Singapore’s second oldest listed company is partnering one of Asia’s largest REIT managers to expand their property business.
Conglomerate Straits Trading Company (STC) is acquiring a 20.1 per cent stake in ARA Asset Management (ARA) for S$294 million.
Under the strategic alliance, STC will pay ARA Group CEO John Lim as well as Hong Kong-listed developer Cheung Kong Group S$294.37 million for the acquisition.
This works out to S$1.7326 per share. Post-transaction, Cheung Kong will hold 7.84 per cent of ARA while Mr Lim will own a 19.25 per cent stake.
STC and Mr Lim also committed S$950 million to set up a new joint property investment firm.
The co-investment vehicle will provide seed capital for new fund products to be managed by ARA.
STC will provide 90 per cent of the capital while Mr Lim will provide the remaining 10 per cent.
STC Chairman Chew Gek Khim said: “Although we have close to S$1 billion, it is small by industry measure. By doing this, we will form a much larger platform. It allows a greater degree of flexibility in what we can invest in (and) what we can do.
“We believe over the long term, this will give us a much higher return and transform our real estate assets into engines of growth. These funds will then attract other capital and it will be used to focus on various areas, and not necessarily within Singapore.”
The new S$950-million co-investment vehicle, Straits Real Estate, will focus on Southeast Asia, Australia and China properties in the first two to three years.
Mr Lim explained: “When you talk about the non-Asian market, you have to pay a bit more attention and do a bit more study. I personally think that Europe is an interesting market. That is something we need to study and to consider at a later stage.”
Under the third initiative, ARA will manage all of STC’s S$830-million real estate portfolio, excluding its hospitality assets.
Besides owning the Straits Trading Building, nine good class bungalows as well as freehold condominiums in the prime districts, STC also owns investment properties in Malaysia.
However, STC said while these properties are of high quality, they tend to be low yield, thus limiting growth opportunities for its property business.
STC said the deal will help it unlock the value from its property business which contributed five per cent to its 2012 revenue.
Jack Wang, partner at Lexico Advisory, said: “STC are pretty affected by commodity prices, given the mining business they are in. This would bring in more stable fee-based revenue for them. They are able to enhance their yield from their existing portfolio.”
Before trading was halted on Monday afternoon, STC was trading at S$3.65 per share; and ARA at S$1.75 per share.
Source : Channel NewsAsia – 29 Oct 2013