PP16832/01/2012 (029059)

Initiating Coverage 19 January 2012

Hold (new) Pavilion REIT A Malaysia icon Share price: RM1.09 Target price: RM1.10 (new) A class of its own. Pavilion REIT’s (PavREIT) key attraction lies in its asset portfolio and the jewel in its crown, Pavilion (KL) Mall. Strategically located in the heart of Kuala Lumpur’s prime tourist Wong Wei Sum, CFA and shopping district, this mall caters predominantly to the upper middle weisum@-ib.com to high income group, and is one of only 4 prime retail malls in the (603) 2297 8679 country. We initiate coverage on PavREIT with a Hold rating and RM1.10 DCF-based target price. It currently trades at a 5.5% yield. Neo Hon Mun [email protected] 2nd largest M-REIT. PavREIT’s appeal is enhanced by its status as the (603) 2297 8690 2nd largest M-REIT by market capitalisation (RM3.27b) and asset size

(RM3.5b). The portfolio comprises Pavilion KL Mall (RM3.4b) and Pavilion Tower (RM0.1b). Given its relatively young assets of 4 years in age, there is scope for growth in rental yields.

Room for inorganic growth. With its low debt-to-asset ratio of 20%, Stock Information there is potential to leverage another RM2.2b for immediate yield Description: Predominantly a retail Real Estate Investment accretive acquisitions. PavREIT has been granted rights of first refusals Trust (REIT) with 2 initial assets - Mall and Pavilion Tower. (ROFR) to purchase two other malls and an extension of the Pavilion KL Mall worth approximately RM1.5b, which are only expected to be Ticker: PREIT MK ready for injection from 2H13 onwards. Shares Issued (m): 3,000.0 Market Cap (RM m): 3,270.0 3-mth Avg Daily Volume (m): 10.76 Resilient earnings. Pavilion KL Mall has a diversified and sizeable KLCI: 1,517.38 tenant base of over 450, which comprises mainly regional and Free float (%): 26.3 international brand names. No single tenant contributes over 10% of

Major Shareholders: % total revenue, we estimate. With 67% of occupied NLA expiring only in Datuk Lim siew Choon 28.2 2013, its near-term earnings base are resilient. The mall has been Datin Tan Kewi Yong 9.4 chalking up higher average rentals psf despite opening for business at Holding LLC 36.1 the onset of the global financial crisis in Sept 2007. Key Indicators Initiate coverage with a Hold rating. With its status as the 2nd largest Net cash / (debt) (RM m): (637.1) NTA/shr (RM): 0.94 M-REIT, hands-on management team and its superior asset quality, Gearing (x): 0.2 PavREIT deserves a premium valuation. We value PavREIT at RM1.10,

based on DCF valuation method. This implies 2012 gross dividend yield Historical Chart of 5.5% (vs. CMMT’s 5.9% and SunREIT’s 5.8%).

1.10 PREIT MK Equity Pavilion REIT– Summary Earnings Table 1.08 FYE Dec (RM m) 2011F 2012F 2013F 1.06 Revenue 25.8 319.0 327.7 1.04 EBITDA 18.0 224.6 231.9 1.02 Recurring Net Profit 13.6 170.1 175.9 1.00 Recurring Basic EPS (Sen) 0.5 5.7 5.8 0.98 EPS growth (%) - NA 3.1 0.96 DPS (Sen) 0.5 6.0 6.1 0.94 Dec-11 Dec-11 Jan-12 Jan-1 PER * 20.1 19.3 18.7 EV/EBITDA (x) * 18.2 17.4 16.9 Div Yield (%) * 5.3 5.5 5.6 Performance: P/BV(x) 1.2 1.2 1.2 52-week High/Low RM1.1/RM0.9 Net Gearing (%) 20.1 20.0 20.0

ROE (%) 0.5 6.0 6.2 1-mth 3-mth 6-mth 1-yr YTD ROA (%) 0.4 4.7 4.8 Absolute (%) 4.8 na na na - Consensus Net Profit (RM m) - 169.1 176.7 Relative (%) 2.1 na na na 0.9 * Annualised for 2011 (listed on 8 Dec’11); Source: Maybank IB

Kim Eng is a subsidiary of Malayan Banking Berhad SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Pavilion REIT

Business background

Malaysian REIT’s largest retail asset. PavREIT is the largest retail REIT and the 2nd largest Malaysian REIT by asset size at RM3.5b (based on appraised value). PavREIT will comprise 2 properties: Pavilion KL Mall and Pavilion Tower (office). The mall was purchased at RM3.2b (appraised value of RM3.4b) and it will account for 96% of total portfolio value. These properties form part of an integrated mixed-use urban commercial development which includes two blocks of luxury serviced apartments known as Pavilion Residences (not included in the PavREIT), and a proposed block of serviced suites (not built and will not be included in PavREIT).

Table 1: Porffolio of properties in Pavilion REIT Pavilion Kuala Lumpur Mall Pavilion Tower Type Retail Office Appraised value as at 1 June 2011 (RM`000) 3,415,000 128,000 Purchase consideration (RM ‘000) 3,190,300 123,500 Subject properties weighting (by Appraised Value) (%) 96.4 3.6 NLA (sq ft) 1,335,119 167,407 GFA (sq ft) 2,202,557 243,288 Number of tenancies as at 1 June 2011 462 19 Occupancy rate as at 1 June 2011 (%) 98.0 64.5 Number of car park bays |------2,427 ------| Shopper traffic for 2010 31 m .n.a.

Sources: Trust Manager

Investment cases

Merit 1: Well located in the heart of Kuala Lumpur

Strategically located along Jalan . The properties are located in the heart of the prime shopping destination in the country, the Bukit Bintang area, and also on the fringe of the Central Business District. According to CBRE, (or Bukit Bintang road) is Malaysia’s version of ’s Orchard Road, Japan’s Ginza, New York’s Fifth Avenue and Hong Kong’s Central. Bukit Bintang has been a popular shopping and entertainment destination of Kuala Lumpur, both for the locals and tourists alike since the 50’s. Its catchment area spans the entire Klang Valley with a population of 6m.

Pavilion KL Mall adds flavour to Bukit Bintang. Pavilion KL Mall complements the existing malls along Jalan Bukit Bintang which targets the mass markets, except . Nonetheless, there is minimal overlap with Starhill Gallery which has successfully positioned itself as a niche player offering primarily luxury watches (see map overleaf). In our view, Pavilion KL Mall is arguably the most successful mall in Bukit Bintang today.

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Map 1: Pavilion KL adds to the attraction of Jalan Bukit Bintang (Bukit Bintang road)

Pavilion KL Mall

ROFR: Pavilion KL mall extension See Map 2 Starhill Farenheit Gallery 88 The Bukit Bintang area, that is increasingly popular among tourists and locals ROFR: farenheit88

BB Plaza

Sungai Wang Plaza

Low Yat Plaza

Berjaya Times Square

Sources: Google Map, Maybank IB; Denotes location of Pavilion KL mall extension

Served by 32 3-5 Star rated hotels in the vicinity. There are over 32 hotels (with over 13,000 rooms) that are conveniently located in the vicinity of the properties or easily accessible by taxi or monorail (see Appendix 8 for the list of hotels). These hotels provide an immediate catchment of business and tourist travellers. Upcoming hotels currently in plan or under construction sprouting around the city include Grand Hyatt Kuala Lumpur with 412 rooms (scheduled to open in 2012), W Hotel & Residences at with 150 rooms (scheduled to open in 2016), Banyan Tree Signatures comprising 441 units of Private Residences, 51 units of Service Residences and 50 luxury suites (scheduled to open in 2015), and Four Seasons Hotel. On the fringe of Kuala Lumpur (KL Sentral), the 208-room St Regis Kuala Lumpur is scheduled to commence operation in 2014.

Easily accessible. The properties are easily accessible via various modes of public transport. Besides the taxi services and public buses, the properties are within walking distance to two monorail stations – the Bukit Bintang and Raja Chulan stations (approximately 250-300 metres away to each station). The mall also provides concierge services for the convenience of shoppers, in addition to its 2,427 car park bays.

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New MRT improves connectivity. Under the Greater Kuala Lumpur National Key Economic Areas (NKEA) initiative (encompassed under the ETP blueprint), a new Mass Rapid Transit (MRT) line (Sg Buloh- ) is currently in its planning stages to improve public transportation and connectivity between existing rail-based networks. This new MRT line is 51km long with 31 stations planned along the route, and aims to serve a total population of 1.2 million. The project is expected to be completed and operational by 2016.

New MRT to increase footfall in the long run. One of the 31 stations of the new MRT line will be located approximately 250m away from Pavilion KL Mall, at the junction of Jalan Bukit Bintang and Jalan Sultan Ismail (see map below). When fully operational, this would help improve shopper traffic to Bukit Bintang (and also Pavilion KL Mall).

Map 2: Location map of the new Bukit Bintang MRT station

See Map 1

Pavilion KL, 250m away

Source: Syarikat Prasarana Negara Berhad

Higher capacity with the MRT. The new MRT line is designed with higher capacity in mind compared to the existing intra-city rail network. Upon completion in 2016, the new MRT line’s daily ridership is expected to be 442,000 per day more than Putra LRT and Monorail’s present daily ridership of 210,000 and 60,000 respectively. And unlike the existing rail network, a portion of the new MRT (Sg Buloh- Kajang) line passes through some of the more affluent neighbourhoods in the Klang Valley like Damansara Heights, Taman Tun Dr Ismail, Bandar Utama, Mutiara Damansara and Kota Damansara.

