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 high capital preservation ability.

Information Is Accurate Up To March 2024

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 (79%), 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
  

• The managers are not afraid to be passive with regards to their portfolio management instead of acquiring properties that are not yield accretive for the sake of acquiring (case in point: refusal of Seletar mall)
  

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 portfolio to foreign exchange risk
  

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

Updates From Recent Performance (FY 2023)

General Comments:

• Net property income increased by 1.7% as a result of a positive rent reversion of 6.3% but DPU decreased by 9% as a result of higher interest costs.
  

• Tenants’ sales of Singapore portfolio recorded a marginal 2% decline despite the resilient domestic consumption behaviour and a recovering tourism market. On the other hand, tenants’ sales of the Australia portfolio registered a 7% increase.
  

• Singapore’s property portfolio valuation improved by 1.9% while Australia’s property portfolio valuation decreased by 5.6%.

Positive Headwinds:

• -

Negative Headwinds:

• The majority of the debt will be due for renewal during 2024 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®).

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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