Pavilion REIT to buy The Intermark Mall for RM160 mil

KUALA LUMPUR (Dec 30): Pavilion Real Estate Investment Trust (Pavilion REIT) is buying The Intermark Mall, which forms part of The Intermark mixed-use development located at the crossroads of Jalan Ampang and Jalan Tun Razak here, for RM160 million cash, which will be fully funded through debt.

In a filing with Bursa Malaysia yesterday, Pavilion REIT said its manager Pavilion REIT Management Sdn Bhd has signed a sale and purchase agreement with The Intermark Sdn Bhd for the acquisition of the six-storey retail building, together with 367 car par bays.

The deal also entails The Intermark providing Pavilion REIT with a rental guarantee of RM15 million for three years to be held by a trustee, which will be jointly appointed by Pavilion REIT and The Intermark.

With the rental guarantee, Pavilion REIT said the estimated net yield for The Intermark Mall comes to 6.1% per year, and 3% when discounting the rental guarantee.

Occupancy rate at the three-year retail building with a net lettable area of 225,014 sq ft, stood at 74%, based on committed and/or commenced tenancies as at the valuation date of Sept 30, 2015.

Pavilion REIT Management said the proposed acquisition is consistent with the investment objective and strategy of Pavilion REIT and is expected to be accretive to the trust’s distributable income, as the property is located on the fringe of the Golden Triangle of Kuala Lumpur.

“The area that the property is located at, consists of prime office buildings, prime retail centres and prestigious international class hotels, with the Kuala Lumpur City Centre development within its vicinity.

"The property is easily accessible from various parts of the city, via various major highways interconnecting the enclave,” it added.

Upon completion, the proposed acquisition will enlarge Pavilion REIT’s portfolio of investment properties from RM4.6 billion as at Sept 30, 2015 to RM4.8 billion.

The trust expects for the purchase to be completed by the end of the first quarter of 2016.

Pavilion REIT said the RM160 million price tag was derived from the market value appraised by independent registered valuer, Knight Frank Malaysia Sdn Bhd.

“In view that the manager (Pavilion REIT Management) intends to fully fund the proposed acquisition through debt, the proposed acquisition is expected to increase the gearing of Pavilion REIT from 16% as at Sept 30, 2015 to 19%,” said Pavilion REIT.

This is still below the gearing limit of 50%, as prescribed under Clause 8.37 of the Guidelines on Real Estate Investment Trusts issued by the Securities Commission Malaysia, it added.

The Intermark mixed-use development is owned by Blackrock Inc. There were reports that the investment fund was looking to hive off its investment in the upscale development, and it sold one of The Intermark’s office towers, Integra Tower, in April this year, to Kumpulan Wang Persaraan (Diperbadankan) (KWAP) for RM1.07 billion.

The Intermark also houses DoubleTree by Hilton Hotel.

"The Intermark Mall caters to the daily needs and convenience of corporate tenants and hotel guests within the integrated mixed-use development, as well as those working and/or staying in the immediate locality," said Pavilion REIT.

"The manager believes that with good and improving occupancy levels of its two corporate office towers and hotel, there will be opportunities for the Intermark Mall to improve its occupancy levels by offering a wider trade mix to cater to the needs of its corporate tenants, hotel guests and nearby residents."

Pavilion REIT shares shed one sen to close at RM1.53 per unit yesterday, bringing its market value to RM4.65 billion. -- theedgemarkets.com