PETALING JAYA: The prospects of positive rental reversion, lower maintenance charges, higher tourist numbers and earnings from the acquisition of Pavilion Bukit Jalil will help drive up earnings for Pavilion Real Estate Investment Trust (Pavilion-REIT) in financial year 2023 (FY23).
The REIT’s distribution per unit (DPU) of 4.29 sen announced for the fourth quarter ended Dec 31, 2022 (4Q22) took its total DPU to 8.37 sen in FY22 and translated into a gross yield of 6.2%. Driven by the prospect of further gain in FY23, research houses have revised their estimates for the REIT.
“We revise our FY23 core net earnings and earnings per unit forecast by up 40% and 4.7% respectively, after factoring in the lower maintenance expenses and contribution from Pavilion Bukit Jalil as well as its placement exercise,” said MIDF Research in a report yesterday.
MIDF Research raised its target price (TP) for Pavilion-REIT to RM1.63 per unit from RM1.56 previously with an estimated net distribution yield of 5.7%.
“Higher tourist arrivals particularly from China are expected to increase shopper footfall and improve tenant sales at Pavilion KL Mall and Elite Pavilion Mall. Hence, we maintain our ‘buy’ call on Pavilion-REIT,” MIDF added.
Pavilion-REIT announced a strong 4Q22, posting a core net income of RM65mil which was 20% higher year-on-year (y-o-y) and 6.3% quarter-on-quarter (q-o-q), mainly due to lower maintenance expenses, which fell 26% q-o-q.
Its total FY22 core net income grew by 95.8% y-o-y to RM246.4mil, on the back of a recovery in rental income from its shopping malls following the reopening of the economy and international borders.
Net property income for its care asset, Pavilion KL Mall (PKL) jumped to RM233.2mil or up 62.9% y-o-y in FY22 while the NPI for its Elite Pavilion Mall surged 234% y-o-y to RM30.3mil, as footfall numbers recovered further supported by higher tourist arrivals.
RHB Research also maintained its “buy” call on the trust, with a revised TP of RM1.57 per unit (from RM1.52 previously) on the expectations higher footfall and tourist numbers will help ensure its flagship mall remains well tenanted and enjoy rental reversion in the range of 5% to 6% in FY23.
“Management guided that 30% of PKL’s footfall pre-pandemic came from foreign tourists, with roughly 50% of that group coming from China.
“With the REIT already reporting normalised earnings without China tourists in FY22, the opening of the country’s borders is expected to provide another boost in the upcoming year,” RHB Research said.
The research house adjusted Pavilion-REIT’s FY23-FY24 earnings by 4% to 6% and introduced its FY25 net profit forecast of RM382mil for the trust.