Support line at 741p can be deleted as we wait and watch.

CityWire

Refinancing risk sinks shares in Regional Reit

Shares in Regional Reit plunge 39% year to date as investors fret about office investor’s enlarged debt burden and falling occupancy.

Shares in Regional Reit RGL have tanked 39% this year despite a lower-than-expected decline in the value of the regional office portfolio.

At the start of this month, Regional reported a 5.9% like-for-like fall in its assets outside of the M25 orbital road in the six months to 31 December.

This was better than the 11% decline in the MSCI UK Monthly Property index but failed to reassure investors, who worry about the trust’s debt and falling occupancy. They have have continued to dump the shares, resulting in a fall of 24%, or 6.8p, this month.

Shares began the year at 35p and now sit at 21.5p. They have plunged from 44.7p last September, leaving Regional on a 64% discount to Deutsche Numis’ estimated net asset value (NAV) per share of 59.6p. The last NAV from the company was 64.4p per share in June.  

The yield on the shares has also widened to 22%, despite the dividend suffering a 27% cut in September as the fund paid just 1.2p in the second quarter, down from 1.65p in the previous three months.

At the heart of investors’ concern is the weight of Regional’s debt burden, as the fall in valuation increased its net loan-to-value (LTV) to 55.1%, although the company says debt remains fully hedged at an average cost of 3.5% with an weighted average maturity of 3.5 years.

Management sold six assets over the second half of 2023 in a bid to pay down debt and reduce its LTV, receiving proceeds of £26.1m before costs.

This took the total number of disposals for 2023 to 10, and further sales are expected as Stephen Inglis, chief executive of London and Scottish Property Investment Management, battles to bring the LTV back to its 40% target.

Deutsche Numis analyst Andrew Rees said a ‘near-term priority’ for the Reit will be the £50m retail bond due for repayment in August this year.

‘Reducing debt will therefore require an acceleration of disposal activity from current levels although we note this remains a challenging market to sell regional offices,’ he said.

‘Without an improvement, or even stabilisation, in occupier appetite, we believe the outlook for Regional remains uncertain and this is reflected in the share price.’

Occupancy has been another area of concern since lockdown prompted a shift to working from home, which left many companies without the need for expensive offices.

While Regional had been confident that local offices – which make up 92% of the fund – would be part of the work-from-home trend that would allow employees access to office facilities closer to home rather than travelling into major cities, the theory has yet to play out.

There are also significant costs in upgrading properties to the top EPC energy certificate rating of B.

The number of properties in the portfolio dropped to 144 in 2023 from 154 in 2022, while the number of occupiers has reduced from 1,076 to 978. On top of lower levels of both offices and occupiers, occupancy overall has fallen from 83% in 2022 to 80% in 2023.

Inglis said 2023 was ‘one of the most challenging years for Reits in recent memory’ and Regional was not immune.

He said valuations have been impacted but his asset management initiatives ‘continued to mitigate some of the impact on the portfolio’.

‘The leasing market was slower than anticipated largely due to the uncertainty around working patterns and the geopolitical situation impacting inflation and interest rates, but with some stability we are witnessing increasing numbers of enquiries for our assets,’ said Inglis.

The Reit declined to comment on the fall in the share price. 

As it was written so it came to pass.

RGL. Trusts don’t trade at big yields for no reason, although Mr. Market isn’t always right but the risks are much higher.

REGIONAL REIT LIMITED

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

Response to press speculation

Further to the Q4 trading update published on 2 February 2024 and the dividend declaration announcement on 22 February 2024 (together, the “Previous Announcements”), Regional REIT (LSE: RGL) notes the recent press speculation regarding the possibility of the Company undertaking an equity capital raise of around £75 million.

As indicated in the Previous Announcements, the Company is actively exploring a range of refinancing options, including debt and/or equity, in respect of the existing £50 million retail bond (the “Retail Bond”) given its maturity date in August 2024.  

The Company confirms that significant preparatory work has been undertaken to date in respect of both the debt and equity options, which remain under active consideration.

In the event that the Company proceeds with an equity issue, the Company expects that it would be at a material discount to the Company’s current share price and would be subject to, amongst other things, shareholder approval.

The Company continues to consider its options and a further announcement will be made when appropriate.

