- We re-affirm our
BUY rating on Pavilion REIT (PavREIT) with an unchanged fair value at
RM1.33/unit based on a 5% discount to our DCF value of RM1.40/unit.
- PavREIT’s 1QFY12
reported net income of RM48mil is in line with our and street’s estimate,
making up 26% and 28%, respectively. This is 14% higher than management’s
forecast, which is mainly contributed from advertising income and income from
turnover rent from Pavilion mall.
- Meanwhile, Pavilion
Tower which accounts for 2.5% of gross rental income, came in 37% lower than
management’s forecast due to lower occupancy rate for this quarter. To-date, occupancy
is 83%. Nevertheless, the remaining NLA of 100,000sf (circa RM5.78psf) will be
occupied by middle of this year by a single tenant. Hence, achieving occupancy
of 100%.
- During 1QFY12,
higher revenue generated by advertising income resulted in higher other
operating expenses. Thereby, achieving a higher net property income of 9%
compared to management’s forecast.
- PavREIT was listed
on 7 December 2011. As such, there is no YoY or QoQ comparison.
- Fashion Avenue
consisting of 35 speciality stores, is currently under renovation. This would
likely result rental income for the upcoming two quarters being lower than this
quarter. However, expected doubling of rental rates will more than offset the
4.5 months of rental gap due to the renovation works and full impact will be
reflected in FY13F. It is targeted to open in the first week of September with
100% occupancy.
- Pavilion extension
is currently in the soil testing stage and to be completed in 36 months.
Construction will begin during the 3Q of this year.
- No dividend has
been declared for this quarter. PavREIT intends to distribute 100% of its
distributable income for FY12F on a half yearly basis.
- Balance sheet
remains strong with net gearing of 17%, implying room for acquisition.
Management is looking to explore areas such as Klang Valley, Ipoh and Johor for
any potential asset.
- At current level,
PavREIT has a DPU estimate of 6.2 sen and 7.3 sen, and projected dividend yield
of 5.4% and 6.4% (vs CMMT: 5.6% and 5.9%) for FY12F and FY13F, respectively. We
believe FY13F will be an exceptional year given the expected doubling of rental
rates at the Fashion Avenue and 67% of tenants up for renewal in FY13F. It also
has exciting assets in the pipeline – Pavilion Extension, Fahrenheit 88, and
‘da:men’ mall in USJ; hence, our BUY rating.
Source: AmeSecurities
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