YTLREIT’s 6MFY19 distributable income fell by 2.6% yoy to RM65.8m due to a lower contribution from its Australian hotels arising from the depreciation of the AUD to the Ringgit and partial refurbishment at the Brisbane Marriott, partly cushioned by a higher contribution from the Majestic Hotel KL and the newly acquired The Greenleaf Niseko Village. Sequentially, its 2QFY19 distributable income and DPU grew by 0.9% qoq to RM33m and 1.94 sen, respectively. Overall, the results were within consensus and our expectations. At 6.3% FY19E yield, valuation still looks attractive. Maintain BUY.

6MFY19 Distributable Income Impacted by Currency and Renovation

YTLREIT’s 6MFY19 distributable income fell by 2.6% yoy to RM65.8m due to the continued depreciation of the AUD against the RM and lower average occupancy rate (refurbishment of the Brisbane Marriott) leading to a lower NPI contribution from its Australian properties. The lower Australian NPI (-14.5% yoy) was partly cushioned by a higher contribution from the Malaysian and Japanese assets, attributable to the acquisition of the Majestic Hotel KL and The Green Leaf Niseko Village, as well as 5% step-up lease rental income from JW Marriott KL. In tandem, YTLREIT declared a lower 6MFY19 DPU of 3.86 sen (-2.6% yoy). Overall, the results were within market and our expectations: 6MFY19 distributable was 47% of our full-year forecast. Moving into 2HFY19, we expect YTLREIT to achieve higher earnings driven by full contributions from The Green Leaf Niseko Village (acquired in September 2018) and the completion of the refurbishment of the Brisbane Marriott expected in 3Q19.

Sequentially, Distributable Income Grew by 1%

YTLREIT’s 2QFY19 distributable income of RM33.0m was 0.9% higher qoq due to seasonality and the maiden contribution from The Green Leaf Niseko Village, partly offset by higher repair and maintenance expenses. With a low Japanese Yen borrowing cost of <1%, the acquisition of Green Leaf Niseko Village has been earnings accretive.

Maintain BUY With An Unchanged DDM-derived TP of RM1.38

We maintain our BUY rating on YTLREIT with an unchanged target price of RM1.38, implying a 12-month total return of 12%. At a 6.3% 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 - 28 Feb 2019