Shadow of ARA's ambition hangs over Cromwell

“We believe this has the potential to lead to a change in strategy for Cromwell and, or ARA making a bid for the outstanding shares,” JPMorgan analysts Ben Brayshaw, Krzysztof Kaczmarek and Richard Jones wrote in a client note on Wednesday.

ARA’s move came just days after Cromwell’s takeover bid, thought to be worth as much as $1.3 billion, for British-listed RDI REIT fell over after the London-based group judged it to be low-ball and refused an extension on the offer.

ARA’s request for the register can be a preliminary step in calling a shareholder meeting, prompting Cromwell to warn its own shareholders to treat any unsolicited communication from the Singaporean player “with circumspection”.

“ARA may have its own agenda, which might not be consistent with the best interests of all Cromwell securityholders,” Cromwell said.

The JPMorgan team noted they had already factored in a 50 per cent probability of ARA bidding for Cromwell’s outstanding shares when it originally took over a 19.5 per cent stake in the Brisbane-based fund manager from South Africa’s Redefine Properties .

“We estimate ARA Australia has about $3 billion of AuM, which it manages on behalf of various ARA-sponsored entities such as Suntec REIT,” the JPMorgan team noted.

Price target
As a potential capital source for any ARA play for Cromwell, Suntec REIT itself has a balance sheet of about $S9.7 billion ($10.2 billion) with $S1 billion invested in Australia, and a stated interest in more Australian acquisitions.

JPMorgan’s price target for Cromwell is $1.15. The stock traded slightly higher on Wednesday to close at 1.5¢ up at $1.16.

The analysts have lifted their M&A valuation of Cromwell’s stock to about $1.30 per share (from $1.25) based on their view that its local portfolio of $2.8 billion is 8 per cent under-valued.