By David Hatcher
React News
11 Apr 2024 08:16 BST
Richard Croft’s Martley Capital has built a 3% stake in Regional REIT and has launched an attack on the company’s proposed equity issuance, React News can reveal.
Regional REIT has been exploring ways to refinance a £50m retail bond that matures on 6 August, including via a possible equity issuance of around £75m that would be at a “material discount” to its share price.
Martley has hit out at the prospective move and says that it has developed a strategy to refinance the bond, “which would render the issuance of new shares… unnecessary in the current market”. It now “intends to engage with the current investment manager about the future direction of the company and its long-term strategy”.
Regional REIT’s management is understood to be continuing to explore both debt and equity solutions ahead of the refinancing deadline with sources close to the company saying that “good progress” had been made.
Behind Majik Property Holdings with 9.13%, and Old Mutual, which holds 6.89%, Martley is now the third largest shareholder in Regional REIT and it claims the possible equity issue is “a move unpopular with many shareholders”.
Martley has built its Regional REIT stake through its Real Estate Special Opportunities Fund. The fund “aims to exploit the current dislocation in real estate markets by investing in special opportunities to take advantage of value that can be created by being able to act with speed and the benefit of proven liquidity”.
The building of a stake by Martley, the company says, is a reflection of its belief in the long-term strength of the regional office market and that an increased desire by employees to work near home will reduce the level of long-distance commuting.
Croft, who co-founded M7 Real Estate, spun Martley out of the company last year and took with it some of M7’s non-core mandates. M7 and its parent Oxford Properties are seeking to focus on core markets and the logistics supply chain.
Martley has since grown to have around £900m of assets under management, with roughly 40 staff across five offices in the UK and central Europe. The investment manager already runs the listed Alternative Income REIT (AIRE) and has launched a “gap funding” debt strategy.
Regional REIT owns a portfolio of around 144 regional offices valued at close to £700m. With its share price having fallen by 63% over the past year to 19p, it is currently trading at a discount of around 75% to net asset value.
The company is out of vogue in large part due to the rise of working from home in the post-Covid era and it has also been selling assets in order to pay down debt.
The company is led by Stephen Inglis, the chief executive of London and Scottish Property Investment Management, the company’s asset manager. Last year London & Scottish was bought out by Singaporean fund management giant ARA Asset Management, which is part of ESR, and it has been providing Regional REIT with support and exploring prospective sources of capital.
“Unnecessary, overly dilutive, and not in the interests of shareholders”
Croft said: “I am a long-term believer in the regional office market as people’s and businesses’ working practices change. I believe this will most impact the long-distance mass transit commute. In our opinion this will encourage people to work near home, not from home, and that many occupiers will evolve into a hub and spoke model over the next decade which will be beneficial from an occupier standpoint to the regional office market.
“Simultaneously to what we perceive as a likely improvement in occupier demand, supply is being constantly reduced through permitted development and other change of use schemes. Current rental levels do not allow meaningful new development, so we are bullish in the sector in the long term, admittedly against market sentiment, due to an expected demand/supply imbalance.
“We have shown our commitment to both the sector and Regional REIT by taking this stake and by proposing a strategy to refinance the bond. We believe the proposed rights issue to be unnecessary, overly dilutive, and not in the interests of shareholders.’’
To read the original React News story please click here.