Table 2: Estimated daily ridership of selected intra-city rail network Monorail Putra LRT STAR LRT MRT (new)

Daily ridership 60,000 210,000 161,000 442,000 (est.) Length (km) 8.6 29 27 51 Stations 11 24 25 31 Operational 2003 1998 1995 / 1998 Est.2016 since Source: Maybank IB, PEMANDU

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Skybridge to turn KL into a Walkable City. One of the government’s efforts to promote tourism in Kuala Lumpur is to build 45km of covered walkways to link various places of interest in Kuala Lumpur (see map 3). Currently, DBKL (local government authority) and the private sector have commenced construction of an elevated covered 4.5km walkway from the iconic Petronas Twin Tower to Bukit Bintang via Pavilion KL Mall. Once completed in 2012, we believe shopper traffic between the two main tourist attractions will improve, be it rain or shine.

Map 3: The Skybridge that connects Pavilion KL Mall to KLCC (under construction)

Suria KLCC

Pavilion KL Mall

Suggested covered pedestrian linkage by: Suggested covered pedestrian linkage by KLCC Suggested covered pedestrian linkage by the management :- SPNB

Developers i) At-Grade Pedestrian Linkage i) Covered Walkway

The JPB, DBKL ii) Elevated Pedestrian Linkage ii) Elevated Pedestrian Linkage

Work in progress by DBKL, Existing covered walkway Existing flyover Urburnisma

Covered walkway for school Suggested site for development

Sources: Ministry of Federal Territories and Urban Wellbeing

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Merit 2: Uniquely designed mall; global standards

Award-winning mall. Despite merely 4 years into operation, Pavilion KL Mall is already the winner of 22 international and local best retail awards; a testament to the mall’s global standards. Among them are ‘World’s Best Retail Centre’ by FIABCI Prix d'Excellence Awards (2009), 'Innovative Design & Development of a New Retail Project' by International Council of Shopping Centers in Asia Shopping Centre Awards (2010) and ‘The Architecture Award (Retail) - Asia Pacific' by Asia Pacific Property Awards in association with Bloomberg Television. For the full list of awards, please see Appendix 5. Prime retail mall, on par with best in the region. Pavilion KL Mall has redefined and enhanced the shopping experience in Malaysia, as the mall is arguably one of the best retail malls in the region, if not the world, in our opinion. The layout of the mall, with its average ceiling height of 5.5 metres (from Level 1 to 6), wide corridor pavements, spacious toilets, and fully granite flooring, complements the exciting tenant mix and provides a welcoming ambience to shoppers. Well-conceived design. Pavilion KL Mall comprises 7 floors of retail podium together with a 3-storey retail office block sited atop and a 4- storey retail/entertainment annex block named “The Connection”. The mall has 8 entry points, allowing shoppers to enter the mall from various parts of the Bukit Bintang shopping area and enables efficient shopper flow during peak times. It has outdoor walkway areas that extend 20 – 30 metres to the sidewalk, allowing better visibility of the building. Management places importance on safety as there are more than 405 CCTVs throughout the mall, including its car park, and 296 panic buttons located 20-metres apart throughout the car park. Street-front duplexes and “Spanish steps”. One of the key features of this mall is the use of its 19 street-front duplexes (a new retail format in Malaysia) to maximise brand exposure for tenants occupying them. These street-front duplexes are located in “Couture Pavilion” Precinct, one of the six themed “Precincts” in Pavilion KL Mall (see below). Besides the street-front duplexes which are a new retail format in Malaysia, Pavilion KL Mall has another key feature – the “Spanish steps” which leads from the main entrance of the mall to the Centre Court, a venue that is frequently used to host major events (see picture 5 in “Property Profile – Pavilion KL Mall”). Table 3: The Precincts of Pavilion KL Mall Precinct Theme Couture Pavilion Designer, Luxury and International Boutiques Gourmet Emporium Cuisines, Conveniences and Groceries Centre Court Events, Performances and Festivities The Connection Street Bistro, Cafes and Urban Leisure Seventh Heaven Relaxation, Rejuvenation & Renewal for Men & Women Tokyo Street Little Tokyo of Malaysia Sources: Trust Manager

Other unique features. The Pavilion KL Mall has another differentiation factor as it operates beyond the normal hours of a usual mall, which is usually between 10am to 10pm. The Connection is an alfresco concept comprising a row bistro and restaurants which remain open till 3am. For that, its car park is operational 24 hours a day, even on Public holidays.

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Merit 3: Resilient earnings base

Well-diversified, ideal tenant mix. Pavillion KL is the largest premium mall in Malaysia with 1.335m sq ft of NLA and contributes approximately 96% of PavREIT’s total revenue. This mall is large enough to enjoy its own economies of scale with its well-diversified tenant base (see chart below), which totals 462 (as at 1 June 2011). The mall’s tenants comprise international, regional and some popular local brandnames. Among them are Coach, Hermes, Bulgari, Versace, Prada, GUCCI, Chopard, TOD’s and Rolex. Approximately 20% of the retailers in the mall are new to Malaysian shoppers, a key attraction.

Chart 1: Trade Sector analysis of Pavilion KL Mall – Chart 2: Future Lease Expiry Profile – Pavilion KL Mall Percentage of Occupied NLA (%) as at 1 June 2011 (as at 1 June 2011)

Shoes & Home Property decoration Percentage of Occupied NLA expiring (%) products showroom 2% RM psf Jewellery & 2% 2% Gifts & % Average monthly rental of expiring teancies (RM psf) timepieces souveniers 80% 25.00 3% IT & digital 1% 2% 70% Beauty & 19.92 20.00 Others* Fashion 60% Personal Care 18.19 4% 25% 4% 50% 15.05 15.00 Office 13.73 5% 40% Urban Leisure 67% 7% 30% 10.00 Department Store 20% 25% 5.00 10% 18% 6% 10% F & B 0% 0.00 18% 6 mth ended 31 FY2012 FY2013 FY2014 and Dec 2011 thereafter

Sources: Trust Manager Sources: Trust Manager

Quality of tenant base ensures solid cashflow. The quality of tenant brand names at the mall mitigates the risk of slow retail sales and eventual doubtful debts. This will ensure prompt rental payment and steady cashflow to PavREIT. More importantly, no single tenant currently contributes more than 10% of the mall’s total revenue by our estimate. Furthermore, we understand the waiting list for potential tenants is long. This will ensure continuity of new tenants into the mall. It is also in the interest of the mall to change a small percentage of the tenant mix every year to “refresh” the appeal of the mall.

Next major rental revision in 2013. The typical tenancy period of the mall is 3 years with an option to renew another 3 years. The bulk of the tenants had their last renewal in 2010 and as such, 67% of the occupied NLA will only be up for renewal in 2013 (likely in the month of Sept, which was the month where most tenants started operation when the mall was officially open for business in 2007). Hence, its near-term earnings are largely locked in while there will be significant upside to earnings in 4Q 2013 and beyond, based on higher revenue in 2010 which was the first round of major rental revision.

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Turnover rent component allows the mall to capture any upside. To mitigate the risk of slow rental collection, the REIT manager will monitor the monthly sales performance of over 90% of tenants at the mall. This is possible because the tenancy agreements of over 90% of the mall’s tenants have turnover rental components in addition to a fixed rent component which allow PavREIT to enjoy higher rental collection in the event the tenants enjoy better-than-expected sales performance. At the same time, continuous monitoring of monthly sales will allow the REIT manager to assist under-performing tenants. Turnover rental currently accounts for less than 2% of total revenue.

Rentals for the office tower are equally defensive; although small. The office tower complements the mall by providing a ready catchment of spenders to the mall. Pavilion Tower was only acquired by the sponsors in March 2010 and only began leasing out in 3Q 2010 after extensive renovations. As at 1 June 2011, it has 19 tenants occupying 64.5% of NLA. Although the office tower contributes to approximately 4% of PavREIT total revenue, its contribution is defensive with 42.8% and 54.1% of existing tenancies up for renewal only in 2013 and 2014. Its key tenants are in the oil and gas, and property development industries (for more details, refer to “Property Profile – Pavilion Tower”).

Mall rental was on the rise despite the global financial crisis. The mall started its operation in Sept 2007, right at the onset of the global financial crisis. At the same time, another premium fashion mall, The Gardens (approximately 0.8m sq ft of NLA) opened for business on the fringe of Kuala Lumpur. Despite the crisis and new competition, Pavilion KL Mall showed resilience and performed better than expected. Shopper traffic grew at a CAGR of 16% between 2008-2010. Likewise, the mall’s rental income grew 8% over the same period.

Chart 3: Shopper traffic of Pavilion KL has been rising Chart 4: Rising rental income 40 Visitor arrival ('m) RM 'm Rental incom e Other income 350 30 300 34 16 23 250 20 200 31 150 25 242 255 10 23 100 231 50 0 0 2008 2009 2010 2008 2009 2010

Source: Trust Manager, CBRE Source: Trust Manager

Premium retail malls have shown resilience in occupancy rate. In our view, there are currently four premium retail malls in Malaysia with a total retail space of 3.4m sq ft, namely Pavilion KL Mall (1.3m sq ft), Suria KLCC (1m sq ft, excluding Phase 2), Starhill Gallery (0.3m sq ft), and The Gardens Mall (0.8m sq ft), all of which are located in Kuala Lumpur. While Starhill Gallery and Suria KLCC started operation before 2000, Pavilion KL Mall and The Gardens Mall are relatively new additions – they have been opened for business since 2007. Yet, these malls have enjoyed relatively high occupancy rates in the last decade (see charts overleaf), averaging above 95% even during the SARS (2003) and global financial crisis (2008/09) periods.

