Ires Reit’s step-up in the past week of its defence against an activist investor that would see off half the board and raise a “for sale” sign over the door was clear evidence that it knew it had lost the support of its largest shareholder — and is fighting for every last vote at an upcoming extraordinary general meeting (egm).
Having put out a short statement last Friday (19th) saying a hostile missive the previous day from Toronto-based Vision Capital was “misleading” and contained “inaccuracies”, Ires followed up with a full-throated response on Wednesday and pre-publication the following day of a 37-slide egm presentation.
The company, which owns 3,734 apartments and houses and is seeking to galvanise shareholder support for its own planned review of strategic options, knows most votes will already have been cast before the egm gathering in a hotel function room in Dublin’s south docklands on February 16th.
On Thursday evening, Capreit, the Canadian apartments group that founded and floated Ires Reit a decade ago, confirmed it will use its 18.7 per cent stake to vote in favour of Vision resolutions to replace five directors with its candidates and secure a mandate to sell or beak up the Irish company within two years.
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Voting patterns at Ires’s annual general meeting last May suggest Vision already had Capreit somewhat onside when over 38 per cent of votes were cast against the re-election of Ires chief executive Margaret Sweeney and almost 46 per cent opposed her finance chief, Brian Fagan.
Vision is seeking to oust both executives — together with chairman Declan Moylan and two other non-executives — at the egm, even if the targeting of Sweeney and Moylan appears a tad venomous given both have already signalled their planned, natural departures in the coming months.
Capreit may have specific reasons for its voting decision. A spokesman for Ires sought to cast the decision in the context of the group’s “previously indicated wish to exit Europe and focus on the Canadian market”. (It hasn’t had much luck offloading its other major investment on this side of the Atlantic, with its 65 per cent-owned Dutch apartments group, European Resident Reit, abandoning notions of a sale just before Christmas, citing “challenging” financial market conditions.)
Capreit also lost a nice fee earner in 2022 when Ires cancelled an asset and property management contract with the Canadians and moved the work in-house. Capreit raked in almost €50 million in such fees from the time of Ires’s 2014 initial public offering, according to disclosures in annual reports. (It also appears to have voted against Sweeney’s re-election at the 2022 agm.)
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Ires’s egm slides highlight the company’s “exceptional operational and financial performance”, with over 99 per cent occupancy rates across its properties (hardly difficult in a tight rental market); how revenues and earnings margins have risen in recent years; and that the company managed to give itself additional headroom under its borrowing limits in 2022 by selling almost €100 million of assets.
For Vision, the main problems are clear. These include a stock trading for some time at a deep discount to the intrinsic value of its assets and problems and with Irish reit rules, which require an 85 per cent dividend payout rate on net income, limiting what could be set aside for investment.
Vision’s criticism, meanwhile, of the “excessive risk” Ires took by only closing a deal in December 2022 to fix interest rates on €275 million of debt — months after market rates had started to spiral ahead of official central bank rate hikes — was shared by many followers of the company.
Ires highlights in its slides that it generated a total shareholder return in the 12 months to early January of 2.4 per cent — including share price gains and dividends — against a negative return of 22.5 per cent for European residential peers.
Sentiment towards the wider sector has picked up considerably over the past three months amid expectations that the European Central Bank will cut official rates at pace this year. Ires’s share price, too, has been bolstered by hopes that the company is now in play, after Vision called for what’s shaping up to be a decisive egm.
Ires can’t take the credit for this. Indeed, its average 0.2 per cent return over five years compares less favourably to the 23.2 per cent delivered by the wider sector.
Ultimately, the outcome of the egm next month will boil down to who shareholders reckon can be trusted with maximising value for them (even if investors have different time horizons in mind).
Ires’s central line against the attempted activist coup is that Vision’s proposal is predetermined, time-limited and would be seen by potential buyers as tantamount to a “distressed sale process”.
It zoned in this week on Vision’s point that some of its properties with more affordable rents “could be sold to Government or non-profit groups”. It noted, correctly, that there is no Government policy to indicate it would be such a buyer. It chose not to draw attention to the fact that it did sell 194 Dublin homes to housing charity Tuath for €72 million late last year.
Ires also highlighted in its egm slides that there is limited money chasing “large real estate transactions in the Irish market” at the moment and that a sale of its assets over two years “would fail to capture the value inherent” in the company.
That may be true. But such statements risk being read by shareholders as indicating that the board plans to embark on its own “all options” strategic review with a firm stance that one of the options it pledges to assess — a sale of the company or its assets — is off the table before it even begins.
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