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

Annual General Meeting of Irish Residential Properties REIT plc. I've been informed that we have a quorum present, and I therefore declare the meeting open. Before proceeding with the formalities of the meeting, I'd like to maybe introduce the people who are seated here at the top table and also the remaining members of the Board who are seated in front of me here in the front row. Also starting with our [ important person, non-advisers ], et cetera, who are in the room today. At our head table, we have, first of all, beside me here, Margaret Sweeney, our CEO and Executive Director of the company. We also have Joan Garahy, Independent Non-Executive Director and Chair of the Audit Committee. Our Chief Financial Officer, Brian Fagan, who is recently appointed as an Executive Director and our Company Secretary; and General Counsel, Anna-Marie Curry. I'd also like to introduce the other members of the Board of Directors in attendance today. They're in the front row, here beside me, and perhaps they could raise their hands when I mention their name just to identify themselves. First of all, we have Aidan O'Hogan, Independent Non-Executive Director and our Senior Independent Director. We have Philip Burns, Non-Executive Director; Stefanie Frensch, Independent Non-Executive Director; and Tom Kavanagh, Independent Non-Executive Director. Also present, we have Sean O'Keefe and David Moran from KPMG, who are the company's auditors for the financial year 2021. And we have Conor O'Dwyer and [ Julie and Lauren ], partners of McCann FitzGerald, who are the company's legal advisers. We very much value shareholder engagement and the opportunity which the AGM provides each year to meet and communicate with our shareholders. And we're delighted to be able to hold our AGM in person this year, and we have provided conference call facilities and a live webcast facility for any shareholder who was unable to be with us today. This year, as well as the ability to vote and ask questions at the AGM in person, shareholders have been given the opportunity to submit any questions relating to agenda items in advance of the meeting. And we've also encouraged shareholders to exercise their rights by voting in advance of the AGM through the appointment of proxies. The annual report and the notice of AGM were sent to shareholders and published on the company's website on the 14th of April 2022. So if there's no objection, the meeting will take the notice of AGM as read. Thank you. Now before I hand over to the CEO to make her remarks, I'd like to say some preliminary things myself. The past year has been a challenging one for the business, both managing the disruptions caused by COVID and also very importantly, transitioning I-RES from an external to an internal management structure. It's a credit to our CEO, Margaret Sweeney, and the entire I-RES team that they've delivered a strong underlying business performance while also hitting all the required milestones to achieve this successful internalization. We've now been fully internalized since the 1st of April, and we now have an employee base of almost 100 people, up from 3 people this time last year. We're proud of the team that we have, and we believe that we're now well placed to continue to deliver market-leading homes to our occupiers while sustaining strong financial returns for our shareholders. On behalf of the Board, I'd like to extend our gratitude to CAPREIT, both as a significant shareholder and as the owner of the investment manager and provider of services to the businesses -- to the business over the previous years and recently during the transition period. We're also pleased to strengthen our Board post internalization with the appointment of Brian Fagan, our CFO, as an Executive Director. As part of our process of refreshment and renewal of the Board, we're also now in the process of recruiting an independent -- an additional Independent Non-Executive Director, and we'd announce any appointment to the market as and when we identified a suitable candidate for that role. I should say that ESG is an important topic for the Board, and we're pleased to be able to issue our stand-alone ESG report in April, which highlights the importance for the Board of developing a long-term sustainable business. We established a Board Sustainability Committee in 2021 to have oversight of our ESG strategy as well as sustainability risks and opportunities. We're proud of many elements of our ESG strategy, and in particular, the high employee and occupier satisfaction rates and the diversity levels of 55% employees who are female across the company. And we're also fortunate to have the CEO of Margaret's caliber. We were awarded a European Women on Boards Best Practice Leader award this year, of which we're particularly proud. But most importantly, we're proud of the leadership that Margaret has shown over the past year and delivering on the internalization while maintaining strong underlying growth and profitability within the business. On the environmental side, we now have 100% renewable energy usage in all our common areas, and we continue to look for ways to provide environmentally sustainable buildings and resilient mitigation measures to combat climate change and provide our occupiers with the properties which they want and which stage is there. 60% of our properties have energy A and B ratings, and we will look to improve on this over time. I'd encourage you to review our ESG report, and I know that this is something Margaret will touch on in more detail. With those in my preliminary remarks, I'm now going to pass over to Margaret, who will make her remarks as CEO.

