What’s in the news?
All six of the assets in Australia are under management contracts and dependent on the profitability of the hotels. All five hotels in Japan are operating under a master lease and have a minimum base rent with a variable component. Despite the supply coming online, Japan hotels will still stand to reap the potential upside from the 2019 Rugby World Cup and the 2020 Olympics, while remaining protected by fixed rents post 2020.
Immediate DPU accretion is a strong case for the combination of ART-AHT. The combination will result in a more geographically diversified entity, positioned to capture growth in APAC markets. Inclusion in the FTSE Nareit Index will be the cherry on the top.
Downgrade to ACCUMULATE, unchanged target price of $1.36.
We downgrade our call to ACCUMULATE due to the recent appreciation in the share price. This translates to a dividend yield of 5.5% and a FY19e P/NAV of 0.88. No change in our target price as the transaction is still pending shareholder approval.