Irish Residential Properties REIT Plc (IRES) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I'm Declan Moylan, the Chairman and an Independent Nonexecutive Director of the company, and I'd like to start by welcoming you all to the 2021 Annual General Meeting of Irish Residential Properties REIT Plc. Regrettably, as a consequence of the extension of the emergency measures introduced by the Irish government in respect to the coronavirus, COVID-19, which require people to stay at home and restrict public gatherings to limit the spread of COVID-19, this Annual General Meeting is taking place under constrained circumstances this year. Under the company's Articles of Association, the quorum required for the meeting is 2 persons entitled to vote upon the business to be transacted, each being a shareholder or a proxy for a shareholder or a duly authorized representative of a corporate shareholder. Aidan O‘Hogan, Independent Nonexecutive Director and Senior Independent Director of IRES; also, Tom Kavanagh, Independent Nonexecutive Director; and I, are here at the company's registered office in South Dock House, Dublin, in satisfaction of the quorum requirements. And we're joined by Margaret Sweeney, our CEO and Executive Director who will present to the shareholders this morning. We, 3, are the sole attendees physically present at this meeting. As a quorum is present, and it's just after 10:00, I declare the meeting to be open. We're joined on screen this morning by our other IRES directors. Phillip Burns, Nonexecutive Director; Joan Garahy, Independent Nonexecutive Director; Mark Kenney, Nonexecutive Director. We're also joined by our company secretary, Elise Lenser; by our Chief Financial Officer, Priyanka Taneja; and also, by Brian Fagan, our Finance Director. Also, present via the webcast or teleconference facility are David Moran from KPMG, the company's auditors for the financial year 2020; Conor O'Dwyer and Gill Lohan of McCann FitzGerald, the company's legal advisers; representatives from Computershare, our registrar, and most important, you, our shareholders. We value shareholder engagement and the opportunity to meet and communicate with you each year at the AGM, and we definitely regret that this year's Annual General Meeting can't proceed in the way the company and our shareholders have become accustomed to, prior to the outcome of COVID-19. However, we have tried to keep these proceedings as informative and as interactive as, as reasonably practicable within the confines of our technology and the legal requirements in Ireland for Annual General Meetings. In particular, we've enhanced the ability for shareholders to view and listen to the proceedings of the AGM this year by facilitation of remote access to the meeting through a live webcast facility. Shareholders may also listen to the proceedings by way of teleconference facility. This supports the opportunity to shareholders to raise questions relating to items on the agenda of the AGM during the Q&A section of the meeting, which we will address after our CEO, Margaret Sweeney, has addressed the meeting. [Operator Instructions] I'll also address in the Q&A section, those questions relating to items on the agenda of the AGM received by shareholders in advance of this meeting. The annual report and notice of AGM was sent to shareholders and published on the company's website on 30th of March 2021, and so with no objection, the meeting will take the notice of Annual General Meeting as read. We now move to the CEO statement section of our meeting, and I now ask our CEO, Margaret Sweeney, to say a few words.

