Borders reopening to boost YTL Reit's outlook

NST, March 10, 2022

By Azanis Shahila Aman

KUALA LUMPUR: The reopening of Australia and Malaysia borders should improve YTL Hospitality Real Estate Investment Trust's (YTL Reit) business outlook, said Affin Hwang Capital.

The firm said YTL Reit is a beneficiary of the reopening of borders as its Malaysian and Australian operations contributed, respectively, 50 per cent and 48 per cent of its financial year 2019 (FY19) net property income.

"The reopening should drive a recovery in the countries' tourism sector and lift YTL Reits and/or its lessees' FY22-23E revenue and profitability," it said.

Meanwhile, Affin Hwang said it did not expect the reopening to have a material impact on YTL Reit's short-term profitability.

In Australia, YTL Reit has derived a significant share of its revenue from the government's isolation group business programme. 

"The reopening should mark a transition from isolation-derived revenue to commercial / tourism-based revenue, which may weaken YTL Reit's initial revenue / profitability before improving towards the second half of 2022 (2H2022) on further improvements in tourist arrivals. 

"In Malaysia, YTL Reit has leased its hotels under master-lease agreements – the changes in occupancy have no direct impact to its revenue/profit but help reduce the risks to enter into new rental variation arrangements," it said. 

Affin Hwang has cut its FY22-24E forecast earnings by 7-11 per cent after incorporating lower isolation-derived revenue for the Australian hotels and higher finance costs. 

Nonetheless, the firm remains positive on YTL Reit's FY23-24E earnings outlook. 

"We anticipate its distributable income to exceed FY19 levels driven by the collection of deferred leases, lower finance costs and increase in rents for master leases.

"Hence, we upgrade the stock to Buy with a higher target price of RM1.15," it added.