Excerpts from analysts' report

Macquarie Research analysts: Tuck Yin Soong & Sam Chan


Event
§ After close of market, ARA Asset Management (ARA) announced that the ARA Harmony Fund crossed the initial five-year term in its fund cycle. The performance fees paid to ARA is about S$16.06m, which is about 20.6% of our FY14 estimates. As we do not forecast performance fees, this will be a bonus to shareholders.

Impact
§ ARA Harmony Fund details. This is a single asset fund established on 30 September 2009 which owns the Suntec Singapore Convention & Exhibition Centre. ARA as asset manager conceptualised and delivered a successful asset enhancement initiative which was completed in 2H2013. As a result the uplift to the property value was from fund conception at S$235m to S$663.25m (average of two independent valuations) as at 30 September 2014.  

 
IRR of 27.4%. Over the initial five-year period, ARA Harmony Fund achieved an IRR of 27.4% with an equity multiple of 3.15x for its investors. Net of the performance fees of about S$16.06m, the IRR achieved was 26.3% with an equity multiple of over 3.0x. This performance fee is expected to contribute about 1.90 cts to ARA’s EPS for 3Q14. ARA’s results will be released after the close of market on Monday, 10 November, 2014.  
 
johnlim_trophyJohn Lim, group CEO of ARA Asset Management, was Ernst & Young Entrepreneur of the Year 2012. File photo.Earnings and target price revision
 No change to our EPS forecasts or target price
 
Price catalyst
 12-month price target: S$2.21 based on a Sum of Parts methodology.
 Catalyst: Successful closing of Asia Dragon Fund III by 1H2015.
 
Action and recommendation
 ARA’s scalable business model is poised for further AUM growth, with seed capital commitment of S$950m from STC and ARA Group CEO John Lim. This could support up to S$10bn in new private real estate funds (assuming 10% from seed capital to show alignment of interest with third-party investors). 
 
 The success of ARA Harmony Fund will be another good testimony to the track record of ARA. The group expects to grow its AUM by S$2bn a year. Our forecasts do not assume new AUM until such new funds are announced and closed.  

Previous story: SHENG SIONG (Buy, Hold, Sell?), Target for ARA Asset Mgt is $2.08
 

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