PavREIT’s earnings came in line with estimates. Maintain BUY, with a revised TP of MYR1.72 (from MYR1.75, 11% upside). Management is cautious over the short-term retail outlook. That said, we expect the REIT’s growth potential to remain intact. Its two asset injections are still on track for completion in 1Q16. Furthermore, organic growth could see a boost from PavMall’s extension, due to complete in 2H16.

Within expectations. Pavilion REIT’s (PavREIT) 4Q15 core profit of MYR61.0m (+7% YoY) came in line with expectations. Revenue grew a decent 2.9% YoY despite the weaker market sentiment, underpinned by the positive rental reversion stemming from the refurbishment works completed in 2014 for Pavilion Kuala Lumpur Mall (PavMall). PavMall managed to chalk up decent 5-6% retail sales growth between Jan-Nov, partly attributed to the pre-GST spending in 1Q15. A final DPU of 2.07sen was declared, bringing total FY15 DPU to 8.23 sen.

Growth prospects intact amidst weak consumer sentiment. At the conference call, management was cautious on the outlook for the retail sector and expects consumer sentiment to only pick up in 4Q16. It has also started PavMall’s tenancy renewals, since about 68% of net lettable area (NLA) is due to expire in Sep 2016. About 11% of these tenancies have been renewed, with decent rental reversions of about 5%. PavMall will also be undergoing a repositioning exercise as there are plans to move some tenants to the Pavilion extension, which is due to commence operation in 2H16. Management is targeting to inject the extension into the REIT by 4Q16, barring any unforeseen circumstances. Management is still confident to wrap-up the injections of da:men and The Intermark mall by end-1Q16. We are more positive on The Intermark’s potential, given its ready catchment and strategic location. We note that da:menfinally opened on 8 Jan, with occupancy at about 60% currently.

Earnings forecasts. We trim our FY16F-17F earnings by <5% after adjusting for FY15’s updated numbers. We also introduce our FY18forecasts.

Maintain BUY. Our DDM-based TP is revised slightly to MYR1.72 (from MYR1.75) after our earnings revision. Despite the current weak growth due to its inorganic growth potential. Key risks to our call include prolonged weak consumer sentiment and competition from newer malls.