Update re Internalisation of Management

RNS Number : 0629A

Irish Residential Prop REIT PLC

31 January 2022

 

31 January 2022

Irish Residential Properties REIT plc

(the "Company" or "IRES REIT")

Update re Internalisation of Management

The Company is pleased to announce that it has entered into binding legal agreements to purchase IRES Fund Management Limited (the "Investment Manager" or "IRES Fund Management"), a wholly-owned subsidiary of CAPREIT LP ("CAPREIT") and internalise its management ("Internalisation").

Update on Internalisation

On 6 August 2021, the Company announced that it had exercised its right to acquire the shares of the Investment Manager and served a notice of termination of the investment management agreement between the Company, IRES Residential Properties Limited and the Investment Manager (as amended or restated from time to time) (the "Investment Management Agreement" or "IMA"), with the Internalisation to take effect on 31 January 2022, subject to Central Bank  of Ireland ("CBI") approval. In providing its services to the Company under the IMA, the Investment Manager is supported by CAPREIT pursuant to the Services Agreement. The Services Agreement terminates automatically on the termination of the IMA.

On 29 January 2022, the Company and CAPREIT entered into binding legal agreements pursuant to which the Company will exercise its right under the IMA and purchase the issued shares of the Investment Manager on a liability free (other than liabilities in the ordinary course of business)/cash free basis for €1^[1], effective from 31 January 2022 ("Completion"). As the Investment Manager currently serves as the Company's alternative investment fund manager ("AIFM") under the Alternative Investment Fund Managers Regulations 2013 ("AIFM Regulations"), the Company has also received the necessary approvals from the CBI to acquire the shares in the Investment Manager, subject to a requirement that all aspects of the Investment Manager's business be transferred to the Company and  an application be submitted to the CBI for the Company to become authorised as an internally managed AIF within five months after the date of Completion of the acquisition of the Investment Manager.

Strategic rationale and financial impact of Internalisation

As previously outlined, the Company believes that the Internalisation will create greater long-term value for shareholders, for reasons including:

· Earnings per share enhancing on a stabilised full year basis post Completion of the Internalisation

· Elimination of asset management and property management fees linked to net asset value and gross rental income respectively, and therefore the ability to realise economies of scale with the growth in the Company's property portfolio

· Elimination of reliance on an external counterparty for asset management, property management and corporate functions

· A simplified organisational structure and decision-making process and improved corporate governance, management oversight / accountability with better alignment of interests

· Access to a wider investor base globally given relative preference for internally managed REITs.

In anticipation of internalising its management, the Company had undertaken extensive feasibility and planning exercises, upscaled the resources of the Company and has taken significant steps to establish appropriate systems, technology and services infrastructure to replace the services currently provided to the Company and the Investment Manager by CAPREIT pursuant to the Services Agreement.

IRES REIT has selected the Yardi software solution for investment and property management as well as Microsoft solutions. The Yardi rollout will comprise a complete technology platform for IRES REIT's portfolio that includes, inter alia, core property management, resident services, investment accounting, and facilities management. The Company believes implementation of this integrated technology platform will enable the Company to streamline its operations and efficiently scale the portfolio while delivering excellent services to our residents.

As previously noted by the Company, there are additional one-off costs associated with the Internalisation. Since announcing its intention to terminate the IMA on 6 August 2021, the Company and its advisers (including IT expertise) have undertaken further significant work in conjunction with the Investment Manager and CAPREIT in preparing for Internalisation and transition. Based on this, in total, once-off costs associated with Internalisation are now estimated to be in the order of approximately €6m. These include costs associated with the acquisition of the Investment Manager, the transition of corporate support functions and, in particular, the complex and extensive process of significant data transfers from CAPREIT systems and implementing company-wide IT systems. As previously guided, annual management costs incurred by the Company on a stabilised full year basis post the Completion of Internalisation are estimated to be approximately €1.3m per annum lower than those payable under the existing IMA and Services Agreement.

