Results for the Year Ended 31 December 2023
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Irish Residential Properties REIT plc (IRES)
23 February 2024 Final Results Irish Residential Properties REIT Plc Strong and Resilient Financial and Operating Performance
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023 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 2023 to 31 December 2023. Financial and Operational Highlights
Asset Portfolio Valuation and Balance Sheet Management
Strategic Review
Margaret Sweeney, I-RES’ Chief Executive Officer, said: “This was an important period for our business, the first full year following the internalisation of operations and the deployment of an operational management platform. This required a sharp focus on operational efficiencies, cash collections and cost management. Against that backdrop, the core and enduring strengths of the business continued to deliver revenue growth, strong operating and financial performance and stable cash flows despite the continuing challenging environment in 2023. As outlined at the end of 2022, capital management and allocation was a top priority and I am pleased that we successfully delivered a €96.5m asset recycling programme in 2023 despite a challenging transaction environment overall for real estate in Ireland. Disposals were completed at relevant book value, representing an attractive return on original cost, were broadly neutral to our earnings profile, and the proceeds were used to strengthen our Balance Sheet by retiring higher cost debt. We are confident in our continuing focus and progress on optimising our portfolio through asset recycling, including demand for individual units at accretive values, as well as maintaining operational excellence and cost management, and improving the sustainability credentials of our assets. We also continue to be focused on leveraging our platform for ancillary revenue, as well as maximising revenue from our existing assets. ”
Financial Highlights
(1) For definitions, method of calculation and other details, refer to the Financial Review (2) The non-recurring costs of €0.9 million were incurred in relation to dealing with activism in 2023 (Further costs of a similar level are expected for 2024 in relation to the EGM) (€5.7 million at 31 December 2022 relating to Internalisation) and general and administrative expenses of €11.8 million (€11.4 million at 31 December 2022) total the general and administrative expense costs of €12.7 million reflected in the Consolidated Financial Statements for the year ended 31 December 2023 (€17.2 million at 31 December 2022). Chairman’s Statement
Continued Strategic Delivery As outlined in 2022, and detailed in our Annual Report, the Board responded to the challenging economic environment and real estate sector headwinds by refreshing our strategy to take account of the increased risk. This focus has ensured that the Company delivered a strong and resilient operational and financial performance in 2023, achieving significant progress against key strategic objectives. 2023 saw further growth in revenue as well as maintaining stable operating margins, despite consistently high cost inflation throughout 2023. I-RES remains well positioned to continue capitalising on the strong dynamics of the Irish market, and as the largest operator of scale in the market is well placed to support our continued delivery of value for all stakeholders. During 2023, we successfully executed a strategic asset disposal programme of c.€100m (c.200 units across our developments). The attractive returns delivered from this disposal programme reflects the quality of the assets and our value-add asset management, which is a core part of our operating model. By actively managing our portfolio of assets, we were able to utilise the proceeds of the asset disposal programme to strengthen the Company’s financial position, so that we are well placed to capitalise on potential opportunities, as well as supporting dividend payments to Shareholders. The Company continues to see strong year-on-year recurring income which feeds through to our dividend, an important contributor to shareholder returns, and the Board remains cognisant of the divergence between Net Asset Value of the Company and its market capitalisation. Under the Irish REIT regime, 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. The Company paid an interim dividend of 2.45 cents per share for the six months ended 30 June 2023 and proposed an additional dividend of 2.00 cents per share for the year ended 31 December 2023. I-RES has an unmatched high-quality, modern asset portfolio of 3,734 residential properties with the portfolio achieving rental growth of 3.5% in 2023 through delivery of new supply and growth in rents, both of which are underpinned by the underlying strength of demand for high-quality rental accommodation in Ireland and the highly recurring nature of cash flows from our investment properties. As I referred to earlier, during 2023, reflecting the higher interest rate environment, the Company completed a strategic asset disposal programme and utilised the proceeds to strengthen our balance sheet. We continue to have excellent visibility of future financing costs as 83% of total drawn debt is now fixed at a blended rate of 3.27%. The Group’s Net LTV as of 31 December 2023 was 44.3% (31 December 2022: 43.3%). While the year-end valuation of our portfolio saw incremental yield expansion due to shifts in market yields, our high-quality portfolio and strong underlying demand for our assets remain supportive of yields moving forward.
Focus for 2024 Delivering Business Performance We continue to concentrate on taking all actions the Board believes are required to best position and enhance the business to deliver value for Shareholders, including seamlessly responding to changes in market conditions. We will continue our focus on ensuring operational excellence and strong day to day management and performance of the business. Strategic Review The Company announced on 8 January that it will commence a Strategic Review following the release of today’s results for 2023. Based on widespread engagement across our Shareholders over the last few months, the Board recognises that many Shareholders welcome this comprehensive review at this time. As outlined in our recent Circular and public notifications related to the recent EGM, in addition to the macro challenges over the last 2 years, the Company has strategically developed a fully integrated operating platform, is one of the few players with scale in the Irish market and has a high-quality portfolio generating strong stabilised performance. Against this, there remains potential challenges for maximising shareholder returns including, for example, to the prevailing restrictions on annual rent increases in Ireland and certain limitations associated with the REIT structure in Ireland. The demand fundamentals for private rental accommodation in Ireland remain strong and the early stages of recovery in real estate capital markets and transactions in Europe are starting to emerge slowly following the ECB decision to pause interest rate increases in September 2023. The Board had commenced preparation for a detailed and fresh look at strategy in Q4 2023 which it publicly announced on 8 January 2024 as a Strategic Review which will begin today.
The Strategic Review will be led by a Board Committee of newly appointed Chair Hugh Scott-Barrett, with non-executive directors Denise Turner and Phillip Burns and will be supported by Savills, a leading real estate advisory firm with local and international knowledge, in conjunction with our existing international financial advisers and brokers. The Board plans to provide Shareholders with a substantive update on the progress of the review ahead of the Company’s AGM to be held in May 2024. The Board recognises that an improving but challenging market environment encompassing persistent inflation, a higher interest rate environment, and geopolitical uncertainty has driven continued low levels of liquidity in capital market transactions in Ireland and Europe generally. Notwithstanding the strong fundamentals of the Irish market, higher interest rates, persistent inflation, regulatory policy on private residential rents, and the requirements set out in the Climate Act 2022 for real estate, remain particularly challenging for short term returns for the asset-backed real estate sector. We have had fulsome engagement with a significant majority of our Shareholders in recent weeks leading up to last week’s EGM. As demonstrated by the results of the EGM, the majority of Shareholders support the Board’s proposed Strategic Review at this time, ensuring that all options are explored and evaluated to deliver maximisation of value for shareholders. The Company has incurred significant cost and use of management time during 2023 responding to the actions of Vision Capital. While the Company regrets the use of time and resources in this manner, it will continue to engage constructively with Vision, and Shareholders, in addressing their concerns as our Strategic Review commences.
Environmental, Social and Governance ESG principles form a key part of our strategy and continue to take focus across our business. We recognise the challenges that climate change will have on the planet, our communities and our business, and we are committed to playing our part in the transition to a more sustainable future. As a real estate owner, we understand the contribution of the built environment to global carbon emissions and climate change. With this in mind, we are dedicated to minimising our environmental footprint and promoting sustainable living and the Company is committed to achieving Net Zero Carbon by 2050. Additionally, our ambition is to reduce our carbon emissions in line with the aspirations and commitment of the Paris Climate Agreement as we believe it is our responsibility to limit the carbon impacts of our assets and meet this industry challenge. Tom Kavanagh as the Non-Executive Director with direct responsibility for Workforce Engagement and Culture has continued his efforts through 2023, engaging with employees across the business to listen to their views as well as engaging with management on the annual Employee Satisfaction Survey. The Board were delighted to see that this year’s survey significantly exceeded all comparator benchmarks achieving a 90% score, a testament to the great culture that exists across the Company. Diversity across the Board, Management, and employee base is a key focus area. The Company has previously received recognition for its already diverse and inclusive workplace achieving a Silver Investors in Diversity Award, as well as recognition for its Board and Management diversity. We continue to strive to achieve the highest levels of transparency, a core aspect of good governance, maintaining clear communication and transparent disclosure to all stakeholders. We saw another year-on-year improvement in the Global Real Estate Sustainability Benchmark (‘GRESB’) assessment and maintained the highest score possible in the EPRA Sustainable Best Practice Reporting Award, and we continually review ratings and benchmarks to promote the highest levels of transparency to all stakeholders. Finally, the central component to our responsible business model is the provision of safe, secure and sustainable homes in the mid-market Irish residential sector. Our vision is to be the provider of choice for the Irish living sector, and we will continue to work with our residents as we minimise our environmental impact and maximise our contribution to the community.
