It may double by value in five years from 2014 as it injects more properties in Kuala Lumpur, which could include Royale Pavilian Hotel.
PavREIT is currently (Feb 2013) the largest retail REIT and the second biggest Malaysian REIT by asset size at around RM4.1 billion.
It comprise two properties which are Pavilion KL Mall and Pavilion Tower (office).
These properties form part of an integrated urban commercial development which includes two residential towers known as Pavilion Residences and Royale Pavilian Hotel
For FY ended Dec 31, 2013, Pavilion REIT's asset under management increased from RM4bil to RM4.1bil. The REIT closed the year at RM1.28 per unit.
The 13-storey Royale Pavilion Hotel is owned by Harmoni Perkasa Sdn Bhd, a subsidiary of Urusharta Cermerlang Sdn Bhd, which owns Pavilion Kuala Lumpur. The Qatar Investment Authority (QIA) has a 49% stake in Urusharta Cemerlang.
Developed by KL Pavilion Design Studio, construction of the Royale Pavilion Hotel will run from March 2014 to the second quarter of 2016.
This project is separate from the 29,127-sq ft parcel, which was acquired by Urusharta Cemerlang Sdn Bhd at a record RM7,209.80 per sq ft (totaling RM210mil) from London-based Millenium & Copthorne Hotels plc in 2010. That project was reported to be 50-storey block comprising 39 floors of residential units and 10 floors of retail space.
Expect its near-term organic growth to be resilient and the asset pipeline intact. There are mostly fixed-rate debts to shield against rising interest costs.
Sixty-six percent of Pavilion KL’s net lettable area (NLA) will expire in 2013 with 6% to 7% of this to be leased to some of the 200 prospective tenants on its waiting list. Of the other 90% of expiring leases, one-third have been renewed at double digit rental increases.
This should spill over into first quarter of 2014 as the majority of leases expiring are in September 2013 and there would be a fit-out period for new tenants.
Average rental rates are still at substantial 20% to 25% discount to Suria KLCC’s rents, implying upside to prime rents. Do not see risks to rentals due to Pavilion KL’s prime location and long waiting list, and average occupancy costs remain manageable at 15-18%.
The Pavilion KL extension is on track for completion by end-2015 (we assumed acquisition in 2016), and the USJ retail mall (da:men) by early 2015 (not included in forecasts).
Fahrenheit88, which still suffers from low traffic, may be reviewed only in 2014 when its refurbishments (e.g. Parkamaya retail market and some areas on Level 2) mature. There is upside to its earnings if it acquires da:men.
Pavilion REIT now has a blueprint for its asset pipeline - it plans to acquire sponsor-driven greenfield developments after existing assets (completed and under construction) are acquired.
The REIT sees opportunities in Johor city centre and Penang island, although these are early days given the large land area and capital expenditure required (at least 15 acres for 1m to 1.5m sq ft in NLA).
Disclaimer:
Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.
