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@Trotsky reducing the dividend wouldn't reduce corporation tax, that would be a gift of a loophole. Corporation tax is essentially paid on profits, so in RGL's case it would be a miracle if they had any liability this year. Distributable reserves always come after the tax man in pecking order.
Trotsky, you may be correct re the REIT/income rules. But this was quoted a couple of days back by damofarl from the Edison report of June 2023:
"...the bond could be paid from a combination of cash at hand and cancellation of dividends, and whilst the later being a reit is linked to income, paying the debt would negative such so compliance would be maintained..." [sic]
Ignoring that it doesn't quite make sense (!), are Edison suggesting that there is a way of cancelling some dividend payments to allow for the bond repayment whilst maintaining REIT status?
GS
REIT dividends are based on EPRA rental income after expenses and financing costs (they exclude capital gains/losses) and there isn't much, if any scope, to offset "other costs" as you suggest. I'm not 100% certain but if RGL was to (say) reduce it's dividend to 60% of its EPRA rental income then it may only pay corporation tax on the 40% not distributed (as opposed to 100%).
People (including Inglis) need to start thinking outside the box. It's to say that they need to sell property but there are few, if any, large cash purchasers (other potential purchasers are struggling to raise the finance) i.e. Inglis couldn't make large scale disposals, even if he wanted to (there simply aren't the buyers with the cash and unencumbered by debt). Therefore, Inglis's only alternative is to make peicemeal sales to small cash purchasers (up to c£5m). He also has to consider whether individual properties are being used as security for a loan against a "package" of properties (banks will more often that not make loans against a "package" of properties on a joint and several basis, rather than on an individual property by property basis) . If they are so secured, the banks would probably expect him to apply 100% of the proceeds against the outstanding debt and there would be no "surplus" funds left to help pay off the bond. There may be some small properties that are not secured against RGL's debts but I suspect they are few and Inglis may have already sold what he can.
Factoring in trade and other receivables, cash and cash equivalents, trade and other payables, and deferred income, I'd estimate that Inglis had c£19m of "free" cash at the end of H1 FY23 (as opposed to c£25m at the end of FY22 and c£19m at the end of H1 FY22) but he'd probably need/want to keep at least £10m of that figure for operational purposes.
So, at a push, if nothing else changes, Inglis probably has c£10m of cash available to repay the bond in August unless he can sell a significant chunk of the property portfolio to repay at least one of the existing bank loans in its entirety and generate a cash surplus of c£40m+ (that would appear highly unlikely/unrealistic). His only realistic options would therefore appear to be to either try and issue a new retail bond (with a much higher coupon) or consider an issue of long-dated zero dividend preference shares (this would hurt the existing shareholders but may at least provide the breathing space to allow property values to recover).
i don't know all the details of the reit rules but i believe there is some flexibility about what you can offset against "income" to still qualify for the reit rules.
rgl's problem is debt as we all know... my mantra is constantly shouting at me: "control your debts before your debts control you".
rgl and inglis have made a mess of this. they need a credible plan to repay the bond and show markets how they will keep debt at around 40% ltv. if they have a plan they should be showing the market so that our share price stops tanking. more worrying is if they don't have a plan!
but there is a 65% discount to nav so there is value there, they just need a plan. and if that includes sacrificing a dividend for 6/12 months because we come out of it on the other side much healthier, then say so!
inglis, in my view, appears guilty of trying to keep hold of his £700m portfolio rather than shrinking a bit to be in a healthier position. is that vanity/arrogance? i don't know.....
but as someone who has been here for 6 years+, purchases north of £1 (yes!) when it used to pay a covered 8.2p dividend, i am mighty ****ed off at these directors. covid was no one's fault obviously but other factors are.
guitarsolo
"My other worry is whether RGL will find a way to halt the dividend through exceptional circumstances, which would be a disaster." You hit the nail on the head! We all know REITs are supposed to pay out dividends but what if it bankrupts the company?
From current share price levels
My first post here as a suffering shareholder in RGL !!
I do believe in the long term future of smaller regional offices that are well maintained and offer a high level of facilities. However sentiment is very much against RGL at the moment and that may well take another 12 months to turn. Unfortunately for RGL it is facing a perfect storm.
I've been doing some analysis and some of the posts here have been very useful.
Silverknight said below that the company was facing an existential threat and I certainly think that is the reason for the falls in price of both the shares and the bond.
Here is my analysis for what it's worth:
There is a crunch point coming in 6 months' time; the £50m bond will have to be redeemed whilst at pretty much the same time the next half yearly valuation at 30-Jun-24 will be finalised. I was hoping for a flat or very small decline in the valuation at 31-Dec-23 given that long term yields on gilts had moderated somewhat between Jun-23 and Dec-23 due to falling inflation. The like for like decrease of 5.9% is much worse than I was expecting. One can only assume it is based on transactional data i.e. recent sales of similar offices. If so then that's not a good sign for future valuations. Similarly the fact that they couldn't make any further sales after the £6.25m sale in Nov-23. The key question is have we hit the bottom or will there continue to be further falls ? I think we have to assume there will be another fall at 30-Jun-24. I have calculated that it will take another like for like fall of c. 7% on average to hit the 60% LTV covenants (50% for the Santander Loan). That is without considering cash balances or the retail bond. Is 7% likely ? Probably on the pessimistic side but it can't be ruled out.
With regard to redeeming the bond I think we have to assume that finance is not going to be available; who would want to lend to a heavily-indebted company approaching a covenant breach at 60% LTV with falling asset values ? Therefore I think repayment will have to come from existing cash resources.
