Selling to strengthen the balance sheet

Regional REIT Ltd. (LSE:RGL) owns a portfolio of offices in UK regional towns and cities, a market that has faced high vacancy and pressure on values since the pandemic. Its strategy has been to sell weaker buildings and concentrate on better-quality space. The half-year results published on 8 September 2026 show how those sales are feeding through to the balance sheet. This article examines how the company is using disposals to reduce borrowings and loan-to-value, and what that costs in terms of income.

A regional office REIT

Regional REIT is a real estate Investment trust listed in London. At 30 June 2026 it owned 106 properties valued at £526.7 million, with offices making up 89.5% of the portfolio by value. The largest regional exposures were the Midlands, the North East, Scotland and the South East. The company is advised by ESR Europe LSPIM Limited, under a simplified fee structure that took effect on 1 January 2026, and its chief executive is Stephen Inglis.

Half-year results on 8 September 2026

Regional REIT reported 12 disposal transactions in the half, including six full sales and six part-sales, raising £21.5 million in gross proceeds at a 5.7% discount to book value. Gross borrowings fell to £243.8 million from £266.2 million at the end of 2025, while cash rose to £40.8 million. As a result, net loan-to-value declined to 38.5% from 40.4%.

The company said 11 further Assets worth about £32 million were contracted, under offer or in negotiation, and that £4.3 million had been achieved after the period end. Its remaining Debt is spread across facilities maturing between December 2027 and June 2029, with a weighted average cost of debt of 3.4% and all borrowings hedged through fixed rates, swaps or caps.

Income, values and lettings

Selling buildings reduces rental income as well as debt. EPRA Earnings Per Share fell to 4.2p from 5.2p, and EPRA occupancy slipped to 74.3% from 75.9%. The portfolio valuation fell 5.1%, or 1.3% on a like-for-like basis, and EPRA net tangible assets per share declined to 188.7p from 194.4p. The company declared dividends of 4.0p for the half and set a 2026 target of 8.0p per share.

On the letting side, the company completed 26 new lettings with £1.9 million of annualised rent, at 2.0% above estimated rental value. These included a £1.1 million letting in Nottingham that it said will cut annual void costs by around £700,000. The share of the portfolio rated EPC C or better rose to 87.0%. Capital Expenditure of £1.4 million was deployed in the period, with ten refurbishment projects on site and 13 more scheduled. The company said its aim is to reinvest in high-quality, sustainable grade-A regional office space, where it believes occupier Demand outside London is highest.

Risks and points to watch

Disposals below Book Value reduce net asset value, and further sales may be needed while occupancy remains below 75%. The earliest facility, £103.7 million from Scottish Widows and Aviva, matures in December 2027, so refinancing will become a focus. Demand for older regional offices remains uncertain, and further valuation falls are possible. On 30 September 2026, the company disclosed that senior independent director Massy Larizadeh bought 9,000 shares on 29 September. A third-quarter trading update is scheduled for 12 November 2026, which should show whether disposals continued at a similar pace since June.

Conclusion

Regional REIT is using office sales to repay debt, reducing gross borrowings by more than £22 million and bringing loan-to-value below 40% in the first half. The trade-off is lower earnings and a smaller portfolio. Inglis said the investment case for regional offices continues to strengthen, but further progress depends on completing planned disposals, improving occupancy and refinancing debt ahead of the 2027 maturity.