RNS Number : 0517U
Regional REIT Limited
27 June 2024
 

 27 June 2024

REGIONAL REIT LIMITED

("Regional REIT" or the "Company", together with its subsidiaries the "Group")

Launch of Underwritten Capital Raising of £110.5m,

Regional REIT Limited (LSE: RGL), the regional property specialist, is pleased to announce a Capital Raising of approximately £110.5 million, in aggregate, by way of a fully underwritten Placing, Overseas Placing and Open Offer of 1,105,149,821 New Ordinary Shares at an issue price of 10 pence per New Ordinary Share. The Company also announces a 1 for 10 Share Consolidation. The Capital Raising is being fully underwritten by Bridgemere Investments Limited ("Bridgemere"), which is part of the Bridgemere group of Companies established by Steve Morgan CBE.

The Capital Raising will enable the Company's £50 million Retail Bond to be fully repaid, eliminating this short term liability and further reducing the constraints caused by the requirement to pay coupon distributions on the Retail Bond. In addition, £26.3 million of the Net Capital Raising Proceeds will be used to reduce bank facilities, which will result in the Company having greater headroom under the covenants in such facilities, and the remaining £28.4 million of the Net Capital Raising Proceeds 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, further underpinning quarterly dividends going forward. This will reduce LTV from 56.8 per cent. (based on the valuations as at 21 June 2024 as set out in the Valuation Report) to 40.6 per cent. upon completion of the Capital Raising.

Kevin McGrath, Chairman of Regional REIT, commented:

"Following a comprehensive review of a wide range of options to accelerate a reduction in indebtedness and the repayment of the £50 million 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 Asset Manager, commented:

"Since the Covid-19 pandemic the Company has been operating in a challenging environment resulting in the LTV increasing to 56.8% against a target of less than 40%. 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."

Key Highlights

·    Placing, Overseas Placing and Open Offer (the "Capital Raising") of 1,105,149,821 New Ordinary Shares at an issue price of 10 pence per New Ordinary Share to raise approximately £110.5 million, approximately £104.7 million net of expenses (the "Net Capital Raising Proceeds").

·    The Capital Raising is being fully underwritten by Bridgemere, which is part of the Bridgemere group of Companies established by Steve Morgan CBE, providing the requisite certainty to recapitalise the Company.

·    Bridgemere will subscribe for the Placing Shares at the Issue Price and the Placing Shares will be subject to clawback to satisfy valid applications under the Open Offer and Overseas Placing.

·    The Open Offer to Qualifying Shareholders is on the basis of:

15 New Ordinary Shares for every 7 Existing Ordinary Shares

·    The Issue Price represents a discount of 50.4 per cent. to the Closing Price of 20.2 pence and a discount of 82.3 per cent. to the latest published NTA per Share prior to the Latest Practicable Date of 56.4 pence.

·    The Net Capital Raising Proceeds of approximately £104.7 million will be used to:

o satisfy the redemption of the £50 million 4.5 per cent. Retail Bond, which matures on the 6 August 2024;

o reduce bank facilities by £26.3 million, which will result in the Company having greater headroom under the covenants in such facilities; and

o the remaining £28.4 million of the Net Capital Raising Proceeds will provide flexibility to fund selective capital expenditure on assets, which will enhance earnings in the near term and value in the mid to long-term, further underpinning quarterly dividends going forward.

·    The Company's investment properties were independently valued on 21 June 2024 at £647.8 million (31 December 2023: £700.7 million), representing a decrease of 4.6% in the like-for-like value of the portfolio.

·    Following completion of the Capital Raising, and subject to shareholder approval, it is proposed that the Ordinary Shares will be consolidated at the Consolidation Ratio of one Consolidated Share for every 10 Ordinary Shares.

·    Assuming that Admission and Admission of the Consolidated Shares occur, the Board's current intention is to pay approximately 2.2 pence per Ordinary Share (assuming the Share Consolidation becomes effective) in relation to the 2024 Q2 Dividend, which is expected to be declared in September 2024.

·    Pursuant to the Subscription Agreement, Bridgemere shall have the right to appoint an Appointee Director for as such time as it holds 10 per cent. or more of the Ordinary Shares.

·    Kevin McGrath (Chairman) and Dan Taylor (Non-Executive Director), having each served nine years and in full accordance with the Company`s governance policy and AIC guidelines, intend to resign as directors of the Company as soon as reasonably practicable following the Company's next annual general meeting after the completion of the Capital Raising.