Board and Management Changes As previously announced and in keeping with best practice corporate governance guidelines, 2023 will be my final year as Chairman of the Board of I-RES. It has been an honour to serve as Chairman for over 9 years, and I am very grateful to all our Shareholders for their continued support during my tenure. As previously announced in January 2024, I will be succeeded as Chairman by Hugh Scott-Barrett, who joined the Board in September 2022, and brings a depth of experience to I-RES across corporate governance, capital markets, and listed real estate. I hope you will join me in wishing a warm welcome to Hugh. As announced by the Company on 31 October 2023, our CEO Margaret Sweeney will be retiring on 30 April 2024, and has agreed to continue with the business, if necessary, to ensure an orderly transition to her successor. On behalf of the Board, I would like to sincerely thank Margaret for her immense contribution over more than six years as CEO of I-RES. Margaret has made an outstanding impact and has been an exceptional CEO since assuming the role in 2017. It has been a pleasure working alongside her. Margaret leaves the business well positioned for the future having assembled an exceptional team who will continue to deliver for all stakeholders. I am continuing to lead the CEO succession process along with the Board selection committee and we anticipate that we will be able to provide a further update to the market over the coming weeks in relation to the future CEO of the Company. There were also other Board changes which occurred during 2023. In May, Aidan O’Hogan stepped down as Independent Non-Executive Director and Senior Independent Director of the Board. Aidan had been on the I-RES Board since 2014 and made a significant contribution to the growth strategy of the Company during that time. The Board is grateful for the commitment, stewardship, and insight provided during his tenure. I would like to welcome Denise Turner who joined the Board as Independent Non-Executive Director in May 2023 and brings significant real estate and local market knowledge to the Board.
Declan Moylan Chairman
Statement by Hugh Scott-Barrett, Incoming Chair of I-RES On behalf of the Board, I would like sincerely to thank Declan for his immense contribution as Chairman of I-RES during his tenure. Declan’s leadership and guidance have been pivotal to the success of the I-RES growth strategy, and he leaves the Company well placed as a fully integrated operating business in a strong position, despite the challenges of the Covid-19 pandemic and recent macroeconomic headwinds. I am delighted and privileged to be taking over as Chair. Since being appointed as a Board member in September 2022, and subsequently appointed as Chair designate, I have visited several of the I-RES developments and engaged with members of the Senior Leadership Team and wider employee base to better understand the key differentiators of our business. I have been struck by Management’s focus on operational excellence, the commitment to enhancing the residents’ experience and the high-quality nature of our asset portfolio. I am excited to lead the Company’s previously announced Strategic Review, commencing today. The Board intends to explore all strategic options available in order to maximise value for all Shareholders. We look forward to providing the Shareholders with regular status updates on the progress of our Strategic Review throughout 2024, beginning with an update ahead of the 2024 AGM in May. I have found our recent engagement with shareholders to be highly informative and look forward to continued engagement as we embark on our Strategic Review
Hugh Scott-Barrett Chair Designate
Chief Executive’s Statement
Overview 2023 saw I-RES deliver another strong and resilient financial and operational performance. 2023 was characterised by increasing interest rates, persistent inflation and broader geopolitical challenges, however our focus on our strategic objectives allowed us to strengthen our balance sheet and position the Company for a return to growth in 2024. We continued to digitalise our service offering and now offer a market leading operating platform which further enhances our operational efficiency and residents’ experience. Decarbonisation remains a strategic priority for the Company, and in 2023 we made further progress on our sustainability journey. With macroeconomic conditions beginning to show signs of stabilisation, our strong balance sheet, high quality portfolio, experienced team, operating platform, and track record of operational excellence leaves us well placed to continue delivering for our investors and wider stakeholders.
Continued Operational Excellence and Strong Financial Performance During 2023, our revenue grew by 3.5%, of nearly €88 million driven by the full year impact of new assets and strong organic rental growth across our portfolio and underpinned by continued high occupancy levels throughout the year. Net Rental Income increased by 3.3% to €67.9 million, with a broadly stable margin of 77.3%. This strong trading performance illustrates the resilience of our core business model and the success of our initiatives to generate ancillary revenue streams. Adjusted EBITDA increased by 3.3% year on year to €56.0 million, with adjusted EBITDA margin broadly stable at 63.8%, demonstrating the cash generative nature of our operations, rigorous cost management, and process efficiencies created by leveraging our technology platform. The unprecedented rises in global interest rates resulted in a c. €10 million increase in our financing costs, giving rise to a decrease in EPRA earnings by 10.7% in 2023. Proceeds from strategic asset disposals, the net effect of which were broadly earnings neutral, were used during the year to strengthen the Balance Sheet by retiring higher cost debt under our Revolving Credit Facility, resulting in 83% of our debt now being fixed at an overall average rate of 3.27%. Residential occupancy rates continued to remain strong during 2023 at 99.4% as at 31 December 2023 (31 December 2022: 99.4%), underpinned by highly efficient property management and strong market dynamics in the Irish private rental sector. High occupancy rates, together with the impact of strategic asset disposals completed during the year, resulted in our Average Monthly Rent (“AMR”) per unit increasing to €1,774. Due to continued increases in market rents, we are seeing increased reversionary value underpinning our assets. Our AMR is c.16% below current market rents according to our independent valuers, illustrating the resilience of our income profile to fluctuating economic conditions, whilst simultaneously representing an opportunity for further growth and value into the future.
Asset and Portfolio Optimisation and Valuation As outlined in our strategy for 2023, we had targeted an asset disposal programme for 2023 of €100 million. During the year, we executed disposals totalling gross proceeds of €96.5 million inclusive of VAT from sale of properties, individual units and non-income earning assets. The disposals completed were broadly neutral to our earnings profile, represented an attractive return on original acquisition cost, and were in line with relevant book values at disposal dates. Proceeds of the programme completed to date were deployed in line with our capital allocation policy; strengthening our financial position by retiring higher cost debt under our existing revolving credit facility and protecting our earnings profile. At year end, and following the planned disposal programme, our asset portfolio consisted of 3,734 (31 December 2022: 3,938) high quality rental homes, with associated commercial space. The portfolio had a total value of €1,274 million, reducing from €1,499 million in 2022. The main factors contributing to this decrease were the strategic disposals of €96.5 million, and yield expansion arising from a shift in prime market yields of 75bps in 2023 due to increased interest rates and low transactional activity as indicated by external valuation firms. This revaluation of the assets under IFRS resulted in a non-cash revaluation loss of €141.8 million for the year ended 31 December 2023. This resulted in the Group’s IFRS NAV as at 31 December 2023 of €697.3 million (€847.4 million at 31 December 2022), and a decrease in IFRS NAV per share to 131.7c (2022: 160.0c). The Board notes the significant increasing reversionary potential of the portfolio rising to 16% at 31 December 2023, up from 11% in the prior year with a number of assets in excess of 25%.
Prudent Capital Management The Company retains a strong financial position, with a robust balance sheet and ample liquidity. Acting in line with our disciplined capital allocation policy, the Company utilised the proceeds of the successful asset disposal programme by further strengthening the balance sheet, retiring higher cost debt under our revolving credit facility. The Company’s Net LTV as of 31 December 2023 stood at 44.3% (31 December 2022 43.3%), within our targeted range, and with no debt repayments until April 2026 and laddering out to 2032. 83% of the Company’s total drawn debt is now fixed at a blended interest rate of 3.27%. Our weighted average cost of interest was 3.85% at 31 December 2023, well below our Gross Yield of 6.7% at year end. The Group continues to take a proactive approach towards balance sheet management and maintaining total gearing within a targeted level through value maximising portfolio management and disciplined capital allocation. The composition of our portfolio is under ongoing review, helping us to identify feasible opportunities to either add complementary assets or to dispose of existing assets including individual unit sales to generate attractive returns, depending on prevailing market conditions, and subject to the outcome of the Strategic Review. The use cases for potential disposal proceeds are assessed based on prevailing operational, investment, and macroeconomic conditions, balancing the need to maintain a prudent financial position with targeting opportunities for growth. I-RES maintains a robust balance sheet with no short-term obligations and good visibility on future financing costs. We maintain a prudent approach to debt and are committed to retaining this strong balance sheet position to support the generation of attractive long-term risk adjusted returns for Shareholders. In the face of a challenging macroeconomic climate, and with unprecedented interest rate increases during 2023, our prudent capital management strategy provides us with cost certainty and leaves the Company well placed as market conditions begin to improve. We recognise the importance of dividends to our Shareholders and the Company will maintain its dividend payout policy at 85%+ of earnings, in line with REIT legislation.
