Region group/RGN

RGN is a supermarket REIT (Woolies, Coles, big anchor tenants, and a bunch of other broadly nondiscretionary specialty shops, like the butcher, baker etc).

The result was fine, occupancy up a touch, plenty of leasing deals, rent renewal spreads up modestly (+2%) and overall net operating income grew (~2%).

However netting out the very large increase in debt costs and you find the FFO (funds from operations) drops quite a bit.

The per-share outcomes look somewhat less impressive, and the guidance for FY24 FFO of 15.6cps and AFFO 13.7cps suggests no near term improvement.

Occupancy rates are sitting at 98% (the below shows the historical only, for comparison, i.e. not updated), a slight improvement from 97.8%.

Cap rates have steadily widened, and the current cap rate sits at just over 6%.

We see RGN as a good, defensive hold, in a beaten up sector. If rates go down a lot, REITs will enjoy a large capital gain.

If rates stay at current levels, you will probably get the dividend yield, which is attractive enough.

As such, we see a role in the portfolio for REITs, particularly the ones with non-discretionary anchor tenants (e.g the RGNs, the CQRs of the world).

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Please note that past performance is not a reliable indicator of future performance.

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