YTL Hospitality REIT an attractive investment asset class
YTL Hospitality REIT, valued at RM4.62 billion and which is set to expand this year remains attractive to investors because it has master leases on properties in Malaysia and Japan that provide steady incomes.
Investors also like YTL REIT due to its exposure in the Australian market that continues to grow.
AmInvestment Bank is maintaining its ‘BUY’ recommendation on YTL REIT with a higher fair value of RM1.63 from RM1.56.
The firm’s fair value revision is based on several factors, including a revised target yield of five per cent (from 5.5 per cent) and rolling over the valuation to the financial year 2021 (FY21) distributable income.
“We lower our target yield to five per cent from 5.5 per cent in view of the possibility that Bank Negara Malaysia may cut interest rates. We trim our FY20–22F distributable income forecasts by five per cent each as we factor in higher operating expenses,” the firm said in a note last week.
YTL REIT, presently the only REIT listed in Malaysia that invests in hospitality assets has an investment portfolio of 15 prime hotels and resorts located in Malaysia, Australia and Japan.
In Malaysia, the properties include the JW Marriott Hotel Kuala Lumpur, The Ritz-Carlton, Kuala Lumpur, The Residences at The Ritz-Carlton, Kuala Lumpur, the Pangkor Laut, Tanjong Jara, and Cameron Highlands resorts and the AC branded hotels in Kuala Lumpur, Penang, and Kuantan. Its international portfolio comprises Hilton Niseko Village in Japan and the Sydney Harbour, Brisbane and Melbourne Marriott hotels in Australia.
The major shareholders of YTL REIT are YTL Corp Bhd with 55 per cent stake and East-West Ventures Sdn Bhd with 3.7 per cent share.
Investment highlights
YTL REIT recorded an increase in revenue to RM251.8 million for the six months ended 31 December 2019 (1HFY20), compared to RM246.3 million for 1HFY19. Net property income (NPI) grew 6.5 per cent to RM133.8 million for the current period compared to RM125.6 million for the same period last year.
Income available for distribution increased to RM66 million for the period under review over RM65.8 million last year.
The board of directors of Pintar Projek Sdn Bhd, the Manager of YTL REIT, declared an interim distribution of 1.91 sen per unit, the book closure and payment dates for which are 5 March 2020 and 25 March 2020, respectively. The total income distribution amounts to RM32.7 million, representing about 100 per cent of the total distributable income for the financial quarter ended 31 December 2019.
Incorporated in 1994, Pintar Projek is a 70 per cent-owned unit of YTL Land Sdn Bhd, which in turn is a wholly-owned subsidiary of YTL Corp.
Pintar Projek executive chairman Tan Sri Dr Francis Yeoh said, in the hotel segment, revenue and NPI from the Trust’s Australian properties increased due to continuous improvements in room sales following the completion of the refurbishment exercise carried out on the Brisbane Marriott, together with increased operational efficiency and cost savings.
However, the continuous weakening of the Australian Dollar against the Malaysian Ringgit resulted in lower translated revenue and NPI, said Yeoh, who is YTL Corp executive chairman.
“In the property rental segment, the increase in revenue and NPI was mainly due to the additional rentals recorded from the JW Marriott Hotel Kuala Lumpur subsequent to the recent refurbishment completed in June 2019, as well as the acquisition of The Green Leaf Niseko Village in September 2018,” he said.
AmInvestment Bank said, YTL REIT’s 1HFY20 distributable income of RM66 million (+2.2 per cent year-on-year) came in below its expectations but higher than consensus, making up 45 per cent and 54 per cent of the firm’s and consensus full-year forecast respectively.
“Revenue and NPI grew by 2.2 per cent and 6.4 per cent respectively mainly due to the stronger performance of Malaysian and Japanese properties. The debt-to-total assets ratio increased to 39 per cent versus 38 per cent year-on-year as a result of higher investing activities but is still below the regulatory threshold of 50 per cent. At the current level, we believe YTL REIT still has some room to gear up for future acquisitions,” said the firm.
15-year history
YTL REIT was listed in 2005 on the Main Market of Bursa Malaysia under the name Starhill REIT, with an investment strategy to invest in income-producing real estate like retail, office, and hotels.
Its portfolio consisted of two retail properties, Starhill Gallery and parcels in Lot 10 Shopping Centre, and the JW Marriott Hotel Kuala Lumpur.
In 2007, the REIT acquired an additional hotel property comprising 60 units of serviced apartments, four levels of commercial podium and two levels of car parks located within The Residences at The Ritz-Carlton, Kuala Lumpur.
In 2009, the Trust embarked on a rationalisation exercise to reposition itself as a pure-play hospitality REIT, focusing on a single class of hotel and hospitality-related assets. The first stage of the repositioning involved the disposal of the REIT’s retail portfolio (Starhill Gallery and parcels in Lot 10), which was completed in June 2010.
The REIT subsequently acquired nine hotels starting from 2011, namely, the Pangkor Laut, Tanjong Jara and Cameron Highlands resorts, The Ritz-Carlton, Kuala Lumpur, and the remainder of The Residences at The Ritz-Carlton, Kuala Lumpur, the Vistana chain of hotels (now rebranded as AC Hotels), and Hilton Niseko Village in Japan. These properties have contributed to a steady gross revenue of RM95 million to RM100 million a year to YTL REIT.
The REIT’s international portfolio was further enhanced with the acquisitions of the Sydney Harbour, Brisbane and Melbourne Marriott hotels in Australia in November 2013, and now contribute variable income to YTL REIT.
On 11 December 2013, the REIT changed its name from Starhill REIT to YTL Hospitality REIT.
In May 2017, YTL REIT acquired the five-star Majestic Hotel Kuala Lumpur for RM380 million. Annual rental income from this hotel is RM17.6 million.
Expanding and enhancing the portfolio
YTL REIT is on target to inject five luxury hotels across the UK, owned and operated by YTL Hotels, the hospitality arm of YTL Corp this year.
The five are The Academy Hotel in Bloomsbury district, Threadneedles Hotel in London, Monkey Island Estate in the village of Bray, Berkshire on the River Thames, Gainsborough Bath Spa in Bath and the Glasshouse Hotel in Edinburgh, Scotland.
YTL Hotels executive director Datuk Mark Yeoh told NST Property previously that the UK assets are performing well and they will add more income and provide unitholders with stable cash distributions with the potential for sustainable growth.
Yeoh said the board has given the group a global mandate to grow the REIT business, and it has been expanding steadily over the years.
Source: NST