On the recent announcement of Pavilion REIT entering into a conditional sale and purchase agreement with Regal Path Sdn Bhd for the acquisition of Pavilion Bukit Jalil for an aggregate purchase consideration of RM2.2b and the proposed private placement of two tranches to raise up to RM1.27b to fund the acquisition, analyst view this acquisition as neutral.
Pavilion Bukit Jalil is a shopping mall located at Bukit Jalil, completed in 2021 with NLA of 1.8m square feet and 78% occupancy rate. The acquisition price of RM2.2b is close to the latest audited net book value of RM2.18b. MIDF is neutral on the asset acquisition as it is in line with Pavilion REIT’s strategy to expand its retail asset portfolio. Meanwhile, gross acquisition yield is estimated at 7% which is deemed attractive as SPA is conditional upon at least 80% of the NLA of Pavilion Bukit Jalil having commenced rental billing with a monthly rental rate of not less than RM9.50 per square foot.
Purchase consideration of RM2.2b is expected to fund by RM1.27b proceeds raised from the private placement and bank borrowings/internally generated funds. Assuming Pavilion REIT raised RM1b bank borrowings to fund the acquisition, the gearing of Pavilion REIT is expected to increase to 0.38x from 0.35x. Meanwhile, the acquisition is expected to be earnings and EPU accretive. MIDF estimate FY23 earnings and EPU to increase by 37.9% and 3.3% on annualized basis post-acquisition and private placement.
The research house maintains a BUY call on the stock with a target price of RM1.56, the call was made due to the improving outlook for its retail assets namely Pavilion KL, Elite Pavilion Mall and Intermark mall following the reopening of the economy which supports recovery in shopper footfall.