Good morning to everyone. I'm delighted you're all able to join us today. So I'm going to make a short presentation just to give an overview of the business, but also some of the change that actually happened in the company. So as Chairman mentioned, we, over the last year, has actually been a significant year for the company as we move from the internalized -- to an internalized management structure. So we're now a fully internally managed REIT. And we completed that with the acquisition of the management company, I-RES Fund Management. We also implemented technology right across all aspects of the business. And we also transitioned our functions from CAPREIT and all our technology and data across to the company. So we now have a fully integrated business with an operating platform that I think is unique in the Irish market and will not -- leveraged to deliver a quality service to occupants as well as providing the opportunity to achieve economies of scale as the company moves forward. And we have implemented a Yardi cloud-based real estate system -- technology system, and that gives us leading digital and mobile capability. And together with the team of 90 people who are very experienced, our team of people range from people providing direct service to our occupants in the apartments, our tradespeople, [ farmers ], carpenters, a full service through to our leasing team and the revenue team, and Alan's here today, who's head of our operations and customer service side and charge on the investment side. And I have to say, over the last 2 years with COVID, it's been a tremendous effort by everyone to actually ensure that we've kept full occupancy, with also very high quality of service. And I think now assisted with the new technology, we will actually be able to leverage the business even further and continue to deliver a very good service out to all of the communities that we support. From the investment side of the business, the Chairman mentioned our focus is very much as well on building a sustainable business. Some of the core criteria that we use in terms of actually selecting properties and investments is around family-friendly locations with good public transport links and also education and social infrastructure and good employment in the vicinity. And I think that core criteria under our investment strategy helped serve us well. That's been proven, I think, over the last 2 years with COVID in terms of being able to actually continue to perform very strongly as a business. As I mentioned, we actually have a very integrated operating platform that's unique in the Irish market. And I think we will hopefully build on that to deliver our priorities -- some of the priorities around customer service that we have and to continue to actually deliver very good and become a leading provider of private rental accommodation in the market. Just to give you an overview of the results for 2021. It was a very strong year. You will have seen our annual report that we issued in March. It's a very resilient business. Our revenue from investment properties for 2020 was EUR 79.7 million, nearly EUR 80 million, and that was growth of 6.7% in 2020. And that also moved into EPRA NAV per share, net asset value per share, have since grew by 3.9% to EUR 1.665 per share. And we're showing earnings -- underlying EPRA earnings for the business of EUR 37 million for 2020, which was also up from 2020. So in terms of the shareholders who trust us to invest that money for you, we delivered last year 8.6% total annual return and a dividend yield of 3.57%. As you know, we issue dividends twice a year, and we required other REIT to pay out a minimum of 85% of our profits as dividends every year. And part of our strategy is a steady growing dividend for shareholders. And we've been delivering on that strategy over the last number of years, as you can see from the chart up on the screen in front of you. The business is also very resilient, and I think that's been well demonstrated with COVID over the last 2 years and also a lot of change going into the company itself as part of the integration. We have a very good balance sheet, a strong balance sheet, and that gives us very good underpin and foundations to the company with good liquidity. So our properties, at this stage, the valuation at 31 December 2021 was close to EUR 1.5 billion. And we're actually showing -- we have group gearing amount of 40.7% at December. We also did an acquisition of Ashbrook in January, and that brought our gearing to 41.8%. Our -- in the current environment where there's -- obviously interest rates are rising, we're actually fortunate to actually have structured our debt quite well. We have a weighted average cost of 2.3% at the moment. But in that, we have a note program of EUR 200 million, which is maturities between 2027 and 2032, and that actually is fully fixed in at 1.92%. So well cushioned against future interest rates. And under our revolving credit facility with a syndicate of 5 banks, that has a floor of 0. So we have some cushion there for rate rises before the impact of at least 50 basis points. So