17-03-2013, 07:40 PM
(17-03-2013, 07:04 PM)Boon Wrote: [ -> ](17-03-2013, 01:24 PM)Nick Wrote: [ -> ](17-03-2013, 01:14 PM)Contrarian Wrote: [ -> ]1. Private funds performance fee much higher than REITS 0.5 to 1%. Hopefully Dynasty REIT can relaunch this year, the payment is $60 - $80M
2. Strange, ex bonus should have corrected 10%. Instead, it only dropped 3.5%. So the bonus issue is a REAL bonus for now, 6.5% gain vs pre-bonus on Friday
The Straits Times
www.straitstimes.com
Published on Mar 13, 2013
ARA plans to double assets over five years
Reit manager wants to focus on expanding private property funds
Personally I don't want them to relaunch Dynasty REIT at the current structure - ARA must use the cash received from performance fees to buy $100 million worth units in the REIT, the units in the REIT cannot receive dividends for 5 years and ARA cannot receive management fees in cash for 2 years. Perhaps when the assets are more stabilized in 2014 - they could relaunch it and cut the income support aspect of the REIT so that ARA won't be badly tied up. With that being said, I think John Lim know whats best so he will probably relaunch it at the best time. The capex is inevitable if they truly wish to be a REIT manager cum sponsor.
(Vested)
Hi Nick,
In addition to the annual management fee, fund manager of most private real estate funds are entitled to a performance-based fee referred to as “carried interest.” This fee is usually a fixed percentage of the performance and typically accrues only after the fund’s net returns clear a predefined hurdle rate of return over its fund life. The normal standard for measuring performance is the internal rate of return (“IRR”).
As an example, assume that a private fund has a carried interest charge of 30% and a pre-established 10% hurdle rate. A total return of 25% (net of management fee) by the fund at the end (after fully exited or successful divestment of all assets) would entitle the manager to collect 30% (performance incentive fee) on 15% of the profits or, in other words, those returns that were in excess of its 10% hurdle rate. This would result in an equivalent annual net return to investors of 20.5 % and a performance fee of 4.5 % to the fund manager.
I don’t think ARA would be able to increase the proceeds from Dynasty Reits IPO by postpone it to a later date. By delaying it, and without being able to value add, the return of the fund measured by IRR would be reduced which means performance fees would also be reduced accordingly – though base management fee would still be paid.
ADF (I) private fund is an “opportunistic” fund as opposed to “core” and “value-add” funds. With the ways the fund and its exit strategy (via IPO) are being structured, it would not be a surprise to me at all, if the performance fee entitled by ARA is as high as SGD 100 million - and were “structured” to be paid with SGD 100 million worth of Dynasty shares. ARA would not have to come up with any money up front (including the income support) - it would just be a matter of “paper shuffling”
Re-launching of the IPO while the market is hot would be a better option IMO.
(Vested)
Yes. I highly suspect the performance fees will be in that range. But having $100 million (from the fees) locked up for 5 years generating 0 income and not getting any cash from Dynasty for 2 years isn't a great idea. The recent MGCCT listing didn't contain any financial engineering - no income support, all of the Sponsor units will be eligible for dividends etc. I suspect they are just trying to price the asset at a premium via engineering but it is ARA who will be carrying the baby (and not the original ADF1 investors). Ultimately, I trust JL to make the right choice - if he thinks this is the right path, then I reckon it is.
Please correct me if I am wrong.
