London, UK, 3 October 2023

Regional REIT: Dividend rebase pragmatic and sustainable

Regional REIT’s (RGL’s) post-pandemic recovery in new lettings paused in H123, as occupiers adopted a cautious ‘wait and see’ approach, although rents increased and the strong ‘return to the office’ supports RGL’s expectation that leasing will accelerate. With DPS lowered to match reduced income prospects, the shares have fallen sharply, maintaining a sector-high dividend yield. Including asset sales focused on low-income properties, our forecasts show the rebased dividend to be fully covered and gearing reduced.

Share price weakness has pushed the FY24e dividend yield to c 16%, while the shares now trade at c 0.5x NAV. Positive indications that occupier demand remains robust and that gearing can be lowered while maintaining dividend cover should be a trigger for a strong re-rating.

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