overall, we're actually coming into 2022 and the current environment in very good shape. So looking at the portfolio and the assets that we manage -- that we own and manage. They actually underpin 37 properties. We're now close to 4,000 apartments and homes. We probably have at least 8,000 to 10,000 people every night, which is a big responsibility and to provide good service. And I have to say the team take that responsibility very seriously. The Chairman mentioned our focus on sustainability and also in ESG, and we're delighted to see with work going on over the last couple of years that we have 100% renewable energy sources now for all our common areas in our properties. And we also -- 94% of our portfolio would have building energy ratings A to C. In terms of actual resilience as well and coming into the current environment of cost of living, our average monthly rents, we're focused more on the mid-tier affordable residential sector and a significant number of our rents, and we average about 2/3 of the portfolio are 2-bed apartments, and we have 67% of our portfolio with rents of EUR 1,500 to EUR 2,000 per month and also another 25% with below EUR 1,500 per month. So I think compared to the market, we're actually about 9% under market rate on our average rents. So in terms of affordability, I think we're actually positioning, I think, hopefully, our accommodation at a good space in the market. We're fortunate to have very young and high-quality assets. The average age of the portfolio across it is 12 years of age, and it's also very well diversified. So we're not over concentrated in any area, but I think fits well into this ability that we have to keep fairly well full occupancy all of the time. Looking down at our priorities around ESG. The Board has a very clear commitment to net zero, and that's articulated in their reports that we issued. We also have a program of very -- a lot of engagement with our key stakeholders, our employees, our tenants and occupants of our apartments and houses. We also have reached out a number of times to our shareholders through carrying out work on the materiality to see what are the main issues that our stakeholders are focused on from a sustainability point of view. We also reached out to some of the local communities, to the local authorities, some of our key suppliers throughout across the spectrum of the stakeholders for the business. And from that, we identified 11 key focus areas. And so that's part of the road map that we're now focusing on. In addition to that, there's a requirement very much to -- very focused on setting science-based targets around carbon emissions. And that's the work that we currently have underway as well. Another significant piece of work that's underway is ensuring as well that we provide a lot of this information and data, which our shareholders require out into some of what I call the rating agencies. We have submitted to GRESB, and we also are already providing ratings through that and also to EPRA. And we were delighted to achieve last year, the EPRA SBPR gold award for best approved reporting on ESG. And we will continue to provide to that. We also have ambitions to, this year, report into CDP and some of the other rating agencies to get more engaged with us to support our shareholders. People is very much -- we place our people at the heart of the business. The Chairman would have mentioned our strengths around diversity and inclusion. And I think that's something that actually comes naturally to the company. We don't need to have any great plans around diversity and inclusion because it's already there, and it happens really just a normal business do today. And that's right away across the board, down through the company, through the management and down into the employees and the organization. With 90 direct employees, we're also very focused now on training and development and continuous training and development. And I have to say the employees actually embrace sustainability in an enormous way that makes me very proud actually as CEO. It's not something we have to. I think everyone's been engaged in it. There's a lot of work going on in terms of encouraging our residents around recycling and waste management. We've shown improvement on that. Also, around energy efficiency across all our properties. We have green ambassadors among our employees, and they've taken part in the [indiscernible] plan. And we work very closely as well with -- particularly close to our properties, some of the sports clubs and teams, and that allows an ambassador program for the families and children and the properties to actually engage in the local community. So that's something that's a great focus for us. We also are participating in -- with Cooperation Ireland in the Future Leaders Programme for young people from disadvantaged areas to support them and that's something right across the employee base we've been supporting and engaging with over the last year. During COVID as well, there was a real focus on health and safety. And also, it was a priority to ensure that our people were well looked