ARA on Acquisition Hunt Sees Most Deal Activity Since Crisis

  • CEO Lim sees opportunities in China, Korea and Australia
  • Aims to boost assets under management to S$50 billion

ARA Asset Management Ltd., a manager of real estate trusts partly owned by billionaire Li Ka-shing, sees opportunities in China, Australia and South Korea as it prowls for deals with a war chest of as much as $3 billion.

Singapore-listed ARA has been assessing assets in a market where deal activity is as busy as during the global financial crisis, though the pricing gap between buyers and sellers needs to narrow, Founder John Lim said in an interview this week. The company, which manages real estate investment trusts and private funds totaling S$29 billion ($21 billion), expects to grow its assets to as much as S$50 billion, he said, without giving a time frame.

“We can easily buy $2-3 billion as a group without any problems,” though ARA will be careful to acquire assets at prices it’s comfortable with, Lim said in Singapore. “There’s a lot of deals coming out to the market. Still, nobody is selling it cheap because borrowing costs are so cheap, so the negotiation process takes longer.”

Market volatility has increased the appeal of property as an investment, even as an uncertain global economic outlook crimps the price buyers are willing to shell out. Global real estate investors are expected to plow more than $1 trillion into the property market this year, a 6 percent increase from 2015, according to a CBRE Global Investor Intentions Survey released in March.

Straits Trading Co., ARA’s largest shareholder, owns a 20.1 percent stake in the company, while Li’s Cheung Kong Property Holdings Ltd. holds 7.84 percent, according to the company’s latest annual report. Lim owns about 19 percent.

Raising Capital

ARA is seeking to raise capital in Australia, China and South Korea from domestic investors including sovereign and pension funds, Lim said. It has started operations in these locations to tap investors looking for opportunities to deploy their capital overseas, he said.

“After five to seven years of growth in Asia, there’s huge capital within Asia that’s getting out of their own countries and investing around the world,” Lim said.

ARA’s shares have dropped for two straight years. The stock advanced 0.4 percent to S$1.345 as of 11:49 a.m. in Singapore trading, bringing the year’s gain to 14 percent, compared with the 4.2 percent drop in the benchmark Straits Times Index.

Lim said his company’s shares are undervalued compared to its earnings, peers and historical prices. The ratio of the company’s market capitalization to its assets under management, a standard measure used by the industry, stands at about 3.8 percent, Lim said. That compares with about 10 percent for peers in the region, he said, implying that there is plenty of room for growth.

‘Too Cheap’

The ratio of market capitalization to assets under management at Sydney-based Charter Hall Group is 7.3 percent, while the metric for Tokyo-listed Kenedix Inc. stands at 14.5 percent, according to Bloomberg calculations.

“Compared to our peers, we are too cheap,” Lim said. “My business is getting better and better, stronger and stronger, the recurring income gets more and more. It’s actually undervalued.”

ARA manages 90 properties in the Asia-Pacific region with 47 million square feet including office, retail and logistic assets. Singapore and Hong Kong made up 66 percent of its assets as of March, according to a company presentation. ARA’s revenue rose 10 percent to S$41.4 million in the quarter ended March 31, the company said May 3. 

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