ARA Asset Management

[mrEngineer]

How would ARA obtain benefits, absorb risk and rewards of SPEs and residual interest?

1. Has decision-making powers to obtain benefits -> ARA is trust manager and able to influence the trust AUM or the management fee structure

2. Absorb risk and rewards of SPEs-> The risk part is distributed among trust investors but if trust fails because of neglience on some part, investors can choose to sue trust manager. Rewards is similar to point 1 above.

3. Has residual interest in SPE -> ARA still hold some holdings in each trust although not significant. If significant, it would be mandatory to consolidate anyway.

Another point is I wonder whether are there any financial guarantees in the Trust that will be liable to the ARA as a trust manager. For e.g. if Suntec REIT defaults, the debtors can liquidate the trust assets and if any remaining liability guaranteed by ARA? I guess I can answer my own question by reading the prospectus. haha

Correct me if I am wrong. Learning along the way.

[Nick]

Hmm I wouldn't view ARA as a sponsor. It doesn't own any significant stake in the listed Trust nor does it divest its assets to it. It is a pure-play service provider which can be fired at any time (through an EGM). CMA would be a better candidate as a REIT sponsor.

Please correct me if I mis-understood you.

[corydorus]

Any idea how real is the risk of being fired in EGM?

[donutte]

I held ARA shares and sold it for a neat profit recently. I think the business model of a REIT manager is incredibly good.

Business - Provide management service to under lying REIT. (Note: The revenue is very stable as it is a percentage of the asset under management which usually consist of a base fee and a performance fee if the asset outperform. Further there are other fees like acquisition and disposal fees.)

Typically Singapore REIT manager are held by the REIT sponsor like Keppel Land, Capital Land, Mapel Tree etc simply because this is such a high margin business (net profit margin in excess of 50% is norm).

ARA is an exception that it is not the main sponsor of the REITs they are managing. However they do have very good relation with the sponsor like Li Ka Shing (which have a stake in ARA). Hence the chance of ARA being kicked out of managing Suntec or Fortune REIT is very minimal (not withstanding they do something damaging to the REITs)

All in all I like the business model but I feel that at this valuation it is abit lofty.

There have been speculation that Hutchison's Port Business Trust listing in Singapore could be managed by ARA. In my opinion this is very unlikely because
1) Trust management is a lucrative business and it make no sense to let ARA managed it rather than being sponsor managed.
2) ARA is an Asian Real Estate Fund Management Company so it would probably be out of their scope to manage a port business trust.

The more likely potential earning growth would come from the project like the acquisition of Ion Orchard which is joint develop by Li Ka Shing and Capital Land as well as further divestment of asset from the sponsors of the REIT they manage.

[d.o.g.]

There have been speculation that Hutchison's Port Business Trust listing in Singapore could be managed by ARA. In my opinion this is very unlikely because
1) Trust management is a lucrative business and it make no sense to let ARA managed it rather than being sponsor managed.
2) ARA is an Asian Real Estate Fund Management Company so it would probably be out of their scope to manage a port business trust.

The more likely potential earning growth would come from the project like the acquisition of Ion Orchard which is joint develop by Li Ka Shing and Capital Land as well as further divestment of asset from the sponsors of the REIT they manage.

It has already been disclosed that the manager of Hutchison Port Holdings Trust will be Hutchison Port Holdings Management, a 100% subsidiary of Hutchison Whampoa Ltd.

Ion Orchard is owned by Capitamalls Asia. The only possible buyer for Ion Orchard is Capitamall Trust.

In other words, there is no need to speculate. ARA is definitely out of the running to manage either asset.

[Nick]

I believe they will be closing the ADF 2 by middle of this year ? Any idea how much capital they would most likely get to manage ?

[freedom]

the other partner of Ion Orchard is Sun Hung Kai Properties not Cheung Kong

[donutte]

Thanks for correcting my oversight. Freedom. It is Sun Hung Kai and not Cheung Kong

[Nick]

ARA is down nearly 11%. I wonder what is pressing down the share price today ? It will be great to acquire a piece of this great business at a good price.

(Not Vested)

[Bibi]

When fear and recession strikes, all companies will be wack down. No matter how good they are.