PAVREIT 5212 PAVILION REAL ESTATE INVESTMENT TRUST | Revenue Continues to Record High (Q1FY2023)

 PAVREIT 5212 PAVILION REAL ESTATE INVESTMENT TRUST | Revenue Continues to Record High (Q1FY2023)

In today's world, shopping centers have become the main place for people to shop, relax, and entertain themselves. In this trend, Malaysia's shopping center market is constantly growing and developing. Recently, Pavilion Real Estate Investment Trust (PAVREIT, 5212), the largest retail industry trust in Malaysia, released an outstanding quarterly report.



PAVREIT was listed on the Main Board of Bursa Malaysia on December 7, 2011, and is managed by Manager. PAVREIT currently owns five properties, including four retail malls and one office building, Pavilion Tower. The retail malls are Pavilion Kuala Lumpur Mall, Elite Pavilion Mall, Intermark Mall, and DA MEN Mall. All properties, except for DA MEN Mall which located in the Subang Jaya community, are situated in commercial centers in Kuala Lumpur. Therefore, it can be seen that PAVREIT is not entirely a pure retail industry REIT.


As of December 31, 2022, the appraised value of PAVREIT's retail assets was RM5,915.00 million, with a net lettable area of about 2.23 million square feet; whereas the appraised value of PAVREIT's office assets was RM130.00 million, with a net lettable area of about 0.16 million square feet. According to PAVREIT's 2022 annual report, the food and beverage and fashion industries remain the largest tenants in the retail industry, accounting for 25.00% and 24.00% of the total lettable area, respectively. The real estate and property industry occupies the largest lettable area in the office industry, which is 68.00%.


Now, let's look into PAVREIT's latest performance (Q1FY2023).


Revenue Comparison (YoY +12.70%, QoQ +7.28%)


In the first quarter of the 2023 fiscal year, PAVREIT achieved approximately RM156.41 million in revenue, an increase of about RM17.63 million or 12.70% from the first quarter of 2022, mainly due to an increase in rental rates and rental income from the retail malls.


Pavilion Kuala Lumpur Mall contributed about 81.53% or RM127.52 million of revenue, up about 18.50% YoY. Elite Pavilion Mall and Intermark Mall also saw increases of about 11.85% and 6.26%, reaching RM16.87 million and RM6.32 million in revenue, respectively.


However, DA MEN Mall and Pavilion Tower saw decreases in revenue of about 1.62% and 6.98%, to about RM3.40 million and RM2.31 million, respectively.


The growth in marketing event revenue and advertising revenue also contributed to an increase in revenue of about 7.28% QoQ.


Net Profit Comparison (YoY +7.37%, QoQ -67.63%)


Driven by strong rental income, PAVREIT achieved a net profit of RM70.05 million in the current quarter, up approximately 7.37% compared to the same period last year. This also led to a year-on-year increase of approximately 8.19% in PAVREIT's net property income*, achieving a good result of RM102.10 million.


*Net property income is the total income of real estate (annually) minus property management fees, building management fees, maintenance fees, utility charges, taxes and public charges, insurance premiums, promotion expenses, and other related expenses.


Compared to the previous quarter, PAVREIT's pre-tax profit decreased by around 67.63%. This was due to a fair value gain of approximately RM151.38 million in the fourth quarter of 2022. Adjusted for this, PAVREIT's pre-tax profit actually increased by around RM5.02 million or 7.72% on a quarterly basis.


However, PAVREIT's operating costs increased by approximately 34.00% YoY. This was mainly due to the government's increase in electricity prices from 3.70 cents per kilowatt-hour (kWh) to 20.00 cents per kWh starting from January 1, 2023, resulting in increased maintenance, marketing expenses and utility cost.


Outlook


With China reopening its borders on January 8, this will undoubtedly increase Malaysia's tourism industry. According to management, 30.00% of foot traffic in PAVREIT's malls before the pandemic came from foreign tourists, with approximately 50.00% from China. Therefore, China's reopening will boost Malaysia's retail consumption.


In addition, the acquisition of Pavilion Bukit Jalil is also expected to be completed in the second quarter of this year. According to the management, Pavilion Bukit Jalil currently has an occupancy rate of over 80.00% and a rental yield of approximately 6.60%. Hence, it is anticipated that this acquisition will help to escalate PAVREIT's future earnings.


So, what do readers think of PAVREIT?


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