Regional REIT (LSE: RGL) is the sort of stock that makes passive income investors sit up. The dividend yield is 8.74%, which is huge by today’s standards.
The promise of cash returns is right there in the numbers. Whether it’s a promise the company can keep is another matter.
What it owns
Regional REIT owns 112 properties across the UK. These are predominantly offices outside the M25 where parking is abundant and appetite for the London commute is not.
Source: Company Website
It consists of 1,146m units, with 659 occupants. That’s an encouraging sign – it means the firm doesn’t rely extensively on any one tenant.
That, however, is where the positive signs end. Occupancy rates were 75.9% at the end of the company’s financial year.
Real estate investment trusts (REITs) don’t pay tax on their income. But that only applies when properties are occupied – vacant buildings don’t generate rent.
There’s another risk to pay attention to as well. A net loan-to-value ratio of 40.4% means Regional REIT carries meaningful debt.
With high dividend yields, it’s always worth asking what the risks are. But it’s also important to focus on what the company can do – or is doing – to mitigate them.
Strategy
There are two issues with Regional REIT – empty properties and elevated debt levels. In both cases, however, the firm has a strategy for killing two birds with one stone.
It involves selling the vacant buildings and using the proceeds to reduce debt. Last year, the company completed £51.6m of disposals at 1.3% above book value.
Interestingly, the stock is currently 50% discount to its book value. So it’s selling its weakest properties at higher multiples than the market values its average ones at.
New lettings secured on the remaining properties were 3.9% ahead of expectations. That’s a sign the occupied bit of the portfolio is actually pretty good.
The remaining debt is fully fixed and hedged at an average cost of just 3.4%. That isn’t particularly expensive and near-term maturity risk has been largely dealt with.
So management has a plan to solve one problem with another and it appears to be working. But there’s still a big dividend yield on offer for investors willing to buy the stock.
Dividend yield
With the stock at 92p, Regional REIT’s 2026 dividend target of 8p implies a yield of roughly 8.74%.
That reflects some acknowledgement of genuine risk. And the dividend has been cut recently, which should remind investors of this.
Mechanically, however, £13,729 buys approximately 15,000 shares — enough for £100 per month in dividends, if the target holds. And there aren’t too many opportunities like this.
That is, of course, assuming those shares are held in a Stocks and Shares ISA. If they aren’t, dividend tax makes things a bit more complicated.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Of course, the word ‘if’ can’t be eliminated entirely. And Regional REIT is one of the less straightforward businesses in the industry.
There are no free lunches at yields approaching 9%. But the balance sheet has improved, the disposal programme is working, and the 2025 dividend was fully covered.
Given all this, I think the stock is worth considering as part of a broader diversified income portfolio.
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Stephen Wright does not own shares in any of the companies mentioned.