Thank you, Declan. Good morning, ladies and gentlemen. I have a short presentation for you this morning, setting out how the business performed during 2020 and also the progress on some key developments currently underway. As you all know, 2020 was a challenging year for many, and a big credit to everyone in the company, and the manager for the strong performance despite all of these challenges. Our priority continues to be the health and well-being of everyone, our employees, our residents and all our business partners. In terms of the key highlights for 2020, we currently have a portfolio of 3,836 high-quality living spaces, apartments and homes across 36 properties in Dublin and Cork. It's a modern well-diversified portfolio with an average age of 11.2 years and close to 60% is actually A and B energy rated. The gross yield at fair value is 5.5% at 31st December 2020, and we had a total accounting return of 7.7% during 2020. With a very strong and resilient financial and operational performance despite COVID-19, which made up most of 2020 with strong growth in revenues and our NRI margin of 80%. We continued with a very active program of stakeholder engagement and, particularly, strong communications with residents by the manager, and also a lot of communication in health and well-being for employees from both the company and the manager. We remain at close to full occupancy. Our occupancy at the end of December was 98.4% and we continue at that level, and we also have strong rent collection rates. We have a very clear investment in both strategy and as a result, we've actually shown strong portfolio growth of close to 50% over the last 3 years. We also have a pipeline of further growth of 18% in the portfolio. During 2020, for the first time, we also did a disposal of assets, which is first time we've recycled us through disposal and acquisition. Our capital structure is strong. We have a very robust balance sheet. We have strong liquidity. We raised EUR 200 million equivalent in the notes program, which we closed on the 10th of March 2020, with maturity of 7 to 12 years. And we also have a EUR 600 million revolving credit facility with a syndicate of 5 banks with maturity between 2024 and 2025. Our average cost of debt is 2.25% under loan-to-value ratio following the acquisition of Phoenix Park development in January is 41.8%. In terms of 2020, our performance was -- we're showing properties -- our properties were valued at 31st December 2020 at EUR 1.38 billion, which is up 1.6% on 2019. And that's showing through into EPRA NAV net asset value of EUR 842 million, which is up 3.9% on the previous year. As I mentioned, we had strong revenue growth. Our revenues were up over 20% to EUR 74.7 million, that's principally driven by the acquisition of the Marathon assets in 2019, which we closed in August 2019 and some other acquisitions as well. And our earnings, we're up 2.7% to EUR 34 million, and adjusting for nonrecurring expenses that we incurred due to COVID. Coming along in the earlier part of the year, the nonrecurring EPRA earnings were EUR 36.3 million, which is up 9.8% on previous year. Part of our strategy is to have continuing growing dividends for shareholders and both our interim and final dividend, out of 2020, profits was $0.0597 per share, and that's up 3% year-on-year. I mentioned our clear strategy for growth, and that's a three-pronged strategy across acquisition of completed assets. We evaluate opportunities where there's good transport links, good employment in the area and also in good family-friendly neighborhoods, and that's underpinned the properties very well in terms of the resilience coming through, in the last year with COVID-19. We also entered into partnerships with local builders and developers for the supply of new apartments and homes. And we also have planning permission -- full planning permission to announce 3,600 units at currently owned properties. So that's actually that belong to IRES itself. So our disciplined capital allocation policy generates continuing value and growing dividends for our shareholders. Just looking at the execution on the growth strategy. As I said earlier, it grew by 50%. The portfolio has grown by 50% over the last 3 years. During 2020, we added 173 new units. That's principally in Hansfield, in West Dublin, and also in the Waterside, which is close to the airport. And we also had a disposal of 151 units across 10 properties, which were disparate units that we put together in one portfolio, and we sold in the last quarter of 2020. We also added 146 new units and a very nice development in Castleknock, the Phoenix Park Racecourse development, we closed out in January 2021. That's 146, 1-bed, 2-bed and 3-bed apartments and It's actually an excellent location close to the Phoenix Park and also quite close to the city center. It's across mature development and a very good neighborhood. In terms of progress on our current developments in progress. We have a forward commitment with a development on the Merrion Road with Dalata Hotel Group, that we contracted in November 2018. And you will see in the photographs, they