ARA Asset Management First Quarter Results: Managing Some Losses

Ser Jing - ARA Asset Management First Quarter Results, Managing Some Losses (pic)Real estate fund management company ARA Asset Management (SGX: D1R) released its first quarter results on Wednesday evening. The headline numbers showed a year-on-year 6% decline for quarterly revenue from S$34.3m to S$32.2m and an even larger 16% slide in profit from S$20m to S$16.8m.

The losses seem scary on first glance, but dig deeper into them and the situation seems better. The company reports revenue based on three main units; Management Fees; Acquisition, Divestment and Performance Fees; and Finance Income.

Let’s start with the bad news first. The Acquistion, Divestment and Performance Fees unit suffered the most as quarterly revenue decreased by 76% year-on-year from S$4.01m to S$0.95m. But, the decline was due to one-off events involving the divestment of properties from Suntec REIT and Fortune REIT that occurred last year. The divestments helped bolster revenue and profit from the unit on a one-off basis.

Finance Income was another unit with bad news as its revenue fell by 36% from S$7.17m a year ago to S$4.59m. The primary contributor for the decline was a lower net gain on the fair valuation/disposal of REIT units that ARA holds.

Now, let’s move on to the good news. Management Fees are considered recurring revenue, and it actually increased by 15% for the quarter from $23.1m a year ago to S$26.7m. Revenue from this unit comes from fees of the real estate investment trusts (REITs) and private real estate funds that the company manages.

Better asset performances from the REITs (which includes locally listed Fortune REIT (SGX: F25U), Suntec REIT (SGX: T82U) and Cache Logistics Trust (SGX: K2LU)) due to higher property-valuations and increased contributions from ARA Asia Dragon Fund and ARA China Investment Partners helped push Management Fees higher. Incidentally, investors in the previously-mentioned locally listed REITs might also develop an interest in ARA’s results as its fees are tied to the performance of those REITs.

The increase in Management Fees helped grow ARA’s quarterly recurrent profit by 14% from S$10.7m a year ago to S$12.2m.

ARA’s assets under management (AUM) also performed healthily as it grew 9% year-on-year from S$20.8b a year ago to S$22.7b. “Acquisitions by REITs under management, an increase in valuation of property portfolios of REITs under management and the inclusion of CIP (ARA China Investment Partners)” were cited as reasons for the growth in AUM. The company’s Chief Executive Officer, Mr John Lim, stated that ARA intends to continue to grow its AUM.

Regarding the future outlook for the company, Mr Lim added, “With the uncertainties surrounding the US and the Eurozone, we remain cautiously optimistic of Asia’s growth prospects in the coming year, while being mindful of the external risks and their potential impact on Asian economies. We note that China’s new leadership has in place an economic growth plan driven by urbanization and we remain selectively positive on China’s real estate sector.”

Shares of the company were 1.8% higher on Wednesday at $1.94. At that price, ARA’s selling for 24 times its last-12-months’ earnings and sports a dividend yield of 2.3% based on last year’s annual pay out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.