Should You Invest In Paragon REIT [Fundamental Analysis]
Updated: Oct 26
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
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)
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.
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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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 :)
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
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