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Chart 5: Retail Space Supply in Klang Valley, 2000-2014F

Retail Space ('m sq ft) 60 Mass Market Mall Premium Fashion Mall 3.52

50 3.52 3.52 3.52 3.37

40 3.37 3.37 1.38 3.37 1.38 1.38

30 1.38 1.38 1.38 1.38 50.76

20 46.64 44.46 43.11 38.87 37.03 35.76 35.00 34.21 32.85 31.45 10 28.53 23.04 22.14 21.93

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F

Source: CBRE

Chart 6: Occupancy Rate for Klang Valley Malls, 2000 – 1H2011

Note: Premium fashion malls are defined by Pavilion KL Mall, Suria KLCC, Starhill Gallery, and The Gardens Source: CBRE

Limited direct competition in the medium term. The premium retail malls supply of 3.4m sq ft represents approximately 8% of total retail space supply in the Klang Valley, according to CBRE. There are a number of new retail malls currently planned which will come into the market over the next few years; adding some 10.95m sq ft of retail space to the existing supply of 43.33m sq ft (+25%; see table overleaf). With the exception of Suria KLCC Phase 2 extension (140,000 sq ft) which started operation in 3Q 2011, these other malls will mainly target the mass market and none are located in the city centre.

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Table 4: Future MallsSupply in the Klang Valley Name of Mall Location Category Net Lettable Area Expected Completion (sq ft) Kuala Lumpur 1 Shamelin Cheras Mass 420,000 2011 Pudu Mass 500,000 2011 Kuala Lumpur Festival City Mass 450,000 2011 Publika @ Solaris Dutamas Hartamas Mass 335,000 2011 Suria KLCC Phase 2 (Lot C) KLCC Premium 140,000 2011 Nu Sentral KL Sentral Mass 650,000 2012 Damansara City Mall Damansara Heights Mass 188,000 2013 Sunway Velocity Cheras Mass 850,000 2014 Boustead Retail Developement Jalan Cochrane Mass 1,200,000 2014

Selangor First Subang Mass 140,000 2011 Space U8 Shah Alam Mass 619,280 2011 Setia City Mall Setia Alam Mass 700,000 2011 Paradigm Kelana Jaya Mass 700,000 2012 The Strand Mall Kota Damansara Mass 308,800 2013 M Square Shopping Centre Perdana Mass 380,000 2013 IOI City Mall Mass 1,300,000 2013 Empire City Mall Damansara Perdana Mass 1,000,000 2014 da:men USJ Mass 400,000 2014 Mass 300,000 2014 Avenue Street Mall Sungai Buloh Mass 370,000 2014

Total 10,951,80 Sources: CBRE

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Merit 4: There is room for growth

Plenty of growth opportunity. There are basically two types of growth we envisage for PavREIT: (i) organic growth, and (ii) acquisition growth. The REIT Manager will pursue both strategies to enhance the performance of PavREIT. It is also the intention of the REIT Manager to focus on managing and growing the existing and future retail malls; leveraging on the REIT Manager’s expertise.

Strategies for organic growth. The Manager's strategy for organic growth is to actively provide value-added property-related services. The key strategies to pursue higher yields and returns include: (i) improving retail rental rates, (ii) creating more retail space, (iii) establishing close relationships with tenants to optimize retention, (iv) continually maintaining the quality of the properties, (v) pursuing new leasing opportunities and diversify tenant base, (vi) maximising the performance of each property, (vii) reviewing tenant mix and space configuration to maximize rental income, (viii) improving operating efficiencies and economies of scale, and (ix) raising the profile of the properties. The aim is simply to drive shopper traffic to the mall. And as mentioned earlier, the new MRT line and covered walkway would drive higher shopper traffic to the mall over the medium to long term.

31m visitors; yet at its infancy. The mall has proven to be an instant attraction among the locals and tourists since its opening in Sept 2007. In 2010, the mall was visited by approximately 31m visitors, up from 23m visitors in 2008 (+16% CAGR between 2008 and 2010). The number of visitors to Pavilion KL Mall is already fairly comparable with the more established regional shopping centres in the Klang Valley like Suria KLCC, and Mid Valley Mall, which have been in operation for over a decade (see table below).

Young mall; room to grow average rental. Still, there is room for growth. A quick comparison between the average rental psf achieved by Pavilion KL Mall vis-à-vis Suria KLCC (in the same market segment) implies that that there is significant upside to Pavilion KL Mall’s existing average rental of RM16.65 psf pm (1H 2011). Suria KLCC’s average rental is estimated to be RM25psf pm for FY10/11, or 50% higher.

Table 5: Footfall and average rental of major shopping destinations in Klang Valley Opened since Visitors NLA Average Rental (2010/11) Premium fashion malls ‘ million (sq ft) RM psf pm Pavilion KL Mall Sept 2007 31m 1.34m RM17 Suria KLCC (excluding Phase 1998 >40m 1.0m RM25* 2) Mass-market malls Sunway Pyramid 1997 34m 1.70m RM10* Mid Valley Mall Nov 1999 35m 1.70m RM10-12*

Sources: Trust Manager, *Maybank IB estimates

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Older malls have higher % of anchor tenants. Malls built in the 1990s have a different shopping format, focused on attracting shopper traffic with several anchor tenants which typically account for 50-70% of the mall’s lettable area. Taking the example of Suria KLCC (according to its prospectus filing in 2004), its anchor and mini anchor tenants accounted for approximately 59% of its net lettable area. These anchor tenants sign long term leases (more than 10 years) at low rental rates.

Anchor tenants usually pay lower rents. Suria KLCC’s anchor tenants are Isetan of Japan, Grand and Tanjong Golden Village while its mini anchor tenants included Marks & Spencer. Suria KLCC’s anchor and mini anchor accounted for 59% of its total NLA back in 2004. While the prospectus information may be a bit dated, based on our observation, the anchor and mini anchors still account for the bulk of the tenancies.

Newer malls are designed with specialty tenants in mind. On the other hand, newer malls like Pavilion KL Mall (in line with latest trends) have designed their malls to cater to more specialty stores as they pay higher rentals. Given that Suria KLCC has a higher percentage of anchor tenants and yet enjoy higher average rental of RM25 psf pm, it implies that the specialty stores there are paying significantly higher rental than Pavilion KL Mall’s tenants. This indicates that Pavilion KL Mall’s rental has significant upside over time as the mall matures, with improvement in shopper traffic and completion of the Mall Extension.

Chart 7: Pavilion KL Mall – Mix by tenant type (by NLA) Chart 8: Suria KLCC – Mix by tenant type (by NLA)

Anchor tenants, Specialty 18% Stores, Anchor Kiosks, tenants, Specialty Cafes, 37% Stores, 33% Kiosks, Specialty Cafes, Anchor, 59% 23% Mini Mini Anchor, Major, 7% 22%

Total NLA: 1.3m sq ft Total NLA: 1.0m sq ft

Source: Trust Manager Source: KLCC Property Prospectus (2004)

Growing catchment of residents around Pavilion KL Mall provides organic growth. Over the last 2-5 years, KL experienced a surge of interest for high-end residential properties with foreign buyers accounting for approximately 30% of all purchases. Popular property launches around Bukit Bintang area are centred around KLCC, City Centre/Bukit Bintang and Ampang Hilir/U-Thant areas. According to a recent CBRE report, some 9,000 units of high-end properties (priced above RM350 psf) are expected to be delivered to end-buyers between 2011-14 (see charts overleaf). These affluent buyers/occupants will have the necessary spending power and provide an immediate catchment of resident shoppers to Pavilion KL Mall.

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Chart 9: Cumulative supply of Condominiums/ Serviced Chart 10: Cumulative supply of Condominiums (Mid- Residences in Kuala Lumpur (Mid-range and above) range and above) around Bukit Bintang area

Source: CBRE (May 2011, supply figures include all projects with Source: CBRE (May 2011) average prices of RM350psf and above)

Chart 11: Total Incoming Condominiums / Serviced Residences Supply by Location (Kuala Lumpur)

Source: CBRE (May 2011)

Right of first refusal (ROFR), 3rd party acquisitions. Besides pursuing organic growth, the REIT Manager will pursue opportunities for asset acquisitions that provide attractive cash flows and yields relative to PavREIT's weighted average cost of capital. PavREIT benefits from three specific ROFRs granted by the sponsors and a third party that could be potentially injected into PavREIT over the next 2- 5 years, namely (i) farenheit88 mall (completed and operating), (ii) the Pavilion KL Mall extension, and (iii) an upcoming sub-urban mall in USJ, Subang. Besides these three properties, the sponsor has also provided the Trustee with a general ROFR for the sponsor’s future retail developments in Malaysia. Also, the REIT manager will explore third party acquisitions should such opportunity arise and meet its investment criteria.

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Picture 1: The Pavilion KL Mall extension ROFR Picture 2: farenheit88 ROFR

Description : A potential expansion to Pavilion Kuala Description : A property comprising 5 levels of retail space Lumpur Mall with 3 levels of basement car parks located at Bukit Bintang opposite Pavilion Kuala Lumpur Mall Target : Mid- to high-end market market Target : Young and trendy urbanites (age 15-23) market Granted by : Urusharta Cemerlang Kuala Lumpur Granted by : Makna Mujur Sdn Bhd Location : Adjacent to Pavilion Kuala Lumpur Mall Location : Bukit Bintang area, opposite Pavilion Kuala Size : 300,000 sq ft of retail NLA (estimated) Lumpur Mall Targeted to : 2013/14 Size : 280,000 sq ft NLA commence Targeted to : Operational since 2010 commence

Picture 3: USJ ROFR (artist impression)

Artist Impression

Description : Proposed development of a 6-storey retail mall

Target : Mid market market Granted by : Equine Park Country Resort Sdn Bhd Location : In Subang, 20 km outside Kuala Lumpur

Size : 400,000 sq ft of retail NLA (estimated) Targeted to : 2014 commence

Sources: Trust Manager, Maybank-IB

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RM1.46b of asset potential from the three ROFRs. Based on our preliminary data compilation of the size of the three properties under the ROFRs, and the latest transacted retail mall prices in the surrounding area or malls with a similar target market, we estimate that the three properties are worth a combined RM1.46b in value (see below). This would add +41% to PavREIT’s initial asset size.

