Regional REIT (RGL) made further progress in Q326 with its ongoing portfolio repositioning strategy, reducing borrowings through additional disposals and enhancing overall portfolio quality. Leasing conditions remain challenging, with occupier decisions taking longer, although rents achieved on completed transactions continue to demonstrate demand for good-quality office space. The company continues to target a fully covered FY26 dividend of 8.0p per share, and we make no changes to our forecasts.
Edison
Director, Financials. Property and Insurance
| Year end | EPRA earnings (£m) | EPRA EPS (p) | NAV/share (£) | DPS (p) | Yield (%) | P/NAV (x) |
|---|---|---|---|---|---|---|
| 12/25e | 19.1 | 11.8 | 1.94 | 10.00 | 11.4 | 0.45 |
| 12/26e | 14.9 | 9.2 | 1.90 | 8.00 | 9.1 | 0.46 |
| 12/27e | 15.0 | 9.2 | 1.94 | 8.20 | 9.4 | 0.45 |
| 12/28e | 15.2 | 9.4 | 1.99 | 8.40 | 9.6 | 0.44 |
Improving portfolio quality and reducing debt
RGL completed £8.9m (before costs) of property disposals during Q3, with a further £1.7m since the period end, taking year-to-date disposals to £32.2m. The company has not updated previous guidance of at least £55m for the year, which is reflected in our forecasts and implies a further c £23m by year-end. For the nine months, disposals were at an average 11.0% discount to pre-sale valuations (H126: 5.7%).
Leasing activity continues to demonstrate occupier demand for good-quality space, although the conversion of interest into completed lettings remains slow. In our recent executive interview, CEO Stephen Inglis commented that lettings now typically take nine to 15 months from initial viewing, versus six to nine months before the COVID-19 pandemic. In the first nine months, 26 new lettings generated £2.0m of annualised rent, with little change during Q3. The company also completed 41 lease renewals, securing £2.4m of annualised rent at 5.6% above estimated rental value (ERV), with tenant retention of 71.8%. Portfolio quality continues to improve, with 61.9% now rated EPC B or better (including exempt properties), compared with 61.2% at H126 and 60.0% at end-FY25. Annualised rent roll declined by £1.2m during Q3 to £47.2m, reflecting disposals and leasing movements. Nevertheless, the company estimates that completed disposals will enhance annual earnings by c £1.4m, reflecting savings in non-recoverable property costs and finance expenses. EPRA occupancy was broadly stable at 74.1% versus 74.3% at end-June.
Gross borrowings reduced by £11m during Q3 to £233m, taking the year-to-date reduction to £33m. Adjusted for £34m of cash, net loan-to-value (LTV) was 38.5% (H126: 38.5%). The average cost of borrowing increased to 4.1% from 3.4% at H126, reflecting the August replacement of low-cost interest rate hedges at higher market rates, with 97.1% of borrowings fixed or hedged. Discussions to refinance the £104m facility maturing in December 2027 are progressing, with completion targeted well ahead of maturity.
We leave our forecasts unchanged, including FY26e EPRA EPS of 9.2p and DPS of 8.0p. At 87.5p, the shares offer a prospective dividend yield of 9.1% and trade at a c 54% discount to H126 EPRA NTA. Progress in capturing the significant embedded net rental income potential remains the key driver of longer-term upside.
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