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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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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.
Some excellent TT posts here the last few days, from across the spectrum. Thanks to all. The way these boards should be..
Prospects for interest rate cuts looking dimmer tipped that and perhaps shows the sensitivity
Due on 22nd Feb.Results on 26 Mar.
Better position for refinancing in 2026.
Trotsky I disagree with you on how the income is calculated re: dividends.
From HMRC manuals:
IFM24005 - Real Estate Investment Trust : Property rental income : Calculation of property rental business profits: general: CTA2010/S599
The REIT regime requires that there is a mechanism for calculating the profits of the property rental business, even though those profits are not subject to tax in the REIT. This is because the calculation determines i) the profits which are exempt from tax, ii) the distribution requirement and iii) the profit: financing cost ratio.
The rules apply to calculating the property rental business profits of the REIT company and of each member of a Group REIT that carries on property rental business.
CTA2010/S599 contains the rules for calculating the profits which relate to the tax-exempt UK property rental business. The starting point is that the profits of the property rental business should be calculated in the same way as those of a property business under CTA2009/Part 4 [CTA2010/S599(2)]
Detailed guidance on the property business rules can be found in the Property Income Manual (PIM). The following exceptions apply for REITs:
Capital allowances
Capital allowances are deductions in arriving at the taxable profits of a property business, and this rule is followed in calculating the profits of the property rental business. However the rules which allow a company to claim less than the full amount available are set aside – see IFM24010 for further details.
I am also aware there is no depreciation because I said as much.
I am also similarly aware that capital allowances are not generally available on building works but the point I was making was that an element of the capex could give rise to capital allowances if it can be categorised as integral features where upgrading an unoccupied building with no tenant to recharge.
Also I don't believe there are any rules surrounding the timing of dividends other then the distribution for any year must be made by 9 months after the year end. Whether RGL wants to pay a single annual dividend, an interim and a final or quarterly is completely up to them; notwithstanding the market credibility issue.
I accept it's kicking the can down the road but I suggest the immediate priority is the cash crunch coming up in August.
Certainly I think a share issue is inevitable and probably sooner rather than later.
By my calculations a 1 for 2 rights issue at say 22p raises say £55m after costs; £50m to pay off the bond leaving Net LTV on the secured debt at somewhere around 47% being £378.5m of gross debt and £47.5m of cash to provide some flexibility going forward.
It would then leave NAV per share of c. 46p and dividends of c. 3.2p which on today's price is a yield of c. 14% and a discount to NAV of c. 51%.
Minimal dilution, hope interest rates fall and that they can improve occupancy and achieve some of that ERV excess to leave them in a bette
As I mentioned below, I think the importance of LTV is being overstated unless we see a significant further drop in valuations. The banks are interested in the income.
I can see one of the existing senior lenders agreeing to a bridge facility assuming that the income cover is sufficient, albeit for a cost. This will of course put pressure on the dividend, but they may only need a facility of 20-30m by August.
Longer term much will depend on where interest rates settle, but if rental income growth is as expected for FY24 then this may make the broader refinancing quite viable in 2025.
What is sorely needed is an update alongside the dividend announcement of what the plan is for the bond and strategy for the longer term refinancing.
0715, Selling property doesn't solve the problem if Inglis has to apply all of the proceeds to pay down RGL's outstanding secured loans. The lenders won't have lent against individual properties; they'll have lent against a portfolio of properties on a joint and several basis. With the possibility that market valuations may still continue to fall and LTV covenants being broken, lenders may insist on all of the proceeds being applied to pay down the debt so that they have more LTV cushion. Selling property is not the long term solution; either RGL has to wind itself up and sell all of its properties or increase its capital base. Even if RGL could sell some property to help repay the retail bond now, it only defers the problem. A lot of debt is coming up for renewal in the next few years and RGL has no means to repay it. With the benefit of hindsight, RGL really should have raised more capital rather than take on additional borrowing but we are where we are.
RubyDog, REIT dividends are paid based on the EPRA profit not the tax adjusted profit. In any event, capital allowances aren't generally available on building works and certainly not if the capital expenditure is reimbursed by the tenants. Investment properties are carried at their estimated market value (no depreciation) and any increases/(decreases) in their valuations are, I believe, excluded from the calculation of EPRA profits.