Table 6: Estimated value of the three malls under ROFR Properties Location sq ft (NLA) Est. cap Est. value* Value RM psf RM 'm farenheit 88 Jalan Bukit 280,000 1,400 392 Bintang, KL Pavilion extension Jalan Bukit 300,000 2,500 750 Bintang, KL USJ mall Subang 400,000 800 320

Total combined 1,462 value * Cap value based on recently transacted prices of similar properties Sources: Maybank IB

Low debt-to-asset ratio of 20%. PavREIT’s debt-to-asset ratio is estimated to be 20% which is significantly below the statutory limit of 50%, and one of the lowest among M-REITs (see chart below). With its conservative capital structure, we estimate that the REIT Manager could take on additional debt of up to RM2.2b without the need to raise fresh equity in the immediate term to fund future expansion.

Chart 12: Comparison of M-REIT gearing (as at 30 Sep 2011)

(%) 60 48.2 50 43.4 39.8 38.2 40 36.4 36.0 35.0 32.7

30 24.5 24.0 20.6 20.1 20 17.6 11.5 10

0 KPJ Al Quill Quill Atrium Hektar Tower Starhill Raya* Al Aqar Capita* CMMT* AmFirst Amanah Boustead SunREIT* PAV REIT PAV Hadharah UOA REIT UOA Axis REIT*

# Axis REIT gearing was based on Dec’11 results Sources: Maybank IB, M-REITs

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Room for higher gearing and growth. Assuming PavREIT gears up to its statutory limit and raise RM2.2bn for acquisition, this will lift its asset size by +60%, from the RM3.63b appraised value on the initial assets. The RM2.2b is sufficient to buy another sizeable investment portfolio, including the properties which we have highlighted earlier.

Table 7: Gearing capacity and potential |------Debt-to-asset ratio ------| 20% 30% 40% 50% (initial) RM ‘m RM ‘m RM ‘m RM ‘m Asset size (base) 3,632 Debt 731 1,243 1,934 2,901 Additional debt/ asset 512 1,203 2,170 Potential asset size 4,144 4,835 5,803 % change from base 14% 33% 60%

New acquisition assumed at 6.6% net 34 79 143 property yield Incremental cost of debt at 5% (26) (60) (109) Incremental other costs at 0.6% (3) (7) (13) Incremental distributable income 5 12 22 Additional DPU (sen) 0.17 0.40 0.72 Estimated initial & potential DPU 5.80 6.17 6.40 6.73 Initial/potential div yield 6.8% 7.0% 7.3% 7.6%

Source: Maybank IB

Merit 5: Strong management team

A wealth of retail experience. The PavREIT management team is a well-rounded team with a wealth of experience. The team is headed by Mr Philip Ho, the CEO (23 years work experience) and assisted by Ms Joyce Yap, the Asset Manager (Retail) with 30 years experience. They are further supported by Mr Lovell Ho, Asset Manager (Leasing) with 18 years of work experience, Ms Kung Suan Ai, Asset Manager (Marketing) with 15 years of experience, Mr Daniel Hee, Asset Manager (Operations cum Mechanical Engineering) with 29 years of experience, and Mr Francis Ong, Asset Manager (Facilities Management) (see Appendix 2 for details of the management team).

Proven management expertise. The award winning retail mall was conceptualized, planned, designed and built by the same team of senior management who is and will be running the mall post-listing. This is proof of management expertise in running the mall. Furthermore, it ensures business continuity and their intimate knowledge of the properties can be further utilised to enhance the layout and revenue of PavREIT.

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Ongoing asset enhancement initatives. The most recent example of management’s ability to enhance value is the creation of “Tokyo Street” on the top floor of the mall with approximately 40,000 sq ft, which replaces lower-yielding larger retail units with higher-yielding smaller retail units. This area was previously the Home Precinct. The motivation behind Tokyo Street was to increase foot traffic at the higher floor levels. At The Connection Precinct, management replaced a lower- yielding fitness centre with higher-yielding F&B outlets like Watame and Overtime which provided higher rentals when the former’s tenancy expired. Since its opening, management has also introduced additional push-carts and kiosks at Pavilion KL Mall.

Merit 6: Favourable macro fundamentals

Retail spending on the rise. Malaysian retail sales have grown by a CAGR of 17.8% from 2005 to 2010, and now account for 18% of GDP. Total retail sales value for 2010 is estimated at RM134b, +9.9% YoY. Under the 10th Malaysia Plan, total retail sales growth is targeted to grow annually by 8.3% between 2010 and 2015. The growth is underpinned by key economic and demographic trends: (i) rising GDP and GDP per capita which translates to greater spending power; (ii) low unemployment rate; (ii) a growing, young population; (iii) increasing urbanization; and (iv) rising tourist arrivals, which augment the domestic consumer base.

Rising affluence among Malaysians. The country’s GDP per capita has been rising steadily over the past 10 years from RM15,312 (2000) to RM27,113 (2010) save for 2009 following the global financial crisis. The national unemployment rate is also low at 3.20% (June 2011) while the unemployment rate in KL and is estimated to be slightly below 3%.

Government targets to grow GDP by 6% per year till 2020. Under the Government’s Economic Transformation Programme (ETP), it hopes to transform Malaysia into a high-income nation by 2020 by growing the economy by 6% a year till 2020. The target is to increase Malaysia’s Gross National Income (GNI) per capita from USD6,700 (or RM23,700) in 2009 to more than USD15,000 (or RM48,000) in 2020.

Government on boosting tourism. Tourist arrivals and spending have been steadily increasing since 2003’s SARS with 2010’s total tourist spending at RM56.5b, up from RM53.4b in 2009 (+5.8% YoY). Correspondingly, tourist arrivals reach a new high in 2010 with 24.6m tourist arrivals, up from 23.6m in 2009 (+4.2% YoY). Under the ETP, tourism spending is targeted to grow at a rate of 11.5% per year to reach RM168b by 2020, while tourist arrivals is targeted to grow by 3.9% per year to reach 36.0m by 2020.

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Chart 13: Malaysian retail sales are expected to continue Chart 14: Rising income supports spending growing

Retail Sales Percapita Retail Sales as a % of Nominal GDP GDP/Capita (RM) GDP Per Capita Growth (%)

6,000 20% 35,000 20.0 18% 30,000 15.0 5,000 16% 25,000 10.0 14% 4,000 12% 20,000 5.0 3,000 10% 15,000 0.0 8% 2,000 6% 10,000 -5.0 4% 1,000 5,000 -10.0 2% - -15.0 0 0% 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2005 2006 2007 2008 2009 2010 2011F Sources: CEIC, Maybank-IB Sources: IMF

Chart 15: Low unemployment rate at 3.0% (June 2011) Chart 16: Age profile of Malaysians

5.0 Age Group Malaysia's Unemployment Rate (%) Above 70 4.5 65 to 69 60 to 64 55 to 59 4.0 50 to 54 45 to 49 3.5 40 to 44 35 to 39 30 to 34 3.0 25 to 29 20 to 24 2.5 15 to 19 10 to 14 5 to 9 2.0 0 to 4

0.0 0.5 1.0 1.5 2.0 2.5 3.0 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Person (mn))

Sources: CEIC Sources: CEIC

Chart 17: Increasing tourist arrivals and receipts

30.0 60.0

25.0 Tourist arrivals ('m) 50.0 Tourist receipts (RM 'b) 20.0 40.0

15.0 30.0

10.0 20.0

5.0 10.0

0.0 0.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Sources: Tourism Malaysia

One of the fastest in terms of population growth. Malaysia, a nation with 28m population, is one of the fastest growing nations in the world. Over the last decade, Malaysia’s population grew at a rate of 2.17% p.a., while Kuala Lumpur’s population grew at 2.2% over the same period. Approximately 6m of the population resides in Greater Kuala Lumpur or popularly known as the Klang Valley, which is the main economic corridor of Malaysia. By 2020, it is envisaged that the Greater Kuala Lumpur population will hit 10m.

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Young and growing population. Malaysia has a relatively young population by age group. Approximately 83% of Malaysians is below 50 years of age and about 62% of Malaysians is below 35 years of age. About 37% of Malaysians is between the age of 25-50 years, which is the age group with the propensity to spend. The national median age is approximately 26 years while that of Kuala Lumpur is 29 years. The young population will be a key catalyst to drive retail spending as Malaysian youths have a higher propensity to spend than their more thrifty parents and grandparents who grew up in periods of austerity.

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Financials

Predominantly a retail REIT. PavREIT comprises two initial assets, Pavilion KL Mall (retail asset) and Pavilion Tower (office) purchased at cost of RM3,190m and RM123m respectively. These assets are recorded in PavREIT’s balance sheet at RM3,543m based on the appraised values of RM3,415m (retail mall: +7%) and RM128m (office; +4%) respectively. PavREIT is predominantly a retail REIT as 96% of its portfolio weight is held by the retail asset.

Earnings forecasts. We project PavREIT’s 2012 and 2013 gross rental income at RM319m and RM328m respectively. This, in turn, generates net property income (NPI) of RM225m (2012) and RM232m (2013) respectively, and pretax profits (after accounting for manager, trustee expenses and borrowing costs) of RM170m and RM176m respectively. We forecast 2012’s distributable income at RM180m (6.0sen/unit) and 2013’s at RM183m (6.1sen/unit) respectively.

Key assumptions. Our assumptions for the forecasts are based on PavREIT’s initial portfolio of property assets (i.e. Pavilion KL Mall and Pavilion Tower) without taking into account potential future acquisitions. We assume and forecast:

(i) Gross rental income increases by 2.9% and 4.5% in 2013 and 2014 respectively. This assumes tenancy agreements expiring in those financial periods are renewed at 9% (3% p.a. increment) with no step-ups for the next 3 years,

(ii) Occupancy rates of 98% throughout the full length of the 10 year DCF period for Pavilion KL Mall. As for Pavilion Tower, we assume 91% average occupancy rate for 2012 and thereafter 100%.