after and we put in place various sanitization facilities and also provided support, too. We also have frontline workers who are the maintenance teams who kept everything operating and running all during the COVID period with a lot of support. We also work closely with -- we have some commercial space, and we've now partnered with Tallaght Hospital, and we actually, in conjunction, provided space to them and developed [ RDSC ] surgery. And they're also now discussing with us to see if we will support them in delivering a women's health facility as well near Tallaght Hospital. And we're also working currently with the Red Cross in providing accommodation for Ukraine refugees as well coming into Ireland. So we continue to grow the company as well. We've had a disciplined capital allocation policy to generate value and growing dividends for shareholders. We've added growth into the portfolio of 56% to bring us to close to 4,000 units. And we're delighted to have acquired last year The Phoenix Park. That was an acquisition of 146 apartments. And Phoenix Park, a very nice suburb in Dublin, very close to the city center. One of the largest city parklands in Europe at a gross yield of 5.3%. So that's fully stabilized since last year into the portfolio. We're delighted that for 2022, we've already built in growth into the portfolio of 6%. So we acquired Ashbrook, which is also close to the city center in a very mature suburb. 152 homes under 2 contracts. We've already taken onboard 108 of those units and 44 are new builds coming in next year. And we're delighted that our 2 projects called Project Merrion, but actually that's renamed [ Tara View ] and it was originally a hotel site that was called Tara Towers. And then it went from Dublin, we'll be very familiar with it over many decades. So we actually adopted the name [ Tara View ] for the new apartment development. So that's actually being delivered in June. And we also have Bakers Yard, which is also delivering in June, so between 130 units. Both actually have been delivered to very high sustainability standards. Bakers Yard will be a lead gold, I think, the first in the country for an apartment development. And we've also chosen, in terms of fit out, an Irish company that actually has sustainability at the heart of what they do. And I have to say we've been very pleased. We're already starting to pre-lease -- look at pre-leasing the apartment. And I think we're delighted to see them coming into the portfolio. In summary, I would say that we have a very resilient business with a strong balance sheet and growing return for shareholders. We're well placed, I think, to navigate what's now a changing and a new changing environment out there. We have a good integrated business with good management team. Some of the macro factors coming to us this year would be inflation pressures. Obviously, lots of concerns around affordability and cost of living with significant inflation pressures. I think we're fortunate that we're well positioned in that mid-tier affordable residential sector. And also, we actually have working very closely with our suppliers and our residents and apartments in terms of managing some of the impact on energy costs that are actually already coming through and inevitably will increase with time. On the supply chain side, for the 2 new developments, we already for Merrion Road and also Bakers Yard, we also have secured those at fixed contracts, and we will deliver them actually in line with those terms. And as you know, they're due for delivery now next month. And on the regulatory side, the regulation did change during 2021. So the current regulatory structure in Ireland provides market rents for new properties. And then on the first renewal, rents are capped at 2% per annum going forward. And that's now to position the actual rent -- next rent review of regulation is in 3 years' time in 2025. However, they said they would review the 2% rental cap in 12 to 18 months. I would say the fundamentals in the Irish multifamily sector remain very strong. We have a growing young population. We're unique in Europe in that context. And also increasing jobs and FTI have been announced every day here. We're getting the newer technology companies as well as a lot of new jobs in pharma. So there's a continuous high demand for housing and one of the bigger challenges around supply constraints. So the fundamentals and our current assessments are that yields are still remaining stable in the Irish market as well across our portfolio. The business is resilient and well positioned. I think we've demonstrated a strong track record and proven execution. We have a good modern portfolio. We're well positioned in terms of climate issues with 94% of portfolio in ATC Building Energy ratings. We have a good balance sheet with a reasonable amount of our debt actually hedged out. And with the new integrated management structure and very good digital mobile technology, I think we're well positioned to navigate some of the challenges that are upcoming over the next year. So thank you very much. And I'll hand back to the Chairman.

