Ires Reit said on Thursday that a move to sell all the apartment owner’s assets in the current environment “would be challenging to maximise value for shareholders in the short-term”, as it continues to carry out a strategic review of its future and its shares continue to trade at a deep discount.
While the board said it believes the medium-term outlook for the Irish private rental sector (PRS) “is positive”, it continues to be affected by short-term headwinds such as higher interest rates, restrictive regulation including on rent increases, a lack of deals activity, and concerns about the upcoming general election.
It highlighted Savills data showing that Irish PRS deals amounted to only €240 million last year, 73 per cent below the 10-year average.
“Independent analysis from the company’s advisers has also observed that, based on current market dynamics, a strategy that requires an accelerated sale of all the company’s assets in the direct market, including to occupiers and social providers such as the Government, would be challenging to maximise value for shareholders in the short-term,” it said.
“These options, alongside a potential sale of the company, will continue to be explored in detail as the strategic review continues.”
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The update on the review before Ires’s annual general meeting (agm) in two weeks’ time may lead to tensions at board level following the gathering. The company conceded earlier this month to supporting two nominees put forward by Vision Capital, a Canadian investor with a 5 per cent stake which has been waging a public campaign for the past year for a sale or break-up of the company.
Under the truce, Vision has agreed to a standstill on initiating or participating in any further shareholder activist campaigns until after the company’s 2025 agm.
The company’s net asset value per share fell to just below €1.32 in December from €1.60 a year earlier, driven as the company wrote down the value of assets amid rising interest rates. However, the shares have continued to trade at a deep discount to even that lowered valuation, currently changing hands at about €1.
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Ires, which owns 3,734 apartments and homes, said its review, which is being led by its new chairman Hugh Scott-Barrett and incoming chief executive Eddie Byrne, “has identified several initiatives with the potential to unlock the inherent value contained within the Ires operating platform, including further potential of revenue generation from car parking”.
Additionally, it continues to explore value maximisation through “selective asset recycling including, where appropriate, achieving value through the sale of individual units which are accretive to value”. Ires sold close to €100 million of assets last year, mainly in an effort to retain enough headroom over borrowing restrictions.
Irish real-estate investment trust (Reit) legislation restricts debt to 50 per cent of total assets and requires such vehicles to also pay out 85 per cent of rental income by way of dividends. These are seen by many as restrictions on growth and development.
“The Irish Reit structure provides liquidity and tax efficiency to shareholders within a regulatory framework and has significant advantages over non-Reit structures. However, the board notes that certain elements of the Irish Reit framework remain restrictive when compared to other European jurisdictions,” Ires said on Thursday.
“As part of a consultation process under way by the Department of Finance on the Irish funds sector, the company has raised several observations seeking to bring the Irish Reit framework in line with European peers and provide significant flexibility to the company, both operationally and strategically. The outcome of this funds review is expected to be published in the second half of 2024.”
Ires’s agm is due to be held on May 10th. It has promised to publish further updates on its strategic review “as appropriate, but no later than the release of the company’s 2024 interim results in August”.
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