The merger with Ascendas Hospitality Trust was completed 31 December and will contribute to ART’s portfolio from 1 January 2020. Figure 2 and 3 show the breakdown of ART’s gross revenue by geography and lease type with the contribution from AHT’s master leases assets in Japan (5), Korea (2) and Singapore (1) and management contract assets in Australia (6).
Inclusion into the FTSE Nareit Developed Index is likely given that ART has met the criteria for inclusion.
Impact of the Novel Coronavirus
The management expects that travel volumes will be impacted in the short-term, as well as some cancellation of bookings. However, given ART has more long-term stays than short-term stays which are driven by corporate clients on project groups or secondment and less leisure-tourism dependent, we expect to be more protected than other hospitality REITs. Figure 4 shows the average length of stay at their accommodations by country, which ranges 1 to 7 months.
Upgrade to BUY with a higher target price of $1.53 (prev. $1.36).
Our forecast includes the contributions from the AHT portfolio as well the announced divestments of Somerset Hanoi, partial divestment and redevelopment of Somerset Liang Court and the divestment of the 2 Citadines assets in China. The recent collapse in the share price due to the uncertainty caused by the Novel Coronavirus presents a good entry price, in our opinion. We upgrade our recommendation to BUY from ACCUMULATE. ART is trading at an attractive yield of 6.6% and P/NAV of 0.94.