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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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Yes points taken, but my thinking is that if they cut the dividend substantially early on in 2024, they could use some of this rental income cashflow in the short term to sort out the retail bond situation, and move the Reit dividend income to the end of 2024 or beginning of 2025, so as to stay within the REIT constraints. Hopefully by the end of 2024, the market stabilises with the first interest rate cut sometime between May and August ,and they have made further sales by the end of Q2.
Keep in mind that the dividend on the common shares is ~£25m. If it was really desperate (I don't think it is), they'd liquidate/auction properties and the dividend will then reduce proportionally, i.e. RGL would deflate like a balloon, without risking the REIT status. I think they still have plenty of options.
@404x: "The only alternative I can see is default followed by administration."
Why? They have cash on hand, a significant, diversified rent roll and the ability to do an equity raise. The secured debt maturities are >2 years away and the interest rates are quite low/fixed at 3.5%. I think the bankers will come up with something creative, like a 3-5y ZDP and be rid of the bond coupon cost. Unless property prices drop really significantly, there's still plenty of wiggle room.
Anything is possible, but I don't see administration as likely at this point.
We don't know their current cash position as they noticeably omitted it from the most recent quarterly report, so there is no indication that after all their other current liabilities they have anything spare for a bond buyback. Nor have they indicated in any document that buyback is something they intend to do.
RGL can buy back 10 million of the retail bonds themselves with spare cash, and issue redeemable preference shares at 10 percent coupon for the rest, and then carry on the sales program in an orderly way. I don't think things are at a critical stage yet, but they may well be in June.
Bond wise there's no way they'll be able to refi £50m in this sector and market. With the cliff edge deadline coming up, management inaction over selling is the clearest signal something is amiss here.
If your glass is three quarters full, there has been some UK reit M&A lately (eg BBOX/UKCM merger announced last week), so maybe they will surprise everyone with a white knight lined up to come to the rescue and make an offer for the equity. The only alternative I can see is default followed by administration.
Agree holding the bond is the smart money at the moment given it is almost certain to be repaid.
Interesting that many are assuming they have breached an LTV covenant given that if this had happened as at the year end, they would have had to include it in the RNS on 2 Feb.
The MTM changes in the bond price have no impact whatsoever on the final payout - unlike equity. I'll continue to hold the Retail Bond so long as there's no deterioration in their credit situation. I don't see anything so far; just zero illiquidity. I'm currently happy to wait, but I fully expect there to be an equity raise and/or a cut to the equity dividend, both of which I would welcome.
The problem with the retail bond is that there's almost zero liquidity. Actually, the BUY price is higher today than yesterday... it's just that they're massively illiquid. You can see that if you do a dummy buy. It's just that the spread has widened.
The Retail Bond is indeed secured against nothing, but it stands ahead of the equity. Even with a firesale, there should be a big enough buffer for the retail bond to be repaid. It's a simple calculation. Obviously if the assets were sold at a MASSIVE discount to NAV (e.g. 50%), the bond will also be in trouble and equity will be entirely wiped out, but I don't think we're at that scenario. The banks would take only a relatively minor haircut even with sales at 50% of NAV.
The idea that the banks will pull the plug on an LTV breach is not how the property industry usually works - if an interest cover covenant is broken that is a different matter. All eyes will be on the FY23 audited income and forecasts. The potential issue I see is that if they roll the bond, the new interest rate (assume 10%) would add an additional c.£3m in annual interest, and that could put the ICR under pressure.
You would think so re the Bonds but they are unsecured.
The way I read the Bank loans RGL must be in covenant breach with them and they ARE secured and have the right to call in the loan. I suppose I'm wondering if the risk here is the banks pull the plug and by the time the fire sale is over the Retail bonds are too far down the queue to get their full nominal back. The market seems to be discounting these very sharply in recent days...makes you wonder why.
I doubt anybody would a subscibe to a sub ipo at 20p, having to wait weeks before the shares become tradeable when you can get them at 20p and trade instantly.
Very surprised this has gone this low, no skin in the game; but heck if they can't liquidate a 75p nav for 20p ( however distressed the sakes are) then something is horribly wrong with UK accounting.
