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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Unfortunately,RGL do not publish covenant ratios as some other reits do,so you cannot see how close they are to individual facility limits.My point about valuations is that they are based an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.
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.
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.
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.
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.
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.
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).
Bottom line, selling individual, secured properties at this juncture is unlikely to generate surplus proceeds to repay the unsecured loan note
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.
The LTV ratios for the individual loans can be found in the annual and interim reports.
For instance, page 29 in the 2023 Interim Report has the LTV for the Santander 2029 is 47.2% and an outstanding loan of £62.516m. The numbers in the Annual Report to December 2022, are 44.9% and £64.116m.
So although some of this loan was repaid, the LTV still deteriorated. Compare that to the December 2027 loan which also had a repayment but where the LTV improved - which is what you would hope to see.
Whilst we don't yet know the individual LTVs as at the 2023 year end, we do know from the February valuation RNS that the Group LTV deteriorated from 51.9% to 55.1%, and a further £11.5m worth of property was sold in the second half of the year. The unknowns being how much of this was used to pay down loans, or which loans.
This might be a concern for the Santander loan in particular, because on June of this year the maximum LTV for this falls from 60% to 50%.
There may be the need for a capiatal raise other than to just redeem the debt in August. £75m v. £50m anyone?
LTV falling is just a consequence of falling prices. Property is a riskyish asset, so prices go up and down. For me, it's all about rental income (which is much more stable) and the extent to which this covers interest payments and dividends. This position still looks pretty healthy, certainly more healthy than a 40% dividend yield would suggest (all IMHO of course!)
Matt, if a loan LTV is *rising* close to the covenant maximum limit because property values are falling then that should be a concern even when there is a stable income. Because if the limit is breached then the lender is probably going to want something done about it. So either more collateral provided, or a partial repayment of the loan - or the nuclear option which would become available to them.
I don't get the impression that there is much in the way of available property in the portfolio that isn't already being used as collateral - I might be wrong on this, and would be happy to see someone else's view.
That leaves the alternative of a partial repayment. A capital raise is one solution (equity or debt, or a combination), and property sales to raise cash are another. But if properties are being sold then the result could be a cut to the dividend if the income lost from them is greater than the interest saved on the loan amount repaid. So deteriorating LTVs might matter even to those who are more concerned with stable income than with price fluctuations.
The 2022 Interim shows an LTV of 39.5% for debt of £64.4m. 44.9% for £64.1m six months later in the 2022 Annual. 47.2% for £62.5m by the time of the 2023 Interim.
On the current 60% limit then there is still a cushion should there have been a deterioration in the LTV since the last reported figures. There is less padding available when that limit reduces to 50% in three months time.
I'm not making a prediction, just trying to highlight the possibilty that a capital raise *might* be needed earlier than August, i.e. June, for reasons other than for the retail bond redemption. Hence my interest in what the annual report will say about the individual loan LTVs.
Thanks MH - yes I accept much of what you say, and clearly there is risk here, but it's priced for insolvency and hugely reduced NAV from the last valuation. I'm a bit confused by your numbers though? Are you comparing rental income with LTV figures? Those numbers of £m are not net debt numbers (which is c£400m)?
MH - refinance needs to be completed before annual report can be signed off to meet 'going concern' requirement, otherwise the drop in the share price will be a lot more than 20%!
Matt, the numbers quoted are those for the Santander loan only - from the tables in Annual and Interim reports 'Debt Profile and LTV Ratios'. c£430m is total debt which is made up of four secured loans and the unsecured retail bond. Each of the secured loans have their own LTVs, and each have their own covenant terms (as does the bond in the case of the latter).
I brought the subject up because most of the focus, on here and elsewhere, is on the need to redeem the bond in August and I think that a bit of attention needs to be paid to something which could be an issue before then - and only 'could' until we see the actual numbers.
Irrespective of what happens to the LTVs of the other loans and the overall LTV at the Group level, if the individual LTV for the Santander loan has risen above 50% then it will breach the new maximum limit which comes into force in June. Whilst Santander would not be compelled to take possession of the properties which are collateral to their loan, they would have the option. Would shareholders want to allow them that choice?
My interest her is solely as a bondholder - no financial interest in the equity. But I do think that an equity raise is the least-worst solution for shareholders.
RGLs immediate problem is one of refinancing which is exacerbated due to too high a level of debt being secured on illiqud assets. Regardless of anyone's opinions about board/management, or having assets sold either to just reduce debt or have RGL wound down, the immediate issue to be addressd is the refinancing. The other issues need to be treated seperately.
Just my own opinion, though. But however the refinancing is raised there is going to be a cost to shareholders - either up front or further down the line.