were taken last week, that the structure is actually quite well up despite actually having lockdown on construction sites, a few times actually during 2020 and again in the earlier part of this year due to the public health requirements for the pandemic. And so that's well advanced. The current expected completion date is the first half of 2022. That's an excellent location, costly location adjacent to very good neighborhoods and good employers. Bakers Yard is actually one of our own sites, close to existing apartments that we have, very close to the City Centre, about 15 minutes' walk to the Financial Services Center and to Grand Canal Dock. And you can see there the structure is also quite well advanced, and that 61 apartments due to be completed as well in the first half of 2022. The other matters that were -- that I would highlight in relation to 2020 and currently would be on as a update on the investment management agreement. You would be aware of the announcement that we made on the 1st of April 2021, notifying you that the IMA is due to determine on 31st March 2022. And under the existing IMA agreement, the company can purchase the issued shares of the investment manager on a liability free cash free basis for EUR 1. We currently have joint working streams progressing between the company, or with Fund Management and CAPREIT in relation to legal and also, on systems and processes. And we will continue to keep shareholders advised as we progress through this process. I should also mention that, and we're joined today by Brian Fagan, Brian joined as Finance Director, 2 weeks ago, on the 26th of April. And we have Company Secretary and General Counsel, Anna-Marie Curry, joining the company on the 1st of July 2021. Another matter that's very important to me, also top of mind for the Board and also being embraced by everyone in the company and the manager is, sustainability and ESG. We have a steering committee in place for quite a while, and we're currently formalizing the Board's Sustainability Committee. And as we progress building on the Board and management competencies, we actually will continue this journey. We're currently undertaking a materiality assessment with key stakeholders, and we're also currently in the middle of preparing our submission for risk. And you might have seen on our website, we've actually published our first ESG report in March 2021, and that's available on our Investor Relations section of our website. I mentioned at the outset that the challenges that this public health pandemic has actually put in front of everyone, and I think we've always set as a company and also with the manager that the health and wellbeing for employees and residents are paramount to us, and that's how we've navigated through the last year and continuing into 2021. We also are very conscious of a wider social responsibilities, and in that regard, particularly with a significant amount of support. But therefore, people who have been most impacted, we actually paused rent increases on renewals since 1st of April 2020. We've also put in place payment plans with some of our commercial tenants whose trading has been significantly affected with the various lockdowns during 2020 and in the first quarter of this year. We've also provided frontline health care workers with complementary car parking where we could and also with accommodation close to hospitals across Dublin. And I think our employees have been outstanding at the amount of their own time and energy that they've also provided in continuing to support charitable causes through donations, sponsorships and various activities. So in conclusion, I would like to say that the fundamentals underpinning the business remain very strong. In Ireland, current forecasts are that population will keep growing by 1% per annum over the next 20 years, and we're also seeing this continuing trend towards smaller household sizes. And the current estimate Department of Housing is that we need to build more than 500,000 new homes over the next 20 years, and there's a significant imbalance between supply and demand. The Irish economy as well has also shown very strong resilience despite COVID-19 and the fundamentals are also strong going forward. However, there are also uncertainties and risks, particularly in the regulatory side, and we continue to manage and monitor those risks as well in relation to the business. I think the business itself is strong, and we're well positioned to continue to grow the company sustainably and successfully. We have a strong track record and proven execution on strategy, with a young modern portfolio with very strong operating metrics, and we have a robust balance sheet with a funded cost of circa 2% with quite significant liquidity actually built into the current business. We've an established operating platform with our IRES Fund Management and CAPREIT, which has worked very successfully. And also, we are always cognizant as the Board in ensuring effective capital allocation to ensure value for shareholders. So I'd like to thank you very much for your time and also your continued support for the company.

