Festive spending set to boost Pavilion-REIT profit

PETALING JAYA: Analysts are expecting a stronger fourth quarter ended Dec 31, 2026 (4Q26) relative to 3Q26 for Pavilion real estate investment trust (Pavilion-REIT), supported by year-end festivities and school holiday footfall, alongside steady contributions from hotels under the trust’s master leases.

Hong Leong Investment Bank (HLIB) Research said Pavilion-REIT’s 3Q26 core net profit of RM92.9mil (plus 4.3% quarter-on-quarter and minus 1.8% year-on-year) brought nine-month 2026 earnings to RM287.7mil.

This fell slightly below the research house’s and consensus expectations, accounting for 70.1% and 71.8% of their respective full-year forecasts.

The shortfall was mainly due to lower- than-expected revenue at the Pavilion KL Mall and Elite Pavilion Mall on softer advertising income, the research house said.

HLIB Research noted that at Pavilion KL Mall, the reconfiguration of the 68,800 sq ft of surrendered Parkson space into 37 specialty lots remains on track.

Approximately 80% of the area is now committed (up from more than 50% previously), with tenants expected to open progressively from November.

Given the staggered openings, HLIB Research expects the bulk of the contribution to come through in the financial year 2027 (FY27), with occupancy recovering to around 96%.

On the other hand, HLIB Research expects Pavilion Bukit Jalil’s occupancy to recover gradually to 95% after easing slightly in 3Q26.

Looking ahead to FY27, lease expiries are broad-based, led by Pavilion Bukit Jalil, followed by Intermark (34%), Elite Pavilion (21%), and Pavilion KL (20%).

Meanwhile, rental reversion guidance remains intact at the mid-single digits, and renewal discussions at Pavilion Bukit Jalil have already started, with positive reversions expected, it added.

HLIB Research kept a “buy” call on the REIT with a target price of RM1.91 a unit.

AmInvestment Bank (AmInvest) Research said there was more upside to come for the REIT.

Reconfiguration works at Parkson Level 3 remain on track, with phased openings slated from November.

Upon completion, rents are projected to double, while occupancy should recover from the current 93% towards pre-refurbishment levels of 96% to 97%, the research house said.

However, there is more in the pipeline, with another 2% of net lettable area earmarked for tenant remixing from 2027 onwards, AmInvest Research said.

It noted that despite the 10-year Malaysian Government Securities (MGS) yield retreating to less than 4%, Pavilion-REIT’s price had yet to recover.

“We believe much of the rate anxiety is already priced in, with the REIT offering a 7% yield and a wide 3.1-percentage-point spread versus MGS,” the research house said.