(iii) Maintenance fees and other operating expenses (such as advertising, general & administrative expenses, property management fees & reimbursements) to increase by 3% p.a..

(iv) Capital expenditure of RM3m for 2012, RM7m for 2013-15, and RM14m for 2016-22. The assets are relatively new, merely 4 years old and well maintained. Hence, we foresee relatively minimal capex in the near future.

(v) Distribution payout policy of 100% for 2012-14, and 95% thereafter. Note that PavREIT manager is committed to pay out at least 100% of its distributable income in 2011-12 as dividends, and at least 90% in the subsequent years.

(vi) Our dividend payout also assumes that 50% of the REIT Manager’s fee will be payable in PavREIT units for 2011-12, 30% for 2013-14, and 15% thereafter.

(vii) Borrowing cost of 5% p.a. for 2012-14, and 5.5% thereafter (based on debt-to-asset ratio of 20%).

Our earnings forecasts suggest a DPU CAGR growth of 3.9% over the next three years.

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Sensitivity Analysis

1. Gross Rent

Changes in the Gross Rent will impact the Net Property Income of PavREIT and, consequently, the distribution yield. The assumptions for Gross Rent have been set out earlier in this section. The effect of variations in the Gross Rent on the DPU is set out below:

Table 8a: Yield Change on Changes in Gross Rent Gross Rent (%) FY12f FY13f FY14f

5% above case 7.35% 7.43% 7.97% Base case 6.82% 6.89% 7.40% 5% below case 6.29% 6.35% 6.83%

Source: Maybank IB

2. Property Expenses

Changes in Property Expenses will impact the Net Property Income of PavREIT and, consequently, the distribution yield. The effect of variations in other property expenses on the distribution yield is set out below. However, do note that the largest component of property operating expenses, utilities cost (40%), is passed on to tenants as was the case in recent electricity tariff adjustments.

Table 8b: Yield Change on Changes in Property Expenses Property Expenses FY12f FY13f FY14f

5% above case 6.64% 6.71% 7.22% Base case 6.82% 6.89% 7.40% 5% below case 7.00% 7.07% 7.58%

Source: Maybank IB

3. Interest Expenses

Changes in Interest Expenses will impact the Profit before Tax of PavREIT and, consequently, the distribution yield. The effect of variations in interest expenses on the distribution yield is set out below. Our base case scenario assumes current interest rates at 5% p.a..

Table 8c: Yield Change on Changes in Interest Expenses Interest Expenses FY12f FY13f FY14f

Interest rate: 4.5% p.a 6.96% 7.03% 7.54% Base case :5.0% p.a 6.82% 6.89% 7.40% Interest rate :5.5% p.a 6.68% 6.75% 7.26%

Source: Maybank IB

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4. Management Fees paid in units

Changes in management fees paid in units will impact the Distributable Income of PavREIT and, consequently, the distribution yield. The effect of variations in % of management fees payable in units on the distribution yield is set out below. Our base case scenario assumes 50% current interest rates at 5% p.a

Table 8d: Yield Change on Changes in Management fees paid in units Management fees FY12f FY13f FY14f paid in Units

15% 6.59% 6.80% 7.32% 30% 6.69% 6.89% - BC 7.40% -BC 40% 6.76% 6.96% 7.47% 50% 6.82% -BC 7.02% 7.52%

Source: Maybank IB; Base case - BC

Valuation

Favour the DCF approach, as it rigorously accounts for 10 years of cashflow and a terminal value, taking into consideration various assumptions on rental rate changes, occupancy rates, and others. Revenues are derived mainly from rents paid by tenants, which are typically on a 3+3 years tenancy agreement, while property and non- property expenses usually do not fluctuate significantly.

Note that our valuation models have yet to incorporate any potential property acquisitions or pipeline of potential property injections by its sponsor.

Table 9a: Assumptions used for WACC discount rate Risk free rate Rf 4.0% 10-year government bond yield Long-term cost of debt Kd 5.5% Market return Rm 10.5% Maybank IB house’s assumption Beta β 0.65 Average of M-REITs Target capital ratio - Debt / (Debt + equity) Wd 35% Optimum structure - Equity / (Debt + equity) We 65% Optimum structure Cost of equity Ke 8.2% = Rf + (Rm – Rf) β WACC Wc 7.3% = Kd (Wd) + Ke (Wd) Source: Maybank IB

Sector leaders always command a premium. Our RM1.10 TP for PavREIT implies a 5.5% yield for 2012. Given its similarity to SunREIT and CMMT, our valuation for PavREIT should reflect a premium valuation as well to the rest of M-REITs given its size (2nd largest M- REIT by asset size), liquidity, and premium assets. In view of a total return of merely 5.7%, we are initiating coverage on Pavilion with a Hold rating.

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Table 11: M-REIT relative comparisons Al Aqar AmRaya* AmFirst Atrium Axis* Bous- Hektar Quill* Starhill Tower UOA SunREIT* CMMT* Pav REIT tead Hospital Diversified Comm Indust’l Comm/ Plant- Retail Comm Hotel Comm Comm Retail Retail Retail Indust’l ation

Share price @ 17/01/12 1.20 0.92 1.16 1.11 2.70 1.59 1.33 1.11 0.89 1.30 1.40 1.25 1.44 1.08 Free float (%) 5.9 36.0 68.1 62.9 83.3 19.9 28.6 39.9 40.3 76.4 64.5 40.7 42.8 26.3 Free float (RMm) 46 190 342 85 1,033 198 122 175 488 281 384 1,368 1,101 851

Key statistics 2012 DY (%) - 7.8 - - 6.7 - 8.3 7.7 - - - 5.6 5.9 5.6 2013 DY (%) - 8.0 - - 7.0 - 9.0 8.0 - - - 5.9 5.1 5.6 P/NAV (x) 1.1 0.9 0.9 1.1 1.3 1.1 1.0 0.9 0.8 0.8 1.0 1.2 1.4 1.2 Gearing: Debt/asset (%) 48.2 36.0 39.8 24.5 24.0 17.6 43.4 36.4 11.5 20.6 38.2 35.0 32.7 20.1 Cap rates in book (%) 6.7 7.0 6.4 8.0 8.8 9.3 7.6 6.8 3.3 6.6 6.2 6.5 7.5 6.3 Inv. Prop (RM’m) 1,181 914 1,028 163 1,276 1,056 752 810 495 604 529 4,384 2,434 3,543 NAV (RM per share) 1.1 1.0 1.4 1.1 2.1 1.4 1.3 1.3 1.2 1.7 1.4 1.0 1.1 0.9 *Stocks under Maybank-IB’s coverage, No consensus for stock not under our coverage. Sources: Bloomberg, Maybank IB

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Property Profile - Pavilion Kuala Lumpur Mall

Picture 4: Pavilion Mall, Kuala Lumpur

Sources: Trust Manager

Pavilion KL Mall is one of the premium shopping centers in the heart of golden triangle of Kuala Lumpur. One of the busiest streets in town, Bintang Walk area of Jalan Bukit Bintang. Pavilion KL Mall is well positioned to be a key shopping destination for tourists.

Table 12: Pavilion KL Mall Profile Table 13: Top 10 tenants of Pavilion KL Mall (as at 1 June 2011) Description : 7-storey retail podium, together % of Tenant Trade Sector with a 3-storey retail office block Occupied NLA and a 4-storey entertainment Parkson Dept Store 17.8 annex. TANGS Dept Store 5.1 Land area : 523,190 sq ft (on a master title) GSC Urban Leisure 4.4 Gross floor area : 2,202,557 sq ft Forever 21 Fashion 1.7 Net lettable area : 1,335,119 sq ft Padini Fashion 1.5 Number of car parks : 2,427 (with Pavilion Tower) Esprit Fashion 1.0 Number of tenants : 462 Food Republic F & B 0.9 Age of Property : 4 years (as at 1 June 2011) Zara Fashion 0.8 Tenure : 99-year lease expiring on 26 October 2109 Royal Selangor Gifts & Souveniers 0.5 Stake : 100% Topshop and Fashion Topman 0.5 Purchase : RM3,190 m consideration Top ten tenants 34.2 Appraised value : RM3,415 m (as at 1 June 2011) Other tenants 65.8 Transacted value : (RM 2,389 per sq ft (on NLA) Total 100.0

Occupancy rate (%) : 98.0 (1 June 2011) Visitor traffic for 2010 : 31 m

Sources: Trust Manager , Maybank-IB Sources: Trust Manager

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Chart 19: Trade Sector Analysis of Pavilion KL Mall - Chart 20: Historical Lease Expiry Profile Percentage of NLA Income (%) - as at 1 June 2011

Occupancy Rate(%) Average mthly rental (RM psf) Home % RM psf & leather decoration 99.0 17.00 products 1% Property 4% Gifts & showroom 98.5 16.65 0% souveniers 16.50 Jewellery & IT & digital 3% 16.36 timepieces 2% 98.0 8% 16.00 Others* 97.5 Fashion 4% 38% 15.58 Beauty & 97.0 15.50 Personal Care 96.5 5% 15.08 15.00 Office 96.0 1% Department 14.50 Urban Leisure Store 95.5 11% 4% 98.5 98.7 96.5 98.5 F & B 95.0 14.00 19% FY2008 FY2009 FY2010 6 mth ended 30 June 2011

Sources: Trust Manager Sources: Trust Manager

Chart 21: Rental range by Levels (as at 1 June 2011)

Average monthly rental (RM) (per sq ft) Average rental RM per sq ft 30.0 25.3 25.0 22.0 21.8 18.9 20.0 Average RM16.65 15.0 13.6 10.9 10.0 9.1 6.2 5.7 5.0 3.2 2.2 0.0 Level 1 Level 2 Level 3 Level 4 Level 5 Level 6 Level 7 Level Levels 8-9* Levels Basement 1 Basement 2 Basement 3 Sources: Trust Manager: *Retail Office Space

Picture 5: Pavilion`s trademark “Spanish Steps” Picture 6: Classy and prestigious street-front duplexes

Source: Maybank IB Source: http://malaysiacentral.com

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Picture 7: Spacious Centre Court to host events Picture 8: Outstanding interiors

Source: http://malaysiacentral.com Source: http://malaysiacentral.com

Picture 9: Global brands at the mall Picture 10: Global brands at the mall

Source: http://malaysiacentral.com Source: http://malaysiacentral.com

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Property Profile - Pavilion Tower

Picture 11: Pavilion Tower

Source: Trust Manager

The Pavilion (Office) Tower was acquired in early 2010. It underwent renovations and re-opened for tenanting in the third quarter of 2010. Since then, it has emerged as one of Kuala Lumpur’s more modern offices. Equipped with state-of-the-art communication technology, Pavilion Tower is today home to a host of local and international corporations.

