EPS dropped so much, yet declaring higher DPS. With debts approaching 60% who wants to touch it now? Changing to quarterly distrubution to create interests?
otherwise, sell off & go invest somewhere else. Reit is just not your cup of tea. You need coffee, go to Starbucks and don't complain the coffee is expensive or can't sleep at night after Starbucks.
finally did the right thing - been misleading people into thinking they still own starhill gallery. a hospitality reit with high gearing and unexciting portfolio, this is what it actually is!
YTL REIT gross distribution per unit is 1.9175 cent which is higher than it’s earning per unit of 1.0921, its distributable income inclusive of non-cash item like depreciation charges is 2.1306.
Hence, in term of cash flow, it is still able to sustain the dividend payment. Since depreciation charge is a provision for future upgrading costs for the Hotels, thus current trend is not desirable if persisted for too long. The current distribution policy in excess of its earning continued to deplete its cash reserve albeit at a slower pace.
To address its high gearing level of 52.5% of its total assets value, YTL REIT has proposed a placement of new units to raise up to RM 800 mil (partial repayment of bank borrowings) of which YTL Corporation, the existing major unit-holder has accepted a conditional invitation for placement units of up to RM 300 mil in value. If successful, the gearing level will drop to 25.8%.
YTL Reit 1st Quarter of FY2014 ending 30/9/13 showed that the Australia Hotels’ revenue (RM 74 mil) for the quarter is more than three times that of Malaysia Hotels (RM 24 mil) but its gross margin is only 30% (RM 22 mil) compared to 95% (RM 23 mil) of Malaysian Hotels. In Aussie Dollar term, it’s Australia Hotels (3 no) revenue was no better off than Malaysia Hotels (9 no) but 3 times less profitable. In term of acquisition costs in Ringgit Malaysia, they are almost the same.
In other words, Its Australia Hotels have to: a> Improve its occupancy rate without margin compression, which is quite tough for its Sydney and Melbourne Hotels as both have crossed the 80% mark except for Brisbane Hotel. b> Increase in room rate or cut cost to improve margin. It needs to review its manager’s fees which have more than double from RM 3.3 mil in FY 2012 to RM 7.2 mil in FY 2013. It should tie this to KPIs with weighs in term of revenue and profit. Unless cutting room rate to improve occupancy is a temporary promotional exercise.
Tourism Australia has signed a three years agreement with China Travel Service in promoting travel Down Under to its rapidly growing middle classes. China is Australia’s fastest growing and highest inbound market, recorded a 17.6% growth annually from May 12 to May 13 and Chinese visitors have spent AUD 4.6billion in the year ending March 2013. Australia tourism strategy is anticipating the market to be worth more than AUD 9billion by 2020, a compounded annual growth of 13.7%.
We will see whether the 2nd Quarter (ending 31/12/2013) result will see a better performance from its Australia Hotels in term of Revenue and Gross Margin. There is still hope for an upside for this counter.
if you have some properties that are not yielding that great, and wish to unlock their values(while getting paid handsomely for managing them)- what would you do? maybe, group them all under a reit? just a thought, just a thought..
It will be interesting to see what is the placement price. Mathematically, it goes slightly below RM1, RM800mil for additional up to 800,611,111 shares....? At current 0.98, we should buy? :-)
It will definitely below rm1. How low is low ? I guess it will very much depend on the placement "game " plays by YTL family. How much is the private placement or right issue - still in a dark hole. No analyst report after the announcement. I was disappointed that no dividend being announced. This creates another difficult decision to hold for 6-7% return mid to long term or dispose once for all. Any insight or thought ?
The NAV before the 1st quarter result was 99 sen per unit, after taking into account of the Q1 result, the NAV is 1.02. Why? this is due to forex translation gain (strengthening of Aussie dollar against ringgit) of RM 48 million and this has reduced the accumulated losses in the currency translation reserve. As a result, an improvement of 3 sen in the NAV.
Lets look at what happen if the placement of shares were to take place at the end of 3rd Quarter ending 31/3/2014.
a> Assuming 800 million units place at RM 1, the borrowings will be reduced from RM 1.575 billion to 775 million, this will indirectly bring a saving in interest charges of RM 9.34 million in the last quarter (assuming 1st Quarter interest of RM 18.38 million were to be the same for the rest of the quarters, interest charge for the last quarter will be RM 18.38 x 0.775/1.575 = RM 9.04 million. Hence RM 18.38 - RM 9.04 = RM 9.34 million saving).
b> If dividend payment for the next two quarters is the same as the first quarter, the total dividends received by existing unit-holders shall be 5.75 sen per unit [(RM 25.4 million *3)/1,324 million units). To match the total dividend payments as per last year at 7.38 sen per unit, an addition payment of 1.63 sen shall be paid to the enlarged units in circulation i.e. 2,124 million units which include the additional 800 million units.
