Regional REIT Faces Critical Moment with Proposed Equity Raise

Regional REIT has announced a fully underwritten £110.5m capital raising through a placing and a 1-for-10 share consolidation. This move aims to repay a £50m retail bond maturing in August, reduce bank facilities by £26.3m, and allocate £28.4m for selective capital expenditures.

The capital raise, underwritten by Bridgemere Investments, will significantly lower the company’s Loan-to-Value (LTV) ratio from 56.8% to 40.6%, providing greater financial flexibility. This reduction is based on a recent valuation of £647.8m, down from £700.7m at the end of 2023. The funds will also allow for enhancements in earnings and value over the mid to long term.

Upon completion, the company plans to consolidate shares at a ratio of one share for every ten ordinary shares, subject to shareholder approval.

Key Highlights:

• Placing, overseas placing, and open offer of 1,105,149,821 new ordinary shares at 10 pence each to raise £110.5m (£104.7m net of expenses).
• Fully underwritten by Bridgemere, providing certainty to recapitalize the company.
• Bridgemere to subscribe for the placing shares, with shares subject to clawback to satisfy valid applications under the open offer and overseas placing.
• Open offer to qualifying shareholders on a basis of 15 new ordinary shares for every 7 existing shares.
• Issue price represents a 50.4% discount to the closing price and an 82.3% discount to the latest NTA per share.
• Intention to pay 2.2 pence per share for the 2024 Q2 dividend, expected in September 2024.
• Bridgemere retains the right to appoint a director while holding 10% or more of the shares.
• Chairman Kevin McGrath and Non-Executive Director Dan Taylor to resign after the next AGM post-capital raising.

Company Comments: Kevin McGrath, Chairman: “After a comprehensive review of options to reduce indebtedness and repay the £50 million retail bond due in August 2024, the Board believes this capital raising is the best solution for shareholders. Supported by Bridgemere, this will significantly strengthen Regional REIT’s financial position, reduce indebtedness, and provide greater financial flexibility.”

Stephen Inglis, Chief Executive of London & Scottish Property Investment Management Limited: “Since the Covid-19 pandemic, the company has faced challenges, increasing LTV to 56.8%. The fully underwritten and pre-emptive capital raising offers the best long-term solution for refinancing the retail bond, reducing LTV to approximately 40%, and providing flexibility for capital expenditure to maximize shareholder value and income.”

Extraordinary General Meeting: The capital raising is contingent on shareholder approval at the Extraordinary General Meeting on 18 July 2024.

Background and Reasons for Capital Raise: The office sector has struggled due to flexible working patterns and higher interest rates, causing the portfolio’s value to drop by £116.7m in 2022 and £88.8m in 2023. This decline has increased the group’s LTV to 55.1%, exceeding the target of less than 40% and the upper limit of 50%.

The company is actively reducing its LTV through asset disposals, having completed sales worth £21.9m since the end of 2023. The £50m retail bond maturing in August necessitates refinancing, with the board opting for the capital raising as the best solution to reduce LTV without the constraints of additional debt.

Share Consolidation: To ensure sensible share pricing, increase market liquidity, reduce volatility, and attract a broader range of investors, the company proposes a share consolidation at the ratio of one share for every ten shares, subject to shareholder approval.

Information on Bridgemere: Bridgemere, established by Steve Morgan CBE, encompasses a range of businesses in housebuilding, land and property development, and leisure. Bridgemere’s investment in Regional REIT may exceed 30% post-placing, though a mandatory offer requirement has been waived by the Takeover Panel, contingent on shareholder approval of the Rule 9 Waiver Resolution at the EGM.

This restructuring aims to stabilize Regional REIT’s financial standing and position the company for future growth and stability amidst ongoing market challenges.