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The blog portfolio would buy shares if there is an equity issue.

Foresight Solar Fund Limited

(“Foresight Solar”, “FSFL” or “the Company”)

Annual Results to 31 December 2023

Foresight Solar, a sustainability-focused fund investing in solar and battery storage assets in the UK and internationally, announces its results for the year ended 31 December 2023.

Highlights

·    Net Asset Value (NAV) of £697.9 million (31 December 2022: £771.5 million).  The uplift from the sale of the Lorca portfolio stake at a 21% premium to holding value, alongside an active power price hedging strategy, mitigated the negative impacts from higher discount rates and softening power price forecasts.

·    Record electricity generation with 1,094GWh exported to the grid, enough to power over 400,000 UK households for a year – avoiding 390,000 tonnes of carbon dioxide emissions.

·    Record cash distribution from the underlying assets of £120 million, the highest in Foresight Solar’s 10-year history.

·    FSFL delivered on the first phase of its divestment programme with the sale of a 50% stake in the Lorca portfolio. The proceeds from this transaction, alongside free cash, were used to pay down £40 million of variable rate debt on the RCF, bringing the drawn balance down to £75 million.

·    Foresight Solar grew its proprietary pipeline with the acquisition of the rights to a 467MWp portfolio of development-stage solar projects in Spain. The move exemplifies the Company’s capital allocation strategy, focused on new investments with limited upfront capital requirements to drive long-term growth and total shareholder returns.

·    Foresight Solar returned £20 million to shareholders via share buybacks, deploying half of the £40 million allocation in the year and delivering 1.1 pence per share of NAV accretion.

·    Total dividend of 7.55 pence per share declared for the full year, in line with the Company’s target. Dividend cover for 2023 was 1.61x.

·    Target dividend of 8.00 pence per share for 2024, an increase of 6% compared to the previous year. The 2024 target is expected to be 1.50x covered from cash generated in the period, with around 1.35x cover for 2025 – assuming current revenue forecasts.

·    The sale of several large ROC-backed solar portfolios in the UK offers reliable market benchmarks for the Company’s assets. The price at which the latest deal closed indicates a value per megawatt approximately 15% above Foresight Solar’s £1.17m/MW valuation of its UK portfolio.

Key Metrics

	As at31 December 2023	As at31 December 2022
Net Asset Value (NAV)	£697.9m	£771.5m
NAV per Share	118.4p	126.5p
Total Dividend per Share for the period	7.55p	7.12p
Gross Asset Value (GAV)	£1,140.5m	£1,296.3m
Gearing (as a % of GAV)	38.8%	40.5%
Annualised Total NAV Return since IPO	8.0%	9.0%
Annualised Total Shareholder Return since IPO	6.2%	7.8%
UK portfolio valuation	£1.17m/MW	£1.29m/MW

Commenting on the results, Alexander Ohlsson, Chairman of Foresight Solar, said:

“Foresight Solar delivered resilient performance with record electricity production and cash distribution against a challenging market backdrop. Our operational strength, the powerhouse behind our progressive dividend, enabled us to comfortably meet our dividend target of 7.55p per share for 2023 and allows us to propose an above inflation increase of 6.0% for the 2024 target dividend of 8.0p per share.

“During the year, we have remained focused on initiatives to address the discount to NAV at which the Company’s shares have traded and to place the fund in the best possible financial position to support shareholders’ interests. We paid down £40 million of variable rate RCF debt, reducing financing costs, and returned £20 million to investors via share buybacks. The Board is adhering to its disciplined approach to capital allocation and the only new project investments currently under consideration are modest investments to expand the development stage pipeline.

“In the year Foresight Solar celebrated its 10^th anniversary, we successfully completed the Company’s first divestment. The partial sale of the Spanish Lorca portfolio at a 21% premium to holding value validates our valuation methodology and supports our investment model. Bringing projects through development to construction and then into operation offers optionality and allows the Company to capture financial upside, a strategy we intend to replicate through our development pipeline.

“The Lorca transaction was also a key driver of NAV uplift, and the Investment Manager continues to make progress on the next phases of the divestment programme. We look forward to providing more details to shareholders in due course.

