What Does ARA Asset Management Limited’s Latest Fund Mean for the Company?

ARA Asset Management Limited (SGX: D1R), a manager of real estate investment trusts and real estate funds, announced yesterday that it had just raised US$325 million in capital commitments for its private real estate funds division.

The company had managed to raise the capital through a new platform which has a “premier Asian-based sovereign wealth fund [SWF]” as its anchor investor. What might the success of the fund-raising activity showcase about ARA Asset Management’s business?

The new capital and platform

ARA Asset Management’s latest platform is designed to be a closed-end fund with an initial term of 10 years which may be extended. The fund will be investing in properties across Asia, including territories like China, Hong Kong, Singapore, Japan, and even Australia.

ARA Asset Management’s woes and future

Over the past 12 months, ARA Asset Management’s shares have fallen by a rather steep 18%. This can be seen as the market being pessimistic about the company’s prospects.

The pessimism may yet be warranted over the short-term. For one, the REIT market (ARA Asset Management’s bread-and-butter; more on this later) has been weak. Meanwhile, the firm also recently reported a 21% year-on-year decline in quarterly profit in its latest earnings release for the second-quarter of 2015.

The health of ARA Asset Management’s business is largely tied to its assets under management (AUM). And as of 30 June 2015, it has a total AUM of S$26.9 billion, of which 79.6% come from the REITs that it manages.

Meanwhile, the company’s AUM for its private real estate funds stack up to S$3.9 billion, or 14.5% of its total AUM. This brings me to the significance of the new US$325 million in capital that was just raised.

It’s not a small sum, equating to roughly 12% of ARA Asset Management’s AUM for its private real estate funds as of 30 June 2015). And, it may even be seen as a sign that the company’s long-term prospects are very much intact given that it’s able to continue attracting new capital. The sum of money is also going to an important part of ARA Asset Management’s business.

In the company’s results presentation for the second-quarter of 2015, it mentioned that it’s focusing on building up its private real estate funds business. ARA Asset Management also mentioned in the presentation that an investment vehicle called Straits Real Estate Pte Ltd – formed by ARA Asset Management’s Chief Executive, John Lim, and a substantial shareholder of the company, Straits Trading Co Ltd (SGX: S20) – will be an anchor investor for the company’s private funds business.

Foolish Summary

Although the short-term outlook for REITs may not be rosy, it appears to be business-as-usual for the longer-term thesis for ARA Asset Management.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns shares in ARA Asset Management Limited.