Pavilion REIT’s quarter one 2023 results are in line, with earnings growth stemming from higher rental revenue and occupancy rates.
RHB Research (RHB) in the recent Malaysia Results Review Report stated that they remain positive on the REIT.
This is due to the resilient domestic economy, increasing number of tourists, and stable occupancy rates which should enable it to record a mid single digit rental reversion rate in the financial year 2023 future.
The acquisition of Pavilion Bukit Jalil is still ongoing, and is expected to be completed in quarter two 2023.
“Quarter one 2023 core profit of RM70.1 million is in line, at 23% of our full-year forecast and 25% of the street estimate,” said RHB.
The street estimate is the average estimate of a public company’s quarterly earnings and revenues, that is derived from forecasts of securities analysts who provide research coverage on the company.
Revenue improved 7.3% quarter-on-quarter from higher rental revenue recorded in the quarter following the seasonally strong Christmas festival. Year-on-year, turnover increased 12.7% from higher occupancy rates.
Interest expenses grew 4.1% quarter-on-quarter due to the interest rate hikes. Despite higher property operating expenses stemming from the electricity tariff surcharge and higher spending for marketing campaigns, its net property income yield was at a healthy 65%.
Net property income is derived by having gross revenue minus property maintenance fees, property taxes, and other operating expenses that are related directly to the property.
Following the strong momentum in quarter four 2022, Pavilion Kuala Lumpur (PKL) drove the revenue growth. PKL’s turnover rose 8.9% quarter-on-quarter from a higher rental revenue collected.
“We believe tenant sales will be supported by a resilient domestic economy and the increasing number of tourists,” said RHB.
Previously, management guided that 30% of PKL’s pre-pandemic footfall came from foreign tourists, with roughly 50% of that number coming from China. As such, the opening of China’s borders is expected to be another boost for the mall.
In contrast, the REIT’s other malls recorded flattish quarter-on-quarter growth, with Pavilion Tower recording a 3.2% decline in revenue. Da Men Mall remained in the red, with a net property loss of RM2.51 million.
The acquisition of Pavillion Bukit Jalil is expected to be completed in quarter two 2023, following the approval by unitholders in Mar 2023.
“We remain positive on the acquisition. The mall previously locked in low rental rates as it was opened during the pandemic, so this makes for opportunities to improve its single-digit rental reversion rate moving forward,” said RHB.
Downside risks identified by RHB include weaker-than-expected retail performance, occupancy rates, and rental reversions.
