Coles, Woolies landlord Region cautious on outlook after profit return

The shopping centre owner says its Woolworths and Coles sites are performing well and smaller tenants are also renting space as it taps more growth via a new fund.

Region Group chief executive Anthony Mellowes says the group is focused on defensive, resilient cashflows. Picture: Britta Campion

Listed real estate investment trust Region Group says its network of Woolworths and Coles supermarkets are travelling well.

It has also signalled growth plans in the sector by setting up a new fund backed by Singapore sovereign fund GIC that could grow to $750m.

The group, which is one of the largest landlords of Woolworths and Coles with 60 and 31 stores respectively, turned around to produce a net profit after tax of $17.3m last year, after falling to a $123.6m loss in 2023 on the back of property writedowns.

Region chief executive Anthony Mellowes said the company was focused on delivering defensive, resilient cashflows to support secure and growing long-term distributions. The group is targeting comparable net operating income growth of 3 per cent, while also picking up good centres and repositioning its existing holdings.

“We will continue to maintain an appropriate and flexible capital management structure to enable the execution of these priorities,” he said.

Region said it was “significantly increasing” its funds management platform by setting up the $393.9m Metro Fund 2 with GIC.

The group will take the mandate from listed rival Centuria Capital, which had effectively inherited it from Primewest after taking over that business.

Centuria grew the portfolio for GIC to about six centres and now Region will take a 20 per cent equity interest in the fund, with GIC holding the remaining 80 per cent. The group said the vehicle could become as large as its existing Metro Fund 1, which is backed by GIC and has seven centres worth $295m with ambitions to get to a $750m portfolio.

The centres being taken across from Centuria are Omnia Potts Point, Spring Farm Shopping Centre and Cameron Park Plaza, all in NSW, as well as Melbourne Square in Victoria, Byford Village in WA and West Village in Queensland.

Region had adjusted funds from operations (AFFO) – a measure of property earnings – of 13.6c per security and a distribution of 13.7c per security. After selling off some smaller malls, the group’s gearing has been pared back to 32.9 per cent – the lower end of its target range.

In a sign of the health of small tenants, portfolio occupancy bumped up from 97.8 per cent to 98.1 per cent, with specialty tenant vacancy reducing from 5 per cent to 4.7 per cent.

Demand for space is holding up in small centres, as it struck 552 leasing deals with 4 per cent average specialty leasing spreads and kept 83 per cent of expiring tenants.

The group had comparable portfolio moving annual turnover growth of 2.5 per cent driven by supermarket sales growth of 3 per cent and non-discretionary specialty sales growth of 4.1 per cent.

Region has sold off $176.7m of smaller properties since May 2023 but is now finished selling. It is already back buying and picked up Cooleman Court in Canberra from Mirvac for $74m.

Region gave fiscal 2025 earnings guidance of AFFO lifting slightly to 13.7c per security with a distribution in line with this level.

Citi analysts said it was softer guidance than consensus expectations but said the result supported a shift from negative operating margins to positive in coming periods.