The total dividends to be paid in the next three quarters shall be RM 85.3 million [RM 25.4*2 + RM 34.5 million (2.124 million x 1.63 sen)].
c> If there is no improvement in the net profit for the rest of the three quarters, the total net profit for the next remaining 3 quarters shall be RM 42.84 million (RM 14.28 million x 3) and with an interest saving of RM 9.34 million. The best guesstimate for total net profit will be RM 52.18 million. The non-cash item like depreciation charged of RM 12.33 million in the 1st quarter were to add back to cover dividend payment, the extra cash shall be RM 36.99 million. This will bring a total of RM 89.17 million. This is barely enough to cover the RM 85.3 million dividend payment for the remaining 3 quarters.
d> In term of NAV, the RM 800 million extra capital is adding to unit holders funds and the estimated reduction of distribution profit will be around RM 33 million. The NAV will be reduced to RM 99.8 sen from RM 1.02 [(1,353+800-33)/2,124]. This is assuming there are no more forex translation gain or loss.
However, please take note that most of the Malaysian hotels were revalued in May 2011 and the Australia Hotels were done in June 2012. There should be a revaluation done for the Malaysian Hotels before the unit placement. It will increase the NAV before the placement and reduce the total units issue for the fund raising. Revaluation will give rise to fair value adjustments and resulting in unrealized profit in the P/L.
My only worry if the current cash holding RM 132 million will be depleting slowly for hotel upgrading later or to plug the deficit in the dividend payout. The profit from Australia Hotel must improve gradually over the next 3 quarters.
Lets keep our fingers cross and hope for the best. Cheers!
If i am not wrong, the normal practice to determine the placement price is based on the 5 days volume weighted average price (VWAP) prior to the entitlement. With depressed market price, those being offer for the new placement will be getting a price below the NAV, it could much more than the 3.8 sen (99.8 - 96) especially if the Hotels are worth more than the current book value.
The drawback is the below par performance of its Australia Hotels, the equation could be better if these are improving in the next few quarters compared to the 1st Q. If net profit not improving and YTLREIT continue to maintain the same dividend policy, though cash flow wise it can sustain but its NAV will continue to slide unless beside realized net profit, there is revaluation upward on properties value or regain its lost ground on earlier forex losses. If Aussie dollar continue to strengthen, the forex translation gain can also improve the NAV as the cumulative forex losses will be reduced.
Forex gain/loss can come from three areas;
1> one is due to valuation, for example if a company home currency is in RM and it has a USD loan (with lower interest rate compared to RM loans), strengthening of USD against RM will cause a valuation loss in forex. In YTLREIT case, its loan is in RM, not to worry on this.
2> second is translation loss, when a company consolidation an accounts denominated in foreign currency, in YTLREIT case, it is in Aussie Dollar. Translating the AUD to RM will have a forex translation gain or loss. In this case, it is taken up in Balance Sheet as forex translation gain/loss reserve.
3> transaction loss, if there is a payment transaction in AUD and already converted and paid for using RM. Then the different between the book in rate for liability and payment rate will be a forex transaction loss and will be recorded in P/L.
In REIT, there is also a fair value adjustment arising from revaluation of investment properties. An increase in value will be recorded in P/L as fair value gain. It is an unrealized gain unless the property is disposed off.
Any gain in these two areas will improve the NAV and the reverse is true if there is a loss in value.
It is not a good practice to pay dividends using non-cash provision like Depreciation which is meant for future upgrading purpose. Else it will have to borrow or dig into its pass reserve.
The transaction forex gain or loss will be a realized gain/loss. The other two are unrealized until you need to repay the foreign loan or disposed off the foreign entity.
Hope the above explanation will help you to understand and evaluate REIT performance. I think Liew has put in a lot of effort in assessing YTLREIT current pros and cons. .
The management intention to pay dividend quarterly is to facilitate the placement exercise so that unit holders of the new placement will not have the unfair advantage of getting the dividends when they subscribe and get their units just before the ex-date. Spreading the dividends over four quarters will reduce these unfair advantage.
YTLREIT Q2 result is out and the management has declared a higher interim income distribution of 1.9786 sen per unit. The Australia Hotels Q2 PBIT result has improved by 62% from RM 8.673 mil to RM 14.089 mil compared to Q1 ended 30/9/13. Profit before tax overall has improved by 32% from RM 14.83 mil to RM 19.52 mil.
The good news is, in term of cash flow, its YTD net operating cash less depreciation is RM 61.81 mil (RM 90.46 mil - Depn RM 28.65 mil) is more than sufficient to pay for the income distribution of RM 51.6 mil ( RM 25.4 mil 1.92 sen per unit for Q1 and RM 26.2 mil 1.98 sen per unit for Q2).