Thanks very much, Margaret, for that update. Now as I noted earlier, to facilitate shareholder communication, shareholders who wish to do so in advance were invited to submit questions in relation to items on the agenda of this AGM by e-mailing the company secretary. I'm informed by the company secretary that no questions were submitted in that format. So I'd now like to proceed by dealing with any questions from shareholders on items on the agenda of the AGM. If you have a question, please raise your hand. And I'd ask that you state your name. And if you're a proxy or corporate representative, please state the shareholder whom you represent. Any questions should be directed to me, as Chairman of the meeting, and I'll either answer them myself or I'll redirect them to one of my colleagues on the Board as appropriate.

Are there any questions? Yes, sir.

Sorry. Just a quick question on Rockbrook. The financial environment [indiscernible] new development are maybe hold off for a while? And the -- any ideas you're looking at [indiscernible] Cork or Limerick or Galway?

Okay. That's -- I'm prepared to take that question despite the fact that you -- I don't think you have your materials, but I accept that you're a shareholder. Margaret, would you be able to make some remarks about Rockbrook and Cork and other provincial cities?

Yes. Thank you as well. The [ construction ] in Rockbrook, we have full planning permission to develop 428 apartments in Rockbrook. We have looked at starting that in 2020, but COVID hit. So we actually decided that, that wasn't an appropriate thing to do. So we currently have reassessed a cost around it, and we will now assess -- there are obviously lots of flux, as I call it, at the moment around supply chain and construction inflation. There is a sense coming through that some of that will settle over the next couple of months, and I think that will be an opportune time for us to start looking again at what's appropriate in terms of Rockbrook. Planning permission on it runs at 1 to 5 years to 2024. So we have time in terms of looking at that. And then in terms of Cork and Limerick, we have one property in Cork at the moment. And they're also now cities that actually a number of new developments are being built and coming through in those cities. That wouldn't have been the case 3 or 4 years ago. So I think they're also sizable in terms of good job creation. [indiscernible] and Cork, there's also a good demand for rental. So they're definitely [ sparse ] cities we would have on our strategy.

Thank you, Margaret. Any other questions? All right. Well then, I now move to the formal business of the meeting where we consider and vote on the resolutions. Today, we have 18 resolutions in total to be proposed and that takes account of the requirement to propose each resolution regarding the reelection of each director separately. The proposed resolutions are considered to be in line with market practice and they take account of relevant institutional shareholder guidelines and principles. Let me outline the voting procedure that will follow. 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. Accordingly, pursuant to Article 67 of the Articles of Association, I, as Chairman, now demand voting by poll on the resolutions to be put to the meeting today. For the avoidance of doubt, the proxy is validly received by the company in accordance with the procedural requirements and deadline set out in the notice of AGM will be included in the poll. We have appointed Computershare, our company's registrars, to act as scrutineers. For convenience, I direct that the poll on all resolutions will be held at the end of this AGM. Your poll form can be located on the reverse of your attendance card or you will have been provided with one at the registration task. So I now formally propose each of the resolutions separately to the meeting. As the full text of each resolution is included at Pages 8 to 12 of the notice of AGM, I don't intend to read out the full text of each resolution. So now I move to resolution number one. The first item of business is a resolution to receive and consider the financial statements of the company for the year ending 31 December 2021, and the reports of the Directors and auditors thereon. A copy of the annual report containing this information was sent to shareholders and was published on the company's website on the 14th of April 2022. So I now propose resolution 1, that the financial statements of the company for the year ended 31 December 2021 and the reports of the Directors and auditors thereon be received and considered. The poll on resolution 1 will be taken at the end of AGM. Resolution 2. We now come to the reelection of Directors. All of the Directors come up for reelection in accordance with Article 92 of the Articles of Association and are being proposed in separate ordinary resolutions. The biographical details of all the Directors appear on Pages 64 to 66 of the 2021 annual report. The polls on each of these Resolutions 2(a) to 2(h) will be held at the end of this meeting. Resolution 2(a). As previously announced on the 16th of June 2021, Stefanie Frensch was co-opted to the Board as an Independent Non-Executive Director with effect from the 1st of July 2021. So I now propose resolution 2(a), that Stefanie Frensch be elected as a Director of the company. Moving to 2b. As announced on the 11th of April 2022, Brian Fagan was coopted to the Board in April 2022 as an Executive Director with effect from the 11th of April 2022. I now propose resolution 2(b), that Brian Fagan be elected as a Director of the company. Moving to 2(c), I will now ask Margaret Sweeney to propose that resolution, which relates to my own reelection.

