Questor’s worst ever share tip – but there is still a way to profit from the company’s bonds

Regional Reit has proved a terrible tip but shareholders will simply have to grit their teeth and hang on

‘Another rule is that fundraisings via share sales are bad for holders of shares but good for holders of bonds’

Adisaster: it’s the only word for our selection of Regional Reit for Questor’s Income Portfolio and for our decision to stick with the listed property fund through a series of troubles and the attendant share price falls.

Those falls worsened this week when the trust said it was considering a sale of new shares, among other options, as a means to repay a bond due to mature in five months’ time. It said that, should it go ahead with a share sale, it expected it to be “at a material discount to the company’s current share price”.

Such news always dismays investors and the shares duly sank by 30pc to 14.1p, although they have since recovered a little. We added them to our Income Portfolio as one of its inaugural holdings in October 2016 at 103p, so the paper capital loss for readers is an extremely painful 84pc. They will of course have received dividends to offset some of the pain and, perhaps counterintuitively, the trust seems likely to continue to pay its dividends, no doubt thanks to the need to pay 90pc of profits in divis in order to maintain its tax-advantaged Reit status.

The trust, which specialises in offices outside London, is caught uncomfortably between inflation in the costs of maintaining untenanted buildings, a tougher rental market after the pandemic and the rise in interest rates, which makes the refinancing of existing borrowings, such as the bond shortly to mature, more difficult and more expensive.

While we were unquestionably wrong to hold on to the Reit all this time, while the falling share price was doing its job of signalling problems to investors, the question is what to do now. Any reader tempted to sell in fear of yet further falls in the shares, or even outright failure, has this column’s understanding. But for all that, we think it would be a mistake.

City lore has it that the very nadir for the share price of a troubled company is often after the likelihood of a share sale becomes apparent but before the fundraising actually takes place. Once it does, the business finds its finances on a firmer footing and investors can start to see more of the opportunity and less of the risk.

We don’t know what form a share sale by Regional would take but a “rights issue” would be one possibility. Here, existing shareholders are offered the chance to buy discounted shares but the rights themselves are also tradable, so any investor disinclined to part with new money can sell those rights in the market, although this does mean dilution of their stake in the company.

More adventurous readers may want to consider a punt on the bonds due for repayment. They are “retail bonds”, so are available in small amounts to suit individual savers. Another City rule of thumb is that fundraisings via share sales are bad for holders of shares (as this week’s share price plunge has shown) but good for holders of bonds, because the company’s finances are strengthened and interest payments therefore more secure.

The bonds (ticker RGL1) closed at £89.88 yesterday (although do watch the “spread” or gap between the buying and selling prices). So if we assume, as seems highly likely, that Regional remains in business, bondholders will receive £100 at maturity in August – an 11.3pc return in five months. While we must reiterate our apology for tipping this fund, our advice in these new circumstances remains hold.

Update: Murray International

performer for our portfolio, thanks to a capital gain of 31.1pc on top of good dividends. However, the trust did cut its payout last year and now yields 4.7pc, which is less than our target of 5pc. We will therefore bank profits and sell the trust. We’ll announce a replacement in the coming weeks.

Update: performance tables

We promised when this portfolio was launched in 2016 that we would enable readers to track its performance. Over the past couple of years we have done so too infrequently but now offer a new way to keep up: instead of tables published periodically in print we now have permanent online articles for each of Questor’s three specialist portfolios and will update them every few months.

To see them, visit telegraph.co.uk/ questor, click on any Questor article, scroll to the bottom and expand the box headed “Get in touch – how to contact Questor”.