Pavilion REIT (PAVREIT) is one of the largest retail concentrated REIT in Malaysia where its key assets are strategically located in the golden triangle of Kuala Lumpur. We expect PAVREIT’s distributable income to rebound strongly with the reopening of China’s border/economy and the returning of foreign tourists to Malaysia. Meanwhile the acquisition of Pavilion Bukit Jalil (PBJ) will positive contribution to PAVREIT’s distribution in FY23 and more significantly in FY24. We forecast PAVREIT to register distributable income of RM302.8m and RM378.4m for FY23 and FY24 respectively. Based on payout ratio of 100%, we expect PAVREIT to distribute 8.0sen and 8.7sen for FY23 and FY24, translating into yields of 6.1% and 6.6% respectively. BUY with a target price of RM1.60 based on a target yield of 5.5% over FY24 distribution.

Pavilion Mall KL is the largest contributor to PAVREIT which has a Net Lettable Area (NLA) of 1.35m sq ft. and making up 67% and 87% of revenue and Net Property Income (NPI) respectively. Pavilion Mall KL’s occupancy rate has gradually improved to 92% in the latest quarterly report. We expect occupancy to reach pre-pandemic level of 98%-99% by 2H2023 supported by the returning of foreign tourists particularly from China.

Next to Pavilion Mall KL is Elite Pavilion Mall which is a 10-storey retail mall with an NLA of 227.8k sq ft. Within the same vicinity, the Pavilion Tower is a 20-storey modern office building with an NLA of 165,000 sq ft situated in the central business district of Kuala Lumpur, presently housing several international and local corporations. PAVREIT also has other assets such as Da Men Mall and Intermark Mall.

In November 2022, PAVREIT announced to acquire PBJ from Regal Path for RM2.2bn. PAVREIT will finance the acquisition with bank borrowings and issuance of 1.27bn new units in two private placements spread between the first tranche of RM720m and second tranche of RM550m.

PBJ is a suburban 5-storey retail mail with two basement car park levels with an NLA of 1.76m sq ft. Despite the dilution effects post issuance of new units, PBJ will contribute positively to the bottomline of PAVREIT for FY23 and beyond. Additionally, management guided PBJ has significant growth potential due to its low base, as the current average rental per sq ft is only in the high single digit in comparison to the mid-teens of other suburban malls. This suggests that PBJ has ample room for growth in terms of prospective rental income adjustments.

Source: Rakuten Research - 13 Apr 2023

To sign up for an account : http://bit.ly/40BNqKI

[Youtube Tutorial] Account Opening & Enable Foreign Equity:http://bit.ly/3I5Jzxo