Investment Highlights

• We maintain our BUY call with an unchanged forecasts and fair value (FV) of RM1.11 for YTL Hospitality REIT (YTL REIT), based on a target FY23F yield of 7.5%. There is no FV adjustment for our 3-star ESG rating us (Exhibit 3).

• YTL REIT held an analyst briefing yesterday to shed more light on its recently announced FY21 results. Here are the key takeaways:

1. While Australia, which accounts for 46% of YTL REIT’s FY21 gross revenue, is currently still under lockdown amid the battle against a third wave in the country, the REIT’s portfolio will continue to benefit from participation in the government’s isolation group business as well as the JobKeeper programme, which subsidises businesses that were significantly affected by the pandemic. Hence, we continue to expect FY22F revenue to recover following the decline in FY21 occupancy rate in the Australian portfolio to 53.3% (vs. 73.1% in FY20) while revenue per available room decreased by 58.3% YoY to A$75/day as compared to A$179/day in FY2020.
2. YTL REIT is currently on the lookout for quality assets amid the industry downturn led by the pandemic, and does not rule out potential acquisitions in the near-to-medium term with the emergence of yield-accretive assets. The company highlighted that management will remain disciplined in evaluating prospective acquisitions, favouring arrangements that provide guaranteed income such as master leases to mitigate any potential short-term post-acquisition pain due to the struggling hospitality and travel industry dragged by the Covid-19 pandemic and movement restrictions.
3. YTL REIT is hopeful for a post-pandemic recovery, premised on accelerating vaccination rates in both Malaysia and Australia. As the company is actively engaging with its existing and new clients for forward corporate bookings, management is confident that leisure travel will rebound quickly once the borders reopen. Typically, corporate bookings contribute to more than 50% of its Australian and Malaysian portfolio. The Australian portfolio has a higher contribution of 60% and above from the local corporate travel.

• We reckon the weak distributable income performance as temporary for YTL REIT given that the rental variations/deferments offered to tenants will be recovered on a staggered basis commencing 30 June 2023 (or earlier). This is opposed to other operators’ rental waivers, which involve non-reversible discounts.
• We continue to like YTL REIT as a recovery-cum-yield play, with attractive dividend yields of more than 5% for FY22F and beyond amid a low interest rate environment that is likely to be prolonged.

Source: AmInvest Research - 2 Sept 2021