Beleaguered investment company Regional REIT has proposed a capital raising of £110.5m, in a bid to pay back its £50m retail bond and reduce its bank facilities ahead of a looming 6 August deadline.
In additional the retail bond being paid off in full, the board proposes to use £26.3m of the proceeds to reduce its bank facilities, while the remaining £28.4m will “provide additional flexibility to fund selective capital expenditure on assets, which will enhance earnings in the near term and value in the mid to long-term.”
The trust, which was bruised by the post-Covid fall in demand for office space, will implement the capital raising via a fully underwritten placing, overseas placing and an open offer of 1,105,149,821 new ordinary shares at 10p per share. The capital raising, which will be underwritten by Bridgemere Investments, will be followed by a ‘one-for-10’ share consolidation, with any shareholding not exactly divisible by 10 being rounded down to the nearest whole number of consolidated shares. The REIT’s board said this will ensure ordinary shares trade “at a sensible price, increasing market liquidity and reducing the volatility, as well as making the ordinary shares more attractive to a broader range of institutional and public investors”.
The proposal comes less than two months before Regional REIT’s £50m retail bond liability is due for repayment on the 6 August, which would lead to an “immediate working capital shortfall”, according to the board.
Given the capital raising and share consolidation still hinges on transaction resolutions being passed, as well as whether conditions to the REIT’s subscription and sponsor agreement are satisfied, the board is urging shareholders to vote in favour of the resolutions at an extraordinary general meeting (EGM) on the 18 July.
If the capital raising is not passed, Regional REIT will have to “immediately seek new sources of capital”, which could include using a subordinated borrowing facility – which may not be available to the trust. And, if it is, the board warns this will “be expensive”, “significantly constrain the group’s activities” and “likely be available on highly unattractive terms”.
If this doesn’t work, the board will stop paying dividends to its shareholders and expedite the trust’s asset disposal plan, which was first implemented at the end of last year in a bid to reduce its loan-to-value ratio (LTV) to less than 40%. As at the end of last year, Regional REIT’s LTV stood at 55.1%.
Ultimately, a lack of new capital for the trust could mean it enters into administration as early as August this year, due to its bond liability.
Kevin McGrath, chair of Regional REIT, said: “Following a comprehensive review of a wide range of options to accelerate a reduction in indebtedness and the repayment of the £50m retail bond which matures in August 2024, the board believes this capital raising is the best available solution for shareholders.
“The capital raising, supported by Bridgemere, will enable the company to strengthen significantly Regional REIT’s financial position, reducing indebtedness and provide the company with greater financial flexibility and liquidity headroom.”
Stephen Inglis, chief executive officer of London & Scottish Property Investment Management Limited, the REIT’s asset manager, added the company has been operating in a “challenging environment” since the pandemic, resulting in a high loan-to-value ratio.
“The fully underwritten and fully pre-emptive capital raising provides the best long-term solution to the upcoming retail bond refinancing, will put the company on a sound footing reducing the LTV to approximately 40% and provide the flexibility to fund capital expenditure on assets to maximise value and income for shareholders over the long term.”
