According to the Prospectus, Pavilion Reit estimated 2012 dividend yield is likely to be around 6.5% to 6.7%. This compares favourably to other retail reits such as Sunway Reit and Capitamalls Malaysia which trade at 2012 yields of low 6%.

There are definitely risks involved in any investment. Some of the risks are

It is noteworthy that the distribution policy stated in the prospectus is to distribute not less than 90% of income as dividends from 2013 onwards, as opposed to the 100% payout in 2012. Thus, there is a likelihood that dividends may drop in 2013 due to a potentially lower payout ratio.

Pavilion Reit’s net property income (“NPI”) is largely sourced from Pavilion KL Mall. Thus, any factors which affect the business of Pavilion KL Mall (e.g. competition from other properties; construction / infrastructure / development works around the vicinity; changes in consumer behaviour) would adversely affect Pavilion Reit’s NPI.

Pavilion Reit’s tenants have tenancy arrangements which may expire in certain years. Failure to renew or find new tenants would affect the NPI generated from the properties.

Singapore based investors have to take into account of the potential foreign currency exposure as the price of the Reit units is denominated in RM. SGD/RM fluctuated between 2.3619 and 2.5050 within a one year time period.

This is an amended version of the writeup which I had sent to my clients recently.

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