DUBLIN, April 24, 2023 /PRNewswire/ -- We (Vision Capital Corporation, together with its affiliates, "Vision", "we", "us" or "our") are writing in furtherance of our open letter (the "Vision Letter") to shareholders of Irish Residential Properties REIT plc ("IRES," the "REIT" or the "Company") of April 12, 2023, as well as the IRES press release of April 17, 2023, ("IRES Press Release) and reports in the Irish media that IRES is advancing to sell its premier property in Dublin, known as The Marker.
Since we released the Vision Letter, we have received an outpouring of support from both major Irish and international institutional shareholders and many individual shareholders who have expressed their frustration with the erosion of shareholder value and their wholehearted agreement with the issues and criticisms detailed in the Vision Letter. It is now evident that we have been overtly misled and deceived by IRES' Board which has consistently informed us since 2021 that Vision is the only shareholder that has concerns about the REIT as set out in the Vision Letter. We now know that this is just another falsehood. Interestingly, we have also been approached by several experienced owners and operators of apartments in Ireland that have been highly critical of IRES' management ("Management") and who have indicated that there are available options to surface value for shareholders based on the opportunity at hand and in the current operating, capital market and regulatory framework.
Of importance, the IRES Press Release did not address the following most fundamental concerns:
The IRES Press Release pretends to suggest that the proposed sale of €100 million of non-core assets is "in line with its focus on driving value for shareholders." Based on the recent sale of the Rockbrook development site and the media-reported proposed sale of The Marker, this premise is simply preposterous. It is evident that this initiative is:
The recent sale of the Rockbrook development site and the reported proposed sale of one of its highest quality assets, The Marker, represent the sale of two of the "crown jewels' of IRES. Once again, IRES unabashedly endeavours to mislead its shareholders by labeling these assets as "non-core". For years, the Rockbrook development was touted by IRES as a premier growth opportunity for the REIT. Now, it is gone and the upside from this opportunity will accrue to the buyer, the Comer Group, which reportedly has slated Rockbrook for development in the coming months, rather than to the benefit of IRES shareholders.
Similarly, The Marker is unequivocally one of the highest quality and best-located residential rental properties in Ireland. "NON-CORE"- Really? Any entity owning and operating rental residential properties would relish the opportunity to own this asset. Based on recent industry reports, it appears that IRES is poised to transfer the value of this asset from IRES shareholders to what we believe is a major Irish institutional investor. Perhaps, we speculate, the transfer of this asset may be as quid pro quo to enlist voting support for the entrenched Board of IRES. In any event, to maximize value for IRES shareholders (and not bestow a favourable price to an acquirer) generally speaking, and certainly, at this time, it is evident that the maximum value for this asset would be to sell the units individually to end user owners, not the sale of the whole property.
In pursuing these asset sales, the IRES Board appears to be prepared to do anything, including what may be described as a "Scorched Earth" strategy to maintain this entity and their roles as Directors, even if it destroys long-term shareholder value. It is apparent to any knowledgeable real estate industry stakeholder that an en-bloc sale of the REIT or an oft-employed disposition strategy of combining premier assets with other portfolio holdings in a partial sale would be irrevocably damaged by a one-off sale of individual premier assets. As such, these actions may practically serve to be what is known as a "poison pill" to destroy long-term value, and in this case, serving the interests of an entrenched Board and Management team, rather than the interests of the REIT's owners, its shareholders. The sale of these assets in an ad hoc manner such as this validates Vision's contention that the current structure of IRES as a REIT is not sustainable. Effecting sales in this manner is essentially the worst of all worlds: assets are being sold in a disorganized manner thereby diminishing proceeds, and IRES asset base will be smaller meaning the REIT's general and administrative expenses including significant Board and Management remuneration expenses will be proportionately higher as they will be shared on a smaller asset base, further amplifying the inefficiencies of the REIT structure.
WE URGE IRES' BOARD TO NOT PROCEED WITH ANY FURTHER ASSET SALES AT THIS JUNCTURE UNTIL A CLEAR, LONGER-TERM STRATEGY THAT BENEFITS FROM SHAREHOLDER-ALIGNED BOARD OF DIRECTORS REPRESENTATION IS ADVANCED AND COMMUNICATED.
SHOULD THESE SCORCHED EARTH INITIATIVES ADVANCE, VISION INTENDS AND ENCOURAGES ALL SHAREHOLDERS TO HOLD THIS BOARD ACCOUNTABLE AND TO CONSIDER ALL LEGAL AVENUES TO OPPOSE IT.
