing costs 16,897 14,000
Less: Capitalised interest (94) (114)
Total Financing costs 16,803 13,886 19. Realised and Unrealised Gains and Losses on Derivative Financial Instruments
Cross-currency swap
On 12 February 2020, I-RES entered into a cross-currency swap to (i) hedge the US-based loan of USD USD75 million into EUR68.9 million effective 11 March 2020 and (ii) convert the fixed interest rate on the US-based loan to a fixed Euro interest rate, maturing on 10 March 2027 and 10 March 2030. (See note 11 for derivative fixed rates) This hedging agreement is accounted for as a cashflow hedge in accordance with the requirements of IFRS 9. Hedges are measured for effectiveness at each reporting date with the effective portion being recognised in equity in the hedging reserve and the ineffective portion being recognised through profit or loss within financing costs.
For the year ended 31 December 2022, the ineffective portion that has been recorded in the consolidated statement of profit or loss and other comprehensive income was EUR35,000 (31 December 2021: EURnil). The fair value of the effective portion of EUR7,310,000 (31 December 2021: EUR4,737,000) was included in the cash flow hedge reserve along with a gain on hedging of EUR144,000 (31 December 2021: cost of hedging of EUR378,000). The fair value of the cash flow hedge was an asset of EUR3,042,000 and a liability of EURnil at 31 December 2022 (31 December 2021: asset of EUR931,000 and liability of EUR3,961,000).
Interest rate swap
On 14 December 2022, I-RES entered into hedging arrangements in respect of its RCF, specifically interest rate swap agreements aggregating to EUR275 million until maturity of the facility, converting this portion of the facility into a fixed interest rate of 2.5% plus margin of 1.75%. For the year ended 31 December 2022, the fair value of the effective portion of EUR4,065,000 (31 December 2021: EURnil) has been recorded in the consolidated statement of profit or loss and other comprehensive income. The fair value of the interest rate swaps was an asset of EUR4,772,000 and a liability of EUR9,000 at 31 December 2022 (31 December 2021: EURnil).
The interest rate swaps entered into in 2017 expired in January 2021 resulting in a fair value gain of EUR59,000 and a liability of EURnil at 31 December 2021. 20. Financial Instruments, Investment Properties and Risk Managementa. Fair Value of Financial Instruments and Investment Properties
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The Group classifies and discloses the fair value for each class of financial instrument based on the fair value hierarchy in accordance with IFRS 13. The fair value hierarchy distinguishes between market value data obtained from independent sources and the Group's own assumptions about market value. The hierarchy levels are defined below:
Level 1 - Inputs based on quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs based on factors other than quoted prices included in Level 1 and may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals; and
Level 3 - Inputs which are unobservable for the asset or liability and are typically based on the Group's own assumptions as there is little, if any, related market activity.
The Group's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgement and considers factors specific to the asset or liability.
The following table presents the Group's estimates of fair value on a recurring basis based on information available as at 31 December 2022, aggregated by the level in the fair value hierarchy within which those measurements fall.
As at 31 December 2022, the fair value of the Group's private placement debt is estimated to be EUR158.2 million (31 December 2021: EUR203.7 million) due to changes in interest rates since the private placement debt was issued and the impact of the passage of time on the fixed rate of the private placement debt. The fair value of the private placement debt is based on discounted future cash flows using rates that reflect current rates for similar financial instruments with similar duration, terms and conditions, which are considered Level 2 inputs. The private placement debt is recorded at amortised cost of EUR198.2 million (31 December 2021: EUR193.7 million).
As at 31 December 2022, the fair value of the Group's RCF approximates the carrying value as the interest rate of the RCF is on a 1 month or 3 month basis.
'20. Financial Instruments, Investment Properties and Risk Management (continued)
'a) Fair Value of Financial Instruments and Investment Properties (continued)
As at 31 December 2022 Level 1 Level 2 Level 3
Quoted prices in active markets for Significant other Significant
identical assets and liabilities observable inputs unobservable inputs Total
(1)
EUR'000 EUR'000 EUR'000 EUR'000
Recurring Measurements - Assets
Investment properties - - 1,498,998 1,498,998
Derivative financial - 7,814 - 7,814
instruments
- 7,814 1,498,998 1,506,812
Recurring Measurements - Liability
Derivative financial - (9) - (9)
instruments(2)(3)
Total - 7,805 1,498,998 1,506,803
As at 31 December 2021 Level 1 Level 2 Level 3
Quoted prices in active markets for Significant other Significant
identical assets and liabilities observable inputs unobservable inputs Total
(1)
EUR'000 EUR'000 EUR'000 EUR'000
Recurring Measurements - Assets
Investment properties - - 1,493,405 1,493,405
Derivative financial - 931 - 931
instruments
- 931 1,493,405 1,494,336
Recurring Measurements - Liability
Derivative financial - (3,961) - (3,961)
instruments(2)(3)
Total - (3,030) 1,493,405 1,490,375
(1) See note 5 for detailed information on the valuation methodologies and fair value reconciliation.
(2) The valuation of the interest rate swap instrument is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. The fair value is determined using the market-standard methodology of netting the discounted future fixed cash payments and the discounted variable cash receipts of the derivatives. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rates. If the total mark-to-market value is positive, I-RES will include a current value adjustment to reflect the credit risk of the counterparty and if the total mark-to-market value is negative, I-RES will include a current value adjustment to reflect I-RES' own credit risk in the fair value measurement of the interest rate swap agreements.
(3) The cross-currency swaps are valued by constructing the cash flows of each side and then discounting them back to the present using appropriate discount factors, including consideration of credit risk, in those currencies. The cash flows of the more liquid quoted currency pair will be discounted using standard discount factors, while the cash flows of the less liquid currency pair will be discounted using cross-currency basis-adjusted discount factors. Following discounting, the spot rate will be used to convert the present value amount of the non-valuation currency into the valuation currency.
'20. Financial Instruments, Investment Properties and Risk Management (continued) b. Risk Management
The main risks arising from the Group's financial instruments are market risk, interest rate risk, liquidity risk and credit risk. The Group's approach to managing these risks is summarised as follows:
Market risk
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
The Group's financial assets currently comprise short-term bank deposits, trade receivables, deposits on acquisition and derivatives.
Short-term bank deposits are held while awaiting suitable investment properties for investment. These are denominated in euros. Therefore, exposure to market risk in relation to these is limited to interest rate risk.
The Group also has private placement notes that are denoted in USD. The Group's risk management strategy is to mitigate foreign exchange variability to the extent that it is practicable and cost effective to do so. The Group utilises cross currency swaps to hedge the foreign exchange risk associated with the Group's existing, fixed foreign-currency denominated Borrowings. The use of cross-currency interest rate swaps is consistent with the Group's risk management strategy to effectively eliminate variability in the Group's functional currency equivalent cash flows on a portion of its Borrowings due to variability in the USD-EUR exchange rate. The hedges protect the Group against adverse variability in foreign exchange rates and the effective portion is recognised in equity in the hedging reserve, with the ineffective portion being recognised through profit or loss within financing costs.
