Member Info for Jonarian

Like others who have held onto this stock I believe the assets have long term value, unfortunately the refinancing has been horribly mismanaged. As tempting as it is to put more money in at this price any confidence in the management team has now been eroded and the only option is to ride this out. The board and manager have lost shareholders a lot of money completely unnecessarily.

The problem with a managed wind down is the proximity of the debt maturity. This whole issue should have been dealt with 12 months ago.

Property values decreasing has nothing to do with rents - the rents are driven by occupier supply and demand, the property values by the investment market.

I imagine their hand was forced by MAR. The plan was probably to release some good news in the annual report around sales, leasing activity post year end etc and then try and use that as a springboard for an equity issue. I truly hope that plan is now dead and they do what they should have done months ago, which is agree a flexible debt refinancing at whatever cost is necessary while continuing with asset disposals, along with a dividend cut if required. Appalling mismanagement of the situation but as many have pointed out, the value of the portfolio and cash flow situation have not suddenly changed.

Really they should make an announcement before the annual report that the equity raise is being abandoned and disclose whatever debt deal is on the table. Another 10 days of this nonsense is unacceptable.

It says they are very advanced in both equity AND debt options. We are talking about a 50m bond - and even if they sell the property portfolio at a 20% discount to the December valuation they would still return well in excess of the current share price. Everyone seems to forget that their LTV is 55%, not 80%.

It’s extraordinary given that the information around an equity issue was already out there. Nothing has really changed, they have just made everything worse by saying absolutely nothing new. What I expect now is the release of the annual results alongside the announcement for the equity issue and a shareholder vote. Hopefully that is roundly voted down and there is a lot of opportunistic buying happening today anticipating just that.

The RNS does say that they are very advanced in both an equity and a debt option, therefore we may actually find out that there is actually a debt option on the table. That would make sense because they will need it for the going concern disclosure in the annual report.

Ideally we get a similar chain of events to Hipgnosis with the board being removed and a new board put in place to wind the structure down.

I am surprised that the shares haven’t been suspended given this fiasco.

I feel sick after stupidly buying back into this. Surely the only option now is a managed wind up of the company and a rejection of the equity option by shareholders.

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.

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.

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.

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.

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.

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.

Realistically the only way out is sales, sales, sales. An optimistic reading of the Edison report is that this was put out there to a) test the market and b) demonstrate that the company theoretically has 'options' and therefore not undermine any ongoing sales negotiations by appearing to be a forced seller.. This has been very painful but it is worth remembering that even if the whole portfolio was sold at say 100m less than the last reported NAV, it would still generate approx 40p per share for equity holders.

I 100% agree that asset sales are absolutely the way forward. A rights issue at the current price is madness. The office market was one of the most liquid sectors last year, despite pricing difficulties there are plenty of buyers for the assets. They need to sell as much as possible and then use the LTV headroom to negotiate an RCF facility with the existing lenders to bridge the gap. This could bring LTV to 45% and would position the shares for a rerating. I can see an equity issue working as part of a broader strategy once this is done, but if they follow the Edison recommendation when the SP is at 20p it will devastate shareholder value.

At this point even a discounted sale of the portfolio would be preferable to a rights issue at the current share price. It would heavily dilute existing shareholders who cannot participate. There may still be options with the existing lenders for an RCF facility if they can continue with asset sales at current levels, which would temporarily increase financing costs but would create more certainty in the medium term while they continue to pay down the debt.

Regional REIT disposals have so far been at or above valuation. Looking at the equivalent yield profile for RR it looks very much in line with MSCI movements and yields. The London office market was also arguably far overpriced and slow to recognise valuation drops in 2022, whereas the regional markets had already reflected much of the pain by the time we got to June 2023. I see that Derwent are reporting a 5.5 EY is below the prime office yield consensus of approximately 6.5%. It is misguided to try and compare London office markets to regional assets - and the investor market does not necessarily reflect the income story. There may be a little more pain to come on RR's portfolio but I suspect it will be single digit and we may even see a hardening of yields if rates start to come down.

It’s a positive update and shows that the income is holding up. I think we will see more sales before the annual report is issued, hopefully retaining the core assets which gives them a good base to work from. The equivalent yield on the sales suggests that they are selling the secondary assets at smaller lot sizes which makes sense. Share price might not recover immediately but this is still looking like a long term hold to me.

Agree holding the bond is the smart money at the moment given it is almost certain to be repaid.

Interesting that many are assuming they have breached an LTV covenant given that if this had happened as at the year end, they would have had to include it in the RNS on 2 Feb.

The idea that the banks will pull the plug on an LTV breach is not how the property industry usually works - if an interest cover covenant is broken that is a different matter. All eyes will be on the FY23 audited income and forecasts. The potential issue I see is that if they roll the bond, the new interest rate (assume 10%) would add an additional c.£3m in annual interest, and that could put the ICR under pressure.

Wouldn’t be surprised if hedge funds are all over this. Probably best to just ignore the price for a while. Even in a fire sale of the portfolio it wouldn’t get close to where it is at the moment.