KUALA LUMPUR: The Pavilion Kuala Lumpur extension will boost Pavilion Real Estate Investment Trust's (Pavilion REIT) net property income by RM50 million, assuming a higher average rental.

HwangDBS Vickers Research Sdn Bhd has assumed the average rental to be RM20 per square feet, a 15 per cent premium to the current RM17.40 per square feet, which would still be 20 per cent lower than Suria KLCC's RM25 per square feet.

The research firm has valued the extension at RM768 million based on a 6.5 per cent acquisition yield hurdle, which could be easily absorbed by the REIT's low gearing.

"Riding on the strong demand for bigger retail lots, we assume 100 per cent occupancy for the extension and a conservative five per cent growth in rental for the 2012-2013 financial years and a 10 per cent growth in 2014.

"The extension alone is expected to boost the REIT's discounted cash flow-value by 21 per cent, assuming the injection of the extension would commence in the second half of 2016 and a seven per cent weighted average cost of capital," it said in a statement.

-- BERNAMA