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Paragon REIT posts 9% drop in DPU to 5.02 cents due to higher cost of debt

Samantha Chiew
Samantha Chiew • 3 min read
Paragon REIT posts 9% drop in DPU to 5.02 cents due to higher cost of debt
Rising interest rates caused Paragon REIT's FY2023 DPU to decline by 9%. Photo: Paragon REIT
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The manager of Paragon REIT announced that its distribution per unit (DPU) for the FY2023 ended December 2023 period came in at 5.02 cents, some 9.1% drop from the previous year’s 5.52 cents, mainly due to rising interest costs.

For the 2HFY2023 period, DPU was 2.60 cents.

Distributable income was 14.7% lower y-o-y at $135.6 million from $159.0 million a year ago.

The REIT’s gross revenue increased 1.8% year-on-year to $288.9 million for FY2023 from $283.8 million, and net property income (NPI) increased 1.7% year-on-year to $215.1 million from $211.5 million for the same period.

Despite the rising interest costs affecting DPU, Paragon REIT notes that its assets continue to benefit from resilient retail spending, as it maintained a portfolio occupancy rate of 98.1% as at Dec 31, 2023.

The REIT also achieved a positive rental reversion rate of 6.3% in FY2023, reflecting retailers’ positive leasing sentiments post pandemic to position for progressive growth in international demand.

See also: Aztech Global posts net profit of $15.9 mil for 1QFY2024, up 18.7% y-o-y

The portfolio weighted average lease expiry stood at 5.1 years by net lettable area and 3.0 years by gross rental income, translating to a distributed lease expiry profile with low concentration risk.

Domestic retail consumption was supported by low unemployment rates and a resilient labour market. The retail sector recovery was further driven by the progressive resumption of international travel which saw total tourist arrivals reaching 13.6 million in 2023, a 115.7% increase over 2022 and about 71.2% of pre-covid levels in 2019. For FY2023, the REIT’s Singapore portfolio recorded a marginal 2% y-o-y decline in tenant sales.

Total retail sales for New South Wales and South Australia rose 2.8% and 5.1% y-o-y respectively foe the FY2023 period, as retail sector fundamentals remained robust due to low unemployment rates, despite inflationary pressures impacting cost of living. The REIT’s Australia portfolio recorded a 7% year-on-year increase in tenant sales for FY2023.

See also: ESR-LOGOS REIT reports 10.8% lower NPI of $62.9 mil in 1QFY2024

The REIT maintains a prudent and disciplined approach to capital management, with total borrowings at $1.3 billion, translating to a gearing of approximately 30%. Fixed debt percentage remained at 85% to mitigate against the impact of rising interest rates, while debt maturity profile stood at a weighted average term to maturity of 2.1 years. Average cost of debt was 4.30% for FY2023.

On the outlook, the REIT’s manager expects resilient domestic demand and labour market conditions, coupled with the potential upside of an increase in international travel, to support the continued recovery of tenants’ leasing sentiments and lead to improved performances across Singapore and Australia assets in FY2024.

Dr Leong Horn Kee, chairman of Paragon REIT says: “Underpinned by our proactive leasing strategies aimed at maintaining strong occupancy, we are well positioned to capitalise on the strong retail sector recovery. We remain cautiously optimistic that we will continue to deliver sustainable long-term value for all our unitholders.”

Susan Leng, CEO of Paragon REIT adds: “Our portfolio rental reversion continued to trend positively with an improvement to 6.3% for FY2023, reflecting stronger demand and improved sentiments and outlook from retailers. We continue to focus on maximising the value of our quality assets by capitalising on the retail recovery in the form of positive rental reversion, maintaining prudent cost management and adopting innovative technology solutions to streamline our operations.”

Units in Paragon REIT last traded at 84 cents on Feb 5. The counter is down 15.2% in the past 12 months.

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