ARA Asset Management - DBS Vickers 2015-09-15: Firepower from a new friend.


Firepower from a new friend 

  • Raising US$325m in a new account, backed by an Asian sovereign wealth fund. 
  • Scalable platform with an upsize option to grow size of the fund. 
  • Maintain BUY, TP S$1.87. 

Raising US$325m in a new private fund with an Asian sovereign wealth fund as anchor investor. 

  • ARA Asset Management Limited (ARA) announced that it has successfully secured US$325m capital commitments (or US$650m in assets under management (AUM) assuming 50% gearing) for a new account within its private real estate platform. A premier Asian sovereign wealth fund is the anchor investor for this fund. 
  • ARA will co-invest up to 5%-10% in this newly set up fund. The fund will be managed by ARA Fund Management (PIP) Limited, a wholly owned subsidiary of the group. 

Scalable platform with upsize capacity to capture opportunities in the future. 

  • This fund will have an initial term of 10 years, with options to renew. The mandate will be “core-plus” and will target opportunities in Asia, including Australia, Singapore, Hong Kong, China and Japan. The fund will have an “upsize option” which means that ARA can call for additional capital commitments in the future when opportunities arise. We like this feature as it enables the group to build a scalable platform to grow and offers a steady stream of recurring fees to the group. Our forecasts are maintained as we have already assumed AUM growth of S$2bn. Taking into account 
    1. the recently announced Harmony Fund 3 (AUM of MYR1.7bn), 
    2. asuming that the group fully deploys theUS$300m in commitments from ARA China Investment Partners in 1H15, and 
    3. US$325m from this new fund by the end of this year, ARA would have achieved AUM growth target estimate for the year. 

Maintain BUY, TP S$1.87. 

  • We continue to like ARA for its scalable fund management platform and ability to deliver consistently high ROEs to investors. Our S$1.87 TP is based on 
    1. 18x PE for its fund management business, and 
    2. market price of strategic stakes held in REITs.

Derek TAN | http://www.dbsvickers.com/ DBS Securities 2015-09-15
BUY Maintain BUY 1.87 Same 1.87