PETALING JAYA: YTL Hospitality real estate investment trust (REIT) will continue to improve its margins and is open to any attractive deals for potential acquisition or asset injection.
The company has some headroom to gear up for new acquisitions, AmInvestment Bank said in its note after meeting the company’s management. It said this was based on its current debt-to-total assets ratio of 42%, versus the regulatory threshold of 60% (temporary increased limit from 50% up to Dec 31, 2022 as part of the relief measure implemented by the Security Commission in light of Covid-19).
It added that YTL REIT will continue its effort to improve its margins via stringent cost control measures, such as staff cost rationalisation (as it downsizes its workforce), reducing unnecessary maintenance costs, and the temporary suspension of high-cost services such as room service, etc.
Its Australian portfolio has also received subsidy from the Australian government for a job seekers’ programme, which provides some relief for the portfolio amidst the major slump in its revenue, the research house said.
It said for the second quarter of financial year 2021 (Q2), the occupancy rate for Australia’s portfolio dropped to 58% (versus 88% a year ago), mainly due to the impact of the Covid-19 pandemic, which has affected the global tourism and hospitality businesses. This is partially cushioned by the Australian properties’ participation in its government programme for self-isolation guests, which keeps them in operations during the unprecedented time.
On the master leases, as of Q2, there were 18% (in value) of its master lease tenants (which contribute to 15% of the REIT’s total net property income (NPI) for the quarter) leases expiring in 2023, followed by another 49% (which contribute to 41% of YTL REIT’s total NPI) leases to expire by 2026. The remaining master lease tenants’ leases will only expire in 2031 and beyond.
The research house said YTL REIT had highlighted in the briefing that during the RMCO period, its local portfolio saw strong recovery in demand as interstate travel restrictions were relaxed. This is reflected in its strong occupancy rate of up to 90% during the period. The hotels have also achieved up to RM42mil forward sales despite the current MCO, which will contribute positively towards its cash flow.
“We like YTL REIT as a recovery play as well as yield play, with attractive dividend yields of more than 4% for financial year 2021 (FY21) and beyond amidst a low interest rate environment that is likely to be prolonged,” it said.
It has maintained a “buy” call on the stock with an unchanged fair value of RM1.26 a share. “Our valuation is based on a target yield of 7% over its FY23 distributable income. We make no changes to our FY21-FY23 distributable income forecasts,” the research house said.