Tenant Administration and Rising Debt Costs Pose Risks for Region RE

Solid Financial Performance Despite Retail Sector Headwinds

Region RE Limited has reported its FY25 results, showcasing a resilient performance amid a challenging retail environment. Funds from operations (FFO) per security edged up 0.6% to 15.5 cents, a notable achievement given the impact of two national retailers entering administration during the year. The company’s distribution per security remained steady at 13.7 cents, fully covered by adjusted funds from operations (AFFO), underscoring its commitment to delivering secure income streams to investors.

Assets under management (AUM) increased by 8.7% to $5.2 billion, reflecting both valuation uplifts and strategic acquisitions. The portfolio occupancy held firm at 97.5%, with a weighted average lease expiry (WALE) of 4.9 years, indicating a stable income base anchored by long-term leases to quality tenants.

Portfolio Strength and Operational Highlights

The company’s retail portfolio remains focused on convenience-based centres, heavily weighted towards non-discretionary retail segments such as food, health, and essential services. This defensive positioning has helped sustain comparable net operating income (NOI) growth of 3.2% despite broader sector pressures. Specialty leasing spreads and fixed rent reviews showed positive momentum, with average specialty rents rising to $919 per square metre.

Region RE’s strong relationships with anchor tenants like Woolworths and Coles underpin income stability, with 46% of gross rent derived from turnover rent arrangements. The weighted average lease expiry for anchor tenants stands at 6.5 years, reflecting long-term commitments that support predictable cash flows.

Capital Management and Balance Sheet Resilience

The company’s balance sheet remains robust, with gearing at a conservative 32.5%, well within its 30-40% target range. The weighted average cost of debt (WACD) was 4.3%, with 97% of debt hedged or fixed, providing protection against interest rate volatility. Region RE also completed an on-market security buy-back, purchasing 2.2 million securities at an average price of $2.30, reflecting confidence in the underlying value of its securities.

Region RE’s Moody’s Baa1 credit rating was maintained, supporting access to diversified funding sources and liquidity of $313.3 million. The company’s capital management strategy includes disciplined acquisitions and divestments, with $64.5 million spent on the Kallo Town Centre acquisition and $227.5 million raised from divesting non-core assets.

Sustainability and Growth Outlook

Region RE continues to advance its sustainability agenda, targeting net zero emissions by FY30. During FY25, the company installed 21.7MW of solar photovoltaic capacity across 33 sites and invested $14 million in sustainability initiatives. These efforts are integrated into executive incentives, highlighting the strategic importance of environmental responsibility.

Looking ahead, FY26 guidance anticipates comparable NOI growth of 3.3% and FFO of 15.9 cents per security, assuming stable market conditions. The company plans to maintain its focus on portfolio curation, reinvestment in centre repositioning, and growth in funds management, particularly through its Metro Fund platform. Distribution payout ratios are expected to remain around 90% of FFO and 100% of AFFO, balancing income stability with growth ambitions.