“By leveraging the Investment Manager’s local networks in Spain, Foresight Solar purchased the rights to six development-stage solar projects, totalling over 460MWp. Over the medium-term, we will expand this growing proprietary development pipeline and focus on the huge potential for solar and storage to be unlocked throughout Europe.

“As power price forecasts softened across markets during the year, Foresight Solar’s active hedging strategy enabled the fund to lock in higher prices. These favourable terms will help insulate the NAV against market fluctuations in 2024 and beyond, providing greater visibility on dividend cover.

“After a challenging year for markets, we believe there are reasons for optimism. The energy transition is one of the biggest investment themes of our generation. The solar power opportunity alone is immense. Industry fundamentals remain attractive and solar generation continues to be one of the cheapest and most reliable sources of electricity available. This promising outlook, coupled with Foresight Solar’s improved financial position and clear strategy to deliver income and growth, positions the fund well to capitalise on the opportunities ahead.”

Thursday 14 March

Thursday 14 March

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Why buying dividend stocks could be a no-brainer for passive income

We all have our own ideas on how to invest to generate some long-term income. Here, I explain why I go for dividend stocks every time.

Alan Oscroft❯

Published 20 July, 2023

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. 

There are countless ways to try to earn some extra income. Everyone will have their own approach, but buying dividend stocks looks like the no-brainer way for me. Here’s why.

What do I look for when I want to top up my income? I want three key things.

What I want

I don’t want to have to do too much work. If I can put in an hour or so when I feel like it, and not leave the comfort of home, that would be great.

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then I need to be able to invest as much or as little as I like, when I like. I just don’t have big lump sums to plonk down. And I can’t commit to any fixed monthly outgoings.

And I want a method that has a long track record of success. I don’t need to take the income now. No, my aim is to build a good pot over the long term. And then I’ll start to draw down the cash when I retire.

Long-term success

Over the past 10 years, Stocks and Shares ISA’s have earned an average of 9.6% a year. That even beats inflation right now, and not many savings schemes can do that.

But in the 2019-20 year, we would have lost 13.6% on average. So cash in shares for a year can mean pain. But for 10 years, it looks a lot better.

Years like 2020 do come along. But already, UK shares are back to where they were before the pandemic.

And research by Barclays has shown that the longer we leave our cash in the stock market, the more chance we have to beat other forms of investment.

Why dividend stocks?

For the long term, any stocks that generate good total returns can do just as well. But I prefer ones with good dividend yields.

When I see cash, I know it’s the real test of a company performance. That is, if it’s covered by earnings. Even if I buy more shares with the cash, I think I get more safety from mature dividend payers.

And if I should need a bit of cash one year, maybe for a bit of holiday spend, I can keep it back from my dividends.

Easy and cheap?

I do have to put in a bit of effort to work out my strategy. But since I’ve gone for top quality dividend stocks, I don’t have to do much work to make my choices. So it’s easy enough for me.

To make sense of trading costs, I buy with at least £500 a time, and £1,000 or more is better. But I can put small sums of cash into my Stocks and Shares ISA and save it there until I have enough to buy.

Individual choice

Stocks and shares won’t be for everyone, and each of us has to work out our own approach to risk. But for me, to build a long-term passive income pot, I don’t see anything better.

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AJ Bell are reducing their trading charges next month, making it more cost effective for buying and selling.

 The Motley Fool

Warren Buffett, the Oracle of Omaha, is a name synonymous with success, wisdom, and wealth in the world of investment.

Buffett has shared his advice with fellow investors. But there’s one lesson that should stand above the rest for the young cohort. That’s the power of time.

That because, while it’s true that Buffett made a significant portion of his wealth after the age of 50, this was largely due to the miraculous effects of compounding.

The power of time

The hallmark of Buffett’s success is undoubtedly the magical concept of compounding. This phenomenon, which he refers to as the “eighth wonder of the world,” is responsible for the substantial growth of his wealth.

Compounding accelerates the growth of investments over time, and the sooner one starts, the more powerful the effect.

Warren Buffett Joins Charlie Munger’s Criticism in Annual Letter, Criticizing the Stock Market as Becoming ‘Casino-Like

It essentially works because, by reinvesting our returns year after year, we start to earn interest on our interest as well as our starting capital.

