Investment Highlights

• We maintain our BUY recommendation on YTL Hospitality REIT (YTL REIT) with an unchanged fair value of RM1.56 based on an unchanged target yield of 5.5%. We made no changes to our FY20–22F distributable income forecasts.

• YTL REIT’s 1QFY20 distributable income of RM33.4mil (+1.9% YoY) came in within expectations, despite making up 23% and 22% of our and consensus full-year forecast as we expect stronger performance in the coming quarters. Revenue and net property income (NPI) grew by 6.0% and 11.4% respectively mainly due to a stronger performance by Australian properties as a result of stronger room sales following the refurbishment exercise at the Brisbane Marriott.

• 1QFY20 distributable income was flattish, mainly due to higher borrowing costs (+6.4%) and operating expenses (+17.4%).

• Overall, Malaysian properties contributed a 1QFY20 revenue and NPI of RM35.1mil (+4.3% YoY) and RM33.6mil (+4.3%) respectively. The stronger revenue and NPI was mainly contributed additional rentals recorded from JW Marriott Hotel KL following the recent refurbishment which was completed in June 2019.

• Japanese properties’ 1QFY20 revenue and NPI surged by 67.8% and 101.1% YoY respectively to RM7.2mil and RM6.1mil respectively contributed by the acquisition of Green Leaf Niseko Village Hotel in Sep 2018.

• Australian properties’ 1QFY20 revenue and NPI climbed 3.2% and 9.4% YoY respectively to RM78.5mil and RM23.4mil mainly due stronger room sales after the refurbishment exercise at the Brisbane Marriott.

• The debt-to-total assets ratio increased to 39% vs. 38% YoY as a result of higher investing activities, but is still below the regulatory threshold of 50%. At the current level, we believe YTL REIT still has some room to gear up for future acquisitions.

• We like YTL REIT due to it being a hospitality REIT with exposure in the Australian market that continues to grow and at the same time has master leases on properties in both Malaysia and Japan that provide steady incomes. Maintain BUY.

Source: AmInvest Research - 27 Nov 2019