- We reaffirm our HOLD recommendation on Pavilion REIT (PREIT) with an unchanged fair value of RM1.40/unit, based on a DCF valuation.
- PREIT reported core earnings of RM60mil (+7% YoY and +6% QoQ) for 1QFY15 and DPU of 1.53sen, vs. 1.46sen in 4QFY14.
- Results were within expectations – making up 24% of our full-year estimates of RM240mil and 25% of consensus.
- Its solid revenue growth of 4% YoY is attributed to:- 1) Positive contribution from FY14’s asset enhancement initiatives – i.e. Beauty Precinct, additional NLA at the “Couture Pavilion” at Level 2 and Level 7; and 2) Higher service charge (+17%) effective 1 May 2014.
- Net property income was 6% higher YoY due to higher provision of assessment for 1QFY14, offset by ongoing preventive maintenance works carried during the quarter and higher utilities.
- We make no changes to our EPS estimates. PREIT is expected to continue growing organically, underpinned by healthy rental reversion. FY15F earnings are expected to come in at RM251mil.
- Nevertheless, we see an exciting 2016 in relation to its acquisition plans. We expect increased newsflow momentum given that da:men mall is due for completion in 4QCY15. Notwithstanding this, the Pavilion Extension is also earmarked for completion by mid-2016. As for the underground tunnel which is connected to Pavilion Extension, PREIT has the right to use (but not acquire) the former.
- At the current level, valuation is fair. It is trading at a distribution yield of 5.3% and a yield spread of 138bps against the 10-year Malaysia Government Bond’s 3.9%.
Source: AmeSecurities Research - 24 Apr 2015
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