Derivatives designated as hedges against foreign exchange risks are accounted for as cash flow hedges. Hedges are measured for effectiveness at each accounting date and the accounting treatment of changes in fair value revised accordingly. Specifically, the Company is hedging (1) the foreign exchange risk on the USD interest payments and (2) the foreign exchange risk on the USD principal repayment of the USD Borrowings at maturity. This hedging relationship qualifies for foreign currency cash flow hedge accounting.
On 12 February 2020, I-RES entered into cross-currency swaps to (i) exchange the USD loan of USD USD75 million into EUR68.9 million effective 11 March 2020 and (ii) convert the fixed interest rate on the USD loan to a fixed Euro interest rate, maturing on 10 March 2027 and 10 March 2030.
At the inception of the hedging relationship the Company has identified the following potential sources of hedge ineffectiveness: 1. Movements in the Company's and hedging counterparty's credit spread that would result in movements infair value of the Hedging Instrument that would not be reflected in the movements in the value of the HedgedTransactions. 2. The possibility of changes to the critical terms (e.g. reset dates, index mismatches, payment dates) ofthe Hedged Transaction due to a refinancing or debt renegotiation such that they no longer match those of theHedging Instrument. The Company would reflect such mismatch when modelling the hypothetical derivative and thiscould be a potential source of hedge ineffectiveness.
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Whilst sources of ineffectiveness do exist in the hedging relationship, the Company expects changes in value of both the hedging instrument and the hedged transaction to offset and systematically move in opposite directions given that the critical terms of the hedging instrument and the hedged transactions are closely aligned at inception as described above. Therefore, the Company has qualitatively concluded that there is an economic relationship between the hedging instrument and the hedged transaction in accordance with IFRS 9.
'20. Financial Instruments, Investment Properties and Risk Management (continued)
'b) Risk management (continued)
Cash flow hedges
At 31 December 2022, the Group held the following instruments to hedge exposures to changes in foreign currency and interest rates:
31 December
As at 31 December 2022 31 December 2027 31 December 2030
2026
Cross Currency Swaps
Net exposure (EUR'000) 68,852 68,852 22,951 -
Average fixed interest rate 2.00% 2.00% 2.25% -
Interest Rate Swaps
Net exposure (EUR'000) 22,345 - - -
Average fixed interest rate 2.50% - - -
The amounts at the reporting date relating to items designated as hedged items were as follows:
Change in value used for calculating Cashflow hedge reserve
hedge ineffectiveness
(EUR'000)
(EUR'000)
Private placement debt 7,310 1,426
Interest rate swap 4,065 4,207
The amounts relating to items designated as hedging instruments and hedge ineffectiveness were as follows:
As at 31 December 2022 For the year ended 31 December 2022
Carrying amount Changes in the Line items in Amount
value of Hedge profit or loss reclassed Line items in
hedging ineffectiveness that includes from hedging profit or loss
Nominal instrument recognised in hedge reserve to affected by
amount Assets Liability recognised in profit or loss ineffectiveness profit or reclassification
OCI loss
(EUR'000) (EUR'000) (EUR'000) (EUR'000) (EUR'000) (EUR'000)
Cross Gain on
Currency 68,852 3,042 - 7,310 35 derivative (5,392) Financing costs
Swaps financial
instruments
Gain on
Interest Rate 275,000 4,772 (9) 4,065 - derivative 142 Financing costs
Swaps financial
instruments
As at 31 December 2021 For the year ended 31 December 2021
Carrying amount Changes in the Line items in Amount
value of Hedge profit or loss reclassed Line items in
hedging ineffectiveness that includes from hedging profit or loss
Nominal instrument recognised in hedge reserve to affected by
amount Assets Liability recognised in profit or loss ineffectiveness profit or reclassification
OCI loss
(EUR'000) (EUR'000) (EUR'000) (EUR'000) (EUR'000) (EUR'000)
Cross Gain on
Currency 68,852 931 (3,961) (5,115) - derivative (5,386) Financing costs
Swaps financial
instruments
'20. Financial Instruments, Investment Properties and Risk Management (continued)
'b) Risk management (continued)
Master netting or similar agreements
The Group enters into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under these agreements the amounts owed by each counterparty on a single day in respect of all transactions outstanding in the same currency are aggregated into a single net amount that is payable by one party to the other. In certain circumstances, all outstanding transactions under the agreement are terminated, the termination value is assessed and only a single net amount is payable in settlement of all transactions. The ISDA agreements do not meet the criteria for offsetting in the statement of financial position. This is because the Group does not have any currently legally enforceable right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future events.
The following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements.
Gross amounts of financial instruments in the Related financial instruments Net
statement of financial position that are not offset amount
31 December 2022 Note (EUR'000) (EUR'000) (EUR'000)
Financial assets
Derivative financial 19 7,814 - 7,814
instruments
Financial liabilities
Derivative financial 19 (9) - (9)
instruments
Managing interest rate benchmark reform and associated risks
The Group does not have any exposures to IBORs on its financial instruments due to IBOR reform as fixed to fixed rates are used. IBOR reform does not impact the Group's risk management and hedge accounting. The Group has EURIBOR on its RCF, which is not impacted by the interest rate benchmark reform.
Interest Rate Risk
With regard to the cost of borrowing I-RES has used and may continue to use hedging where considered appropriate, to mitigate interest rate risk.
As at 31 December 2022, I-RES' RCF was drawn for EUR457.0 million. The interest on the RCF is paid at a rate of 1.75% per annum plus the one-month or three-month EURIBOR rate (at the option of I-RES) or at a floor of zero if EURIBOR is negative. As previously noted, on 14 December 2022, I-RES entered into interest rate swaps in respect of its RCF, aggregating to EUR275 million until maturity of the facility, converting this portion of the facility into a fixed interest rate of 2.5% plus margin of 1.75%. As of the year end, approximately 72% of the Company's drawn debt is now fixed against interest rate volatility. The Company's private placement debt has a fixed rate of 1.92%. For the year ended 31 December 2022, a 100-basis point change in 1 month Euribor interest rates across the period would have had the following effect:
As at 31 December 2022
Change in interest rates Increase/(decrease) in net income
Basis Points EUR'000
EURIBOR rate debt(1) +100 (4,589.6)
EURIBOR rate debt(1) -100 974.0
(1) Based on the fixed margin of 1.75% plus the 1 month EURIBOR during year ended 31 December 2022 and a hedged interest rate of 2.500% for the period interest rate swaps in place.
'20. Financial Instruments, Investment Properties and Risk Management (continued)
'b) Risk management (continued)
As at 31 December 2021
Change in interest rates Increase (decrease) in net income
Basis Points EUR'000
EURIBOR rate debt(1) +100 (1,789)
EURIBOR rate debt(2) -100 -
(1) Based on the fixed margin of 1.75% plus the one-month EURIBOR rate as at 31 December 2021 of -0.574% on the RCF.
(2) Based on the fixed margin of 1.75% plus the floor of zero on the RCF.
