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I guess they fear being voted out as manager of Suntec if their stake is lower than black rock.
By the way, does anyone knows if there are any limits on redemption for the private funds? For example, is there a risk of having to divest properties at low price if the private investors panic during a crisis?
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> I guess they fear being voted out as manager of Suntec if their stake is lower than black rock.
Yes, this is a real risk. In theory, Blackrock can mount a hostile takeover with a 20% stake of suntec reit and set up a resolution to kick out ARA. The management fees of suntec reit is significant, it represents fat meat for any property investor.
> By the way, does anyone knows if there are any limits on redemption for the private funds? For example, is there a risk of having to
> divest properties at low price if the private investors panic during a crisis?
To my knowledge, NO. Property funds are not like unit trusts, assets are not liquid. So once the fund is set-up, the fund investors got to stay the course. Of course the fund can call for $$$ from the investors over planned stages.
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Thanks for the explanation, gzbkel and Contrarian.
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Thanks Contrarian, that is one plus point for ARA.
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I remember at one AGM after the financial crisis when John Lim was asked the same question. The answer given is that there is no redemption for private property funds. If I remember correctly, redemption will be based on US$1, whatever the amount invested.
This is one of the reasons that I have been vested since 2008.
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Does anyone have any idea of the cost of funds for ARA since they are taking on more debt, presumably to gain more say in suntec REIT to assure their services with Sun Tec reit?
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04-03-2016, 10:52 AM
(This post was last modified: 04-03-2016, 10:53 AM by shadow_walker.)
imo, the rights issue was to provide seed capital for private fund instead of debt repayment. ARA was not overleveraged and the bank has no problem lending to ARA given its stable cash flow as a reit manager.
STC and John Lim were supposed to provide the seed capital in the previous deal where John Lim sold off his stakes.
It appears that investors still demand ARA to put in significant seed capital. ADF 1 requirement was only 2%, but this is no longer the case. It can be a sign of higher competition. Not all AUMs are similar - the private fund business is generating a high single digit to low teen return on capital if we take into account the seed capital investment, lower margin and scalability of the private fund business. This is why ARA's return on asset and equity have been dropping.
Nonetheless, the reit side of the business is still a stable annuity growing at low single digit in the long term. It has high return on capital but lack the reinvestment opportunity that it once has. This is perhaps why management is investing in the private fund business to grow the aum and income.
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