Thursday 18 July 2019

Marathon sprints for the exit door in €285m Ires homes sell-off

Marathon Asset Management is headquartered in Manhattan
Marathon Asset Management is headquartered in Manhattan
Richard Curran

Richard Curran

New York hedge fund Marathon Asset Management is set to make a killing on its latest property disposal in the Irish market - a portfolio of 815 homes it is selling to Ires Reit for €285m.

Marathon assembled over 588 of the properties in a single deal when it bought the aptly named 'Plum Portfolio' from Nama in 2015 for just €120m.

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In the meantime it has enjoyed rent increases and will now enjoy a large payday. The portfolio includes 101 apartments at Beechwood Court in Dublin where Marathon has increased the rent roll from €1.5m to just over €2m in the last four years, representing a hike of 30pc.

Overall the portfolio takes in €14.2m a year in rent and Ires sees scope for that to increase by around 20pc in the years ahead, which would see €3.5m a year more paid in rent.

All of the properties are in rent control zones which means the rent can only be put up by a maximum of 4pc per year.

So, good news for Marathon, potentially good news for Ires too in the long run, but not so encouraging for tenants. Ires is the country's biggest landlord and this deal brings its portfolio to more than 3,500 properties.

It plans to issue approximately €137m worth of new shares to help pay for the deal, along with increasing its bank loan facilities. News of the share issue, which will require an EGM next month dragged down its share price last Thursday by over 3.5pc.

No doubt the acquisition will fuel the debate about large investment funds buying up an ever-larger slice of the rented sector. The rent increases already secured under Marathon's ownership show how relatively ineffective the rental control zones have been.

Marathon's presence in Ireland may be looking more like a sprint than a longer-term commitment given that it recently also sold the Heuston South Quarter commercial development for €220m or 85pc more than it paid for it in 2014. Marathon had done 12 property deals in an economically distressed Ireland by May 2015.

Ires on the other hand is certainly talking the talk about building a long term portfolio. Marathon is a hedge fund. Ires is a residential Reit. But the same might have been said about Green Reit, which is currently putting itself up for sale.

O'Leary solves several problems with Ryanair Malta acquisition

There are obvious comparisons to be made between Ryanair's new corporate structure of several subsidiary airlines, and that of IAG, which owns British Airways, Iberia and Aer Lingus.

Several separate management teams reporting in to a group chief executive. Several individual brands operating but under the same parent company. Individual airlines competing against each other for a share of the group's wider capital and investment.

But that is as far as it goes. Ryanair presented its Malta Air acquisition during the week as the latest in its portfolio of individual airlines. The comparisons with IAG don't really stack up here though.

Ryanair has essentially acquired a startup in Malta which will allow it to transfer up to 50 aircraft currently based in France, Italy and Germany into the new airline. This will allow these crews to pay their income taxes locally in France and Germany instead of in Ireland.

This was a key industrial relations demand and the new arrangement stems from the recognition of trade unions at the airline. Pilots and cabin crew had a key demand of paying tax in their home locations because that gives them certain national rights.

IAG has acquired a number of big incumbent carriers and turned them around. Ryanair has been its own brand and has now dabbled in extending its reach through new smaller acquisitions.

The question of IAG diluting its own brand doesn't arise, but the new structure could do that at Ryanair. Ryanair said it would move to a new smaller senior management team structure overseeing subsidiaries like Ryanair, Lauda in Austria, Buzz in Poland and now Malta Air.

Michael O'Leary's move on Malta Air solves several problems all at once. It keeps the Maltese government onside because it is delighted with having a fleet of aircraft flying to North Africa and elsewhere in the Malta colours. It increases jobs in Malta. Ryanair will move 200 Malta-based crew into the new airline and intends to create 350 more jobs there.

Malta also has some tax benefits such as no stamp duty on aircraft and generous tax deductions. And the Malta move also helps to resolve an industrial relations issue which was causing problems in much bigger markets like Italy and Germany.

One slightly tricky bit is the fact that Malta Air could be confused with the loss-making national airline which is called Air Malta. Perhaps O'Leary can make the advertising unmistakable.

End of the road for former Quinn Welsh radiator plant

The Welsh economic minister, Ken Skates, was none too happy with how staff at the former Quinn Radiators plant in Newport, Wales found out that the company had gone into administration on Monday morning.

Staff showed up for work only to be told at the gates by the administrators the factory was closed and all 280 of them had been made redundant.

It was yet another twist in the long tale of radiator battles for Tony Mullins. Mullins must have had more than a hint of satisfaction when his investment group bought Quinn Radiators in 2014 for €25m. Sean Quinn had gone bust and his manufacturing empire was being broken up and sold off piece by piece.

The Fermanagh businessman had wiped Mullins's eye back in 2004 when he outbid Mullins who was trying to do an MBO of Barlo Group, which he had run for many years.

In 2017 Barlo Group, including Quinn Radiators, merged with a company called International Industrial Metals Ltd, a wider metals group controlled by Irish businessman Maurice Sherling.

Quinn Radiators has now gone into administration with the loss of 280 jobs.

The plant had run into all sorts of difficulties from increasing raw material prices to cheaper imported brands.

Accounts for Quinn Radiators for 2017 show that, excluding an exceptional gain of £10m from the sale of an asset, it made a loss of £7m in the nine months to December 2017. It made a loss of £5.8m in the year to March 2017.

Creditors include bank borrowings and a loan of £3m from the Welsh government which carries an interest rate of 16pc.

But consolidated accounts for the wider International Industrial Metals group show that it made very healthy profits of £4.5m in 2017. Group turnover was £150m with radiators accounting for £34m and £116m coming from metal recycling, processing and distribution.

Companies office filings for International Industrial Metals show that it is controlled (between 50pc and 75pc) by Maurice Sherling who now lives in Israel.

No annual return has been filed since the merger happened in 2017 so the records do not show who owns the remaining shares. Tony Mullins is listed as a director.

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