Cairn Homes founders enjoy €14m in pay and stock

Cairn Homes' two founding executive directors, Michael Stanley and Alan McIntosh, received €14.2 million in stock and remuneration in 2016, in the company's first full year as a publicly-quoted company.

Mr Stanley, the chief executive, saw his basic salary dip to €425,000 last year from €455,000 for the 14 months through 2015, while his annual bonus more than doubled to €446,000, according to the housebuilder’s annual report.

However, Cairn also issued almost 5.26 million shares to Mr Stanley last August – when they were trading in the market at nearly €1 each – under a conversion of so-called founder shares into ordinary stock.

Fellow director, co-founder and serial entrepreneur Alan McIntosh saw his remuneration – before the share conversion – rise to €606,000 from €540,000. He also received 7.5 million of ordinary shares as Cairn converted founder shares in August.

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Cairn Homes raised more than €440 million in June 2015 as it became the first Irish homebuilder to list on the stock market in almost two decades. Property developers in the State had eschewed equity markets to rely on bank debt financing for projects as house prices quadrupled in the decade to 2007, resulting in taxpayers largely been left to should bad debts run up by the highly-leveraged sector after the bubble burst.

Cairn Homes raised a further €176.5 million last year, after it acquired a portfolio of development assets from Ulster Bank called Project Clear.

While Cairn Homes completed 105 house sales last year, it aims to be selling more than 1,200 homes per annum by in 2019.

Flotation

The founder shares programme entitles Mr Stanley, Mr McIntosh and the company's chief commercial officer, Kevin Stanley, to receive 20 per cent of total shareholder returns over seven years after the IPO, subject to the company's share price achieving a 12.5 per cent compound annual rate of return. The founder shares mechanism was used during the flotation to give the directors some upside for committing assets and investment to company at the time of the transaction, rather than taking money off the table in June 2015.

Cairn Homes took a €29.1 million non-cash charge against the founder shares in December 2015 after carrying out a valuation exercise on what the programme would cost the company.

“The founder shares will be converted into ordinary shares or paid out in cash, at the option of the company, in an amount equal to the return earned by the founders, if any,” according to the annual report.

The IPO prospectus, from June 2015, states: “If the performance condition is not satisfied, the founder share value shall be zero and the founder shares are not eligible for conversion or redemption.”

Forecast

Analysts at Davy have said that Cairn Home’s forecast of selling at least 1,200 homes a year from 2019 are underpinned by the fact that it has five sites under construction, another eight to go into construction and the fact that it is sitting on 16 other “core” sites that can be developed in the medium to long term, mainly in Dublin.

House prices rose by an average of 4.3 per cent across the State during the first three months of the year, according to property website Daft.ie, fuelled by the Government’s new tax incentive scheme and a loosening of the Central Bank’s lending rules for first-time buyers. The average price of a house in the State stood at €230,000 as of last month, some 9.4 per cent higher than the same time last year and more than €65,000 higher than four years ago.

The current market value of 24.4 million ordinary Cairn Home shares owned by Mr McIntosh, a Scottish accountant who was involved in the setting up of UK pub companies Punch Taverns and Spirit Group, is €36.8 million. Mr Stanley’s 8.36 million shares are worth €12.6 million.