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Ires deal to silence activist won’t save it from tough questions at next week’s agm

Ires Reit has managed to temporarily muzzle activist Canadian fund Vision Capital that has waged a sell-up campaign since last April - but that won’t quieten the voices stirred by its crusade

Ires Reit is the Republic’s largest private residential landlord, with 3,734 apartments and houses. Photograph: Nick Bradshaw

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Joe Brennan
Sat May 4 2024 - 06:00

Property group Ires Reit entered a truce early last month with Vision Capital, offering board seats to two of the Toronto-based firm’s nominees in exchange for it agreeing not to take part in any further shareholder activist campaigns until after the 2025 annual general meeting (agm).

The ceasefire averted what was likely to have been another showdown between Vision’s chief executive Jeff Olin and the board at the company’s 2024 agm next Friday in Dublin. It follows a testy annual gathering last May and an even fiercer extraordinary general meeting (egm) 11 weeks ago, where Olin’s attempt to replace five directors, and push through a resolution to pave the way for a sale or break-up of the company, was defeated.

Still, the fact that Vision, which owns 5 per cent of Ires, saw its resolutions generally receive about 40 per cent support gave it negotiating power as it entered settlement talks. It has also upped pressure on the Ires board as it proceeds with its own strategic review of options, as its share price lingers at a deep discount to the intrinsic value.

Shares in the Republic’s largest private residential landlord, which owns 3,734 apartments and houses, have been hovering since the agm at around €1, well below its €1.32 latest reported net asset value.

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Property sector veteran Peter Malbasha has vented against Ires management as a small shareholder in the last two meetings. He plans to speak up again next week.

A former asset recovery official at the National Asset Management Agency (Nama), Malbasha claims “there was no proper balance sheet management for years as Ires borrowed to the maximum level possible and paid top dollar for properties”.

Ires was forced to sell close to €100 million of properties last year – including a development site in Sandyford in south Dublin and 194 homes in the west of the county – to maintain sufficient headroom under legal limits as property values declined internationally amid rising interest rates.

Even after the disposals to lower net debt, the loan-to-value ratio on the portfolio crept up to 44.3 per cent in December from 43.3 per cent a year earlier. Crucially, though, it remained below the maximum 50 per cent allowed under Irish real-estate investment trust (reits) rules – and within Ires’s 40-45 per cent target range.

“Bonuses were paid on growing the balance sheet at any cost,” according to Malbasha, who also plans to take aim at the surge in financing costs last year to €26.7 million from €16.8 million. The company only closed a deal to fix rates on a chunk of borrowings in December 2022, months after market rates had started to spiral in advance of official central bank rate hikes.

Institutional Shareholder Services (ISS) and Glass Lewis, the two most influential global advisory firms to institutional shareholders on agm votes, have each recommended investors support all Ires’s resolutions next week. ISS only gives “qualified support”, however, for the pay report, saying some may question outgoing chief executive Margaret Sweeney even receiving 50 per cent of her maximum bonus, “given the shareholder experience” as earnings fell, dividends were cut, and the share price remained low.

Many plan to ignore the proxy advisers – keeping pressure on the company, even if all resolutions are likely to pass. For example, the California State Teachers’ Retirement System (CalSTRS), which has less than a 1 per cent stake, has disclosed it will vote against the re-election of Ires’s six existing directors, including chairman Hugh Scott-Barrett. It backs new chief executive Eddie Byrne, who succeeded Sweeney on Wednesday. A spokeswoman for CalSTRS declined to comment on the reasons.

Ires’s founder, Canadian property company Capreit, which earned almost €50 million in fees between the group’s 2014 flotation and it being dropped as asset and property manager two years ago, is also expected to voice its displeasure at how the company is being run in certain resolutions. It backed Vision in February. However, it has been voting more with its feet of late, reducing its stake from 18.7 per cent to 9.7 per cent since the start of the year.

Some opportunists have cropped up on the shareholder register in recent months. These include UK activist type, Asset Value Investors (AVI), which has built up a 4.25 per cent interest; and US property specialist Starwood Capital – a backer of Dublin build-to-rent company Urbeo and one-time investor in Hibernia Reit, before it was sold – which now owns 2.9 per cent. Both are said to be more interested in a near-term “liquidity event” than holding out in hope the market will eventually appreciate Ires’s value.

Colm Lauder, an Irish-based property expert and former Goodbody Stockbrokers analyst that Vision had pressed to have appointed to Ires’s board, is understood to be engaging with other big shareholders through his new consulting firm, Lingard Capital Advisers.

An update last week on Ires’s strategic review – led by its new chairman, Hugh Scott-Barrett, and Byrne, who had been easing into the chief executive role for weeks before his formal appointment – suggests the board is as against a sale as ever.

An accelerated disposal of its assets in the market “would be challenging to maximise value for shareholders in the short-term”, it said. It argues that investment activity remains muted against the backdrop of higher interest rates, an upcoming general election, and a 2 per cent cap on rent increases in areas where Ires’s properties are based. Still, it insists that it remains “open minded” to all options.

The big value-boosting idea it’s prepared to flag for now? The potential to squeeze more money out of parking. Inspiring stuff. Who thought it was a good idea to slip that line into the press release? The review also continues to explore the sales of some blocks of assets, including individual units.

Ires said it has also raised concerns about the restrictive nature of Irish real-estate investment trust (reit) laws with the Government, which is carrying out a review of the funds sector. The 50 per cent debt limit is lower than in many European countries. A requirement that Irish reits pay out 85 per cent of rental income by way of dividends also restricts investment in growth and development. Distributions elsewhere are often tied to net profits.

Any hope the review will yield something meaningful before a general election (due by next March) is likely misplaced.

It may have been wiser for Ires to hold off saying anything on its review until at least the Vision nominees were in place.

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