PRS REIT warns of ‘disruption and damage’ from shareholder pressure

The board of PRS REIT has warned of “cost, disruption and potential reputational damage” if a group of shareholders push for the removal of two directors at a proposed general meeting. Last week a group of investors in the company – Harwood Capital, Waverton Investment Management, CCLA Investment Management, Alder Investment Management and CG Asset Management – requested a general meeting at which shareholders could vote to remove two of the five existing independent non-executive directors, chairman Stephen Smith and Steffan Francis.  It was also proposed that Robert Graham Naylor joins the board as non-executive chairman and Christopher Harwood Bernard Mills of Harwood Capital Management as a director. In a stock market update, the company said its board and advisers have now reviewed the letter and learned that two more investors, Ruffer and Asset Value Investors, plan to vote in favour of the changes. It added that there have been only “limited discussions” with the requisitioning shareholders. The company said: “Changing the composition of a board through the mechanism of a GM is typically used under extraordinary circumstances. The process abruptly circumvents normal succession planning and UK corporate governance processes, and incurs additional cost, disruption, and potential reputational damage to a company. This type of action would usually occur when constructive prior private discussions have taken place over time and irretrievably broken down.” It added: “The board fully acknowledges and shares the frustration raised by the requisitioning shareholders and other investors around the discount to NAV and a share price performance that does not reflect the strong operational performance and opportunity of the business. The board notes that PRS REIT is not alone in trading at such a discount with the UK REIT and UK investment trust sectors all trading at meaningful average discounts, with circa 60% of UK REITs trading at a 20% discount or more as of 28 August 2024.” PRS REIT has formed a sub-committee comprising the three independent non-executives not subject to the proposed votes – Geeta Nanda, Rod MacRae and Karima Fahmy – to lead the company’s response. It has also hired Rothschild & Co to advise on strategy and value maximisation for shareholders. The company expects to issue a strategy update alongside its annual results in October. “The board confirms an ongoing review of asset disposals, which will continue, taking into account market conditions, as well as technical, debt and tax implications, which are not insignificant,” it said. It added: “The next steps for the sub-committee, with its advisers, will be to engage with shareholders and seek to meet with the requisitioning shareholders around the requisition notice and on the substantive issues raised to seek a resolution in the interests of all shareholders. An update will be provided in due course on the progress of these actions and around the convening of a GM if appropriate.” Image © Oleg Gamulinskiy/Pixabay