Region Group (RGN): This morning, Australia’s biggest convenience mall landlord, RGN, released their half-year results 2024.  The company’s results were largely in line with expectations, though they revealed higher interest costs. The HNW Equity Growth Portfolio has a 2% & the HNW Income Portfolio a 3% weight to RGN.

Key Points:

    • Profits Lower: down -9.6% to $77.5 million due to increased interest expense and lost income from asset sales offsetting +4% property income growth.  Atlas encouraged management in August to sell some assets to demonstrate to the market than unlike large regional malls or CBD office towers, the valuation of neighbourhood malls is backed up by actual transactions.
    • Operational Performance: RGN continues to manage its portfolio well, with occupancy at 98% and a solid average lease term of 5.3 years. Tenant sales in the centres remained strong, with sales increasing by 4.1%, led by food and liquor (+4.2%), pharmacy/medical (+2.5%) and Kmart/Big W (+2.1%), with supermarkets benefiting the most from consistent food inflation. Currently, 53 anchors, or 41% of anchors, are paying turnover rent in addition to base rent, up from 45 anchors two years ago and contributed an additional $3.2 million in profit over the half.
    • Balance Sheet: Gearing is currently at 32%, at the low end of the target range of 30-40%. RGN saw an increase in the average debt cost to 4.4%, an average debt maturity of 4.0 years, and no debt expires until 2026. Pleasingly, RGN now has over 97% of its debt hedged or at a fixed rate.
    • Valuation: The most important metric for the February reporting season is that RGN has its portfolio independently valued, which saw the cap rate increase to a very conservative 6.04% from 5.86% six months ago. This saw the NTA reduce slightly to $2.45 from $2.55. This valuation looks conservative in light of the $77 million in non-core asset sales over the half at cap rates between 5.25% and 5.5%.
    • Guidance: RGN management maintained their guidance from the full year 2023 results of 15.7 cents per share, with net operating income higher in the second half, benefitting from lower expenses. Dividend guidance 13.7 cents = 6.1% yield.


Portfolio Strategy:  RGN offers the portfolio exposure to non-discretionary retailing via a diversified portfolio of neighbourhood shopping centres typically anchored by a Woolworths or Coles supermarket with an accompanying Dan Murphy’s or BWS. Unlike better-known retail landlords such as Scentre or Stockland, RGN’s tenants are not particularly exposed to the impact of online sales or falling discretionary retail spend, with consumer staples and alcohol,  as well as medical and personal services such as haircuts,  are not easily delivered online and largely non-discretionary.

Long leases to quality tenants such as Woolworths, Coles and Aldi give a high degree of confidence that RGN can maintain and grow their distributions over time with rental income growing annually.

RGN finished unchanged at $2.24 a credible outcome on a day when the ASX declined by -0.6%.

Cardiff Shopping Centre