Paragon REIT Review @ 19 February 2023

Basic Profile & Key Statistics

• Main Sector(s): Retail & Healthcare
• Country(s) with Assets: Singapore & Australia
• No. of Properties (exclude development/associate/fund): 5

Key Indicators

Performance Highlight

Gross revenue and NPI have improved yoy but distributable income declined yoy mainly due to higher finance costs. Distribution to unitholders and DPU remain similar yoy.

Rental Reversion

Rental reversion is at negative for both Singapore and Australia properties at -3.3% and -7% respectively.

Tenant Sales & Monthly Footfall

Tenant sales have recovered to above pre-COVID level for all the 4 malls above. For monthly footfall, Australian properties have recovered to pre-COVID levels, while Paragon has recovered to close to pre-COVID levels as well, however, there is still some gap for Clementi Mall.

Distribution Breakdown

• Distributable Income Breakdown:
• 87.5% from Operation
• 12.5% from Fees Payable/Paid in Units
• Distribution = 98% of Distributable Income
• Distribution to Perpetual Securities Holder = 7.7% of Distributable Income

Related Parties Shareholding

• REIT Sponsor's Shareholding: Above median for more than 20%
• REIT Manager's Shareholding: Above median for more than 20%
• Directors of REIT Manager's Shareholding: Below median for more than 20%

Lease Profile

• Occupancy: ± 5% from median
• WALE: Below median for more than 20%
• Highest Lease Expiry within 5 Years: Above median for more than 20%. Falls in 2024
• Weighted Average Land Lease Expiry: Above median for more than 20%

Debt Profile

• Gearing Ratio: Below median for more than 20%
• Gearing Ratio including Perps: ± 10% from median
• Cost of Debt: Below median for more than 20%
• Fixed Rate Debt %: Above median for more than 10%
• Unsecured Debt %: 0%
• WADM: ± 10% from median
• Highest Debt Maturity within 5 Years: ± 10% from median; Falls in 2025
• Interest Coverage Ratio: Above median for more than 20%

Diversification Profile

• Top Geographical Contribution: Above median for more than 20%
• Top Property Contribution: Above median for more than 20%
• Top 5 Properties' Contribution: Above median for more than 20%
• Top Tenant Contribution: Below median for more than 20%
• Top 10 Tenants' Contribution: Below median for more than 20%

Key Financial Metrics

• Property Yield:  ± 10% from median
• Management Fees over Distribution: Below median for more than 10%; $7.46 distribution for every dollar paid
• Distribution on Capital: ± 10% from median
• Distribution Margin: Above median for more than 10%

Trends

* Interest coverage ratio for past quarters is estimated to reflect a closer figure of adjusted ICR.

* DPU of 4Q 2022 is annualized to 3 months to have an apple-to-apple comparison.

• Flat - DPU, Occupancy, Property Yield
• Slight Downtrend - NAV per Unit
• Downtrend - Interest Coverage Ratio, Distribution on Capital, Distribution Margin

Relative Valuation

• P/NAV: Above +1SD for 1y & 3y; Average for 5y
• Dividend Yield: Below -1SD for 1y; Above average for 3y & 5y

Author's Opinion

Favorable	Less Favorable
Diversified Sector	Low Directors of REIT Manager's Shareholding
High REIT Sponsor's Shareholding	Short WALE
High REIT Manager's Shareholding	Concentrated Lease Expiry
High Occupancy	0% Unsecured Debt
Long Weighted Average Land Lease Expiry	High Perpetual Securities %
Low Gearing Ratio	High Top Geographical Contribution
Low Cost of Debt	High Top Property & Top 5 Properties' Contributions
High Fixed Rate Debt %	Interest Coverage Ratio Downtrend
High Interest Coverage Ratio	Distribution on Capital Downtrend
Low Top Tenant & Top 10 Tenants' Contributions	Distribution Margin Downtrend
Competitive Management Fees
High Distribution Margin

Compared to the previous quarter, the gross revenue and NPI have remained stable. However, there has been a decline in distributable income, primarily due to increased finance costs. Looking ahead, the performance of the Singapore mall is expected to improve with the reopening of China's borders. With the renaming to Paragon REIT and a low gearing ratio, would the next acquisition come soon? 

For more information, check out:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and details of Singapore REIT

REIT Review - List of previous REIT review posts

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my findings and should not be considered professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.