Table 14: Pavilion Tower Profile Table 15: Tenant Profile of Pavilion Office Tower (as at 1 June 2011) Description : 20-storey office tower Occupied Tenant Trade Sector Gross floor area : 243,288 sq ft NLA (%) Net lettable area : 167,407 sq ft Aker Engineering O&G 35.8 Malaysia Sdn Bhd Number of tenants : 19 (as at 1 June 2011) Malton Group Property 27.6 Age of Property : 4 years (as at 1 June 2011) Developer Stake : 100% Mrail International Sdn Locomotive 9.2 Purchase price : RM123.5 m Bhd Technology provider Appraised value : RM128.0 m Clever Eagle Sdn Bhd Service office 9.1 Transacted value : RM737psf (on NLA) Top ten tenants 81.7 Occupancy rate : 64.5% (as at 1 June 2011) (%) Other tenants 18.3 Total 100.0

Sources: Trust Manager, Maybank-IB Sources: Trust Manager

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Chart 22: Occupancy Rate and Average Monthly Rental Chart 23: Future Lease Expiry Profile (as at 1 June 2011)

(%) Occupancy Rate (%) Average monthly rental RM (per sq ft) Occupied NLA expiring (%) Average monthly rental of expiring tenancies 70% 7.00 (%) RM (per sq ft) 5.98 5.77 80% 7.00 60% 6.00 70% 6.00 5.97 6.00 50% 5.00 5.75 60% 5.00 40% 4.00 50% 4.00 64.5% 30% 3.00 40% 66.7% 3.00 30% 20% 2.00 2.00 29.6% 20% 10% 1.00 28.4% 10% 1.00 4.9% 0% 0.00 0% 0.00 FY2010 6 mth ended 30June2011 FY2012 FY2013 FY2014 and thereafter

Sources: Trust Manager Sources: Trust Manager

Picture 12: An entrance with prestige Picture 13: Office Lifts

Sources: Trust Manager Sources: Trust Manager

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RISKS

An economic downturn. An economic downturn would result in spending cuts by consumers, which in turn may result in the loss of key tenants. This risk is currently mitigated by the fact that the mall has a large and well-diversified base of over 450 tenants, with no single tenant contributing over 10% of total revenue (by our estimate).

Single asset risk. The portfolio is highly dependent on the continuous appeal of Pavilion KL Mall as a retail icon and Bukit Bintang as a tourist destination. This risk is partially mitigated by its status as one of only four premium retail malls in the country, with high connectivity post the start of the new MRT operations. Going forward, this risk should ease as and when PavREIT seeks to geographically diversify its asset base.

Inability of the REIT manager to execute its investment strategy. The REIT manager's plan may not be fully implemented due to reasons such as the lack of investable assets, and the inability to raise the necessary funds.

Competition. New premium retail malls with equally good concepts may mushroom over time as Malaysia’s economy grows, drawing shopper crowd away from Pavilion KL Mall. This risk is mitigated by the fact that Pavilion KL Mall is strategically located in the Bukit Bintang area, and at the fringe of the Central Business District with its ready catchment of locals, business crowd and tourists. Furthermore, accessibility of the mall will be further improved when the city walkway (2012) and MRT (2016) are ready.

Oversupply of office space in Kuala Lumpur. There are over 10m sq ft of new office supply that will add to Kuala Lumpur’s existing office supply space of 63m sq ft (+16%) between 2011 and 2013. This huge amount of new office space will compete for the same tenants which may result in low occupancy rate for Pavilion Tower and a flattish office rental outlook. However, this is mitigated by Pavilion Tower’s strategic location, newly renovated building, and easy access via public transportation. Furthermore, the office block is located above Pavilion KL Mall, providing convenience to tenants. On the bigger picture, Pavilion Tower only accounts for less than 4% of total assets and total revenue.

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INCOME STATEMENT (RM m) BALANCE SHEET (RM m) FY Dec 2011F 2012F 2013F FY Dec 2011F 2012F 2013F

Gross rental income 25.8 319.0 327.7 Fixed Assets 3,543.0 3,546.0 3,553.0 Property operating expenses (7.8) (94.4) (95.8) Other LT Assets 7.1 8.6 14.2 interest income 0.1 2.0 2.3 Cash/ST Investments 81.3 93.5 88.7 Net property income (NPI) (1.6) (20.0) (21.8) Other Current Assets 1.8 1.9 2.0 Interest (Exp)/Inc (2.9) (36.5) (36.5) Total Assets 3,633.1 3,650.1 3,657.8 Non-property expenses (1.6) (20.0) (21.8) One-offs 0.0 0.0 0.0 ST Debt 0.0 0.0 0.0 Pre-Tax Profit 13.6 170.1 175.9 Other Current Liabilities 2.6 2.9 3.0 Tax 0.0 0.0 0.0 LT Debt 730.6 730.6 730.6 Net Profit 13.6 170.1 175.9 Other LT Liabilities 72.0 79.8 82.1 -realised 13.6 170.1 175.9 Minority Interest - - - -unrealised 0.0 0.0 0.0 Shareholders' Equity 2,827.9 2,836.7 2,842.1 Distributable income 14.5 180.4 182.7 Total Liabilities-Capital 3,633.1 3,650.1 3,657.8 DPU 0.5 6.0 6.1 Net Property Income Growth (%) - NA 8.8 Number of units (m) 3,000.8 3,010.8 3,016.9 Pretax Profit Growth (%) - NA 3.4 Gross Debt/(Cash) 730.6 730.6 730.6 Realised Net Profit Growth (%) - NA 3.4 Net Debt/(Cash) 649.3 637.1 641.9 Payout ratio (%) 100.0 100.0 100.0 Working Capital 80.4 92.5 87.7

CASH FLOW (RM m) WACC ASSUMPTIONS FY Dec 2011F 2012F 2013F

Profit before taxation 13.6 170.1 175.9 Risk-free Rate of Return 4.0 Depreciation - - - Long Term Cost of Debt 5.5 Net interest receipts/(payments) 0.0 0.0 0.0 Market Risk 10.5 Working capital change 3.1 25.5 9.0 Beta 0.65 Cash tax paid 0.0 0.0 0.0 Cost of Equity 8.2 Others (incl'd exceptional items) 0.0 0.0 0.0 Tax Rate - Cash flow from operations 16.7 195.6 184.9 Weighted Cost of Capital 7.3 Capex 0.0 (3.0) (7.0) Growth 1.5 Disposal/(purchase) 0.0 0.0 0.0 Terminal Value Discount 6.3 Others 0.0 0.0 0.0 Cash flow from investing 0.0 (3.0) (7.0) Debt raised/(repaid) 0.0 0.0 0.0 Equity raised/(repaid) 0.0 0.0 0.0 Dividends (paid) (14.5) (180.4) (182.7) Others 0.0 0.0 0.0 Cash flow from financing (14.5) (180.4) (182.7) Change in cash 2.2 12.2 (4.8)

Source: Company, MaybankIB

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Pavilion REIT

Appendix 1: Pavilion REIT’s structure

Pavilion REIT is established with the principal investment strategy of investing, directly and indirectly, in a diversified portfolio of income producing real estate used solely or predominantly for retail purposes.

Chart 24: The relationships around Pavilion

Sources: Trust Manager

Pavilion REIT Management Sdn Bhd is the manager of Pavilion REIT. The Manager undertakes primary management activities in relation to Pavilion REIT. Its main responsibility is to set the strategic direction of Pavilion REIT and give recommendations to the Trustee on the acquisition, divestment and enhancement of assets of Pavilion REIT in accordance with its stated investment strategy. The Manager is 51.0% owned by UCDSB (Urusharta Cemerlang Development Sdn Bhd) and 49.0% by UCPC (Urusharta Cemerlang Project Corporation Sdn Bhd).

AmTrustee Berhad is the trustee of Pavilion REIT. The Trustee provides corporate trusteeship services for Pavilion REIT (see Appendix 4).

Henry Butcher Malaysia Sdn Bhd is the property manager of Pavilion REIT. The Property Manager is responsible for providing property management services for the properties in PavREIT's portfolio.