However, its NAV will drop from RM 1.011 to RM 0.972 per unit after the income distribution. If the Australia Hotels result continue to improve in the next two quarters, its NAV should increase.
At current price of 94.5 sen, its gross dividend yield should be 7.81%, a net after tax yield of 7%.
wouldn't the new placement also dilute dividend yield as there are now more shares? I understand that the new placement is to pay down the debt for new acquisitions. But until the new acquisitions come , wouldn't share holders have less dividend per share? Thanks.
Dear Tigerz67, correct me if I ma wrong. There are two aspects here when we look at YTLREIT. First is profit attributable to unit holders and second is cash flow.
Based on the current result as per the Q2 ended 31-12-13, the profit after tax of RM 33.38 million (33.38/1,324 mil units = 2.52 per unit) is insufficient to pay the RM 51.60 million dividend (51.60/1,324 mil units = 3.89 per unit).
However, if you take the depreciation provision of RM 28.65 mil (2.16 per unit) which is a non-cash item, the income available for distribution will increase to 4.68 per unit. An excess of 0.79 per unit, of course it is not wise to use depreciation provision to paid income distribution.
However, further improvement in profit (50% more, 1.37 per unit) is needed to cover this shortfall. The pass profit reserve (back up by cash balance) from sale of properties in the past can be utilized for upgrading if necessary. The important thing is the current cash flow can sustain the payment and maintain the income distribution.
Next, what happen if the unit placement of RM 800 million is used to repay loans and enlarge the share base? Will there be a dilution in earning? Yes and No, it depend on first any improvement in earning in the second half and how much is the saving in interest after the repayment of loans (RM 1,576 mil – RM 800 mil = 776 mil).
Assuming the placement is done at RM 1.00 per unit towards the end of Q2 (just assume, not happened yet) after the 2nd dividend payment. The number of units will increase from 1,324 mil to 2,125 mil.
If there is no improvement in PAT in the 2nd half and remained at RM 33.38 mil. The saving in interest will be RM 18.66 mil [18.38 x 2 - (RM 18.38 mil x 2 x 776/1576=18.10)]. The revised PAT per unit will be 2.45 per unit, slightly less than the 2.52 per unit in the 1st half. An improvement of RM 1.5 mil (2,125 mil x 0.07 sen) in profit will equal the 1st half performance. Please take note that there is an improvement of RM 4.8 mil profit after tax between Q2 and Q1. Though this is a marginal improvement,
In term of cash flow, the total income available for 2nd half distribution will be RM 80.69 mil (33.38 PAT+18.66 Int Save +28.65 (Dep Prov) which represent 3.80 per unit based on the enlarge base. This is more than sufficient to pay for the remaining dividend distribution of 3.11 sen per unit. Assuming the total distribution is 7 sen per unit. This work out to a net after tax dividend yield of 6.77% (7 x 0.9/ 93) based on the price of 93 sen per share.
Based on the above calculation on the 2nd half, there is a cash flow surplus after distribution of RM 14.66 mil [(3.80 sen – 3.11 sen) x 2,125 mil], the annual surplus will be RM 29.32 mil. This will improve the current cash holdings RM 140 mil.
As for the NAV, the 31/12/13 stands at 97.15 sen per unit (RM 1.287 bil/1.324 bil units). After placement, it should stay around the same but will continue to drop if the PAT falls behind the Income distribution.
However, it can be increased by: a> By assets revaluation which can improve its unrealized income which currently stand at RM 43.4 mil or 2.8% of the investment properties value at RM 1.543 bil, or b> Future forex gain as Aussie dollar strengthen against the ringgit, at the moment the total unrealized translation loss in the forex reserve is RM 160 mil. Since the Australia hotels are long term investment, the loss position can improve over time.
The distribution policy can be sustainable after placement exercise unless management decides otherwise.
I have entered at 91 sen, the lowest recorded two years back in 2011 is 83 sen. The placement represent almost 37% of the enlarge capital. It is possible that there will be a selling pressure from interest parties to keep the price low.
At 90 sen, it is already 7% below the NAV. I will buy more only if it drop to 87 sen. At 87 sen the expected net after tax yield will be 7.5%, a gross dividend yield of 8.4%. Very attractive investment. It is part of the corporate game they play to entice investors.
if after ex, the price is at 87sen, and the price firm for 10 days average. the issue price to be 80sen. that tan sri already said he can get $310m, (it is more than 33% of the whole share issue by ytlreit.)
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
pathew
2,028 posts
Posted by pathew > 2013-11-06 14:38 | Report Abuse
LCChong is amazing... he did the same analysis and posted it on wahsei forum too