ARA delays Qatar REIT IPO, plans US$1b China fund: Update

Stock Name: ARA
Company Name: ARA ASSET MANAGEMENT LIMITED

Research House: U.S. Bank

Price Call: BUY

Target Price: 1.85

Property fund manager ARA Asset Management (ARAM.SI) has put on hold plans to list a Qatar REIT in Singapore but is confident it will be able to raise US$1 billion for a China fund that will invest in commercial real estate, its CEO said on Thursday.

ARA, part-owned by Hong Kong property giant Cheung Kong (0001.HK), currently manages about $18.8 billion in real estate assets. It had planned to list a REIT with Qatari hotels and serviced residences worth about US$1 billion ($1.2 billion) but has shelved the idea for now.

“We’ve put that temporarily on hold because of geopolitical issues in the Middle East and North Africa, but that will come back once things have settled,“ ARA’s CEO John Lim told Reuters in an interview.

Investors, however, remain optimistic about the long-term prospects for real estate in China, and Lim said ARA has already secured US$300 million in commitments for a planned US$1 billion China fund.

The fund, called the Asian Dragon Fund (ADF) II, will start investing in the fourth quarter and expects to hit the US$1 billion target by March 2012.

“The world is uncertain with the European, U.S. issues. But my sense is that China will continue to be the growth engine for the world, and that’s where our focus will continue to be, along with Singapore, Hong Kong and Malaysia,” Lim said.

“China as a whole, is switching its economic model from export to domestic consumption. The key thing is urbanisation and as people get more affluent, people want a better shopping environment,” he said, adding ARA sees strong demand for shopping centres in China.

Lim said ADF II will focus mainly on larger cities in central and western China, citing Chongqing and Xi’an as examples.

“There’s a lot of fiscal spending in infrastructure in that area. Growth is quite significant there and costs, such as wages, land value, construction costs, are relatively cheaper there compared to coastal cities,” he said.

Looking ahead, Lim said ARA plans to raise assets under management by an average of $2 billion a year over the next five years.

He added that ARA’s flagship US$1.1 billion Asia Dragon Fund I, which was established in 2007, is on track to deliver its targeted annual return of 20 percent, Lim said.

“Of the assets held by ADF I, there may be potential to establish a new Malaysia retail REIT and a new China commercial REIT,” Bank of Americal Merrill Lynch said in a recent report on ARA.

The U.S. bank has a buy rating on ARA with a target price of $1.85. ARA was last traded at $1.345.

ARA currently manages six listed REITs, including Singapore-listed Suntec REIT (SUNT.SI) and Hong Kong-listed Hui Xian REIT (87001.HK), a yuan-denominated trust backed by Cheung Kong which is the flagship property firm of Hong Kong tycoon Li Ka-shing.