"ARA is well-positioned to pursue growth opportunities, as the combined partnership of Cheung Kong and Straits Trading, both well-reputed as premier business groups in Asia, will underpin an expanded business network reach in the Asia-Pacific region"
On behalf of the Board of ARA, we are pleased to present the annual report of the Group for the financial year ended 31 December 2013 ("FY2013").
FY2013 was a significant year for ARA. Despite the global economic uncertainties, we continued to increase our AUM to S$25.5 billion as at 31 December 2013 and grew our resilient earnings. This was achieved mainly from asset acquisitions made by the REITs and private real estate funds divisions, as well as the establishment of new funds.
On 29 November 2013, ARA entered into a strategic alliance with The Straits Trading Company Limited ("Straits Trading"), one of the most reputed publicly-listed companies in Singapore. This marks yet another key milestone for the Company as it embarks on an expanded long-term partnership with Cheung Kong (Holdings) Limited ("Cheung Kong") and Straits Trading.
STRATEGIC ALLIANCE IN SUPPORT OF GROWTH
As a strategic partner holding 20.1% of ARA, one of the key initiatives of the alliance includes the establishment of a co-investment vehicle by Straits Trading and Mr John Lim to support the future capital needs of the Group's private real estate funds division. This includes funding the seed capital for the launch of a new Asia-focused development fund to be managed by ARA.
ARA is well-positioned to pursue further growth opportunities, as the combined partnership of Cheung Kong and Straits Trading, both well-reputed as premier business groups in Asia, will underpin our expanded business network reach in the Asia-Pacific region.
RECURRENT EARNINGS STAY RESILIENT
In FY2013, total revenue for the Group grew 5% to S$140.4 million and the net profit for the Group increased to S$74.3 million, a growth of 2% year-on-year. Recurrent revenue comprising management fees earned from the REITs, private real estate funds and real estate management services divisions grew 11% year-on-year and accounted for more than 80% of our total revenue.
The Group's AUM attained a new high of S$25.5 billion as at 31 December 2013, achieved mainly from the successful asset acquisitions made by the REITs and private real estate funds divisions, as well as the establishment and management of new platforms, including the Morningside Investment Partners, LLC ("MIP").
The overall Asian REIT market delivered a mixed price performance in FY2013, as it came under pressure from the threat of rising interest rates in June.
However, our REITs under management continued to deliver strong financial performance and through active asset management initiatives, achieved higher net property income and values in their investment portfolios. The AUM has also grown by approximately 14% for the year following the completion of new acquisitions made by Suntec REIT, Fortune REIT and Cache Logistics Trust ("Cache"), further boosting the distribution income to its unitholders.
Suntec REIT in December 2013 completed its acquisition of a 100% interest in 177 Pacific Highway, a landmark office tower with freehold title to be developed in North Sydney's Central Business District, at a purchase consideration of A$413.2 million. Earlier in September, phase one of the major refurbishment of Suntec City was completed. A transformed Suntec Singapore Convention & Exhibition Centre with new retail space was unveiled, and together with the ongoing transformation for Suntec City Mall, will provide enhanced shopping, dining and entertainment options to all, complementing its status as the preferred Meetings, Incentives, Conventions and Exhibitions ("MICE") destination.
2013 marked the 10th year of Fortune REIT's listing. Since listing, its property portfolio has grown from HK$3.3 billion to HK$29.3 billion as at 31 December 2013. In October 2013, Fortune REIT acquired Fortune Kingswood in Hong Kong at a purchase consideration of HK$5.8 billion, making up the 17th and the largest asset in Fortune REIT's portfolio. During the year, the asset enhancement works to three of its malls were completed at an impressive return on investment of between 25% and 60%, further underscoring its track record in executing its planned initiatives.
In April 2013, Cache acquired Precise Two, a newly completed ramp-up logistics warehouse strategically located in the Jurong Industrial Precinct in Singapore, funded by monies raised in a private placement carried out in March 2013. The private placement drew strong interest from international investors and raised gross proceeds of S$86.8 million, providing the REIT with greater debt headroom to fund future acquisitions.
