YTLREIT Acquiring Niseko Village hotel for JPY6bn Affin Hwang, August 15, 2018 YTL Hosp REIT YTLREIT has proposed to acquire the Green Leaf Niseko Village hotel from an indirect subsidiary of YTL Corp for JPY6bn (c.RM223m). YTLREIT will subsequently enter into 30+30 years long-term lease with the vendor at an initial gross yield of 5.25%. We are positive on the acquisition, expecting the transaction to be yield accretive. We maintain our earnings forecast, BUY rating and DDM-derived TP of RM1.32, pending completion of the transaction. Acquiring Green Leaf Niseko Village for JPY6bn (c.RM223m) YTLREIT has entered into a conditional sale and purchase agreement with Niseko Village K.K., an indirect wholly-owned subsidiary of YTL Corporation Berhad for the acquisition of the Green Leaf Niseko Village for a cash consideration of JPY6.0bn (equivalent to RM222.5m). The property is located in Niseko-cho, Hokkaido, Japan. The 200-room, 5-storey hotel was substantially renovated, refurbished and reopened in December 2010. The acquisition is a related party transaction. The hotel to be leased to the vendor for 30+30 years Upon completion of the proposed acquisition, YTLREIT will lease the hotel to the vendor under a 30-year lease agreement, with an option (granted to the vendor) to renew for a further term of 30 years. The initial annual rental payment is JPY315m for the first 5 years, with a step-up provision of 5% every 5 years. The rental translates to an initial gross yield of 5.25%. We are positive on the acquisition YTLREIT intends to fund the acquisition via borrowings and internally generated fund. We are positive on the acquisition: (i) the long-term lease (30 + 30 years) provide good earnings visibility; (ii) at a gross yield of 5.25%, we expect the acquisition to be earnings accretive, in view of the low JPY borrowing cost of c.1%; (iii) JPY-denominated borrowings is a natural hedge for the JPY rental income; and (iv) The acquisition should increase YTLREIT’s gross gearing to a manageable 40.3% (from 37.4%). Maintain BUY with an unchanged DDM-derived TP of RM1.32 We maintain our earnings forecasts for now, pending completion of the proposed acquisition. Maintain BUY with an unchanged DDM-derived target price of RM1.32. At a 6.7% FY19E yield, YTLREIT’s valuation looks attractive. Downside risks: a deterioration in the Australian hotel market, interest rate hike (s) and strengthening of Ringgit against the AUD. |