For anyone in their twenties, it’s a huge opportunity, even starting with a small sum.

Compounding takes time to work its magic, making the early years of investment crucial for long-term wealth accumulation.

Long-term outlook

Buffett’s long-term outlook syncs perfectly with the principles of compound returns, allowing him to reinvest returns in his carefully selected long-term investments year after year.

Moreover, his commitment to long-termism enables him to ride out market volatility, avoid emotional decisions, and focus on the enduring value of his investments.

Bringing it all together

What does investing for the long run and leveraging time look like for young investors. Well, let’s imagine I’m starting a portfolio at the age of 20, and I have no starting capital.

And because I have no starting capital, I’m going to commit to contributing £200 a month, and I’m going to increase that contribution by 5% annually — broadly in line current inflation.

The thing is, at 20 I’ve got a long investment horizon, and theoretically, I could be working for the next 50 years.

So, taking into account the aforementioned, and using a 8% annualised return as an example, here’s what I’d potentially have at the end of it — £3.2m.

Created at thecalculatorsite.com

Of course, if I invest poorly, I could lose money. Compound returns also works negatively too.

But while I’ve used 8% as an example, it’s worth noting than more experienced investors will aim for low double-digit annualised returns.

If we swapped 8% in our calculation for 12%, the end figure after 50 years would be £12.6m. That’s a phenomenal number!

As the children across Britain sharpen their pencils and go back to school, there are some financial lessons that their parents can learn too. 

We asked Britain’s foremost investment managers to share the most important ones they’ve learnt – and how they’ve put them into practice.

What are the most important investment lessons? We ask the experts 

by This Is Money

Lesson One: Too much debt just makes companies vulnerable

Early mistakes have led to caution for Richard de Lisle, who manages the VT De Lisle America Fund. He began his investment journey at just 16, only to lose his hard-earned pocket money on a risky bet.

‘I read everything on my paper rounds and did well from Patrick Sergeant in the Daily Mail and Jim Slater in The Telegraph. Those were my favourites. Yes, the Mail had a hand in my career.

‘The FT 30 had fallen more than half in two years. Stock prices were so low that I was seduced by the glamorous Court Line [a former shipping company that became a holiday provider]. It was leading the new package holiday boom, opening up the Spanish Costas to people who’d never been abroad before.’

Despite his tender years, De Lisle even looked at the valuation, including the price-earnings ratio, which shows how much profit a company is making per share. As a rule of thumb, the lower the ratio, the cheaper the company.

‘Its P/E ratio was under four; the yield was 17 per cent. What could go wrong?’ De Lisle asks.

Quite a lot, it turns out.

‘Warren Buffett says that debt just speeds things up and so it does. Today we run a value-based fund. While we like cheap, we don’t like debt. Lesson learned.’

Lesson Two: You’re almost always wrong before you are right

For Laurence Hulse, who manages UK smaller companies’ specialist Onward Opportunities, an internship at Barclays Capital when he was 18 brought a lesson he has lived by all his life.

‘You’re almost always wrong before you are right. This was one of the first ‘lessons’ I was ever taught,’ Hulse says. During his time at Barclays under revered equity trader Howard Spooner, Hulse learned that because you do not usually time the market perfectly, your investment is likely to fall at first. 

‘Other than in the unlikely event when you buy at the very lowest price or sell at the very highest price to the penny, you have got to be prepared to be wrong initially,’ Hulse says.

As a result of this lesson, he has learned not to make sudden swerves in his trading. ‘We very rarely trade into or out of a company in one transaction, as to do so would be to assume you have timed things perfectly.’

Lesson Three: Work out whether you are investing…or gambling

John Husselbee, head of multi-asset at LionTrust, learned many of his investment lessons from his family. 

‘My father taught me that whenever speculating at the racecourse or a casino, work out beforehand how much money you are prepared to lose betting, then put that amount in a separate pocket to treat as a sunk cost. Whatever is left in that pocket at the end of the day is your good fortune. However, if you have bad luck and your pocket is empty, never add to it – just walk away,’ he says.

From his grandfather, who bet on the horses as well as investing in shares, he learned the difference between investing and gambling.