In December 2013, Prosperity REIT entered into a conditional sale and purchase agreement to acquire 9 Chong Yip Street in Hong Kong at a purchase consideration of HK$1.0 billion. This is a significant transaction for the REIT and the acquisition was completed in the first quarter of 2014.
PRIVATE REAL ESTATE FUNDS
FY2013 was an active year for ARA Private Funds. The Group raised US$240.0 million in capital commitments via a new platform, MIP. The MIP is a long term, value-add separate account vehicle backed by a United States public pension fund, targeting income-producing properties in the office and retail sectors in Singapore, Hong Kong and Malaysia. With this, ARA now manages funds for four out of the 10 largest public pension funds in the United States. In December 2013, the Group entered into a conditional sale and purchase agreement to acquire Macquarie Real Estate Korea Limited. Upon completion, it would enable us to gain a foothold in South Korea and tap on the immense real estate opportunities in one of Asia's largest economies.
Our flagship private real estate fund, the ARA Asia Dragon Fund ("ADF"), continues to deliver on its asset management and divestment strategies. During the year, it successfully divested its prime properties in China, namely the Dalian Tianxing Roosevelt Center and the Nanjing International Finance Center.
The ARA Asia Dragon Fund II ("ADF II") acquired assets in Malaysia and China totaling approximately US$620.0 million in acquisition value. With this, ADF II has deployed approximately 68% of its committed capital as at 31 December 2013. The ARA China Investment Partners, LLC ("CIP") has also commenced its investment into prime office and retail assets with stable cashflows in China by making its first acquisition of Dalian Tianxing Roosevelt Center from the ADF. In addition, it secured an additional capital commitment of US$330.0 million for the fund, bringing it to a total of US$830.0 million in committed capital.
REAL ESTATE MANAGEMENT SERVICES
Our real estate management services division provides the integral support in our effective management of the Group's properties in Singapore, China and Malaysia, providing quality property management and convention services.
During the year, APM group, our property management arm, is focused on the execution of asset enhancement initiatives undertaken by properties managed within the Group, including the major refurbishment of Suntec City and the retail/project management of the portfolio of Malaysia and China properties held by our private real estate funds.
Suntec Singapore International Convention & Exhibition Services Pte. Ltd. ("Suntec Singapore") has hosted more than 330 events at the Suntec Singapore Convention & Exhibition Centre since its re-opening in the second half of FY2013. Clients can expect an enhanced MICE experience from the new technological capabilities and renowned culinary excellence.
DIVIDEND & BONUS ISSUE
In March 2013, we rewarded our shareholders with a 1-for-10 bonus share issue, and the Directors are pleased to propose a final dividend of 2.7 Singapore cents per share in respect of FY2013. The proposed final dividend is subject to shareholders' approval at the Company's Annual General Meeting ("AGM") to be held on 25 April 2014. Together with the interim dividend of 2.3 Singapore cents per share paid out on 29 August 2013, the total dividend for FY2013 will amount to 5.0 Singapore cents per share.
The global economy is expected to pose a recovery in the coming year. The United States has commenced cutting back on its monthly bond-buying stimulus program as economic recovery strengthens. The Asian REITs sector is facing downward price pressure under expectations of higher interest rates.
China remains a key market for us. It recorded a GDP growth of 7.7% for FY2013 despite lingering concerns over the
implementation of reforms and the credit market. Investors will keep a close watch on Japan to see if a viable long term growth strategy can be delivered.
ARA has an impeccable track record for more than 10 years since its establishment and its business model continues to be highly scalable. The REITs under our management have the potential to grow in size. Moving forward, the Group will focus on increasing our AUM by developing franchises for our suite of private real estate funds as well as launch new funds. We will take a prudent and disciplined approach towards expanding into new markets, and look to tap greater synergies within the Group to build on sustainable growth.
We will also continue to strengthen our operations, corporate governance and risk management mechanisms, which would further enable us to deliver stable and sustainable returns to our shareholders.
We would like to thank our Board of Directors for their guidance, and to our staff for their dedicated contributions towards the success of ARA. We would also like to thank our investors, business partners and stakeholders for your strong support in 2013.
DR CHIU KWOK HUNG JUSTIN
MR LIM HWEE CHIANG JOHN
GROUP CHIEF EXECUTIVE OFFICER