Resolution 2(c), that Declan Moylan be reelected as a Director of the company.

Thank you, Margaret. Moving to 2(d). I now propose resolution 2(d), that Philip Burns be reelected as a Director of the company. Moving to 2(e). I now propose resolution 2(e), that Joan Garahy be reelected as a Director of the company. I now propose resolution 2(f), that Tom Kavanagh be reelected as a Director of the company. I now propose resolution 2(h), that Margaret Sweeney be reelected as a Director of the company. I now move to resolution 3 -- it's good to be held up. I now propose resolution 2(g), that Aidan O'Hogan be reelected as a Director of the company. 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 clear days' notice. The full text of resolution 3 is on Page 8 of the notice of AGM. The poll on resolution 3 will be held at the end of this meeting. I now propose resolution 5. Resolution 5, to authorize the Directors to fix the remuneration of the auditors in respect of the period expiring at the next AGM of the company. I now propose resolution 4, to consider the continuation in office of KPMG as auditor to the company until the conclusion of the next AGM of the company. 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 auditors in respect to the period expiring at the next AGM of the company. Poll on resolution 5 will be held at the end of the meeting. I now propose resolution 6, to receive and consider the report prepared by the Remuneration Committee for the company on Directors' remuneration other than the remuneration policy for the year ending 31st December 2021. And the poll on resolution 6 will be held at the end of the meeting. Moving to resolution 7. Resolution 7 is an ordinary resolution to grant a general authority to the Directors to allot relevant securities up to the maximum aggregate nominal amount of EUR 26,478,947.30 on the terms set out in the notice of AGM. The full text of resolution 7 is set out on Page 9 of the notice of AGM. Poll on resolution 7 will be held at the end of the meeting. I now propose resolution 8(a). Resolution 8(a) 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. Full text of resolution 8(a) is set out on Pages 9 to 10 of the notice of AGM. The poll on resolution 8(a) will be held at the end of the meeting. I now propose resolution 8(b). 8(b) 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. Full text of resolution 8(b) is on Page 10 of the notice of AGM. And the poll on resolution 8(b) will be held at the end of the meeting. I now propose Resolution 9. Resolution 9 is a special resolution that the company and any subsidiary of the company be authorized to make market purchases, including overseas market purchases of ordinary shares and the share capital of the company on the terms set out in the notice of AGM. Full text of resolution 9 is set out on Pages 11 to 12 of the notice of AGM. 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 authorize the reallotment of treasury shares on the terms set out in the notice of AGM. The full text of resolution 10 is set out on Page 12 of the notice of AGM, and the poll on resolution 10 will be held at the end of the meeting. Now let me turn to the voting procedures. I now direct Computershare to conduct the poll on each of the resolutions just put at the meeting. As mentioned at the outset of the meeting, your poll form can be located on the reverse of your attendance card or you would have been provided with one at the registration desk. Please remain seated while the polling cards are collected by the registrars. The polling card should be signed before returning it to the registrars. When you've completed your polling cards, they should be passed at the end of the row on which you're seated and they will be collected. Thank you. Very good. The votes have now been collected. The 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 the resolutions and the number of withheld votes. I remind shareholders that a vote withheld is not vote in law and will not be counted in the calculation of the proportion of the votes for or against the resolution. The results of the poll will take some time to be calculated. And therefore, I'm now closing this meeting. Following the results of the poll on all resolutions will be announced on the company's website as soon as possible today. Ladies and gentlemen, subject to the poll results, that concludes the business of this meeting. And as there is no other business, I shall now bring the formal business of the AGM to a close. Thank you very much for joining us today. And I'd like to invite you for a light brunch downstairs in the foyer. Please feel free to move downstairs, and the Directors and the management team will join you there. Thank you.