Business

Dissident Ires founder sought extra fees in failed management deal talks

Canadian firm set to support planned boardroom coup at property group

Ires Reit, owner of The Marker residences apartments complex on Grand Canal Square in Dublin (pictured), faces a contentious extraordinary general meeting this month as revel shareholders seek a boardroom coup.

Joe Brennan
Thu Feb 1 2024 - 06:00

Ires Reit’s Canadian founder, which will support a planned boardroom coup at the property group this month, sought a significant hike in potential fees from the Irish company in talks in late 2020 to extend an asset management contract, according to sources.

Ires decided in mid-2021 to move management of its assets in-house, after failing to agree a new investment management agreement (IMA) with Toronto-based Capreit’s Ires Fund Management unit. Ires bought out Ires Fund Management in early 2022 for a nominal €1, under an original management deal tied to the company’s initial public offering (IPO) a decade ago. Real estate investment trusts such as Ires are typically set up with the founding property company managing the underlying assets by contract through a fund management vehicle.

Capreit earned almost €50 million in fees between the IPO and the management internalisation two years ago. It retains an 18.7 per cent stake in Ires.

Capreit communications to Ires before the internalisation decision give an insight into tension between the Irish apartments owner and its founder long before the Canadian group revealed last week that is aligning with an activist investor that is pursuing a board overhaul and plan to sell or break up the company.

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Capreit’s chief executive, Mark Kenney, and then chairman, Michael Stein, wrote to Ires chief executive Margaret Sweeney and chairman Declan Moylan in September 2020 saying they wanted a new IMA to include acquisition fees on all deals the company struck, according to sources.

Capreit also said it wanted a material potential termination fee in the event Ires internalised management at the end of an extended contract, they said. It said such a fee would be in line with deals elsewhere in the property sector and suggested that its agreement to a €1 exit fee on the original IMA at the time of the IPO was a concession.

Toronto-listed Capreit said its own shareholders would expect a termination fee to justify Capreit executives’ continued focus on Ires.

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Following Ires pushback, the Canadian group wrote again to the company later that month. This time it sought a 10-year fixed term IMA for Ires Fund and an internalisation fee of 2 per cent of assets under management at that time. Ires’s total assets, mainly comprising 3,734 apartments and houses, stand at about €1.4 billion. However, Capreit said it would be willing to forego acquisition fees.

It warned Ires that moving management in-house would prove costly, as Capreit offered services above and beyond those provided by its then Ires Fund Management unit.

“We don’t comment on confidential business matters,” a spokesman for Ires said in response to questions on the letters. Representatives for Capreit did not respond to efforts to secure comment.

Mr Kenney stood down from Ires’s board in July 2021. Capreit has subsequently used its shares to vote against the re-election of Ires chief executive Margaret Sweeney in the company’s annual general meetings in 2022 and 2023, sources previously said.

The Canadian group said last week it will join forces with an activist investor, fellow Canada-based Vision Capital, in seeking to replace five Ires directors and secure a mandate to pursue a sale or break up the company within two years. The matters come to a head in an extraordinary general meeting (egm) on February 16th.

Vision, which owns about 5 per cent of Ires, has waged a public campaign against Ires’s board since last April, as its shares have wallowed at a discount to their intrinsic value. Goodbody Stockbrokers analyst John Cronin described the situation as “vitriolic” this week, following a series of claims and counterclaims from both sides.

Ires announced in early January that it plans to commence a strategic review later this month, after it reports full-year results, as it seeks to ward off the boardroom overhaul attempt. This “all options” review will include looking at potential mergers, the company’s status as a listed real estate investment trust (reit) and the sale of the company or its assets in lots.

Capreit CEO Mark Kenney declined to comment in an emailed response to The Irish Times after this report was published, stating that any discussions between Ires and Capreit were confidential.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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