ARA Asset Management Ltd. (ARA), a manager of real estate trusts partly owned by billionaire Li Ka- shing, wants to double assets under management over five years as its private funds buy more properties.
ARA, which manages about S$22.1 billion ($17.7 billion) of assets through real estate investment trusts and funds, plans to expand with acquisitions and enhancing existing properties, Chief Executive Officer John Lim said in an interview yesterday. Its real estate funds, which make up less than a third of assets managed by the Singapore-based company, are expected to increase to half in five years, he said.
With six REITs listed in Singapore, Hong Kong and Malaysia, ARA now wants to focus on expanding its private property funds after attracting the largest U.S. pension investors. The stock rose 2.5 percent to S$1.85 at the close in Singapore, the biggest gain in five weeks. That extended the year’s increase to 14 percent, more than twice the 5 percent advance in the index tracking the city’s REITs.
“Capital markets will continue to grow but I think there’s more potential for us on the private markets side,” Lim said in Singapore. “If we continue to prove to the market that we can increase the assets under management, then the share price will continue to grow.”
Its funds, which have invested in properties from an empty mall in China to a Singapore convention center, will focus on the retail and office sectors, Ng Beng Tiong, CEO of ARA’s funds unit, said in the same interview.
California Public Employees’ Retirement System, or Calpers, the largest U.S. pension fund, and Teacher Retirement System of Texas have invested in the funds, Lim said. Japanese and Korean funds are potential sources of capital, he said.
“You’re looking at a market full of liquidity,” Lim said. “Money is ready, it’s about how well you’re going to manage it.”
Blackstone Group LP (BX:US), the world’s biggest manager of real estate private-equity funds, is seeking to raise more than $2 billion for its first property pool focused on Asia, a person with knowledge of the effort said in December. Sydney-based Goodman Group, the second-biggest industrial property manager, said last month it plans to spend A$500 million ($512 million) on acquisitions.
The property funds “are absolutely looking around in this region and they’re very busy in raising funds,” said Ada Choi, Asia Director at CBRE Group Inc. in Hong Kong. “Still, sourcing capital remains difficult, and in terms of new funds being formed, it’s taking longer to close their funds.”
In October, ARA canceled an initial public offering of Dynasty Real Estate Investment Trust, backed by commercial real estate in China, amid sluggish demand for new equity. The IPO, which had sought to raise as much as 5.4 billion yuan ($868 million), is still being considered, Lim said.
The assets for Dynasty REIT are held by ARA’s property funds, Lim said, adding that the biggest concern is China’s taxes. Lim owns 33 percent of ARA while Li’s Cheung Kong Holdings Ltd. (1) holds 13.9 percent, according to data compiled by Bloomberg. The Hong Kong developer had offered ARA’s REITs the first right to buy some of its properties.
ARA is also focusing on expanding its existing trusts including Cache Logistics Trust (CACHE) and Fortune REIT. These plans may include buying other REITs, Mark Chu, its director of business development, said in the interview.
REITs from Singapore and Japan were the most active last year, with investments reaching $8.9 billion, or three quarters of total purchases by Asian property trusts, according to CBRE. Yields fell to 5.1 percent in the second half from 5.8 percent in the previous six months, the property brokerage said.
“Launching new REITs is good, it creates a bit of noise and adds color, but actually I would prefer to grow our current REITs,” Lim said. “Growing our AUM from our current REITs is healthier for us and creates economies of scale. Launching a new REIT means I need to have a new CEO, new team, new board, and you’ve got to grow from a low base again.”
Singapore REITs had an average total return of 7.8 percent this year, the highest in Asia after Japan and Taiwan, according to data compiled by Bloomberg.
Lim expects stock prices of the city’s REITs to rise by about 20 percent to 30 percent this year, as the spread between their dividends and the Singapore government’s 10-year bonds narrow. The bonds yielded 1.57 percent today, while the Singapore REIT index traded with a 4.7 percent yield, according to data compiled by Bloomberg.
“A 200 basis point spread would be a reasonable spread,” Lim said, citing averages for markets including the U.S., U.K. and Australia. “There is a market disconnect.” A percentage point is 100 basis points.
ARA plans to expand into new markets like Japan, Australia and India, as well as Southeast Asian countries including Indonesia, Vietnam and Thailand. It may also expand its logistics assets.
“There’s so much liquidity coming to Asia,” Lim said. “We want to capture part of that money.”
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