Why Region Group continues to offer long-term value for Djerriwarrh
How, why, and what we invest in is important for our shareholders to understand. We’re spotlighting some of our key portfolio holdings to explain why we believe they are compelling long-term investments. In this article, Brett McNeill, Djerriwarrh’s Portfolio Manager, explains why we believe Region Group remains a compelling long-term investment.
Region Group (ASX: RGN) is a property management group that owns and manages 88 convenience-based retail properties across Australia. Djerriwarrh has invested in Region Group since August 2021.
Region Group’s focus on high-quality, convenience-based retail centres, combined with disciplined capital management and strong tenant demand, has made it a resilient and reliable investment. Its ability to generate stable income while positioning for long-term growth has reinforced our confidence in its future potential.
A property group built for stability
The Region Group continues to deliver a strong performance within the Australian real estate sector, with a particular focus on grocery-anchored neighbourhood and sub-regional shopping centres. These assets provide defensive and resilient cash flows, particularly in uncertain economic conditions. This is reflected in the company’s 98.1% occupancy rate and strong tenant retention.
Since its IPO in 2013, Region Group has steadily expanded its portfolio while maintaining a disciplined approach to growth. The company’s internal management structure offers a key advantage over externally managed peers, helping to keep costs low and avoid conflicts of interest.
The company delivered a solid 1H FY25 result, with key financial and operational metrics reflecting continued stability and growth. The company reported a net profit of $81.8 million, a significant improvement from the previous period’s loss of $35.0 million. The group’s balance sheet remains strong, with gearing at 32.8%, sitting at the lower end of its target range of 30–40%. This financial prudence ensures the company remains well-positioned to capitalise on future opportunities.
Despite broader market uncertainty, Region Group’s valuation remains attractive. The company’s Net Tangible Asset (NTA) backing per share stands at $2.42, well above the current share price of $2.37. The forward dividend yield of 6.7% is particularly compelling compared to the ASX200’s grossed-up dividend yield of 4.5%.
Management has also been proactive in improving the quality of its property holdings. A $196.8 million capital recycling program has been completed, with funds from sales reinvested into high-quality acquisitions and strategic investments such as the Metro Fund. This approach is crucial in ensuring that the company remains well-positioned for sustainable growth. By focusing on assets with long-term value potential and divesting non-core properties, Region Group continues to refine and strengthen its property portfolio. These moves are designed to improve earnings resilience, enhance tenant quality, and create opportunities for rental growth, which are key factors in our investment decision.
A long-term investment for Djerriwarrh
We believe the Region Group remains well-positioned for future growth. Management has reaffirmed its FY25 earnings guidance of 15.5 cents per security in Funds From Operations (FFO)—a key measure of cash flow generated by a real estate investment trust—and 13.7 cents per security in Adjusted Funds From Operations (AFFO), which accounts for capital expenditures and other adjustments. This reflects management’s confidence in the company’s ability to generate stable returns.
A key aspect of our investment in Region Group is its ability to navigate changing market conditions while maintaining strong financial discipline. The company’s focus on non-discretionary retail and high occupancy levels provides stability, while its measured approach to reinvestment supports long-term growth. We also see value in its internal management structure, which ensures better alignment with shareholders and keeps costs under control.
At Djerriwarrh, we look for companies that offer resilience, disciplined capital management, and a clear path to sustainable returns. Region Group continues to meet these criteria, reinforcing our confidence in its role within our portfolio.