Digitalisation of our Operating Platform As technology continues to shape industries, its significance in residential real estate has become evident. Residents are increasingly seeking smart solutions for their tenancies and engagement with tenancy providers. Reflecting this trend, I-RES has evolved to digitalise and fully integrate its operating platform and now offers a market leading service to our residents as well as embedding strong operational efficiencies into the business processes. This results in better anticipation of resident needs, lower bad debts, significant cost savings through efficiencies, and the opportunity to generate ancillary revenue streams across the business. Communication with our residents has shifted from manual interactions to become fully digitalised. We have been able to improve our end-to-end resident experience from application, through onboarding, to accessing on-site support. The net result for I-RES has been improved communication, more efficient maintenance and service delivery, shorter response times, and increased resident satisfaction levels. Digitalisation has also supported our sustainability agenda, by significantly reducing the amount of paper we use to communicate with residents. Our technology offering will continue to evolve into the future, allowing us to provide a seamless experience to our residents. We will continue our focus on operational excellence. As a fully internalised business with a market leading fully digitalised operating platform, an important asset of the business, the management team remains focused on leveraging this platform to maximise operational performance across our key metrics including occupancy levels, NRI margin, and collection rates. We also remain focused on continuing to generate ancillary revenue streams, aggressively mitigating cost inflation where possible, and maintaining our NRI margin over time.
Regulation and REIT Structure We believe that the current regulatory structure in the Irish housing market is contributing to a major supply-side issue. We welcome the current reviews by the Government and Departments of Finance and Housing of the PRS sector including rent regulation as well as the inclusion of the REIT structure in the Funds Sector Review. We will continue our engagement with industry stakeholders and government to support a regulatory and investment structure in Ireland so that tenants can access accommodation at sustainable rent levels, while new stock can be delivered by the public and private sectors at reasonable returns to attract capital for investment, together addressing the significant lack of supply in the Irish rental market. Appropriateness of the REIT structure for the Company is one of the key matters that will be considered as part of the Strategic Review.
Market Demand Remains Underpinned by Strong Fundamentals The market for private rental accommodation in Ireland remains supported by some of the strongest supply and demand fundamentals globally. Irish GDP growth is expected to outperform the EU average in 2024 and 2025[1], underpinned by close to all time low unemployment (4.9% December 2023[2]), and a population growing at the fastest 12-month rate (1.9%[3]) since 2008. The imbalance between supply and demand remains significant, with estimates forecasting a build requirement of up to c.62,000 new homes every year to meet projected demand levels. Output sequentially improved during 2023, with the delivery of c.32,700 units, the highest level of housing output in the State since 2006. This was a continuation of the increase in supply seen during 2022 (c.30,000 units) and represents a significant increase of c. 48% over 2021. However, even with this increased level of output, supply will likely continue to lag demand over the medium-term, requiring the Government to increase its partnerships with the private sector. To meet the required levels of supply, it is estimated that c. €19 billion of housing development finance would be required, approximately 67% of which would need to be contributed by institutional sources[4]. Reflecting current macroeconomic conditions, institutional real estate transaction activity in Ireland was muted during 2023. Total transaction value for the year was c.€1.8 billion, down c.70% compared to 2022 and down c.60% compared to the 10-year average[5] with PRS investment of c.€240 million in 2023. Total transaction volumes were also well below recent historical averages. Market rents continue to grow, with average monthly rents for new tenancies in Dublin recorded at €2,113 in Q3 2023, an increase of c.10% versus the same period in 2022[6]. The impact of the 2% cap on rental increases continues to be profound on our business, with our portfolio under-rented to market rates by an average of c.16% at 31st December 2023.
Empowering Our People People are our priority at I-RES, and as we reflect on another successful year, I am proud to acknowledge our highly talented and experienced team. Having fully internalised the operations of our business in 2022, our team now represents a wide and diverse array of nationalities, backgrounds, skills, and experience. Our culture and values foster collaboration, which is the driving force behind the success of our business. We continuously invest in our people, through the provision of modern working environments, flexible working arrangements, provision of professional training, frequent health and wellbeing initiatives, and opportunities for personal development. Satisfaction levels are measured through employee engagement surveys, which continuously produce excellent results, and I was delighted that the results of this year’s survey exceeded all comparator benchmarks, achieving a 90% score for a second year running. We are acutely aware of the importance of building and maintaining a strong workplace culture. Our goal is to ensure high levels of employee retention, whilst also showcasing that I-RES is a great place for talented individuals to excel.
Sustainability at our Core We are dedicated to building a sustainable and responsible business that minimises our environmental impact and maximises our contribution to the communities we operate in. This commitment is underscored by the integration of ESG measures into our business strategy, ensuring that sustainability remains at the core of our operations. To ensure we keep pace with an evolving landscape and our commitments as a responsible and sustainable business, we undertook a review of our current approach to ESG and sustainability in 2022. This included refreshing our ESG materiality assessment, which is used to determine the focus areas for the business to help ensure the full ESG landscape is considered. We have committed to refreshing the materiality assessment on a periodic basis. In 2024, we will complete a double materiality assessment to ensure that our ESG strategy is still appropriately aligned and adapted to reflect any changes in priority areas and ongoing developments in sustainability. Our progress is evident by the outcome of our carbon emissions reduction programme with like for like Scope 1 reducing by 59% and Scope 2 reducing by 0.3%, having already reduced Scope 1 and 2 (wholly managed buildings) greenhouse gas emissions (on absolute basis) by 41% and 26% respectively in 2022. This aligns with our commitment to the Paris Climate Agreement, and our aim to become Net Zero Carbon by 2050, reflecting our dedication to environmental responsibility. During 2024, we also aim to set out our pathway to net zero by 2050. This will include improving further the energy efficiency of our portfolio and sourcing energy from renewable sources. This will align with the net zero framework set out by the Better Building Partnership’s Climate Change Commitment. Our well-invested, modern portfolio gives us a strong starting point when it comes to delivering energy efficiency across our assets. 90% of the portfolio has a Building Energy Rating (BER) of between A and C, which in addition to supporting our sustainability objectives, supports our residents in reducing their energy usage. As referenced above, operating a responsible business is key to our success at I-RES. Central to that is operating in the mid-market sector, ensuring we deliver quality homes in well-connected locations, positioning us as the provider of choice for the Irish living sector and integrating through our social impact programmes with local communities. Sustainability achievements in 2023 included retaining the EPRA Sustainability Best Practices Recommendations (sBPR) Gold Award and improving our Global Real Estate Sustainability Benchmark (GRESB) score, underpinning our commitment to transparency. We submitted to the Carbon Disclosure Project (‘CDP’) Climate Change questionnaire for the second time in 2023. We were happy to obtain a score of C for our first scored assessment and hope to advance our score in future assessments. We are committed to transparently disclosing on our ESG performance to enable all our stakeholders to review our continued delivery and permit comparability with our peers. This 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. The progress detailed above signifies our ongoing dedication to advancing ESG practices including for the benefit of our people, residents, and communities. It reflects our ambition to be a sustainability leader in our sector, consistently mindful of our impact on the planet as we deliver for our stakeholders.
Retirement Announcement In October 2023, after eight years on the Board of I-RES, and over six years as Chief Executive Officer, the Company notified our Shareholders and wider stakeholders of my intention to retire at the end of April 2024, with scope to remain beyond that in order to ensure an orderly transition to my successor. I feel privileged to have led this fantastic company, and when I reflect on the past six years, I am extremely proud of the diverse and talented team of professionals who have been the driving force behind our success. The Company has transformed over the last two years, becoming a fully integrated Irish company led by an experienced team with a market leading digital operating platform for our business operations and service to our residents. We have significantly scaled our portfolio which now stands at over 3,700 high quality rental properties across Dublin and Cork. Despite continued macroeconomic headwinds over the last 2 years, and as evidenced by our recent performance, I-RES continues to perform very strongly with a quality asset portfolio generating stable returns and significant cash flow supported by a robust balance sheet. Sustainability has become a strategic pillar for the Company during my tenure, and we have embedded Sustainability into our operating model across all aspects of our business. We are committed to decarbonising and operating sustainably now and into the future as well as ensuring a diverse, equitable and inclusive culture and creating social impact where our residents become an integral part of the environment in which they live. I would like to thank our Chairman, the Board, my management colleagues and the whole I-RES team for your commitment and support and for the privilege to work alongside you all over the last six and more years. I am grateful to our Shareholders, our banks, our residents, and many other business partners for their support in building a successful business, and I am confident that the I-RES team will continue to deliver successfully for all stakeholders into the future.
Outlook Despite recent stabilisation in the broader macroeconomic climate, higher interest rates and operating costs continue to present a more challenging trading environment when compared with recent years. Notwithstanding these challenges, I-RES has a clearly defined strategy, operates in a market underpinned by robust demand fundamentals and a growing economy, and continues to deliver excellent operational results. Into 2024 and beyond, the Company will continue to actively engage with our Shareholders and partners and seek to position the Company such as to maximise shareholder value, with the launch of the Strategic Review today being a key step in that journey. We intend to maintain an important and active role in the delivery of new housing supply to the Irish market over the long-term. The Company is well positioned to do so, through its strategy of prudent asset management and disciplined capital management, strong track record of execution, and supported by a robust balance sheet. In line with our existing strategy of operating primarily in the Irish mid-market, our focus remains on generating secure, recurring income streams with a high degree of visibility to support our dividend policy for shareholders. We continue to be acutely aware of the inflationary and cost of living challenges faced by our residents and we are confident that our well located, fully serviced, modern energy-efficient residential units represent good value in the current market. I would like to thank our residents, business partners and stakeholders who support us every day to make our 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 unwavering commitment in 2023 despite the current challenging market environment. I am grateful also for 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 over the last year as well as their focus on the strategic development of the Company underpinned by strong governance.
