Profits and Dividends Grow At ARA Asset Management Limited

ARA Asset Management Limited (SGX: D1R) posted its latest full year results for 2013 on Thursday.

Revenue for the year was at S$140.4 million, a rise of 5% year-on-year while net profit rose 2% to S$74.3 million. Consequently, the company’s earnings per share moved up in line with its profit growth by 2.2% to 8.79 Singapore cents.

ARA is an Asian real estate fund management company that focuses on managing real estate investment trusts (REITs) that are publicly-listed in Singapore, Hong Kong and Malaysia. These REITs in turn own a diversified portfolio of properties that spans the retail, office, industrial/office and logistics sectors. Some of the REITs under ARA’s management include Fortune REIT (SGX: F25U), Suntec REIT (SGX: T82U) and Cache Logistics Trust (SGX: K2LU).

In addition, ARA also provides real estate management services and manages private real estate funds.

The company reports its revenue under four different segments: Management fees (which are what’s termed as ‘recurrent management fees’ by the company); Acquisition, divestment, and performance fees; Finance income; and Other income.

Compared to 2012, there was an 11% and 78% increase in management fees and acquisition, divestment and performance fees, respectively. Meanwhile, finance and other income had both decreased substantially by 47% and 80%. These figures all came together and resulted in ARA’s 5% growth in total revenue to S$140.4 million for 2013, as mentioned earlier.

The 11% increase in management fees were driven mainly by higher real estate and REIT management fees. In particular, improved performance after asset enhancement initiatives for some of the REITs caused their portfolio of properties to be revalued higher, leading to an increase in REIT management fees.

The 78% increase in acquisition, divestment and performance fees was due to higher fees arising from the acquisitions made by Fortune REIT, Suntec REIT and Cache Logistics Trust during the year. Fortune REIT had acquired Fortune Kingswood and Suntec REIT acquired 177 Pacific Highway in North Sydney, Australia.

Stripping off unrealised marked-to-market gains/losses (i.e. the adjustment of the value of its financial assets according to market prices) , ARA would have achieved an adjusted net profit of S$81.4 million, 28% higher year-on-year. The recurrent net profit, which excludes the acquisition, divestment and performance fees, finance income and finance costs, was at S$56.1 million, 17% higher year-on-year.

As of 31 December 2013, the assets under management (AUM) under ARA’s belt attained a new high of S$25.5 billion. This was a 12.7% rise as compared to the previous year.

While there were some nice growth-figures in its top- and bottom-line, ARA had ended 2013 with a weaker balance sheet as its net cash position (total cash minus total debt) had fallen from S$74 million in 2012 to S$8.6 million.

Shareholders will receive 2.7 Singapore cents per share as a final dividend. Including the interim dividend of 2.3 Singapore cents per share that was already paid out in the second quarter of 2013, 5.0 Singapore cents per share would have been paid out for the full year, some 10% higher than the split-adjusted dividend of 4.55 cents paid out in 2012. This translates to a dividend yield of close to 3%, as of the close on Thursday at S$1.735.

During the year, ARA announced a strategic alliance with Straits Trading Company (SGX: S20) and the acquisition of Macquarie Real Estate Korea Limited, a Korean real estate management company.

ARA’s CEO, John Lim, commented on the year’s results: “We are pleased to have achieved another year of strong results, particularly in the growth of our recurrent management fees and recurrent net profit by 11% and 17% respectively. Notwithstanding the persistent global economic uncertainties, we continued to grow our resilient earnings and increase our AUM…We continue to be focused in employing a prudent and disciplined approach towards building a sustainable growth for the Group. Moving forward, 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.”

Based on the full year EPS of 8.79 Singapore cents, ARA’s currently selling for 20 times trailing earnings. If recurrent net profit was used to value the company, its shares would sport a historical price-to-earnings ratio of 26 instead.

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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 Sudhan P owns shares in ARA Asset Management.