ARA Asset Management

[EnSabahNur]

I think it is quite clear now that the "asset light" good times where ARA can roll out REITs easily have ended.

REIT launches are still possible. They lack a presence in major REIT markets such as Japan, Australia. Given their current expertise in office, shopping and logistics REITs, it is possible to roll-out a number of REITs in each market. The problem is in sourcing for properties to inject into their REITs, as Greengiraffe pointed out. Finding a right platform to enter the market is also difficult, unless they encounter opportunities such as Macquarie Korea.

The REIT business growth going forward should be slow and incremental, by building networks and connections, rather than fast and furious by launching mega REITs.

As for private funds, it is a very common practice for General Partners (ARA) to be required to invest alongside their Limited Partners (e.g. Calpers). This should be the norm rather than exception. Many private funds have long life-spans of 7-10 years or more. While the capital can be recycled from old funds to new, it will take a while for this to happen. In the meantime ARA has to fund ways to fund growth. Even if they can find capital, they are also constrained by restrictions, such as being unable to launch another ADF until the latest incarnation is 75% invested.

I am not saying this is a bad business, just that the company is entering a phase of slower growth.
Happy to be corrected

(vested)

[donmihaihai]

ARA is not the industry and i know the number. Voiced out during AGM few years back when everyone was cheering for the management. 

A look at some of the biggest fund management co shout asset light and without the need to put a single cent to co invest. 

So back to my point. Either ARA is 2nd rated or trying to grow fast. 

[EnSabahNur]

ARA is not the industry and i know the number. Voiced out during AGM few years back when everyone was cheering for the management. 

A look at some of the biggest fund management co shout asset light and without the need to put a single cent to co invest. 

So back to my point. Either ARA is 2nd rated or trying to grow fast. 

Hi Donmihaihai

Just to understand better, are you referring to mutual funds type of business?

Because if we look at property fund managers, it seems like the norm to co-invest

http://www.glprop.com/fund-management.html

https://www.brookfield.com/_Global/42/do...s/7217.pdf

[HitandRun]

Just to understand better, are you referring to mutual funds type of business?

Because if we look at property fund managers, it seems like the norm to co-invest

http://www.glprop.com/fund-management.html

https://www.brookfield.com/_Global/42/do...s/7217.pdf

If my memory serves me correctly, even Blackrock has to pony up ~5% of its own money (with regards to its funds) 

Notwithstanding the above, I'm not making a case for or against investing in ARA.

[donmihaihai]

Yes more mutual funds but they are the same animal. Getting aum and earning fees.

Blackrock and brookfield b/s tell a diff story. Brookfield is another kind of animal too with mixed businesses. Basically rule glp out for good reasons.

[Bytesizedinvestments]

It is well-known that ARA is aggressively increasing its stake in Suntec, a move that many sees ARA steering away from its asset-light, which is a valid point.

However there are other factors too, of which, Boon has listed out. REIT managers are appointed by shareholders directly or indirectly. ARA realized that they must have strategic stakes in the listed companies that they managed, otherwise their position as the REIT manager would be threatened, should those REITs be majority owned by a single shareholder who has a different alignment as ARA. Hence ARA have to guard their interests by increasing their strategic stakes. 

EnSabahNur and Nick also pointed out that need for seed capital doesn't not necessarily equates poor management or business fundamental. It just means a difference in business model or principles. As such, I view that the need for seed capital is indeed the need for alignment of interest for shareholders. I would be more convinced if the fund managers put their money where their mouth is.

Did a short write up on ARA Rights Issuance a couple of days back - http://www.bytesizedinvestments.com/what...ns-to-you/ 
____


Financial Freedom can be achieved through prudence and patience capital.

http://www.bytesizedinvestments.com/

[CityFarmer]

It is well-known that ARA is aggressively increasing its stake in Suntec, a move that many sees ARA steering away from its asset-light, which is a valid point.

However there are other factors too, of which, Boon has listed out. REIT managers are appointed by shareholders directly or indirectly. ARA realized that they must have strategic stakes in the listed companies that they managed, otherwise their position as the REIT manager would be threatened, should those REITs be majority owned by a single shareholder who has a different alignment as ARA. Hence ARA have to guard their interests by increasing their strategic stakes. 

EnSabahNur and Nick also pointed out that need for seed capital doesn't not necessarily equates poor management or business fundamental. It just means a difference in business model or principles. As such, I view that the need for seed capital is indeed the need for alignment of interest for shareholders. I would be more convinced if the fund managers put their money where their mouth is.