Will be very interesting to see what auditors have made of all this. If they've not signed it off, depending on how open the company are, first signal of something amiss could be a delay in publishing accounts.
Management must be approaching boundaries of trading insolvently, certainly if they continue status quo. With early Easter, hard deadline for publication is 28th March, failing that suspension the following week. One way or another it has the feeling of an end game.
I think for annual results they have 4 months to announce
True for full year accounts, should have said 30th April rather than 28th March there
The numbers just don't stack up at the moment.
A recent This is Money article reported that Peel Hunt analysts estimate that RGL would need to line up more than £175m of disposals (c25% of its portfolio) to reduce its LTV to to c40% but their calculations either seem to be based on the premise that the retail bond forms part of RGL's secured loans or that the disposals would need to be made in addition to a capital raise! IMHO they're living in cloud cuckoo land if they think RGL can sell c£175m of property in the current market within any reasonable time-frame (it's been an unrealistic expectation for the last 12-24 months); buyers generally either don't have the cash or the credit lines to purchase that much property as one lot and it's going to be a puch to sell that amount piecemeal.
I just don't see that a capital raise of c£75m is going to be enough. It smacks to me of Inglis, yet again, living on a wing and prayer i.e. hoping that between now and August 2026 interest rates will have started to drop, property prices started to recover and that the RBS loan can be refinanced on similar terms for another (say) 5-10 years whilst paying off the retail bond plus c£22m of the Santander loan to reduce the LTV to c40% (assuming that the maximim LTV is to reduce to 50% in three months time - I can't find any reference to this in the FY22 accounts). Inglis is just pushing the problem further down the road in the hope that the market will come riding to his rescue and we could just end up finding ourselves in exactly the same problem in two years time. What is the end game? There doesn't appear to be a plan to pay down debt; just continue to refinance with medium term loans.
In reality, RGL could probably do with raising c£150m (c£75m of which, certainly with the benefit of hindsight, it probably should have raised when it acquired the Squarestone portfolio back in 2021, in addition to the c£83m that it did raise at the time). c£150m would enable RGL to repay the retail bond and pay off c25% of its secured loans (reducing its LTV from c55% to c41%). Reducing the LTV to c40% should be the starting point not the end point at this juncture.
If not £150m (a huge ask), then I think RGL should really be looking to raise at least £100m. It needs more headroom and, if it must continue to dispose of property, to retain control over the disposal process and maximise value. It should also be considering ZDPs for, at least, part of the equity raise if it can.
The change to the Santander LTV limit is recorded in the prospectus for the 2019 capital raise - page 166:
"11.11.2. .....On 18 June 2019, the facility amount was increased to £66m and the term extended to 18 June 2029. A further 18 properties are now secured against this facility to support the increase. This amendment has resulted in the applicable rate of interest increasing to LIBOR plus 2.20 per cent. per annum plus mandatory costs and the financial covenants have been amended, such that:
• historic interest cover must not be less than 300 per cent. at all times;
• projected interest cover must be not less than 300 per cent. at all times; and
• 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."
That last point. The loan won't need to be refinanced soon - matures in 2029 - just the possibility that some might need to be paid down sooner. And SONIA now rather than LIBOR.
ZDPs would certainly be an option, but their issue is that interest is being rolled up as capital which would be paid out of assets upon redemption - or a larger capital raise alternative. They're a creeping incremental liability on the NAV. That's fine if the assets are increasing in value, more of a problem if they're stagnant or falling in value. The risk is this uncertainty, whereas fixed-rate debt is a known (not necessarily a nice known, though!).
LTV covenants are not published in the RGL annual report for any borrowing facility.Covenants can be amended- temporarily or permanently- at any time by mutual agreement.How an LTV covenant is calculated could vary for each facility.Certain properties,such as unoccupied,might be excluded,for example.Typical covenant level is 60%.With an LTV of 55% RGL has not much flexibility.All guess work as RGL does not disclose useful information of this type.Slippery or what?
Santander LTV 52.1% as at 31st December. ~£2.5m of the loan paid down further. £10.9m paid down in total.
The new known unknown is by how much any of the loans have been paid down since the year end.
NAV per share of 56.4p, which with a share price of 18.2p is now at a discount of 32.3%
No news is... no news...
Correction: NAV per share is 59.3p, giving a discount of 69.3% ( My maths is bad today... one minus...)
Finally getting somewhere. £22 million under offerand another £20 million under negotiations.
Total £42m if LTV is 55% should leave £20m free after £22m is repaid loans.
With the other cash £35m+20m that should cover the £50m bond.
More sales to follow should turn round this sinking ship, shame inglis didn't do it 18 months ago, would have got much better prices.