Regional REIT - Covered dividend with a 12% yield

Regional REIT (RGL) delivered a good income performance in FY22, led by strong leasing (well above pre-pandemic levels) and continued strong rent collection. DPS of 6.6p was fully covered and we forecast the same for FY23. Market-wide valuation yield widening reduced NAV and increased gearing, but RGL notes that it has ample headroom available across its debt facilities, which are fixed at a cost of 3.5%. In this note we explain why we think DPS is sustainable and review some of the key issues that appear to be weighing on the valuation.