Did a short write up on ARA Rights Issuance a couple of days back - http://www.bytesizedinvestments.com/what...ns-to-you/ 
____


Financial Freedom can be achieved through prudence and patience capital.

http://www.bytesizedinvestments.com/

Welcome to our VB.

Regards
Moderator/CF

[CityFarmer]

FYI, the latest short interest in the company, after the right issue.

(not vested)

Short selling rises as major shareholders divest

SINGAPORE (Nov 30): According to Markit, the short interest in ARA Asset Management ( Valuation: 1.50, Fundamental: 1.90) rose by more than 1,000% for the week beginning Nov 16.

Since then, ARA’s share price is down 7.7%. The company announced a renounceable rights issue of 152.13 million shares an 18-for-100 rights issue on Nov 11, at $1.00 to raise $152.13 million.
...
http://www.theedgemarkets.com/sg/article...ers-divest

[Boon]

I think the form is quite clear. If it was a market transaction it would have stated so.

Wonder why they did such expensive financing. Is it crucial for fund management company to have low gearing?

I think the question should be 'How can a fund Mgt company have high gearing'?

Fund Mgt companies have high ROEs, reflecting the asset/capital-light nature of their businesses. As such, there isn't too much collateral they can pledge to the bank to obtain loans.
You can imagine you are a banker and some guy who doesnt have hard assets like factory or land and wants to borrow $ from you, and it is not a bridging loan. You will think that guy is either mad or takes u for a patsy (or both).

Since their backers want them to get their feet wet as well, raising $ from shareholders is the most straightforward route.

Non-Current Financial Assets:
As at 30 September 2015 ARA has non-current financial assets of SGD 373.177 million comprised primarily of
(i)            94.3 million Suntec REIT units held by the Group as a strategic stake;
(ii)          16.5 million Cache units held by the Group as a strategic stake;
(iii)         36.2 million AmFIRST REIT units held by the Group as strategic stake;
(iv)         seed capital investments in the ADF I, the ADF II, the CIP, the MIP and the Harmony III;
(v)           a 10.02% strategic stake in ARA-NPS Real Estate Investment Company;
(vi)         seed capital investments in ARA ShinYoung Residential Development Real Estate Investment Company and
(vii)        investment in the APN SICAV-APN Asian Asset Income Fund previously known as ARA Asian Asset Income Fund). As at 30 September 2015, the liquidation of APN SICAV-APN Asian Asset Income Fund has been substantially completed, along with the receipt of the proportionate amount of liquidation proceeds by its investors.
 
Details of any collateral
As at 30 September 2015, the Group has pledged 34.1 million units of Suntec REIT and 16.5 million units of Cache as security for a S$50.0 million multicurrency revolving credit facility. The facility bears interest at a fixed spread over the corresponding benchmark rate of the available currencies and terminates on 15 March 2017.
 
Capacity for more Debt?
Capital assets that ARA owns are basically confined to financial assets in the form of “strategic stakes” in listed Reits and “seed capital” in the private funds.
 
Shares of listed Reits could be used as collateral for debt but not “seed capital” in private funds – ha-ha!
 
Most private funds are highly geared anyway – with assets at fund level being pledged as collateral.
 
SGD 60 million out of the total proceed from Right Issue would be used to repay STC shareholder loan - which was used to acquire strategic stakes in Suntec Reit.
 
No doubt, capacity for debt are limited – but it seems that 60.2 million units of Suntec Reit  (with market value of about SGD 90 million) are still available to be pledged as collateral for more loans. Based on a LTV ratio of 70%, this work out to be around SGD 63 million.
 
Capacity for Retaining more Earning to fund growth?
 
The other alternative to the equity raising route would be to retain more (if not all) future earnings (i.e. reduce dividend payout) for re-investment.
 
The amount required to maintain a DPS of 5 cents in cash is about SGD 50 million per annum, after the right issues.
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[Nick]

The seed capital financing tap from SRE, margin financing of listed equity stakes, $90 million cash raised from the rights issue and recycling of the potential performance fees from ADF1 does suggest a promising pipeline of seed capital for a number of private funds over the next few years IMO. The Management would have taken care of the financing issues for the next few billion dollars worth of AUM. The networking to find/convince investors for its new funds is another leg of the stool. The final leg (the hardest) would be finding assets worth acquiring. Only when all 3 legs are ready, can a fund management company truly rest on this stool and taste the fruits of its labour.

(Not Vested)