Regional REIT shares plummet as property trust weighs raising cash from investors at ‘material discount’

Regional REIT shares nosedived by more than a third on Tuesday after the London-listed property investor flagged a potential equity fundraise in efforts to finance its debts.

The FTSE All-Share commercial property investor, which primarily owns offices outside of London, told shareholders on Tuesday it could opt to raise around £75million from investors at a ‘material discount’ to its current share price.

Regional REIT shares were down 31.8 per cent to 13.7p in early trading, bringing losses over the last year to almost 75 per cent.

It also sits on a 73.5 per cent discount to net asset value, according to Association of Investment Companies data, compared to an average discount to NAV of 24.6 per cent in the UK Commercial Property investment trust sector.  

The investment trust has previously said it was exploring refinancing options, including both debt and equity, given its exposure to £50million in retail bonds set to mature in August.

Regional REIT offloaded £26.1million worth of assets in 2023 in part to drive down its debts.

But analysts at Peel Hunt estimate the trust will need to line up more than £175million worth of disposals – roughly a quarter of its total portfolio – to reduce its loan-to-value (LTV) ratio below its 40 per cent target from its current LTV of 55 per cent.

Peel Hunt said: ‘While progress is being made, such a quantum of sales seems unlikely in the near term, in our view.

‘New debt is likely to be expensive but, more importantly, it does not reduce the LTV.

‘We believe the optimum long-term solution is a significant disposal programme combined with new equity.’

It follows a torrid 2023, which chief executive of its asset manager London and Scottish Property Investment Management, Stephen Inglis, described as ‘one of the most challenging years for REITs in recent memory’.

London-listed real estate investments trusts are struggling under the weight of low assets, weak share prices and high discounts, leading to an uptick in merger and acquisition activity since 2019.

Regional REIT was forced to slash its dividend last year as its portfolio valuation fell from £790million to £701million, and its gross annualised rent roll fell from just under £72million to roughly £68miillion.

Inglis said last month: ‘The LTV continues to be a key focus of the Board and the management have a plan to reduce LTV to the long-term target of 40 per cent through selective sales and repayment of debt.

‘The senior debt is 100 per cent fixed, swapped or capped and will not exceed 3.5 per cent. 

‘The company is actively exploring a range of refinancing options for the retail bond given its near-term maturity date.’