The details of the Capital Raising, Share Consolidation and the Rule 9 Waiver will be set out in the Prospectus expected to be published by the Company later today.

Background to, and reasons for, the Capital Raising

Between March 2020 and March 2022, the devolved Governments of the United Kingdom implemented stay-at-home measures, requiring those office workers not designated as essential workers under the relevant government guidance, to change their working patterns. In turn, management teams reconsidered their office space requirements as leases matured.

The Group weathered the stay-at-home measures as a result of its Property Portfolio being highly diversified by property type, geographical spread and range and quality of tenants. In addition, as the Bank of England tightened monetary policy, the Company was able to mitigate rising interest rate costs through a fully fixed and hedged borrowing structure.

The post-pandemic period has seen a softening of office demand and approaches to the need for and utilisation of office space continue to evolve. Alongside macro factors impacting the office sector of the commercial property market, the number of office property transactions has been severely curtailed, initially by pandemic-imposed restrictions and then subsequently by the increased cost of debt finance, resulting in a lack of liquidity in the office market.

The combination of the above factors resulted in the Property Portfolio being revalued downwards from the prior financial year by £116.7 million (12.9 per cent.) in 2022 and by a further £88.8 million (11.2 per cent.) in 2023. The fall in value of the Property Portfolio has resulted in the Group's net borrowings as a percentage of Gross Investment Properties Value ("LTV") increasing to 55.1 per cent. as at 31 December 2023 against a targeted LTV of less than 40 per cent. and an upper limit of 50 per cent. The average LTV from 2015 Admission to

31 December 2023 was 42.3 per cent. The Company is currently engaged in an asset disposal programme with a view to assisting it to reduce its LTV to its long-term target of less than 40 per cent. Since 31 December 2023, the Company has already completed 13 disposals and 3 part sales for a combined total of c. £21.9 million.

The Retail Bond is due for redemption on 6 August 2024. The Company considered a number of refinancing options (including both equity and debt solutions) and the Board has elected to propose to Shareholders its preferred option, the Capital Raising. The Directors believe that the Capital Raising is in the best interests of Shareholders because it reduces the Group's LTV and the Group will not be constrained by the requirement to pay interest on any debt solution (which, may not be available, is likely to be expensive and is likely to significantly constrain the Group's activities; based on the Board's investigations to date, if available at all, such a facility is likely to be available on highly unattractive terms ). The Directors do not consider that significant asset sales (outside of its existing asset disposal programme) would provide a viable solution due to constraints under the Group's existing bank facilities.

The Capital Raising will enable the £50 million Retail Bond to be repaid, eliminating this short term liability, and further reducing the constraints caused by the requirement to pay coupon distributions on the Retail Bond. In addition, £26.3 million of Net Capital Raising Proceeds will be used to reduce bank facilities, which will result in the Company having greater headroom under the covenants in such facilities, and the remaining £28.4 million of the Net Capital Raising Proceeds 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, further underpinning quarterly dividends going forward. This will reduce LTV from 56.8 per cent. (based on the valuations as at 21 June 2024 as set out in the Valuation Report) to 40.6 per cent. upon completion of the Capital Raising. The Capital Raising is fully underwritten, providing the requisite certainty to recapitalise the Company.

Share Consolidation

With the aim of ensuring that the 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, following completion of the Capital Raising, the Company also proposes to undertake a reorganisation of its share capital to reduce the number of Ordinary Shares in issue. Save in respect of fractional entitlements, following the Share Consolidation each Shareholder's percentage holding of Ordinary Shares would remain unchanged.

Following completion of the Capital Raising, and subject to shareholder approval, pursuant to the Share Consolidation, the Ordinary Shares will be consolidated at the Consolidation Ratio of one Consolidated Share for every 10 Ordinary Shares.

As a result of the Share Consolidation, any shareholding of Ordinary Shares that is not exactly divisible by 10 will be rounded down to the nearest whole number of Consolidated Shares. Any fractional entitlements to Consolidated Shares will be disregarded and will not be aggregated. Accordingly, no Consolidated Shares will result from such fractional entitlements. Any Shareholder holding fewer than 10 Ordinary Shares on the Share Consolidation Record Date will therefore not be entitled to any Consolidated Shares following the Share Consolidation and will no longer be a member of the Company as a result. Save in respect of fractional entitlements, following the Share Consolidation each Shareholder's percentage holding of Ordinary Shares would remain unchanged.

