Paragon REIT Q3 2024 Update: Luxury Retail Slowdown Impacts Performance

Introduction

Welcome to the comprehensive analysis of Paragon REIT and its peer companies across various sectors. This detailed report provides insights into the financial performance, future projections, and key metrics of each company, offering an in-depth look at their market position and growth potential.

Paragon REIT: Overview and Performance

Paragon REIT reported a 3.4% year-on-year increase in revenue for the first nine months of 2024, amounting to S\$223 million, which aligns with 71.3% of the full-year forecast. However, third-quarter tenant sales in Singapore fell by 2.4% year-on-year, primarily due to weaker luxury spending. Despite this, the Clementi Mall saw an 8.6% year-on-year increase in tenant sales during the same period. In Australia, tenant sales grew by 1.1% year-on-year, with notable performances from Westfield Marion and Figtree.

Occupancy and Lease Management

Paragon REIT’s Singapore assets remained fully occupied, while the Australian portfolio faced a slight decline in occupancy. One Australian tenant at Westfield Marion is currently in holdover, continuing to operate on a monthly rent basis. This arrangement mitigates vacancy risk but poses a potential challenge if the tenant’s viability or rent payment timeliness becomes an issue.

Financial Health

Gearing increased to 35.9% in the third quarter of 2024, following the redemption of S\$300 million in perpetual securities. The cost of debt eased slightly to 4.5% for the first nine months of 2024, thanks to lower rates and favorable refinancing terms. Despite the lack of near-term catalysts, Paragon REIT maintains a strong position in the luxury retail landlord market.

Sector Analysis

Hospitality

The hospitality sector saw varied performances among different companies:

• CapitaLand Ascott Trust (CLAS SP): With a market cap of \$2,562 million, CLAS SP has a dividend yield of 6.8% for FY24F, projected to increase to 7.6% by FY26F. The stock is rated “Add” with a target price of \$1.18.
• CDL Hospitality Trust (CDREIT SP): This company, with a market cap of \$826 million, has a dividend yield of 6.2% for FY24F, increasing to 7.2% by FY26F. It is also rated “Add” with a target price of \$1.16.
• Far East Hospitality Trust (FEHT SP): FEHT SP has a market cap of \$928 million and offers a steady dividend yield of 6.9% across FY24F to FY26F. It is rated “Add” with a target price of \$0.78.
• Frasers Hospitality Trust (FHT SP): With a market cap of \$675 million, FHT SP has a lower dividend yield of 4.7% for FY24F, projected to rise to 5.2% by FY26F. This stock is not rated.

Industrial

The industrial sector also presented mixed results:

• AIMS AMP Capital Industrial REIT (AAREIT SP): This company, with a market cap of \$758 million, has a high dividend yield of 7.8% for FY24F, slightly decreasing to 7.6% by FY26F. It is not rated.
• CapitaLand Ascendas REIT (CLAR SP): CLAR SP, having the largest market cap of \$8,664 million in this sector, has a dividend yield of 5.9% for FY24F, increasing to 6.2% by FY26F. It is rated “Add” with a target price of \$3.23.
• Cromwell European REIT (CERT SP): With a market cap of \$982 million, CERT SP offers a high dividend yield of 8.9% for FY24F, decreasing to 7.6% by FY26F. It is rated “Add” with a target price of \$1.92.
• ESR-LOGOS REIT (EREIT SP): EREIT SP, with a market cap of \$1,572 million, has a dividend yield of 8.2% for FY24F, maintaining a similar yield through FY26F. It is rated “Add” with a target price of \$0.36.
• Frasers Logistics & Commercial Trust (FLT SP): FLT SP has a market cap of \$2,837 million and a dividend yield of 6.8% for FY24F, slightly increasing to 6.9% by FY26F. It is rated “Add” with a target price of \$1.35.
• Keppel DC REIT (KDCREIT SP): With a market cap of \$2,813 million, KDCREIT SP has a lower dividend yield of 4.2% for FY24F, increasing to 4.8% by FY26F. It is rated “Hold” with a target price of \$2.34.
• Mapletree Industrial Trust (MINT SP): MINT SP, having a market cap of \$4,873 million, offers a dividend yield of 5.9% for FY24F, increasing to 6.2% by FY26F. It is rated “Add” with a target price of \$2.82.
• Mapletree Logistics Trust (MLT SP): With the largest market cap in this sector, MLT SP at \$4,876 million, has a dividend yield of 7.0% for FY24F, decreasing to 5.9% by FY26F. It is rated “Add” with a target price of \$1.73.
• Sabana Shariah Compliant Industrial REIT (SSREIT SP): SSREIT SP, with a market cap of \$309 million, has a high dividend yield of 7.9% for FY24F, increasing to 8.2% by FY26F. It is not rated.