It is also clear that the proposed plan to sell assets is not to "drive shareholder value" but is in response to the mismanagement of IRES' financial condition and balance sheet, which we noted in the Vision Letter. A few of the analysts and institutional investors that have approached Vision in support since the Vision Letter, reported that they were "stunned" by the "unintelligible" response from the IRES CFO in response to a question from the research analyst at Davy Capital Markets on the half-year conference call on August 11, 2022. According to the transcript of the call, the analyst questioned both the amount of debt and considerable exposure to variable rate debt. Inexplicably, the IRES CFO's response was that the REIT was in a position to add more debt should it so choose. Yet, IRES continued to ignore the market's call to reduce its exposure to variable rate debt in a rising interest rate environment until it finally hedged a portion of its variable rate debt on December 14th, 2022, as reported in IRES' 2022 annual results. This mismanagement resulted in tens of millions of euros of value destruction from both the beginning of the rising interest cycle and even the shorter period beginning when pressed by analysts in August. Specifically, from June 30th, 2022, to the execution of the hedging contract on December 14th, 2022, the 1-month and 3-month EURIBOR rates spiked over 220 basis points. Furthermore, as of December 31st, 2022, the REIT had reported that 28% of its total debt remains variable rate, and presently the 1-month and 3-month EURIBOR rates are now 340 basis points higher than June 30th, 2022, levels! Clearly, this reflects both the incompetence of IRES Management and that it does not respond well to constructive questions from respected industry analysts and the REIT's shareholders.
IRES defends its poor share price by comparing it to other public entities operating in other countries. As we noted in the Vision Letter, real estate is different from other asset classes in that its performance is based on highly local factors, including the specific sub-markets' supply and demand fundamentals, the location of the real estate, its relevant local regulations and regulatory framework, and the quality and condition of its properties. Real estate as an asset class is also unique in that there is an arbitrage between the property markets and the public entities that own real estate. As such, it is not relevant, from a real estate perspective, what is happening in other public real estate entities either globally or across Europe; this is not real estate in Germany or London or Finland. The general performance of REITs in those countries is reflective of the conditions in their respective markets and should not be used to obfuscate the issues and opportunities relevant to IRES and its real estate in Ireland nor the incompetence of the Company's Board and Management, who are inappropriately trying to shield themselves by hiding behind global capital market considerations. The REIT is not a Google or an Apple or a General Motors or like other public companies that operate in truly global markets. Real estate cannot be exported nor imported, and therefore can only be assessed on its local merits. As the ISS Report and its guidelines do not consider these most fundamental real estate asset class factors, it is evident that it is flawed in this regard.
We would further note, nevertheless, in the IRES Board's attempt to obfuscate from the central issues at hand as set out in the Vision Letter and herein, the IRES Press Release misleadingly indicated that IRES has outperformed the listed European Real Estate sector (the STOXX Europe 600 Real Estate index) by 6.4% since December 1st, 2021. Presumably, since the IRES Press Release was issued on Monday, April 17th, 2023, this arbitrary calculation includes the trading performance of the shares until the most recently traded closing price on Friday, April 14th, 2023. We would note that from the unaffected share price on April 11th, the day before the public release of the Vision Letter on April 12th, 2023, to the closing price of April 14th, 2023, the price of IRES ordinary shares increased 8.3%. As such, the Board, in the IRES Press Release, is ostensibly, and ironically, taking credit for IRES' share price performance which arose from shareholder actions that it opposes!
In summary, the IRES Board has consistently rejected any consideration of structural changes. It is for this reason and the significant undervaluation of the REIT's shares (with which IRES Board now publicly agrees) that we are taking this initial step of voting against four Directors at the upcoming Annual General Meeting on May 4th, 2023, and urge fellow shareholders to do the same. The IRES Board needs individuals who are not entrenched to consider all alternatives.
We have heard from several shareholders who have very constructive ideas. Board members should be receptive to alternatives so as to act in the REIT's best interests; unfortunately, this Board is not.
Accordingly, we reiterate our call for IRES shareholders to vote against Resolutions 2a, 2c, 2d, 2g, 6, 8a, and 8b at the REIT's upcoming May 4th, 2023, Annual General Meeting as a first step to communicate to the Board and Management our dissatisfaction and to lay the foundation for the consideration of a new governance framework for IRES.
We would ask any IRES shareholder who shares our concerns or has any questions, to reach out to us at info@visioncap.ca with your telephone contact information and we will be pleased to further discuss this matter with you.
Yours truly
VISION CAPITAL CORPORATION
info@visioncap
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