YTLREIT’s 3QFY20 realised profit fell by 22% yoy (-26% qoq) to RM32m due to lower contribution from the Australian hotels where businesses had been hit by the Covid-19 pandemic and the closure of Australia’s borders. Meanwhile, earnings from Malaysian and Japanese hotels (under master leases) remained stable. YTLREIT has changed its income distribution payment frequency to semi-annually (from quarterly). Overall, the results were within market expectations but ahead of our forecasts due to higher-than-expected revenue and income from the Australian business. That said, we remain cautious and maintain our SELL rating on YTLREIT (albeit with a higher TP of RM0.95). The occupancy rates for Australian hotels have plunged in April-May (part of 2QCY20) and may take some time to recover.

3QFY20 Realised Profit Fell by 22% Yoy (-26% Qoq)

YTLREIT’s 3QFY20 realised profit fell by 22% yoy to RM31.8m due to lower net property income (NPI) from its Australian hotels (-39% yoy to RM17.9m) as the businesses were affected by the Covid-19 pandemic, the closure of Australia’s borders to all non-residents from 20 March 2020 and the implementation of stricter social distancing measures. The average occupancy rate for YTLREIT’s Australian hotels fell by 14.6-ppt yoy to 69.9% while the average daily rate (ADR) declined by 7.4% yoy to AUD271. Elsewhere, the earnings contributions from Malaysian and Japanese hotels (under master leases) were relatively stable. No distribution was declared for the quarter as YTLREIT has changed the income distribution payment frequency to semi-annually, from quarterly.

Results Within Street Expectations But Above Ours

YTLREIT’s 9MFY20 realised net profit account for 95% of consensus and 105% of our full-year earnings forecasts. The earnings beat was due to the higher-than-expected occupancy and ADR in 3QFY20 and better-thanexpected cost reduction.

Australian Hotels’ Occupancy Rates Have Plunged in April-May 2020

Based on the preliminary data from STR, the average occupancy rate for hotels in Sydney was 75.7% in January 2020 (-4.9ppt) before declining to 46.2% in March 2020 and 23.1% in May 2020. In Melbourne, STR estimated that the average hotel occupancy rates fell by 10.9ppt yoy in February 2020 to 79.0% before slipping to a low of 28.8% in April 2020.

Source: Affin Hwang Research - 17 Jun 2020