Margaret Sweeney Chief Executive Officer Financial Review
In 2023 we have delivered another year of excellent performance across all key operational metrics. This strong operational performance was driven by continued high demand in the market, cost savings and efficiencies delivered by the strength of our internalised platform, including the launch of our I-RES living resident app along with the impact of delivery of our pipeline in 2022, all contributing to increased revenue, net rental income and Adjusted EBITDA. Our experienced team and portfolio of high-quality residential accommodation sets us apart from the market as we seek to ensure that we meet the needs of our residents. Our occupancy rate continues to exceed 99%, a market leading performance and was 99.4% at 31 December 2023 (99.4% at 31 December 2022). This was supported by our mid-market residential sector positioning where demand continues to outstrip supply. Our average monthly rent increased to €1,774 at 31 December 2023 (€1,750 at 31 December 2022) and our portfolio is currently estimated to be 16% below market rent for similar assets. Revenue increased by 3.5% in 2023 to €87.9 million, driven by continued organic growth, delivery of our pipeline in 2022 at market rents and continued high occupancy levels, offset particularly in the final quarter by reduced rental income following the successful delivery of our asset disposal programme. On a like for like basis revenue grew by 2.6%, driven by increases in line with the legislative cap on rental increases of 2%, improved occupancy throughout the year and ancillary income, primarily parking. We maintained our NRI Margin at 77.3% (31 December 2022: 77.5%) which is testament to our focus on deriving efficiencies from our platform and continued focus on cost management. Whilst we experienced increases in property taxes, utilities and OMC service charges, we have succeeded in mitigating this through stable repairs and maintenance costs, additional ancillary revenue and strong collections during the period which has been aided through our internalised platform. Adjusted General Administrative spend increased slightly as the full year impact of building out the internalised team was complete. Non-recurring costs related specifically to the ongoing activist interaction and requisition of an EGM. We expect further costs associated with this matter to be incurred in 2024. Adjusted EBITDA grew by 3.3% to €56.0 million reflecting the strong underlying fundamentals of the business and the focused approach by management on cost savings, efficiencies and delivering returns despite the significant inflationary headwinds experienced in 2023. EPRA earnings declined by 10.7% in the year, driven by increased financing costs as a result of the rapid and significant interest rate rises introduced by the ECB with EPRA EPS reducing from 5.8c to 5.2c. Our total investment property value reduced to €1,274 million reflecting the successful execution of our asset disposal programme, whilst yields expanded during the year reflecting the significant shift in interest rates. For the year ended 31 December 2023, a fair value loss of €142 million was recorded reflecting the softening of yields, offset by increased net rental income and operational performance. A notable portion of this had already been realised and recorded in the first half of the year with the fair value decrease split across the year. Our balance sheet remains strong and has been a primary focus in 2023 with a number of initiatives carried out to ensure strength heading into 2024. As outlined at the time of the 2023 AGM we embarked on a €100 million asset disposal programme, which we have successfully completed in Q4 2023 with gross sales proceeds of €96.5 million including VAT. The asset disposal programme has allowed us the flexibility to reduce our overall RCF facility size from €600 million to €500 million, effective 4 January 2024, reducing commitment fees by c. €700k per annum whilst leaving undrawn committed facilities of €127 million, providing I-RES with flexibility and optionality in 2024 as the market starts to show signs of stabilisation and we now enter the Strategic Review announced on 8th January 2024. As part of our ongoing risk management, we have also engaged with the RCF syndicate banks and Private Placement Note holders to reduce our Interest Cover Ratio financial covenant from 200% to 175% to ensure sufficient headroom across our financial covenants. Our Net LTV is 44.3% (31 December 2022: 43.3%) which reflects the positive impact of the asset disposal programme to offset the reduction in the value of the assets. Our financing facilities are made up of c. €200 million of Private Placement Notes and a €500 million Revolving Credit Facility (RCF). The Private Placement Notes were executed in 2020 with maturities laddered from 2027 to 2032. At period end, €373 million of the RCF was drawn. The Company has entered into hedging arrangements in respect of its RCF, specifically interest rate swap agreements aggregating to €275 million until maturity of the facility in April 2026, converting the cost on this portion of the facility to a fixed interest rate of 2.5% plus margin of 1.75%. The Private Placement Notes are fully fixed with a weighted average fixed interest rate of 1.92% (inclusive of swap costs and excluding transaction costs). As at period end, approximately 83% of the Group’s drawn debt is fixed against interest rate volatility at an all-in weighted average rate of 3.27% until maturity of the relevant facilities.
Operational and Financial Results Net Rental Income and Profit for the year ended
(1) 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. (2) The non-recurring costs of €0.9 million were incurred in relation to dealing with activism in 2023 (Further costs of a similar level are expected for 2024 in relation to the EGM) (€5.7 million at 31 December 2022 relating to Internalisation) and general and administrative expenses of €11.8 million (€11.4 million at 31 December 2022) total the general and administrative expense costs of €12.7 million reflected in the Consolidated Financial Statements for the year ended 31 December 2023 (€17.2 million at 31 December 2022).
Revenue In 2023, revenue increased by 3.5% to €87.9 million. This increase is driven by the delivery on our pipeline in 2022, particularly at Tara View and The School Yard which achieved rents in excess of our portfolio average, continued high occupancy across all properties and organic rental growth. Offsetting this, particularly in the last quarter was the disposal of assets in West Dublin. Net Rental Income (“NRI”) 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 2023, NRI increased by 3.3% in line with increases in Revenue. The NRI margin remained broadly stable at 77.3% compared with last year which continues the strong performance and focus on margins in light of the inflationary environment experienced in the period and highlights the focus we have on cost management and deriving efficiencies from our new internalised platform. Adjusted General and Administrative (“G”) Expenses Adjusted G 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, and excludes non-recurring costs. G has increased slightly, in line with Revenue reflecting full year impact of internalised resources offset by strong cost management despite the inflationary environment and increased headcount in comparison to the prior period as management continues to focus on cost savings and efficiencies and stabilisation of the business after a year of transition in 2022. Non-recurring costs Non-recurring costs of €0.9 million in the year relate solely to the ongoing activism campaign and requisition of an EGM which was held in February 2024. We expect a similar amount of costs associated with this in 2024. Non-recurring G costs totalled €5.7 million for 2022 and related to the Internalisation in H1 2022. These costs were primarily for the IT programme and legal, consulting and investment bank advisory fees that related to the termination of the Investment Management Agreement and other one-off third-party advisory services. 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. In the period, the fair value loss on investment properties of €141.8 million is mainly attributed to a softening of yields driven by the wider market fundamentals including increased interest rates offset by gains made in relation to increased net rental income. Our Gross Yield was 6.7% at year end compared against a weighted average cost of interest of 3.85%. Financing Costs Financing costs, which include the amortisation of certain financing expenses, interest and commitment fees, increased for 2023 to €26.7 million from €16.8 million. The primary driver of the increased financing costs relates to the rapid ECB interest rate rises to combat the inflationary environment. Since 31 December 2022 we have reduced our debt by €84 million through the asset disposal programme and positive operational cashflow offset by dividend payments of €28 million. At 31 December 2023, €373 million was drawn from the facility. Our 2020 Private Placement Notes are fully fixed through hedging arrangements. In addition, in 2022 we fixed a significant proportion of the RCF, entering into €275m of interest rate swaps. At 31 December 2023, 83% of our drawn debt is fixed at a blended rate of 3.27% to maturity of the relevant facilities. Taxation The main driver of taxation for I-RES in the period relates to Capital Gains Tax (“CGT”). This arose on the profit on disposal of the Rockbrook site. CGT is payable on this as the site constitutes a disposal of an asset of the residual business as opposed to the property rental business of the Group, in accordance with the REIT legislation.
Property Portfolio Overview The following table provides details of the Group’s property portfolio as at 31 December 2023.
