Fortune REIT proposes acquisition and 1-for-1 rights issue; positive for ARA

Monday, August 31, 2009

ARA-managed REIT, Fortune REIT, has announced 1) the proposed acquisition of three suburban retail properties in Hong Kong for HK$2,039 mn (+23% to FRT’s AUM), 2) securing of debt facilities of HK$3.1 bn to refinance existing term loan facility due in June 2010, and 3) a 1-for-1 rights issue at HK$2.29/right to raise HK$1,889 mn (a 44% discount to the last trading price, a 28% discount to TERP of HK$3.2).

As the manager of the REIT, ARA stands to earn a one-off acquisition fee of HK$20.4 mn (S$3.8 mn, being 1% of the purchase consideration) and also HK$6.3 mn as Advisory Fee.

We leave our estimates unchanged for now as the deal is subject to EGM approval on 11 September and due to be completed around mid-October 2009. The acquisition could boost ARA’s AUM by 3% from S$12.6 bn, and its FY09E EPS by 10% (due to the one-off fees) and FY10-11E EPS by 3% (recurring AUM fees).

We continue to like ARA for its high cash generative and scaleable business model. With positive momentum at both REITs and private funds, it is on track to growing its AUM to S$20 bn from S$12.6 bn by 2012. Maintain OUTPERFORM.


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