Investment Highlights

• We maintain our HOLD recommendation on YTL Hospitality REIT (YTLREIT) with a lower fair value of RM1.32 (from RM1.40) based on an unchanged target yield of 6.5%. We cut our FY19–21F distributable income forecasts at by 7.4% 5.8% and 4.3% respectively.

• YTLREIT’s 9MFY19 distributable income of RM98.4mil (-2.2% YoY) came in below expectations, making up 66% of both our and consensus full-year forecast. Revenue and distributable income fell by 3.2% and 2.2% respectively mainly due to a weaker performance by Australian properties as a result of a refurbishment exercise at the Brisbane Marriott and a weakening AUD against the MYR.

• 9MFY19 NPI grew by 1.2% YoY to RM193.0mil mainly due to contribution from Hilton Niseko Village, The Majestic Hotel KL and JW Marriott KL. Nonetheless, the lower contribution from Australian properties dragged down distributable income by 2.2%.

• Overall, Malaysian properties contributed a 9MFY19 revenue and NPI of RM100.6mil (+10.4% YoY) and RM95.3mil (+10.6%) respectively. The stronger revenue and NPI was mainly contributed by The Majestic Hotel KL. The step-up lease rental income of 5% every five years for JW Marriott KL has also contributed to the rise in revenue and NPI.

• Japanese properties’ 9MFY19 revenue and NPI surged by 48.2% and 58.5% YoY respectively to RM18.2mil and RM14.7mil respectively contributed by the acquisition of Green Leaf Niseko Village Hotel in Sep 2018.

• Australian properties’ 9MFY19 revenue and NPI slid by 9.8% and 12.9% YoY respectively to RM253.4mil and RM82.9mil mainly due to the weaker performance by Australian properties as a result of refurbishment exercise at the Brisbane Marriott and a weakening AUD against the MYR.

• The debt-to-total assets ratio increased to 38% vs. 36% YoY mainly due to higher investing activities, but is still below the regulatory threshold of 50%. At the current level, we believe YTLREIT still has some headroom to gear up for future acquisitions.

• Overall, we are NEUTRAL on the REIT sector over the next 12 months. We may upgrade the stock to a BUY if: 1) there’s a sharp retracement in the share price while fundamentals persist; 2) earnings surprises; and 3) major catalysts such new acquisitions.

Source: AmInvest Research - 3 Jun 2019