At 55.1% gearing just announced and assuming the same level of debt as at 30-Sep of £428.5m that means c. £42.5m of cash (restricted and unrestricted). The majority of this cash can be used to redeem the bond in Aug-24 (allowing for working capital / repayable deposits etc.). Let's assume £12.5m needs to be retained to continue operating and provide a buffer so that the covenants can be 'managed' in the event of a further valuation fall. In that scenario the company needs to find another £20m to redeem the bond.
The only way they can do that is through management of the dividend and asset sales. They could probably get away with cancelling Q423 and delaying Q124 which would save £12.4m. Hence another c. £8m to find from asset sales which is not impossible.
Medium term a rights issue or share placing is probably inevitable but my calculations indicate that need not be a disaster from cu
Well didn't think it would get this low.
Just over a week to after close today, no doubt all will be revealed, well we should know what divi will be, perhaps news on bond renewal or sale of property.
Anyway one can hope.
Anyone got 50 million, think that is all you need to get a majority shareholding.
Must be someone thinking they could make money.
The company legally has to make a distribution of its profit/ EPRA EPS. The question is what will that EPRA EPS be?
Half year EPS was 2.5p (£12.7m). At the high end estimate, if we simply double this, for the full year would be 5.0p (c.£25m).
Realistically, I think earnings will be more in the range of £15-£20m. this could be from increased overheads, reduced income, and also fees paid to investment bankers to roll the £50m bond - that would be £1-2m on its own! So £15-20m = EPS of 3-3.8p per share.
assuming the market prices RGL at a required yield of 15% (it has been in the 10-20% range for a while), that implies that the NAV/price per share should be 20-25 per share. Which is where we are.
So I think it is fairly priced. I stupidly got in at 30, so sitting on a huge loss. My other worry is whether RGL will find a way to halt the dividend through exceptional circumstances, which would be a disaster.
It's unlikely in the first instance that the banks would call in their loans if the loan covenants are breached. In the event that the covenants are breached, the normal course of action would be a review of the outstanding loans and an increase in the interest charged to reflect the additional risk (which may or may not be covered by hedging).
Ideally RGL would like to do a capital raise but, given the deep discount to NAV, the issue of zero dividend preferred shares may be an alternative.
Could be a decent dividend but at what price? REITs have a tendency to eat your capital in exchange for a high income.
And what happens if interest rates don't fall?
Jumbo . You're living in fantasyland. The dividend is unsustainable and will be cut. This company is facing an existential threat and needs urgent action by the directors
Juicy Dividends for a passive long term income,, and most likely interest rates will start to fall,, a great opportunity to buy in,, Strong Buy and Hold
I thought the target was 5.25p. Hopefully the latest fall in valuations and increase in LTV haven't put this in jeopardy.
I'm looking forward to seeing 4.8p Dividend for this year,, and hopefully by next year interest rates will be much lower,, and can see share price much higher,, back in the 60s
Hopefully its mispricing - In recent yrs I have seem a number of similar bonds where the owner is out of favour due to macro trends exacerbating their micro issues. All, so far, paid up. The number of UK companies that defaulted on their bonds are relatively few - however, those that did often came out of the blue and had hidden, sometimes fraudulent issues. I dont see the probability of this scenario being high in this case. I hope not...
Anyone know how much dividends going to be paid out for this year?,, I'm getting a figure of 4.8p for this year alone.. and at today's price %,, anyone?,, and interest rates should be coming down soon,, a solid passive income for the long term,,
Just Gone Blue,, This Could Be The Bottom,, I'm happy with my long term holdings 🤣,, When all this noise and nonsense goes away,, we should start to get to where it should be,, much higher than where it's now
Yes they have to pay something, even a token amount, otherwise it doesn't qualify as a reit, still doesn't improve the case for buying
Legally they have to pay out 80% of REIT income i think. so there isn't that discretion. I believe that REIT income Excludes reductions in the fair value of the property (which we know is down £90m this quarter).
Only a cut? Passing it would save almost £6.2M so surely BOD must be thinking about it with an eye to that bond repayment coming up on the horizon.
£32M cash balance plus 3 passed dividends would pay off the bond and restore balance sheet somewhat. No?
A cut is nailed on so if buying just for dividends you may well be disappointed. They need to find £50m by August but last reported cash balance £32m. This must be the riskiest reit in the UK, I don't know of another with a higher LTV. The current yield is completely unsustainable.
I'm with you on this topping up on each drop.
Dividend announcement on the horizon very soon,, and I've been Topping Up at these radiculsly low prices for passive income for the long term
This commentary from Bloomberg tonight, might explain the recent downturn; -
"The troubles plaguing the US commercial property market moved to Europe this week, elevating fears of broader contagion. The latest victim was Germany’s Deutsche Pfandbriefbank, which saw its bonds slump on concern about its exposure to the sector and described the current turmoil as the “greatest real estate crisis since the financial crisis.” The plunge in German lenders’ bonds is the latest in a series of warning signals as loans begin to sour after rising interest rates eroded the value of buildings around the world. On Tuesday, US Treasury Secretary Janet Yellen said losses in commercial real estate will put stress on owners, but added that the problem is manageable. For offices in the US, where the return to work following the pandemic has been slower than elsewhere, the value destruction has been particularly bad. Embattled New York Community Bancorp was cut to junk by Moody’s Investors Service after flagging real estate problems while Japan’s Aozora Bank recorded its first loss in 15 years due to provisions on loans extended to US commercial properties. And some predict the full impact of the growing crisis might not be fully priced in"