Regional REIT Dividend Yield Trails a Deep NAV Discount

Regional REIT’s dividend yield sits above 10% and its shares trade at a 51% discount to net asset value, yet the FY2025 results make clear that the valuation gap is not a simple buying opportunity. The stock (LSE: RGL) reflects a genuine deterioration in income, not merely a market overreaction.

What the FY2025 numbers actually show

The commercial property portfolio stood at c.£555.2m across 112 properties, 1,146 units and 659 tenants as at 31 December 2025. On the surface that is a substantial asset base. The problem is that it is shrinking in value and generating less income.

Occupancy by estimated rental value slipped from 77.5% to 75.9% over the year, and net rental income fell from £46m to £40.3m. The portfolio suffered a 5% like-for-like valuation decline. EPRA earnings per share dropped from 19.2p in 2024 to 11.8p in 2025, and management has warned that 2026 will be weaker still, with three large tenant breaks expected to depress income further before any recovery takes hold.

The earnings compression has already fed through to the dividend. The full-year 2025 payment was 10p per share, covered by the 11.8p EPRA EPS. For 2026, the London Stock Exchange trading update confirms management is targeting 8p per share, distributing a minimum 90% of distributable income. The Annual Financial Report notes explicitly that this target is not a profit forecast. Investors should read that qualifier carefully.

The disposal programme: the key variable for the Regional REIT dividend yield thesis

Management’s response to the income squeeze has been an accelerated disposal programme, and it is here that the bull case rests. During FY2025, 18 assets were sold for £51.6m, above target and at 1.3% above book value. The proceeds were used to repay £50.5m of debt, cutting gross borrowings to £266.2m and the loan-to-value ratio to 40.4%. A further £72.4m of debt was refinanced through a multi-bank arrangement.

The logic behind the disposals is straightforward: the assets being sold are largely vacant. The 2026 disposal assets sold to date averaged 22% occupancy; those targeted for completion by mid-year averaged 27%. Shedding them is expected to reduce landlord void costs and improve net income by approximately £2.1m, according to Q4 earnings call highlights. Management is on track to exceed £55m of total disposals in FY2026, against £51.6m in the prior year, according to Edison Group research.

The early H1 2026 data shows mixed progress. Headline occupancy dipped further to 74.3%, though management reports that on an underlying basis (stripping out the disposed vacant assets) occupancy improved by more than 2%. Twelve disposals were completed in H1 2026 for an aggregate £21.5m before costs, at a blended net initial yield of 5.4%, or 9.8% excluding vacant properties. That spread illustrates how much of the portfolio’s drag originates from empty space rather than the let book.

NAV discount and balance-sheet trajectory

The half-year 2025 company filing recorded an EPRA NTA of £328.7m, or 202.8p per share on a diluted basis (IFRS NAV: £335.1m, 207.2p per share), after dividends of 4.7p per share declared in the period. With the share price well below 100p, the discount to that 202.8p EPRA NTA is the arithmetic behind the 51% figure. In theory, a portfolio liquidated at book value would return roughly twice the current share price. In practice, forced or distressed sales rarely achieve book, which is why NAV discounts of this magnitude tend to persist until the market is convinced management can stabilise or grow income.

There is also a structural cost improvement on the way. Management fee calculations are migrating in phases towards an equal weighting of net assets and market capitalisation by FY2027. At the current discount to NAV, analysis published on Investing.com UK estimates the fee change implies a cost saving of c.£0.9m in FY2027. That is modest relative to the income deficit but moves in the right direction.

Peel Hunt, one of the company’s brokers, reiterated a Buy rating on RGL in September 2025 with a price target of GBX 140, according to data compiled by MarketBeat. That implies substantial upside from current levels, though the broker note predates the further occupancy slip recorded in H1 2026.

Where the thesis could break

The recovery scenario requires three things to go right together: occupancy stabilises as vacant assets are sold off, the 2026 tenant break cycle does not extend into 2027, and the broader UK regional office market finds a floor. All three are plausible; none is assured. The 64 new market lettings secured in 2025 at 3.9% above 2024 estimated rental value suggests some latent demand, but leasing momentum needs to accelerate materially to offset the income lost from breaks and disposals.

The next tangible test is the FY2026 interim results, where investors will look for occupancy on an underlying basis to approach the 77%-plus level that would make the 8p dividend target look genuinely covered rather than aspirational.