Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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.
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.
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.
Big volumes of the retail bond being offloaded (actually, it's just 5 sales as of 9am, but there's no liquidity). Somebody wants out in a hurry.
On the other hand, it's suspicious that somebody wants out of this so quickly, given that it matures in only 6m time. I guess they think they're not going to get repaid. It looks like a bargain, but I'll be keeping my exposure below 1%.
The bond price has collapsed today... sp = 87.7 currently, giving an annualised yield of over 30%, that's a 10% rise o/n... it could just be the extreme illiquidity or that somebody knows something. I don't see them defaulting on the bond as it would surely kill the company. I welcome other views!
Given the yield on the bond, the divi yield on RGL makes no sense. While the retail bond is unsecured, I think it's a 'pretty low' chance they'll default on it, because it would kill their chances of getting any more funding or smiles from banks. I think it would be the end of the company. And even with a firesale, it looks likely they can still repay the bond, while the equity could end up worthless under a that scenario.
RGL divi yield: ~19% (sp=25)
RGL1 Retail Bond Yield: ~19% (sp=93.50)
Which is more secure?
==== Bond Calc ====
Cost of 5'000 RGL1 shares @93.50 is £4,675. Final payment at maturity is: £5000 + £112.50 = £5,112.50, giving profit of £437.50 and return of 9.36%. Yield is ~19%.
Ignoring fees and 2 days of accrued interest; today is a coupon date.
// I could be wrong. Do your own research
I'm happy with the update this morning; if what they say is true, it goes a long way toward de-risking this investment. I'll give it a few days and may consider buying another small batch once the dust settles.
@Etotheipi: the covenants are different for each portfolio of properties. They are known; you need to look back at their various documents; e.g. the banking covenants were published in the prospectus, issued on July 2019.
For example, the covenenant with Santander UK is that the LTV must remain below 50%. Those properties are owned by a subsidiary called Toscafund Glasgow Limited. In order to know if that has been breached requires knowing the current valuation of those properties, not the LTV for the top-level operating company.
It seems to me that this has changed from being a company with loads of net cash, and in the right sector at the right time, to being one that has squandered their fortune on a huge pile of steaming turd and one that will pay 75% of their profits to the good old UK government. At least they have terminated the guy that has led them into this mess. Not something that I want to hold in my portfolio any longer. Will revisit if they can get back onto a good trajectory.
@Porchy: "phnx is a hollowed out business and the market sees it"
What a load of nonsense. There's a bonanza in the bulk annuities market at the market; all of the players have been talking about it. Even without this pickup in new business they already had ample cash on hand to cover the divi if needed.
It looks to me as though they must be exceedingly close to violating the Santander covenant, while the RBS loan could also be an issue within 6m given the rate of NAV decline.
Regarding the bond, that doesn't worry me too much. I think they have some options there - maybe a £50m ZDP maturing in 3-4y paying 10% or so.
The bond itself still looks well-covered, but it looks to me like they'll have to be a further cut to the divi. Wild guess is a 25% divi cut given that the Santander loan is less than 20% of the secured debt. On the other hand, maybe they can reduce the LTV enough by selective property sales as they claim in the update. All hell will break loose if they breach the Scottish Widows covenant.
It's a bad look (some might say 'cowardly') for a CEO to exit just before an update. My guess is that he's been pushed. On the other hand, maybe his replacement will be more open to not continuing to squander shareholder money in the NS.
Only a fool would double-down on the NS, with an incoming Labour government and such an unstable political situation. Thank God I have only a tiny position in this dog.
Good riddance to the guy.
Yes, I've just read the article from Shore Capital. I'll revisit STB after results and when there's more clarity on the FCA investigations.
What are people's opinions regarding the news from RLE today? It seems that they're achieving sale prices above NAV and that the Midlands market for small properties is still relatively bouyant. That seems to be the closest reit to RGL?
Guitarsolo: "CaneToad, is the final coupon (2.25p) paid on 6th August along with the redemption?"
The next coupon is 6 Feb, then the final one is on the maturity 6 Aug. When you buy the bond, you'll have to pay the accrued interest, the 'dirty price'.
I decided not to touch STB until there's a response regarding the motor finance scandal. Being a smallcap, it will crash and burn if there's any involvement whatsoever. It changes the entire investment thesis. I just liquidated my holdings in Lloyds and Barclays. It seems like banks are full of crooks.
i'm a holder of the retail bond. it's looks relatively secure to me.
not repaying the bond would be the end of the company. if it was at risk, the first thing they'd do is cancel the common share dividend - that alone would save £25m, half of the retail bond. if you assume they had a firesale, achieving just 50% of the nav, they could still repay the secured debt and retail bond. the market is weak, but i don't yet see any evidence that properties are selling at a 50% discount.
that's my back-of-*** packet analysis - i could be wrong, dyor.