The seemingly wonderful announcement of an offer by Cuscaden Peak to buy out the minority unit-holders of Paragon REIT at S$0.98 per unit lead to a sudden surge in its market perfromance as at 11 February 2025. While Paragon REIT soared 11.2% in a single trading day to become the best performing SREIT of the day, some unit-holders are crying poignantly as they have bought Paragon REIT at S$1.00 to S$1.10 per unit before the high interest rate environment became the norm post-COVID that leads to the downward spiral in its market unit price.
1. Hungry Lions Butchered Retail Investors
While this latest offer of S$0.98 per unit is way better than the S$0.9372 per unit offered back in 2022, it nevertheless is way undervaluing the crown jewel, Paragon shopping mall. Furthermore, it is actually a free-hold property but financial engineered into a 99 years leasehold when injected by the then SPH into SPH REIT (currently renamed Paragon REIT) and we all know that it is sitting in the prime area of Orchard Road.
I will take it with a pinch of salt that Cuscaden is playing hero to take up the extremely risky option (as per their insinuation) of major asset enhancement initiative ("AEI") of S$300Mil to S$600Mil over 4 years hence willing to buyout the minority unit-holders due to the execution risk. The truth is that Cuscaden is a commercial organisation that seeks to maximise profits for its shareholders. Their accountants, along with their commercial team, would have done a detailed financial projection of the future prospect to recoup back the upcoming CAPEX to achieve a favourable reward to risk outcome.
In view of Paragon shopping mall's future outlook post AEI, I thus think that a more reasonable price would be at least 20% in premium to its NAV of S$0.915, that is, at least S$1.098 per unit.
2. Will I take up the offer or vote against the offer if vested?
Note that I do not hold any units in Paragon REIT directly but my family members held around 11,000 units since 2019. I think that most REITs investors are more interested in a decent & stable distribution yield of 5% to 6% per annum. The AEI initiative will lead to a drastic plunge in distribution for the next 3-4 years as Clementi Mall will be left doing the heavy lifting during this period. I will probably be lobbying for my family members to just accept the offer and then move on to invest in other opportunities. The only issue is that of the late payment timeline of May 2025 (even if the EGM went through). Of course, if the REITs price crash further during this period, then Paragon REIT holder will benefit from the locked in S$0.98 per unit and vice versa if market price suddenly surge if interest rate decline more rapidly than expected.
Parting Thoughts
Personally, I do not like this deal as I do not find it very attractive or compelling enough for unit-holders. It would be great if Cuscaden can revise its offer upward by another 10%. But then again, there is a lack of clear direction for the growth of Paragon REIT given that its major unit-holders seems to have bought it to strip out its remaining investment properties. So, I am leaning towards the just sell and move on to other investment opportunities albeit the non-attractive offer.
P.S: Please see my previous other post on Paragon/SPH REIT on 2 May 2022
