• Revenue was in line with our forecast. DPU was +6.2% higher due to realised FX gains on loan repayment, excluding which DPU would be in line.
• Diversification and hedging strategy kept earnings stable
• Lower gearing of 32.8% (-2.9ppts QoQ), debt headroom increased to c.$1.1bn
• Maintain ACCUMULATE; target price of $1.36 unchanged

The Positives

• The diversified portfolio delivered +1.5% revenue growth despite the softer economic background. Results were mixed with higher revenues from the UK and Japan (event-driven demand) offsetting weaker performance due to heightened competition in Australia (Melbourne) and China (tier 2 cities). Diversification has helped keep revenues stable while prudent hedging strategy kept shielded ART from FX fluctuations (-0.2% of gross profit).
• AEI works in the Philippines yielded +18% REVPAU growth, translating into +18%/+54 revenue/gross profit growth (1Q19 +24%/+62%). We expect similar results from Element NY Times Square and Somerset Grand Citra Jakarta post-AEI in 3Q19.

The Negatives

• Sluggish demand in Melbourne saw REVPAU falling 4%. Including the lower ADRs contributed by Citadines Connect Sydney Airport (CCSA), REVPAU would have fallen 10%. Rebranding and marketing efforts to enhance CSSA’s corporate base and distribution network are underway. Potential upside include the optimisation of occupancy (CCSA was acquired with c.80% occupancy) and lifting of REVPAUs. AUD is expected to remain weak in the medium term, providing support to the tourism industry. This will help to mitigate the c.7,000 rooms to be completed in Melbourne over the next 4 years.

Outlook

As mentioned in the previous reports, recent acquisitions (CCSA) and divestments (Ascott RP) has cause ART to temporarily deviate from their targeted 50/50 growth/stable revenue structure. ART has expressed that future acquisitions will aim to restore the 50/50 balance (the proposed ART-AHT merger will also help to rebalance the structure).

ART is paying 5% coupon on $150mn perpetual securities that are callable in October 2019. Given the favourable interest rate environment, we believe ART will call the perpetual and reap saving on new perps issued. ART has another $250mn tranche of perps with a coupon of 4.68% will be callable in June 2020.

Maintain ACCUMULATE with an unchanged target price of $1.36

We reiterate our ACCUMULATE on ART due to geographical diversification, upside exposure from management contracts (“growth” revenue) and ability to acquire accretively due to S$1.1bn debt headroom and low cost of funding (2.3%). This translates to a dividend yield of 5.4% and a FY19e P/NAV of 0.96x.