Liquidity risk
Liquidity risk is the risk that the Group may encounter difficulties in accessing capital markets and refinancing its financial obligations as they come due.
The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group monitors the level of expected cash inflows on trade and other receivables, together with expected cash outflows on trade and other payables and capital commitments.
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The following tables show the Group's contractual undiscounted maturities for its financial liabilities:
1 to 2 2 to 5 More than 5 years
As at 31 December 2022 Total 6 months or less(1) 6 to 12 months(1) (1)
years(1) years(1)
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Non-derivative financial
liabilities
Loan drawn down 457,020 - - - 457,020 -
Bank indebtedness interest (2) 93,463 13,257 15,528 29,749 34,929 -
Private placement debt(3) 200,107 - - - 46,738 153,369
Private placement debt interest 25,934 1,739 1,739 3,478 10,434 8,544
Lease liability 10,670 314 314 628 1,883 7,531
Other liabilities 9,434 9,434 - - - -
Security deposits 7,974 7,974 - - - -
804,602 32,718 17,581 33,855 551,004 169,444
Derivative financial liabilities
Foreign exchange swap:
Outflow (8,422) (687) (687) (1,374) (4,122) (1,552)
Inflow(3) 14,472 1,206 1,206 2,412 7,236 2,412
6,050 519 519 1,038 3,114 860
Interest rate swap:
Outflow(4) (22,345) (3,438) (3,438) (6,875) (8,594) -
Inflow 26,633 3,539 4,832 8,307 9,955 -
4,288 101 1,394 1,432 1,361 -
(1) Based on carrying value at maturity dates.
(2) Based on current in-place interest rate for the remaining term to maturity.
(3) Based on forward foreign exchange rates as at 31 December 2022.
(4) Based on 1 month EURIBOR forward curve as at 31 December 2022.
'20. Financial Instruments, Investment Properties and Risk Management (continued)
'b) Risk management (continued)
1 to 2 2 to 5
As at 31 December 2021 Total 6 months or less(1) 6 to 12 months(1) More than 5 years(1)
years(1) years(1)
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Non-derivative financial liabilities
Loan drawn down 420,020 - - - 420,020 -
Bank indebtedness interest (2) 21,734 3,645 3,705 7,350 7,034 -
Private placement debt(3) 195,882 - - - - 195,882
Private placement debt interest 32,203 2,374 2,374 4,748 14,244 8,463
Lease liability 11,454 314 314 628 1,883 8,315
Other liabilities 11,525 11,525 - - - -
Security deposits 7,796 7,796 - - - -
700,614 25,654 6,393 12,726 443,181 212,660
Derivative financial liabilities
Foreign exchange swap:
Outflow (77,961) (687) (687) (1,374) (4,122) (71,091)
Inflow(3) 80,970 1,154 1,154 2,308 6,924 69,430
3,009 467 467 934 2,802 (1,661)
(1) Based on carrying value at maturity dates.
(2) Based on current in-place interest rate for the remaining term to maturity.
(3) Based on forward foreign exchange rates as at 31 December 2021.
The carrying value of bank indebtedness and trade and other payables (other liabilities) approximates their fair value.
Credit risk
Credit risk is the risk that: (i) counterparties to contractual financial obligations will default; or (ii) the possibility that the Group's tenants may experience financial difficulty and be unable to meet their rental obligations.
The Group monitors its risk exposure regarding obligations with counterparties through the regular assessment of counterparties' credit positions.
The Group mitigates the risk of credit loss with respect to tenants by evaluating the creditworthiness of new tenants and obtaining security deposits wherever permitted by legislation.
The Group monitors its collection experience on a monthly basis and ensures that a stringent policy is adopted to provide for all past due amounts. All residential accounts receivable balances exceeding 30 days are written off to bad debt expense and recognised in the consolidated statement of profit or loss and other comprehensive income. Subsequent recoveries of amounts previously written off are credited in the consolidated statement of profit or loss and other comprehensive income. The Group's allowance for expected credit loss amounted to EUR725,000 for the year ended 31 December 2022 and is recorded as part of property operating costs in the consolidated statement of profit or loss and other comprehensive income (31 December 2021: EUR626,000).
Cash and cash equivalents are held with major Irish and European institutions which have credit ratings between A- and A+. The Company deposits cash with a number of individual institutions to avoid concentration of risk with any one counterparty. The Group has also engaged the services of a depository to ensure the security of cash assets.
Risk of counterparty default arising on derivative financial instruments is controlled by dealing with high-quality institutions and by a policy limiting the amount of credit exposure to any one bank or institution. Derivative financial instrument counter parties have credit ratings in the range of A- to A+.
'20. Financial Instruments, Investment Properties and Risk Management (continued)
'b) Risk management (continued)
Capital management
The Group's objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, I-RES may issue new shares or consider the sale of assets to reduce debt. I-RES, through the Irish REIT Regime, is restricted in its use of capital to making investments in real estate property in Ireland. I-RES intends to continue to make distributions if its results of operations and cash flows permit in the future.
The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business At 31 December 2022, capital consists of equity and debt and Group Total Gearing was 43.3% (2021: 40.7%). I-RES seeks to use gearing to enhance shareholder returns over the long term. The level of gearing is monitored carefully by the Board.
The Board monitors the return on capital as well as the level of dividends paid to ordinary shareholders. Subject to distributable reserves, it is the policy of I-RES to distribute at least 85% of the Property Income of its Property Rental Business for each accounting period as required under the REIT legislation. 21. Taxation
I-RES elected for REIT status on 31 March 2014. As a result, from that date the Group is exempt from paying Irish corporation tax on the profits and gains it makes from qualifying rental businesses in Ireland provided it meets certain conditions.
Instead, dividends paid to shareholders in respect of the Property Rental Business are treated for Irish tax purposes as income in the hands of shareholders. Corporation tax is still payable in the normal way in respect of income and gains from any residual business (generally including any property trading business) not included in the Property Rental Business. I-RES is also liable to pay other taxes such as VAT, stamp duty, local property tax and payroll taxes in the normal way.
Within the Irish REIT Regime, for corporation tax purposes the Property Rental Business is treated as a separate business from the residual business. A loss incurred by the Property Rental Business cannot be offset against profits of the residual business.
An Irish REIT is required, subject to having sufficient distributable reserves, to distribute to its shareholders (by way of dividend), on or before the filing date for its tax return for the accounting period in question, at least 85% of the Property Income of the Property Rental Business arising in each accounting period. Failure to meet this requirement would result in a tax charge calculated by reference to the extent of the shortfall in the dividend paid. A dividend paid by an Irish REIT from its Property Rental Business is referred to as a property income distribution. Any normal dividend paid from the residual business by the Irish REIT is referred to as a non-property income distribution dividend.
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The Directors confirm that the Group has remained in compliance with the Irish REIT Regime up to and including the date of this Report and that there has been no profit arising from residual business activities.