Office

The office sector exhibited the following trends:

• Keppel REIT (KREIT SP): KREIT SP, with a market cap of \$2,554 million, has a dividend yield of 6.7% for FY24F, increasing to 7.1% by FY26F. It is rated “Add” with a target price of \$1.15.
• OUE Commercial REIT (OUEREIT SP): OUEREIT SP, with a market cap of \$1,203 million, has a dividend yield of 7.0% for FY24F, increasing to 7.4% by FY26F. It is rated “Hold” with a target price of \$0.34.
• Suntec REIT (SUN SP): SUN SP, having a market cap of \$2,470 million, offers a dividend yield of 5.5% for FY24F, increasing to 6.4% by FY26F. It is rated “Hold” with a target price of \$1.38.

Retail

The retail sector revealed the following insights:

• CapitaLand Integrated Commercial Trust (CICT SP): CICT SP, with the largest market cap of \$10,837 million, has a dividend yield of 5.5% for FY24F, increasing to 6.1% by FY26F. It is rated “Add” with a target price of \$2.45.
• Frasers Centrepoint Trust (FCT SP): FCT SP, having a market cap of \$2,895 million, offers a dividend yield of 5.7% for FY24F, increasing to 5.9% by FY26F. It is rated “Add” with a target price of \$2.68.
• Lendlease Global Commercial REIT (LREIT SP): LREIT SP, with a market cap of \$1,021 million, has a dividend yield of 6.8% for FY24F, maintaining a similar yield through FY26F. It is rated “Add” with a target price of \$0.71.
• Mapletree Pan Asia Commercial Trust (MPACT SP): MPACT SP, with a market cap of \$4,925 million, has a high dividend yield of 7.2% for FY24F, decreasing to 6.7% by FY26F. It is rated “Add” with a target price of \$1.53.
• Paragon REIT (PGNREIT SP): As previously discussed, Paragon REIT has a market cap of \$1,833 million and offers a dividend yield of 5.2% for FY24F, increasing to 5.8% by FY26F. It is rated “Hold” with a target price of \$0.92.
• Starhill Global REIT (SGREIT SP): SGREIT SP, with a market cap of \$856 million, has a high dividend yield of 7.3% for FY24F, maintaining a similar yield through FY26F. It is rated “Add” with a target price of \$0.60.

Overseas-Centric

Companies focused on overseas markets performed as follows:

• CapitaLand China Trust (CLCT SP): CLCT SP, with a market cap of \$1,139 million, has a high dividend yield of 8.6% for FY24F, increasing to 9.5% by FY26F. It is not rated.
• Elite Commercial REIT (ELITE SP): ELITE SP, with a market cap of \$228 million, offers a high dividend yield of 9.3% for FY24F, increasing to 9.7% by FY26F. It is rated “Add” with a target price of \$0.34.
• Manulife US REIT (MUST SP): MUST SP, having a market cap of \$172 million, has a dividend yield of 0.0% for FY24F, projected to rise significantly to 46.8% by FY26F. It is rated “Add” with a target price of \$0.22.
• Sasseur REIT (SASSR SP): SASSR SP, with a market cap of \$642 million, offers a high dividend yield of 9.1% for FY24F, increasing to 10.0% by FY26F. It is rated “Add” with a target price of \$0.93.

Healthcare

The healthcare sector had the following standout:

• Parkway Life REIT (PREIT SP): PREIT SP, with a market cap of \$1,768 million, has a lower dividend yield of 4.2% for FY24F, increasing to 4.7% by FY26F. It is rated “Add” with a target price of \$4.91.

ESG Analysis

Paragon REIT received a combined ESG score of C by LSEG in FY23, with specific scores of C+ for Environment, C for Social, and C- for Governance. Despite its weaker environmental score, Paragon REIT has committed to achieving net-zero emissions at its Singapore and Australia assets by 2050. The company aims to reduce greenhouse gas emissions, water, and electricity intensities by 30%, 18%, and 18%, respectively, by 2025.

Governance and Social Scores

Paragon REIT’s governance and social scores lag behind its peers due to lower human rights and community scores. However, the company has made significant strides in sustainability, achieving its 2024 electricity and water intensity reduction targets ahead of schedule and making progress towards its greenhouse gas emission targets.

Environmental Certifications

The Clementi Mall and Paragon have obtained recertification for the BCA Green Mark (Gold) and Green Mark (Certified), respectively. Westfield Marion achieved 4 Stars for Water and Energy in the National Australian Built Environment Rating System (NABERS) in FY21, while Figtree Grove is in the process of obtaining a NABERS rating.

Financial Summary

Paragon REIT’s financial performance for the past and upcoming years is summarized as follows:

Conclusion

Paragon REIT and its peer companies across various sectors have exhibited a range of performances and financial health indicators. While some sectors like industrial and overseas-centric have shown strong dividend yields, others like healthcare have more modest returns. Paragon REIT’s commitment to ESG and sustainability efforts, coupled with its solid market position, make it a noteworthy player in the real estate investment trust sector.

As always, investors are encouraged to conduct their own research and consider their individual investment goals and risk tolerance before making any investment decisions.