Regional Reit Share Discussion Threads

[hindsight] 13/11/2023 17:56

Paying the divi may turn out very expensive for equity.

[williamcooper104] 13/11/2023 17:39

The yield curve slopping down shaves bps of a reference gilt It's not going to help much relative to increased risk of lending past the maturity of the secured debt

[williamcooper104] 13/11/2023 17:37

The LTVs are likely to each loan/security pool but they're all at similar levels so could all get triggered at around the same time LTVs get tested now usually annually - not like before where banks just avoided testing them What happens is very simple; the banks can appoint an LPA and/or administrator to go sell assets In practise they'll lean on RGL to go do what an administrator would do So it'll be no divi, fire sale and possibly an equity raise at well south of NAV (see HMSO which also had an LTV in the 50s when it diluted to death

[arbus5000] 13/11/2023 17:32

its a bit superficial to just point to LTVs and I dont think interest cover is at issue here.

the bond has a LTV limit that prevents the issuance of new debt if LTV breaches 60%.

The other loans have LTV limits, but its unclear whether those LTV limits apply group wide, or just on the specific sub-entity of RGL that has issued it.

Its also not clear what happens when those LTV limits are breached and what the remedy would be, in each case.

Agreed on the time senior'ness of the retail bond. However, the yield curve (if there was one) is likely to be inverted, meaning the refininanced bond is unlikely to be as high as suggested.


You have to also bear in mind that RGL dispose of approx £60m of proprety per year. They could and probably should chose not issue new debt at >10% just to buy more property with a NIY of around 8% !

[williamcooper104] 13/11/2023 17:19

From last Edison note - all loans have LTVs - which are tested "around 60" That's a bit low - they could have pushed it to 65-70 - but then maybe not given there was always a short WAULT The Edison note notes that the unsecured bond yields 12 at the mid (implying c13 to issue) and then assumes it can refinance at 10 They don't get that at the moment the retail bond is structurally junior but time senior (unless covenants breached) whereas once it's refinanced it becomes both structurally junior and time junior so reasonable to assume that the cost of any refinanced bond would be >13 (and/or plenty of amortisation) The secured debt facilities were £376m drawn at H123, adjusted for the subsequent £5.5m repayment. Each facility has distinct covenants, which generally include historical interest cover, projected interest cover, LTV cover and debt service cover. RGL indicates that LTV covenants would be tested at around 60%. For the debt facility with the highest current LTV (the Royal Bank of Scotland, Bank of Scotland and Barclays facility), 52.7% at end-H123, it would require a c 11% average decline in the value of properties held as security. At the group level, interest cover (excluding non-cash debt amortisation of loan arrangement fees) remained strong at end-H123 (2.8%) albeit down from end-FY22 (3.4%).

[williamcooper104] 13/11/2023 16:42

They'll all have LTV covenants

[arbus5000] 13/11/2023 16:31

I don't think there is one - from memory, there is one loan from from Santander that has a 60% LTV.

[williamcooper104] 13/11/2023 15:54

Plus anyone know what the LTV covenants are on the senior debt?? 60-65 would be my guess That's not so far away from current LTV Cut of the dividends from their secured debt and what's there left to service an unsecured bond

[williamcooper104] 13/11/2023 15:52

Zero chance; unsecured junior debt on regional offices only c25 percent of which are EPC B More like 13-15 with amortisation

[tiltonboy] 13/11/2023 15:47

Edison note out. Mentions rolling over the bond on a 10% coupon. Good luck with that!

[redhorse2020] 12/11/2023 16:46

Hindsight, yes I agree, bond YTM looks generous given the risk so it's surprising to see the price falling. I suspect it's a combination of low liquidity and competing with other generous yields, which can currently be locked in for a few years more. Don't expect any major issues with redemption / refinance although as you say the rate would need to be a lot higher.

