State’s biggest private landlord cuts value of its homes as interest rates bite

Ires Reit, the State’s largest private residential landlord, revealed on Friday it planned to cut its final dividend for last year by almost 9 per cent as earnings dropped and it reduced the value of its property portfolio amid rising interest rates.

The Dublin-listed company, which had a portfolio of 3,938 homes at the end of last year, mainly apartments, said that its net tangible assets, measured on a basis set out by the European Public Real Estate Association (EPRA), fell 4.4 per cent to €1.59 per share.

Operationally, Ires put in a “strong” performance last year, according to chief executive Margaret Sweeney, as occupancy levels across its properties rose to 99.4 per cent from 99.1 per cent a year earlier and the company acquired 238 units through asset purchase and development.

Goodbody Stockbrokers analyst Colm Lauder said the results showed “the start of a repricing” of Irish private rental sector assets as higher market interest rates fed through, resulting in lower dividends.

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EPRA earnings per share fell to 5.8 cent from 6 cent in 2021, while it has been proposed that the final dividend be reduced by almost 9 per cent to €2.81.

[ Ires Reit seen selling as much as €50m of assets this year ]

Colin Grant, an analyst with Davy, said that rising market interest rates have affected the investment landscape in real estate, with asset rental yields moving higher and values decreasing.

“The private rented sector is impacted by this. However, the implied valuation of Ires’s units is now around €305,000 each, which is below where the assets would trade in the open market and is far below the replacement cost,” Mr Grant said.

“Meanwhile, the supply-demand challenges in the private rental market continue, with ongoing sales by buy-to-let landlords and a potential cliff-edge coming in new apartment supply once current projects complete.”

He noted that the economics of new developments had deteriorated significantly as valuations are coming down at a time when construction and finance costs are rising.

Barclays estimate the weighted average interest rate on the company’s €657 million of drawn borrowings – compared with a total of €800 million of available facilities – has risen to 3.5 per cent from 2.25 per cent last June. This follows a recent move by Ires to increase the percentage of its debt that carries fixed rates to 72 per cent.

“There is a significant shortage of good quality private rental accommodation available – as highlighted in recent reports – to service a continually strong and growing population, economy and jobs market,” Ms Sweeney said. “With our strong balance sheet and disciplined capital management, including recycling of capital, Ires is committed to delivering on its mission of investing in the provision of professionally managed quality homes for the Irish market.”

[ Strong performance for Ires Reit in 2022 as rental demand robust ]

Barclays said in a report earlier this month that Ires is likely to sell about €50 million of assets in 2023 to ensure it has sufficient headroom over legal and financial debt covenants, even if property values decline more than expected in the coming years.

The company is allowed a maximum debt level equating to 50 per cent of the value of its property assets under Irish real-estate investment trust (Reit) laws and Ires’s own borrowing covenants. Its gearing rose to 43.3 per cent in December from 40.7 per cent a year ago, it said on Friday.

Meanwhile, Ires said that the average monthly rent on its units was €1,750, some 11 per cent below market rents, according to its independent valuers.

The company’s shares dipped almost 4.5 per cent in Dublin to €1.07, making them one of the worst performers on the day.