YTL Hospitality REIT buoyed by Australian assets amid Malaysian volatility

REITS Week, May 26, 2018

BY RIDZWAN RAHMAT

Prices of Malaysian REITs may have corrected by up to 40% in the year-to-date, but several counters that are amply postured for markets overseas are in good stead to ride a future recovery.

Citing statistics from a Maybank Kim Eng commentary after the 14th General Elections, REITsWeek reported on 21 May that prices of Malaysian REITs have dipped between 7% and 37% since the country disposed off its incumbent government.

Since then, the broader FTSE Bursa Malaysia KLCI barometer has fallen further by as much as 5% on revelation by the new government that Malaysia’s national debt has been under reported by the previous administration.

As such, the recent correction may represent an opportune entry point for investors keen to increase their exposures to quality Malaysian-listed REITs with overseas portfolios.

One such counter is YTL Hospitality REIT, which has a portfolio of 14 hotels, including one in Japan, and three across the Australian cities of Sydney, Brisbane and Melbourne.

The REIT reported its financial results for its 3Q FY 2018 on 24 May, declaring a distribution per unit (DPU) of 1.9378 sen for the period.

This increase of 5.5% year-on-year is largely driven by the performance of its Australian properties, and income contribution from a new acquisition, Majestic Hotel in Kuala Lumpur.

Correspondingly, its core profit increased by 16% year-on-year to MYR42.3 million (USD10.8 million).

In the wake of these results, Maybank has raised its earnings forecast for the REIT’s FY 2018, 2019 and 2020 by 14%, 7% and 7% respectively after adjusting for stronger earnings contribution from the Australian hotels, and stronger MYR/AUD to align with its latest in-house estimates.

“We remain positive on YTL REIT’s long-term earnings outlook which is premised on stable income from the Malaysian and Japanese assets, and potential earnings upsides from the Australian hotels”, said the bank.

Maybank has issued a 12-month target price of MYR1.50 for the counter.

YTL Hospitality REIT was last done on the Bursa Malaysia at MYR1.15.