PavREIT to raise RM370.6m to fund RM580 mil Pavilion Elite buy

KUALA LUMPUR (July 28): Pavilion Real Estate Investment Trust (PavREIT), which inked an agreement to buy Pavilion Elite Mall for RM580 million, is planning a private placement to raise RM370.6 million to help fund the purchase.

It is buying Pavilion Elite Mall from Urusharta (KL) Sdn Bhd, whose ultimate shareholders are Tan Sri Lim Siew Choon and Qatar Holdings LLC — both major stakeholders in PavREIT.

Under the placement exercise, it will be issuing 218 million new units via a book-building exercise, which represents 7.2% of PavREIT’s current outstanding shares. It will be issued to third party investors at an indicative price of RM1.70 apiece, said PavREIT in a filing.

The trust will also borrow RM225.9 million to fund the balance consideration, together with an estimated RM16.5 million for expenses relating to the acquisition and placement exercise.

“The use of a mix of equity and debt funding will allow PavREIT to maintain its gearing at a healthy level as well maintain sufficient headroom to make future cash acquisitions,” it said.

“Pavilion Kuala Lumpur mall and Elite Pavilion mall are seamlessly interconnected via the extension-connections, which gives the sense that the two malls constitute a single larger retail mall with the addition of new tenants and brands as well as increased lettable floor space.

“The Pavilion Kuala Lumpur mall extension complements and extends the existing operations of the Pavilion Kuala Lumpur mall, and the enhanced connectivity is expected to increase the footfall of shoppers to the combined shopping malls,” added the trust.

Separately, PavREIT reported that its net property income slid 5.78% year-on-year in its second quarter ended June 30, 2017 (2QFY17), to RM76.72 million from RM81.43 million — its first quarterly decline since 3QFY15.

Similarly, distribution per unit was lower at 1.94 sen apiece representing a yield of 4.54%, compared with 2.06 sen in the same quarter last year. This brings its half year FY17 distribution to 3.96 sen, which it will pay on Sept 6.

Meanwhile, revenue in the period rose a marginal 1.91% to RM120.26 million, from RM118.01 million previously, mainly thanks to higher percentage rent — but a RM7 million increase in operating expenses for maintenance purposes pared gains.

“This was mainly due to the routine operating expenses incurred for the two new properties and higher maintenance cost incurred such as air conditioning system improvement and upgrading work,” said the company.

For the half-year period ended June 30, 2017 (1HFY17), PavREIT’s net property income slid to RM155.69 million, down 0.89% from RM157.07 million a year ago.

Revenue, however, was up 6.45% to RM239.2 million from RM224.69 million in 1HFY16. “The achievement was mainly contributed by rental income from Da Men Mall and Intermark Mall that were acquired on March, 25 2016,” said PavREIT.

Looking forward, PavREIT said the retail environment continues to be challenging.

This article first appeared in The Edge Financial Daily, on July 28, 2017.

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