ARA Asset Management Limited (Credit View)- Rapidly growing real estate manager August 27, 2019 525

ARA Asset Management Limited (ARA) is a global integrated real estate fund manager. As at 30 June 2019, Gross Assets Managed by ARA Group and its Associates is more than S$83bn across over 100 cities in 23 countries.

 

Core operations:

  • REIT management – ARA is one of the largest REIT managers in Asia Pacific. The Group directly manages Fortune REIT, dual-listed in Singapore and Hong Kong; Suntec REIT, Cache Logistics Trust and ARA US Hospitality Trust, listed in Singapore; and Hui Xian REIT and Prosperity REIT, listed in Hong Kong. It also indirectly manages REITs in Japan, Australia, Singapore and Malaysia through its associate companies.
  • Private equity real estate management – The Group also manages private real estate funds.
  • Real estate management services – These include convention and exhibition management services.
  • Infrastructure investments – Established in 2018, the group seeks stable cash flow generation through equity investments in medium-sized infrastructure assets, companies or platforms.

 

Overview:

(+) Stable income operating model

(+) Established stakeholders

(-) Depressed interest coverage ratio when including perpetual bond payments

(-) Private company, possible re-listing

 

CREDIT VIEW

(+) Stable income operating model – Primarily a real estate management services provider, ARA’s income mainly consists of a stable base fee component as well as a variable component for performance. The allows the group’s income to demonstrate a recurring and stable nature so long as its assets under management remain stable or shows growth.

(+) Established stakeholders – The group is majority-owned by established stakeholders. This provides possible access for future liquidity or funding needs.

  • Warburg Pincus is a private equity fund established more than 50 years ago. It has invested more than $74bn in more than 860 companies in more than 40 countries around the world.
  • AVIC Trust Co. is a China-based investment and trust manager 19.9% owned by OCBC Bank.
  • Straits Trading Co. is an SGX listed investment company with diversified interests across the Asia Pacific in Real Estate, Hospitality and Resources.
  • Mr Lim Hwee Chiang John is the founder of ARA.

 

(-) Depressed interest coverage ratio when including perpetual bond payments – Based on FY2018 results, EBIT interest coverage including payments for perpetual bonds stood at 2.1x.

Debt to equity ratio spiked in 2018 as the group funded acquisitions to work towards it’s AUM target of S$100bn. As at 30 June 2019, ARA’s AUM stands at S$83bn. Some acquisitions completed in 2018 include:

  • Acquisition of 19.5% interest in Australia’s Cromwell Property Group
  • Increasing its stake in Cache Logistics Trust by an additional 43.66mn units to become its largest unitholder with 9.21% of issued units held
  • Acquisition of a portfolio 38 Select Service Hyatt Hotels in the USA
  • Investment in Century Link Mall, a landmark retail development in Shanghai, China

 

(-) Private company, possible re-listing – As a private company, ARA is not required to disclose its financial information. This reduces transparency for bond investors.

However, the management of ARA previously hinted at a possible re-listing when the Group reaches its AUM target of S$100bn, set to be achieved by 2021. A re-listing would increase disclosure requirements and deleveraging opportunities. Both could lead to a positive re-rating of its bonds.

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About the author

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Timothy Ang
Research Analyst
Phillip Securities Research

Timothy covers credit analysis of local and foreign bonds. Previously an equity dealer, he handled equity trade execution and portfolio management. He has presented seminars for organisations such as SIAS, SPH and IRAS, commentated live market updates for 93.8FM, and authored investment articles for the Business Times newspaper. He graduated with a Bachelor of Commerce in Accounting & Finance from the University of Western Australia.

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