Transitional Services Agreement

The Company has agreed to enter into a transitional services agreement with CAPREIT (the "Transitional Services Agreement") with effect from Completion, pursuant to which CAPREIT will continue to provide certain transitional assistance to the Company for a period of three months to facilitate the migration of data and implementation of new IT systems in the company. The service charges for the transitional services will be calculated in the same manner as such charges were calculated for the equivalent services prior to the date of the Transitional Services Agreement (being 3.0% per annum equivalent of the Company's gross rental income as property management fees and 0.5% per annum equivalent of its net asset value, net of employee costs relating to staff of the Investment Manager who will transition with the AIFM on completion of its acquisition). The Company estimates that such charges will equate to approximately €360,000 per month for the duration of the Transitional Services Agreement and are separate to the once-off costs incurred by the Company to date.

Related Party Transaction

As CAPREIT is a related party of the Company under the Euronext Dublin Listing Rules (the "Listing Rules"), the agreement to purchase the Investment Manager constitutes a smaller Related Party Transaction under LR 11.1.15 of the Listing Rules. For the purpose of LR 11.1.15(2)(a) of the Listing Rules, Davy, as the Company's Sponsor, has confirmed to the Company in writing that it considers the terms of such Related Party Transaction to be fair and reasonable as far as the shareholders of the Company are concerned.

Declan Moylan, Chairman of IRES, commented:

"The Board believes that Internalisation is an important strategic and financial objective at this point in the Company's evolution and is in the best interests of shareholders. In addition to the potential financial benefits, Internalisation will result in a simplified organisational structure with more transparent corporate governance and overall alignment of interest whilst positioning IRES REIT optimally for its next phase of growth. As demonstrated by the acquisition of the residential assets in Ashbrook earlier this month, the Company remains focused on the execution of its growth strategy, and we believe Internalisation will further support that strategy in the long term.

Finally, on behalf of the Board, I wish to reiterate my appreciation for the support of CAPREIT for IRES REIT, both as a significant shareholder and as the owner of the Investment Manager and provider of services through the Services Agreement. The Company looks forward to engaging with CAPREIT as an ongoing significant shareholder in IRES REIT in the future."

Rothschild & Co and Davy acted as financial advisers to the Company, William Fry acted as legal adviser to the Company and Grant Thornton advised the Company on the IT and data migration process.

^{_____________________}

^[1] The consideration is subject to adjustment pursuant to a completions account process. This includes an initial payment by the Company on Completion of approximately €1.1 million in respect of net cash acquired and a further payment 60 business days post Completion of approximately €1.9 million for working capital and fixed assets.

End

Enquiries:

Sarah Stokes, Investor Relations  Tel: [phone]

Margaret Sweeney, Chief Executive Officer  Tel: [phone]

For Media Requests:

Gerry O'Sullivan, Q4PR    Tel: [phone]

About Irish Residential Properties REIT plc

Irish Residential Properties REIT plc (together with IRES Residential Properties Limited, the "Group") is a growth oriented Real Estate Investment Trust that is focused on acquiring, holding, managing and developing investments primarily focused on private residential rental accommodations in Ireland. The Group currently owns 3,915 apartments and houses for private rental in Dublin and Cork with an additional 91 units due for delivery before the end of H1 2022 under pre-purchase contracts and a further 44 units in 2023. The Company has a further 61 units currently under construction directly on owned sites due in H1 2022 and has planning approval to develop an additional 543 residential units on its existing sites. The Company's shares are listed on Euronext Dublin. Further information in respect of the Company can be obtained from the Company's website at www.iresreit.ie .

Note on forward-looking information

This Announcement may contain forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement.  Except as required by law or by any appropriate regulatory authority, the Company will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise, including in respect of the Covid-19 pandemic, the uncertainty of its duration and impact, and any government regulations or legislation related to it.

 

END

 

 

UPDWPUACGUPPPUU