KUALA LUMPUR: YTL Hotels wants to expand its AC Hotel by Marriott chain in Malaysia and abroad, and is looking for appealing sites to grow the brand.
"From the YTL perspective, we have the exclusive rights for the AC brand in Malaysia, given by Marriott International, so we can look into expanding this portfolio," executive director Datuk Mark Yeoh told Business Times.
The AC Hotels by Marriott brand made its debut in Malaysia in 2020, with the opening of three properties in Kuala Lumpur, Penang and Pahang, marking the design-led lifestyle brand's entry into the Asia-Pacific region.
AC Hotel Kuala Lumpur Titiwangsa was the first to open, followed by the AC Hotel Penang Bukit Jambul and the AC Hotel Kuantan City Centre.
These hotels, which were previously operating under the Vistana brand, are owned by YTL Hotels, the hospitality division of YTL Corp Bhd.
In September 2019, YTL Hotels signed a master development agreement with Marriott International Inc. to convert the three properties to AC Hotels.
Following that, the three AC hotels were injected into YTL Hospitality Reit (YTL Reit).
YTL Reit, valued at RM4.62 billion and currently the only Reit listed in Malaysia that invests in hospitality assets, has 15 prime hotels and resorts in Malaysia, Australia and Japan in its investment portfolio.
According to a stock exchange filing this week, YTL Reit will raise rental rates for the three AC hotels by 11 per cent and refurbish the properties to increase their value.
The proposed rental revisions will allow YTL Reit to participate in the value creation of the proposed refurbishments by increasing YTL Reit's distributable income and distribution per unit (DPU).
YTL Reit has entered into three supplemental lease agreements with the lessee of AC hotels to increase the annual rental amount to RM2.7 million per annum.
In return, YTL Reit will pay the RM38.5 million refurbishment cost of the respective AC hotels, which would be funded by borrowings.
Syarikat Pembinaan Yeoh Tiong Lay Sdn Bhd will carry out the proposed refurbishment works on all three hotels.
The proposed refurbishment will increase the market value of the AC Hotels while also maintaining their market positions and increasing their potential for growth.
"We're doing this to raise the profile of the respective hotels as well as to strengthen our YTL Reit portfolio," Yeoh explained.
Maybank Investment Bank Bhd (Maybank IB) is positive with YTL Reit's 11 per cent incremental rental increase for the three AC hotels.
The company expects the supplemental agreements to take effect by the first quarter of 2024 (1QCY24).
Maybank IB is increasing YTL Reit's net profit by 1.0 per cent per year in fiscal years 2025 and 2026 (FY2025/FY2026) and target price by two sen to RM1.08 after incorporating the additional rental and post-renovation works.
"We are positive on the rental adjustment as it will be a direct enhancement to YLT Reit's bottom line. The AC Hotels will contribute 5.0 per cent to YTL Reit's FY2025 and FY2026 revenue.
"We also expect gross gearing to inch up to 0.42x from 0.40x as of end-FY 2023 (June 30) due to the refurbishment and inclusive of the recent proposed acquisition of Hotel Stripes Kuala Lumpur," Maybank IB said.
YTL Reit remains the firm's top Malaysian Reit buy due to its resilient earnings, strong pipeline of assets and favourable net DPU yield of 8.0 plus per cent (sector: 6.6 per cent).
"We continue to like YTL Reit for its stable, recurring rental income from its assets in Malaysia and Japan and earnings growth prospects coming from its hotels in Australia. YTL Reit's CY2024 net yield of 8.4 per cent is the highest in our M-Reit universe," it said.