Property Group Ires Reit muted a looming confrontation with Vision Capital in the earlier part of the preceding month by offering two board seat propositions to nominees from the firm based in Toronto. This was a counter offer to discourage Vision Capital from any future shareholder activist drives until after the 2025 Annual General Meeting (AGM).
The tactic successfully prevented a prospective face-off between Jeff Olin, Vision’s CEO, and Ires Reit’s board members at the firm’s 2024 AGM in Dublin, the following Friday. This follows the tense AGM of the past year and the more heated Extraordinary General Meeting (EGM) about three months earlier; Jeff Olin’s efforts to remove five directors and push for a resolution that could result in the company’s up for sale or division was overruled.
Be that as it may, Vision Capital, a holder of 5% of Ires shares, was in a better placing during negotiation talks as its resolutions typically garnered approximately 40% of the support. This has intensified the strain on the Ires board conducting their review of strategic options, as the value of the company shares significantly falls short of the inherent value.
Shares belonging to the largest landlord of private residencies in the Republic, possessing 3,734 properties, have stabilised post the AGM at approximately €1, a stark contrast to its touted net asset value of €1.32.
Peter Malbasha, a seasoned figure in the property sector, has openly expressed displeasure at Ires management as a minor shareholder in the recent two meetings. He plans to voice his concerns once again in the upcoming meeting.
Malbasha, formerly associated with the National Asset Management Agency as an asset recovery officer, argues that Ires has not managed its balance sheet effectively over the years, primarily being predisposed to borrowing at maximum capacity and overpaying for properties.
Approximately €100 million worth of properties were disposed by Ires in the past year, including a development site in South Dublin’s Sandyford and 194 housing units in the county’s west, in order to ensure sufficient leeway under legal confines as property values dipped globally amid soaring interest rates. Despite the effort to reduce net debt through property sales, the loan-to-value ratio on the portfolio marked a slight increase to 44.3% in December from 43.3% a year back. Nevertheless, it remained within the bounds of the Irish Real Estate Investment Trust rules – below the maximum 50% and within Ires’s targeted 40-45% range.
Malbasha criticises the decision to increase bonuses at the detriment of financial stability, referencing the sharp rise in financial costs from €16.8m to €26.7m in the previous year. Despite adjusting borrowing rates late in December 2022, this move was belated as it trailed the escalation in market rates preceding the official bank rate hikes.
Prominent advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis have both urged shareholders to support all of Ires’s impending resolutions. ISS, however, does cast doubt on whether the outgoing CEO Margaret Sweeney should receive half of her full bonus. Given the less than optimal shareholder experience marked by declining earnings, reduced dividends, and a persistently low share price, ISS expressed reservation.
Nevertheless, there’s an intention among several shareholders to dismiss the advice of the proxy advisers, thereby maintaining pressure on Ires. For instance, the California State Teachers’ Retirement System (CalSTRS), though only possessing under 1% stake, has declared its intention to vote against the reappointment of Ires’s six current directors, including chairperson Hugh Scott-Barrett. CalSTRS, however, is in support of new CEO Eddie Byrne, Sweeney’s successor. CalSTRS didn’t comment on their reasons for this stance.
Ires’s founding company, Canadian property business Capreit, is also expected to express dissatisfaction with the company’s management in regard to certain resolutions. Despite having profited approximately €50m in fees from 2014 when Ires floated and until two years ago when it ceased asset and property management, the company has been reducing its stake, currently standing at 9.7% from an initial 18.7% at the start of this year.
Recently, a number of opportunistic investors have appeared on the shareholder register, including UK-based activist group, Asset Value Investors (AVI), which has amassed a 4.25% stake and US-based real estate stalwart, Starwood Capital – financial backer of Dublin’s build-to-rent company Urbeo and one-time Hibernia Reit investor prior to its offload – now holding a 2.9% share. It’s been hinted that both parties are keen on a swift “liquidity event” rather than waiting for the market to recognise Ires’s worth in due course.
Irish property aficionado and ex-Goodbody Stockbrokers analyst, Colm Lauder, who Vision had lobbied to place on Ires’s board, is thought to be engaging with other large stakeholders via his newly-established consulting firm, Lingard Capital Advisers.
Ires’s recent strategy review update, spearheaded by its new chairman, Hugh Scott-Barrett, and Byrne (who smoothly transitioned into the CEO role ahead of his official appointment) suggests the board remains opposed to an outright sale. The update mentioned the difficulty in achieving maximum value for shareholders through a quick asset sell-off amidst higher interest rates, the impending general election, and a 2% cap on rent increases in Ires’s property locations. Despite this, they maintain an “open minded” approach to all options.
The primary idea put forward on how to bolster value is to extract additional revenue from parking – an idea that some may call uninspiring. The strategic review is also investigating the sales of particular asset blocks, including independent units.
Ires has raised objections to the constrictive Irish real-estate investment trust (reit) regulations with the Government, which is currently undertaking a sector review. The restrictive 50% debt limit is below that of many European countries, while the rule that Irish reits must pay 85% of rental income in dividends hampers investment in growth and development – a stark contrast to locations where distributions are often linked to net profits.
Expectations that this review will generate significant results prior to the looming general election (scheduled for next March) are likely to be disappointed.
It might have been more prudent for Ires to refrain from commenting on its review until the Vision nominees were duly appointed.