UK Edition
Questor Income Portfolio: how Regional Reit's bonds will affect its shares
Developments in the bond markets are often relevant to shareholders. This week we look at what a new issue of retail bonds by one of our holdings means for owners of its shares. We also report on updates from other holdings.
Update: Regional Reit
Regional, a property company that focuses on assets outside London, announced yesterday that it would issue retail bonds paying annual interest of 4.5pc until maturity in 2024.
Our portfolio is fully invested and already holds some retail bonds, so we will not be buying them. But it’s worth looking at their likely effect on Regional’s finances.
The proceeds of the bond issue will be used to repay holders of one of Regional’s other forms of borrowing, its zero-interest preference shares. These “zeroes” are due to be repaid on Jan 9 next year. The total amount due for repayment will be £39.9m and the Reit aims to raise at least that sum from the retail bond issue.
The zeroes offer investors a lump sum return equivalent to an annual interest rate of 6.5pc. The new retail bonds will therefore represent a substantially cheaper form of borrowing than the preference shares.
If the retail bond issue raises more than the amount needed to repay the zeroes, the excess will be used to repay other types of debt or to expand the portfolio.
A significant (30pc) fall in the cost of some of the trust’s borrowings has to be good news, although the amount of debt involved should be set against the company’s total of £379m.
Our Money section tomorrow will cover the bond’s merits for anyone interested in buying them. Regional Reit shares remain a “hold”.
Update: Dairy Crest
The firm that makes Cathedral City cheese and Clover spreads issued a trading update on Tuesday.
It said trading in the three months to June 30, the first quarter of its financial year, had been in line with the board’s expectations and the outlook for the full year was unchanged.
Sales of Dairy Crest’s four key brands – Cathedral City, Clover, Frylight and Country Life – were 6pc higher than in the same period last year. “This was driven by the ongoing outperformance of the two largest brands, Cathedral City and Clover, which both grew revenues by 10pc,” the company said.
Mark Allen, the chief executive, said innovation was “the cornerstone of this business” and he expected to announce “several” new product launches before the end of 2018.
He added that a fundraising exercise in May had made the firm’s balance sheet “more robust”. The shares initially rose after the announcement but later gave up their gains. Hold.
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Update: Royal Mail
On Tuesday Royal Mail said trading in the three months to June 24 had been “in line with our expectations”. It said new data protection rules had affected the letters business, with sales falling by 7pc, while parcels revenues grew by 6pc. There were no figures for profits or dividends. In all we saw no surprises and our stance is hold.
Update: Invesco Income Growth
This investment trust announced final results on July 9. The total dividend for the year to March 31 rose by 3.8pc to 11.05p – the 21st consecutive year of increases. Hold.
- Questor archive: telegraph.co.uk/questor
Update: IHT Portfolio
Gamma Communications, a business telecoms firm, issued a trading statement last week. It said management expected results for the full year to be at “the higher end of the range of the board’s expectations”.
Andrew Taylor, the new chief executive, said: “I am delighted to announce that we have continued to deliver strong revenue and margin growth across all business areas.”
The cash balance at the end of the half year was £36.9m, against £31.6m at the end of the previous year, and the board said it expected to propose an interim dividend in line with its “stated progressive policy”. Hold.