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Appendix 2: Who’s who in PavREIT

Chart 25: Organisation structure of PavREIT management

Board of Directors

Chief Executive Officer Philip Ho Yew Hong

Asset Manager Head of Legal Finance Manager (Retail) and Compliance t.b.a. Joyce Yap Soh Lo Khien Ngoh Ching

Asset Asset Manager Asset Asset Manager (Operations (Facilities Manager Manager Management) (Leasing) (Marketing) cum M&E) Daniel Hee Francis Ong Lovell Ho Wai Kung Suan Ai Heng Khai Hoong Teck Ming

Sources: Trust Manager

Management Team

Philip Ho Yew Hong, Chief Executive Officer of the Manager. He has over 23 years of years of experience in corporate planning, mergers & acquisitions, finance, audit, operations management, property development and construction. Prior to joining the Manager, he was the Chief Financial Officer of the Sponsor, where he was involved in the establishment of Pavilion REIT. During this period he was also involved in the finance, operations and property investment functions for the Sponsor group. Prior to this, he was Chief Operation Officer and Finance Director of Kuala Lumpur Pavilion Sdn Bhd (“KLP”) during the development and construction stage of the Pavilion Kuala Lumpur Project. He holds a Master of Business Administration from University of Strathclyde, United Kingdom and a Bachelor of Business in Accounting from Chisholm Institute of Technology, . He is currently a member of the Malaysian Institute of Accountants.

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Joyce Yap Soh Ching, Asset Manager (Retail) of the Manager and Chief Executive Officer (Retail) of KLP. During her 30 years’ working experience, she has held key positions and handled a variety of responsibilities in the areas of development, sales and marketing, leasing of various types of property development and asset management. In her role as Chief Executive Officer of KLP, her key responsibility was to formulate, articulate and prioritise departmental goals in line with KLP’s strategic objectives which included mall operations, leasing, marketing and human resources. Her role also involved developing and maintaining effective networking relationships with local, regional and international retailers. Prior to joining KLP, she worked with Sunway Pyramid Sdn Bhd among many others. In 2010, she received the Outstanding Entrepreneurship Awards awarded by the Asia Pacific Entrepreneurship Awards Malaysia and was awarded the Distinction for Distinguished Lifetime Dedication to Management of Shopping Centre by PPKM in 2008. She holds a Bachelor of Arts (Hons) in Business Studies from North East London Polytechnic, London (now known as North London University) and a Certificate in Centre Management from PPKM. Lovell Ho Wai Hoong, Asset Manager (Leasing) of the Manager and Director of Leasing of KLP. He has 18 years’ experience in shopping mall management particularly in the areas of leasing and marketing. He joined KLP in 2002 as Senior Leasing Manager, was promoted to General Manager in 2005 and was appointed Director of Leasing in 2010. Prior to joining KLP, he was the Marketing Manager of Sunway Pyramid Sdn Bhd. He began his career with the Shopping Centre Management Division of The Lion Group. He holds a Bachelor of Business in Marketing from the Royal Melbourne Institute of Technology, Melbourne, Australia. He is also a Certified Marketing Manager by PPKM and a member of PPKM. Kung Suan Ai, Asset Manager (Marketing) of the Manager and Director of Marketing of KLP. She has 15 years of experience in retail and corporate marketing for shopping centres and integrated developments. She joined KLP in 2008 as General Manager, Marketing before being appointed as Director of Marketing in 2010. She oversaw the marketing and concierge services of Pavilion KL Mall. She started her career with Sunway Pyramid in 1996, and in 2001 joined as Advertising and Promotions Manager. In 2004, she was made Director of Advertising & Promotions and in 2008, Director of Marketing for the integrated development. She is now the Vice President of PPKM and is actively involved in shopping tourism events for Bukit Bintang – KLCC. She holds a Bachelor of Arts (Hons) in Communications from Universiti Kebangsaan Malaysia. Daniel Hee Teck Ming, Asset Manager (Operations cum Mechanical and Engineering) of the Manager and Director of Operations of KLP. He joined the Sponsor in 2007 as General Manager, Mechanical & Electrical before being appointed as Director of Operations from the end of 2008. He gained several years of experience in aluminium fabrication in the United Kingdom after his graduation in 1982. On his return to Malaysia, he worked with United Technologies Carrier from 1988 to 2000 where he last held the position of General Manager, Services. From 2000 to 2006, he was Chief Operating Officer of Paracorp Technology Sdn Bhd. He holds a Higher National Diploma in Mechanical Engineering from Humberside College of Higher Education, United Kingdom.

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Francis Ong Heng Khai, Asset Manager (Facilities Management) of the Manager and Assistant Director of Operations of KLP. He has over 18 years of experience in property management covering residential, commercial and industrial properties. Prior to joining KLP, he was with CapitaMall Asia Ltd for close to seven years and managed one of their shopping malls, Plaza Singapura which is situated in Singapore’s shopping along Orchard Road. He was seconded to a new development, ION Orchard in 2008 as Head of Facilities. He holds a Bachelor of Business (Property) from the University of South Australia, Australia and a Diploma in Building Management from Ngee Ann Polytechnic, Singapore.

Lo Khien Ngoh, Head of Legal and Compliance of the Manager. She is a senior lawyer with more than 20 years professional experience. Prior to joining the Manager, she was an investment lawyer with the Qatar Investment Authority specialising in the area of corporate, mergers and acquisitions and regulatory compliance work. She started her career as an Advocate and Solicitor of the High Court of Malaya. Khien Ngoh was called as a barrister and admitted into the Honourable Society of Lincoln’s Inn, London after receiving her degree from the University of London.

Directors of the REIT Manager

The Board is entrusted with the responsibility for the overall management of the Manager. The Board consists of 12 Directors. The following table sets forth certain information regarding the Directors:-

Table 16: Board of Directors of the REIT Manager No. Name Nationality Position 1. Datuk Lim Siew Choon Malaysian Chairman and Non-Independent Executive Director 2. Datin Tan Kewi Yong Malaysian Non-Independent Executive Director 3. Ahmad Mohd A Y Al-Sayed Qatari Non-Independent Non-Executive Director 4. Omer Abdulaziz H A Al-Marwani Qatari Non-Independent Non-Executive Director 5. Mohamed Badr S K Al-Sadah Qatari Non-Independent Non-Executive Director 6. Navid Chamdia British Non-Independent Non-Executive Director 7. Dato’ Lee Tuck Fook Malaysian Non-Independent Executive Director 8. Ooi Ah Heong Malaysian Non-Independent Non-Executive Director 9. Datuk Roger Tan Kim Hock Malaysian Independent Non-Executive Director 10. Dato’ Maznah binti Abdul Jalil Malaysian Independent Non-Executive Director 11. Dato’ Mohzani bin Datuk Dr Abdul Malaysian Independent Non-Executive Director Wahab 12. Syed Mohd Fareed bin Shaikh Singaporean Independent Non-Executive Director Alhabshi

Source: Trust Manager

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Appendix 3: Background on the Sponsor

The Sponsor of Pavilion REIT is UCSB (Urusharta Cemerlang Sdn Bhd), the developer of the Pavilion Kuala Lumpur Project comprising four components: Pavilion Kuala Lumpur Mall, Pavilion Tower, two blocks of luxury serviced suites known as Pavilion Residences, and a proposed block of service suites. Incorporated on 15 April 1993, the Sponsor developed the first Smart School for the Ministry of Education in Taman Shamelin Perkasa, Cheras, Kuala Lumpur.

The board of directors of the Sponsor has a wealth of experience, and is supported by experienced asset management and development teams.

The Sponsor’s principal business strategy is to invest in, develop and manage real estate in Malaysia. The Sponsor aims to further add value to these properties through asset enhancement initiatives and precinct development strategies.

The following table sets out a summary of the major Unitholders of Pavilion REIT:

Table 17: Major Unitholders of Pavilion REIT Name Units held Direct Indirect No. of Units % No. of Units % (`000) (`000) Datuk Lim Siew Choon 845,425 28.18 - - Datin Tan Kewi Yong 281,875 9.40 - - Qatar Holding LLC* 1,082,900 36.10 - - Total 2,210,200 73.68 - -

Sources: Trust Manager; * a wholly owned subsidiary of Qatar Investment Authority

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Appendix 4: Background on the Trustee

AmTrustee Berhad was incorporated in Malaysia under the Act on 28 July 1987. It is registered as a trust company under the Trust Companies Act, 1949 and is also registered with the SC for trusteeship service in respect of unit trust funds. As at the Latest Practicable Date, the authorized share capital of the Trustee was RM1,000,000 comprising 100,000 ordinary shares of RM10.00 each, paid up to RM5.00 each in accordance with Section 3(c) of the Trust Companies Act, 1949.

The principal activity of the Trustee is the provision of corporate trusteeship services. The Trustee has been in the trustee business for more than 24 years. As at Latest Practicable Date, the Trustee’s staff strength comprises 23 executive staff and six on-executive staff.

The Trustee undertakes all types of trustee business allowed under the Trust Companies Act, 1949 specializing in corporate trustee services which include acting as trustee for private debt securities, unit trust funds, provident ad retirement funds, golf clubs and timeshares, stakeholders and REITs. As at the Latest Practicable Date, the Trustee is trustee for 22 unit trust funds and three listed REITs.

Table 18 : Board Of Directors Of The Trustee Name Directorship Ms Pushparani d/o Moothathamby Chairman (Non-Independent Director) Mr Shaharuddin Bin Hassan Director (Non-Independent Director) Tuan Hj Mohamad Sabirin Bin Hj Director (Non-Independent Director) A.Rahman Dato’ Ng Mann Cheong Independent Director Datuk Haji Mohd Idris Bin Mohd Isa Independent Director

Sources: Trust Manager

CEO of the Trustee: Mr. Tan Kok Cheeng

Mr. Tan Kok Cheeng has been appointed as the Chief Executive Officer of AmTrustee Berhad with effect from 1 October 2010. Prior to joining the Trustee, he served as the Chief Internal Auditor, Internal Audit Department, Ambank Group then elevated as Internal Audit Advisor, AmBank Group. He has been with AmBank for more than 25 years.

