Region Group's New CEO Charts a More Active Course for Essential Retail

Region Group shifts from passive income to proactive organic growth and capital recycling, targeting 7%+ returns on asset enhancements while divesting small, low-growth centres.

RGN.AX · Earnings Call · 2026-08-17

A Strategic Shift Under New Leadership

Since joining Region Group this year, CEO Greg Chubb has wasted no time in redefining the company's approach. In his first results presentation, he laid out a clear strategy: “Our fundamental strategy is to maximize the performance from Australia's leading internally managed essential retail portfolio” — Gregory Chubb, Chief Executive Officer · 2026-08-17. But the real change is the emphasis on active asset management as a primary driver of growth. The company is moving beyond passive collection of rent towards targeted investments and tenant partnerships to unlock value from its existing centres. The numbers support this pivot. Comparable NOI grew 3.3%, occupancy hit 98.1%, and specialty leasing spreads averaged 4%. Yet Chubb stressed the opportunity to do more: “We have a significant opportunity to unlock more growth and value from the portfolio we already own” — Gregory Chubb, Chief Executive Officer · 2026-08-17. This is no longer a buy-and-hold story — it's a 'sweat the asset' story.

Capital Recycling: Divest, Invest, Partner

A cornerstone of the new strategy is disciplined capital recycling. The company has identified 16 assets below $30 million in value, many in smaller markets, that are candidates for divestment. As Chubb explained in Q&A:

So in simple terms, the way that I look at that is we've got 16 assets that are below $30 million in value. And a good proportion of those are in remote or smaller markets, and they have passing yields in the mid-5% range broadly. So that's the opportunity for us to recycle some of those assets and to redeploy those proceeds into the capital works programs
Gregory Chubb, Chief Executive Officer · 2026-08-17

The proceeds are earmarked for higher-yielding investments, including major tenant alignments and small, high-impact projects targeting incremental returns over 7%. Recent deals example the approach: selling Woodford and Mission Beach at an average 5.8% yield to fund the 6.4%-yielding Treendale acquisition. Meanwhile, the Metro Fund partnership continues to grow — now over $800 million in assets — offering another avenue for external capital.

Financial Discipline and Cost Control

CFO David Salmon highlighted a 20bps reduction in weighted average borrowing margins to 1.5% and a fully hedged debt book at a 4.5% cost. For FY27, he expects only a slight rise to ~4.6% despite some base rate repricing, thanks to continued refinancing. "On a blended basis, I think we'll be around that sort of 4.6% thereabouts," Salmon noted. This stability underpins guidance of 3% FFO growth to $0.165 per security and 3% AFFO growth, with a 100% payout ratio. The company also reiterated its commitment to approach to capital management, balancing buybacks (they paused to fund projects) and debt reduction. Crucially, cost growth is being contained at mid-2% for FY26 and expected to stay similar in FY27, supported by solar investments and prudent hedging of utility costs. This cost discipline is part of the foundation for the company's 3-4% AFFO growth target.

Riding the Turnover Rent Wave

One of the more nuanced opportunities lies in turnover rent. With supermarkets generating 70% of sales and growing MAT by 4.1%, nearly 60% of supermarkets are already in turnover rent, and over half are set for average base rent reviews in the next two years. Chubb noted: “Our ability to continue to grow turnover rent when we've got our supermarkets growing at 4.1% for FY '26 and nearly 60% of them in turnover rent gives us good visibility to growth” — Gregory Chubb, Chief Executive Officer · 2026-08-17. This should provide a natural tailwind to rental income as sales scale, reinforcing the organic growth narrative. In summary, Region Group is repositioning itself for a more hands-on, return-focused era under new leadership. The combination of active asset management, capital recycling, and a clear line of sight to turnover rent growth suggests a company intent on accelerating value creation from a defensible essential retail base.