Pavilion REIT (Jan 19, RM1.09)
Initiate coverage at RM1.09 with a hold rating and target price of RM1.10: Pavilion REIT’s (PavREIT) key attraction lies in its asset portfolio and the jewel in its crown, Pavilion KL Mall. Located in the heart of Kuala Lumpur’s prime tourist and shopping district, this mall caters predominantly for the upper middle to high-income group, and is one of only four prime retail malls in the country. We initiate coverage on PavREIT with a “hold” rating and RM1.10 discounted-cash flow-based (DCF) target price. It currently trades at a 5.5% yield.
PavREIT’s appeal is enhanced by its status as the second largest Malaysian real estate investment trust (M-REIT) by market capitalisation (RM3.27 billion) and asset size (RM3.5 billion). The portfolio comprises Pavilion KL Mall (RM3.4 billion) and Pavilion Tower (RM100 million). Given its relatively young assets of four years in age, there is scope for growth in rental yields.
With its low debt-to-asset ratio of 20%, there is potential to leverage another RM2.2 billion for immediate yield accretive acquisitions. PavREIT has been granted right of first refusal to purchase two other malls and an extension of the Pavilion KL Mall worth about RM1.5 billion, which are only expected to be ready for injection from 2H13 onwards.
Pavilion KL Mall has a diversified and sizeable tenant base of over 450, which comprises mainly regional and international brand names. No single tenant contributes over 10% of total revenue, we estimate. With 67% of occupied net lettable area expiring only in 2013, its near-term earnings base is resilient. The mall has been chalking up higher average rentals per sq ft despite opening for business at the onset of the global financial crisis in September 2007.
With its status as the second largest M-REIT, hands-on management team and its superior asset quality, PavREIT deserves a premium valuation. We value PavREIT at RM1.10, based on DCF valuation method. This implies a 2012 gross dividend yield of 5.5% (against CapitaMalls Malaysia Trust’s 5.9% and Sunway Real Estate Investment Trust’s 5.8%). — Maybank IB Research, Jan 19
This article appeared in The Edge Financial Daily, January 20, 2012.
Initiate coverage at RM1.09 with a hold rating and target price of RM1.10: Pavilion REIT’s (PavREIT) key attraction lies in its asset portfolio and the jewel in its crown, Pavilion KL Mall. Located in the heart of Kuala Lumpur’s prime tourist and shopping district, this mall caters predominantly for the upper middle to high-income group, and is one of only four prime retail malls in the country. We initiate coverage on PavREIT with a “hold” rating and RM1.10 discounted-cash flow-based (DCF) target price. It currently trades at a 5.5% yield.
PavREIT’s appeal is enhanced by its status as the second largest Malaysian real estate investment trust (M-REIT) by market capitalisation (RM3.27 billion) and asset size (RM3.5 billion). The portfolio comprises Pavilion KL Mall (RM3.4 billion) and Pavilion Tower (RM100 million). Given its relatively young assets of four years in age, there is scope for growth in rental yields.
With its low debt-to-asset ratio of 20%, there is potential to leverage another RM2.2 billion for immediate yield accretive acquisitions. PavREIT has been granted right of first refusal to purchase two other malls and an extension of the Pavilion KL Mall worth about RM1.5 billion, which are only expected to be ready for injection from 2H13 onwards.
Pavilion KL Mall has a diversified and sizeable tenant base of over 450, which comprises mainly regional and international brand names. No single tenant contributes over 10% of total revenue, we estimate. With 67% of occupied net lettable area expiring only in 2013, its near-term earnings base is resilient. The mall has been chalking up higher average rentals per sq ft despite opening for business at the onset of the global financial crisis in September 2007.
With its status as the second largest M-REIT, hands-on management team and its superior asset quality, PavREIT deserves a premium valuation. We value PavREIT at RM1.10, based on DCF valuation method. This implies a 2012 gross dividend yield of 5.5% (against CapitaMalls Malaysia Trust’s 5.9% and Sunway Real Estate Investment Trust’s 5.8%). — Maybank IB Research, Jan 19
This article appeared in The Edge Financial Daily, January 20, 2012.
