focusIR May 2024 Investor Webinar: Blue Whale, Kavango, Taseko Mines & CQS Natural Resources. Catch up with the webinar here.
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.
Find out MoreLondon South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Interesting info about Oakland.At June 23 it was RGL’s 12th largest investment valued at £12.9m.
Continued.....
enough to prevent breach of LTV requirements.
Canetoad; whilst I know your considerations come from a bond point of view, they do a service to stick holders too, so thank you. For what it's worth, I think the bond is safe as houses and the drop an amazing opportunity.
Ethiopia; agree totally with your post which is my stand point.
Some general thoughts....
For the lazy, the Edison report 27/09/23 gives a quick glance at the debt breakdown.
The bond. If not paid, wll constitute an end for RGL, on confidence/perception grounds not on fiscal fundamentals. For that reason alone, it will be repaid. How is conjecture, but the obvious source would be a replacement albeit at a 10% cost; and despite LTV level breaches/concerns, there is enough property value to get such away.
And crucially, enough income (rent roll). Notwithstanding that many seem to have ignored the cyclical nature of RGL's arena, and that cycle being very much at the bottom, if one ignores property value depreciation but accepts (due to work from home), demand/occupancy reducing by 10%, it is hard to see the rent roll reducing below £50m pa. Which supports the £43 mill cost of refinancing and pushing back say 5 years, all the debt at 10%. Yes, there does need to be a plan, to clear debt, and the absence of such is my only concern here. Their ability to kick the can down the line isn't. I don' see Santander closing in on the loan at any LTV breach (I have that loan at currently 56% LTV and the reason for the SP/bond drift), precisely because they can renegotiate an extension/revision on better terms for them, supported by that cash flow. The reality being that RGL only need to pay £5m as a one off to reduce the LTV to compliance.
If not refinanced, 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, for a dividend to be restored when that free income is.
Yes, I do think they are in a declining market, but there is still income/profit within such a niche. I don' think a firesale is warranted, I do think they need to manage occupancy/sales better. The Oakland property , which I know, is a good example. They have long had 3 floors for rent there , and whilst an excellently managed/provisioned property, it is just TOO far, too on the periphery of the market/city centre to be attractive office space. That 20% of the facility is empty will be hampering costs and margins. It will never be in the right place as an office space again. But similar offices in the area have/are being repurposed for accomodation, and it would be perfect for that trend. It would be a great property/location for those specialising in the homeless/refugee obligation provision area and as student accomodation. Targeted sales such as Oakland, yes, for prudence, but not for firesale purposes.
The rent roll, selective sale of just 1 underperforming property is enough to prevent
Needs to sell a office £50Million quickly to fix the balance sheet, other smaller sales can continue in the background, Doesnt really matter about the loss of earnings debt is the problem at the moment,
Whether or not the Bond covenants have been breached at close you could only get 87p for RGL 4.5% 2024 maturing in August at 102.25 with coupon. Simple maths..that's a 17.5% risk reward in just 6 months or 38% annualised.
Now either that is the Mother of all Market mispricings or there is something cataclysmically wrong with RGL. And what price for rolling over that debt
@CaneToad, I've had a look at what you suggested and you clearly know your stuff, thanks.
As far as I can tell all other covenants are LTV not more than 60% except Santander which moves from 60% to 50% July this year. The latest Santander LTV from June 2023 is given as 47.5% so maybe a problem come July but the loan value is £62.5m and as of 9th November 2023 RGL had £32.6m cash so I'm guessing they could just pay some of the loan off to reduce the LTV.
I general the rent roll of £67.8m far exceeds the interest payments of £15.7m including the bond. So as far as I can tell the main issue is refinancing the £50m and of course the future of office space in general.
Canetoad,good efforts at attempting to analyse the coverage for the bond.( If it is not fully covered,the equity is toast).There is not enough info to consider if RGL is close to breach of leverage covenants.Quite deliberately unhelpful imho.Importantly,it is quite likely that a a default on one set of debt would trigger cross default clauses in other lending agreements.Unless the institutional loans are in non- recourse SPVs.
Maybe ARA will get the message and force Inglis to a better standard of disclosure.He ain’t going to do it without being kicked.As for the chairman- ha ha.
The market makers are in the same position- their analysts will be going through the same thinking ie you cannot work out how much of a mess RGL is in or not.
Understandable they I would be marking down the bid price of the bond to cater for scared dumping bondholders and to discourage more sellers- until they find enough buyers of bonds so they can trade them on.
As far as I know there 's not a single covenant of 60%.
RGL has debt with several lenders, who have lent money based on different properties. For example, Santander originally lent money against 19 properties to a subsidiary called Toscafund Glasgow Limited. That covenant says:
"the loan to value must be not more than 60 per cent. until the fifth anniversary of the amended facility being signed and 50 per cent. thereafter."
The date of the amendment was 18 June 2019, so it appears that this LTV covenant drops to 50% in June this year. We don't know what the current LTV is for that portfolio of properties, just the LTV of the overall portfolio. Clearly there could be an issue if property values were to fall between now and June.
FYI: this info is contained in the prospectus for the Capital Raise in July 2019 on the RGL website. I haven't found a more recent version.
