Regional REIT (LON:RGL) said it made progress in reducing debt, disposing of non-core properties and adding rental income during the first half of 2026, despite what Chief Executive Officer Stephen Inglis described as a subdued leasing market and continued economic uncertainty.
The company reported 26 new lettings during the six months ended June 30, generating £1.9 million of new rental income and an annualized £700,000 reduction in void costs. It completed £21.5 million of property sales during the period, primarily involving vacant or partly vacant assets, with proceeds used to reduce borrowings.
Portfolio sales and debt reduction
The portfolio was valued at £526.7 million at June 30, reflecting disposals and a 1.3% valuation decline. Gross borrowings fell to £243.8 million and loan-to-value fell to 38.5%, according to the presentation.
Inglis said the disposal program is focused on reducing debt ahead of refinancing requirements in December 2027 and December 2028, while also cutting the holding costs associated with underperforming and non-income-producing buildings.
Two additional sales totaling £4.3 million were completed after the period ended. Regional REIT also had 11 assets either under contract, with solicitors, or in late-stage negotiations, representing approximately £32 million of potential proceeds. If those transactions complete before year-end, the company said it could sell about £58 million of properties in 2026, in line with guidance for £50 million to £60 million of annual disposals.
The company expects to reach an LTV of about 35% by year-end, assuming currently contracted and anticipated sales are completed. Inglis said the board considers that level appropriate, while further portfolio value growth and future strategic sales could lower it over time.
Regional REIT expects approximately £100 million of debt to remain across its Scottish Widows facilities after planned asset sales. Management said a refinancing would likely carry an all-in cost in the low 6% range, about 3 percentage points above current borrowing costs. The company is in discussions with Scottish Widows and other lenders, and said it expects refinancing documentation to be in place by the end of the first quarter of next year.
Leasing activity and occupancy
EPRA occupancy declined during the period, which management attributed principally to completed capital-expenditure projects returning to the EPRA calculation. Inglis said actual occupancy improved by more than 2% during the six months.
Core portfolio occupancy fell from 86% at December 2025 to 82% at June 2026. Management said the decline reflected the sale of some income-producing assets, as well as lease expiries and tenant break options. The company gained £1.9 million in new rent but lost £1.8 million from expiries and breaks.
Regional REIT is targeting occupancy of 84% by the end of 2026, supported by further leasing and sales of vacant properties. Inglis said the company had more than 200,000 square feet of refurbished vacant space that has attracted strong interest, although converting interest into completed leases is taking longer than usual.
One of the period’s largest lettings involved 1 and 2 Newstead Court in Nottingham. Glenair, a U.S. defense and electronics company, agreed to take nearly 150,000 square feet across two buildings on a 20-year lease with a 10-year break option. The lease is expected to generate more than £1 million of annualized rent, while the tenant will undertake approximately £5 million of capital works previously anticipated by Regional REIT.
The company also cited rental growth at Linford Wood Business Park, where rents increased from £18 per square foot to £22.50 per square foot, and at Thorpe Park in Leeds, where its latest letting achieved £24 per square foot. Rent collection stood at 99.7% during the period, with management expecting the balance to be collected.
Office-market outlook and ESG investment
Inglis said regional office supply remains constrained, with construction starts at their lowest level in more than a decade. He said new development is generally difficult to justify without pre-leasing because of elevated construction costs and the rents required to support development.
While decision-making by prospective occupiers has slowed, management said demand remains present. The company pointed to U.K. office rental-value growth of 4.7% in the year to June, compared with 3.6% in the City market. Regional REIT said it was achieving rents averaging 3% above estimated rental values across its portfolio.
The company continues to invest in energy efficiency and building quality. More than 61% of the portfolio now meets EPC A or B standards, while 26% is rated EPC C and has an identified route to improvement. Management said most lower-rated properties are expected to be sold as part of the disposal program.
Regional REIT has installed its 4D smart energy technology at 45 sites, producing £190,000 of direct savings for the REIT. Solar installations have been completed at 17 sites, with 14 sites generating energy and producing about 180,000 kilowatt hours.
Value-add projects and dividend plans
Management said it has completed 15 feasibility studies for alternative uses of assets, including student accommodation, residential, hospitals and industrial uses. Some properties with planning support are expected to be marketed in coming months.
At Central Park on New Lane in Leeds, the Department for Transport has confirmed that the site will not be needed for the proposed Leeds mass-transit system, according to Inglis. The company expects the site’s safeguarding status to be released shortly. Regional REIT has also agreed a 10-year reversionary lease with Asda for part of the site, at a higher rent from 2028, while it plans to pursue residential planning for the rear portion.
Looking ahead, Inglis said management intends to maintain the dividend at similar levels over the next year or two. The company expects to offset higher refinancing costs through further reductions in void costs and additional lettings, and said it should be able to sustain an annual dividend of more than 8 pence per share.
About Regional REIT (LON:RGL)
Regional REIT Limited is a UK based real estate investment trust, focused on building a large geographically diverse portfolio of income producing regional properties outside of the M25 motorway.
Regional REIT pursues its investment objective by investing in, actively managing and disposing of regional core property and core plus property assets. It aims to deliver an attractive total return to its shareholders, with a strong focus on income supported by additional capital growth prospects.
