ART – CIMB

Less depressed expectations for 2010

• Guidance for 2Q09. ART guides that its 2Q09 earnings are likely to remain weak, but with a slower rate of decline compared with 1Q09. ART’s top four contributors (73% of revenue) are Vietnam, China, the Philippines and Singapore, in order of contribution. REVPAU in Vietnam and Singapore is stable, supported by a long-stay segment and improved occupancy, while the Philippines has recovered strongly and earnings are likely to supersede 2008’s. China’s REVPAU continues to decline due to a supply overhang in Beijing. We continue to expect a 13% decline in overall REVPAU for this year.

• Reviewing estimates. Although the outlook for global business travel still lacks clarity, concerted global efforts to ease the financial crisis have improved liquidity conditions, resulting in a general revival of confidence. We believe this will translate into stable global business travel in due time. As such, we revise our FY10-11 REVPAU assumptions to reflect 0-5% growth, vs. 0-15% decline previously.

• Higher DDM-derived target price of S$0.79 (from S$0.56). Our DPU forecasts for FY10-11 increase by 14-17% following changes to our assumptions. We now use a lower discount rate of 10.3% from 10.5% on a reduced risk-free rate of 4.8% which is applied across our REIT universe. Current P/BV appears attractive at 0.5x vs. SREITs’ 0.6x. Price catalysts look limited in the short term. However, due to the volatile nature of the hospitality industry, the impact of increased REVPAU on revenue when the economy turns would be felt in a much shorter span of time.