Region Group Delivers Solid 1H FY25 Profit and Expands Asset Base
Region Group reports a robust first half of FY25 with $81.8 million net profit and an 8% growth in assets under management, underpinned by stable occupancy and strategic capital recycling.
- Statutory net profit after tax of $81.8 million
- Assets under management increased 8% to $5.2 billion
- Stable portfolio occupancy at 98.1%
- Completed $200 million capital recycling program
- FY25 earnings guidance: FFO 15.5 cents, AFFO 13.7 cents per security
Strong Financial Performance
Region Group (ASX: RGN) has announced a solid set of results for the first half of fiscal year 2025, reporting a statutory net profit after tax of $81.8 million. The company’s funds from operations (FFO) stood at 7.6 cents per security, with adjusted funds from operations (AFFO) at 6.7 cents per security. These figures reflect a resilient operational performance amid a challenging retail environment.
Distributions were maintained at 6.7 cents per security, representing a payout ratio of 89% of FFO and a full 100% of AFFO, underscoring Region Group’s commitment to delivering consistent income to its security holders.
Portfolio Growth and Stability
The company’s assets under management (AUM) increased by 8.0% since 30 June 2024, reaching $5.2 billion. This growth was supported by a stable portfolio occupancy rate of 98.1%, a key indicator of the quality and resilience of Region Group’s retail assets.
Leasing activity remained robust with 256 deals completed, achieving an average specialty leasing spread of 2.1% and retaining 85% of expiring tenants. Comparable portfolio MAT growth of 2.0% was driven by supermarket sales growth of 2.5% and non-discretionary specialty sales growth of 3.2%, reflecting steady consumer demand in essential retail categories.
Strategic Capital Recycling and Development
Region Group successfully completed its initial $200 million capital recycling program, reinvesting proceeds into a $36.8 million co-investment in Metro Fund 2 alongside a global institutional investor, and $138.5 million in acquisitions aimed at enhancing the core portfolio’s quality. Notably, the acquisition of Kallo Town Centre for $64.5 million in January 2025 signals a strategic focus on high-quality retail assets.
The divestment of Warrnambool Shopping Centre for $17.9 million, expected to settle in March 2025, further demonstrates disciplined portfolio management. Additionally, the 10,691 sqm expansion of Delacombe Town Centre is nearing practical completion, with key tenants now trading, positioning the centre for future growth.
Financial Position and Risk Management
Region Group maintains a conservative balance sheet with gearing at 32.8%, comfortably within its target range of 30-40%. The weighted average cost of debt (WACD) is 4.3% per annum, with 100% of debt either hedged or fixed. The company has also secured $1.4 billion in forward-starting interest rate derivatives covering FY26 to FY29, mitigating interest rate risk over the medium term.
Outlook and Guidance
Looking ahead, Region Group remains focused on delivering defensive and resilient cash flows to support secure and growing distributions. The company highlights the strength of the Australian consumer and the structural trend of declining retail floorspace per capita as drivers of opportunity within its existing centres.
For the full fiscal year 2025, Region Group provides earnings guidance of FFO at 15.5 cents per security and AFFO at 13.7 cents per security, with distribution payout ratios expected to be approximately 90% of FFO and 100% of AFFO, assuming stable market conditions.
Bottom Line?
Region Group’s disciplined strategy and stable fundamentals position it well for steady income growth amid evolving retail dynamics.
Questions in the middle?
- How will Region Group navigate potential shifts in consumer behaviour post-pandemic?
- What impact will rising interest rates have beyond FY29 despite current hedging?
- How will Metro Fund 2’s performance influence Region Group’s funds management growth?