Thank you, Margaret. We're now at the Q&A.

[Operator Instructions]

Now at the question-and-answer section of the Annual General Meeting. To allow some shareholders -- or to allow shareholders some time to register your questions, if you have questions this morning, I'll now turn to a question we received relating to the items on the agenda from a shareholder in advance of the meeting. A shareholder has e-mailed the company's secretary with the question. So let's deal with that now. The question is, in advance of the upcoming AGM, I would be grateful if you could confirm, please, whether it's intended that any new shares issued in relation to resolutions 7 and 8 would be priced at or above NAV? And the company response to that question is, further to your e-mail and in relation to your query on resolutions 7 and 8, the pricing will be determined by the Board, having consulted the company's advisers who are considered appropriate at the time of any utilization of such authority. Now we'll now move on to see if there are any questions being posed live this morning, which should relate to the agenda of the AGM. So shareholders now have the opportunity of raising any questions they wish.

There are no questions at this time, so you may move on.

Thank you. That concludes the Q&A section of this meeting. So I now move to the formal business of the meeting where we consider and vote on the resolutions. Today, we have 19 resolutions in total to be proposed that takes account of the requirement to propose each resolution regarding the reelection of each Director as a separate resolution. The proposed resolutions are considered to be in line with market practice and their check account of relevant institutional shareholder guidelines and principles. Let me start by outlining the voting procedure, which we'll follow today. This year, given the extension of the emergency measures introduced by the Irish government requiring people to stay at home and restricting public gatherings, and the consequences of this for shareholder attendance at the meeting, our voting will be done by way of a poll on each of the resolutions put to the meeting. Voting by poll allows you, our shareholders, the opportunity to participate in the decision-making of the company by having your votes recorded in proportion to the number of shares which you hold. Voting by poll is permitted by the company's constitution, if demanded by the Chairman of the meeting. So accordingly, pursuant to Article 67 of the Articles of Association of the company, as Chairman, I hereby demand voting by poll on the resolutions to be put to the meeting today. For the avoidance of doubt, the proxies validly received by the company in accordance with the relevant procedural requirements and deadlines set out in the notice of AGM of the company will be included in the poll. For information only, the total number of proxy votes, excluding votes withheld received by the Chairman in respect of each resolution, represents approximately 48% of the total issued share capital of the company. We've appointed Computershare, the company's registrars, to act as scrutineers. For convenience, I direct that the poll on all of the resolutions will be held at the end of this AGM. I will now formally propose each of the resolutions separately to the meeting. As the full text of each resolution is included at Pages 8 to 13 of the notice of AGM, I do not intend to read out the full text of each resolution. Moving down to resolution 1. The first item of business is a resolution to receive and consider the financial statements of the company for the year ended 31st December 2020, and the reports of the directors and auditor thereon. A copy of the Annual Report containing this information was sent to shareholders as appropriate and was published on the company's website on the 30th of March 2021. I now propose resolution 1 that the financial statements of the company for the year ended 31st December 2020 and the reports of the directors and auditors thereon, being received and considered. The poll on resolution 1 will be held at the end of this Annual General Meeting. I now move to resolution 2 regarding reelection of directors. All the directors come up for reelection in accordance with Article 92 at the Articles of Association. The biographical details of all directors appear on Pages 58 to 60 of the 2020 Annual Report. Resolution 2a. I now propose resolution 2a, that Phillip Burns be elected as a director of the company. The poll on resolution 2a will be held at the end of the meeting as before. I now propose resolution 2b, that Joan Garahy be reelected as a director of the company. The poll on resolution 2b will be held at the end of the meeting. I now propose resolution 2c, that Tom Kavanagh be reelected as a director of the company. The poll on resolution 2c will be held at the end of the meeting. I now propose resolution 2d, that Mark Kenney be reelected as director of the company. The poll on resolution 2d will be held at the end of the meeting. I will now ask Margaret Sweeney to propose the next resolution, which relates to my own reelection.

I now propose Resolution 2e, that Declan Moylan be reelected as a director of the company.