(1) As at 31 December 2023. (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 2023 were €6,624,116 divided by 3,734 units resulting in AMR of €1,774. Refer to page 17 for further discussion on average monthly rent per apartment and occupancy. (4) I-RES’ external valuers indicated that I-RES’ current rents (on a weighted average basis for the portfolio) as at 31 December 2023 are estimated to be approximately below market by 16%. Portfolio Management The Group continues to explore and identify opportunities to create shareholder value. Whilst we continue to consider opportunities for growth and our long-term strategy is focused on delivering growth for the business, in 2023 management have been focused on maintaining a strong and flexible balance sheet. As part of this we have looked to recycle capital back into the business. This has resulted in the sale of the Rockbrook site, disposal of a small number of units due to Part V obligations, the completion of the sales process of the townhouses at Tara View and the disposal of 194 units in West Dublin with a focus to manage the balance sheet and retire our most expensive debt. The completion of the asset disposal programme demonstrated significant return for shareholders whilst also aiding our ongoing capital and balance sheet management. The disposal of the 194 units in West Dublin represented an attractive return on the original acquisition cost and was in line with book value representing value creation for shareholders. The Rockbrook site delivered significant return on cost and the proceeds were used to pay down our debt and manage the Group’s balance sheet. As part of an acquisition agreement entered into in January 2022 the Company has a gross capital commitment of €24.1 million in respect of 44 units at Ashbrook, Clontarf. These units are expected to be completed in H1 2024. Net cash outflow after taking account of deposit paid and proceeds from disposal of Part V units is expected to be c.€20 million. 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 no debt maturities until 2026 and then laddered out to 2032. Net LTV at 31 December 2023 is 44.3%, LTV stands at 44.9% increasing as a result of the fair value loss recorded in the year, offset by the strategic asset disposal programme to manage this covenant. This remains significantly below the 50% maximum permitted by the Irish REIT regime and the Group’s debt financial leverage ratio covenant. I-RES seeks to use borrowings to enhance shareholder returns over the long term. Our debt facilities are made up of our Revolving Credit Facility (RCF) and the c. €200 million (Euro Equivalent) Private Placement Notes. In January 2024, the Company exercised its right to reduce the RCF facility size from €600 million to €500 million, an option available to the Company given the successful completion of the c. €100 million asset disposal programme. The remaining undrawn committed facilities are €127 million providing the Company with liquidity and optionality as we head into 2024. The Private Placement Notes were issued in March 2020 and are made up of €130 million fixed interest and $75 million. On closing I-RES entered into a cross currency interest rate swap resulting in an overall 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. The drawn debt facilities are predominantly hedged against interest rate volatility, with 83% of the debt fully fixed. As previously noted, in December 2022, the Company entered into hedging arrangements in respect of its Revolving Credit Facility. Interest rate swap agreements aggregating to €275 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 the cost of €275 million of the facility into a fixed interest rate of 2.5% plus margin of 1.75%. The Group has a weighted average drawn debt maturity of 3.2 years and no debt maturities before April 2026. The weighted average cost of interest is 3.85% for 2023 (31 December 2022: 2.31%). This increase is driven by the 450bps increase in ECB rates since July 2022. Beyond the remaining capital commitment for the forward purchase of 44 residential units at Ashbrook, there are no other current capital commitments.
I-RES's borrowings are as follows:
(1) The principal amount of USD notes is $75 million. The movement during the period relates to foreign exchange movements. I-RES has entered into cross currency swap to fix this at €68.8 million. (2) Includes commitment fee of 0.7% per annum charged on the undrawn portion of the RCF facility
Summary Overall, 2023 was a year focused on putting the building blocks in place for the next phase of the Company’s strategic goals post internalisation. This strategy will be informed by the Strategic Review which is kicking off today. As announced by the Board we are very conscious of delivering shareholder value and the Strategic Review will allow us the opportunity to determine how best to maximise these returns. Heading into 2024, whilst sentiment around interest rates and inflation are certainly better than they were a number of months ago, volatility remains. We have demonstrated our ability over the last number of years, through the Covid pandemic, internalisation and the macro economic impact of the Russian invasion of Ukraine that I-RES can continue to deliver both operationally and financially through its strong disciplined capital management. Our operational performance has underlined the significant demand in the Irish market for high quality professionally managed residential accommodation. We continue to focus on ensuring a strong and flexible balance sheet is maintained. Through our investment in our people and technology platform, we have placed ourselves in a strong position as we continue to navigate the headwinds faced.
Brian Fagan Chief Financial Officer 23 February 2024
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
The Group’s AMR increased to €1,774 at 31 December 2023 a 2.2% increase on like for like properties in line with regulatory cap of 2%, while residential occupancy remained consistently high at 99.4%, indicative of the strong market fundamentals in the Irish residential rental sector. During the period, c.16% of the portfolio units were turned over 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, investment properties under development and assets held for sale. 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
The portfolio Gross Yield at Fair Value was 6.7% as at 31 December 2023 compared to 5.9% as at 31 December 2022, excluding the fair value of development land, investment properties under development and assets held for sale. The movement represents the impact of softening yields on the portfolio valuation. EPRA Net Initial Yield
EPRA Earnings per Share EPRA Earnings represents the earnings from the core operational activities of 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
The decrease in EPRA Earnings to €27.6 million (31 December 2022: €30.9 million) is driven by strong operational performance, the impact of the non-recurring costs items offset by higher financing costs in the period. Adjusted EPRA EPS was 5.4 cents for the year ended 31 December 2023 compared to 6.9 cents for the same period last year. The decrease is primarily driven by increased financing costs offset by strong operational performance. 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 is calculated 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. 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.
(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 or used to repay debt 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 2023 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.
As a company we recognise the growing challenges that sustainability and climate change present for both the business and the planet. We are committed to playing our part in the transition to a more sustainable future. This commitment has been further heightened through ongoing dialogue and engagement with our key stakeholders including our investors, employees, and the communities within which we operate. We have embedded sustainability and responsible business practices across all aspects of our governance, strategy, policies, and processes. This spans both the overall business and our investment strategy throughout the full lifecycle of an asset from acquisition to disposal. We aim to future proof our business and deliver sustained value for stakeholders, while making the greatest positive impact through our long-term approach. To keep pace with the rapidly evolving ESG landscape and ensure we meet our commitments as a responsible and sustainable business, we undertook a review of our current approach to ESG and sustainability in 2022. This included refreshing our ESG materiality assessment, which determines priority focus areas to address the full spectrum of ESG factors. We have committed to refreshing the materiality assessment on a periodic basis. In 2024, we will conduct a double materiality assessment aligned to best practices to ensure our strategy adapts to changes in the sustainability landscape. Our ESG strategy is structured around three core pillars against which we benchmark our progress:
Protecting the Environment
Our Road to Net Zero As a real estate asset owner, we understand the contribution of the built environment to global carbon emissions and climate change. I-RES has committed to Net Zero Carbon by 2050. We believe it is our responsibility to limit the carbon impacts of our assets and to actively support the transition to a low carbon economy. In 2023, we made progress on our net zero pathway. Our like for like Scope 1 and 2 (wholly managed buildings) greenhouse gas emissions reduced by 59% and 0.3% respectively, following on from a respective 41% and 26% reduction on an absolute basis in the prior year. We will finalise our pathway to net zero in 2024 including setting interim Scope 1 and 2 reduction targets, phasing out fossil fuels whilst increasing on-site renewables. This will align with the net zero framework set out by the Better Building Partnership’s Climate Change Commitment. Our scope 3 emissions, arising from tenant activities whilst beyond our control, form the greatest part of our emissions. Monitoring these emissions is key to identifying carbon intensive assets and tracking progress. Understanding our tenants’ energy use will help to inform our net zero strategy. In 2023, we initiated a programme to collect Scope 3 energy data for our portfolio. We aim to have 12 months meter reading for each meter. Our sector must act swiftly to transform existing buildings and improve new developments if we are to limit carbon emissions. As a responsible business, we take this responsibility seriously. By upgrading energy performance across our portfolio now, while pursuing both short and long-term emissions cuts, we aim to future-proof our assets.
Building Communities Maximising Social Impact Our portfolio represents more than buildings – it reflects communities and the lives within. We have a well-invested, high-quality, and modern portfolio. All our properties are well connected to public transit networks and well placed for local amenities, schools, and workplaces. Investing in locations with good connectivity and local services has been a core principle of our investment policy. Our industry-leading operating platform enables high engagement programming that connects residents, provides needed services, promotes health and wellness and fosters inclusion. In 2023 we introduced the I-RES Living resident app improving two-way dialogue.
Building trusting relationships, Enriching Lives I-RES is dedicated to the provision of excellent customer service for our residents. We strive to provide quality homes and communities for our residents to live in. We achieve this through continuous resident engagement which ensures that we understand their needs as they adapt and change. The roll out of the I-RES Living app in 2023 has further enhanced our customer service by digitally transforming the resident experience, enriching our communications and engagement, and providing additional resources for our residents. We work hard to ensure strong relationships are maintained with all our stakeholders, who include our employees, residents, local communities, investors, suppliers, regulators, and not for profit organisations. Our employees strive to keep open communication with our residents as well as also giving back to the local communities through fundraising and environmental enhancement work. We had a good participation rate in our annual resident survey with improving levels of resident satisfaction over the previous year.
