- We re-affirm our HOLD recommendation on Pavilion REIT
(P-REIT), with an unchanged fair value of RM1.33/unit based on a 5% discount to
our DCF value of RM1.40/unit, following a company visit.
- The Fashion Avenue (+5% NLA) is set to open for business
in the first week of September, comprising 35 speciality stores, of which 40%
are international fashion brands marking their debut in Malaysia – creating a
whole new shopping experience and therefore, bringing footfalls to higher
levels. This would be further lifted by the escalator at Raja Chulan connecting
to the Fashion Avenue directly on Level 2. All tenancy has been confirmed
except for one, pending a Letter of Offer.
- More importantly, 67% of tenancy is due for renewal in
FY13 with a 10%-15% rental reversion, followed by 15% in FY14 and FY15. Sales
turnover in Pavilion Mall is expected to pick up from now onwards arising from
the nationwide mega sale till Christmas.
- Although Pavilion Mall is known as a luxury mall, it has
27 international designer brands, out of the 480 tenants. As such, it is able
to provide an alternative to affordable shopping as well as a wide variety of
F&B, apart from luxury goods, for the middle-class. In comparison, KLCC
Mall targets the same segment of shoppers. In spite of this, Pavilion Mall has differentiated
itself well by housing the majority of the flagship stores and creating an
entirely different shopping ambience from KLCC Mall. Blended average rental
rates are RM18psf for Pavilion Mall versus RM25psf of KLCC Mall (matured mall).
- Construction of the Pavilion Extension (NLA: 250,000sf,
GFA: 4,000sf) has begun. Pilling stage will commence next month. The planned
injection of the Extension is set to take place by FY16 after the completion in
3QFY15. We strongly believe that the Extension is inevitable given the close
proximity to Pavilion Mall and the tremendous long waiting list of over 400
interested tenants. As such, rental rates of the Extension are likely to be
similar to market rates as it is riding on strong demands for bigger retail
lots.
- Fahrenheit 88 will hit the 3-year cycle in 3QFY13. Given
that Fahrenheit would have stabilised and passed the infant stage, management
will begin the evaluation of the mall. Should the mall be deemed fit, asset
injection would likely take place in early FY14.
- Furthermore, P-REIT plans to make its foray into a
suburban retail mall in USJ called “da:men”, which is likely to be completed in
2QFY15. This retail mall is surrounded by shoplots with an estimated selling
price of RM5mil and 2 blocks of serviced apartments.
- Apart from the said acquisitions in the pipeline,
management is actively looking at value-accretive acquisitions within the West Coast region in Peninsular Malaysia,
targeting cap rates at 6%.
- Yesterday’s closing share price hit a new high at
RM1.33/share, implying a dividend yield of 4.7% and 5.6%, respectively for
FY13F and FY14F. We, however, remain positive on P-REIT’s stronger medium- to
longer-term earnings trajectory underpinned by:- (1) Exposure to prime retail
asset targeting the mid- to upper-class; (2) Early stages of the mall in the
life cycle (5 years); (3) Exciting assets in the pipeline given the Right of
First Refusal; and (4) Pavilion Mall as a hub for fashion and F&B.
Source: AmeSecurities
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