31 December 2022 31 December 2021
EUR'000 EUR'000
Loss before tax (11,864) -
Tax charge on profit at standard rate of 12.5% - -
Adjusted for:
REIT tax-exempt loss 12,184 -
Other items (364) -
Income tax recoverable for the year (44) -
The deferred tax is EURnil at 31 December 2022 (31 December 2021: EURnil). 22. Dividends
Under the Irish REIT Regime, subject to having sufficient distributable reserves, I-RES is required to distribute to shareholders at least 85% of the Property Income of its Property Rental Business for each accounting period.
On 10 September 2022, the Directors resolved to pay an additional dividend of EUR12.2 million for the year ended 31 December 2022. The dividend of 2.3 cents per share was paid on 9 September 2022 to shareholders on record as at 19 August 2022.
On 23 February 2022, the Directors resolved to pay an additional dividend of EUR16.3 million for the year ended 31 December 2021. The dividend of 3.08 cents per share was paid on 29 March 2022 to shareholders on record as at 04 March 2022.
On 6 August 2021, the Directors resolved to pay an additional dividend of EUR15.4 million for the six months ended 30 June 2021. The dividend of 2.91 cents per share was paid on 10 September 2021 to shareholders on record as at 20 August 2021.
On 19 February 2021, the Directors resolved to pay an additional dividend of EUR16.9 million for the year ended 31 December 2020. The dividend of 3.22 cents per share was paid on 20 April 2021 to shareholders on record as at 26 March 2021.
Distributable reserves in accordance with the Irish REIT Regime were calculated as follows:
31 December 31 December
2022 2021
EUR'000 EUR'000
(Loss)/Profit for the year (11,820) 67,546
Plus/(Minus): unrealised loss/(gain) on net movement in fair value of investment 45,599 (34,934)
properties
Property Income of the Property Rental Business 33,779 32,612
Add back/(deduct):
Share-based compensation expense 117 276
Unrealised change in fair value of derivatives (35) (59)
Distributable Reserves 33,861 32,829 23. Supplemental Cash Flow Information
Breakdown of operating income items related to financing and investing activities
For the year ended 31 December 31 December
2022 2021
EUR'000 EUR'000
Financing costs as per the consolidated statement of profit or loss and other 16,803 13,886
comprehensive income
Interest expense accrual 332 237
Capitalised interest 94 114
Lease interest 222 232
Less: amortisation of financing fees (1,998) (1,644)
Interest Paid 15,453 12,825
'23. Supplemental Cash Flow Information (continued)
Net income items relating to financing and investing activities
For the year ended 31 December 2022 31 December 2021
EUR'000 EUR'000
Financing costs on Credit Facility 16,803 13,886
Amortisation of other financing costs (1,998) (1,644)
Lease interest 222 232
Net income items relating to financing and investing activities 15,027 12,474
Changes in operating assets and liabilities
For the year ended 31 December 2022 31 December 2021
EUR'000 EUR'000
Prepayments (187) 409
Trade receivables (770) (339)
Other receivables 466 208
Accounts payable and other liabilities (3,001) 4,273
Security deposits 178 234
Changes in operating assets and liabilities (3,314) 4,785
Issuance of Shares
For the year ended 31 December 2022 31 December 2021
EUR'000 EUR'000
Issuance of shares 126 4,468
Issuance costs - -
Net proceeds 126 4,468
Changes in liabilities due to financing cash flows
Changes from Financing Cash Flows Non-cash changes
1 Revolving Revolving Amortisation Interest Change in 31
Liabilities January Credit Credit Lease Financing of other Foreign accrual fair value December
2022 Facility Facility payments fees financing exchange relating to of hedging 2022
drawdown repayment costs derivatives instruments
Bank 420,020 93,000 (56,000) - - - - - - 457,020
indebtedness
Deferred loan (3,398) - - - (1,610) 1,726 - - - (3,282)
costs, net
Private
placement 195,882 - - - - - 4,225 - - 200,107
debt
Deferred loan (2,142) - - - - 272 - - - (1,870)
costs, net
Derivative
financial 3,961 - - - - - - 9 (3,961) 9
instruments
Lease 9,090 - - (406) - - - - - 8,684
liability
Total
liabilities
from 623,413 93,000 (56,000) (406) (1,610) 1,998 4,225 9 (3,961) 660,668
financing
activities
'23. Supplemental Cash Flow Information (continued)
Changes from Financing Cash Flows Non-cash changes
Revolving Revolving Financing Amortisation Interest Change in
1 Credit Credit Lease fees on of other Foreign accrual fair value 31
Liabilities January Facility Facility payments private financing exchange relating to of hedging December
2021 drawdown repayment placement costs derivatives instruments 2021
debt
Bank 354,020 89,500 (23,500) - - - - - - 420,020
indebtedness
Deferred loan (3,971) - - - (800) 1,373 - - - (3,398)
costs, net
Private
placement 191,385 - - - - - 4,497 - - 195,882
debt
Deferred loan (2,383) - - - (30) 271 - - - (2,142)
costs, net
Derivative
financial 8,159 - - - - - - - (4,114) 3,961
instruments
Lease 9,486 - - (396) - - - - - 9,090
liability
Total
liabilities
from 556,696 89,500 (23,500) (396) (830) 1,644 4,497 - (4,114) 623,413
financing
activities
24. Related Party Transactions
CAPREIT LP has an indirect 18.7% beneficial interest in I-RES. Previously it was determined that CAPREIT had significant influence over I-RES due to its beneficial interest and ownership of IRES Fund Management Limited ("the Manager"). On 31 January 2022 I-RES acquired the Manager from CAPREIT. Post completion of the acquisition, I-RES has determined that CAPREIT no longer has significant influence over I-RES. The below represent the transactions entered into with CAPREIT during the period whereby they demonstrated significant influence.
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Effective 1 November 2015, CAPREIT LP's wholly-owned subsidiary at the time, IRES Fund Management Limited ("the Manager" or "IRES Fund Management") entered into the investment management agreement with I-RES (the "Investment Management Agreement"), as amended or restated, pursuant to which I-RES paid 3.0% per annum of its gross rental income as property management fees and 0.5% per annum of its net asset value together with relevant reimbursements as asset management fees to the Manager. The Investment Management Agreement governed the provision of portfolio management, risk management and other related services to the Company by the Manager on a day-to-day basis. The Investment Management agreement had an initial term of five years and thereafter would continue in force for consecutive five- year periods if not terminated.
On 31 March 2021, the Company received a 12 months' notice of termination from the Manager. The notice stated that the termination of the Investment Management Agreement would take effect on 31 March 2022.
As previously disclosed, the Investment Management Agreement provides that if I-RES determines that it is in its best interests to internalise the management of the Company that the Company will purchase the issued shares of the Manager on a liability free (other than liabilities in the ordinary course of business)/cash free basis for EUR1.