Not sure they could delay paying dividends unless they went to an annual dividend cycle e.g. if the Q3 FY23 dividend was the last dividend for FY22 then they couldn't delay their quarterly dividends if they intended to pay out 90% of their FY23 EPRA profits by Q3 FY24. In any event, delaying the dividend only defers the cash crunch.
As regards the bank borrowings, the liabilities are (probably) joint and several and if there is a risk that valuations might continue to fall then lenders would probably insist on any money raised from property sales being applied against their outstanding debt (at least until there was more headroom in the LTV) i.e. sell one property and the lender would probably insist that all of the money was used to pay down the outstanding "portfolio" debt whereas sell (say) ten properties and the lender might agree to RGL retaining (at least) some of the "excess". Bottom line, selling the odd secured property here and there is unlikely to free up the cash RGL needs and selling a large portfolio of secured properties seems unlikely (few, if any purchasers, would have the cash; they'd probably need to raise some debt themselves and that might prove problematic at the moment).
The link I was trying to post was the colliers regional office update from february.
While the share price is somewhat sickening at present, there is some cause for optimism:
- Regional office rents are holding up extremely well for the most part: [LINK REMOVED]
- The most recent rent roll number is healthy and the rent is being collected, per the feb update
- There is a clear trend to 'returning to the office' for most organisations, multiple sources / news articles on this
- Extremely low levels of deals and liquidity in 2023 have clearly depressed prices but UK regional office outlooks predict an increase in demand for 2024 with many suggesting that we are at the bottom of the cycle for most regions
- There is undersupply in regional offices and this is not going to change any time soon while the UK is seeing significant population growth, and high cost of living in London may push new arrivals outs. This should depress vacancy rates
- It looks like the company has done well getting most of the portfolio into the A-C EPC range which is crucial for the refinancing
- Despite recent US jobs data most observers agree that rate cuts are still coming this year which will be positive for valuations and make an immediate impact on the share price
I understand the concern around the bond but it matures in August, not March. We will know more over the next few months but as some have pointed out, lenders are primarily interested in income. I won't be concerned unless we see a significant increase in vacancies.
Nothing is certain but what I suspect will happen is further asset disposals over the next few months, and some kind of temporary bridge financing (possibly an RCF facility) from one of the existing lenders that cross collateralizes the portfolio while enabling them to continue with the asset disposal programme. Lenders will show flexibility on LTV if the income is strong.
The final possibility that no-one has suggested is a buyout of the whole portfolio by a private investor, which even at a discount to the EPRA NAV would realise a significant profit on the current share price.
DYOR
There is a chart covering all the regional areas but I can't seem to get it posted here !! Beyond my modest IT skills !!
Article in IC on regional office opportunity as below.
Bodes well for RGL if it can navigate it's way out of the current situation !
Are Bristol's prime offices overlooked?
High interest rates have caused regional office values to plunge since 2022. However, unlike other sub-sectors, regional offices also face structural, non-cyclical challenges such as the unanswered question of office use post-Covid-19 and stricter energy efficiency standards. As of April last year, every leased commercial property must have an energy performance certificate (EPC) grade of E or higher. The government plans to increase that threshold to B by 2030.
Regional offices earn much lower rent than London offices but must spend similar amounts to bring them up to standard. On top of this, most such buildings have multiple tenants, making EPC upgrades harder than for single-let buildings like big shiny London office HQs or warehouses.
However, BNP Paribas Real Estate sees reward where there is risk. It says the valuation drop means potential property yields (annual rental income as a percentage of asset value) are very high in the case of top-quality regional offices, almost all of which already meet future EPC requirements.
According to its forecast, prime regional offices will record the highest total return (asset value growth plus rental growth) among all the core asset classes it measures from 2024 to 2028. Bristol’s prime regional office market is the best of the lot, with a predicted 11.3 per cent total return.
Our analysis found regional offices account for less than 1 per cent of the total value of the top 35 Reits’ portfolios. Prime Bristol offices account for even less. BNP Paribas Real Estate is making a contrarian case for why that should change.
My understanding on the dividend and REIT rules is that they must distribute 90% of 'exempt property income' which is basically taxable profits from property rental business. This in turn will be EPRA profits as reduced for any capital allowances claimed. Usually depreciation is added back to calculate a taxable profit before capital allowances are deducted but in this case there isn't any depreciation.
