Region Group (ASX: RGN) reported a positive Q3 FY25 market update, demonstrating resilience in its portfolio, particularly within the supermarket and non-discretionary specialty sectors. Comparable Moving Annual Turnover (MAT) growth showed supermarkets increasing by 2.6% and non-discretionary specialty tenants by 2.5%. Overall comparable MAT growth reached 2.2%.
Specialty leasing activity remains robust, with portfolio occupancy at a high of 97.9%. The company has proactively managed Mosaic tenancies, with 55% now subject to an approved deal or handed back to the administrator. Another 12% are being temporarily casually leased, suggesting a strategic approach to maintaining occupancy and income. Leasing spreads during the quarter averaged 4.0% on new deals, compared to 2.1% in the first half of FY25, signalling improved rental terms.
Region Group has actively managed its capital by divesting assets. The sale of Warrnambool Shopping Centre settled in March 2025 for $17.9 million at a 7.50% passing yield. Additionally, an exchange has occurred for Greystanes Shopping Centre for $76.0 million at a 5.50% passing yield, expected to settle in May 2025. These divestments, transacting at a weighted average of 1.0% above book value, will be used to reduce debt and fund the on-market security buy-back program announced on April 3, 2025.
Region Group reaffirmed its FY25 guidance, projecting Funds From Operations (FFO) of 15.5 cents per security (cps) and Adjusted Funds From Operations (AFFO) of 13.7 cps. The target distribution payout ratio is approximately 90% of FFO and approximately 100% of AFFO, offering attractive returns to security holders, assuming no significant changes in market conditions.