In the event that the Share Consolidation Resolution is not passed, the Share Consolidation will not proceed.

Information on Bridgemere

Bridgemere is part of the Bridgemere group of companies, which was established by Steve Morgan CBE in 1996. The Bridgemere group of companies consists of a portfolio of individual businesses and strategic, long-term investments covering a range of sectors, which include housebuilding, land and property development and leisure.

Bridgemere is keen to ensure the long-term viability of the Company and, accordingly, has agreed to participate in the Placing to ensure that the Company can address its liquidity issues and achieve its stated objectives.

Steve Morgan CBE founded the housebuilder, Redrow Plc, in the 1970s, and brings experience and knowledge of the property sector. In 1992 Steve Morgan CBE received an OBE for Services to the construction industry and, in 2016, received a CBE for philanthropic services.

The Bridgemere group of companies were cornerstone investors in Tosca Commercial II LP (launched July 2013) and TUKCP Jersey LP (launched July 2014). These funds, together with associated entities, were reorganised in November 2015 to create Regional REIT Ltd.

Rule 9 Waiver

As a result of the Placing, Bridgemere's interest in the Company following the completion of the Capital Raising may exceed 30 per cent. of the voting rights of the Company depending on the take-up of the Open Offer and Overseas Placing.

The Company is subject to the Takeover Code and, ordinarily, under Rule 9 of the Takeover Code, this would result in Bridgemere being obliged to make a mandatory offer to acquire all of the issued Ordinary Shares not already owned by Bridgemere (and any persons acting in concert with Bridgemere) in cash. However, the Takeover Panel has agreed to waive this obligation, subject to approval by Independent Shareholders of the relevant Rule 9 Waiver Resolution.

Accordingly, the Rule 9 Waiver Resolution will be proposed at the Extraordinary General Meeting to be convened to approve various Resolutions relating to the Capital Raising on 18 July 2024. In the event that the Rule 9 Waiver Resolution is not passed the Capital Raising will not proceed.

Further details relating to the Capital Raising

The issue of the New Ordinary Shares pursuant to the Capital Raising is conditional, among other things, on the Capital Raising Resolution and Rule 9 Waiver Resolution (together, the "Transaction Resolutions") having been passed and the conditions to the Subscription Agreement and the Sponsor Agreement having been satisfied or, where applicable, waived and each such agreement not having been terminated prior to Admission in accordance with its terms.

If the Transaction Resolutions are not passed and the Capital Raising does not complete, on the basis of the Company's base case projections:

•     the Group will be unable to fund the £50 million Retail Bond liability due for repayment on the 6 August 2024 resulting in an immediate working capital shortfall; consequently

•     the Board will be required immediately to seek new sources of capital, including (but not limited to) seeking to enter into a subordinated borrowing facility (which may not be available, is likely to be expensive and is likely to significantly constrain the Group's activities; based on the Board's investigations to date, if available at all, such a facility is likely to be available on highly unattractive terms) and approaching current Retail Bond holders to request an extension to the redemption date of the Retail Bond (which is challenging from a timing perspective and, in the Board's view, unlikely to be successful based on informal consultations to date);

•     the Board will likely need to take other mitigation actions, including ceasing all dividend distributions to Shareholders and expediting the Company's asset disposal programme;

•     if the Group is unable to obtain appropriate new sources of capital, the Group may not be considered a 'going concern' and may not receive a clean viability statement from its auditors; and

•     as a result of the Group not being unable to obtain appropriate new sources of capital, the Company and other material companies in the Group could enter into administration or liquidation shortly thereafter, which could be as early as August 2024, due to the £50m Retail Bond liability becoming due for repayment .

The Directors believe that completion of the Capital Raising will increase the strength of the Company's balance sheet and fund its ongoing value enhancing capital expenditure programme.

Shareholders are therefore asked to vote in favour of the Resolutions (excluding the Placee and any person acting in concert with the Placee in relation to the Rule 9 Waiver Resolution) at the Extraordinary General Meeting in order for the Capital Raising and Share Consolidation to proceed.

