Investment Highlights

• We maintain BUY on YTL Hospitality REIT (YTL REIT) with a slightly higher fair value RM1.28 (from RM1.26 previously), based on an unchanged target FY23F yield of 7%. There is no adjustment for a 3-star ESG rating as appraised by us (Exhibit 6).

• We raise our FY21F–FY23F distributable income forecasts by 14%, 11% and 2% to RM71.6mil, RM89.2mil and RM157.8mil respectively (from RM62.8mil, RM80.2mil and RM155.3mil) to reflect the higher-than-expected revenue, particularly from the Australian segment, as well as lower expenses.

• YTL REIT’s 9MFY21 distributable income of RM53.3mil (- 46.7% YoY), came in above our earlier full-year forecast at 85% but below consensus estimates at 56%. We believe the key variance came largely from higher-than-expected revenue from the Australian hotels as revenue per available room has gradually increased since the beginning of the pandemic (rising by 37% QoQ to A$74 in 3QFY21 from A$54 in 4QFY20), despite low occupancy rate, together with lower finance costs, manager's fees and administration expenses.

• As there is no income distribution declared in 3QFY21 with the company now on a semi-annual payout basis vs. quarterly previously, YTL REIT’s 9MFY21 income distribution was unchanged from 1.8 sen/unit declared in 1HFY21.

• YoY, YTL REIT's 9MFY21 revenue fell by 34% to RM236.9mil from RM356.7mil, which caused net property income (NPI) to decrease by 21% to RM150.6mil from RM190.0mil. This is mainly due to a 54% YoY contraction in revenue from Australia’s portfolio which has been impacted by the various Covid-19-related movement restrictions imposed by the Australian government.

• The smaller NPI contraction is partly offset by the group's cost-saving efforts and participation in the Australia government's JobKeeper programme, which subsidised businesses that were significantly affected by the pandemic.

• This caused 9MFY21 distributable income to dive by 47% YoY to RM53.3mil from RM100.1mil in 9MFY20, partly offset by a 49% YoY drop in expenses (finance costs, manager's fees and administration costs) mainly due to the low interest rate environment and cost-saving efforts implemented by the group.

Source: AmInvest Research - 31 May 2021