To deliver an attractive total return to shareholders with a strong focus on income, from investing in UK commercial property, predominantly in the office and industrial sectors in major regional centres and urban areas outside of the M25 motorway.
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Whilst I still believe that the stock is seriously undervalued, it is clear that the company has got itself into a sticky position on the LTV. As a shareholder, I have to question the governance of the company that has allowed this to happen. The first point of contention is why Inglis is a "Non-executive director" of the company. He is CEO of the Asset Management Committee - how can he be a NED?
More importantly, I have to ask what the independent NEDs have been doing to allow this situation to arise. They form the Audit Committee and part of their terms of reference is to:
(i) assessing the principal risks and emerging risks facing
the Company, including those that would threaten its
business model, future performance, solvency or
liquidity, and how they are managed and mitigated;
(ii) assessing the prospects of the Company over such
period deemed appropriate (but longer than 12
months); and
(iii) determining and reporting to shareholders in the
annual report whether there is a reasonable
expectation that the Company will be able to continue
in operation and meet its liabilities as they fall due over
the period of assessment;
I have to question whether they have been successful in meeting these requirements.
Auditors will be looking at going concern and business viability as part of the audit. Normally in this situation you would ensure that a refinancing plan is very advanced before the audit report is issued to avoid a material uncertainty in the audit report.
I would encourage anyone who believes the equity raise is as misguided as I do to let the company know about it. I certainly have. As things stand if they can engineer a bridging facility and continue with property sales there is still plenty of legs left in the current share price, if they pursue a rights issue then that snuffs out any remaining potential upside on the shares.
If we looks at the actual facts we know that:
- the company suffered a drop in valuation in Q4 that was very much in line with the market
- disposals appear to have picked up in Q1 and are being made at NAV
- a number of different options are being considered by the board for the bond
- occupancy has droped slightly but not dramatically, and good evidence that staff are returning to the office both from the company and general market (see most recently Boots enforced a 5 day office week)
- inflation is down and lots of recent data points this week continue to reinforce that trend
Had the board not floated the equity raise as a solution via Edison the share price would probably be recovering to mid-20s at this point and possibly higher.
Jonarian
Some good stuff in your comments and we all want it to turn out well for shareholders,and by default ,bondholders.
The difficulty for analysts is that RGL has traditionally been run by folks who do not seee corporate governance as very important and they have never had pressures from institutional shareholders to remove the conflicts that are obvious to shareholders.You see this sort of behaviour in the VCT world,less know than a few years back.It is totally nonsense to have anyone from the Managers on the board.It is a reflection of a feeble board that this happens.When a fund is initially set up ,usually by the Managers, they invite board members who they think will be compliant.What may change the game here is that ARA the recent owners of the Inglis business are professional and experienced and if you want to right to RGL and the Board then ask for your email to be forwarded to ARA compliance department.
More debt is not the solution.LTV is too high.Again, the real estate industry protects its own.In dependent valuers ha ha.Who pays their fees? These valuations are based on certain factors ( ask to see them ).I paraphrase but is based on an active market,willing buyers and sellers,etc.RGL is a distressed seller,no?So big discount.office values are not going up.Look at Derwent and CLS.RGL selling at Book value.ha ha.Look at what the purchase value was.Businesses write down values of properties they want to sell so they can then say they did not make a book loss against recent valuations.
It is highly likely that they have breached LTV covenants.But have waivers for the short term.
The 20% unoccupied is a killer.which other REIT has that? These boys have previously announced asset sales.We have heard nothing recently.
There may be a big asset package sale in the offing which will refi the bond and improve leverage.Can you see the flying pigs?
I would be delighted to see an equity raise.
TH Tim - "It is highly likely that they have breached LTV covenants"
This is an incredibly strong statement. Please can you provide your evidence to support this assertion?
The governance problems here remind me of Home REIT. It's no wonder market does not believe their valuations.
TH Tim - why would you rather see an equity raise rather than a managed wind down? At the current discount the latter would generate far more value for shareholders.
"It's no wonder market does not believe their valuations." - sorry, I think you're talking garbage here. Firstly, it's not "their valuations" - they are provided by an independent consultancy. I don't believe there is any market doubt on the integrity of these valuations, it's more the concern that they might not be realised if there was some sort of 'fire sale'. I don't believe this has proven to be the case with the sales realised so far.
Pangloss73 that's funny, if you're resorting to emotional claims talking garbage clearly you haven't done even a basic analysis of their assets. The fact this has a dramatically lower price to book value than any other UK REIT should set alarm bells ringing. The discount is telling you that the market does not believe their valuation, so while you're trying to shoot the messenger what you're actually doing is arguing with the market. Best of luck with that.
I agree that the alarm bells are ringing - that was the point of my original 'governance' post. I believe there should have been stronger governance to address the risk that is now all too evident.
I apologise for using the term 'garbage', but I believe you are wrong to to question the integrity of the valuation. I repeat this is not "their valuation" it has to be provided by an independent source. There are many valid reasons why the share price is at such a large a discount to NAV, but you appear to be inventing a completely spurious new one. In this, you are not the messenger but simply a scaremonger.
I think the valuation release disclosed an equivalent yield of c.10%. That sounds pretty consistent with benchmark yields for secondary offices as a blended portfolio yield across the whole portfolio, so not sure why we have any reason to believe the assets are not valued correctly at this point. The discount I largely attribute to the concern over refinancing and that asset values may fall further.
Pangloss,
I’m with you on the valuations issue. I believe it is absurd to suggest that the valuations are in any way controlled or influenced by RGL. See extract from last (2022) Annual Report:
The Company’s external valuer, Cushman & Wakefield, provide independent valuations for all properties on a six-monthly basis in accordance with the RICS Red Book.
The Company’s Auditor engages an independent third party to evaluate the Cushman & Wakefield valuation.
In fact, there have been many instances (see Inglis interviews) where RGL have complained about the valuations, stating that the values provided and reported are significantly lower than the RGL view.