Pavilion REIT recovery hampered by re-emergence of Covid-19

KUALA LUMPUR: Pavilion Real Estate Investment Trust's (REIT) recovery is expected to be hampered by the resurgence of Covid-19 cases in the country, says Kenanga Investment Bank Research in a report following the REIT's release of disappointing earnings.

In a note, the research house said the return to a conditional movement control order in certain states could trigger another bout of rental waivers and single-digit negative rental revisions for leases up for renewal.

Kenanga, which has a "market perform" recommendation on the stock lowered its FY20-21 core net profit forecast by 35% to 36% to RM99mil to RM228.2mil. In line with this, its target price was slashed from RM1.60 to RM1.40.

"Given the worsening Covid-19 situation thus far, we opt to be conservative with our earnings estimates and valuations and will continue to monitor the fluidity of the pandemic as it progresses.

"We remain cautious on pure retail MREITs as earnings remain particularly vulnerable to the pandemic directly affecting shopper traffic and thus tenant stability," it said.

At current levels, PAVREIT is commanding 5.6% gross yield for FY21 which is close to its peers’ average of 5.8%, it added.

According to Kenanga, FY20-21 will see minimal expiries with 22-19% of portfolio NLA expiring. It expects conditions at Damen mall to remain challenging in the near term given the on-going pandemic.

For the first nine months of FY20, Pavilion REIT's realised net income was RM76.6mil, below Kenanga's and consensus expectation at 51% and 54% of full-year estimate respectively.

Kenanga had expected malls to bounce back in the third quarter post-MCO, which failed to materialise.
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