RHB maintains Buy on Pavilion REIT, TP at RM2

KUALA LUMPUR: RHB research maintained its buy call on Pavilion REIT with a target price of RM2 as 1H19 earnings of RM128.5mil came within its and consensus estimates.

Pavilion REIT’s 1H19 revenue grew 10.7% year-on-year due to income contribution from Elite Pavilion Mall, which it acquired in end-April 2018 as well as higher rental revenue and electricity income from Pavilion KL Mall.

Pavilion KL Mall is still the REIT’s biggest contributor with revenue and NPI growing 11% and 5% respectively on a mid-single digit rental reversion.

“Having said that, its occupancy rate dropped to 96% (vs 98% in the previous quarter) on a change in tenants. It now accounts for 84% of the REIT’s total NPI.

“About another 31% of leases will be up for renewal this year, and management expects the mall to continue recording healthy low single-digit rental reversions,” said RHB

The revenue growth was partially offset by lower rental income from Da Men Mall due to lower occupancy and rental rates.

“Da Men Mall’s NPI turned negative for the first time since the REIT acquired the mall in 2016. Its occupancy rate has continued to decline for four consecutive quarters to 65%.

“Having said that, management has guided that the occupancy rate should gradually improve as it plans to bring some new key tenants on board,” said RHB.

Moving forward, the research house believes Pavilion KL Mall’s strong positioning and strong upside from the newly injected Elite Pavilion Mall shuold continue to drive the REIT’s performance.

Source: TheStar