Pavilion REIT -
Still going steady
Pavilion's 9M13 core net profit of RM159.2m, at 75% of our and consensus full-year estimates, was in line with expectations. Net property income rose 8% yoy during the quarter, driven by contribution from Fashion Avenue.
We maintain our Neutral recommendation on Pavilion REIT. We cut our DDM-based target price to RM1.46 as we make adjustments to our cost of equity assumptions. Given the lack of re-rating catalysts such as new asset injections, we believe the outlook for Pavilion REIT is unexciting.
3Q13 DPU of 1.82 sen
Pavilion declared an income distribution of 1.82 sen for 3Q13, bringing the 9M13 DPU to 5.47 sen. Pavilion is on track to meet our full-year estimate of 7.4 sen DPU.
Review of 3Q13 results
Pavilion REIT's 3Q13 revenue rose 7.7% yoy to RM93.2m, driven mainly by the rental contribution from Fashion Avenue, which started operations in Sep 12, and higher advertising income. Property operating expenses were higher by 11% yoy mainly due to planned major replacement and preventive maintenance works. As a result, net property income rose 6% yoy during 3Q13. Profit before tax increased by 9% yoy due to lower borrowing costs as the company saved on interest after converting its long-term debts to fixed rates from floating rates, effective the beginning of FY13.
Reconfiguration and conversion still pending
There has yet to be updates about the reconfiguration of the net lettable area and conversion of parking bays into additional retail space in the Pavilion shopping mall, which is pending approvals from relevant authorities.
Publish date: 08/11/13