Our People Drive Our Success We firmly believe that our greatest asset is our people and our culture of development, engagement and inclusion. We nurture talent and facilitate open dialogue from frontline insights to continuing Board engagement on strategic workforce topics. Tom Kavanagh as the Non-Executive Director with direct responsibility for Workforce Engagement and Culture has continued his efforts through 2023, engaging with employees across the business to listen to their views as well as engaging with Management on the annual Employee Satisfaction Survey. The Board were delighted to see that this year’s survey significantly exceeded all comparator benchmarks achieving a 90% score, a testament to the great culture that exists across the Company. Diversity across the Board, Management, and employee base is a key focus area for the business. The Company has received recognition for its already diverse and inclusive workplace achieving a Silver Investors in Diversity Award, as well as recognition for its Board and Management diversity. I-RES employee base consists of a broad range of nationalities and 44% of our employees are female.
Operating Responsibly
ESG Embedded in our Governance structures I-RES is committed to the highest standards of corporate governance, and we prioritise transparency, accountability, and ethical practices across our operations. We have embedded ESG and sustainability objectives into all decision-making, from Board level to on-site teams. sustainability is considered throughout the full investment lifecycle from acquisition to disposal and is considered in our policies, processes and governance terms of reference. We have transparent and robust governance structures in place for oversight and decision-making of our ESG strategy. Our Board has ultimate responsibility for the direction and implementation of our ESG strategy. We have put in place clear reporting, governance, and programmes to communicate our progress to the Board, leadership and external stakeholders. We recognise transparency as vital on our ESG journey and actively communicate our impact and advancement. In 2023, we submitted to the Global Real Estate Sustainability Benchmark (GRESB) and improved our score for the fourth year straight and moved into the Two-star category. We also retained EPRA Sustainability Best Practices Recommendations (‘sBPR’) Gold standard, the highest possible achievement for this benchmark. We submitted to the Carbon Disclosure Project (‘CDP’) for the second time in 2023. We were happy to obtain a score of C for our first scored assessment. We continue to focus on initiatives that will improve our ESG performance as a business which, in turn, will support our continued improvement against these benchmarks which is a stated ambition for our business. We have committed to transparently disclosing on our ESG performance to enable all our stakeholders to review our continued delivery and permit comparability with our peers. This 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. Market Update
Macroeconomic backdrop The global economy experienced a period of dislocation through 2023, induced by several macroeconomic and geopolitical headwinds. Heightened inflation and the resultant aggressive interest rate hike cycle were in focus globally throughout the year as central banks worked towards achieving their primary objective of reducing inflation to target levels. As a result of these headwinds, the world economy is estimated to have experienced moderate GDP growth of 3.1%[7] in 2023. Moderate growth is expected to repeat again in 2024 as the delayed impact of higher interest rates passes through the global economy. Early 2024 has seen a dovish sentiment coming from central banks as inflation edges closer to long-term targets, with market expectations of interest rate cuts in the second half of the year. Geopolitics and stubborn core inflation present downside risk and will remain the focus through 2024, as conflicts across multiple geographies present a risk of further price shocks and supply chain disruption. Irish Economic Outlook
The Irish economy experienced continued price inflation during 2023, though declining gradually throughout the year. The Harmonised Index of Consumer Prices (‘HICP’) ended 2023 at 3.2%, down from 8.2% a year earlier[8], and is forecasted to moderate further to 2.3%[9] in 2024. Ireland’s GDP is forecasted to have contracted by 1.3% in 20233, however the domestic economy, measured by Modified Domestic Demand (‘MDD’) is expected to have grown by 1.5%3. The contraction in GDP can in part be attributed to the normalisation of export activity in the pharmaceutical sector post-Covid as MNE investment and export activity in the sector grew by double digits in 2022, largely caused by pandemic-related factors. Irish GDP is expected to return to growth in 2024 and is forecast to reach 1.2%4, outperforming a projected EU total GDP growth rate of 0.9%[10]. The Irish labour market continues to show strength with unemployment ending 2023 at 4.9%[11], compared to Euro Area unemployment expected to be 6.4%4. During a year in which global tech was characterised by large scale layoffs, IDA Ireland, the state agency responsible for attracting FDI into Ireland, reported winning 248 investments for Ireland in 2023, up 2.5% versus 2022, enabling the creation of almost 19,000 jobs[12]. Key sectors have continued to perform strongly in 2023, with tax revenue reaching €88.1 billion, an increase of 6%. An Exchequer surplus of €1.2 billion was recorded in 2023, down from 2022 as the growth in tax revenue was offset by an increase in public expenditure and the additional transfer of €4 billion from the Exchequer to the National Reserve Fund during the year. A General Government Surplus of just under €8 billion is estimated for last year, equivalent to 2.75% of GNI[13].
Rental Market Fundamentals Remain Supportive
Demographic trends such as population growth, aging population and reduction in average household size are continuing to positively influence demand in the Irish rental market. Ireland has seen strong population growth over the last decade, with population now an estimated 5.28 million people, including estimated growth of nearly 100,000 people (+1.9%) in 2023, the largest 12-month population increase since 2008. The current estimated population represents a +14.5% increase over the last decade[14]. In the decade to 2022, there were only 151,000 total new dwellings completed in Ireland, 29,000 of which were apartments. It is welcome to see that delivery of new housing has reached 32,695 in 2023 which exceeds the Government’s target of 29,000 for the year and is well above the trailing 10-year average and 10% above the delivery of 29,800 new units delivered in 2022[15]. However, current supply levels are still well below the estimated level required per year to bridge the gap between supply and demand which is estimated to require the delivery of up to c.62,000 homes per year until 2050[16]. Although the housing development pipeline has come under increased pressure due to higher interest rates, high construction costs, and lengthy planning procedures, completions are still forecast to reach 31,000 and 31,500 in 2024 and 2025 respectively[17], lagging the estimated output needed to meet demand, meaning that the supply and demand imbalance will likely continue to influence the housing sector over the medium term. The increasing demand for housing is likely to be more pointed towards the rental sector as increased mortgage rates have made renting relatively more affordable.
Rental Index
The national Residential Property Price Index (RPPI) increased by 2.9% in the 12 months to November 2023, with prices in Dublin rising by 0.9% and prices outside Dublin up by 4.4%. According to the Residential Tenancies Board (“RTB”), the standardised average monthly rents in new tenancies in Q3 2023 were €1,598 nationally and €2,113 in Dublin, year on year growth of 11% and 10% respectively. Alternatively, the average rent for existing tenancies was €1,357 nationally and €1,788 for Dublin, showing a clear spread between rents at new and existing properties[18]. Fundamentally, there is still a significant undersupply of homes for rent, with the number of properties listed for rent on Irish property listing site DAFT.ie at the beginning of November 2023 at 1,800 homes nationwide. This is strikingly low in a country that recorded at least 330,000 households in the private rental market during the 2022 census[19].
Real Estate Investment
As a result of the current macroeconomic headwinds experienced in 2023, real estate investment activity has slowed both globally and in the Irish market. Transaction activity was muted in 2023 as market participants grappled with heightened interest rates and the difficult financing environment. Real estate investment transactions totalled €1.85 billion in Ireland in 2023, the lowest year of spend since 2013. The residential sector represented 23% of total real estate spend in the year[20]. While global markets remain volatile, real estate pricing will continue to be impacted by the macro drivers that are currently dominant. It is expected that stabilising values, reducing inflation, and greater certainty over borrowing costs going forward will induce growth in investment flow in real estate markets. As the Irish residential market is severely undersupplied and continually shows exceptionally strong fundamentals, including a skilled workforce and business-friendly environment, which in turn is helping to sustain rental cashflows and returns, we believe in the medium-term, that the PRS market in Ireland remains a compelling area for investment.
Principal risks and uncertainties 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 in pursuing its current strategy outlined in the 2022 Annual Report. 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 2023. The risk management process is designed to identify, evaluate and respond to the significant existing and emerging risks that I-RES faces in delivering on its agreed strategy. The process aims to understand and appropriately manage and mitigate identified risks. As previously announced the Board is commencing a strategic review which will revisit the options available and possible changes to the future strategy of the organisation. It is expected that the currently identified risks will continue to be relevant to any future strategy. The output from the strategic review process once completed will be evaluated to identify any emerging key risks and uncertainties that might warrant inclusion in any future analysis of principal risk in I-RES.
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated Statement of Profit or Loss and Other Comprehensive Income
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
The accompanying notes form an integral part of these consolidated financial statements Notes to Consolidated Financial Statements
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 “IRES”.
