RE: Update / bond / covenants7 Feb 2024 18:09
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
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