Date: October 2, 2024
Broker: Maybank Investment Bank Berhad

Overview
Pavilion REIT (PREIT MK) is a retail-focused real estate investment trust in Malaysia, known for its ownership of prime retail malls, including Pavilion Kuala Lumpur, Pavilion Bukit Jalil, and DA MEN Mall. Pavilion REIT’s portfolio is well-positioned in high-traffic areas, attracting strong tenant demand and delivering resilient rental income.

Stock Performance and Target Price

• Current Price (CP): MYR1.44
• Target Price (TP): MYR1.55
• Upside: 14%
• Market Capitalization: USD1,264 million
  Pavilion REIT is rated as a BUY, with a significant potential upside of 14%, reflecting strong confidence in its ability to maintain robust rental income and benefit from retail demand recovery.

Earnings Forecast and Dividend Yields

• 2024 Core Earnings Growth: 17.7%
• 2025 Core Earnings Growth: 16.6%
• 2024 Dividend Yield: 5.7%
• 2025 Dividend Yield: 6.0%

Pavilion REIT is expected to see steady earnings growth through 2024 and 2025, driven by positive rental reversions and consistent occupancy rates across its high-quality retail assets. Its attractive dividend yields further enhance its appeal for income-focused investors.

Occupancy Rates of Key Properties
Pavilion REIT’s key retail assets demonstrate strong occupancy levels, reflecting their prime locations and the high demand for space in these malls:

• Pavilion Kuala Lumpur Mall: 96.4%
• Pavilion Bukit Jalil: 87.8%
• DA MEN Mall: 75.4%
• Intermark Mall: 90.2%
• Elite Pavilion Mall: 95.5%

The flagship Pavilion Kuala Lumpur Mall continues to perform exceptionally well, while Pavilion Bukit Jalil and DA MEN Mall show room for improvement amid competitive retail conditions.

Retail Segment Outlook
Pavilion REIT operates in Malaysia’s key retail markets, which have seen improvements in occupancy rates in 2024. Prime malls like Pavilion Kuala Lumpur and Pavilion Bukit Jalil benefit from strong demand and sustained footfall. The retail sales industry is expected to grow by 4% in 2024, driven by improving consumer spending, stronger tourist arrivals, and support from government initiatives like EPF withdrawals and civil service salary revisions.

Debt Profile and Financing Costs

• Total Debt: MYR3.392 billion
• Floating Rate Debt: 88% of total debt
• Gross Gearing: 38%

Pavilion REIT’s debt portfolio includes a high proportion of floating rate loans (88%), which exposes it to rising financing costs. However, the REIT’s strong revenue from its high-demand retail properties helps offset some of these risks.

Investment Thesis
Pavilion REIT’s portfolio of prime retail properties positions it as a strong contender in the REIT space, particularly due to its consistent occupancy rates and positive rental reversions. The expected growth in retail sales and stronger consumer spending will further benefit its assets, especially Pavilion Kuala Lumpur. Despite its exposure to floating rate debt, Pavilion REIT’s stable income from well-located malls makes it an attractive investment for those seeking both growth and dividend yields.

This analysis provides a detailed view of Pavilion REIT’s performance as of October 2, 2024.