On 29 January 2022, the Company and CAPREIT entered into binding legal agreements pursuant to which the Company exercised its right under the IMA and purchased the issued shares of the Investment Manager on a liability free (other than liabilities in the ordinary course of business)/cash free basis for EUR1, effective from 31 January 2022 ("Completion"). As the Investment Manager served as the Company's alternative investment fund manager ("AIFM") under the Alternative Investment Fund Managers Regulations 2013 ("AIFM Regulations"), the Company also received the necessary approvals from the Central Bank of Ireland ("CBI") to acquire the shares in the Investment Manager, subject to a requirement that all aspects of the Investment Manager's business be transferred to the Company and an application be submitted to the CBI for the Company to become authorised as an internally managed AIF.
'24. Related Party Transactions (continued)
The Company agreed to enter into a transitional services agreement with CAPREIT (the "Transitional Services Agreement") with effect from Completion, pursuant to which CAPREIT continued to provide certain transitional assistance to the Company for a period of three months to facilitate the migration of data and implementation of new IT systems in the Company. The charges for the transitional services were calculated in the same manner as such charges were calculated for the equivalent services prior to the date of the Transitional Services Agreement (being 3.0% per annum equivalent of the Company's gross rental income as property management fees and 0.5% per annum equivalent of its net asset value, net of employee costs relating to staff of the Investment Manager who transitioned with the AIFM on completion of its acquisition) which equated to c.EUR357k plus VAT per month. The total charge associated with the Transitional Services Agreement for the period was EUR1.3 million including VAT and is recorded in general and administrative expenses.
For the year ended 31 December 2022, I-RES incurred EUR0.4 million in asset management fees. In addition, EUR0.2 million in property management fees were incurred and recorded under operating expenses. For the year ended 31 December 2021, EUR4.8 million in asset management fees and EUR2.4 million in property management fees were incurred. For the year ended 31 December 2022, CAPREIT LP charged back EUR0.2 million (31 December 2021: EUR1.2 million) relating to salaries.
The amount payable to CAPREIT LP (including IRES Fund Management) was nil as at 31 December 2022 (31 December 2021: EUR2.2 million). The amount receivable from CAPREIT LP (including IRES Fund Management) was nil (31 December 2021: EUR0.2 million).
Transactions with Key Management Personnel
For the purposes of the disclosure requirements of IAS 24, the term "key management personnel" is defined as those persons having authority for planning, directing and controlling the activities of the Company. I-RES has determined that the key management personnel comprise the Board of Directors. See note 29 for further details on remuneration.
Owners' management companies not consolidated
As a result of the acquisition by the Group of apartments or commercial space in certain residential rental properties, the Group holds voting rights in the relevant owners' management companies associated with those developments. Where the Group holds the majority of those voting rights, this entitles it, inter alia, to control the composition of such owners' management companies' boards of directors. However, as each of those owners' management companies is incorporated as a company limited by guarantee for the purpose of owning the common areas in residential or mixed-use developments, they are not intended to be traded for gains. I-RES does not consider these owners' management companies to be material for consolidation as the total assets of the owners' management companies is less than 1% of the Group's total assets. I-RES has considered the latest available financial statements of these owners' management companies in making this assessment.
Percentage Prepaid
of Voting Service Payable by
Owners' Management Development Rights Fees by I-RES
Entity Registered Official Address Managed Held Incurred in I-RES
the Period
% of total EUR'000
(1) EUR'000
Majority voting rights held
Priorsgate Estate
Owners' Management 5th Floor, St Stephens Green Priorsgate 52.4 232.6 - -
Company Company Limited Earlsfort Terrace, Dublin 2
by Guarantee
GC Square (Residential) 5th Floor, St Stephens Green
Owners' Management Earlsfort Terrace, Dublin 2 The Marker 81.0 301.4 - -
Company Limited by Residences
Guarantee
Lansdowne Valley Owners' 5th Floor, St Stephens Green
Management Company Earlsfort Terrace, Dublin 2 Lansdowne 78.6 675.4 - 329.7
Limited by Guarantee Gate
Charlestown Apartments
Owners' Management Unit 4B Lazer Lane, Grand Charlestown 82.5 587.3 - 49.8
Company Limited by Canal Square, Dublin 2
Guarantee
24. Related Party Transactions (continued)
Percentage Prepaid
of Voting Service Payable by
Owners' Management Development Rights Fees by I-RES
Entity Registered Official Address Managed Held Incurred in I-RES
the Period
% of total EUR'000
(1) EUR'000
Bakers Yard Owners'
Management Company Ulysses House Foley Street Bakers Yard 66.2 196.5 - -
Company Limited by Dublin 1
Guarantee
Rockbrook Grande Central 5th Floor, St Stephens Green
Owners' Management Earlsfort Terrace, Dublin 2 Grande 73.5 377.6 - -
Company Limited by Central
Guarantee
Rockbrook South Central
Owners' Management 5th Floor, St Stephens Green South 80.0 608.4 - -
Company Limited by Earlsfort Terrace, Dublin 2 Central
Guarantee
Rockbrook Estate 5th Floor, St Stephens Green
Management Company Earlsfort Terrace, Dublin 2 Rockbrook 92.9(2) 30.3 - -
Limited by Guarantee Commercial
TC West Estate Charter House, 5 Pembroke Tallaght
Management Company Row, Dublin 2 D02 FW61 Commercial 75.0 241.8 - -
Limited by Guarantee
TC West Residential
Owners' Management Charter House, 5 Pembroke Tallaght 87.2 1,063.6 - -
Company Limited by Row, Dublin 2 D02 FW62 Residential
Guarantee
Gloucester Maple Owners' Ti Phuirseil Freeport,
Management Company Barna, Galway H91 W90P City Square 89.3 29.3 - 29.3
Limited by Guarantee
Elmpark Green
Residential Owners' 2 Lansdowne, Shelbourne Elmpark 60.5 527.9 - 133.4
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Management Company Ballsbridge Dublin 4 Green
Limited by Guarantee
Coldcut Owners' c/o Brehan Capital Partners
Management Company Limited, 2nd Floor, Guild Coldcut Park 97.7 229.2 - -
Limited by Guarantee House, Guild Street Dublin 1
Time Place Property RF Property Management
Management Company Ground Floor Ulusses House Time Place 74.4 158.0 - -
Limited by Guarantee 23/24 Foley Street, Dublin Dublin 18
1, D01 W2T2
Burnell
Burnell Green Management City Junction Business Park, Green
Company Company Limited Northern Cross, Malahide Northern 93.2 219.7 - -
by Guarantee Road Dublin 17 Cross Dublin
17
Ashbrook Management Unit 12, The Seapoint
Company Limited by Building, 44/45 Clontarf Ashbrook 56.3 200.5 - -
Guarantee Road, Dublin 3
Oak Lodge Management Burton Hall Drive,
Company Limited by Sandyford, Dublin 18 Tara View 98.5 - - -
Guarantee
Minority voting rights held
BSQ Owners' Management 5th Floor, St Stephens Green Beacon South
