Pavilion Mall Up For Grab

Now it's a chance for you to be part of Bukit Bintang's prestigious Pavilion Shopping Mall.

Pavilion REIT, which consists of Pavilion Mall and a 20-storey Pavilion office tower, will have its IPO on 7th Dec 2011 on Bursa Malaysia. The IPO price is set at 88sen for retail investors and 90sen for institutions. It will offer 790 million units, where 755mil units are for local and foreign institutional investors, and the remaining 35mil units for the public. It will raise RM695.2mil for the IPO and its market cap is expected to be RM2.6bil upon listing.

     Pavilion Shopping Mall

As at June 30, the Pavilion mall and office tower is 98.5% and 64.5% occupied respectively. It is said that the mall has 200 retailer in waiting list. Upon listing, pavilion REIT will have RM730.6mil debt, which is only 20.1% of its estimated total asset value. It promise to distribute 100% of its income until end of FY2012 and at least 90% of its income from FY2013 onwards.

For the year ended Dec 31, 2010, Pavilion REIT posted a revenue of RM291 million and net property income of RM203 million. The management has forecast the REIT to register a revenue of RM314 million, net property income of RM220 million and distributable income of RM172 million for the FY ending Dec 31, 2012.

      Pavilion Office Tower

Pavilion REIT is expected to provide a distribution yield of 6.41% and 6.51% for the FY ended 31Dec 2011 and 2012 respectively. Compared to its peers in Bursa, it is just average as most REITs can give around 6-8% at the moment.

After listing, Malton's chairman and his wife collectively own 37.6% of the Pavilion REIT while Qatar Investment Authority will be the largest single owner with 36%. Other large unit holders PNB, EPF, KWP, Great Eastern, AIA and HwangDBS will hold 8.83% together.

Pavilion REIT has already planned to expand its property portfolio in 2014-2015, which include the refurbished Fahrenheit88 shopping mall just opposite the Pavilion mall, the 300,000 sq ft extension of Pavilion mall which should start in 1H2012 and an upcoming mall at USJ. Besides, the management is also seeking for potential investment especially niche-market malls throughout Asia.

      Fahrenheit88: former run-down KL Plaza

The future expansion plan is important to improve the REIT's income, rather than waiting just for the rental increase. Pavilion REIT should have no difficulty in acquiring bank loan for future acquisition since its gearing sits on a comfortable 20% level.

The REIT has a mixed retail and office component, like Sunway REIT. CMMT is purely retail and most other REITs in Bursa made up of office buildings.

With its properties situated at KL's golden triangle area and its plan for expansion, I think Pavilion REIT should be an attractive REIT to hold long term even though the estimated distribution yield is average. Anyway, it is a rather safe and conservative investment which can give a return better than a pathetic FD rate of 3%.