‘Visiting my grandad on a Saturday morning, we would walk to the newsagent to buy a copy of the FT and the Racing Post. Back home, I would update the prices of Grandad’s shares in his ledger and calculate the profit/loss since purchase.

‘In the meantime, Grandad would study the form to select his bets for afternoon racing live on the telly. We would walk back to the newsagent; Grandad would give me pocket money for sweets and I would wait outside the bookies while he would place his bets.

‘The lesson learnt was the difference between investment and speculation – with the latter you need to be prepared to lose all your money!’

Lesson Four: It’s always darkest just before dawn

For a lesson he has never forgotten, Ian Lance, fund manager in the UK Value & Income team at Redwheel, casts his mind back to a despondent lunch in City of London oyster bar Sweetings, just as Britain was about to crash out of the European Exchange Rate Mechanism (ERM) in September 1992.

‘I calculated the payments on the mortgage my wife and I had taken out to buy our first home a few months earlier at the new interest rate of 12 per cent which the Government had just announced.

‘On finding that our payments were more than our combined salaries and the UK equity market was crashing, I headed down to Sweetings to drown my sorrows.

‘An hour or so later a colleague turned up and announced the stock market was soaring. The rest is history as Britain crashed out of the ERM, interest rates plummeted, and a new equity bull market began.’

What did he learn from this – apart from to take a long lunch now and then? ‘Markets look forward and will peer through the gloom to the sunlit uplands,’ he says. When all about you are despondent, it might be time for things to recover.

Lesson Five: You don’t know as much as you think you know

Jamie Ross, portfolio manager of Henderson Eurotrust, says that the facts available at our fingertips leave us more vulnerable than we know. The biggest lesson of his career, he says, has been that he always needs to focus on one important question when deciding whether to invest or not.

That question is: ‘What makes this a good company?’

‘It leads to all sorts of analysis, from understanding the competitive environment, to assessing pricing power to attempting to determine the sustainability of a company’s margins.’

Without this simple question, he says, it is easy to drown in information about a potential investment and to think you know everything about it.

‘Knowledge is not the same thing as understanding. Even experienced investors can sometimes miss the wood for the trees and suffer from familiarity bias – feeling more comfortable investing in something you ‘know’ lots about.

‘I think about this every time I start to work on a potential new investment.’

Lesson Six: Take the expert advice with a pinch of salt…

Edward Allen, investment director at Tyndall Private Clients, says that for all investment experts’ perceived wisdom they are ‘rarely cynical enough’, so you should never believe what you read from those who don’t have anything to lose from their predictions.

‘Economists and market forecasters have the luxury of being wrong. Investors do not,’ he points out.

‘Understand the biases of an author if you are going to follow their advice and remember that for every balanced, well-reasoned argument for doing something there will be many others for doing the opposite.

‘The investment world is perverse and often seemingly irrational.’

Multi-decade investment

Buffett’s net worth went from approximately $30m to $100m from age 40 to 50. Over the span of the decade a lot happened.

Via his company Berkshire Hathaway, he spent the years buying stock and sizeable shareholdings in several firms that yielded good results. One key point here is that some stocks he bought in the 1970’s are still owned by him today!

An example is GEICO, the insurance company. Buffett invested $4m in the business back in 1976. He kept increasing his shareholding in the firm until 1996, eventually taking over the entire company. In his 40’s, the value of the business increased. Incredibly, the business is still adding to Buffett’s profits today. In the May Q1 report, it reported $703m in earnings.

The point here is that in order for me to generate serious wealth over time, I need to have the right investing mindset. I can often miss out on big returns from stocks by cutting my winners too early and holding my losing ideas for too long. Buying and holding might seem boring, but it’s often the way to gain high profits.

Getting advice from the best

Aged 45, Buffett decided to merge his business with Charlie Munger back in 1976. Munger is another very shrewd investor and has been his right hand man ever since. The advice and help that Munger has proved to be invaluable along the way.

For example, relating to the first point, Munger is quoted as saying that “the big money is not in the buying and selling, but in the waiting.” No doubt he helped Buffett to be patient along the way.

Today, I feel that my chances of increasing my net worth via stocks will be massively helped in listening to other smart investors. The more information I can tap into, the more informed I can be. This relates to specific stock research and also with more general investment advice.