YTLREIT’s 1QFY19 realised income fell by 8% yoy to RM30.6m due to a lower contribution from its Australian hotels (weakening of AUD vs RM and partial refurbishment at Brisbane Marriott), partly cushioned by a higher contribution from Majestic Hotel KL. Nonetheless, its distributable income and DPU fell by a milder 2.6% yoy to RM32.8m and 1.92 sen respectively. Overall, the results were within our expectations. At 6.9% FY19E yield, valuation still looks attractive. Maintain BUY.

1QFY19 Realised Income Fell by 8% Yoy, Within Expectations

YTLREIT’s 1QFY19 realised income fell by 8% yoy to RM30.6m due to a lower NPI contribution from the Australian segment (-19.7% yoy), attributable to the strengthening Ringgit vs AUD (10%) and lower average occupancy rate (refurbishment of Brisbane Marriott). The lower Australian NPI was partly cushioned by a higher contribution from Malaysian assets (+26.6% yoy) following the acquisition of Majestic Hotel KL and 5% stepup lease rental income from JW Marriott KL. While the 1QFY19 realised income only accounted for 21% of our full-year forecast, we deem the results to be in line, expecting higher occupancy after the completion of the Brisbane Marriott refurbishment by early CY19 and seasonally higher average room rates in the quarters ahead. Notably, YTLREIT’s 1QFY19 DPU slipped by a milder 2.6% yoy to 1.92 sen.

Earnings Were Weaker Qoq Due to Seasonality and Refurbishment

Sequentially, YTLREIT’s 1QFY19 realised income fell by 13% due to the lower average Australian hotel occupancy rate of 83.6% (from 85.8% in 4QFY18), attributable to the renovation and seasonally softer hospitality market. Positively, the 1QFY19 Australian hotels’ average daily rate was unchanged qoq at AUD249. The REIT’s 1QFY19 DPU of 1.92 sen was 2.2% lower qoq.

Maintain BUY With An Unchanged DDM-derived TP of RM1.32

We maintain our BUY rating on YTLREIT with an unchanged target price of RM1.32. At a 6.9% FY19E yield, YTLREIT’s valuation looks attractive. Key downside risks to our call are a deterioration in the Australian hotel market, interest rate hike(s) and a strengthening of the Ringgit vs the AUD.

Source: Affin Hwang Research - 26 Nov 2018