Investment Highlights

• We maintain our BUY call with an unchanged 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 a 3-star ESG rating as appraised by us (Exhibit 6).

• Our forecasts are maintained as YTL REIT’s 1QFY22 distributable income of RM18mil (+6.4% YoY) came in line with our expectation but below consensus, making up 20% of our FY22F forecast and only 16% of street’s RM115mil.

• We consider the results to be in line with our forecast on expectation of a stronger 2HFY22 ahead, premised on an economic recovery in tandem with the reopening of borders, which will spur tourism and higher demand for hospitality.

• There is no income distribution declared in 1QFY22 given the company’s current semi-annual payout policy vs. quarterly previously. Hence, we maintain our FY22F distribution forecast of 5.2 sen/unit.

• YoY, YTL REIT's 1QFY22 revenue increased by 14% to RM90mil from RM79mil, which caused net property income (NPI) to rise by 10% to RM58mil from RM53mil.

• This was mainly lifted by the improved performance of its Australian portfolio, which benefited from the participation in the government’s isolation group business programme as well as the reduction in expenses from the group’s internal cost-saving efforts.

• Rental revenue for properties under master leases in Malaysia and Japan were largely flattish YoY, supported by guaranteed income from its tenants.

• Meanwhile, the Australian hotel’s 1QFY22 revenue surged by 32% YoY, thanks to the isolation group business programme. While the average occupancy rate for Australian hotels has dropped slightly to 50% in 1QFY22 from 53% a year ago, revenue per available room grew by a strong 25% YoY to A$82/room from A$65/room.

• On a QoQ comparison, YTL REIT's revenue inched up by 1% while NPI rose by 6%, thanks to the stable revenue income from the master leases of its Malaysian and Japanese portfolio together with the Australian assets’ government assistance programme. This has also led to a stable QoQ distributable income in 1QFY22.

• Going forward, we expect a stronger distributable income performance 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 nonreversible 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 currently.

Source: AmInvest Research - 26 Nov 2021