FYI 2: Some properties have been sold since then. Perhaps the company has received updated documentation which improves the situation.
DYOR.
Https://www.telegraph.co.uk/business/2024/02/06/ftse-100-markets-latest-news-net-zero-germany-bp/
I'm a bond holder so please don't accuse me of trying to short this. Just posting as something of interest even though it's not a property owned by RGL.
40% annualised return I should have said. Just unbelievable risk premium bring demanded on RGL debt.
You'd think they could liquidate this one and at least have 20p a share left over. However, first call on assets would be bondholders and even there RGL 4.5% is trading at a 15p discount to the pound with only 6 months to run...that's a return of nearly 40% if the bonds get ŕedeemed at a pound in August ( I think it is). To price debt at that level means the Market ( it might be wrong) considers RGL a complete basket case.
Multi year Lows,, buy when others are afraid,, this strategy might work very well,, looking down the road 9-12 months could be very profitable,,
I lost shed load of money on this one sadly
Bought at 42p and sold at 31p
Will buy back in if Inglis sacked (i was very misled by his bullish comments in q1 last year and he is responsible for 'recycling' money from sales back into tne market in 2022, the desastrous squatestone deal, he is hopeless .companies reduce letting activity during elections. Hopefully 2025 will be better for the office market.
What happens if i offoce values fall again this year and the 60% ltv are reached?
I guess banks repossess property and sell?
Could they liquidate their interest rate hedges to raise cash?
In really simple terms. Assuming they have zero cash/zero rent roll:
Gross Portfolio Value (2 Feb 2024): 700.7m
Gross Debt: 431.693m
Net: 269m
==> they can still repay all the debt by liquidating everything - as long as property prices do not fall by more than ~38%. That's a fair bit of breathing space and that's the worst outcome.
There are no secured debt maturities until Aug 2026, so they also have breathing space as long as they don't breach lending covenants and those aren't going to happen all at once. In reality, they *do* have cash on hand, they have a significant rent roll and the interest rate is fixed at 3.5%, which is pretty low.
In summary: As a holder of the retail bond, I'm not shi*ting my pants yet. I think the collapse of the retail bond price is just a sign of poor liquidity. I'm not currently buying any more, but I might consider it once we get closer to maturity, depending on the FY results in March.
Maybe it makes sense for them to start buying back the retail bond?
FYI: that debt figure is a bit old. DYOR as I could be 100% WRONG.
Pity no mention was made in the update.
I am not a subscriber either, if anyone is perhaps they could enlighten us.
Worrying so many sells at this price.
On the other hand, it's not going to surprise me if they've breached one of the covenants (most probably the one with Santander). I really doubt that they're going to be Mr Nice Guy if that happens; I reckon they'll force a liquidation of those properties before they drop any more. They will not give a monkey's about the pain inflicted on equity holders; that's not even going to factored into the thinking.
I thought you might be interested in this if you didn't already know about it ..
Sorry but I am not a member so I don't know any more
The divi (~£6m/quarter) dwarfs the retail bond coupon (£1.125m).
In the normal scheme of things, the divi would be cut/eliminated if there was any chance of the bond coupon being missed or principal not being repaid. I don't think there's any problem with that coupon. In the event of a firesale, I still think they can repay the secured lenders and the retail bond. Obviously the equity holders might be wiped out in such a firesale, but I don't think we're at that stage yet. On the other hand, it depends whether or not the banks want to lighten their exposure to CRE.
Previous payments havent reached my HL a/c until 10th or 11th, so dont panic if it's not there by the end of this week!
Any bond holders actually received coupon (due yesterday, I think)?
Inglis has a long history ( not alone in the sector) of providing information which ignores the negative trends in the business.The annual reports and company presentations do not mention the LTV covenants in financing structures or if they are ring- fenced from claims on the company if there is a shortfall ( unlike NRR or Capital and Regional).Most LTV covenants are normally in the 55- 60% range but can be varied or waived.
The update from 2 Feb is typical of the stance of ignoring the liquidity crisis caused by the failure to address the imminent maturity of the bond.
RGL is a distressed seller so achievable prices for sales will be under valuers figures which are based on a normal market scenario.That is why they have only sold £26m.Just look at the Canary Wharf office price drop.It is more about distressed sellers having to take big hits.
Divi announcement in two weeks.Prelim results on 26 March.What odds on tangible developments on the bond.It is to be hoped so.
Noticed some large sales yet the share price is not down much, someone buying shares up.
They have said they can refinance the bond, it's not a problem,don't they have some cash to reduce the amount unless they have spent it but guessing it will become clearer in the next coming months.
The board have said they are looking to reduce the LTV to 40% so perhaps something is imminent, perhaps Oakdale house is about to be sold.
The whole sector is unloved.
Someone could buy this and make money
RGL shares have been sliding for some time- 24p currently, down >15% in the past week alone- and reading between the lines of the update on 2 February, I'd be worried as an equity-holder about being wiped out at some stage due to an inability to realise enough value from future sales to cover the debt. So my guess is a (single?) holder of RGL1 is worried enough about their ability to refinance this bond and repay us in full. I'm still assuming that some combination of cash, a dividend cut and a sale or two will allow them to scrape together the £50m by August, but I'm not confident enough to add to an already very large holding.