Ires Reit board gets backing from report recommending rejection of investor’s boardroom overhaul plans

The board of Ires Reit, the State’s largest private landlord, has been backed by corporate governance adviser Glass Lewis in a report recommending that shareholders reject proposals brought by activist investor Vision Capital.

It comes as Capreit, a founding shareholder in the business and still its largest investor, notified the Irish Stock Exchange that it has sold some of its shares.

Shareholders will vote at an extraordinary general meeting next week on Toronto-based Vision’s resolutions, which seek to replace five directors, including chairman Declan Moylan and chief executive Margaret Sweeney, with candidates it is putting forward.

The Canadian group is also looking for approval to proceed with a strategic review process that would result in a sale or break-up of the company within 24 months.

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Glass Lewis has now recommended voting against all Vision’s resolutions. That follows a similar recommendation last week by Institutional Shareholder Services (ISS), the other big player in advising shareholders on corporate governance issues at listed businesses.

[ Ires Reit dissident shareholder not to table offer for company if board move unsuccesful ]

In the report, seen by The Irish Times, Glass Lewis said some of Vision’s criticisms and concerns were “potentially valid”, particularly around the property group’s management of certain debts. The Canadian fund had previously hit out at the “excessive risk” the company took by only closing a deal last December to fix rates on €275 million of debt – months after market rates had started to spiral ahead of official central bank rate hikes.

Vision Capital vs IRES REIT: trouble brewing at Ireland’s largest private landlord

Listen | 33:13

Next week the battle between listed property landlord IRES REIT and its 5% dissident shareholder Vision Capital will come to a head at an extraordinary general meeting of shareholders in Dublin. IRES is the biggest private landlord in the state with more than 3,700 apartments. On the face of it IRES is performing well, however the share price has struggled and a government-imposed 2% annual cap on rents is a potential drag on the business. Vision Capital owns 5% of IRES and is not happy with the way the company is being run. Jeff Olin is president, CEO and portfolio manager of Vision Capital and he joins the podcast this week to discuss his issues with IRES.Produced by John Casey. JJ Vernon on sound.

Glass Lewis said it suspects there could be “some momentum” behind holding Ires chief financial officer Brian Fagan responsible for this shortcoming at the upcoming egm. Ultimately, however, the adviser said it was “not convinced that the overall circumstances here warrant the removal of any of the company’s directors, much less the replacement of a majority of the incumbent board, at this time”.

Recommending shareholders vote against Vision’s motions, Glass Lewis said the fact that no potential buyer for Ires has come forward in recent years, “coupled with the board’s assessment that market conditions have shown early signs of improvement”, mean there is no “substantive reason to question the board’s judgment”. It said: “It may be reasonable for shareholders to afford the current board with the discretion and flexibility to determine the best path forward for the company at this time.”

Vision Capital owns 5 per cent of the business and its egm motions have the support of Capreit, which now owns 18.5 per cent of Ires, and Ewing Morris, a 0.7 per cent shareholder.

Capreit sold 750,000 shares on Wednesday, reducing its shareholding to about 18.5 per cent from about 18.7 per cent previously.

Stockbroker Goodbody said the sale of shares could be seen as a mechanism to stimulate undecided shareholders to side with Vision in the context of the egm voting.

“The credible threat of a large seller (that has already publicly declared its support for Vision’s proposals), possibly on an ongoing basis in the open market, might prod certain undecided shareholders to conclude that ‘something has to happen here’ and that the Vision nominee directors are the most likely bunch to deliver change,” wrote analyst John Cronin in a note to investors. “So it may therefore make sense to just vote for change now altogether (especially given the Ires board’s seeming resistance to anything other than the status quo).

“However, others might interpret the Capreit stock sale as a signal that Capreit is not confident that Vision’s resolutions will succeed and has decided to start selling at a share price that is considerably stronger than it was just prior to the publication of Vision’s proposals on December 18th last year,” he said.

“Whatever the interpretation, most will see this as confirmation that Capreit is in exit mode, though that is not terribly surprising,” he said.

Ires announced in early January that it plans to start its own strategic review later this month, as it seeks to ward off the boardroom overhaul attempt. This review would 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.

The company’s shares were about 1.6 per cent weaker in lunchtime trading on Thursday.

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