REG - Irish Res Prop REIT - Update re Internalisation of Management

Canadian Apartment Properties Real Estate Investment TrustAnnouncement

31/01/2022 08:05

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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: +353 (0) 87 296 8382

Margaret Sweeney, Chief Executive Officer  Tel: +353 (0) 1 557 0974

 

For Media Requests:

Gerry O'Sullivan, Q4PR    Tel: +353 (0) 87 259 7644

 

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
(http://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.

 

 

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