It is important that sufficient Qualifying Shareholders take up their Open Offer Entitlements. The Company estimates that (subject to certain exceptions, which would improve the situation) if Existing Shareholders whose holdings would be treated as 'beneficially held by the public' take up less than nine per cent. (in aggregate) of their Open Offer Entitlements in the Capital Raising, the Company would be in breach of the REIT conditions and the Group would automatically lose REIT status with effect from the end of the accounting period before the one in which the breach occurred (i.e. from 31 December 2023). If the Company loses its REIT status, all profits and gains arising to the Group after the Company's exit from the REIT regime would be subject to UK corporation tax, without the benefit of the REIT exemption. Each of the Subscription Agreement and the Sponsor Agreement are conditional upon the Company not being a close company immediately following Admission and so if that condition is not satisfied or waived under each of the Subscription Agreement and the Sponsor Agreement, the Capital Raising will not proceed.

This summary should be read in conjunction with the full text of the announcement and the Prospectus, which includes full details of the Capital Raising, Rule 9 Waiver, Share Consolidation and Resolutions, when available.

Posting of Prospectus

The Company also confirms that a prospectus, which contains further details regarding the Capital Raising, Rule 9 Waiver and the Share Consolidation (the "Prospectus"), will be posted to Shareholders later today, and will be available on the Company's website at www.regionalreit.com, upon receipt of the relevant regulatory approvals, along with the Open Offer Application Form (where applicable). A further announcement will be made once the Prospectus has been approved.

The person responsible for arranging for the release of this announcement on behalf of the Company is Adam Dickinson, Investor Relations, Regional REIT Limited.

Enquiries:

 



 




 


 


 




Tel: +44 (0) 20 7466 5000



 

LEI Number: 549300D8G4NKlRIKBX73

 

IMPORTANT NOTICES

The material in this announcement is for informational purposes only and does not constitute an offer of securities for sale or a solicitation of any offer to buy or subscribe for securities in Australia, Canada, Japan, New Zealand, the Republic of South Africa, any EEA State or any other jurisdiction in which such an offer or solicitation is unlawful.

Solely for the purposes of the product governance requirements contained within the MiFID II Product Governance Requirements, and disclaiming all and any liability whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the New Ordinary Shares have been subject to a product approval process, which has determined that such securities are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in the FCA's Product Intervention and Governance Sourcebook ("PROD"); and (ii) eligible for distribution through all distribution channels as are permitted by PROD for each type of investor (the "Target Market Assessment").

 

Notwithstanding the Target Market Assessment, distributors (such term to have the same meaning as in the MiFID II Product Governance Requirements) should note that: the market price of the New Ordinary Shares may decline and investors could lose all or part of their investment; the New Ordinary Shares offer no guaranteed income and no capital protection; and an investment in the New Ordinary Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Capital Raising.

 

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of the UK MiFID Laws; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the New Ordinary Shares. Each distributor is responsible for undertaking its own target market assessment in respect of the New Ordinary Shares and determining appropriate distribution channels.

 

 

EXPECTED TIMETABLE OF PRINCIPAL EVENTS


2024

Record Date for entitlements under the Open Offer

6.00 p.m. on 25 June

Publication and despatch of the Prospectus, posting of the Notice of Extraordinary General Meeting and the Open Offer Application Forms and Capital Raising commences

27 June

Ex-Entitlements date for the Open Offer

8.00 a.m. on 27 June

Open Offer Entitlements credited to stock accounts of Qualifying CREST Shareholders in CREST

 As soon as possible on 28 June

Recommended latest time for requesting withdrawal of Open Offer Entitlements from CREST

4.30 p.m. on 11 July

Recommended latest time and date for depositing Open Offer Entitlements into CREST

3.00 p.m. on 12 July

Latest time and date for splitting of Open Offer Application Forms (to satisfy bona fide market claims only)

3.00 p.m. on 15 July

Latest time and date for receipt of Forms of Proxy and receipt of electronic proxy appointments via CREST

10.00 a.m. on 16 July

Latest time and date for receipt of Overseas Placing commitments

5.00 p.m. on 16 July

Latest time and date for receipt of completed Open Offer Application Forms and payment in full under the Open Offer or settlement of relevant CREST instruction (as appropriate). Open Offer Entitlements disabled in CREST

11.00 a.m. on 17 July

Extraordinary General Meeting

10.00 a.m. on 18 July

Announcement of results of Extraordinary General Meeting

18 July

Results of the Capital Raising announced through a Regulatory Information Service

by 7.00 a.m. on 19 July

Admission and commencement of dealings in New Ordinary Shares

8.00 a.m. on 19 July

CREST accounts credited with uncertificated New Ordinary Shares

19 July

Share Consolidation Record Date

6.00 p.m. on 26 July

Admission and commencement of dealings in Consolidated Shares

8.00 a.m. on 29 July

CREST accounts credited with uncertificated Consolidated Shares

29 July

Where applicable, definitive share certificates despatched by post in the week commencing

5 August

(i)            CREST Shareholders should inform themselves of CREST's requirements in relation to electronic proxy appointments.