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Appendix 5: Accolades / Awards In 2011, Pavilion Kuala Lumpur Mall has won the following awards:

 “Award for Outstanding Achievement – Shopping Mall Category” by Kuala Lumpur Mayor’s Tourism Awards 2011; and

 “2011 VIVA Best-of-the-Best Award Honouree (Design and Development)” by International Council Shopping Centre Viva Best-of-the-Best Awards.

In 2010, Pavilion Kuala Lumpur Mall won the following nine awards:

 “Retail Merchant of the Year” by MasterCard Worldwide for MasterCard Hall of Fame Awards 2010;

 “Marketing” by International Council of Shopping Centres in Asia Shopping Centre Awards 2010;

 “Innovative Design & Development of a New Retail Project” by International Council of Shopping Centres in Asia Shopping Centre Awards 2010;

 “Best Thematic Decoration” by Tourism Malaysia Shopping Centre Awards for Malaysia Mega Sale Carnival 2010;

 “Best Promotions and Events” by Tourism Malaysia Shopping Centre Awards for Malaysia Mega Sale Carnival 2010;

 “The Architecture Award (Retail) – Asia Pacific” by International Property Awards in association with Bloomberg Television 2010;

 “The Architecture Award (Retail) – Malaysia” by International Property Awards in association with Bloomberg Television 2010;

 “Best Retail Development – Malaysia” by International Property Awards in association with Bloomberg Television 2010; and

 “Best Indoor Fun” by Expatriate Lifestyle Awards 2010.

In 2009, Pavilion Kuala Lumpur Mall won the following five awards:

 “Best Thematic Decoration” by Tourism Malaysia Shopping Centre Awards for Malaysia Year End Sale 2009;

 “Innovative Shopping Complex” by Malaysia Tourism Awards 2008/2009;

 “Best Shopping Complex” by LIBUR Tourism Awards 2009;

 “Best Indoor Fun” by Expatriate Lifestyle Awards 2009; and

 “World’s Best Retail Center” by International Real Estate Federation (FIABCI) Prix d’Excellence Awards 2009.

In 2008 and 2007, Pavilion Kuala Lumpur Mall won the following six awards:

 “Best Thematic Decoration” by Tourism Malaysia Shopping Centre Awards for Malaysia Mega Sale Carnival 2008;

 “Best Retail Development” by International Real Estate Federation (FIABCI) Malaysia Property Awards 2008;

 “Premier Retail Centre” by Brand Laureate Awards 2008;

 “Best Shopping Mall” by LIBUR Tourism Awards 2008;

 “Silver Award, Favourite Shopping Complex” by Diplomatic Tourism Awards 2008; and

 “Most Magical Mall Award” by Ministry of Tourism Malaysia 2007

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Appendix 6: Fee Structure

The management and performance fees are as follows:

(i) Base Fee

Up to 1.0% per annum of the Total Asset Value (TAV) of Pavilion REIT (excluding cash and bank balances which are held in non-interest bearing accounts)

(ii) Performance Fee

Up to 5.0% per annum of Pavilion REIT’s Net Property Income in the relevant financial year.

(iii) Incentive fee

An incentive fee is payable in accordance to the following:

Table 19: Incentive Fee Fee Payable (% p.a Criteria: Annual growth in Distributable Income in of TAV) a Financial Year (calculated before accounting for Incentive Fee in that Financial Year) Up to 0.10% Exceeds 7.5% and up to 10.0% Up to 0.15% Exceeds 10.0% and up to 12.5% Up to 0.20% Exceeds 12.5%

Sources: Trust Manager

Incentive fee is payable in Units only. The Incentive Fee is only applicable in respect of the second full financial year in which Pavilion REIT has been established and in operation, being FY2013. No incentive fee is payable for FY2011 and FY2012.

(iv) Acquisition and divestment fees

1% of acquisition price and 0.5% of disposal price, in line with industry practice.

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Pavilion REIT Appendix 7: Fee Comparison among various M-REITs

Al Aqar KPJ Al Hadharah Amanah AmFirst Atrium Axis REIT* CMMT* Hektar Quill Starhill SunREIT* Tower UOA REIT Boustead Raya* Capita*

Fees structure: Base fees 0.15% of 0.3 % of 1.0% of 0.5% of 1.0% of 1.0% of 1.0% of 1.0% of 0.4% of 1.0% of 0.3% of 0.75% of 1.0% of NAV NAV NAV GAV NAV NAV GAV GAV GAV GAV GAV GAV NAV

Performance fees - 2.5% - 3.0% of NPI - - 5.0% of 5.0% of 3.0% of 5.0% of 3.0% of 4.0% of - performance- NPI NPI NPI NPI NPI NPI based profit sharing receivable

Trust fees 0.03% NAV 0.03% NAV 0.1% of 0.1% of 0.04% of 0.05% of 0.02% of 0.1% of 0.03% of 0.03% of 0.03% of 0.03% of 0.045% NAV NAV NAV NAV GAV for NAV 1st GAV NAV NAV of NAV subject to a 1st RM2b RM2.5b of minimum then GAV and fee of 0.01% of 0.02% on RM40,000 GAV the GAV in perannum thereafter excess RM2.5b

- 1.0% of - 1.0% of - 1.0% of 1.0% of 1.0% of 1.0% of 1.0% of 1.0% of 1.0% of - Acquisition fee acquisition acquisition acquisition acquisition acquisition acquisition acquisition acquisition acquisition price price price price price price price price price

Divestment Fee - 0.5% - 0.5% of the - 0.5% of 0.5% of 0.5% of 0.5% of 0.5% of 0.5% of 0.5% of - disposal sale price the sale the sale the sale the sale the sale the sale the sale price price price price price price price price Source: M-REITs’ Annual Reports; Maybank-IB; * stocks under Maybank-IB coverage

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Appendix 8: 3 to 5-star hotels and number of rooms

Hotels Location Rating Rooms

Within walking distance of Bukit Bintang area The Westin Kuala Lumpur Jln Bukit Bintang 5 529 JW Marriott Jln Bukit Bintang 5 561 Grand Millennium Kuala Lumpur Jln Bukit Bintang 5 468 Ritz Carlton Off Jln Imbi 5 250 Prince Hotel Jln Conlay 5 448 Traders Hotel Kuala Lumpur KLCC 5 571 Mandarin Oriental KLCC 5 643 Hotel Istana Jln Sultan Ismail 5 515 Equatorial Kuala Lumpur Jln Sultan Ismail 5 270 Crowne Plaza Mutiara Kuala Lumpur Jln Sultan Ismail 4 560 Impiana KLCC KLCC 5 335 Hotel Jln Imbi 4 900 Dorsett Regency Jln Imbi 4 320 Melia Hotel Jln Imbi 4 300 Picolo Hotel Kuala Lumpur Jln Bukit Bintang 4 239 Royale Bintang Hotel Jln Bukit Bintang 4 162 Capitol Hotel Jln Bukit Bintang 4 235 Federal Hotel Jln Bukit Bintang 4 450 Coronade Hotel (formerly Fairlane hotel) Off Jln Bukit Bintang 4 225 Grand Plaza Parkroyal Kuala Lumpur Jln Sultan Ismail 4 348 MS Garden Jln Pudu 4 356 Radius International Changkat Bukit Bintang 3 458

Total 9,143

Accessible via public transport (within 3km radius) G Tower Hotel Kuala Lumpur Jalan Tun Razak 5 180 Double Tree Hotel Jalan Tun Razak 5 540 Renaissance Kuala Lumpur Jln Sultan Ismail/ Jln Ampang 5 921 Shangri-La Kuala Lumpur Jln Sultan Ismail 5 723 Sheraton Imperial Hotel Jln Sultan Ismail 5 385 Grand Maya Hotel Jln Ampang 4 207 Intercontinental Hotel (formerly Nikko Hotel) Jln Ampang 4 473 Corus Hotel Kuala Lumpur Jln Ampang 4 388 Concorde Hotel Jln Sultan Ismail 4 581 Novotel Jalan Kia Peng 4 291

Total 4,689

Grand Total (32 hotels) 13,832

Sources: Maybank IB, Company website

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APPENDIX 1

Definition of Ratings Maybank Investment Bank Research uses the following rating system: BUY Total return is expected to be above 10% in the next 12 months HOLD Total return is expected to be between -5% to 10% in the next 12 months SELL Total return is expected to be below -5% in the next 12 months

Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax

Disclaimer This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Berhad and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Berhad, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward- looking statements. Maybank Investment Bank Berhad expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. This report is prepared for the use of Maybank Investment Bank Berhad's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Berhad and Maybank Investment Bank Berhad accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

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APPENDIX 1

Additional Disclaimer (for purpose of distribution in Singapore) This report has been produced as of the date hereof and the information herein maybe subject to change. Kim Eng Research Pte Ltd ("KERPL") in Singapore has no obligation to update such information for any recipient. Recipients of this report are to contact KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. As of 19 January 2012, KERPL does not have an interest in the said company/companies.

Additional Disclaimer (for purpose of distribution in the United States) This research report prepared by Maybank Investment Bank Berhad is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Kim Eng Securities USA, a broker- dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Kim Eng Securities USA in the US shall be borne by Kim Eng. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. This report is not directed at you if Kim Eng Securities is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Kim Eng Securities is permitted to provide research material concerning investments to you under relevant legislation and regulations. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the reader is receiving or accessing this report in or from other than Malaysia. As of 19 January 2012, Maybank Investment Bank Berhad and the covering analyst does not have any interest in in any companies recommended in this Market themes report. Analyst Certification: The views expressed in this research report accurately reflect the analyst's personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Additional Disclaimer (for purpose of distribution in the United Kingdom) This document is being distributed by Kim Eng Securities Limited, which is authorised and regulated by the Financial Services Authority and is for Informational Purposes only.This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

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Maybank Investment Bank Berhad (15938-H) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 , 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com

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