Pavilion Real Estate Investment Trust (Pavilion REIT) has announced the proposed acquisitions of two prestigious hospitality assets in Kuala Lumpur, the Banyan Tree Kuala Lumpur (BTKL) and Pavilion Hotel Kuala Lumpur (PHKL), in a landmark deal worth RM480 million. 

MTrustee Berhad, acting for and on behalf of Pavilion REIT, entered into conditional sale and purchase agreements with Lumayan Indah Sdn Bhd for the acquisition of BTKL at a purchase consideration of RM140 million, and with Harmoni Perkasa Sdn Bhd for the acquisition of PHKL at a purchase consideration of RM340 million. 

Both properties are located in the bustling Bukit Bintang area, at the heart of Kuala Lumpur’s Golden Triangle.

Dato’ Philip Ho, Chief Executive Officer of Pavilion REIT Management Sdn Bhd, which is the manager of Pavilion REIT said, “The acquisitions align with Pavilion REIT’s strategy which contributes positively to the overall portfolio and future growth, while also generating stable and sustainable income for unitholders.”

“Acquiring these iconic hospitality assets reinforces our commitment to delivering premium offerings while capitalising on synergistic opportunities with Pavilion Kuala Lumpur Mall”, he added.

The acquisitions will be funded via a combination of debt and/or equity, with Pavilion REIT proposing a private placement of new units to raise gross proceeds between RM264 million and RM552 million. Alternatively, it may issue up to RM246.5 million worth of units to settle part of the purchase consideration.

The transaction is expected to enhance portfolio diversification by reducing Pavilion Kuala Lumpur Mall’s contribution to Pavilion REIT’s total asset value from 61.4% to 58.0% via exposure to the hospitality sector.

BTKL and PHKL are seamlessly connected to Pavilion Kuala Lumpur Mall, one of Malaysia’s premier shopping destinations. The integration enables synergistic marketing and operational strategies, which are anticipated to drive higher revenue per available room for the hotels and further elevate the overall value proposition of the mall. Pavilion REIT’s ownership further enhances this synergy, enabling strategic partnerships that will maximise the long-term value.

The hotels are operated and managed by Banyan Tree Hotels & Resorts Pte Ltd since their openings in 2018. Banyan Tree Hotels & Resorts Pte Ltd is part of Singapore-listed Banyan Tree Holdings Limited, a global hospitality group renowned for its luxury offerings and award-winning services.

BTKL, an award winning five-star hotel within a 59-storey integrated building, features 55 premium suites, a rooftop bar, and the renowned Banyan Tree Spa. PHKL, located above Pavilion Kuala Lumpur Mall, offers 325 well-appointed rooms and extensive event and dining facilities. 

BTKL and PHKL have consistently achieved average occupancy rates of 83.0% and 82.2% respectively up to 30 September 2024.

As part of the deal, the hotels will be leased back to the current operator for an initial 10-year term, with the option to renew for up to 20 additional years. The fixed annual rental income will commence at RM33.5 million for the first five years, generating an approximate annual gross yield of 7.0%. This rental income will be subject to incremental adjustments every five years. 

This structure provides Pavilion REIT with a yield-accretive, stable and predictable income stream while offering potential upside through variable rental arrangements tied to the hotels’ performance.

These acquisitions come at a time when Malaysia’s tourism and hospitality industry is rebounding strongly. International tourist arrivals in 2024 are projected to reach 27.3 million, a significant increase from 20.1 million in 2023.

Dato’ Philip Ho said, “Within Kuala Lumpur’s Golden Triangle lies what we consider the ‘golden mile,’ Jalan Bukit Bintang. The area’s proximity to world-class attractions, premier retail, and excellent connectivity ensures the hotels and Pavilion Kuala Lumpur Mall are well-positioned to benefit from Malaysia’s ongoing promotion of the tourism sector.”

The proposals are subject to approval by Pavilion REIT’s unitholders and Bursa Malaysia Securities Berhad. 

Upon completion, the hotels will represent 5.5% of Pavilion REIT’s enlarged total assets under management, further solidifying its position as a dominant player in Malaysia’s real estate investment trust industry.

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