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 2023 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 2023 and 31 December 2022 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 2022 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 2023 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 2023 will be approved by the Directors and reported on by the auditors in March 2024. 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 2023 to 31 December 2023. 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 €65 million from its RCF (as defined below in note 10) while maintaining a maximum 50% Loan to value ratio as at 31 December 2023, as required by REIT legislation. As at 31 December 2023, the undrawn RCF amount is €227 million. Post year end, I-RES has reduced the RCF facility size by €100m, resulting in a current undrawn amount of €127 million. The Group generated positive cashflows from operations for the year ended 31 December 2023. 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. Material Accounting Policies (continued) Changes in material accounting policies The Group adopted the disclosure of accounting policies (amendments to IAS 1 and IFRS Practice Statement 2) from 1 January 2023. The amendments have not resulted in a change to the accounting policies themselves, they impacted the accounting policy information disclosed in Note 2. The changes have resulted in the disclosure of material rather than significant account policies.
These consolidated financial statements incorporate the financial statements of I-RES and its subsidiaries, IRES Residential Properties Limited, IRES Fund Management Limited, IRES Residential Properties (Tara View) Limited and IRES Residential Properties (Orion) 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.
Investment properties 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.
‘2. Material Accounting Policies (continued) ‘c) Investment properties and investment properties under development (continued)
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.
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. ‘2. Material Accounting Policies (continued) ‘c) Investment properties and investment properties under development (continued)
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.
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.
Property, plant and equipment are stated at historical cost less accumulated depreciation and mainly comprise of the 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 one to five years.
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.
‘2. Material Accounting Policies (continued)
Financial assets and financial liabilities 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 standard requires 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 (“FVTOCI”).
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.
2. Material Accounting Policies (continued) ‘g) IFRS 9, Financial Instruments (“IFRS 9”) (continued) 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:
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.
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 profit or loss 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.
2. Material Accounting Policies (continued) ‘g) IFRS 9, Financial Instruments (“IFRS 9”) (continued) 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 other comprehensive income (“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.
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.
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.
2. Material Accounting Policies (continued) ‘h) IFRS 16, Leases (continued) 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 price.
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.
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. 2. Material Accounting Policies (continued) ‘h) IFRS 16, Leases (continued)
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.
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 (“ECL”) 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.
2. Material Accounting Policies (continued)
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.
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.
Revenue from maintenance services represents the service component of the REIT’s rental contracts and is accounted for in accordance with IFRS 15. These services consist primarily of the recovery of utilities, 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 the obligation and consequently revenue is recognised over time, typically on a monthly basis, as the services are provided.
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.
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.
2. Material Accounting Policies (continued)
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 Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
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.
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.
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.
2. Material Accounting Policies (continued) ‘o) Share-based payments (continued)
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.
Property taxes are paid annually and recognised as an expense evenly throughout the year.
Security deposits are amounts received from tenants at the beginning of a tenancy. When a tenant is no longer in occupancy, 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.
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.
Non-current assets are classified as held-for-sale if it is highly probable that the assets 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.
2. Material Accounting Policies (continued)
The following standards and amendments are under review and are not expected to have a significant impact on reported results or disclosures of the Group. They were not effective at the financial year end 31 December 2023 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 (amendment to IAS 1) Effective Date 1 January 2024
Lease Liability in a Sale and Leaseback (amendment to IFRS 16) Effective Date 1 January 2024
Supplier Finance Arrangements (amendments to IAS 7 and IFRS 7 Effective Date 1 January 2024
ESRS S1 General Requirements for Disclosure of Sustainability-related Financial Information ESRS S2 Climate-related Disclosures Effective Date 1 January 2024
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.
For the year 1 January 2023 to 31 December 2023 Disposals
For the year 1 January 2022 to 31 December 2022 Investment property acquisitions
Completed development
Disposals
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 2023. 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 producing income, 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 2023, all investment property under development was completed and included in investment property producing income. During the year ended 31 December 2023, the Company incurred development costs of €Nil (31 December 2022: €4.6 million) relating to the properties under development. 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 2023, 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.
‘5. Investment Properties (continued) 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 €193.6 million reduction in fair value while a decrease of 1% in the Equivalent Yield would result in a fair value increase of €279.3 million. An increase between 1% - 4% in Stabilised NRI would result in a fair value increase from €12.7 million to €50.7 million respectively in fair value, while a decrease between 1% - 4% in Stabilised NRI would have the impact ranging from €12.7 million to €50.7 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 €19.9 million for the year ended 31 December 2023 (31 December 2022: €19.1 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. 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 2023 and 31 December 2022 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.
5. Investment Properties (continued) 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 2023 is presented below: As at 31 December 2023
(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 or per unit of planning permission.
As at 31 December 2022
(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 or per unit of planning permission.
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
(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 €1,274.4 million at 31 December 2023 (€1,499.0 million at 31 December 2022) was based on external valuations carried out as at that date. The valuations were prepared in accordance with the RICS Valuation – Global Standards, 2020 (Red Book) and IFRS 13.
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
Amounts recognised in profit or loss For the year ended 31 December 2023, I-RES recognised interest on lease liabilities of €212,000 (31 December 2022: €222,000). Amounts recognised in statement of cash flows For the year ended 31 December 2023, I-RES’s total cash outflow for leases was €416,000 (31 December 2022: €406,000). 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.
(1) Includes prepaid costs such as OMC service charges, insurance and costs associated with ongoing transactions. (2) Deposit paid for Ashbrook Phase 2.
(1) The carrying value of all accounts payable and accrued liabilities approximates their fair value. (2) Includes property related accruals, development accruals and professional fee accruals,
The Revolving Credit Facility of €600 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 Continental Europe. 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 was 4.46% (2022: 2.67%). On 14 December 2022, I-RES entered into hedging arrangements to fix the interest cost on €275m 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, The Governor and Company of the Bank of Ireland, Allied Irish Banks, p.l.c., Barclays Bank Ireland PLC and HSBC Continental Europe) for the entire €600 million facility with a new maturity date of 18 April 2026. On 22 December 2023, the Company served a notice of cancellation per the agreement to reduce the facility by €100m with effect from 4 January 2024, thus reducing the overall facility to €500m. 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. Gross Loan to Value has remained below the required 50% at 44.9%. In November 2023, the Company agreed with the RCF syndicate and Private Placement Noteholders to amend the current Interest Cover covenant from 200% to 175% until maturity of the RCF in April 2026. Interest Cover has remained above the requirement of 175% at 228% for the year ended 31 December 2023.
On 11 March 2020, I-RES successfully closed the issue of €130 million notes and IRES Residential Properties Limited, its subsidiary, closed the issue of USD $75 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:
(1) The principal amount of the USD Series A Senior Secured Notes is USD $50 million. (2) The principal amount of the USD Series B Senior Secured Notes is USD $25 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. In the event that the interest cover ratio falls below 200% but above 175%, a coupon bump of 0.75% will apply against the principal of the outstanding notes. This would remain in place until the interest cover was brought above 200%.
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 €1, effective from 31 January 2022 (“Completion”). The acquisition was deemed to be in the best interests of I-RES to internalise its management.
‘12. Business Combinations (continued)
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 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 in 2022 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.
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 2022 and 31 December 2021. As at 31 December 2023, the maximum number of additional options, or Restricted Share Units (“RSU”) issuable under the LTIP is 19,786,557 (31 December 2022: 20,594,128). LTIP
The fair value of options has been determined as at the grant date using the Black-Scholes model.
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 2023.
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: 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 Total Shareholder Return (“TSR”) measure relative to constituents of the FTSE EPRA/NAREIT Europe Developed Index (2021 and 2022 awards) and a residential sub-sector of this Index for the 2023 awards. Results and inputs are summarised in the table below:
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 2023 was €nil (31 December 2022: €24,000) and total share-based compensation expense relating to restricted stock unit awards for the year ended 31 December 2023 was €153,000 (31 December 2022: €93,000).
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:
The number of issued and outstanding ordinary shares is as follows:
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.
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.
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. The current year non-recurring costs relate specifically to the ongoing Activist interaction and requisition of an EGM. The prior year non-recurring costs related to legal, consulting and advisory expenses associated with the termination of the Investment Management Agreement, Internalisation of the Investment Manager, Transitional Services Agreement fees to CAPREIT and other one off third-party advisory fees.
Cross-currency swap On 12 February 2020, I-RES entered into a cross-currency swap to (i) hedge the US-based loan of USD $75 million into €68.9 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 2023, the ineffective portion that has been recorded in the consolidated statement of profit or loss and other comprehensive income was a gain of €86,000 (31 December 2022: loss of €35,000). The fair value of the effective portion of €3,035,000 (31 December 2022: €7,310,000) was included in the cash flow hedge reserve along with a gain on hedging of €362,000 (31 December 2022: gain on hedging of €144,000). The fair value of the cash flow hedge was an asset of €969,000 and a liability of €1,594,000 at 31 December 2023 (31 December 2022: asset of €3,042,000 and liability of €nil). 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 €275 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 2023, the fair value of the effective portion of €3,125,000 (31 December 2022: €4,065,000) 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 €1,910,000 and a liability of €2,073,000 at 31 December 2023 (31 December 2022: asset of €4,772,000 and liability of €9,000).
