Kuala Lumpur, 7 March 2023: Pavilion Real Estate Investment Trust (Pavilion REIT) today issued a circular to seek approval from Pavilion REIT’s non-interested unitholders for the acquisition of Pavilion Bukit Jalil (PBJ Mall) at an Extraordinary General Meeting (EGM) to be held on 22 March 2023.
The proposed acquisition of PBJ Mall aligns with Pavilion REIT’s strategy to expand its portfolio of prime retail assets in Malaysia to six, from its current portfolio that consists of Pavilion Kuala Lumpur Mall, Elite Pavilion Mall, Intermark Mall, DA MEN Mall and Pavilion Tower.
To recap, MTrustee Berhad, the trustee of Pavilion REIT, on 22 November 2022, signed a conditional sale and purchase agreement (SPA) to acquire PBJ Mall with all related assets and rights from Regal Path Sdn Bhd (Regal Path), a wholly-owned subsidiary of Malton Bhd, for RM2,200 million.
Concurrently, unitholders’ endorsement also sought to raise RM1,270 million in two private placement exercises, spread between the first tranche of RM720 million and the second tranche of RM550 million, with the issue price to be determined later by way of a book-building exercise.
Upon satisfactory achievement of the conditions precedent (CP) in the SPA, Pavilion REIT will have 60 days to go to the market and raise RM1,650 million to fund the initial payment to Regal Path. This will be in the form of RM1,000 million in borrowings, with the balance of RM650 million from the proceeds of placement under the first tranche.
Under the first tranche of the RM720 million book-building exercise, Pavilion REIT will utilise the proceed for the repayment of Regal Path’s bank borrowings / hire purchase with the balance to Regal Path. RM70 million will be raised to defray Pavilion REIT’s transaction expenses, which includes estimated expenses of RM38 million for the placement exercise.
Upon this payment, the entire PBJ Mall’s revenue and profit will be recognised under Pavilion REIT, with the remaining balance consideration of RM550 million owing to Regal Path to be paid in stages with no interest chargeable.
For the second tranche of RM550 million, Pavilion REIT will pay Regal Path:
- RM50 million on completion of rectification of defects within the rectification period. This will mitigate spending on any major repair and maintenance; and
- RM100 million upon receipt of strata title documents, estimated to take place by December 2023.
The final sum of RM400 million to Regal Path is then conditional on PBJ Mall achieving Net Property Income (NPI) of RM146 million. This effectively translates into a yield of 6.6% on a full purchase price of RM2,200 million for Pavilion REIT.
If the targeted NPI is not met, Pavilion REIT could enjoy significant savings from a revised valuation. For example, should the revised valuation of PBJ Mall be higher than the purchase price i.e. RM2,200 million, Pavilion REIT would not be required to pay more than RM400 million. Alternatively, should the valuation drop below the purchase price, then Pavilion REIT would only need to pay up to the agreed valuation amount, subject to a maximum deduction of RM400 million.
The first phase of the capital-raising exercise is scheduled to be completed in the second quarter of this year, while the second phase is set to be completed within 24 months after the first phase, or by the second quarter of 2025. Gearing will increase from 33.8% as at 31 December 2022 to 36.8% upon completion of both tranches of the placements.
Pavilion REIT’s Manager chief executive officer Dato’ Philip Ho said this acquisition is accretive to the REIT’s distributable income and would have a favourable impact to its total portfolio and future expansion. Pavilion REIT Management Sdn Bhd is the manager of Pavilion REIT (Manager).
“The acquisition of PBJ Mall is expected to contribute positively to Pavilion REIT’s future growth, enlarging its portfolio base to RM8.3 billion from RM6.0 billion.” said Philip. In addition, post-private placement of both tranches, unitholders will see a decrease in the major unitholders’ unitholdings and better public spread.
The timing of the proposed acquisition and capital-gathering exercise is affirmed by several factors, including the reopening of the economic sector, higher retail spending and footfall, and the influx of tourists and travelers.
Such positive spillover can be seen in Pavilion REIT’s financial year net property income for 2022 of RM 364.2 million from RM 236.6 million a year earlier, and distribution per unit (DPU) of 8.37 sen or a distribution yield of 6.9%, attributed by higher rental billings, increase in revenue rent and income from advertising and marketing events as all economic sectors resume their business post-pandemic.
With an NLA of 1.8 million square feet, PBJ Mall comprises a five-storey retail portion and two basement car park levels with 4,800 parking bays, which sits on a 28-acre freehold plot, has catalysed the growth of Bukit Jalil into a vibrant destination for business, shopping, dining, leisure, and entertainment.
Over the past six months, PBJ Mall recorded an average of 1.4 million monthly footfall. As at 28 February 2023, the occupancy rate for PBJ Mall is approximately 81.4%.
Pavilion REIT is one of the largest retail concentrated REITs in Malaysia. Its assets include Pavilion Kuala Lumpur Mall, Elite Pavilion Mall, Intermark Mall, DA MEN Mall and Pavilion Tower.