Overview of Paragon REIT

Paragon REIT (PGNREIT) is under the spotlight with a proposed privatisation offer from Cuscaden Peak Investments Pte Ltd at S\$0.98 per unit. The offer represents a premium of 10.9% and 12.8% over the one-month and 12-month volume-weighted average prices, respectively. This proposal includes a trust scheme of arrangement and excludes adjustments for the 2H24 cash distributions of 2.33 Scts/unit declared during FY24 results. The decision points toward an indicative scheme meeting and EGM scheduled for April 2025. The offer requires approval from more than 50% of unitholders representing 75% or more in value of the units present and voting.

PGNREIT’s portfolio is heavily concentrated on Paragon Mall, which accounts for 72% of the portfolio value. The privatisation aims to facilitate a significant asset enhancement initiative (AEI) for Paragon Mall, with a potential investment of S\$300m-S\$600m over the next three to four years. This AEI will include upgrades to the façade, interior redesigns, space reconfigurations, and mechanical and electrical improvements. However, during the AEI period, PGNREIT’s net property income (NPI) could decline by 10-40%, and the adjusted DPU could drop by 21.4-64% due to volatility.

Despite the potential challenges, the privatisation offer provides unitholders with an opportunity to monetise their investments at a premium. The report maintains a Hold rating for Paragon REIT with a target price of S\$0.98, reflecting limited upside potential.

Performance Highlights of Paragon REIT

PGNREIT reported a 5.3% increase in gross revenue and a 4.5% rise in NPI during 2H24, driven by positive rental reversions of +18.1% for FY24. The portfolio occupancy stood at 97.5% by the end of FY24, with Singapore assets showing strong rental reversions of +21.6%, led by Paragon Mall. A special distribution of 1.85 Scts was included in the 2H24 DPU of 4.18 Scts. Excluding this, the DPU would have been 2.33 Scts.

Peer Comparisons: Retail REITs

CapitaLand Integrated Commercial Trust (CICT)

CICT is recommended with an “Add” rating at a target price of S\$2.45. The REIT boasts a dividend yield of 5.5%-5.9% across FY24F-FY26F, supported by its strong market cap of \$10,726m. Its stable asset leverage of 38.5% highlights its robust financial standing.

Frasers Centrepoint Trust (FCT)

FCT also receives an “Add” recommendation with a target price of S\$2.68. Its dividend yield is expected to range between 5.7% and 5.9%, backed by a market cap of \$2,820m. The REIT’s resilience in the retail space is a key strength.

Lendlease Global Commercial REIT (LREIT)

LREIT has an “Add” rating with a target price of S\$0.69 and offers a higher dividend yield of 7.5%-7.7%. Its market cap of \$921m and asset leverage of 40.8% make it an attractive choice for income-focused investors.

Mapletree Pan Asia Commercial Trust (MPACT)

MPACT is recommended with an “Add” rating and a target price of S\$1.53. The REIT has a dividend yield of 6.8%-7.0% and a market cap of \$4,629m, showcasing its strength in the commercial real estate sector.

Starhill Global REIT (SGREIT)

SGREIT also receives an “Add” recommendation with a target price of S\$0.60. Its dividend yield is estimated at 7.4%-7.5%, supported by a market cap of \$821m. Its focus on retail properties positions it well in the current market environment.

Hospitality REITs

CapitaLand Ascott Trust (CLAS)

CLAS is rated as “Add” with a target price of S\$1.18. Its dividend yield is projected between 7.0%-7.8%, complemented by a market cap of \$2,453m. CLAS’s focus on hospitality assets ensures steady income generation.

CDL Hospitality Trust (CDREIT)

CDREIT is recommended with an “Add” rating and a target price of S\$1.07. Its dividend yield ranges from 6.5%-7.7%. With a market cap of \$762m, the trust shows resilience in the hospitality sector.

Far East Hospitality Trust (FEHT)

FEHT receives an “Add” recommendation with a target price of S\$0.78. The REIT offers a consistent dividend yield of 7.0%, supported by a market cap of \$901m. Its focus on Singapore-based assets ensures stability.

Industrial REITs

AIMS AMP Capital Industrial REIT (AAREIT)

AAREIT is unrated but displays a strong dividend yield of 7.3%-7.5%. Its market cap of \$754m and asset leverage of 33.7% reflect its robust financials.

CapitaLand Ascendas REIT (CLAR)

CLAR is highly recommended with an “Add” rating and a target price of S\$3.10. It offers a dividend yield of 5.8%-6.0%, supported by a market cap of \$8,579m. Its diversified industrial portfolio is a significant strength.

Frasers Logistics & Commercial Trust (FLT)

FLT is rated as “Add” with a target price of S\$1.35. The REIT offers a dividend yield of 7.6%-7.9% and has a market cap of \$2,431m. Its focus on logistics assets positions it well for growth.

Final Thoughts

The report provides a comprehensive analysis of Paragon REIT and its peers across various sectors, offering valuable insights for investors. With a focus on privatisation and asset enhancement initiatives, Paragon REIT stands out as a key player in the luxury retail landlord market. Peer comparisons across retail, hospitality, and industrial REITs highlight diverse investment opportunities tailored to different risk appetites and income preferences.