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 2023, aggregated by the level in the fair value hierarchy within which those measurements fall. As at 31 December 2023, the fair value of the Group’s private placement debt is estimated to be €168.4 million (31 December 2022: €158.2 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 €196.1 million (31 December 2022: €198.2 million).
As at 31 December 2023, the fair value of the Group’s RCF is estimated to be €373.4 million (31 December 2022: €453.7 million). The fair value is based on the margin rate and EURIBOR forward curve at the reporting date. The RCF is recorded at amortised cost of €371.3 million at 31 December 2023 (31 December 2022: €453.7 million).
‘20. Financial Instruments, Investment Properties and Risk Management (continued) ‘a) Fair Value of Financial Instruments and Investment Properties (continued)
(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)
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 Euro. 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 $75 million into €68.9 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:
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 2023, the Group held the following instruments to hedge exposures to changes in foreign currency and interest rates:
The amounts at the reporting date relating to items designated as hedged items were as follows:
The amounts relating to items designated as hedging instruments and hedge ineffectiveness were as follows:
‘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.
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 2023, I-RES’ RCF was drawn for €373 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 €275 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 83% 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 2023, a 100-basis point change in 1 month Euribor interest rates across the period would have had the following effect:
(1) Based on the fixed margin of 1.75% plus the 1-month EURIBOR during year ended 31 December 2023 and a hedged interest rate of 2.50% for the period interest rate swaps in place.
‘20. Financial Instruments, Investment Properties and Risk Management (continued) ’b) Risk management (continued)
(1) Based on the fixed margin of 1.75% plus the 1-month EURIBOR rate during year ended 31 December 2022 and a hedged interest rate of 2.50% for the quantum and period of interest rate swaps in place. 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. The following tables show the Group’s contractual undiscounted maturities for its financial liabilities:
(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 2023. (4) Based on 1-month EURIBOR forward curve as at 31 December 2023.
‘20. Financial Instruments, Investment Properties and Risk Management (continued) ’b) Risk management (continued)
(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.
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 a gain of €90,000 for the year ended 31 December 2023 and is recorded as part of property operating costs in the consolidated statement of profit or loss and other comprehensive income (31 December 2022: charge of €725,000). 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 2023, capital consists of equity and debt and Group Net LTV was 44.3% (2022: 43.3%). 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.
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. The Directors confirm that the Group has remained in compliance with the Irish REIT Regime up to and including the date of this Report. Income tax expense recognised in the consolidated statement of profit or loss and other comprehensive Income
’21. Taxation (continued) Reconciliation of the effective tax rate
The main driver of taxation for I-RES in the period relates to Capital Gains Tax (“CGT”). This arose on the profit on disposal of the Rockbrook site. CGT is payable on this as the site constitutes a disposal of an asset of the residual business as opposed to the property rental business of the Group. The remaining taxation is driven by the operations of IRES Fund Management Limited acquired in 2022. The deferred tax is €nil at 31 December 2023 (31 December 2022: €nil).
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 2nd August 2023, the Directors resolved to pay an additional dividend of €12.9 million for the six months ended 30 June 2023. The dividend of 2.45 cents per share was paid on 1 September 2023 to shareholders on record as at 11 August 2023. On 23 February 2023, the Directors resolved to pay an additional dividend of €14.9 million for the year ended 31 December 2022. The dividend of 2.81 cents per share was paid on 3 April 2023 to shareholders on record as at 10 March 2023. On 10 September 2022, the Directors resolved to pay an additional dividend of €12.2 million for the six months ended 30 June 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 €16.3 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.
Distributable reserves in accordance with the Irish REIT Regime were calculated as follows:
Breakdown of operating income items related to financing and investing activities
Interest expense
Changes in operating assets and liabilities
Issuance of Shares
’23. Supplemental Cash Flow Information (continued) Changes in liabilities due to financing cash flows
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.
All of the owners’ management companies are incorporated in Ireland and are property management companies. As noted above, as at 31 December 2023, €98,500 is payable and €1,030,600 is prepaid by the Group to the owners’ management companies. As at 31 December 2022, €168,800 was payable and €714,100 was prepaid by I-RES to the owners’ management companies.
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.
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 €66.0 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. As part of the acquisition agreement entered into the Company has a gross capital commitment of €24.1 million in respect of the 44 units. These units are expected to be completed in H1 2024. Net cash outflow after taking account of deposit paid and proceeds from disposal of Part V units is expected to be c. €20 million.
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.
(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 2023, 4,596,499 options (31 December 2022: 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 per Share (continued) EPRA Earnings 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
‘28. Net Asset Value per Share (continued)
(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 December 2023 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.
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:
(1) Brian Fagan was elected as a Director of I-RES on 11 April 2022, his remuneration is included from that date. A full year of remuneration is included in 2023. (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)
The average number of employees in the period was 94 (2022: 86 - reflecting the acquisition of IFML on 31 January 2022). The total number of employees at the reporting period was 95 (31 December 2022: 95).
(1) Included in the auditor remuneration for the Group is an amount of €167,000 (31 December 2022: €175,000) that relates to the audit of the Company’s financial statements. (2) Non-audit remuneration for 31 December 2023 and 31 December 2022 relates to the review of the interim financial statements. (3) Non-assurance services for 31 December 2023 relates to Accountants’ report under Property Services Regulatory Authority (PRSA) regulations.
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.
On 4 January 2024, under the Revolving Credit Facility agreement, I-RES exercised its right to reduce the committed facility size from €600 million to €500 million, an option available to the company given the successful completion of the c. €100m asset disposal programme. 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. “Adjusted General and Administrative Expenses” General and administrative expenses adjusted to remove non-recurring costs; “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” 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. “Adjusted EBITDA Margin” Calculated as Adjusted EBITDA over the revenue from investment properties. “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 Earnings” EPRA Earnings is the profit after tax excluding revaluations and gains and losses on disposals and associated taxation (if any); “Adjusted EPRA Earnings” Represents EPRA Earnings adjusted for non-recurring costs to show the underlying EPRA Earnings of the Group;
“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; “Adjusted EPRA EPS” EPRA EPS calculated using Adjusted EPRA Earnings; “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 or Net Loan to Value (Net LTV)” Calculated by dividing the Group’s aggregate borrowings (net of cash) by the fair value of the Group’s property portfolio; “Loan to Value (LTV)” Calculated by dividing the Group’s aggregate borrowings by the fair value of the Group’s property portfolio; “Gross Yield” 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; Calculated as the NRI over the revenue from investment properties; “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 be deemed to be, forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “continue”, “maintain”, “forecast”, “potential”, “target” or “believe”, or, in each case, their negative or other comparable terminology, or by discussions of strategy, plans, objectives, trends, goals, projections, future events or intentions. Such forward-looking statements are based on the beliefs of management as well as assumptions made and information currently available to the Company. Forward-looking statements speak only as of the date of this report and save as required by law, the Irish Takeover Rules, the Euronext Dublin Listing Rules and/or by the rules of any other securities regulatory authority, the Company expressly disclaims any obligation or undertaking to release any update of, or revisions to, any forward-looking statements or risk factors in this report, including any changes in its expectations, new information, or any changes in events, conditions or circumstances on which these forward-looking statements are based. Due to various risks and uncertainties, actual events or results or actual performance of the Company may differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on, such forward-looking statements. There is no guarantee that the Company will generate a particular rate of return.
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) Denise Turner Hugh Scott-Barrett (Chairman Designate) 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: [email protected] Company Secretary Anna-Marie Curry Tel: +353 (0) 1 557 0974 E-mail: [email protected]
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”. [1] European Commission: Winter 2024 Economic Forecast [2] CSO, Eurostat [3] CSO Population and Migration Estimates, April 2023 [5] CBRE 2024 Ireland Market Outlook [6] RTB Rent Index Q3 2023 [7] OECD Economic Outlook, Interim Report February 2024 [8] CSO - Consumer Price Index December 2023 [9] Central Bank of Ireland Q4 2023 Bulletin – December 2023 [10] European Commission Winter 2024 Economic Forecast – February 2024 [11] CSO - Monthly Unemployment December 2023 [12] IDA Press release 15/12/23 [13] Press release - From Department of Finance; Department of Public Expenditure, NDP Delivery and Reform - Published on 4 January 2024 [14] CSO Population and Migration Estimates, April 2023 [15] CSO new dwelling completions [16] Daft.ie - House Price Report Q3 2022 [18] RTB Rent Index Q3 2023 [19] Daft.ie – Rental Price Report Q3 2023 [20] CBRE 2024 Ireland Real Estate Market Outlook Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. |
| ISIN: | IE00BJ34P519 |
| Category Code: | FR |
| TIDM: | IRES |
| LEI Code: | 635400EOPACLULRENY18 |
| OAM Categories: | 1.1. Annual financial and audit reports |
| Sequence No.: | 305510 |
| EQS News ID: | 1843495 |
| End of Announcement | EQS News Service |
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