Company Limited by Earlsfort Terrace, Dublin 2 Quarter 12.7 1,006.3 - -
Guarantee
24. Related Party Transactions (continued)
Percentage Prepaid
of Voting Service Payable by
Owners' Management Development Rights Fees by I-RES
Entity Registered Official Address Managed Held Incurred in I-RES
the Period EUR'000
% of total
(1) EUR'000
GC Square Management 2nd Floor, Guild House Guild The Marker
Company Limited by Street, Dublin 1 Commercial 48.0 - - -
Guarantee
Sandyford Forum
Management Company 28/30 Burlington Road Dublin The Forum 6.3 16.1 - 7.1
Company Limited by 4
Guarantee
Stapolin Management 15 Adelaide Street Dun
Company Limited by Laoghaire Co Dublin A96 D8Y9 Stapolin 11.4 59.8 - 15.5
Guarantee
Red Arches Management 16 Adelaide Street Dun
Company Limited by Laoghaire Co Dublin A96 D8Y9 Red Arches 4.7 31.9 - 8.0
Guarantee
Stillbeach Management Beechwood
Company Company Limited Wyse 9 Lower Baggot Street Court 32.0 111.2 - 111.2
by Guarantee Dublin 2 D02 XN82 Stillorgan
Co Dublin
Burnell
Burnell Court Management City Junction Business Park, Court
Company Company Limited Northern Cross, Malahide Northern 25.8 117.9 - -
by Guarantee Road Dublin 17 Cross Dublin
17
Carrington Park Carrington
Residential Property Rfpm Ulysses House Foley Park Dublin 40.8 310.6 - -
Management Company Street Dublin 1, D01 W2T2 9
Limited by Guarantee
Heywood Court Management Lansdowne Partnership, 69 Heywood
Company (Dublin) Company Mespil Road, Dublin 4 Court Dublin 43.3 93.1 23.7 -
Limited by Guarantee 9
Harty's Quay Management David O'Suillivan & Co 1st
Company Limited by Floor Red Abbey Bld, Unit 20 Harty's Quay 29.4 112.5 - -
Guarantee South Link Industrial Estate Co Cork
Cork
Belville Court
Management Company 1/2 Windsor Terrace, Dun Belville 47.5 60.9 28.8 -
Company Limited by Laoghaire, Co Dublin Dublin 18
Guarantee
Malahide Waterside Office 3 The Eden Business
Management Company Centre, Grange Road, Waterside 9.6 16.0 - 5.4
Limited by Guarantee Rathfarnham, Dublin 16, D16
T293
Wyse Property Management
PPRD Management Company Ltd., 94 Baggot Street Phoenix Park 21.8 249.1 116.3 -
CLG Lower, Dublin 2, Dublin, D02 1
XN82
PPRD 2 Management 21 Pembroke Road, Dublin 2, Phoenix Park
Company CLG Dublin, D04k225, Ireland, 2 30.2 (1.0) - 24.7
D04 K225
Total 7,863.4 168.8 714.1
1. For residential apartments, the voting rights are calculated based on one vote per apartment regardlessof the size of that apartment. For commercial, it is based on square footage of the units or the memorandum andarticles of the particular management company. 2. Includes voting rights controlled directly and indirectly.
'24. Related Party Transactions (continued)
All of the owners' management companies are incorporated in Ireland and are property management companies. As noted above, as at 31 December 2022, EUR168,800 is payable and EUR714,100 is prepaid by the Group to the owners' management companies. As at 31 December 2021, EUR161,500 was payable and EUR413,500 was prepaid by I-RES to the owners' management companies. 25. Contingencies
At Beacon South Quarter, in addition to the capital expenditure work that has already been completed, water ingress works were identified in 2016 and I-RES is working with the Beacon South Quarter owners' management company to resolve these matters. There is also an active insurance claim with respect to the water ingress and related damage. The amount of potential costs relating to these structural remediation works cannot be currently measured with sufficient reliability. 26. Commitments
In January 2022, the Company entered into a forward purchase agreement to acquire 44 residential units at Ashbrook, Clontarf. The transaction was part of the total purchase price of EUR66.0 million (including VAT but excluding other transaction costs) paid for a total of 152 units, with the Company taking ownership of 108 units during the period to date. Delivery of the additional 44 units is anticipated in Q4 of 2023. The remaining consideration is EUR24.1 million. 27. (Loss)/Earnings per Share
Earnings per share amounts are calculated by dividing profit for the reporting period attributable to ordinary shareholders of I-RES by the weighted average number of ordinary shares outstanding during the reporting period.
For the year ended 31 December 2022 31 December 2021 (Loss)/Profit attributable to shareholders of I-RES (EUR'000) (11,820) 67,546 Basic weighted average number of shares 529,560,795 527,412,302 Diluted weighted average number of shares(1)(2) 530,953,506 528,130,822 Basic (Loss)/Earnings per share (cents) (2.2) 12.8 Diluted (Loss)/Earnings per share (cents) (2.2) 12.8
(1) Diluted weighted average number of shares includes the additional shares resulting from dilution of the long-term incentive plan options as of the reporting period date.
(2) At 31 December 2022, 4,596,499 options (31 December 2021: 4,596,499) were excluded from the diluted weighted average number of ordinary shares because their effect would have been anti-dilutive.
EPRA issued Best Practices Recommendations most recently in October 2019, which gives guidelines for performance matters.
EPRA Earnings represents the earnings from the core operational activities (recurring items for I-RES). It is intended to provide an indicator of the underlying performance of the property portfolio and therefore excludes all components not relevant to the underlying and recurring performance of the portfolio, including any revaluation results and results from the sale of properties. EPRA Earnings per share amounts are calculated by dividing EPRA Earnings for the reporting period attributable to shareholders of I-RES by the weighted average number of ordinary shares outstanding during the reporting period.
'27. (Loss)/Earnings per Share (continued)
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EPRA Earnings per Share
For the year ended 31 December 2022 31 December 2021 (Loss)/Profit for the year (EUR'000) (11,820) 67,546 Adjustments to calculate EPRA Earnings exclude: Changes in fair value on investment properties (EUR'000) 45,599 (34,934) (Profit) or losses on disposal of investment property (2,795) (905) Changes in fair value of derivative financial instruments (EUR'000) (35) (59) EPRA Earnings (EUR'000) 30,949 31,648 Basic weighted average number of shares 529,560,795 527,412,302 Diluted weighted average number of shares 530,953,506 528,130,822 EPRA Earnings per share (cents) 5.8 6.0 EPRA Diluted Earnings per share (cents) 5.8 6.0 28. Net Asset Value per Share
In October 2019, EPRA introduced three EPRA NAV metrics to replace the then existing EPRA NAV calculation that was previously being presented. The three EPRA NAV metrics are EPRA Net Reinstatement Value ("EPRA NRV"), EPRA Net Tangible Asset ("EPRA NTA") and EPRA Net Disposal Value ("EPRA NDV"). Each EPRA NAV metric serves a different purpose. The EPRA NRV measure is to highlight the value of net assets on a long term basis. EPRA NTA assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability. Lastly, EPRA NDV provides the reader with a scenario where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liabilities. The table below presents the transition between the Group's shareholders' equity derived from the consolidated financial statements and the various EPRA NAV.
