DBS Group Research has maintained its "buy" call and $1.05 target price on Paragon REIT, following the divestment of its 85%-held Sydney mall Figtree 5F4 Grove for A$192 million.
The sale, to an unrelated party, is at a 5% premium over its book value, and will give Paragon REIT a "fair" exit yield of 5.5%, says DBS in its Nov 22, calling the deal "an early Christmas gift".
"We are pleasantly surprised that the manager is able to divest the mall at a premium to book value and at a price that is close to its purchase price back in 2018, even after overcoming Covid disruption and a rise in borrowing costs in Australia," says DBS.
Following the sale of Figtree Grove, Paragon REIT's portfolio will be "anchored largely" here in Singapore, with its crown jewel the Paragon Mall and Clementi Mall accounting for 83% of its net property income. Paragon REIT's third asset is its 50% stake in Westfield Marion in Adelaide.
If Paragon REIT pays down the loan on Figtree of some A$105 million, DBS estimates that its unit holders will stand to receive proceeds from the divestment a distribution of 1.6 cents per share, or $47 million, says DBS, taking reference from a similar move when the REIT completed the sale of Rail Mall in August.
The divestment is slated for completion sometime in 1QFY25 ending March.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents.
Paragon REIT closed at 87 cents on Nov 22, down 0.57% for the day, and down 1.7% year to date.
