The Positives

• Higher leisure and corporate demand in SG, UK and Philippines. SG and UK are part of ART’s 8 key markets and contributed 10% and 11% of gross profit in 2018 (Philippines contributed 3%). Despite the cautious tourism outlook for 2019 and lack of biennial events this year, SG international visitor arrivals (IVA) in 1Q19 increased 1% YoY. It is likely to surpass the projected 3% growth for the year (2018 IVA growth: +6% YoY). The assets in SG and UK under the more “stable” leases (master lease and management contract with minimum guaranteed income(MCMGI)) were able to capture a modest amount of upside (gross profit +18%/+17% YoY for SG/UK) while the properties under management contracts (MC) saw gross profit increase by 22%/62% YoY in SG/Philippines (post-AEI).
• Japan and Australia doing well despite strong competition. We were cautious about RevPAUs taking a hit due to substantial room supply hitting these markets. However, performance in these two markets held up better than anticipated with RevPAUs and gross profit increasing 8%/4% YoY and 4%/3% YoY for Japan and Australia respectively.

The Negatives

• Negative reversions on France master lease and sale of Ascott RP reduce income from “stable” sources. Contribution from “stable” sources expected to fall 200bps from 44% in FY18 to 42% in FY19.

Outlook

Better performance is expected from US and Indonesia due to higher RevPAUs post-AEI, driven by higher occupancy and average daily rates (ADRs). The two assets undergoing AEI, Element NY Times Square and Somerset Grand Citra Jakarta, are slated for completion in 2Q19.

Maintain Buy; unchanged target price of $1.36

We reiterate our Buy on ART due to geographical diversification, upside exposure from MC and ability to acquire accretively due to S$880mn debt headroom and low cost of funding (2.3%). This translates to a dividend yield of 5.9% and a FY19e P/NAV of 0.88.