YTLH REIT’s strong Aussie asset performance to boost earnings going forward

KUALA LUMPUR: YTL Hospitality Real Estate Investment Trust’s (YTLH REIT) strong performance from its Asutralian assets have prompted analysts at AmInvestment Bank Bhd (AmInvestment Bank) to raise their earnings forecast for the group during financial year 2018 to 2020 (FY18 to FY20) by four to five per cent.

In a company report, AmInvestment Bank detailed that it is upbeat on the group’s earnings outlook in FY18 to FY20, underpinned largely by the strong performance from its Australian segment via the increase in the average daily rate (ADR) of the group’s Marriot Hotel in Sydney and the group’s master leases with a five per cent step-up clause for its Malaysian and Japanese assets.

“We like YTLH REIT due to it being a hospitality REIT with exposure in the Australian market that continues to grow and at the same time has master leases on properties in both Malaysia and Japan that provide steady incomes,” said the research huose.

The completion of the Marriot Hotel has driven the group’s second quarter (2Q) of FY18 net profit interest (CPI) to improve by 23 per cent quarter over quarter (q-o-q).

It also noted that the strong performance by Marriot Hotel was due to a shortage of supply room in Sydney, particularly in the luxury segment with newer hotel buildings expected to be gradually completed over the next two to three years.

“Hence, given the average occupancy rate for 2017 standing at 89 per cent, coupled with the shortage of supply, there is further room for the ADR at Marriot Hotel in Sydney to increase up to A$300 from circa A$280,” explained the bank.

Similarly, the group’s Brisbane Marriot Hotel is also expecting performance to do well in the near-term as management is anticipating its occupancy to improve in the coming quarter due to the upcoming Commonwealth Games that will be held in Brisbane during April.

However, the hotels’ ADR would instead be lowered to encourage occupancy.

“Also, renovations will likely begin in the next quarter. All hotel rooms at 10% at a time and public spaces will be renovated with capital expenditure estimated to be A$20 million,” added AmInvestment Bank.

Looking at its foreign operations, the research team said YTLH REIT is also expected to see improved earnings from master leases with the five per cent step-up clause continuing to provide stability to the NPI for hotels in Malaysia and Japan.

It added, the group is expected to see an earnings increase in the 2HFY18 where earnings from Majestic Hotel as well as Ritz Carlton Suite and Hotel Malaysia will be fully reflected.

All in, AmInvestment Bank is maintain its ‘buy’ call on YTLH REIT.