Future of IRES Reit

DubCount

https://www.irishtimes.com/business/2023/04/15/could-countrys-biggest-landlord-be-put-up-for-sale/

I think this story should be of grave concern to the Irish rental market. If a REIT is struggling to satisfy shareholders with almost full occupancy, its not a good sign for residential property market in general. With the market value of their shares at a 40% discount to the market value of their properties, a new owner could make a lot of money getting out of property rental and selling off their properties. They have 4,000 rental units.

herbalplants

https://www.boards.ie/discussion/2058294894/future-of-ires-reit

Interesting with 100% occupancy and rents that never been as high previously, they are struggling....

ballyharpat

https://www.boards.ie/discussion/comment/120547969#Comment_120547969

they bought a lot of their property in 2014/15 etc, when RPZ came in, it means they can't raise the rent to match inflation, they have management fees among other expenses I imagine, it's not a good return on their money, it will be interesting to see how it plays out, if they are rentals, maybe families will not want them, no landlord will want them as the rent cannot be increased.

tesla_newbie

https://www.boards.ie/discussion/comment/120549791#Comment_120549791

This is about a disconnect between on the ground results and share holder value , the assets are fine , the markets just don’t like the financial product as it’s managed , the only thing this tells us for sure is that the board need to be removed

tom_murphy112

https://www.boards.ie/discussion/comment/120550026#Comment_120550026

I think it is a lot more complicated - Most REIT pay no corporate Irish tax, the way this was setup was by introducing legislation the made REIT pay 85% of their profits back to shareholders, hence moving the tax liability to them. Hence most REIT don’t have a lot of cash, all they have is assets. This also means that they have debt and with the interest rate hikes, they will have to liquidate assets fairly quickly to ensure they stick to their required LTV. This is what happened when IRES sold couple of prime real-estate not that long ago and Vision Capital wasn’t happy. 

If IRES does go private it will be the final blow to REIT in Ireland in my opinion. I am sure by doing so they will also loose their tax advantage and will have to start coughing up corporate tax and capital gains tax when disposing of assets etc.. 

tesla_newbie

https://www.boards.ie/discussion/comment/120552151#Comment_120552151

Do you think the stock is a buy ?

redarmyblues

This country is in one hell of a state when unelected quangos were able to impose their version of idealogical purity on our housing laws, they need to be defunded.

tom_murphy112

https://www.boards.ie/discussion/comment/120552401#Comment_120552401

Honestly not sure. The stock value certainly doesn't reflect the asset they hold. Last I heard they held asset worth €1.5 Billion, but their market valuation was worth around €600 Million.

But if you think about it, if they were to sell every single asset they held - would anyone pay €1.5 Billion for it ? I certainly don't think so. The assets have loads of conditions tied to it, not to add that selling during a period when there is volatility in the market isn't a good idea.

Looks like the IRES board members managed to scrape by on the no confidence vote, this is just kicking the can down the road.

tesla_newbie

https://www.boards.ie/discussion/comment/120559119#Comment_120559119

The message at the AGM yesterday was “ it’s a terrible time to sell “

what ?

the property market is still extremely strong, perhaps not as strong as a year ago but strong none the less

Marcusm

https://www.boards.ie/discussion/comment/120559149#Comment_120559149

Not so strong on the commercial side which is essentially what apartment blocks let unit by unit constitute. Capital values have dropped as interest rates have risen with no ability to compensate by increasing rents commensurately (rent caps). There are already rumours that one of their flagship rentals, The Marker, is for sale for €65m versus a 2019 valuation of €75m.

tesla_newbie

https://www.boards.ie/discussion/comment/120562514#Comment_120562514

IRES owns residential only , it’s true that retail and office has been in a bear market since 2019

tom_murphy112

https://www.boards.ie/discussion/comment/120559149#Comment_120559149

Yeah but you have to look at their balance sheet to see if it is a good time to sell or not, and what a potential buyer will pay for it.

Sure they have loads of asset which has high value on paper, but they have very little cash, loads of debt and what small net profit they have - 85% of it should go to their shareholders. Any buyer will be in a similar boat, and will have to leverage debt to purchase it and with the every increasing interest rates, they will look for a bargain.

tesla_newbie

https://www.boards.ie/discussion/comment/120564708#Comment_120564708

The Irish rental market is a goldmine relative to most , if Ires is struggling here , it’s a damning indictment of management, shareholders really missed an opportunity to ditch the board

tom_murphy112

https://www.boards.ie/discussion/comment/120565208#Comment_120565208

Sure Ireland has one of the highest rents at the moment. But that doesn't mean it is a goldmine. 85% of their profits are given back to shareholders and they have very little money to reinvest into their business, so they need to borrow to grow their business. There is rent control in place too, so IRES can't just hike up the rents on all their properties to increase their profits.

Retail investment is looked as a long term investment, so you need to invest now and hope in 20 or 30 years the value would have increased. So in the Irish context, one needs to hope rents are as high for the foreseeable future for that to happen (I personally hope not).