I doubt they'll have a meaningful impact on the debt through an equity raise alone. With the market cap at just £103m, they'd have to double the number of shares in issue, just to eliminate *less than* 25% of the debt. The remaining debt would still be very high. The best way out of this mess is to try and roll the retail bond, but simultaneously sell properties. They need significant selling. That's going to erode the dividend, but that's the situation they're in. There's still *currently* plenty of wiggle room to get out of this, but they need to get moving and sell more properties.
Capital raises while trading below claimed NAV are a bit of a no-no, no other UK reit has done one in recent years good reason. Even if they were to break this taboo, one problem with your calculation is assuming they could raise £50m at 20p and not need to discount further.
The solution to their predicament is selling as much as they can as quickly as they can. There are plenty of routes to liquidate quickly including auctions. The £100m question is why they appear to be burying their heads in the sand and not selling anything.
As I understand it, the only way for a reit to pay down debt is to either sell assets or sell equity. I now see the only sensible way to deal with the retail bond is a £50m rights issue. Now using some very rounded numbers...
When the share price was 30p, the total equity value was £150m and assuming a reduced annual dividend of 4.8p going forward, the dividend yield was 16%
Now the share price is 20p, the equity value is £100m and the dividend yield is 24%
Assuming a £50m equity raise at 20p share price and the share price remains at 20p, the equity value is £150m and the dividend yield is back to 16% (market seemed happy with this yield two weeks ago!)
£50m cash deals with the retail bond, adds back £2.25m per annum in saved interest and resets the LTV at 48% giving the company some breathing space.
Assuming the market happy to buy new shares at 20p, is this the bottom.........for now?
Wouldn’t be surprised if hedge funds are all over this. Probably best to just ignore the price for a while. Even in a fire sale of the portfolio it wouldn’t get close to where it is at the moment.
Something going on here,loads of sales but price hardly drops.
Someone buying for a cheeky bid?
Thoughts?
Buy the bonds not the ordinaries, have portfolio worth 700mil, they will sell something to repay the 50 mil bonds due in August and in worse case the bonds will be repaid at some point-@ 86.5 it’s a gimme and great return on a 6 month investment
Fair enough - for those of us still in it we don't have much option but to hold at this point and hope for a SP recovery over the long term! It would be bonkers to sell out at the current level, IMO. If they can show a clear plan for the bond repayment that will help relieve immediate liquidity concerns which is depressing the price. This will also have to be dealt with as part of the going concern and longer term viability review as part of the annual report, which will be happening as we speak.
Yes lots of sales today.
There will be interest rate cuts probably May, the reason being there is a lot of commercial debt in America coming up for renewal and it's causing concern,also an election so Bank of England will have to create a little bit of feel good factor is my view.
20p
Could be a bargain, suppose he announces 1.2p dividend, a sale and bond refinancing on finalisation of sale.
Probably go down but think it's at a silly price now.
Hoping that one day it rises, it does now and again got to 24p and 34p on rises most recently.
Was looking at jumping in on this or maybe the bond. Today there has been a lot of offloading on both. Fortune favours the brave but i think only a fool would go against the market sentiment.
Bear in mind that RGL has a significant proportion of the portfolio in major regional cities and teh out of town assets are generally next to major transport hubs. Longer term it all comes back to the quality and positioning of the assets. Really the only thing to do at this point is wait for the dividend announcement, or crystallise a loss. The current share price assumes a c.65% discount to what the Dec NAV is likely to be.
It's interesting that BCPT had to sell an office at a 6% discount to the Dec 2023 prices. And they consider 'regional out of town offices, is a structurally challenged sector of the market'.
With the retail bond trading at 86.45 and another 2.25% coupon due in Aug, that's an 18% return in 6m. Fingers crossed they'll repay the principal as well. I still don't see any risk to the bond unless prices drop substantially from here.
Sales under 20p today.
Bcpt REIT sold some offices taking a 6% hit since thier December valuation.
Definitely going to breach the LTV. Why isn't inglis selling whilst every other REIT can manage to sell office assets?
We know that the NAV will fall another big % probably down from £700 to £600 by the mid year so another £100 million which he could have sold off.
Why does his want the share price to go to 10p?
There is probably no stock more sensitive to rates right now. I have to admit i didn’t think this would go lower than 30. Some positive news would go a long way.