Hence I think there is some flexibility given that capex in FY22 was £10m and at HY23 was £6.7m. If we take the £27.2m forecast of EPRA profits from Edison's last note in Nov-23, assume that it reduces to say £26m because of worse than expected occupancy figures, increased interest costs because of failure to make the forecast asset sales etc. and then say that they can claim £3m of capital allowances because the expenditure meets the tax definition of 'integral features', which is not totally unreasonable if they are spending to meet EPC requirements on energy efficiency, then that could bring 'exempt property income' down to £23m or 4.46p.
In that scenario they would not have to distribute anything for Q423 as they have already distributed more than 90% of 4.46p at 4.05p !
In addition UK REIT rules state that they need only pay the required 90% in dividends by the corporation tax due date for the company which is 9 months after the year end. Hence any dividends for FY24 need not actually be paid until 30-Sep-25 at the absolute latest. Therefore any dividends ordinarily paid quarterly during 2024 could also be delayed to allow some further breathing space.
Trotsky mentions below that asset sales may not result in any free cash if they are pledged as security but is it not the case that funds could be redrawn once obligations had been met in terms of any required repayment ? As long as there is headroom within the agreed facility and no covenant has been breached then I would have thought so. In fact the borrowing figures disclosed for HY23 showed £8.9m of undrawn funds which could come into play if the valuation fall at HY24 is not too bad !
I think it would be grossly negligent of the board to pay out over £12m in dividends for Q423 and Q124 unless some kind of refinancing for the bond is absolutely 'nailed on'. Hence I think we will see a cancellation of Q423 and a deferral of any further dividends until such time as the bond repayment is sorted one way or another.
Not rocket science, just need to sell some property quick and all will be stabilised.
Inglish has secured main debt at a low 3.5% so doesn't want to sell. The problem is debt not cash flow, he needs some proceeds to cover the £50 million and also to narrow the NAV if it is really £700 of offices if he sells what difference will it make on the fund if it goes to a £600 million fund.
The guy is running it like a private old school property company but the market works different and is concerned about risks.
The sooner he listens the quicker this can be turned around.
"The LTV continues to be a key focus of the Board and the management have a plan to reduce LTV to the long term target of 40% through selective sales and repayment of debt. The senior debt is 100% fixed, swapped or capped and will not exceed 3.5%. The Company is actively exploring a range of refinancing options for the retail bond given its near-term maturity date."
Still 6 months to go for bond repayment.
There is probably something happening, the bond will probably be rolled over perhaps a sale is imminent and that is needed befor a bond renerwal announcement is made.
Anyway we will find out a week on tuesday, suspect dividend will be maintained, if not some plan might be itemised.
Still think it's over sold.
Guitarsolo, the banks won't want to be lumbered with the properties. The more I look at it the more I wonder how RGL ever planned to pay down the debt. The REIT distribution rules would never have permitted RGL to retain sufficient cash to pay down the debt over a 5-10 year loan term. So, I can only assume that it was always RGL's intention from the outset to sell a significant number of the properties into a (hoped for) rising property market and/or be able to raise additional capital by the issue of new shares (more likely the latter). Unfortunately both plans have been scuppered by the current economic travails (plus the additional pressure of WFH).
The main problem with raising fresh equity is the fact that the shares are trading at a substantial discount to NAV and, at it's current market price, RGL would probably have to double the number of shares in issue to give it the headroom it needs. If RGL could get a capital raise away at the the current market price that would give RGL c£115m; sufficient to repay the retail bond and make a (big) dent in its bank borrowings. However, all other things being equal, it would also halve the current dividend per share from 4.8p to 2.4p which would have a big impact on historic investors who bought at a much higher prices.
I think personally I would prefer if RGL looked at long-term zero dividend preference shares rather than an issue of ordinary shares (in the hope that with a sufficient efluction of time the property valuations could improve)
I think they'll be able to issue a new bond or a 3-5 year ZDP to repay the existing retail bond. Or maybe they could use a combination of cash and a smaller bond/ZDP to please the market. Defaulting on the retail bond would be the end of the company, so it's not going to happen.
But the only way (that I can see) to reduce the LTV is property sales which will reduce the dividend proportionally. The only way they'll avoid that is if property prices start rising again. Another option is an equity raise or a combination of all of the options listed.
Many thanks for making the effort to check the rules Trotsky! So if they aren't able to sell enough assets it comes down to the cost of the refi of the bond and how much more it will cost compared to corporation tax on the non-distributed-as-dividends profits. Sadly, the banks will know this!