Sure if you were the CEO of IRES what would you do to increase profits ? You have assets with a high value on paper, but can't increase rents as you wish because of legislation. Don't have cash to buy new apartment blocks as borrowing is going to cost you lot more than it did just a year ago. If property prices fall you need to sell/liquidate assets quickly to meet required LTV on your debt.

tesla_newbie

https://www.boards.ie/discussion/comment/120565640#Comment_120565640

Returning the bulk of earnings to shareholders is standard for REITs anywhere

herbalplants

https://www.boards.ie/discussion/comment/120565640#Comment_120565640

You can't increase rents but rents are already at a high peak... Who is going to pay if the rent keeps going up.

tom_murphy112

https://www.boards.ie/discussion/comment/120565896#Comment_120565896

Yes I know, and it is 90% in the UK. But how would you increase profitable for these REIT ? You seem to be keen to kick the board and management out, when it is the market condition that is to be blamed. I am still under the impression that if IRES is taken private or sold, it will be a disaster for REIT in Ireland.

tesla_newbie

https://www.boards.ie/discussion/comment/120566255#Comment_120566255

The market has no faith in management, hence the dismal share price performance

tom_murphy112

https://www.boards.ie/discussion/comment/120566011#Comment_120566011

It will be subsidised by the Government using the tax money you and I pay.. Last year there was a report that 54% of renters get some sort of rental support. This isn't going to get better anytime soon.

https://www.rte.ie/news/business/2022/0525/1301144-esri-report-on-renters/

tom_murphy112

https://www.boards.ie/discussion/comment/120566259#Comment_120566259

What makes you think the next management won't make it even worst ?

Honestly no point in arguing with people like yourself.. I am out !

tesla_newbie

https://www.boards.ie/discussion/comment/120566322#Comment_120566322

Strange question, using that logic , no management team would ever get replaced for fear the new sheriffs might not be any improvement?

Marcusm

https://www.boards.ie/discussion/comment/120566011#Comment_120566011

IRES has already publicly disclosed that its average rent at €1,688 per month is approximately 16% below the market rent for the relevant properties. This is not surprising as it had some of the earlier large style apartment block units prior to the intro of the rent cap. Those who have brought new buildings to the market have achieved greater prices. The lower price is now baked into IRES and its valuation as absent a major change (reduction in rents generally or a change in rent cap legislation) it is stuck with it. It also timed the increase in interest rates very poorly as it stayed too variable for too long.

tesla_newbie

https://www.boards.ie/discussion/comment/120568735#Comment_120568735

Yep , those errors were highlighted by Vision capital

SilverFox2

As per RTE news yesterday Vision Capital have called for an EGM to remove 5 Directors from the Board of Irish Residential Properties REIT and to conduct a Strategic Review.

The publication by the Company had an extract that reads;

"The Board considers that Vision Capital's actions are part of a campaign to undermine the good governance of the Company and to override normal corporate governance standards. The Board believes an EGM is not in the interests of the Company's shareholders and wider stakeholders"

Sounds like this EGM is blocked at the gate?

What can smaller individual shareholders like us do to ensure an EGM is called?

With Net asset value of €1.50 per share, and the share price at €1.05, and clearly no strategic direction from the Board to help bridge this gap (or liquidate), I know how I would vote should we be allowed an EGM.

Any help much appreciated.

Flinty997

The rules were set up to disadvantage existing (small) landlords and advantage new (large) landlords. Causing the former to leave and latter to enter the market. But it's a one trick pony. You can only do it once. Now Reits are trapped by the same rules.

The market wanted large "professional" landlords. So this is playing out exactly as predicted. The rental market got what it asked for.

SilverFox2

Can non professional shareholders do anything to force Irish Residential Properties to have an EGM and let shareholders voice their concerns over the lack of initiatives by the management and board to general shareholder value in the company?

On paper this company should be taken private as its so cheap to buy versus its asset values

listermint

Sounds like professional activist investors.... tbh.

SilverFox2

I am a simple man.

Net assets worth €1.50

Share price €1.05

How can a board and management sit back and do nothing with this situation?

If I am paid €10.5 per hour and a colleague doing an identical job is paid €15 per hour I would do something about it, right?

I would expect the management to announce they would seek a buyer for the company if the shares trade at such a discount to asset value.

listermint

Nah activist investors drum up support from wherever they can. Always be cynical with this sort of stuff

SharkMX

https://www.boards.ie/discussion/comment/121513012#Comment_121513012

Wont be too long now before a REIT takes a case on rent controls in Ireland. They could rake in the money before while the small landlord took the hits, but now that REITs are taking the hits all bets are off.

Flinty997

Going to be interesting, one of the the govt favourite cash cow and vote winner, the REIT being caught by their other vote winner the rental cap. I doubt they'll sacrifice the latter for the former.