The poll on resolution 2e will be held at the end of the meeting. Thank you, Margaret. I now propose Resolution 2f, that Aidan O’Hogan be reelected a director of the company. The poll on resolution 2f will be held at the end of the meeting. And I now propose resolution 2g, that Margaret Sweeney be reelected a director of the company. And the poll on resolution 2g will be held at the end of the meeting. I now propose resolution 3. Resolution 3 is a special resolution to authorize the directors to call a general meeting, other than an Annual General Meeting or a meeting for the passing of a special resolution on not less than 14 days' clear notice. The full text of resolution 3 is on Page 8 of the notice of Annual General Meeting. The poll on resolution 3 will be held at the end of the meeting. I now propose resolution 4 to consider the continuation in office of KPMG as auditor of the company until the conclusion of the next AGM of the company. And the poll on resolution 4 will be held at the end of the meeting. I now propose resolution 5, to authorize the directors to fix the remuneration of the auditor in respect of the period expiring at the next Annual General Meeting of the company. The poll on resolution 5 will be held at the end of the meeting. I now propose resolution 6, to receive and to consider the report of the Remuneration Committee on directors' remuneration for the year ended 31st December 2020, other than the remuneration policy as set out on Pages 76 to 89 of the company's 2020 Annual Report. The poll on resolution 6 will be held at the end of the meeting. I now propose resolution 7. resolution 7 is an ordinary resolution to grant a general authority to the directors to allot relevant securities up to a maximum aggregate nominal amount of EUR 26,253,947.30 on the terms set out in the notice of Annual General Meeting. The full text of Resolution 7 is set out on Page 9 of the notice of Annual General Meeting. And the poll on resolution 7 will be held at the end of the meeting. I now propose resolution 8a. Resolution 8a is a special resolution to, subject to the passing of resolution 7, disapply preemption rights in connection with issues of equity securities on the terms set out in the notice of AGM. The full text of resolution 8a is set out on Pages 9 and 10 of the notice of AGM. The poll on resolution 8a will be held at the end of the meeting. I now propose resolution 8b. Resolution 8b is a special resolution to, subject to the passing of resolution 7, disapply preemption rights for an acquisition or other specified capital investment on the terms set out in the notice of AGM. The full text of resolution 8b is on Page 10 of the notice of AGM. The poll on resolution 8b will be held at the end of the meeting. I now propose resolution 9. Resolution 9 is an ordinary resolution to grant a general authority to the directors to allot relevant securities for the purpose of and pursuant to the company's 2014 long-term incentive plan on the terms set out in the notice of Annual General Meeting. The full text of resolution 9 is on Pages 10 and 11 of the notice of Annual General Meeting. And the poll on resolution 9 will be held at the end of the meeting. I now propose resolution 10. Resolution 10 is a special resolution to, subject to the passing of resolution 9, disapply preemption rights in connection with the grant of awards and allotments of equity securities of the company for the purpose of the company's 2014 long-term incentive plan on the terms set out in the notice of Annual General Meeting. The full text of resolution 10 is set out on Pages 11 of the notice -- on Page 11 of the notice of AGM. And the poll on resolution 10 will be held at the end of the meeting. And I now propose resolution 11. Resolution 11 is a special resolution to authorize the company and any subsidiary to make market purchases, including overseas market purchases of up to 15% of the company's own issued shares on the terms set out in the notice of AGM. The full text of resolution 11 is set out on Pages 11 and 12 of the notice of AGM, and the poll on resolution 11 will be held at the end of the meeting. I now propose resolution 12. Resolution 12 is a special resolution to renew the authority of the company to reallot repurchased shares and to set a reallotment price range for those shares on the terms set out in the notice of Annual General Meeting. The full text of resolution 12 is set out on Pages 12 and 13 of the notice of AGM, and the poll on resolution 12 will be held at the end of the meeting. Now let me turn to the voting procedures. In accordance with the provisions of the Articles of Association of the company, I now direct Computershare to conduct a poll on each of the resolutions just put to the meeting. As mentioned at the outset of the meeting, votes may be given by the registered holders of ordinary shares present here in person or in proxy and entitled to vote. Every such holder has 1 for every ordinary share held. As Chairman, I will vote on behalf of those holders who have sent a valid proxy instruction to the company appointing the Chairman of the meeting to vote on their behalf. In respect to any shareholders who have -- who hold interest in the company's shares through the system operated by Euroclear Bank or a CDIs through CREST, each valid proxy instructions submitted by those shareholders will be included in votes cast. Three persons present in person today, including myself, have been provided with voting poll cards, and we have cast our votes, which would be added to the valid proxy votes already received in respect of each resolution. [Voting]

Accordingly, I now formally declare the poll closed. Votes cast will now be examined and verified under the scrutiny of Computershare by reference to the register of members and the list of authenticated proxies received by the company. Computershare will report the totals of the votes cast for and against each of the resolutions, and the number of withheld votes in respect thereof. I remind shareholders that a vote withheld is not a vote in law and will not be counted in the calculation of the proportion of the votes for or against a resolution. The results of the poll will take some time to be calculated, and I'm, therefore, closing the meeting, following which, the results of the poll on all resolutions will be announced on the company's website as soon as possible later today. Ladies and gentlemen, subject to the poll's results, that concludes the business of this meeting. And as there's no other business, I'm now bringing the formal business of the AGM to a close. I would like to express my gratitude to you, all, for joining us today. Many thanks to you all.

Ladies and gentlemen, thank you very much for your attendance. You may now disconnect your lines.