KUALA LUMPUR: Affin Hwang Capital expects YTL Hospitality Real Estate Investment Trust's share price to rise even higher on increased earnings forecasts and defensive-asset feature.
The firm has set a higher target price for the REIT at RM1.46 from RM1.38 previously, offering an upside potential of around 1.8 per cent.
"We have raised our price target after incorporating higher earnings to financial year 2020 and 2021, taking into consideration possible interest savings from the refinancing of its Australian dollar-denominated term loan and higher rental from JW Marriott KL, as well as lower cost of equity in anticipation of the compressed MGS, possible cut in OPR and strong investor demand for defensive assets to re-rate the MREITs," Affin Hwang said in a report today.
Others include lower long-term growth in view of the moderating outlook in Brisbane and Melbourne hotel markets and YTL REIT’s strategy to grow its master lease portfolio that provides high earnings visibility but lower growth, it added.
However, Affin Hwang said every five per cent depreciation of Australian dollar to the ringgit would weaken YTL REIT’s earnings by two-three per cent and an unexpected hike in Overnight Policy Rate and/or global bond yields may reduce the appeal of the Malaysian REITs, including YTL REIT.
Affin Hwang expects YTL REIT to grow its distributable EPU in financial year 2020 by 10 per cent, driven by full-year contribution from Green Leaf Niseko Village acquired in September 18; earnings recovery at Brisbane Marriott Hotel after completing its renovation works in April 2019; and rental revision at JW Marriott following the completion of RM85 million renovation works.
The rental growth should more than compensate a higher finance costs, it added.
For financial year 2021, Affin Hwang said lower finance cost (Australian dollar loan) should lift YTL REIT's earnings.
"Moving into financial year 2021, we expect YTL REIT to deliver another nine per cent year-on-year earnings growth, driven by lower finance cost and stronger Australian dollar to ringgit," it said.
YTL REIT has a term loan denominated in Australian dollar amounting to A$342.8 million (RM984 million).
It obtained the loan in financial year 2015 and it is repayable by a bullet payment on June 29, 2020.