M-REITs Experiencing Phenomenal Growth

Investing in M-REIT (Real estate investment trust) has never garnered so much attention since the framework set upon by the Securities Commission in 2005.

The Government has progressively introduced tax incentives to promote the REIT market alongside the capital market. This is evident by the fact that most income earned by unit trusts and REITs are exempted from income tax. For instance, gains on sale of investment and foreign sources of income are not taxed when received via unit trusts and REITs. Also, tax on moving of properties is also specifically exempted.

The title of this article is not by me, but is the feature story on Shares Investment magazine August 2012 issue.

Shares Investment REIT

The largest REIT in Malaysia (in terms of market capitalization) with RM 3.6 billion NAV, hogged the limelight again yesterday when its quarterly report was released. Yes, that’s Pavilion REIT which comprises of Pavilion Mall and Pavilion Tower.

My personal take – Pavilion REIT  is a good REIT to hold now, but not wise to buy now as its price has shot up much recently, reducing your yield.

Anyway, some salient points when doing fundamental analysis for this REIT:

1H12 net profit of RM 95.6 million was above expectation and analyst’s full year forecasts, by 56 percent!

Reason: Higher than expected retail turnover rent and rental hikes.

Gross DPU of 3.4 cents per unit

Above analyst consensus

Close to full occupancy

99 percent. Should I say more?

New fashion precinct launch in Sept 2012

  • This is asset enhancement initiative – the supposedly not-so-profitable ex-TANGS space reconfiguration into a new high street fashion precinct WILL enhance rental yields, with 90 percent occupancy, including big names like Armani Jeans, Luxenter, Ben Sherman and Longines.
  • Ongoing AEI to increase asset size by 41 percent
  • Pavilion REIT management is monitoring the leases for renewal in 3Q12, rental reversions and tenancy profile  for Fahrenheit88 mall.
  • Piling works of Pavilion Mall extension to commence in 3Q12

Pavilion Tower Full Occupancy by Sept 2012

Despite forming less than 10 percent of the REIT NAV, the occupancy of the office space (in spite of oversupply of office spaces in KL and Klang Valley) has improved tremendously from a paltry 69.3 percent just 6 months ago!

Gearing Ratio

Unchanged at 19 percent.

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However, Pavilion REIT will soon have to give way to the The Contender for crown of the largest REIT in Malaysia.

That’s IGB REIT. Details that dripped in are hot from the oven:

  • IPO of 670 million units
  • Fetching as much as RM 838 million
  • Debut on 19 Sept 2012
  • Retail investor to get at RM 1.25 a piece
  • Expected market cap of RM 4.25 billion

Source: Maybank Investment Research

Disclaimer:

Long in PAVREIT

Information in this article should not be taken as offer/advice to buy or sell securities. I may own or have positions in securities mentioned, and may time to time, add on or dispose of such securities.

Read more:

Revisiting my REIT Investment Portfolio for 2H 2012

Yet Another Exciting Development in Malaysia REIT Investment

REIT Investment Outlook @ Malaysia – June 2012

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