Regional REIT Targets Lower Leverage as Leasing Market Stays Soft

A 146,262-square-foot Nottingham letting helped Regional REIT offset a sluggish office market in the first half, but management’s earnings call made clear that debt reduction remains the company’s central task.

The U.K.-listed property investor secured 26 new lettings worth £1.9 million in annual rent during the six months ended June 30, slightly exceeding the £1.8 million lost through lease breaks and expiries. The largest deal, with U.S. defense and electronics company Glenair, covers two buildings on a 20-year lease with a 10-year break option and is expected to generate £1.1 million of annual rent.

That lease also cut annualized void costs by roughly £700,000. It matters because vacancy, rather than rent collection, is weighing on the portfolio. Regional REIT collected 99.7% of rent in the period, yet EPRA occupancy fell to 74.3% by rental value from 75.9% at the end of 2025, while the rent roll declined to £48.4 million.

The company is trying to repair that gap by selling properties that require heavy investment or carry persistent vacancies. It completed £21.5 million of disposals in the first half and a further £4.3 million after June 30. Eleven more assets, worth about £32 million, were contracted, under offer or in negotiations at the time of the results.

Those sales reduced gross borrowings to £243.8 million and net loan-to-value to 38.5%, down from 40.4% at year-end. Management is targeting roughly 35% by December, assuming planned transactions close. The balance-sheet progress comes with a cost, however. Regional REIT said refinancing for about £100 million of Scottish Widows debt could carry an all-in rate in the low 6% range, around three percentage points above current borrowing costs.

First-half EPRA earnings per share fell to 4.2 pence from 5.2 pence a year earlier. The company declared a 4 pence interim dividend and reaffirmed its goal of paying 8 pence per share for 2026.

The portfolio was valued at £526.7 million, down 5.1% from December. Management is betting that refurbished, energy-efficient regional offices will command stronger demand as new supply remains constrained. More than 87% of the portfolio now has an EPC rating of C or better, but converting occupier interest into signed leases is taking longer.

That timing risk now sits alongside the refinancing bill.