Analysts raise forecasts for YTL Hospitality REIT
KUCHING: AmInvestment Bank Bhd (AmInvestment Bank) raised its forecasts for YTL Hospitality Real Estate Investment Trust (YTL Hospitality REIT) in financial years 2019 and 2020 (FY19F and FY20F) by 2.4 and 2.2 per cents to RM149.2 million and RM155.5 million respectively.
The firm also introduced its FY21F earnings forecast at RM160.1 million.
The earnings upgrade is to reflect the improved prospects of key assets of YTL Hospitality REIT.
“We are positive on its earnings outlook in FY19-21F, underpinned largely by a strong performance from the Australian segment, with a yearly increase in average daily rate (ADR) of the Marriott Hotel in Sydney,” it said in a note on the group.
“We are also positive on its master leases with a five per cent step-up clause for properties in Malaysia and Japan; and the newly acquired Green Leaf Niseko Village Hotel in Japan, which will provide additional income to the REIT.”
To note, in August 2018, YTL Hospitality REIT proposed to acquire Green Leaf Niseko Village Hotel from an indirect subsidiary of YTL Corp for six billion yen or about RM225 million.
YTL Hospitality REIT will subsequently enter into 30plus 30-year long-term lease with the vendor at an initial gross yield of 5.25 per cent and an annual revenue of about RM12 million.
AmInvestment Bank said the acquisition is expected to be completed by the end of 1HFY19 and will begin its contribution from 2HFY19 onwards.
“Master leases with the five per cent step-up clause continue to provide stability to the net property income (NPI) for hotels in Malaysia and Japan.
“For FY18, 52 per cent of the net property income was derived from hotel assets under master leases in Malaysia and Japan.
“These provided stable, and highly visible earnings streams while three hotels in Australia contributed the remaining 48 per cent of NPI.”
The acquisition of Green Leaf Niseko Village Hotel will increase YTL Hospitality REIT’s net gearing to 37.2 per cent from 34 per cent, still below the regulatory threshold of 50 per cent, hence providing more room for further expansion.
“Overall, we are Nneutral on the REIT sector over the next 12 months,” it opined. “Prospects for the sector are expected to be subdued, especially with potential hikes in the Overnight Policy Rate in 2018 as well as muted rental reversion opportunities affected partly by the oversupply of retail and office spaces.
“Nonetheless, we like YTL 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.”