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YTL Hospitality REIT in acquisition mode as yield-accretive assets emerge

KUALA LUMPUR (Sept 2): YTL Hospitality REIT is currently on the lookout for quality assets amid the industry downturn led by the pandemic, and does not rule out potential acquisitions in the near-to-medium term with the emergence of yield-accretive assets, analysts said. 

AmInvestment Bank in a company report today said YTL Hospitality REIT highlighted that its management will remain disciplined in evaluating prospective acquisitions, favouring arrangements that provide guaranteed income such as master leases to mitigate any potential short-term post-acquisition pain as the hospitality and travel industries struggle with the damage inflicted by Covid-19 and subsequent movement restrictions.

Based on YTL Hospitality REIT's analyst briefing yesterday, where the company shed more light on its recently-announced FY21 results, the research firm also said YTL Hospitality REIT is hopeful for a post-pandemic recovery, premised on accelerating vaccination rates in both Malaysia and Australia.

"As the company is actively engaging with its existing and new clients for forward corporate bookings, [YTL Hospitality REIT] management is confident that leisure travel will rebound quickly once the borders reopen. 

"Typically, corporate bookings contribute to more than 50% of its Australian and Malaysian portfolio. The Australian portfolio has a higher contribution of 60% and above from the local corporate travel," the firm said. 

AmInvestment Bank noted while Australia, which accounts for 46% of YTL Hospitality REIT’s FY21 gross revenue, is currently still under lockdown amid the battle against a third wave in the country, the REIT’s portfolio will continue to benefit from participation in the government’s isolation group business as well as the JobKeeper programme, which subsidises businesses that are significantly affected by the pandemic.

"Hence, we continue to expect FY22F revenue to recover following the decline in FY21 occupancy rate in the Australian portfolio to 53.3% (vs. 73.1% in FY20) while revenue per available room decreased by 58.3% year-on-year to A$75/day as compared to A$179/day in FY20," the firm said.

In July 2021, YTL Hospitality REIT saw its net property income grow 5% to RM34.7 million, from RM33.2 million in the previous year, while cumulative revenue dropped 23% to RM326.3 million from RM426.4 million, for the full-year period. 

Meanwhile, AmInvestment Bank reckons the weak distributable income performance as temporary for YTL Hospitality REIT given that the rental variations/deferments offered to tenants will be recovered on a staggered basis commencing June 30, 2023 (or earlier). It added this is opposed to other operators’ rental waivers, which involve non-reversible discounts.

The firm also said it continues to like YTL Hospitality REIT as a recovery-cum-yield play, with attractive dividend yields of more than 5% for FY22F and beyond amid a low interest rate environment that is likely to be prolonged.

AmInvestment Bank has maintained its "buy" call with unchanged forecasts and fair value of RM1.11 for YTL Hospitality REIT, based on a target FY23F yield of 7.5%.

As at 12.30pm, YTL Hospitality REIT's unit price was unchanged at 91 sen, with the REIT's market capitalisation at RM1.55 billion.

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