EPRA NAV per Share
31 December 2022 As at EPRA NRV EPRA NTA(1) EPRA NDV(2) Net assets (EUR'000) 847,353 847,353 847,353 Adjustments to calculate EPRA net assets exclude: Fair value of derivative financial instruments (EUR'000) (4,764) (4,764) - Fair value of fixed interest rate debt (EUR'000) - - 40,612 Real estate transfer cost (EUR'000)(3) 76,368 - - EPRA net assets (EUR'000) 918,957 842,589 887,965 Number of shares outstanding 529,578,946 529,578,946 529,578,946 Diluted number of shares outstanding 529,578,946 529,578,946 529,578,946 Basic Net Asset Value per share (cents) 160.0 160.0 160.0 EPRA Net Asset Value per share (cents) 173.5 159.1 167.7
'28. Net Asset Value per Share (continued)
31 December 2021 As at EPRA NRV EPRA NTA(1) EPRA NDV(2) Net assets (EUR'000) 881,440 881,440 881,440 Adjustments to calculate EPRA net assets exclude: Fair value of derivative financial instruments (EUR'000) - - - Fair value of fixed interest rate debt (EUR'000) - - (10,008) Real estate transfer cost (EUR'000)(3) 75,372 - - EPRA net assets (EUR'000) 956,812 881,440 871,432 Number of shares outstanding 529,453,946 529,453,946 529,453,946 Diluted number of shares outstanding 529,498,519 529,498,519 529,498,519 Basic Net Asset Value per share (cents) 166.5 166.5 166.5 EPRA Net Asset Value per share (cents) 180.7 166.5 164.6
(1) Following changes to the Irish REIT legislation introduced in October 2019, if a REIT disposes of an asset of its property rental business and does not (i) distribute the gross disposal proceeds to shareholders by way of dividend; (ii) reinvest them into other assets of its property rental business (whether by acquisition or capital expenditure) within a three-year window (being one year before the sale and two years after it); or (iii) use them to repay debt specifically used to acquire, enhance or develop the property sold, then the REIT will be liable to tax at a rate of 25% on 85% of the gross disposal proceeds, subject to having sufficient distributable reserves. For the purposes of EPRA NTA, the Group has assumed any such sales proceeds are reinvested within the required three year window.
(2) Deferred tax is assumed as per the IFRS statement of financial position. To the extent that an orderly sale of the Group's assets was undertaken over a period of several years, during which time (i) the Group remained a REIT; (ii) no new assets were acquired or sales proceeds reinvested; (iii) any developments completed were held for three years from completion; and (iv) those assets were sold at 31 June 2022 valuations, the sales proceeds would need to be distributed to shareholders by way of dividend within the required time frame or else a tax liability amounting to up to 25% of distributable reserves plus current unrealised revaluation gains could arise for the Group.
(3) This is the purchaser costs amount as provided in the valuation certificate. Purchasers' costs consist of items such as stamp duty on legal transfer and other purchase fees that may be incurred and which are deducted from the gross value in arriving at the fair value of investment for IFRS purposes. Purchasers' costs are in general estimated at 9.96% for commercial, 4.46% for residential apartment units and 12.46% for houses and duplexes. 29. Directors' Remuneration, Employee Costs and Auditor Remuneration
Key Management personnel of the Group consist of the Board of directors. The remuneration of the key management personnel paid during the period were as follows:
For the year ended 31 December 2022 31 December 2021
EUR'000 EUR'000
Directors' remuneration(1)
Short-term employee benefits 1,943 1,503
Pension costs 92 60
Other benefits(2) 214 83
Share-based payments 113 276
Total 2,362 1,922
(1) Brian Fagan was elected as a Director of I-RES on 11 April 2022, his remuneration is included from that date.
(2) Included in this amount is pay-related social insurance and benefits paid to the Directors.
'29. Directors' Remuneration, Employee Costs and Auditor Remuneration (continued)
For the year ended 31 December 2022 31 December 2021
EUR'000 EUR'000
Employees costs
Salaries, benefits and bonus 7,559 1,600
Social insurance costs 761 126
Pension costs 174 66
Share-based payments 117 276
Total 8,611 2,068
The average number of employees in the period was 86 (2021: 5). The total number of employees at the reporting period was 95 (31 December 2021: 10).
For the year ended 31 December 2022 31 December 2021
EUR'000 EUR'000
Auditor remuneration (including expenses)(1)
Audit of Group accounts 185 135
Other assurance services(2) 15 15
Non-assurance services(3) - 37
Total 200 187
(1) Included in the auditor remuneration for the Group is an amount of EUR175,000 (31 December 2021: EUR125,000) that relates to the audit of the Company's financial statements.
(2) Non-audit remuneration for 31 December 2022 and 31 December 2021 relates to the review of the interim financial statements.
(3) Non-assurance services advisory fee for Sustainability Advisory Services 30. Holding Company Details
The name of the holding company of the Group is Irish Residential Properties REIT plc. The legal form of the Company is a public limited company. The place of registration of the holding company is Dublin, Ireland and its registration number is 529737. The address of the registered office is South Dock House, Hanover Quay, Dublin 2, Ireland. 31. Subsequent Events
At the date of authorisation of the consolidated financial statements there are no adjusting or non-adjusting events after the reporting period.
Glossary of Terms
The following explanations are not intended as technical definitions, but rather are intended to assist the reader in understanding terms used in this report.
"Annualised Passing Rent"
Defined as the actual monthly residential and commercial rents under contract with residents as at the stated date, multiplied by 12, to annualise the monthly rent;
"Average Monthly Rent (AMR)"
Actual monthly residential rents, net of vacancies, as at the stated date, divided by the total number of apartments owned in the property;
"Basic Earnings per share (Basic EPS)"
Calculated by dividing the profit/(loss) for the reporting period attributable to ordinary shareholders of the Company in accordance with IFRS by the weighted average number of ordinary shares outstanding during the reporting period;
"Companies Act, 2014"
The Irish Companies Act, 2014;
"Diluted weighted average number of shares"
Includes the additional shares resulting from dilution of the long-term incentive plan options as of the reporting period date;
"Adjusted EBITDA"
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Represents earnings before lease interest, financing costs, depreciation of property, plant and equipment, gain or loss on disposal of investment property, net movement in fair value of investment properties and gain or loss on derivative financial instruments and non-recurring costs to show the underlying operating performance of the Group.
