As Vote On Future Of €1.4B Landlord Approaches, Is There A Buyer For Resi Assets Anyway?

A dispute between an activist investor and the listed owner of €1.4B of Dublin rented residential apartments centres on whether the company should keep its assets or seek value by putting them on the market. 

But if activist Vision Capital does get its way and Irish Residential Properties REIT is put up for sale, are there buyers out there for what would be one of the biggest residential sales in Europe in the last five years?

Residential is one of the more resilient real estate classes across the world, and Dublin has a housing shortage that ensures strong demand from renters. But rent caps and the moribund state of the investment market could hinder sales, whatever the result of an extraordinary general meeting on the company's future on Friday. 

“There are strong arguments on both sides,” Goodbody financial analyst John Cronin said in a note to clients. “Ires trades at a significant discount to its last reported NAV, circa 0.7x at the time of writing, and has been ‘propped up’ since Vision re-emerged on 18 December. Other REITs have been taken off the market at a significant premium to the pre-bid speculation share price.

“However, there have not been any formal third party approaches to acquire the company of late [as IRES has recently confirmed] in spite of this and the ability to sell down all the assets over a two-year timeframe at prices that would ultimately prove value accretive from a shareholder perspective is in no way certain.”

Apartment values have fallen less quickly than other European real estate sectors, data from MSCI to the end of the third quarter showed, due to the resilience of the income in a sector where demand outstrips supply.

But residential investment volumes were still down 53% in 2023, the data provider said, broadly in line with other sectors. Investors are uncertain where values lie in any sector due to the sharp rise in interest rates across the Western world. 

The dispute between the board of Ires REIT and activist investor Vision Capital will come to a head at an EGM on Friday, as the latter attempts to win seats on a reshaped board.

The Canada-based Vision Capital has claimed the best value for shareholders would be achieved through the sale of its assets, either as a portfolio or piecemeal. In a response ahead of the EGM, Ires has pushed back but has pledged a full business review, which would keep all options open.

It has argued that Vision Capital’s desire to sell all the assets at Ireland’s biggest private landlord would not achieve full value for a high-quality and effectively fully occupied portfolio in Dublin’s heated residential rental market.

Ires has a market capitalisation of €579M, and its shares trade at a discount of 31% to its net asset value.

Colliers said that while it could not comment on the direction of Ires REIT, there were no doubts about the strength of the estate as a whole.

“Ires has an excellent portfolio with very high occupancy rates and would be a good buy for an investor — domestic or overseas — seeking a PRS platform of scale in the Irish market,” Colliers Director and Head of Research Kate Ryan said.

“The rent caps have been in place for a long time, and these don’t seem to have deterred other residential investors,” she added, referring to government legislation that says in rent pressure zones, where demand for housing is high, rents are capped at 2% or the rate of inflation, whichever is lower.

“The issue more so now seems to be higher interest rates, yields and construction costs, which are making prime private rental sector forward sales largely unviable or unattractive,” Ryan said. “Hence, we are increasingly seeing these same assets selling to the Land Development Agency, local authorities and approved housing bodies instead.”

While some Ires REIT shareholders had mooted that some of the company’s apartments could be sold to the government or nonprofit groups, the fact they are already occupied and would not add to the country’s housing stock may rule this option out.

For other market participants, however, the dispute is an example of the implications when politics enters the real estate market.

“The Ires REIT story is a perfect example of the consequences of political interference in the property market,” said Patrick Hogan, Cushman & Wakefield head of living and specialist sector capital markets. “It has contributed to a system where rent caps are tied to properties instead of tenancies and is reactive in nature, rather than forming a consistent part of a multiyear policy.

“This interference continues to make investors extremely nervous, impacting their confidence in underwriting further trends such as VAT changes, stamp duty and growth.”

Rent caps being linked to properties hinders the ability of investors to make any level of required financial returns and makes it increasingly difficult to invest in property upgrades that keep pace with sustainability targets and capital expenditure requirements, Hogan said.

“As a result, much-needed investment in Ireland’s living market sector is being directed towards other European markets.”

CORRECTION, FEB. 15, 12:30 P.M. ET: A previous version of this story said Ires’ shares traded at a third of its NAV. They trade at a discount of a third to its NAV. The story has been amended to reflect this.