Affin Huang Maintains BUY on YTL Hospitality REIT

Affin Hwang Investment Bank, 23 May 2024

YTL Hospitality REIT
Target Price: RM1.38 

9M24 distributable income grew by 26% yoy to RM106m, a tad below estimates 
YTLREIT’s 9MFY24 distributable income grew by 26% yoy to RM106.1m on the back of improved revenue (+15% yoy) across all regions, attributable to (i) higher occupancy rates in Australia operation on increased international arrivals, (ii) step-up rental income from renewal of lease agreement with JW Marriot and (iii) additional contribution from Hotel Stripes KL. Riding on the higher revenue, YTLRIET's 9M24 NPI grew by 16.9% yoy to RM223.7m, which more than offset the higher interest expenses (+32.7% yoy) due to sharp increase in Australian borrowing rates and additional borrowings incurred for acquisition and refurbishment works.

Sequentially, 3QFY24 distributable income fell by 49% qoq to RM27m
Sequentially, YTLREIT’s 3QFY24 distributable income fell by 49% qoq to RM27m due to foreign translation losses of RM5.9m (versus a gain of RM9.5m in 2QFY24) and absence of bumper deferred lease income (RM16.1m in 2QFY24). Overall, YTLREIT’s 9MFY24 distributable income were below our estimates - accounting for 46% of consensus and 61% of our full year forecast respectively due to lower-than-expected repatriation from overseas operations, and high foreign translation losses.

Maintain BUY with a lower TP of RM1.38
We cut FY24-26E distributable earnings forecast by 3%-8% after incorporating the 9MFY24 financial results and lower repatriation from its overseas operations due to higher financing / refurbishment costs. In tandem, we lowered our DDM-derived TP to RM1.38 (from RM1.42). Maintain BUY. Notwithstanding our earnings and TP cut, we continue to like YTLREIT for its attractive FY25-26E distribution yield of 8%. Downside risks to our positive view on YTLREIT would be a sharp rise in interest rates, and lower-than-expected financial performance.