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WTF is that RNS about? It's caused a stampede for the door. Is the clown in charge of this company really that stupid. Why not wait and announce a clear plan of action.
Few folks in denial here. You'd think everything was absolutely rosy to go by some of these posts, hope nobody was sucked in by them.
Says everything and nothing…..but forced on the company because of impact on equity price of an equity raising.
Bottom line, selling individual, secured properties at this juncture is unlikely to generate surplus proceeds to repay the unsecured loan note
I think evidence to date would say otherwise; selling vacant or under-utilised properties is hardly "cherry picking". I think that the sales to date have been more driven by trying to sell properties that are not already pledged as security for their loans because it's likely that the lenders, as part of their requisite agreement to the sale of said properties, requiring the majority, if not all, of the proceeds to be applied to paying down their secured loan (that's how securitisation works).
You've overlooked evidence of wider office market. The fact they've sold a few sites for X value says nothing about the overall portfolio if they are cherry picking the most saleable parts. Derwent just released results announcing a 10% drop in their valuation year on year, despite being in prime central London locations.
Regional Reit's portfolio is the type of ageing provincial stock most out of favour, and yet they claim their valuation has not dropped as much. The market doesn't believe them either. But if you genuinely can't see the issue here, I guess it's a case of you can take a horse to water but you can't make it drink.
404x,
“If they have nothing to hide on their hugely bullish valuations”
These are not valuations that 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.
What is the basis for saying that their valuations are bullish? Disposals have been made at NAV to date, and the blended portfolio EY is almost 10%.
It would certainly be good to see more news of sales, unfortunately they seem to wait for major announcements to include information on these so I expect further news will come only with the release of the annual report. That release will also have to deal with the refinancing strategy.
If an equity raise prevents a bond default or covenant breach it's absolutely in shareholder's best interests.
Agree tickhilltim on management, the absolute inertia on selling the required volume is baffling. If they have nothing to hide on their hugely bullish valuations, they should have no qualms liquidating the necessary decent chunks. If raise was plan all along it would explain why they're so relaxed about it, would enable them to keep up facade. In meantime do feel for shareholders as market does not like to be left guessing, evident from share price destruction, down 40% year to date and it's only mid-March.
The only investors who want an equity raise at the current share price are bond holders. Otherwise it is turkeys for Christmas.
The main issue here is a lack of a transparent plan. They will have to talk about this in the annual report as part of the viability and going concern disclosure, but given that vast majority of the debt is fixed at low rates until 2026 at the earliest, why on earth would you not just put up with marginally higher debt costs for 6 months while property sales continue? An equity raise does absolutely nothing for shareholders who have seen the value of their equity wiped out already.
If they put in place a flexible facility in place with the lenders at say 5% margin plus SONIA then pay this down over 6 months, there would be a cut to the dividend but nothing drastic, and it would enable the share price to settle around 30-40p on a 10-15% yield. In the meantime interest rates come down and the whole game changes for 2025.
The only other sane option for equity holders is to enforce a managed wind down, which would look much the same but with the strategic goal of selling the whole portfolio.
Unfortunately,RGL do not publish covenant ratios as some other reits do,so you cannot see how close they are to individual facility limits.My point about valuations is that they are based an open market situation.When you are a forced seller ,as RGL is to the buyer market,and when the market itself is very depressed with a glut of properties available,particularly those in non- prime locations, book values may not be achievable in the short term.An equity raise would give more time both for the market to improve , for more properties to be refurbished to higher category levels and for interest rates to fall.
Do I believe that another manager should be appointed to RGL.Absolutely.Should the Board be replaced .Absolutely.Both have brought RGL to its knees.
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.
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.
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.
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.
"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.
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.
The governance problems here remind me of Home REIT. It's no wonder market does not believe their valuations.
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?
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.
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.
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.
Also let's not forget this is a profitable business in real terms (removing the effects of any property valuation movements) it is "just" a debt repayment issue of £50m in Aug 24 on a LTV of approx 55%. Once the board give some firm guidance with the release of FY23 figures the share price will recover. If they can show that the debt will be repaid in Aug (and you would be mad to pay a dividend if you couldn't do that) I expect things to calm down a bit. At these prices I will continue to buy for the longer term. Maybe I'm wrong but time will tell. I think March 26th is the key date for all, until then hold tight!
If it was me running this business, I’d have a roll over loan in place pending a drop in interest rates given the election on the way.
What’s the hurry … the amount required is small relatively spwaking.
Agreed, but there could have been prospective deals in the pipeline for months which will complete over the coming months. Everyone seems to assume that they have only just started marketing the assets. Additionally there is a real possibility that the investment market picks up now that rates have stabilised because purchasers will want to lock in the low prices ASAP. Either way I would certainly prefer a short term expensive bridging facility to equity dilution. At the end of the day suffering an extra 8% interest on 50m while they sell the properties is a far better option. The rest of the debt is fixed until 2026 so it is an absolute no-brainer.