(ii)           Subject to certain restrictions relating to Shareholders with a registered address outside the United Kingdom, details of which will be set out in paragraph 8 of Part 5 of the Prospectus.

 

THE FOLLOWING IS AN EXTRACT FROM THE CHAIRMAN'S LETTER

·     2 disposals contracted for £1.4 million;

·     7 disposals totalling c. £15.9 million under offer and in legal due diligence;

·     4 further disposals totalling c. £6.5 million in negotiation;

·     14 further disposals totalling c. £18.9 million on the market; and

·     29 potential disposals totalling c. £69.8 million being prepared for the market.

·     the Transaction Resolutions being passed by the Shareholders (excluding the Placee and any person acting in concert with the Placee in relation to the Rule 9 Waiver Resolution) at the Extraordinary General Meeting (without material amendment);

·     the Subscription Agreement becoming unconditional in all respects (save for the condition therein relating to Admission) and not having been terminated in accordance with its terms prior to Admission; and

·     Admission becoming effective by not later than 8.00 a.m. on 19 July 2024 (or such later time and/or date as the parties to the Subscription Agreement may agree, being not later than 8.00 a.m. on 13 August 2024).

No taxes or expenses will be charged directly to any investor by the Company.

The Subscription Agreement provides for customary commission to be paid to the Placee.

Pursuant to the Subscription Agreement, for such time as the Placee Parties holds 10 per cent. or more of the Ordinary Shares, the Placee shall have the right to appoint an Appointee Director.

·     Since 31 December 2023, the Company has completed 13 disposals and 3 part sales for an aggregate total of £21.9 million (before costs);

·     Since 31 December 2023, the Group has exchanged on 40 leases to new tenants totalling 98,495 sq. ft. amounting to £1.7 million per annum ("pa") of rental income when fully occupied, achieving a rental uplift of 5.3 per cent. against December 2023 ERVs. In addition, the Group has completed a number of lease renewals for leases that had renewal dates in 2024, amounting to 81,292 sq. ft. and £1.3 million of rental income, delivering a rental uplift of 4.1 per cent. against December 2023 ERVs; and

·     The Property Portfolio was valued at £647.8 million as at 21 June 2024.

Dividend entitlement

·     in respect of the period from incorporation to 31 December 2015, aggregate interim dividends of 1.00 pence per Ordinary Share;

·     in respect of the financial year ended 31 December 2016, aggregate interim dividends of 7.65 pence per Ordinary Share;

·     in respect of the financial year ended 31 December 2017, aggregate interim dividends of 7.85 pence per Ordinary Share;

·     in respect of the financial year ended 31 December 2018, aggregate interim dividends of 8.05 pence per Ordinary Share;

·     in respect of the financial year ended 31 December 2019, aggregate interim dividends of 8.25 pence per Ordinary Share;

·     in respect of the financial year ended 31 December 2020, aggregate interim dividends of 6.40 pence per Ordinary Share;

·     in respect of the financial year ended 31 December 2021, aggregate interim dividends of 6.50 pence per Ordinary Share;

·     in respect of the financial year ended 31 December 2022, aggregate interim dividends of 6.60 pence per Ordinary Share;

·     in respect of the financial year ended 31 December 2023, aggregate interim dividends of 5.25 pence per Ordinary Share; and

·     in respect of the period 1 January 2024 to 31 March 2024, aggregate interim dividends of 1.20 pence per Ordinary Share.

 

 

Appendix: DEFINITIONS

of PART 12 of the Prospectus;

of PART 12 of the Prospectus;

of PART 12 of the Prospectus;

pence per New Ordinary Share;

8.00 a.m. on 19 July 2024 (or such later time and/or date as the parties to the Subscription Agreement and the Sponsor Agreement may agree, not being later than 8.00 a.m. on 13 August 2024)

·       

·       

·       

·       

·       

·       

·       

·       

·       

Annex 12, 5.4.4

 
any special purpose vehicle incorporated to acquire property;

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
IOEMZGZVGVDGDZZ