"EPRA"
The European Public Real Estate Association;
"EPRA Diluted EPS"
Calculated by dividing EPRA Earnings for the reporting period attributable to shareholders of the Company by the diluted weighted average number of ordinary shares outstanding during the reporting period. EPRA Earnings measures the level of income arising from operational activities. It is intended to provide an indicator of the underlying income performance generated from leasing and management of the property portfolio, while taking into account dilutive effects and therefore excludes all components not relevant to the underlying net income performance of the portfolio, such as unrealised changes in valuation and any gains or losses on disposals of properties;
"EPRA EPS"
Calculated by dividing EPRA Earnings for the reporting period attributable to shareholders of the Company by the weighted average number of ordinary shares outstanding during the reporting period. EPRA Earnings measures the level of income arising from operational activities. It is intended to provide an indicator of the underlying income performance generated from leasing and management of the property portfolio and therefore excludes all components not relevant to the underlying net income performance of the portfolio, such as unrealised changes in valuation and any gains or losses on disposals of properties; "EPRA NAV"
EPRA introduced three EPRA NAV metrics to replace the existing EPRA NAV calculation that was previously being presented. The three EPRA NAV metrics are EPRA Net Reinstatement Value ("EPRA NRV'), EPRA Net Tangible Asset ("EPRA NTA") and EPRA Net Disposal Value ("EPRA NDV"). Each EPRA NAV metric serves a different purpose. The EPRA NRV measure is to highlight the value of net assets on a long term basis. EPRA NTA assumes entities buy and sell assets, thereby crystallising certain levels of deferred tax liability. Any gains arising from the sale of a property are expected either to be reinvested for growth or 85% of the net proceeds are distributed to the shareholders to maintain the REIT status. Lastly, EPRA NDV provides the reader with a scenario where deferred tax, financial instruments and certain other adjustments are calculated to the full extent of their liabilities.
"EPRA NAV per share"
Calculated by dividing each of the EPRA NAV metric by the diluted number of ordinary shares outstanding as at the end of the reporting period;
"Equivalent Yields (formerly referred as Capitalisation Rate)"
The rate of return on a property investment based on current and projected future income streams that such property investment will generate. This is derived by the external valuers and is used to estimate the term and reversionary yields;
"Group Total Gearing"
Calculated by dividing the Group's aggregate borrowings (net of cash) by the market value of the Group's portfolio value consistent with the financial covenant of the Group's Revolving Credit Facility and the Notes;
"Gross Yield at Fair Value"
Calculated as the Annualised Passing Rent as at the stated date, divided by the fair value of the investment properties, excluding fair value of development land and investment properties under development as at the reporting date;
"Irish REIT Regime"
Means the provisions of the Irish laws and regulations establishing and governing real estate investment trusts, in particular, but without limitation, section 705A of the Taxes Consolidation Act, 1997 (as inserted by section 41(c) of the Finance Act, 2013), as amended from time to time;
"LEED"
LEED stands for Leadership in Energy and Environmental Design. It is a rating system to certify sustainable buildings and neighbourhoods;
"Market Capitalisation"
Calculated as the closing share price multiplied by the number of shares outstanding;
"Net Asset Value" or "NAV"
Calculated as the value of the Group's or Company's assets less the value of its liabilities measured in accordance with IFRS;
"Net Asset Value per share"
Calculated by dividing NAV by the basic number of ordinary shares outstanding as at the end of the reporting period;
"Net Rental Income (NRI)"
Measured as property revenue less property operating expenses;
"Net Rental Income Margin"
Calculated as the NRI over the revenue from investment properties; "nZEB compliant"
nZEB stands for Nearly Zero Energy Building. The NZEB standard means that a building must have a very high energy performance. New dwellings will typically require a Building Energy Rating (BER) of A2.
"Occupancy Rate"
Calculated as the total number of apartments occupied over the total number of apartments owned as at the reporting date;
"Property Income"
As defined in section 705A of the Taxes Consolidation Act, 1997. It means, in relation to a company or group, the Property Profits of the Company or Group, as the case may be, calculated using accounting principles, as: (a) reduced by the Property Net Gains of the Company or Group, as the case may be, where Property Net Gains arise, or (b) increased by the Property Net Losses of the Company or Group, as the case may be, where Property Net Losses arise;
"Property Profits"
As defined in section 705A of the Taxes Consolidation Act, 1997;
"Property Net Gains"
As defined in section 705A of the Taxes Consolidation Act, 1997;
"Property Net Losses"
As defined in section 705A of the Taxes Consolidation Act, 1997;
"Property Rental Business"
As defined in section 705A of the Taxes Consolidation Act, 1997;
"Sq. ft."
Square feet;
"Sq. m."
Square metres;
"Stabilised NRI"
Measured as property revenue less property operating expenses adjusted for market-based assumptions such as long-term vacancy rates, management fees, repairs and maintenance;
"Vacancy Costs"
Defined as the value of the rent on unoccupied residential apartments and commercial units for the specified period.
Forward-Looking Statements
I-RES Disclaimer
This Report includes statements that are, or may deemed to be, forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "anticipates", "believes", "estimates", "expects", "intends", "plans", "projects", "may" or "should", or, in each case, their negative or other comparable terminology, or by discussions of strategy, plans, objectives, trends, goals, projections, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include, but are not limited to, statements regarding the intentions, beliefs or current expectations of I-RES concerning, amongst other things, its results of operations, financial position, liquidity, prospects, growth, strategies and expectations for its industry. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of I-RES and/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. As a result, you are cautioned not to place any reliance on such forward-looking statements and neither I-RES nor any other person accepts responsibility for the accuracy of such statements.
Nothing in this Report should be construed as a profit forecast or a profit estimate.
The forward-looking statements referred to in this report speak only as at the date hereof. Except as required by law or any appropriate regulatory authority, I-RES expressly disclaims any obligation or undertaking to release publicly any revision or updates to these forward-looking statements to reflect any change in (or any future) events, circumstances, conditions, unanticipated events, new information, any change in I-RES' expectations or otherwise including in respect of the Covid-19 pandemic, the uncertainty of its duration and impact and any government regulations or legislation related to it.
Shareholder Information
Head Office
South Dock House
Hanover Quay
Dublin 2, Ireland
Tel: +353 (0)1 557 0974
Website: www.iresreit.ie
Directors
Declan Moylan (Chairman)
Margaret Sweeney (CEO)
Brian Fagan (CFO)
Aidan O'Hogan
Hugh Scott-Barrett
Joan Garahy
Phillip Burns
Stefanie Frensch
Tom Kavanagh
Investor Information
Analysts, shareholders and others seeking
financial data should visit I-RES' website at
https://investorrelations.iresreit.ie or contact:
Chief Executive Officer
Margaret Sweeney
Tel: +353 (0)1 557 0974
E-mail: investors@iresreit.ie
Company Secretary
Anna-Marie Curry
Tel: +353 (0) 1 557 0974
E-mail: companysecretary@iresreit.ie Registrar And Transfer Agent
Computershare Investor Services (Ireland) Limited
3100 Lake Drive
Citywest Business Campus
Dublin 24, Ireland
Tel: +353 (0)1 447 5566
Depositary
BNP Paribas Securities Services, Dublin Branch
Trinity Point
10-11 Leinster Street South
Dublin 2, Ireland
Auditor
KPMG
1 Stokes Place
St. Stephen's Green
Dublin 2, Ireland
Legal Counsel
McCann FitzGerald
Riverside One
Sir John Rogerson's Quay
Dublin 2, D02 X576 Ireland
Stock Exchange Listing
Shares of I-RES are listed on Euronext Dublin under
the trading symbol "IRES".
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