KUALA LUMPUR: AmInvestment Research has reaffirmed its Hold recommendation for Pavilion REIT with a lower fair value of RM1.87 a unit compared with RM1.94 previously.
It said on Friday it also revised downwards its dividend per unit (DPU) forecast by -1.5%, -5.4% and -4.3% in FY17F, FY18F and FY19F respectively after making changes to the assumptions for the acquisition of Pavilion ELITE.
Pavilion REIT reported a distributable income of RM58.6mil (5.8% on-year and -4.0% on-quarter) for 2QFY1F and DPU of 1.94 sen, versus 2.06 sen in 2QFY16.
To recap, Pavilion REIT registered a revenue of RM120.2mil (+1.9% on-year and +1.1% on-quarter) for 2Q17 was deemed to be in line with the research house’s expectations. This made up 48.7% of its full-year revenue estimates of RM491.2mil and 45.3% of consensus. Its solid revenue growth was attributed to higher percentage rent.
AmInvestment Research pointed out Pavilion REIT’s net property income was 5.8% lower on-year in 2Q17 due to higher maintenance at Pavilion KL Mall, improvement of light fittings at Intermark Mall, tenancy costs incurred for landlord provisions at Damen Mall as well as higher provision for doubtful debts. As a result, 2Q17 registered an NPI margin of 63.8% (1Q16: 66.4%).
Occupancy in Pavilion Mall KL has increased to 96.1% in 2Q17 from 93.1% in 1Q17 due to repositioning of tenants.
Currently, around 34 tenants are undergoing renovations. Some notable tenants are Gucci, Prada and Hermes.
“It is expected that the renovations will be completed by 3QFY17. Overall, occupancy across all assets remained stable across all assets (Intermark: 80.5 and Pavilion Office Tower: 96.0%) with the exception of Damen: 82.2% (1Q17 87.0%),” it said.
AmInvestment Research also pointed out Pavilion announced the acquisition of Pavilion ELITE for a total purchase consideration of RM580mil.
The acquisition is likely to be financed via debt and equity (40% debt: 60% equity). The equity portion will be financed via private placement up to 218 million shares while the remaining debt portion will be financed via medium-term notes.
“The purchase consideration of RM580mil represents gross yield of 8.5% based on average rental of RM17.50 psf. Assuming an NPI margin of 70%, the NPI yield would be 6.0%, which is accretive,” it said.
The proposed acquisition essentially involves the extension by PREIT of its existing Pavilion KL Mall shopping mall Pavilion ELITE, extension-connections and subway linkage.
The subway linkage is located on a stratum of underground land below part of a reserved land that connects Elite Pavilion Mall to Fahrenheit 88 shopping mall.
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