FOLLOWING A LONG and relatively costly battle with a major shareholder, Ires REIT is now looking to go back to focusing on its day-to-day business.
The company, Ireland’s biggest private landlord with some 3,700 apartments, has spent the last few months locked in a boardroom war with Vision Capital, one of its largest shareholders with a 5% stake.
After Vision’s attempts to force a sale of all, or part, of Ires failed in February, the conflict came to a truce earlier this week.
Subject to other shareholders agreeing, Vision will get two nominees to the Ires board, in exchange for an agreement that Vision will support Ires board resolutions and pause any further activist campaigns.
But what prompted the conflict in the first place?
This is something examined by The Journal before, but the short of it is: Ires’s share price has stagnated over the last two years or so. This is at a time when stocks generally have surged, although property companies are under pressure from interest rate hikes.
Vision’s basic issue was that it felt shareholders were getting a bad deal and could get more money if Ires and its assets – including its 3,700 apartments – were just sold entirely.
Vision had been trying to get representatives on the Ires board to have more influence in the company. While the firm had pushed for five directors, the two agreed to by Ires will give Vision greater influence at board level, but short of what it originally hoped for.
A hint of this – one that will be closely followed by the company’s thousands of tenants – was contained in its annual report, which was also published earlier this week.
In it, the company said the average monthly rents across its portfolio was €1,774 as of the end of 2023, up slightly compared to €1,750 the year before.
Besides a tiny fraction located in Cork, all of Ires’s apartments are in Dublin, with the company saying it considered its prices to be “affordable” for the capital.
Almost all of the company’s properties are existing units falling under rent pressure zone rules, which mean prices can only be increased by 2% a year.
Figures from the RTB (Rental Tenancies Board) found that, for the third quarter of 2023, the average rent for existing tenancies was €1,788. Ires properties are essentially bang in line with this.
However, the company has its eyes set enviously on the prices charged by new lets, which are not yet bound by the 2% rent cap.
In its annual report, Ires said: “Our average monthly rent is 16% below current market rents, according to our independent valuer.”
Also looking at the third quarter of 2023, the RTB found the average price for new tenancies was €2,113.
A 16% price increase in Ires’s prices would put its average monthly rent at just under €2,100 a month, in line with these higher prices.
Just how unhappy Ires is with rent controls is again made clear in its annual report, which stated: “The impact of the 2% cap on rental increases continues to be profound on our business, with our portfolio under-rented to market rates.”
In a statement to The Journal, Ires said that its estimate that its rents are 16% below the market level “indicates that Ires rents are very competitive”.
The company also said that it provided services such as “maintenance and leasing teams” for tenants.
“Any increases are subject to rent regulation with a current max of 2% on annual rent increases,” it said.
“Any future changes to the rental rates charged by the company will be in line with 2% cap (or) prevailing regulation at that time.”
Likely, that rents will continue to rise, albeit constrained by the rent caps.
After its battle with Vision, Ires will be under pressure to maximise value for shareholders.
One way to do this is obviously to get more money from its existing assets.
Coupled with the fact that it views its €1,774 average prices as “under-rented”, it seems likely Ires will increase its rents by the legal maximum – currently 2% a year – for the foreseeable future.
Ires could also again face shareholder unrest because the company’s share price is once again in the doldrums.
After a brief rally from €0.90 to almost €1.20 between December and February when Vision was making noise, stock in Ires has fallen back to €1 per share at the time of publication. This is also far off its price of €1.70 in early 2022.
The company’s finances are mixed. Net rental income rose by just over 3% to €68 million in 2023. Adjusted earnings increased from €54 million to €56 million, while essentially all its apartments are filled with an occupancy rate just over 99%.
However, the company booked a pre-tax loss of €114 million for 2023 after the value of many of its properties fell.
Its entire portfolio was valued at just under €1.3 billion at the end of 2023, down from €1.5 billion a year earlier. Its market capitalisation – how much the company itself is valued at – is still far below this level at just €530 million as of the time of writing.
This also raises the prospect of further asset sales to return more cash to shareholders. Ires is currently carrying out a strategic review which is looking at asset sales.
Investors are still worried about the impact of interest rates on the company, which have hit property values and forced Ires to offload almost 200 west Dublin apartments to the Tuath Housing Agency for €72 million.
Analysts have also highlighted what they perceive to be political risks to the company, with Goodbody stockbrokers saying Ires is operating in a “one of the most challenged political environments”. The upcoming general election creates further uncertainty, such as whether an incoming government may look to even tighter rent controls.
So essentially – Ires tenants would do well to keep in mind that the company is still under serious pressure to impress shareholders. Further rent rises – in line with rent caps – and apartment sales will likely at the very least be on the table.
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