Pavilion looking to expand

Launched: (from left) Maybank Investment CEO Tengku Datuk Zafrul Tengku Abdul Aziz, CIMB Group corporate & investment banking deputy CEO Datuk Charon Wardini Mokhzani, Pavilion REIT Management executive directors Datuk Lee Tuck Fook and Datin Cindy Lim, and Ho at the prospectus launch.

KUALA LUMPUR: Pavilion Real Estate Investment Trust (REIT), en route to a listing on Bursa Malaysia, aims to add more assets to its portfolio and wants to continue its “shopping spree” to acquire at least three more retail properties within the next three years, depending on the economic situation.

Chief executive officer Philip Ho told StarBiz recently that the company, which will see its post-listing loan-to-value (LTV) ratio at 20%, could either finance these additional property injections by going back to its shareholders or through bank borrowings, although the latter was the preferred option for now.

“The proceeds of close to RM700mil is being utilised to pay down the debt. At 20% LTV ratio, I reckon this is a comfortable gearing ratio and will allow us to finance these acquisitions either through shareholders or with bank borrowings. We can acquire up to a billion ringgit without going back to shareholders,” Ho said.

“Under Securities Commission rulings we are allowed to gear up to 50% LTV ratio. We don't intend to gear up until that high though. I think the right formula is somewhere between 25% and 30% as most of our peers would. Our balance sheet is very strong, we can still borrow money,” he added.

The current Pavilion shopping complex, which has been fully occupied for two years with a potential-retailer waiting list of 200 and rental yields of about RM16 per sq ft, will begin extension works by the first half of next year. Ho said Pavilion REIT had “obtained all development approvals” for the extension.

“This is an extension of about 300,000 sq ft of retail space, and will be built by Pavilion REIT's sponsors (original shareholders Urusharta Cemerlang Sdn Bhd) on the former carpark of Millenium Hotel. They (the sponsors) will also build an apartment on top of the new retail space,” Ho said.

Pavilion REIT will also develop another shopping mall in UEP Subang Jaya, following the compact mall concept with an apartment block on top of it.

“This will be our first foray into the suburbs and we believe this concept will work. This compact mall which will be developed by Usurharta Cemerlang will have another brand name that will be managed by the Pavilion Group,” Ho said.

“We believe in our branding and good location which will enable this shopping mall to withstand the troughs of any economic crisis,” Ho said responding to qualms of the possible downward price pressure on rental yields due to oversupply.

Pavilion REIT Management Sdn Bhd, the manager of Pavilion REIT yesterday launched the prospectus in conjunction with its proposed listing on the Main Market of Bursa Malaysia on Dec 7.

Pursuant to the initial public offering (IPO), 755 million units would be offered to Malaysian and foreign institutional investors and selected investors at the institutional price (other than cornerstone investors) which would be determined by way of book building.

A total 265 million units has been earmarked for allocation to six identified cornerstone investors at an offer price of 90 sen per unit or the institutional price, whichever is lower.

The six cornerstone investors are Permodalan Nasional Bhd, Employees Provident Fund, Kumpulan Wang Persaraan, Great Eastern Life Assurance (M) Bhd, American International Assurance Bhd and HwangDBS Investment Management Bhd.

“About 35 million units will be offered to the general public in Malaysia, eligible tenants of Pavilion Kuala Lumpur Mall and Pavilion Tower, directors of the manager and the eligible employees of the manager, Urusharta Cemerlang Sdn Bhd, Capital Flagship Sdn Bhd and Kuala Lumpur Pavilion Sdn Bhd at the indicative retail price of 88 sen per unit,” Ho said at the event.

At an indicative retail price of 88 sen, the manager expected Pavilion REIT to provide a distribution yield of 6.41% and 6.51% for the one-month forecast period ending Dec 31, 2011 and the 12-month forecast period ending Dec 31, 2012 respectively.

Ho said the total appraised value of Pavilion REIT's initial property portfolio was about RM3.5bil. With the inclusion of Pavilion Kuala Lumpur Mall, which forms 96.4% of the total appraised value of Pavilion REIT's initial property portfolio, Pavilion REIT would become one of Malaysia's largest listed REITs with the largest exposure to the retail sector of any listed Malaysian REIT by appraised value.

“Based on an indicative retail price of 88 sen, Pavilion REIT is expected to achieve a market capitalisation of RM2.6bil upon listing,” he said, adding that Pavilion REIT remained an attractive option for investors looking for liquid investments in Malaysia's retail and corporate property sector.

On a pro forma basis, he said Pavilion Kuala Lumpur Mall and Pavilion Tower, collectively, achieved revenue of RM291mil and net property income of RM203mil for the financial year ended Dec 31, 2010.

By The Star