Should You Invest In Paragon REIT [Fundamental Analysis]

In this article, we'll be conducting a fundamental analysis of Paragon REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having a high degree of capital preservation ability.

Information Is Accurate Up To Sept 2023

Business Description

Paragon REIT (previously known as SPH REIT) is a Retail REIT that was listed in 2014 and owns 5 retail properties (3 are in Singapore and 2 are in Australia).

What I Like About Paragon REIT

• Very stable distribution since listing (Fig 8)
  

• Flagship properties (Paragon & Clementi Mall), which form the majority of the portfolio (78%), are of quality, stable and have a long remaining land lease (Paragon: 2112 & Clementi Mall: 2109)
  

• Good debt management record and relatively lower gearing ratio as compared to industry peers

What I Do Not Like About Paragon REIT

• No clear strategic direction on how the REIT is managed
  

• Acquisition of The Rail Mall (in 2018), though negligible, is questionable
  

• Diversification into Australia exposes the portfolio to foreign exchange risk
  

• Portfolio is not diversified and is concentrated in Paragon Mall (Fig 10)

Updates From Recent Performance (1H 2023)

General Comments:

• Nil

Positive Headwinds:

• Higher tourist traffic had boosted the performance of flagship mall - Paragon Mall’s performances and its ability to command a high portfolio rental reversion of 6.9% in H1 2023 from 4.1% in FY 2022.

Negative Headwinds:

• Significant increase in the cost of debt (from 2.05% in EOY 2022 to 4.05% in HY 2023) will erode the net income and dividend distribution. We’ve seen this happening from the 2023 Half Year statements where distribution per unit decreased by 15.7%.
  

• Majority of the debt will be due for renewal during 2023 and 2025, of which the interest rate environment is expected to remain relatively high. This will result in a “new normal” for the cost of debt for Paragon REIT which will result in a lower dividend distribution over a longer duration of time. (Fig 6)

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- Work In Progress -

Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®). Connect with me on social media platforms to receive updates on future content! You can also slide into my DMs if you have any questions :)

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Disclaimer:

This article is meant to be the opinion of the author

This article is for information purposes only

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore