Pavilion Initiating Coverage 2012

KimEng Hong Kong is a subsidiary of Malayan Banking Berhad
SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Malaysia
17 October 2011
PP16832/01/2012 (029059)
Initiating Coverage
PP16832/01/2012 (029059)
Page 1 of 2
Pavilion REIT
A Malaysia retail icon
A class of its own. Pavilion REIT’s (PavREIT) key attraction lies in its
asset portfolio and the jewel in its crown, Pavilion Kuala Lumpur (KL)
Mall. Strategically located in the heart of Kuala Lumpur’s prime tourist
and shopping district, this mall caters predominantly to the upper middle
to high income group, and is one of only 4 prime retail malls in the
country. We initiate coverage on PavREIT with a Hold rating and
RM1.10 DCF-based target price. It currently trades at a 5.5% yield.
2
nd
largest M-REIT. PavREIT’s appeal is enhanced by its status as the
2
nd
largest M-REIT by market capitalisation (RM3.27b) and asset size
(RM3.5b). The portfolio comprises Pavilion KL Mall (RM3.4b) and
Pavilion Tower (RM0.1b). Given its relatively young assets of 4 years in
age, there is scope for growth in rental yields.
Room for inorganic growth. With its low debt-to-asset ratio of 20%,
there is potential to leverage another RM2.2b for immediate yield
accretive acquisitions. PavREIT has been granted rights of first refusals
(ROFR) to purchase two other malls and an extension of the Pavilion
KL Mall worth approximately RM1.5b, which are only expected to be
ready for injection from 2H13 onwards.
Resilient earnings. Pavilion KL Mall has a diversified and sizeable
tenant base of over 450, which comprises mainly regional and
international brand names. No single tenant contributes over 10% of
total revenue, we estimate. With 67% of occupied NLA expiring only in
2013, its near-term earnings base are resilient. The mall has been
chalking up higher average rentals psf despite opening for business at
the onset of the global financial crisis in Sept 2007.
Initiate coverage with a Hold rating. With its status as the 2
nd
largest
M-REIT, hands-on management team and its superior asset quality,
PavREIT deserves a premium valuation. We value PavREIT at RM1.10,
based on DCF valuation method. This implies 2012 gross dividend yield
of 5.5% (vs. CMMT’s 5.9% and SunREIT’s 5.8%).
Pavilion REIT– Summary Earnings Table
FYE Dec (RM m) 2011F 2012F 2013F
Revenue 25.8 319.0 327.7
EBITDA 18.0 224.6 231.9
Recurring Net Profit 13.6 170.1 175.9
Recurring Basic EPS (Sen) 0.5 5.7 5.8
EPS growth (%) - NA 3.1
DPS (Sen) 0.5 6.0 6.1
PER * 20.1 19.3 18.7
EV/EBITDA (x) * 18.2 17.4 16.9
Div Yield (%) * 5.3 5.5 5.6
P/BV(x) 1.2 1.2 1.2
Net Gearing (%) 20.1 20.0 20.0
ROE (%) 0.5 6.0 6.2
ROA (%) 0.4 4.7 4.8
Consensus Net Profit (RM m) - 169.1 176.7
* Annualised for 2011 (listed on 8 Dec’11); Source: Maybank IB
Hold(new)
Share price: RM1.09
Target price: RM1.10 (new)
Wong Wei Sum, CFA
[email protected]
(603) 2297 8679
Neo Hon Mun
[email protected]
(603) 2297 8690
Stock Information
Description: Predominantly a retail Real Estate Investment
Trust (REIT) with 2 initial assets - Pavilion Kuala Lumpur Mall
and Pavilion Tower.
Ticker: PREIT MK
Shares Issued (m): 3,000.0
Market Cap (RM m): 3,270.0
3-mth Avg Daily Volume (m): 10.76
KLCI: 1,517.38
Free float (%): 26.3
Major Shareholders: %
Datuk Lim siew Choon 28.2
Datin Tan Kewi Yong 9.4
Qatar Holding LLC 36.1
Key Indicators
Net cash / (debt) (RM m): (637.1)
NTA/shr (RM): 0.94
Gearing (x): 0.2
Historical Chart
0.94
0.96
0.98
1.00
1.02
1.04
1.06
1.08
1.10
Dec-11 Dec-11 Jan-12 Jan-12
PREIT MK Equity
Performance:
52-week High/Low RM1.1/RM0.9
1-mth 3-mth 6-mth 1-yr YTD
Absolute (%)
4.8 na na na -
Relative (%)
2.1 na na na 0.9
Page 2 of 42 Page 2 of 42
Pavilion REIT
17 October 2011
Business background
Malaysian REIT’s largest retail asset. PavREIT is the largest retail
REIT and the 2
nd
largest Malaysian REIT by asset size at RM3.5b
(based on appraised value). PavREIT will comprise 2 properties:
Pavilion KL Mall and Pavilion Tower (office). The mall was purchased at
RM3.2b (appraised value of RM3.4b) and it will account for 96% of total
portfolio value. These properties form part of an integrated mixed-use
urban commercial development which includes two blocks of luxury
serviced apartments known as Pavilion Residences (not included in the
PavREIT), and a proposed block of serviced suites (not built and will
not be included in PavREIT).
Table 1: Porffolio of properties in Pavilion REIT
Pavilion Kuala Lumpur Mall Pavilion Tower
Type Retail Office
Appraised value as at 1 June 2011 (RM`000) 3,415,000 128,000
Purchase consideration (RM ‘000) 3,190,300 123,500
Subject properties weighting (by Appraised Value) (%) 96.4 3.6
NLA (sq ft) 1,335,119 167,407
GFA (sq ft) 2,202,557 243,288
Number of tenancies as at 1 June 2011 462 19
Occupancy rate as at 1 June 2011 (%) 98.0 64.5
Number of car park bays |------------------------------- 2,427 ---------------------------|
Shopper traffic for 2010 31 m .n.a.
Sources: Trust Manager
Investment cases
Merit 1: Well located in the heart of Kuala Lumpur
Strategically located along Jalan Bukit Bintang. The properties are
located in the heart of the prime shopping destination in the country, the
Bukit Bintang area, and also on the fringe of the Central Business
District. According to CBRE, Jalan Bukit Bintang (or Bukit Bintang road)
is Malaysia’s version of Singapore’s Orchard Road, Japan’s Ginza,
New York’s Fifth Avenue and Hong Kong’s Central. Bukit Bintang has
been a popular shopping and entertainment destination of Kuala
Lumpur, both for the locals and tourists alike since the 50’s. Its
catchment area spans the entire Klang Valley with a population of 6m.
Pavilion KL Mall adds flavour to Bukit Bintang. Pavilion KL Mall
complements the existing malls along Jalan Bukit Bintang which targets
the mass markets, except Starhill Gallery. Nonetheless, there is
minimal overlap with Starhill Gallery which has successfully positioned
itself as a niche player offering primarily luxury watches (see map
overleaf). In our view, Pavilion KL Mall is arguably the most successful
mall in Bukit Bintang today.
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Pavilion REIT
17 October 2011
Map 1: Pavilion KL adds to the attraction of Jalan Bukit Bintang (Bukit Bintang road)
Sources: Google Map, Maybank IB; Denotes location of Pavilion KL mall extension
Served by 32 3-5 Star rated hotels in the vicinity. There are over 32
hotels (with over 13,000 rooms) that are conveniently located in the
vicinity of the properties or easily accessible by taxi or monorail (see
Appendix 8 for the list of hotels). These hotels provide an immediate
catchment of business and tourist travellers. Upcoming hotels currently
in plan or under construction sprouting around the city include Grand
Hyatt Kuala Lumpur with 412 rooms (scheduled to open in 2012), W
Hotel & Residences at Jalan Ampang with 150 rooms (scheduled to
open in 2016), Banyan Tree Signatures comprising 441 units of Private
Residences, 51 units of Service Residences and 50 luxury suites
(scheduled to open in 2015), and Four Seasons Hotel. On the fringe of
Kuala Lumpur (KL Sentral), the 208-room St Regis Kuala Lumpur is
scheduled to commence operation in 2014.
Easily accessible. The properties are easily accessible via various
modes of public transport. Besides the taxi services and public buses,
the properties are within walking distance to two monorail stations – the
Bukit Bintang and Raja Chulan stations (approximately 250-300 metres
away to each station). The mall also provides concierge services for the
convenience of shoppers, in addition to its 2,427 car park bays.
Pavilion KL
Mall
Sungai Wang
Plaza
Starhill
Gallery
Farenheit
88
Lot 10
BB
Plaza
Low Yat
Plaza
Berjaya
Times
Square
The Bukit Bintang area, that
is increasingly popular
among tourists and locals
ROFR:
Pavilion
KL mall
extension
ROFR:
farenheit88
See Map 2
Page 4 of 42 Page 4 of 42
Pavilion REIT
17 October 2011
New MRT improves connectivity. Under the Greater Kuala Lumpur
National Key Economic Areas (NKEA) initiative (encompassed under
the ETP blueprint), a new Mass Rapid Transit (MRT) line (Sg Buloh-
Kajang) is currently in its planning stages to improve public
transportation and connectivity between existing rail-based networks.
This new MRT line is 51km long with 31 stations planned along the
route, and aims to serve a total population of 1.2 million. The project is
expected to be completed and operational by 2016.
New MRT to increase footfall in the long run. One of the 31 stations
of the new MRT line will be located approximately 250m away from
Pavilion KL Mall, at the junction of Jalan Bukit Bintang and Jalan Sultan
Ismail (see map below). When fully operational, this would help improve
shopper traffic to Bukit Bintang (and also Pavilion KL Mall).
Map 2: Location map of the new Bukit Bintang MRT station
Source: Syarikat Prasarana Negara Berhad
Higher capacity with the MRT. The new MRT line is designed with
higher capacity in mind compared to the existing intra-city rail network.
Upon completion in 2016, the new MRT line’s daily ridership is
expected to be 442,000 per day more than Putra LRT and Monorail’s
present daily ridership of 210,000 and 60,000 respectively. And unlike
the existing rail network, a portion of the new MRT (Sg Buloh- Kajang)
line passes through some of the more affluent neighbourhoods in the
Klang Valley like Damansara Heights, Taman Tun Dr Ismail, Bandar
Utama, Mutiara Damansara and Kota Damansara.
Table 2: Estimated daily ridership of selected intra-city rail network
Monorail Putra LRT STAR LRT MRT (new)
Daily ridership
(est.)
60,000 210,000 161,000 442,000
Length (km) 8.6 29 27 51
Stations 11 24 25 31
Operational
since
2003 1998 1995 / 1998 Est.2016
Source: Maybank IB, PEMANDU
Pavilion KL,
250m away
See Map 1
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Pavilion REIT
17 October 2011
Skybridge to turn KL into a Walkable City. One of the government’s
efforts to promote tourism in Kuala Lumpur is to build 45km of covered
walkways to link various places of interest in Kuala Lumpur (see map
3). Currently, DBKL (local government authority) and the private sector
have commenced construction of an elevated covered 4.5km walkway
from the iconic Petronas Twin Tower to Bukit Bintang via Pavilion KL
Mall. Once completed in 2012, we believe shopper traffic between the
two main tourist attractions will improve, be it rain or shine.
Map 3: The Skybridge that connects Pavilion KL Mall to KLCC (under construction)
Suggested covered pedestrian linkage by: Suggested covered pedestrian linkage by KLCC
management :-
Suggested covered pedestrian linkage by the
SPNB
Developers
i) At-Grade Pedestrian Linkage
i) Covered Walkway
The JPB, DBKL
ii) Elevated Pedestrian Linkage
ii) Elevated Pedestrian Linkage
Work in progress by DBKL,
Urburnisma
Existing covered walkway
Existing flyover
Covered walkway for school
Suggested site for development
Sources: Ministry of Federal Territories and Urban Wellbeing
Pavilion KL
Mall
Suria KLCC
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Pavilion REIT
17 October 2011
Merit 2: Uniquely designed mall; global standards
Award-winning mall. Despite merely 4 years into operation, Pavilion
KL Mall is already the winner of 22 international and local best retail
awards; a testament to the mall’s global standards. Among them are
‘World’s Best Retail Centre’ by FIABCI Prix d'Excellence Awards
(2009), 'Innovative Design & Development of a New Retail Project' by
International Council of Shopping Centers in Asia Shopping Centre
Awards (2010) and ‘The Architecture Award (Retail) - Asia Pacific' by
Asia Pacific Property Awards in association with Bloomberg Television.
For the full list of awards, please see Appendix 5.
Prime retail mall, on par with best in the region. Pavilion KL Mall has
redefined and enhanced the shopping experience in Malaysia, as the
mall is arguably one of the best retail malls in the region, if not the
world, in our opinion. The layout of the mall, with its average ceiling
height of 5.5 metres (from Level 1 to 6), wide corridor pavements,
spacious toilets, and fully granite flooring, complements the exciting
tenant mix and provides a welcoming ambience to shoppers.
Well-conceived design. Pavilion KL Mall comprises 7 floors of retail
podium together with a 3-storey retail office block sited atop and a 4-
storey retail/entertainment annex block named “The Connection”. The
mall has 8 entry points, allowing shoppers to enter the mall from various
parts of the Bukit Bintang shopping area and enables efficient shopper
flow during peak times. It has outdoor walkway areas that extend 20 –
30 metres to the sidewalk, allowing better visibility of the building.
Management places importance on safety as there are more than 405
CCTVs throughout the mall, including its car park, and 296 panic
buttons located 20-metres apart throughout the car park.
Street-front duplexes and “Spanish steps”. One of the key features
of this mall is the use of its 19 street-front duplexes (a new retail format
in Malaysia) to maximise brand exposure for tenants occupying them.
These street-front duplexes are located in “Couture Pavilion” Precinct,
one of the six themed “Precincts” in Pavilion KL Mall (see below).
Besides the street-front duplexes which are a new retail format in
Malaysia, Pavilion KL Mall has another key feature – the “Spanish
steps” which leads from the main entrance of the mall to the Centre
Court, a venue that is frequently used to host major events (see picture
5 in “Property Profile – Pavilion KL Mall”).
Table 3: The Precincts of Pavilion KL Mall
Precinct Theme
Couture Pavilion Designer, Luxury and International Boutiques
Gourmet Emporium Cuisines, Conveniences and Groceries
Centre Court Events, Performances and Festivities
The Connection Street Bistro, Cafes and Urban Leisure
Seventh Heaven Relaxation, Rejuvenation & Renewal for Men & Women
Tokyo Street Little Tokyo of Malaysia
Sources: Trust Manager
Other unique features. The Pavilion KL Mall has another
differentiation factor as it operates beyond the normal hours of a usual
mall, which is usually between 10am to 10pm. The Connection is an
alfresco concept comprising a row bistro and restaurants which remain
open till 3am. For that, its car park is operational 24 hours a day, even
on Public holidays.
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Pavilion REIT
17 October 2011
Merit 3: Resilient earnings base
Well-diversified, ideal tenant mix. Pavillion KL is the largest premium
fashion mall in Malaysia with 1.335m sq ft of NLA and contributes
approximately 96% of PavREIT’s total revenue. This mall is large
enough to enjoy its own economies of scale with its well-diversified
tenant base (see chart below), which totals 462 (as at 1 June 2011).
The mall’s tenants comprise international, regional and some popular
local brandnames. Among them are Coach, Hermes, Bulgari, Versace,
Prada, GUCCI, Chopard, TOD’s and Rolex. Approximately 20% of the
retailers in the mall are new to Malaysian shoppers, a key attraction.
Chart 1: Trade Sector analysis of Pavilion KL Mall –
Percentage of Occupied NLA (%) as at 1 June 2011
Chart 2: Future Lease Expiry Profile – Pavilion KL Mall
(as at 1 June 2011)
Fashion
25%
Department
Store
25%
F & B
18%
Urban Leisure
7%
Office
5%
Beauty &
Personal Care
4%
Others*
4%
Jewellery &
timepieces
3%
IT & digital
2%
Shoes &
leather
products
2%
Home
decoration
2%
Property
showroom
2% Gifts &
souveniers
1%
6%
18%
67%
10%
19.92
15.05
18.19
13.73
0.00
5.00
10.00
15.00
20.00
25.00
0%
10%
20%
30%
40%
50%
60%
70%
80%
6 mth ended 31
Dec 2011
FY2012 FY2013 FY2014 and
thereafter
Percentage of Occupied NLA expiring (%)
Average monthly rental of expiring teancies (RM psf) % RM psf
Sources: Trust Manager Sources: Trust Manager
Quality of tenant base ensures solid cashflow. The quality of tenant
brand names at the mall mitigates the risk of slow retail sales and
eventual doubtful debts. This will ensure prompt rental payment and
steady cashflow to PavREIT. More importantly, no single tenant
currently contributes more than 10% of the mall’s total revenue by our
estimate. Furthermore, we understand the waiting list for potential
tenants is long. This will ensure continuity of new tenants into the mall.
It is also in the interest of the mall to change a small percentage of the
tenant mix every year to “refresh” the appeal of the mall.
Next major rental revision in 2013. The typical tenancy period of the
mall is 3 years with an option to renew another 3 years. The bulk of the
tenants had their last renewal in 2010 and as such, 67% of the
occupied NLA will only be up for renewal in 2013 (likely in the month of
Sept, which was the month where most tenants started operation when
the mall was officially open for business in 2007). Hence, its near-term
earnings are largely locked in while there will be significant upside to
earnings in 4Q 2013 and beyond, based on higher revenue in 2010
which was the first round of major rental revision.
Page 8 of 42 Page 8 of 42
Pavilion REIT
17 October 2011
Turnover rent component allows the mall to capture any upside.
To mitigate the risk of slow rental collection, the REIT manager will
monitor the monthly sales performance of over 90% of tenants at the
mall. This is possible because the tenancy agreements of over 90% of
the mall’s tenants have turnover rental components in addition to a
fixed rent component which allow PavREIT to enjoy higher rental
collection in the event the tenants enjoy better-than-expected sales
performance. At the same time, continuous monitoring of monthly sales
will allow the REIT manager to assist under-performing tenants.
Turnover rental currently accounts for less than 2% of total revenue.
Rentals for the office tower are equally defensive; although small.
The office tower complements the mall by providing a ready catchment
of spenders to the mall. Pavilion Tower was only acquired by the
sponsors in March 2010 and only began leasing out in 3Q 2010 after
extensive renovations. As at 1 June 2011, it has 19 tenants occupying
64.5% of NLA. Although the office tower contributes to approximately
4% of PavREIT total revenue, its contribution is defensive with 42.8%
and 54.1% of existing tenancies up for renewal only in 2013 and 2014.
Its key tenants are in the oil and gas, and property development
industries (for more details, refer to “Property Profile – Pavilion Tower”).
Mall rental was on the rise despite the global financial crisis. The
mall started its operation in Sept 2007, right at the onset of the global
financial crisis. At the same time, another premium fashion mall, The
Gardens (approximately 0.8m sq ft of NLA) opened for business on the
fringe of Kuala Lumpur. Despite the crisis and new competition, Pavilion
KL Mall showed resilience and performed better than expected.
Shopper traffic grew at a CAGR of 16% between 2008-2010. Likewise,
the mall’s rental income grew 8% over the same period.
Chart 3: Shopper traffic of Pavilion KL has been rising Chart 4: Rising rental income
23
25
31
0
10
20
30
40
2008 2009 2010
Visitor arrival ('m)
231
242
255
16
23
34
0
50
100
150
200
250
300
350
2008 2009 2010
RM 'm
Rental income Other income
Source: Trust Manager, CBRE Source: Trust Manager
Premium retail malls have shown resilience in occupancy rate. In
our view, there are currently four premium retail malls in Malaysia with a
total retail space of 3.4m sq ft, namely Pavilion KL Mall (1.3m sq ft),
Suria KLCC (1m sq ft, excluding Phase 2), Starhill Gallery (0.3m sq ft),
and The Gardens Mall (0.8m sq ft), all of which are located in Kuala
Lumpur. While Starhill Gallery and Suria KLCC started operation before
2000, Pavilion KL Mall and The Gardens Mall are relatively new
additions – they have been opened for business since 2007. Yet, these
malls have enjoyed relatively high occupancy rates in the last decade
(see charts overleaf), averaging above 95% even during the SARS
(2003) and global financial crisis (2008/09) periods.
Page 9 of 42 Page 9 of 42
Pavilion REIT
17 October 2011
Chart 5: Retail Space Supply in Klang Valley, 2000-2014F
2
1
.
9
3
2
2
.
1
4
2
3
.
0
4
2
8
.
5
3
3
1
.
4
5
3
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.
8
5
3
5
.
0
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4
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3
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.
7
6
3
7
.
0
3
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8
7
4
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1
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0
.
7
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8
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.
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.
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5
2
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2
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2
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.
5
2
0
10
20
30
40
50
60
2
0
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0
0
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F
2
0
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F
2
0
1
4
F
Mass Market Mall Premium Fashion Mall
Retail Space ('m sq ft)
Source: CBRE
Chart 6: Occupancy Rate for Klang Valley Malls, 2000 – 1H2011
Note: Premium fashion malls are defined by Pavilion KL Mall, Suria KLCC, Starhill Gallery, and
The Gardens
Source: CBRE
Limited direct competition in the medium term. The premium retail
malls supply of 3.4m sq ft represents approximately 8% of total retail
space supply in the Klang Valley, according to CBRE. There are a
number of new retail malls currently planned which will come into the
market over the next few years; adding some 10.95m sq ft of retail
space to the existing supply of 43.33m sq ft (+25%; see table overleaf).
With the exception of Suria KLCC Phase 2 extension (140,000 sq ft)
which started operation in 3Q 2011, these other malls will mainly target
the mass market and none are located in the city centre.
Page 10 of 42
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Pavilion REIT
17 October 2011
Table 4: Future MallsSupply in the Klang Valley
Name of Mall Location Category Net Lettable Area Expected
Completion
(sq ft)
Kuala Lumpur
1 Shamelin Cheras Mass 420,000 2011
Kenanga Wholesale City Pudu Mass 500,000 2011
Kuala Lumpur Festival City Setapak Mass 450,000 2011
Publika @ Solaris Dutamas Hartamas Mass 335,000 2011
Suria KLCC Phase 2 (Lot C) KLCC Premium 140,000 2011
Nu Sentral KL Sentral Mass 650,000 2012
Damansara City Mall Damansara Heights Mass 188,000 2013
Sunway Velocity Shopping Mall Cheras Mass 850,000 2014
Boustead Retail Developement Jalan Cochrane Mass 1,200,000 2014
Selangor
First Subang Subang Jaya Mass 140,000 2011
Space U8 Shah Alam Mass 619,280 2011
Setia City Mall Setia Alam Mass 700,000 2011
Paradigm Kelana Jaya Mass 700,000 2012
The Strand Mall Kota Damansara Mass 308,800 2013
M Square Shopping Centre Puchong Perdana Mass 380,000 2013
IOI City Mall Putrajaya Mass 1,300,000 2013
Empire City Mall Damansara Perdana Mass 1,000,000 2014
da:men USJ Mass 400,000 2014
Jaya Shopping Centre Petaling Jaya Mass 300,000 2014
Avenue Street Mall Sungai Buloh Mass 370,000 2014
Total 10,951,80
Sources: CBRE
Page 11 of 42
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Pavilion REIT
17 October 2011
Merit 4: There is room for growth
Plenty of growth opportunity. There are basically two types of growth
we envisage for PavREIT: (i) organic growth, and (ii) acquisition growth.
The REIT Manager will pursue both strategies to enhance the
performance of PavREIT. It is also the intention of the REIT Manager to
focus on managing and growing the existing and future retail malls;
leveraging on the REIT Manager’s expertise.
Strategies for organic growth. The Manager's strategy for organic
growth is to actively provide value-added property-related services. The
key strategies to pursue higher yields and returns include: (i) improving
retail rental rates, (ii) creating more retail space, (iii) establishing close
relationships with tenants to optimize retention, (iv) continually
maintaining the quality of the properties, (v) pursuing new leasing
opportunities and diversify tenant base, (vi) maximising the
performance of each property, (vii) reviewing tenant mix and space
configuration to maximize rental income, (viii) improving operating
efficiencies and economies of scale, and (ix) raising the profile of the
properties. The aim is simply to drive shopper traffic to the mall. And as
mentioned earlier, the new MRT line and covered walkway would drive
higher shopper traffic to the mall over the medium to long term.
31m visitors; yet at its infancy. The mall has proven to be an instant
attraction among the locals and tourists since its opening in Sept 2007.
In 2010, the mall was visited by approximately 31m visitors, up from
23m visitors in 2008 (+16% CAGR between 2008 and 2010). The
number of visitors to Pavilion KL Mall is already fairly comparable with
the more established regional shopping centres in the Klang Valley like
Suria KLCC, Sunway Pyramid and Mid Valley Mall, which have been in
operation for over a decade (see table below).
Young mall; room to grow average rental. Still, there is room for
growth. A quick comparison between the average rental psf achieved
by Pavilion KL Mall vis-à-vis Suria KLCC (in the same market segment)
implies that that there is significant upside to Pavilion KL Mall’s existing
average rental of RM16.65 psf pm (1H 2011). Suria KLCC’s average
rental is estimated to be RM25psf pm for FY10/11, or 50% higher.
Table 5: Footfall and average rental of major shopping destinations in Klang Valley
Opened since Visitors NLA Average Rental
(2010/11)
Premium fashion malls ‘ million (sq ft) RM psf pm
Pavilion KL Mall Sept 2007 31m 1.34m RM17
Suria KLCC (excluding Phase
2)
1998 >40m 1.0m RM25*
Mass-market malls
Sunway Pyramid 1997 34m 1.70m RM10*
Mid Valley Mall Nov 1999 35m 1.70m RM10-12*
Sources: Trust Manager, *Maybank IB estimates
Page 12 of 42
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Pavilion REIT
17 October 2011
Older malls have higher % of anchor tenants. Malls built in the
1990s have a different shopping format, focused on attracting shopper
traffic with several anchor tenants which typically account for 50-70% of
the mall’s lettable area. Taking the example of Suria KLCC (according
to its prospectus filing in 2004), its anchor and mini anchor tenants
accounted for approximately 59% of its net lettable area. These anchor
tenants sign long term leases (more than 10 years) at low rental rates.
Anchor tenants usually pay lower rents. Suria KLCC’s anchor
tenants are Isetan of Japan, Parkson Grand and Tanjong Golden
Village while its mini anchor tenants included Marks & Spencer. Suria
KLCC’s anchor and mini anchor accounted for 59% of its total NLA
back in 2004. While the prospectus information may be a bit dated,
based on our observation, the anchor and mini anchors still account for
the bulk of the tenancies.
Newer malls are designed with specialty tenants in mind. On the
other hand, newer malls like Pavilion KL Mall (in line with latest trends)
have designed their malls to cater to more specialty stores as they pay
higher rentals. Given that Suria KLCC has a higher percentage of
anchor tenants and yet enjoy higher average rental of RM25 psf pm, it
implies that the specialty stores there are paying significantly higher
rental than Pavilion KL Mall’s tenants. This indicates that Pavilion KL
Mall’s rental has significant upside over time as the mall matures, with
improvement in shopper traffic and completion of the Mall Extension.
Chart 7: Pavilion KL Mall – Mix by tenant type (by NLA) Chart 8: Suria KLCC – Mix by tenant type (by NLA)
Specialty
Stores,
Kiosks,
Cafes,
59%
Specialty
Anchor,
23%
Anchor
tenants,
18%
Specialty
Stores,
Kiosks,
Cafes,
33%
Mini
Major, 7%
Mini
Anchor,
22%
Anchor
tenants,
37%
Source: Trust Manager Source: KLCC Property Prospectus (2004)
Growing catchment of residents around Pavilion KL Mall provides
organic growth. Over the last 2-5 years, KL experienced a surge of
interest for high-end residential properties with foreign buyers
accounting for approximately 30% of all purchases. Popular property
launches around Bukit Bintang area are centred around KLCC, City
Centre/Bukit Bintang and Ampang Hilir/U-Thant areas. According to a
recent CBRE report, some 9,000 units of high-end properties (priced
above RM350 psf) are expected to be delivered to end-buyers between
2011-14 (see charts overleaf). These affluent buyers/occupants will
have the necessary spending power and provide an immediate
catchment of resident shoppers to Pavilion KL Mall.
Total NLA: 1.3m sq ft Total NLA: 1.0m sq ft
Page 13 of 42
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Pavilion REIT
17 October 2011
Chart 9: Cumulative supply of Condominiums/ Serviced
Residences in Kuala Lumpur (Mid-range and above)
Chart 10: Cumulative supply of Condominiums (Mid-
range and above) around Bukit Bintang area
Source: CBRE (May 2011, supply figures include all projects with
average prices of RM350psf and above)
Source: CBRE (May 2011)
Chart 11: Total Incoming Condominiums / Serviced Residences Supply
by Location (Kuala Lumpur)
Source: CBRE (May 2011)
Right of first refusal (ROFR), 3
rd
party acquisitions. Besides
pursuing organic growth, the REIT Manager will pursue opportunities
for asset acquisitions that provide attractive cash flows and yields
relative to PavREIT's weighted average cost of capital. PavREIT
benefits from three specific ROFRs granted by the sponsors and a third
party that could be potentially injected into PavREIT over the next 2- 5
years, namely (i) farenheit88 mall (completed and operating), (ii) the
Pavilion KL Mall extension, and (iii) an upcoming sub-urban mall in
USJ, Subang. Besides these three properties, the sponsor has also
provided the Trustee with a general ROFR for the sponsor’s future retail
developments in Malaysia. Also, the REIT manager will explore third
party acquisitions should such opportunity arise and meet its
investment criteria.
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Pavilion REIT
17 October 2011
Picture 1: The Pavilion KL Mall extension ROFR Picture 2: farenheit88 ROFR
Description : A potential expansion to Pavilion Kuala
Lumpur Mall
Target
market
: Mid- to high-end market
Granted by : Urusharta Cemerlang Kuala Lumpur
Location : Adjacent to Pavilion Kuala Lumpur Mall
Size : 300,000 sq ft of retail NLA (estimated)
Targeted to
commence
: 2013/14
Description : A property comprising 5 levels of retail space
with 3 levels of basement car parks located
at Bukit Bintang opposite Pavilion Kuala
Lumpur Mall
Target
market
: Young and trendy urbanites (age 15-23)
Granted by : Makna Mujur Sdn Bhd
Location : Bukit Bintang area, opposite Pavilion Kuala
Lumpur Mall
Size : 280,000 sq ft NLA
Targeted to
commence
: Operational since 2010
Picture 3: USJ ROFR (artist impression)
Description : Proposed development of a 6-storey
retail mall
Target
market
: Mid market
Granted by : Equine Park Country Resort Sdn Bhd
Location : In Subang, 20 km outside Kuala Lumpur
Size : 400,000 sq ft of retail NLA (estimated)
Targeted to
commence
: 2014
Sources: Trust Manager, Maybank-IB
Artist Impression
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Pavilion REIT
17 October 2011
RM1.46b of asset potential from the three ROFRs. Based on our
preliminary data compilation of the size of the three properties under
the ROFRs, and the latest transacted retail mall prices in the
surrounding area or malls with a similar target market, we estimate that
the three properties are worth a combined RM1.46b in value (see
below). This would add +41% to PavREIT’s initial asset size.
Table 6: Estimated value of the three malls under ROFR
Properties Location sq ft (NLA) Est. cap
value*
Est.
Value
RM psf RM 'm
farenheit 88 Jalan Bukit
Bintang, KL
280,000 1,400 392
Pavilion extension Jalan Bukit
Bintang, KL
300,000 2,500 750
USJ mall Subang 400,000 800 320
Total combined
value
1,462
* Cap value based on recently transacted prices of similar properties
Sources: Maybank IB
Low debt-to-asset ratio of 20%. PavREIT’s debt-to-asset ratio is
estimated to be 20% which is significantly below the statutory limit of
50%, and one of the lowest among M-REITs (see chart below). With its
conservative capital structure, we estimate that the REIT Manager
could take on additional debt of up to RM2.2b without the need to raise
fresh equity in the immediate term to fund future expansion.
Chart 12: Comparison of M-REIT gearing (as at 30 Sep 2011)
48.2
43.4
39.8
38.2
36.4 36.0
35.0
32.7
24.5
24.0
20.6
20.1
17.6
11.5
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10
20
30
40
50
60
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l
l
(%)
# Axis REIT gearing was based on Dec’11 results
Sources: Maybank IB, M-REITs
Page 16 of 42
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Pavilion REIT
17 October 2011
Room for higher gearing and growth. Assuming PavREIT gears up
to its statutory limit and raise RM2.2bn for acquisition, this will lift its
asset size by +60%, from the RM3.63b appraised value on the initial
assets. The RM2.2b is sufficient to buy another sizeable investment
portfolio, including the properties which we have highlighted earlier.
Table 7: Gearing capacity and potential
|----------------------------------- Debt-to-asset ratio --------------------------------------|
20%
(initial)
30% 40% 50%
RM ‘m RM ‘m RM ‘m RM ‘m
Asset size (base) 3,632
Debt 731 1,243 1,934 2,901
Additional debt/ asset 512 1,203 2,170
Potential asset size 4,144 4,835 5,803
% change from base 14% 33% 60%
New acquisition assumed at 6.6% net
property yield
34 79 143
Incremental cost of debt at 5% (26) (60) (109)
Incremental other costs at 0.6% (3) (7) (13)
Incremental distributable income 5 12 22
Additional DPU (sen) 0.17 0.40 0.72
Estimated initial & potential DPU 5.80 6.17 6.40 6.73
Initial/potential div yield 6.8% 7.0% 7.3% 7.6%
Source: Maybank IB
Merit 5: Strong management team
A wealth of retail experience. The PavREIT management team is a
well-rounded team with a wealth of experience. The team is headed by
Mr Philip Ho, the CEO (23 years work experience) and assisted by Ms
Joyce Yap, the Asset Manager (Retail) with 30 years experience. They
are further supported by Mr Lovell Ho, Asset Manager (Leasing) with 18
years of work experience, Ms Kung Suan Ai, Asset Manager
(Marketing) with 15 years of experience, Mr Daniel Hee, Asset Manager
(Operations cum Mechanical Engineering) with 29 years of experience,
and Mr Francis Ong, Asset Manager (Facilities Management) (see
Appendix 2 for details of the management team).
Proven management expertise. The award winning retail mall was
conceptualized, planned, designed and built by the same team of senior
management who is and will be running the mall post-listing. This is
proof of management expertise in running the mall. Furthermore, it
ensures business continuity and their intimate knowledge of the
properties can be further utilised to enhance the layout and revenue of
PavREIT.
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Pavilion REIT
17 October 2011
Ongoing asset enhancement initatives. The most recent example of
management’s ability to enhance value is the creation of “Tokyo Street”
on the top floor of the mall with approximately 40,000 sq ft, which
replaces lower-yielding larger retail units with higher-yielding smaller
retail units. This area was previously the Home Precinct. The motivation
behind Tokyo Street was to increase foot traffic at the higher floor
levels. At The Connection Precinct, management replaced a lower-
yielding fitness centre with higher-yielding F&B outlets like Watame and
Overtime which provided higher rentals when the former’s tenancy
expired. Since its opening, management has also introduced additional
push-carts and kiosks at Pavilion KL Mall.
Merit 6: Favourable macro fundamentals
Retail spending on the rise. Malaysian retail sales have grown by a
CAGR of 17.8% from 2005 to 2010, and now account for 18% of GDP.
Total retail sales value for 2010 is estimated at RM134b, +9.9% YoY.
Under the 10
th
Malaysia Plan, total retail sales growth is targeted to
grow annually by 8.3% between 2010 and 2015. The growth is
underpinned by key economic and demographic trends: (i) rising GDP
and GDP per capita which translates to greater spending power; (ii) low
unemployment rate; (ii) a growing, young population; (iii) increasing
urbanization; and (iv) rising tourist arrivals, which augment the domestic
consumer base.
Rising affluence among Malaysians. The country’s GDP per capita
has been rising steadily over the past 10 years from RM15,312 (2000)
to RM27,113 (2010) save for 2009 following the global financial crisis.
The national unemployment rate is also low at 3.20% (June 2011) while
the unemployment rate in KL and Selangor is estimated to be slightly
below 3%.
Government targets to grow GDP by 6% per year till 2020. Under
the Government’s Economic Transformation Programme (ETP), it
hopes to transform Malaysia into a high-income nation by 2020 by
growing the economy by 6% a year till 2020. The target is to increase
Malaysia’s Gross National Income (GNI) per capita from USD6,700 (or
RM23,700) in 2009 to more than USD15,000 (or RM48,000) in 2020.
Government on boosting tourism. Tourist arrivals and spending have
been steadily increasing since 2003’s SARS with 2010’s total tourist
spending at RM56.5b, up from RM53.4b in 2009 (+5.8% YoY).
Correspondingly, tourist arrivals reach a new high in 2010 with 24.6m
tourist arrivals, up from 23.6m in 2009 (+4.2% YoY). Under the ETP,
tourism spending is targeted to grow at a rate of 11.5% per year to
reach RM168b by 2020, while tourist arrivals is targeted to grow by
3.9% per year to reach 36.0m by 2020.
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Pavilion REIT
17 October 2011
Chart 13: Malaysian retail sales are expected to continue
growing
Chart 14: Rising income supports spending
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
1,000
2,000
3,000
4,000
5,000
6,000
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
F
Retail Sales Percapita Retail Sales as a % of Nominal GDP
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
F
2
0
1
2
F
2
0
1
3
F
GDP/Capita (RM) GDP Per Capita Growth (%)
Sources: CEIC, Maybank-IB Sources: IMF
Chart 15: Low unemployment rate at 3.0% (June 2011) Chart 16: Age profile of Malaysians
2.0
2.5
3.0
3.5
4.0
4.5
5.0
M
a
r
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0
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M
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r
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p
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0
2
M
a
r
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3
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-
0
3
M
a
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4
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9
M
a
r
-
1
0
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-
1
0
M
a
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-
1
1
Malaysia's Unemployment Rate (%)
0.0 0.5 1.0 1.5 2.0 2.5 3.0
0 to 4
5 to 9
10 to 14
15 to 19
20 to 24
25 to 29
30 to 34
35 to 39
40 to 44
45 to 49
50 to 54
55 to 59
60 to 64
65 to 69
Above 70
Person (mn))
Age Group
Sources: CEIC Sources: CEIC
Chart 17: Increasing tourist arrivals and receipts
0.0
10.0
20.0
30.0
40.0
50.0
60.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
Tourist arrivals ('m)
Tourist receipts (RM 'b)
Sources: Tourism Malaysia
One of the fastest in terms of population growth. Malaysia, a nation
with 28m population, is one of the fastest growing nations in the world.
Over the last decade, Malaysia’s population grew at a rate of 2.17%
p.a., while Kuala Lumpur’s population grew at 2.2% over the same
period. Approximately 6m of the population resides in Greater Kuala
Lumpur or popularly known as the Klang Valley, which is the main
economic corridor of Malaysia. By 2020, it is envisaged that the Greater
Kuala Lumpur population will hit 10m.
Page 19 of 42
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Pavilion REIT
17 October 2011
Young and growing population. Malaysia has a relatively young
population by age group. Approximately 83% of Malaysians is below 50
years of age and about 62% of Malaysians is below 35 years of age.
About 37% of Malaysians is between the age of 25-50 years, which is
the age group with the propensity to spend. The national median age is
approximately 26 years while that of Kuala Lumpur is 29 years. The
young population will be a key catalyst to drive retail spending as
Malaysian youths have a higher propensity to spend than their more
thrifty parents and grandparents who grew up in periods of austerity.
Page 20 of 42
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Pavilion REIT
17 October 2011
Financials
Predominantly a retail REIT. PavREIT comprises two initial assets,
Pavilion KL Mall (retail asset) and Pavilion Tower (office) purchased at
cost of RM3,190m and RM123m respectively. These assets are
recorded in PavREIT’s balance sheet at RM3,543m based on the
appraised values of RM3,415m (retail mall: +7%) and RM128m (office;
+4%) respectively. PavREIT is predominantly a retail REIT as 96% of
its portfolio weight is held by the retail asset.
Earnings forecasts. We project PavREIT’s 2012 and 2013 gross rental
income at RM319m and RM328m respectively. This, in turn, generates
net property income (NPI) of RM225m (2012) and RM232m (2013)
respectively, and pretax profits (after accounting for manager, trustee
expenses and borrowing costs) of RM170m and RM176m respectively.
We forecast 2012’s distributable income at RM180m (6.0sen/unit) and
2013’s at RM183m (6.1sen/unit) respectively.
Key assumptions. Our assumptions for the forecasts are based on
PavREIT’s initial portfolio of property assets (i.e. Pavilion KL Mall and
Pavilion Tower) without taking into account potential future acquisitions.
We assume and forecast:
(i) Gross rental income increases by 2.9% and 4.5% in 2013 and
2014 respectively. This assumes tenancy agreements expiring
in those financial periods are renewed at 9% (3% p.a.
increment) with no step-ups for the next 3 years,
(ii) Occupancy rates of 98% throughout the full length of the 10
year DCF period for Pavilion KL Mall. As for Pavilion Tower, we
assume 91% average occupancy rate for 2012 and thereafter
100%.
(iii) Maintenance fees and other operating expenses (such as
advertising, general & administrative expenses, property
management fees & reimbursements) to increase by 3% p.a..
(iv) Capital expenditure of RM3m for 2012, RM7m for 2013-15, and
RM14m for 2016-22. The assets are relatively new, merely 4
years old and well maintained. Hence, we foresee relatively
minimal capex in the near future.
(v) Distribution payout policy of 100% for 2012-14, and 95%
thereafter. Note that PavREIT manager is committed to pay out
at least 100% of its distributable income in 2011-12 as
dividends, and at least 90% in the subsequent years.
(vi) Our dividend payout also assumes that 50% of the REIT
Manager’s fee will be payable in PavREIT units for 2011-12,
30% for 2013-14, and 15% thereafter.
(vii) Borrowing cost of 5% p.a. for 2012-14, and 5.5% thereafter
(based on debt-to-asset ratio of 20%).
Our earnings forecasts suggest a DPU CAGR growth of 3.9% over the
next three years.
Page 21 of 42
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Pavilion REIT
17 October 2011
Sensitivity Analysis
1. Gross Rent
Changes in the Gross Rent will impact the Net Property Income of
PavREIT and, consequently, the distribution yield. The assumptions for
Gross Rent have been set out earlier in this section. The effect of
variations in the Gross Rent on the DPU is set out below:
Table 8a: Yield Change on Changes in Gross Rent
Gross Rent (%) FY12f FY13f FY14f
5% above case 7.35% 7.43% 7.97%
Base case 6.82% 6.89% 7.40%
5% below case 6.29% 6.35% 6.83%
Source: Maybank IB
2. Property Expenses
Changes in Property Expenses will impact the Net Property Income of
PavREIT and, consequently, the distribution yield. The effect of
variations in other property expenses on the distribution yield is set out
below. However, do note that the largest component of property
operating expenses, utilities cost (40%), is passed on to tenants as was
the case in recent electricity tariff adjustments.
Table 8b: Yield Change on Changes in Property Expenses
Property Expenses FY12f FY13f FY14f
5% above case 6.64% 6.71% 7.22%
Base case 6.82% 6.89% 7.40%
5% below case 7.00% 7.07% 7.58%
Source: Maybank IB
3. Interest Expenses
Changes in Interest Expenses will impact the Profit before Tax of
PavREIT and, consequently, the distribution yield. The effect of
variations in interest expenses on the distribution yield is set out below.
Our base case scenario assumes current interest rates at 5% p.a..
Table 8c: Yield Change on Changes in Interest Expenses
Interest Expenses FY12f FY13f FY14f
Interest rate: 4.5% p.a 6.96% 7.03% 7.54%
Base case :5.0% p.a 6.82% 6.89% 7.40%
Interest rate :5.5% p.a 6.68% 6.75% 7.26%
Source: Maybank IB
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Pavilion REIT
17 October 2011
4. Management Fees paid in units
Changes in management fees paid in units will impact the Distributable
Income of PavREIT and, consequently, the distribution yield. The effect
of variations in % of management fees payable in units on the
distribution yield is set out below. Our base case scenario assumes
50% current interest rates at 5% p.a
Table 8d: Yield Change on Changes in Management fees paid in units
Management fees
paid in Units
FY12f FY13f FY14f
15% 6.59% 6.80% 7.32%
30% 6.69% 6.89% - BC 7.40% -BC
40% 6.76% 6.96% 7.47%
50% 6.82% -BC 7.02% 7.52%
Source: Maybank IB; Base case - BC
Valuation
Favour the DCF approach, as it rigorously accounts for 10 years of
cashflow and a terminal value, taking into consideration various
assumptions on rental rate changes, occupancy rates, and others.
Revenues are derived mainly from rents paid by tenants, which are
typically on a 3+3 years tenancy agreement, while property and non-
property expenses usually do not fluctuate significantly.
Note that our valuation models have yet to incorporate any potential
property acquisitions or pipeline of potential property injections by its
sponsor.
Table 9a: Assumptions used for WACC discount rate
Risk free rate Rf 4.0% 10-year government bond yield
Long-term cost of debt Kd 5.5%
Market return Rm 10.5% Maybank IB house’s assumption
Beta β 0.65 Average of M-REITs
Target capital ratio
- Debt / (Debt + equity) Wd 35% Optimum structure
- Equity / (Debt + equity) We 65% Optimum structure
Cost of equity Ke 8.2% = Rf + (Rm – Rf) β
WACC Wc 7.3% = Kd (Wd) + Ke (Wd)
Source: Maybank IB
Sector leaders always command a premium. Our RM1.10 TP for
PavREIT implies a 5.5% yield for 2012. Given its similarity to SunREIT
and CMMT, our valuation for PavREIT should reflect a premium
valuation as well to the rest of M-REITs given its size (2
nd
largest M-
REIT by asset size), liquidity, and premium assets. In view of a total
return of merely 5.7%, we are initiating coverage on Pavilion with a
Hold rating.
Page 23 of 42
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Pavilion REIT
17 October 2011
Table 11: M-REIT relative comparisons
Al Aqar AmRaya* AmFirst Atrium Axis* Bous-
tead
Hektar Quill* Starhill Tower UOA SunREIT* CMMT* Pav REIT
Hospital Diversified Comm Indust’l Comm/
Indust’l
Plant-
ation
Retail Comm Hotel Comm Comm Retail Retail Retail
Share price @ 17/01/12
1.20 0.92 1.16 1.11 2.70 1.59 1.33 1.11 0.89 1.30 1.40 1.25 1.44 1.08
Free float (%)
5.9 36.0 68.1 62.9 83.3 19.9 28.6 39.9 40.3 76.4 64.5 40.7 42.8 26.3
Free float (RMm)
46 190 342 85 1,033 198 122 175 488 281 384 1,368 1,101 851
Key statistics
2012 DY (%)
- 7.8 - - 6.7 - 8.3 7.7 - - - 5.6 5.9 5.6
2013 DY (%)
- 8.0 - - 7.0 - 9.0 8.0 - - - 5.9 5.1 5.6
P/NAV (x)
1.1 0.9 0.9 1.1 1.3 1.1 1.0 0.9 0.8 0.8 1.0 1.2 1.4 1.2
Gearing: Debt/asset (%)
48.2 36.0 39.8 24.5 24.0 17.6 43.4 36.4 11.5 20.6 38.2 35.0 32.7 20.1
Cap rates in book (%)
6.7 7.0 6.4 8.0 8.8 9.3 7.6 6.8 3.3 6.6 6.2 6.5 7.5 6.3
Inv. Prop (RM’m)
1,181 914 1,028 163 1,276 1,056 752 810 495 604 529 4,384 2,434 3,543
NAV (RM per share)
1.1 1.0 1.4 1.1 2.1 1.4 1.3 1.3 1.2 1.7 1.4 1.0 1.1 0.9
*Stocks under Maybank-IB’s coverage, No consensus for stock not under our coverage.
Sources: Bloomberg, Maybank IB
Page 24 of 42
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Pavilion REIT
17 October 2011
Property Profile - Pavilion Kuala Lumpur Mall
Picture 4: Pavilion Mall, Kuala Lumpur
Sources: Trust Manager
Pavilion KL Mall is one of the premium shopping centers in the heart of
golden triangle of Kuala Lumpur. One of the busiest streets in town,
Bintang Walk area of Jalan Bukit Bintang. Pavilion KL Mall is well
positioned to be a key shopping destination for tourists.
Table 12: Pavilion KL Mall Profile Table 13: Top 10 tenants of Pavilion KL Mall (as at 1 June
2011)
Description : 7-storey retail podium, together
with a 3-storey retail office block
and a 4-storey entertainment
annex.
Land area : 523,190 sq ft (on a master title)
Gross floor area : 2,202,557 sq ft
Net lettable area : 1,335,119 sq ft
Number of car parks : 2,427 (with Pavilion Tower)
Number of tenants : 462
Age of Property : 4 years (as at 1 June 2011)
Tenure : 99-year lease expiring on 26
October 2109
Stake : 100%
Purchase
consideration
: RM3,190 m
Appraised value : RM3,415 m (as at 1 June 2011)
Transacted value : (RM 2,389 per sq ft (on NLA)
Occupancy rate (%) : 98.0 (1 June 2011)
Visitor traffic for 2010 : 31 m
Tenant Trade Sector
% of
Occupied NLA
Parkson Dept Store 17.8
TANGS Dept Store 5.1
GSC Urban Leisure 4.4
Forever 21 Fashion 1.7
Padini Fashion 1.5
Esprit Fashion 1.0
Food Republic F & B 0.9
Zara Fashion 0.8
Royal Selangor Gifts & Souveniers 0.5
Topshop and
Topman
Fashion
0.5
Top ten tenants 34.2
Other tenants 65.8
Total 100.0
Sources: Trust Manager , Maybank-IB Sources: Trust Manager
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Pavilion REIT
17 October 2011
Chart 19: Trade Sector Analysis of Pavilion KL Mall -
Percentage of NLA Income (%) - as at 1 June 2011
Chart 20: Historical Lease Expiry Profile
Fashion
38%
Department
Store
11%
F & B
19%
Urban Leisure
4%
Office
1%
Beauty &
Personal Care
5%
Others*
4%
Jewellery &
timepieces
8%
IT & digital
2%
Shoes & leather
products
4%
Home
decoration
1%
Property
showroom
0%
Gifts &
souveniers
3%
98.5 98.7 96.5 98.5
15.08
15.58
16.36
16.65
14.00
14.50
15.00
15.50
16.00
16.50
17.00
95.0
95.5
96.0
96.5
97.0
97.5
98.0
98.5
99.0
FY2008 FY2009 FY2010 6 mth ended 30
June 2011
Occupancy Rate(%) Average mthly rental (RM psf)
%
RM psf
Sources: Trust Manager Sources: Trust Manager
Chart 21: Rental range by Levels (as at 1 June 2011)
9.1
3.2
2.2
22.0
25.3
21.8
18.9
13.6
10.9
6.2
5.7
0.0
5.0
10.0
15.0
20.0
25.0
30.0
B
a
s
e
m
e
n
t

1
B
a
s
e
m
e
n
t

2
B
a
s
e
m
e
n
t

3
L
e
v
e
l

1
L
e
v
e
l

2
L
e
v
e
l

3
L
e
v
e
l

4
L
e
v
e
l

5
L
e
v
e
l

6
L
e
v
e
l

7
L
e
v
e
l
s

8
-
9
*
Average monthly rental (RM) (per sq ft) Average rental
RM per sq ft
Average RM16.65
Sources: Trust Manager: *Retail Office Space
Picture 5: Pavilion`s trademark “Spanish Steps” Picture 6: Classy and prestigious street-front duplexes
Source: Maybank IB Source: http://malaysiacentral.com
Page 26 of 42
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Pavilion REIT
17 October 2011
Picture 7: Spacious Centre Court to host events Picture 8: Outstanding interiors
Source: http://malaysiacentral.com Source: http://malaysiacentral.com
Picture 9: Global brands at the mall Picture 10: Global brands at the mall
Source: http://malaysiacentral.com Source: http://malaysiacentral.com
Page 27 of 42
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Pavilion REIT
17 October 2011
Property Profile - Pavilion Tower
Picture 11: Pavilion Tower
Source: Trust Manager
The Pavilion (Office) Tower was acquired in early 2010. It underwent
renovations and re-opened for tenanting in the third quarter of 2010.
Since then, it has emerged as one of Kuala Lumpur’s more modern
offices. Equipped with state-of-the-art communication technology,
Pavilion Tower is today home to a host of local and international
corporations.
Table 14: Pavilion Tower Profile Table 15: Tenant Profile of Pavilion Office Tower (as at 1
June 2011)
Description : 20-storey office tower
Gross floor area : 243,288 sq ft
Net lettable area : 167,407 sq ft
Number of tenants : 19 (as at 1 June 2011)
Age of Property : 4 years (as at 1 June 2011)
Stake : 100%
Purchase price : RM123.5 m
Appraised value : RM128.0 m
Transacted value : RM737psf (on NLA)
Occupancy rate
(%)
: 64.5% (as at 1 June 2011)
Tenant Trade Sector
Occupied
NLA (%)
Aker Engineering
Malaysia Sdn Bhd
O&G 35.8
Malton Group Property
Developer
27.6
Mrail International Sdn
Bhd
Locomotive
Technology
provider
9.2
Clever Eagle Sdn Bhd Service office 9.1
Top ten tenants 81.7
Other tenants 18.3
Total 100.0
Sources: Trust Manager, Maybank-IB Sources: Trust Manager
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Pavilion REIT
17 October 2011
Chart 22: Occupancy Rate and Average Monthly Rental Chart 23: Future Lease Expiry Profile (as at 1 June 2011)
29.6%
64.5%
5.98
5.77
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
0%
10%
20%
30%
40%
50%
60%
70%
FY2010 6 mth ended 30June2011
Occupancy Rate (%) Average monthly rental
(%) RM (per sq ft)
4.9%
66.7%
28.4%
6.00 5.97
5.75
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
0%
10%
20%
30%
40%
50%
60%
70%
80%
FY2012 FY2013 FY2014 and thereafter
Occupied NLA expiring (%) Average monthly rental of expiring tenancies
(%) RM (per sq ft)
Sources: Trust Manager Sources: Trust Manager
Picture 12: An entrance with prestige Picture 13: Office Lifts
Sources: Trust Manager Sources: Trust Manager
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Pavilion REIT
17 October 2011
RISKS
An economic downturn. An economic downturn would result in
spending cuts by consumers, which in turn may result in the loss of key
tenants. This risk is currently mitigated by the fact that the mall has a
large and well-diversified base of over 450 tenants, with no single
tenant contributing over 10% of total revenue (by our estimate).
Single asset risk. The portfolio is highly dependent on the continuous
appeal of Pavilion KL Mall as a retail icon and Bukit Bintang as a tourist
destination. This risk is partially mitigated by its status as one of only
four premium retail malls in the country, with high connectivity post the
start of the new MRT operations. Going forward, this risk should ease
as and when PavREIT seeks to geographically diversify its asset base.
Inability of the REIT manager to execute its investment strategy.
The REIT manager's plan may not be fully implemented due to reasons
such as the lack of investable assets, and the inability to raise the
necessary funds.
Competition. New premium retail malls with equally good concepts
may mushroom over time as Malaysia’s economy grows, drawing
shopper crowd away from Pavilion KL Mall. This risk is mitigated by the
fact that Pavilion KL Mall is strategically located in the Bukit Bintang
area, and at the fringe of the Central Business District with its ready
catchment of locals, business crowd and tourists. Furthermore,
accessibility of the mall will be further improved when the city walkway
(2012) and MRT (2016) are ready.
Oversupply of office space in Kuala Lumpur. There are over 10m sq
ft of new office supply that will add to Kuala Lumpur’s existing office
supply space of 63m sq ft (+16%) between 2011 and 2013. This huge
amount of new office space will compete for the same tenants which
may result in low occupancy rate for Pavilion Tower and a flattish office
rental outlook. However, this is mitigated by Pavilion Tower’s strategic
location, newly renovated building, and easy access via public
transportation. Furthermore, the office block is located above Pavilion
KL Mall, providing convenience to tenants. On the bigger picture,
Pavilion Tower only accounts for less than 4% of total assets and total
revenue.
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Pavilion REIT
17 October 2011
INCOME STATEMENT (RM m) BALANCE SHEET (RM m)
FY Dec 2011F 2012F 2013F FY Dec 2011F 2012F 2013F
Gross rental income 25.8 319.0 327.7 Fixed Assets 3,543.0 3,546.0 3,553.0
Property operating expenses (7.8) (94.4) (95.8) Other LT Assets 7.1 8.6 14.2
interest income 0.1 2.0 2.3 Cash/ST Investments 81.3 93.5 88.7
Net property income (NPI) (1.6) (20.0) (21.8) Other Current Assets 1.8 1.9 2.0
Interest (Exp)/Inc (2.9) (36.5) (36.5) Total Assets 3,633.1 3,650.1 3,657.8
Non-property expenses (1.6) (20.0) (21.8)
One-offs 0.0 0.0 0.0 ST Debt 0.0 0.0 0.0
Pre-Tax Profit 13.6 170.1 175.9 Other Current Liabilities 2.6 2.9 3.0
Tax 0.0 0.0 0.0 LT Debt 730.6 730.6 730.6
Net Profit 13.6 170.1 175.9 Other LT Liabilities 72.0 79.8 82.1
-realised 13.6 170.1 175.9 Minority Interest - - -
-unrealised
0.0 0.0 0.0 Shareholders' Equity 2,827.9 2,836.7 2,842.1
Distributable income 14.5 180.4 182.7 Total Liabilities-Capital 3,633.1 3,650.1 3,657.8
DPU 0.5 6.0 6.1
Net Property Income Growth (%) - NA 8.8 Number of units (m) 3,000.8 3,010.8 3,016.9
Pretax Profit Growth (%) - NA 3.4 Gross Debt/(Cash) 730.6 730.6 730.6
Realised Net Profit Growth (%) - NA 3.4 Net Debt/(Cash) 649.3 637.1 641.9
Payout ratio (%) 100.0 100.0 100.0 Working Capital 80.4 92.5 87.7
CASH FLOW (RM m) WACC ASSUMPTIONS
FY Dec 2011F 2012F 2013F
Profit before taxation 13.6 170.1 175.9 Risk-free Rate of Return 4.0
Depreciation - - - Long Term Cost of Debt 5.5
Net interest receipts/(payments) 0.0 0.0 0.0 Market Risk 10.5
Working capital change 3.1 25.5 9.0 Beta 0.65
Cash tax paid 0.0 0.0 0.0 Cost of Equity 8.2
Others (incl'd exceptional items) 0.0 0.0 0.0 Tax Rate -
Cash flow from operations 16.7 195.6 184.9 Weighted Cost of Capital 7.3
Capex 0.0 (3.0) (7.0) Growth 1.5
Disposal/(purchase) 0.0 0.0 0.0 Terminal Value Discount 6.3
Others 0.0 0.0 0.0
Cash flow from investing 0.0 (3.0) (7.0)
Debt raised/(repaid) 0.0 0.0 0.0
Equity raised/(repaid) 0.0 0.0 0.0
Dividends (paid) (14.5) (180.4) (182.7)
Others 0.0 0.0 0.0
Cash flow from financing (14.5) (180.4) (182.7)
Change in cash 2.2 12.2 (4.8)
Source: Company, MaybankIB
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Pavilion REIT
17 October 2011
Appendix 1: Pavilion REIT’s structure
Pavilion REIT is established with the principal investment strategy of
investing, directly and indirectly, in a diversified portfolio of income
producing real estate used solely or predominantly for retail purposes.
Chart 24: The relationships around Pavilion
Sources: Trust Manager
Pavilion REIT Management Sdn Bhd is the manager of Pavilion REIT.
The Manager undertakes primary management activities in relation to
Pavilion REIT. Its main responsibility is to set the strategic direction of
Pavilion REIT and give recommendations to the Trustee on the
acquisition, divestment and enhancement of assets of Pavilion REIT in
accordance with its stated investment strategy. The Manager is 51.0%
owned by UCDSB (Urusharta Cemerlang Development Sdn Bhd) and
49.0% by UCPC (Urusharta Cemerlang Project Corporation Sdn Bhd).
AmTrustee Berhad is the trustee of Pavilion REIT. The Trustee
provides corporate trusteeship services for Pavilion REIT (see
Appendix 4).
Henry Butcher Malaysia Sdn Bhd is the property manager of Pavilion
REIT. The Property Manager is responsible for providing property
management services for the properties in PavREIT's portfolio.
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Pavilion REIT
17 October 2011
Appendix 2: Who’s who in PavREIT
Chart 25: Organisation structure of PavREIT management
Sources: Trust Manager
Management Team
Philip Ho Yew Hong, Chief Executive Officer of the Manager. He
has over 23 years of years of experience in corporate planning,
mergers & acquisitions, finance, audit, operations management,
property development and construction. Prior to joining the Manager, he
was the Chief Financial Officer of the Sponsor, where he was involved
in the establishment of Pavilion REIT. During this period he was also
involved in the finance, operations and property investment functions
for the Sponsor group. Prior to this, he was Chief Operation Officer and
Finance Director of Kuala Lumpur Pavilion Sdn Bhd (“KLP”) during the
development and construction stage of the Pavilion Kuala Lumpur
Project. He holds a Master of Business Administration from University
of Strathclyde, United Kingdom and a Bachelor of Business in
Accounting from Chisholm Institute of Technology, Australia. He is
currently a member of the Malaysian Institute of Accountants.
Chief Executive Officer
Philip Ho Yew Hong
Board of Directors
Asset Manager
(Retail)
Joyce Yap Soh
Ching
Head of Legal
and Compliance
Lo Khien Ngoh
Asset
Manager
(Marketing)
Kung Suan Ai
Asset Manager
(Facilities
Management)
Francis Ong
Heng Khai
Asset
Manager
(Leasing)
Lovell Ho Wai
Hoong
Asset
Manager
(Operations
cum M&E)
Daniel Hee
Teck Ming
Finance Manager
t.b.a.
Page 33 of 42
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Pavilion REIT
17 October 2011
Joyce Yap Soh Ching, Asset Manager (Retail) of the Manager and
Chief Executive Officer (Retail) of KLP. During her 30 years’ working
experience, she has held key positions and handled a variety of
responsibilities in the areas of development, sales and marketing,
leasing of various types of property development and asset
management. In her role as Chief Executive Officer of KLP, her key
responsibility was to formulate, articulate and prioritise departmental
goals in line with KLP’s strategic objectives which included mall
operations, leasing, marketing and human resources. Her role also
involved developing and maintaining effective networking relationships
with local, regional and international retailers. Prior to joining KLP, she
worked with Sunway Pyramid Sdn Bhd among many others.
In 2010, she received the Outstanding Entrepreneurship Awards
awarded by the Asia Pacific Entrepreneurship Awards Malaysia and
was awarded the Distinction for Distinguished Lifetime Dedication to
Management of Shopping Centre by PPKM in 2008. She holds a
Bachelor of Arts (Hons) in Business Studies from North East London
Polytechnic, London (now known as North London University) and a
Certificate in Centre Management from PPKM.
Lovell Ho Wai Hoong, Asset Manager (Leasing) of the Manager and
Director of Leasing of KLP. He has 18 years’ experience in shopping
mall management particularly in the areas of leasing and marketing. He
joined KLP in 2002 as Senior Leasing Manager, was promoted to
General Manager in 2005 and was appointed Director of Leasing in
2010. Prior to joining KLP, he was the Marketing Manager of Sunway
Pyramid Sdn Bhd. He began his career with the Shopping Centre
Management Division of The Lion Group. He holds a Bachelor of
Business in Marketing from the Royal Melbourne Institute of
Technology, Melbourne, Australia. He is also a Certified Marketing
Manager by PPKM and a member of PPKM.
Kung Suan Ai, Asset Manager (Marketing) of the Manager and
Director of Marketing of KLP. She has 15 years of experience in retail
and corporate marketing for shopping centres and integrated
developments. She joined KLP in 2008 as General Manager, Marketing
before being appointed as Director of Marketing in 2010. She oversaw
the marketing and concierge services of Pavilion KL Mall. She started
her career with Sunway Pyramid in 1996, and in 2001 joined Mid Valley
Megamall as Advertising and Promotions Manager. In 2004, she was
made Director of Advertising & Promotions and in 2008, Director of
Marketing for the integrated Mid Valley City development. She is now
the Vice President of PPKM and is actively involved in shopping tourism
events for Bukit Bintang – KLCC. She holds a Bachelor of Arts (Hons)
in Communications from Universiti Kebangsaan Malaysia.
Daniel Hee Teck Ming, Asset Manager (Operations cum
Mechanical and Engineering) of the Manager and Director of
Operations of KLP. He joined the Sponsor in 2007 as General
Manager, Mechanical & Electrical before being appointed as Director of
Operations from the end of 2008. He gained several years of
experience in aluminium fabrication in the United Kingdom after his
graduation in 1982. On his return to Malaysia, he worked with United
Technologies Carrier from 1988 to 2000 where he last held the position
of General Manager, Services. From 2000 to 2006, he was Chief
Operating Officer of Paracorp Technology Sdn Bhd. He holds a Higher
National Diploma in Mechanical Engineering from Humberside College
of Higher Education, United Kingdom.
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Pavilion REIT
17 October 2011
Francis Ong Heng Khai, Asset Manager (Facilities Management) of
the Manager and Assistant Director of Operations of KLP. He has over
18 years of experience in property management covering residential,
commercial and industrial properties. Prior to joining KLP, he was with
CapitaMall Asia Ltd for close to seven years and managed one of their
shopping malls, Plaza Singapura which is situated in Singapore’s
shopping belt along Orchard Road. He was seconded to a new
development, ION Orchard in 2008 as Head of Facilities. He holds a
Bachelor of Business (Property) from the University of South Australia,
Australia and a Diploma in Building Management from Ngee Ann
Polytechnic, Singapore.
Lo Khien Ngoh, Head of Legal and Compliance of the Manager.
She is a senior lawyer with more than 20 years professional
experience. Prior to joining the Manager, she was an investment lawyer
with the Qatar Investment Authority specialising in the area of
corporate, mergers and acquisitions and regulatory compliance work.
She started her career as an Advocate and Solicitor of the High Court
of Malaya. Khien Ngoh was called as a barrister and admitted into the
Honourable Society of Lincoln’s Inn, London after receiving her degree
from the University of London.
Directors of the REIT Manager
The Board is entrusted with the responsibility for the overall
management of the Manager. The Board consists of 12 Directors. The
following table sets forth certain information regarding the Directors:-
Table 16: Board of Directors of the REIT Manager
No. Name Nationality Position
1. Datuk Lim Siew Choon Malaysian Chairman and Non-Independent Executive Director
2. Datin Tan Kewi Yong Malaysian Non-Independent Executive Director
3. Ahmad Mohd A Y Al-Sayed Qatari Non-Independent Non-Executive Director
4. Omer Abdulaziz H A Al-Marwani Qatari Non-Independent Non-Executive Director
5. Mohamed Badr S K Al-Sadah Qatari Non-Independent Non-Executive Director
6. Navid Chamdia British Non-Independent Non-Executive Director
7. Dato’ Lee Tuck Fook Malaysian Non-Independent Executive Director
8. Ooi Ah Heong Malaysian Non-Independent Non-Executive Director
9. Datuk Roger Tan Kim Hock Malaysian Independent Non-Executive Director
10. Dato’ Maznah binti Abdul Jalil Malaysian Independent Non-Executive Director
11. Dato’ Mohzani bin Datuk Dr Abdul
Wahab
Malaysian Independent Non-Executive Director
12. Syed Mohd Fareed bin Shaikh
Alhabshi
Singaporean Independent Non-Executive Director
Source: Trust Manager
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Pavilion REIT
17 October 2011
Appendix 3: Background on the Sponsor
The Sponsor of Pavilion REIT is UCSB (Urusharta Cemerlang Sdn
Bhd), the developer of the Pavilion Kuala Lumpur Project comprising
four components: Pavilion Kuala Lumpur Mall, Pavilion Tower, two
blocks of luxury serviced suites known as Pavilion Residences, and a
proposed block of service suites. Incorporated on 15 April 1993, the
Sponsor developed the first Smart School for the Ministry of Education
in Taman Shamelin Perkasa, Cheras, Kuala Lumpur.
The board of directors of the Sponsor has a wealth of experience, and
is supported by experienced asset management and development
teams.
The Sponsor’s principal business strategy is to invest in, develop and
manage real estate in Malaysia. The Sponsor aims to further add value
to these properties through asset enhancement initiatives and precinct
development strategies.
The following table sets out a summary of the major Unitholders of
Pavilion REIT:
Table 17: Major Unitholders of Pavilion REIT
Name Units held
Direct Indirect
No. of Units
(`000)
% No. of Units
(`000)
%
Datuk Lim Siew Choon 845,425 28.18 - -
Datin Tan Kewi Yong 281,875 9.40 - -
Qatar Holding LLC* 1,082,900 36.10 - -
Total 2,210,200 73.68 - -
Sources: Trust Manager; * a wholly owned subsidiary of Qatar Investment Authority
Page 36 of 42
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Pavilion REIT
17 October 2011
Appendix 4: Background on the Trustee
AmTrustee Berhad was incorporated in Malaysia under the Act on 28
July 1987. It is registered as a trust company under the Trust
Companies Act, 1949 and is also registered with the SC for trusteeship
service in respect of unit trust funds. As at the Latest Practicable Date,
the authorized share capital of the Trustee was RM1,000,000
comprising 100,000 ordinary shares of RM10.00 each, paid up to
RM5.00 each in accordance with Section 3(c) of the Trust Companies
Act, 1949.
The principal activity of the Trustee is the provision of corporate
trusteeship services. The Trustee has been in the trustee business for
more than 24 years. As at Latest Practicable Date, the Trustee’s staff
strength comprises 23 executive staff and six on-executive staff.
The Trustee undertakes all types of trustee business allowed under the
Trust Companies Act, 1949 specializing in corporate trustee services
which include acting as trustee for private debt securities, unit trust
funds, provident ad retirement funds, golf clubs and timeshares,
stakeholders and REITs. As at the Latest Practicable Date, the Trustee
is trustee for 22 unit trust funds and three listed REITs.
Table 18 : Board Of Directors Of The Trustee
Name Directorship
Ms Pushparani d/o Moothathamby Chairman (Non-Independent Director)
Mr Shaharuddin Bin Hassan Director (Non-Independent Director)
Tuan Hj Mohamad Sabirin Bin Hj
A.Rahman
Director (Non-Independent Director)
Dato’ Ng Mann Cheong Independent Director
Datuk Haji Mohd Idris Bin Mohd Isa Independent Director
Sources: Trust Manager
CEO of the Trustee: Mr. Tan Kok Cheeng
Mr. Tan Kok Cheeng has been appointed as the Chief Executive Officer
of AmTrustee Berhad with effect from 1 October 2010. Prior to joining
the Trustee, he served as the Chief Internal Auditor, Internal Audit
Department, Ambank Group then elevated as Internal Audit Advisor,
AmBank Group. He has been with AmBank for more than 25 years.
Page 37 of 42
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Pavilion REIT
17 October 2011
Appendix 5: Accolades / Awards
In 2011, Pavilion Kuala Lumpur Mall has won the following awards:
 “Award for Outstanding Achievement – Shopping Mall Category” by Kuala Lumpur Mayor’s Tourism Awards
2011; and
 “2011 VIVA Best-of-the-Best Award Honouree (Design and Development)” by International Council
Shopping Centre Viva Best-of-the-Best Awards.
In 2010, Pavilion Kuala Lumpur Mall won the following nine awards:
 “Retail Merchant of the Year” by MasterCard Worldwide for MasterCard Hall of Fame Awards 2010;
 “Marketing” by International Council of Shopping Centres in Asia Shopping Centre Awards 2010;
 “Innovative Design & Development of a New Retail Project” by International Council of Shopping Centres in
Asia Shopping Centre Awards 2010;
 “Best Thematic Decoration” by Tourism Malaysia Shopping Centre Awards for Malaysia Mega Sale Carnival
2010;
 “Best Promotions and Events” by Tourism Malaysia Shopping Centre Awards for Malaysia Mega Sale Carnival
2010;
 “The Architecture Award (Retail) – Asia Pacific” by International Property Awards in association with
Bloomberg Television 2010;
 “The Architecture Award (Retail) – Malaysia” by International Property Awards in association with Bloomberg
Television 2010;
 “Best Retail Development – Malaysia” by International Property Awards in association with Bloomberg
Television 2010; and
 “Best Indoor Fun” by Expatriate Lifestyle Awards 2010.
In 2009, Pavilion Kuala Lumpur Mall won the following five awards:
 “Best Thematic Decoration” by Tourism Malaysia Shopping Centre Awards for Malaysia Year End Sale 2009;
 “Innovative Shopping Complex” by Malaysia Tourism Awards 2008/2009;
 “Best Shopping Complex” by LIBUR Tourism Awards 2009;
 “Best Indoor Fun” by Expatriate Lifestyle Awards 2009; and
 “World’s Best Retail Center” by International Real Estate Federation (FIABCI) Prix d’Excellence Awards 2009.
In 2008 and 2007, Pavilion Kuala Lumpur Mall won the following six awards:
 “Best Thematic Decoration” by Tourism Malaysia Shopping Centre Awards for Malaysia Mega Sale Carnival
2008;
 “Best Retail Development” by International Real Estate Federation (FIABCI) Malaysia Property Awards 2008;
 “Premier Retail Centre” by Brand Laureate Awards 2008;
 “Best Shopping Mall” by LIBUR Tourism Awards 2008;
 “Silver Award, Favourite Shopping Complex” by Diplomatic Tourism Awards 2008; and
 “Most Magical Mall Award” by Ministry of Tourism Malaysia 2007
Page 38 of 42
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Pavilion REIT
17 October 2011
Appendix 6: Fee Structure
The management and performance fees are as follows:
(i) Base Fee
Up to 1.0% per annum of the Total Asset Value (TAV) of
Pavilion REIT (excluding cash and bank balances which are
held in non-interest bearing accounts)
(ii) Performance Fee
Up to 5.0% per annum of Pavilion REIT’s Net Property Income
in the relevant financial year.
(iii) Incentive fee
An incentive fee is payable in accordance to the following:
Table 19: Incentive Fee
Fee Payable (% p.a
of TAV)
Criteria: Annual growth in Distributable Income in
a Financial Year (calculated before accounting for
Incentive Fee in that Financial Year)
Up to 0.10% Exceeds 7.5% and up to 10.0%
Up to 0.15% Exceeds 10.0% and up to 12.5%
Up to 0.20% Exceeds 12.5%
Sources: Trust Manager
Incentive fee is payable in Units only. The Incentive Fee is only
applicable in respect of the second full financial year in which Pavilion
REIT has been established and in operation, being FY2013. No
incentive fee is payable for FY2011 and FY2012.
(iv) Acquisition and divestment fees
1% of acquisition price and 0.5% of disposal price, in line with
industry practice.
Page 39 of 42
Pavilion REIT
Appendix 7: Fee Comparison among various M-REITs
Al Aqar KPJ Al Hadharah
Boustead
Amanah
Raya*
AmFirst Atrium Axis REIT* CMMT* Hektar Quill
Capita*
Starhill SunREIT* Tower UOA REIT
Fees structure:
Base fees 0.15% of
NAV
0.3 % of
NAV
1.0% of
NAV
0.5% of
GAV
1.0% of
NAV
1.0% of
NAV
1.0% of
GAV
1.0% of
GAV
0.4% of
GAV
1.0% of
GAV
0.3% of
GAV
0.75% of
GAV
1.0% of
NAV
Performance fees - 2.5%
performance-
based profit
sharing
receivable
- 3.0% of NPI - - 5.0% of
NPI
5.0% of
NPI
3.0% of
NPI
5.0% of
NPI
3.0% of
NPI
4.0% of
NPI
-
Trust fees 0.03% NAV 0.03% NAV 0.1% of
NAV
0.1% of
NAV
0.04% of
NAV
subject to a
minimum
fee of
RM40,000
perannum
0.05% of
NAV
0.02% of
GAV for
1st RM2b
then
0.01% of
GAV
thereafter
0.1% of
NAV
0.03% of
1st
RM2.5b of
GAV and
0.02% on
the GAV in
excess
RM2.5b
0.03% of
GAV
0.03% of
NAV
0.03% of
NAV
0.045%
of NAV
Acquistion Fee
Acquisition fee
- 1.0% of
acquisition
price
- 1.0% of
acquisition
price
- 1.0% of
acquisition
price
1.0% of
acquisition
price
1.0% of
acquisition
price
1.0% of
acquisition
price
1.0% of
acquisition
price
1.0% of
acquisition
price
1.0% of
acquisition
price
-
Divestment Fee - 0.5%
disposal
price
- 0.5% of the
sale price
- 0.5% of
the sale
price
0.5% of
the sale
price
0.5% of
the sale
price
0.5% of
the sale
price
0.5% of
the sale
price
0.5% of
the sale
price
0.5% of
the sale
price
-
Source: M-REITs’ Annual Reports; Maybank-IB; * stocks under Maybank-IB coverage
Page 40 of 42
Pavilion REIT
Appendix 8: 3 to 5-star hotels and number of rooms
Hotels Location Rating Rooms
Within walking distance of Bukit Bintang area
The Westin Kuala Lumpur Jln Bukit Bintang 5 529
JW Marriott Jln Bukit Bintang 5 561
Grand Millennium Kuala Lumpur Jln Bukit Bintang 5 468
Ritz Carlton Off Jln Imbi 5 250
Prince Hotel Jln Conlay 5 448
Traders Hotel Kuala Lumpur KLCC 5 571
Mandarin Oriental KLCC 5 643
Hotel Istana Jln Sultan Ismail 5 515
Equatorial Kuala Lumpur Jln Sultan Ismail 5 270
Crowne Plaza Mutiara Kuala Lumpur Jln Sultan Ismail 4 560
Impiana KLCC KLCC 5 335
Berjaya Times Square Hotel Jln Imbi 4 900
Dorsett Regency Jln Imbi 4 320
Melia Hotel Jln Imbi 4 300
Picolo Hotel Kuala Lumpur Jln Bukit Bintang 4 239
Royale Bintang Hotel Jln Bukit Bintang 4 162
Capitol Hotel Jln Bukit Bintang 4 235
Federal Hotel Jln Bukit Bintang 4 450
Coronade Hotel (formerly Fairlane hotel) Off Jln Bukit Bintang 4 225
Grand Plaza Parkroyal Kuala Lumpur Jln Sultan Ismail 4 348
MS Garden Jln Pudu 4 356
Radius International Changkat Bukit Bintang 3 458
Total 9,143
Accessible via public transport (within 3km radius)
G Tower Hotel Kuala Lumpur Jalan Tun Razak 5 180
Double Tree Hotel Jalan Tun Razak 5 540
Renaissance Kuala Lumpur Jln Sultan Ismail/ Jln Ampang 5 921
Shangri-La Kuala Lumpur Jln Sultan Ismail 5 723
Sheraton Imperial Hotel Jln Sultan Ismail 5 385
Grand Maya Hotel Jln Ampang 4 207
Intercontinental Hotel (formerly Nikko Hotel) Jln Ampang 4 473
Corus Hotel Kuala Lumpur Jln Ampang 4 388
Concorde Hotel Jln Sultan Ismail 4 581
Novotel Kuala Lumpur City Centre Jalan Kia Peng 4 291
Total 4,689
Grand Total (32 hotels) 13,832
Sources: Maybank IB, Company website
Page 41 of 42
Pavilion REIT
APPENDIX 1
Definition of Ratings
Maybank Investment Bank Research uses the following rating system:
BUY Total return is expected to be above 10% in the next 12 months
HOLD Total return is expected to be between -5% to 10% in the next 12 months
SELL Total return is expected to be below -5% in the next 12 months
Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are
only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not
carry investment ratings as we do not actively follow developments in these companies.
Some common terms abbreviated in this report (where they appear):
Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings
BV = Book Value FV = Fair Value PEG = PE Ratio To Growth
CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio
Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter
CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset
DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity
DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds
EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital
EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year
EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date
EV = Enterprise Value PBT = Profit Before Tax
Disclaimer
This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation
of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each
security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental
ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on
price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.Accordingly, investors may
receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to
provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the
particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding
the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.
The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently
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This report is prepared for the use of Maybank Investment Bank Berhad's clients and may not be reproduced, altered in any way, transmitted
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Investment Bank Berhad and Maybank Investment Bank Berhad accepts no liability whatsoever for the actions of third parties in this respect.
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Page 42 of 42
Pavilion REIT
APPENDIX 1
Additional Disclaimer (for purpose of distribution in Singapore)
This report has been produced as of the date hereof and the information herein maybe subject to change. Kim Eng Research Pte Ltd
("KERPL") in Singapore has no obligation to update such information for any recipient. Recipients of this report are to contact KERPL in
Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor,
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liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.
As of , KERPL does not have an interest in the said company/companies.
Additional Disclaimer (for purpose of distribution in the United States)
This research report prepared by Maybank Investment Bank Berhad is distributed in the United States (“US”) to Major US Institutional
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Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the reader is
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Analyst Certification:
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