[williamcooper104] 12/11/2023 15:42

Yep longer term it's office supply/demand From the perspective of the 24 bond though it's all about how much free cash there currently is and what free cash can be generated in next few years Problem though is can't see them repaying the bond, or part pay/part refinancing it with a lot of amortisation and then having the balance sheet resources to transition and upgrade assets The London office REITs run at around half the leverage that RGL does

[nickrl] 12/11/2023 14:49

@wc 26m of the cash was unrestricted at HY down from 37m from FY despite some modest disposal income. At least with the lowered divi now they may at least stabilise unrestricted cash such that it wont take many more disposals to cover the bond redemption not that i see that as the most significant issue here which is the ongoing rebalancing of how much office space the economy needs. How much of that is reflected in share price here, given its sharp decline, is the question.

[williamcooper104] 12/11/2023 13:03

The secured debt ahead of the retail bond looks to be non-recourse, which helps

[williamcooper104] 12/11/2023 13:00

There's £40m of cash, but from memory several million of that was tenant deposits, and then there's capex and with EPCs that's not really discretionary; it can be delayed but not avoided The next maturity after the bond isn't until 2026 so you'd have thought there would be enough cashflow to pay most of the bond of and then amortise down a lower refinanced amount But while that offers comfort to bond holders I don't see how it squares with capex and divi - they can't defer capex for years IIRC EPC B is only 26 percent and you can't refinance non EPC B assets without a plan and capex to get to EPC B

[hindsight] 12/11/2023 12:36

Redhorse2020 at 17% YTM think risk is priced in RGL1 for me

However I wouldnt accept a roll at 12% and doubt I would at 17% for a new 5 year bond

[rcturner2] 12/11/2023 08:13

The company's position on the bond appears to be that they will pay off as much as they can (which may be 100%) and refinance any remaining.

They are currently paying 4.5% and might easily have to pay 12%+ on any new bond. However in the context of paying off most of the bond the actual hit to the bottom line is minimal.

[redhorse2020] 10/11/2023 18:05

In theory yes but equally the lack of a cut could be seen as a positive sign with bond maturity just 9 months away - surely they are highly unlikely to default on the bond..?

[hindsight] 10/11/2023 17:31

Think bondholders, like me, had expected a dividend cut as LTV is rising

[arbus5000] 10/11/2023 17:19

under normal circumstances, they move in the same direction - going long the bond and short the stock would not make sense. Also, the movement in the underlying in gilts has an outsized impact on the price of the bond as well, which will also need to be shorted (if going long the bond)

however, if the company is close to default then it would make sense to buy the bond and short the equity. I am not suggesting that this is going to happen to RGL, but its bond price clearly indicates distress.

its not something you can generalise, as you would have to understand the company and its instruments quite well - as well as carefuly calibrating the ratio of the amount of each that you are going/long short. Diageos share's fell by 14% today, i dont know what prices their bonds are at but i am guessing a fall (say down 1%) - half of this move due to its dissappointing results and the other half due to the fall in the reference gilt price.

[fordtin] 10/11/2023 16:41

re -"confusingly, the stock is up but the bond is down,"

I’ve never really investigated pairs trading. If anyone’s familiar with the strategy, would it make sense to be long bonds and short shares?

If so, could today’s move be an unwinding of pairs trading?



p.s. I forgot someone on this thread had a red thumb addiction. I've gone back through today's posts and dished out some green thumb antidote!

[arbus5000] 10/11/2023 16:32

confusingly, the stock is up but the bond is down, maybe due to poor liquidity as already suggested.

i think the block buys of the bonds are brokers - i bought a small amount on results day and that showed up on the lse trades as a large block of 25k nominal bonds, rather than amount i invested. There's been numerous blocks of the same amount. The price I got was about 1% higher than the traded price....

[tiltonboy] 10/11/2023 14:52

RGL looking perkier

[redhorse2020] 10/11/2023 14:45

Liquidity in the bond is so low it's hard to tell. Could well be just one bond investor....