ARA Asset Management

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(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 Big Grin

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 Big Grin

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.
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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> ARA must use the cash received from performance fees to buy $100 million worth units in the REIT

Today's cornerstone investors of the REIT want to see issuer put their money where their mouth is. ARA dont have a choice. JL said if he didn't have to put $1, he would not want to. He put in S$20M of his own $$$ to convince Calpers sign up for ADF.

> MGCCT listing didn't contain any financial engineering

Is it? Please read Bobby Jayaraman's posting last week in BT.
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there was chatter about ADF selling Nanjing IFC in the market. so dynasty reit probably would not be the same if it ever gets listed.
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(17-03-2013, 08:41 PM)Contrarian Wrote: > ARA must use the cash received from performance fees to buy $100 million worth units in the REIT

Today's cornerstone investors of the REIT want to see issuer put their money where their mouth is. ARA dont have a choice. JL said if he didn't have to put $1, he would not want to. He put in S$20M of his own $$$ to convince Calpers sign up for ADF.

> MGCCT listing didn't contain any financial engineering

Is it? Please read Bobby Jayaraman's posting last week in BT.

There is nothing wrong having a large stake in a REIT. It is necessary if one chooses to be a sponsor and also to stave off possible challengers. However, it is not ideal to start 'boosting the yield' by dis-allowing your units to accrue dividend income for 5 years. We are talking about $4-5 million distribution income p.a. If Management could use it as seed capital for another fund, the return will be even higher. The initial structure will be sacrificing ARA shareholders return for Dynasty unitholders return. My guess is that this was why it was suspended - Management grew uncomfortable and market didn't like the structure. Well who knows - in this current climate, perhaps with minimal financial engineering (real DPU yield of 4% + immense prospect of growth), the proposed REIT could be popular.
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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> it is not ideal to start 'boosting the yield' by dis-allowing your units to accrue dividend income for 5
> years. We are talking about $4-5 million distribution income p.a.

Considering the yield from the China assets was only 4+%, it is significantly lower than those recent IPOs. They are actually pricing the assets at a premium, that's why the IPO was not well received.
The fee waiver is more than covered by the high price. Which is exactly what many developers do now... - 2 year guaranteed yield.

To grow ARA earnings, one needs to consider to protect the interests of the REIT investors first. If everything is for ARA shareholders, few people will want to sign up for ARA REITs. If the REIT investors make decent money, ARA will then have reputation to grow its REITs.
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I am just wondering how long can the REITs industry last. If property bubble market burst, rentals income fall, REITs income fall, management income of ARA drops, less demand of REITs IPO, bigger pressure for ARA to exit investments in private funds, no carried interest to grow fund and the vicious cycle continues. Same as when Asia boom is overrated and Chinese do not start consumption to generate GDP fast enough.

ARA have to secure properties with good locations in order to sustain and recover from a tough period like that.
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The right size of company that ARA can buy and grow the AUM by 50% overnight. If they really do this, no problem hitting 2016 target Smile

http://thempreport.com.au/2013/03/27/mgp...price-tag/

MGPA on the market with $200m price tag

MGPA, the Asia- and Europe-focused private equity real estate firm, is being marketed for sale.

PERE can reveal the firm, which currently manages approximately $11 billion of real estate across the two regions, appointed advisors, including a boutique investment bank and a law firm, at the turn of the year to conduct a sale process.

It is understood that several parties, including large insurance companies and asset management companies, have undertaken due diligence already and that a deal could be struck as soon as the next quarter.

MGPA is 56 percent owned by Macquarie Group, the Australian bank, and the remainder is owned by the firm’s management, led by Singapore-based executive chairman James Quille and chief executive officer Simon Treacy. The division within Macquarie Group that holds its stake in MGPA is Macquarie Infrastructure and Real Assets (MIRA), part of Macquarie Funds Group, which is led by Shemara Wikramanayake and holds $A337 billion (€271 billion; $350 billion) in assets under management.

A sale would mark a significant next chapter for the firm, which was started as Macquarie Global Property Advisors in July 2004 by Quille and colleagues at Lend Lease and Macquarie Property, a former division of Macquarie Group.

According to PERE Connect, MGPA has since gone on to raise 11 private equity real estate funds comprising approximately $8.6 billion of equity and has grown to about 240 staff. The funds include MGPA Asia Fund III, Asia’s largest-ever fund which was established in 2007 and attracted $3.9 billion of capital from the some of the world’s largest institutional investors, including the Canada Pension Plan Investment Board, the New York State Teachers’ Retirement System and the Abu Dhabi Investment Authority.

Having benefited from an extension for its investment period from investors, the firm has been acquisitive for that fund over the past months, buying a Shanghai office for RMB263.5 million (€32.4 million; $42 million) as recently as earlier this month. The vehicle has approximately $240 million of dry powder left, and MGPA is thought to be preparing for the launch of a fourth Asia vehicle.

It is unclear at this stage how much a buyer would need to pay for MGPA, although a significant part of its valuation would come from its current and future ability to raise and deploy capital.

In addition to the remaining resources in Asia Fund III, MGPA also raised $100 million for its fourth Europe-focused opportunity fund in November 2011 and €85 million for its Asien Spezialfonds, a special purpose fund for German investors to make investments in Asia in September last year. The firm also has raised capital via various separate accounts and has a sub-advisory contract with Orlando-based REIT manager CNL Financial Groups, through which it invests retail capital.

MGPA and Macquarie Group declined to comment.
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Does this mean it is the top of real estate mkt?
When the sellers selling themselves.

Just like when Goldman Sachs goes IPOs in 90s.
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Annual Report 2012

http://info.sgx.com/listprosp.nsf/AllAnn...endocument
Research, research and research - Please do your own due diligence (DYODD) before you invest - Any reliance on my analysis is SOLELY at your own risk.
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> Does this mean it is the top of real estate mkt?
> When the sellers selling themselves.
> Just like when Goldman Sachs goes IPOs in 90s.

Of course now no bargain deal. Bargain deal is in 08 and 09.

It depends on the potential of the properties in the fund.

a. The ability to identify and retain the good property fund managers
b. The ability to find the good markets
c. The potential performance fees of the funds upon closure

MGPA seems to have good successes in some markets. So any other smaller funds that ARA sets its eyes on, will be cheaper.
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