As the Dáil debated an Opposition Bill in April that aimed to cap rents at 25 per cent of median household income, one company was cast as embodying all that was bad with the dysfunctional property rental market: Ires Reit.
The State’s largest private residential landlord was accused by Richard Boyd-Barrett of the People Before Profit-Solidarity — which pitched the Bill — along with overseas “vulture funds” of making “extortionate profits” amid a lack of affordable accommodation.
“It is absolutely disgusting,” he said.
On the face of it, there may be much that should endear investors to Ires, the only surviving real-estate investment trust of the four that floated on the Dublin stock market in the past decade
Mick Barry, TD with the left-wing alliance, called out the €22.9 million profit Ires made in the first half of last year, saying: “Do not tell me that this 25 per cent is a crazy figure”; while Independent TD Peter Fitzpatrick highlighted the millions of euros the Government hands over annually to the apartments group by way of social housing supports.
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They weren’t the only ones, however, to aim that month at a company that owned close to 4,000 properties.
Just weeks before the Rent Reduction Bill 2023 was discussed — and defeated — in Leinster House, an activist Canadian investor in Ires, Vision Capital, outlined a list of grievances against the company, which it argued was failing, contrary to the claims in the Dáil, to deliver acceptable returns for shareholders.
On the face of it, there may be much that should endear investors to Ires, the only surviving real-estate investment trust (Reit) of the four that floated on the Dublin stock market in the past decade.
Occupancy across its properties has consistently been above 99 per cent in a tight rental market. It is also strategically invested in a modern portfolio where the average age of homes is 13 years with good energy ratings, putting it in a better position than many European peers. And the company is required by Reit laws to distribute 85 per cent of its rental profits annually by way of a dividend.
However, its share price had lost a third of its value in the 12 months before Vision raised its head, leaving it languishing as the least loved stock on the Iseq 20 for the period.
For Vision, the problems were clear, according to an open letter published by the 5 per cent shareholder on April 13th. These included: a stock trading at the time at a 44 per cent discount to the intrinsic value of its assets; flaws with Irish reit rules, which required a high dividend payout rate, limiting what could be set aside for investment; and the “excessive risk” the company took by only closing a deal last December to fix rates on €275 million of debt — months after market rates had started to spiral ahead of official central bank rate hikes.
To boot, Ires’s properties — almost all of which are in Dublin — are subject to a 2 per cent rent increase cap imposed by the Government in late 2021 on rent pressure zones.
Meanwhile, the loan-to-value ratio of the company’s property portfolio expanded by 2.6 percentage points to 43.4 per cent last year as it wrote down the value of its apartments and development land amid rising interest rates. This left investors concerned about the headroom Ires had under a 50 per cent borrowing limit set for Irish Reits by law.
According to Vision chief executive Jeffrey Olin, a boardroom overhaul was required and Ires should put itself up for sale.
Ires managed to secure enough backing from shareholders for the re-election at an annual general meeting (agm) in May of directors Vision had targeted for removal — including chairman Declan Moylan, chief executive Margaret Sweeney and chief financial officer Brian Fagan.
In the 18 months to June, Ires shaved €102m off the carrying value of its property portfolio as a result of rising interest rates, reducing it to €1.36bn
However, 38.5 per cent voted against the return of Sweeney and 45. 7 per cent registered dissatisfaction with Fagan.
Moylan insisted at the meeting that “there could not be a worse time to sell” the company.
However, it was forced to sell €96.5 million of assets — including 194 apartments in west Dublin and a development site in Sandyford — into that weak market throughout 2023 to reassure investors that it could maintain sufficient headroom under its debt limits.
In the 18 months to June, Ires shaved €102 million off the carrying value of its property portfolio as a result of rising interest rates, reducing it to €1.36 billion.
Meanwhile, Sweeney announced in late October that she planned to retire from her role next April, after 6½ years in charge. Sources said at the time that she had originally intended to hold the chief executive position for only five years, but decided to stay for longer to maintain stability in the company after moving the day-to-day management of its portfolio in-house last year and dealing with volatility in the property market.
Olin at Vision, who adopted a low profile in the seven months following the testy agm, made a fresh move just before Christmas. In another open letter, issued on December 18th, he called on the company to hold an extraordinary general meeting, at which it aims to replace five directors — including Moylan, Sweeney and Fagan — and push through a resolution for the business to be taken private, sold or broken up over two years.
The five potential directors being lined up by Vision include: former Arthur Cox partner and property lawyer Mark Barr; one-time chief operating officer of Canada’s CIBC Bank Richard Nesbitt; former head of real estate equity research at Goodbody Stockbrokers Colm Lauder; Amy Freedman, an adviser to Canadian asset manager Ewing Morris; and Sharon Stern, president of Eastmore Management and Metro Investments in the US.
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Lauder, who covered Ires for seven years before leaving Goodbody earlier this month and is an expert on the Irish reit regime, is seen by property industry sources as a potential full-time or interim chief executive after Sweeney exits.
Vision wants to have the egm well before Sweeney’s scheduled departure so that a new board can decide on her replacement.
On the face of it, the 5 per cent stake Vision says it owns in Ires is enough to force the company to hold an egm under Irish rules for listed companies. If Ires and its advisers confirm it is a valid request, a meeting would need to be held by February 18th, two months after it was made.
“It’s an absolute disgrace how Ires is in the doldrums,” said Peter Malbasha, a property sector veteran and former employee of the National Asset Management Agency [Nama], who is a small investor in Ires. “I share the views of Vision Capital and, as a small shareholder, I am extremely frustrated by the stagnation of the share price. We are in a boom time for property and we have a company that is trading at or below its IPO [initial public offering] price. You really have to ask yourself how that is possible?”
Nama said in June that it had abandoned plans to deliver 400 apartments before it is wound up in 2025
Ires floated in 2014 for €1. It fell to an all-time low of less than 87 cent in October.
Dublin residential properties have risen more than 80 per cent since the IPO — though there has been a significant slowdown in private rental sector (PRS) deals since mid-2022. Nama said in June that it had abandoned plans to deliver 400 apartments before it is wound up in 2025, as investment in PRS had “almost disappeared” amid a spike in interest rates in the past year.
However, Ires shares have since stage something of a rally in less than two months — to just above the IPO price — in line with a surge by other listed European property companies on mounting expectations that the European Central Bank (ECB) will cut interest rates rapidly next year.
Sources close to Ires, meanwhile, see the move as an attempt by Vision to seize control of Ires to pursue its own agenda.
“They have not put forward any credible proposal to date — seeking only to try to force a liquidity event for their own benefit,” said a source close to the property company.
The source also said that Vision’s targeting of the weak performance of Ires shares since early last year ‘is not credible’
The source also questioned assertions by Vision in April and again this month that Ires could become “a platform that can be a significant provider of housing stock in Ireland” by the abandonment of its publicly traded Reit status. “We’re not clear on why they singularly believe they can achieve this,” the source said.
The source also said that Vision’s targeting of the weak performance of Ires shares since early last year “is not credible”, given the wider European property sector had been under pressure as the ECB hiked its main lending rate from zero to 4.5 per cent in the 15 months to September.
“We have seen share price performances move positively recently with the mooted easing of interest rates and such a move will provide positive support for the entire real estate sector,” the source said.
Might it also flush out bid interest for Ires in 2024?
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