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What Investors Need To Know About ARA Asset Management Limited’s Latest Earnings Result

ARA Asset Management Limited (SGX: D1R) released its financial results for the nine months ended 30 September 2014 just yesterday.

The firm’s bread and butter resides in the management of real estate investment trusts (REITs) and private real estate funds. It also helps manage real estate and provides corporate finance advisory services. Some of the locally-listed REITs under ARA’s purview include Fortune Real Estate Investment Trust (SGX: F25U), Suntec Real Estate Investment Trust (SGX: T82U), and Cache Logistics Trust (SGX: K2LU).

The company reports its revenue under four different segments: Management fees; Acquisition, divestment, and performance fees; Finance income; and Other income. Let’s dig into ARA’s latest earnings.

The financial numbers

For the nine months ended 30 September 2014, total revenue grew by 35% year-on-year to S$130.8 million while net profit increased 33% year-on-year to S$69.4 million. As a result, earnings per share rose by the same amount to 8.21 Singapore cents.

The top-line growth came on the back of a nearly six-fold increase in Acquisition, divestment, and performance fees to S$19.5 million. The big jump in the segment’s top-line came about as ARA booked S$16.1 million in performance fees for  the ARA Harmony Fund. The private real estate fund, which owns Suntec Singapore Convention & Exhibition Centre, had delivered some great returns for its investors when it crossed its initial five-year term in its fund cycle back in September.

Meanwhile, Acquisition fees received from Prosperity REIT’s acquisition of 9 Chong Yip Street early this year and Suntec REIT’s progressive payments for its acquisition of 177 Pacific Highway also helped to boost the segment’s revenue, and in turn, ARA’s total revenue.

Management fees, which are recurrent in nature, grew 11% year-on-year to S$92.9 million, partly as a result of improved asset performance. ARA had set-up asset enhancement initiatives for a number of its REITs which improved property valuations.  Since Management fees are a form of recurring revenue for ARA, investors might want to keep an eye on how it changes in the future.

Some operational highlights

In April this year, ARA completed the acquisition of Macquarie Real Estate Korea Limited (now renamed as ARA Korea Limited), a real estate management company based in Seoul, South Korea. With the acquisition, ARA now manages two privately-held Korean REITs. ARA received REIT management fees from managing these two REITs for the nine months as well, which added to the company’s coffers.

In ARA’s earnings release, the company’s Group Chief Executive Officer, Mr. John Lim, gave some thoughts on the company’s future outlook:

“With the strategic alliance with The Straits Trading Company Limited (SGX: S20) firmly in place, we are working towards another leg of growth for ARA, in particular for ARA Private Funds, our private real estate funds platform. Straits Real Estate would provide us with another strong source of capital in seeding new funds and products, and accords us greater flexibility and capabilities in pursuit of future growth for ARA.”

As of 30 September 2014, ARA’s asset under management (AUM) stood at S$26.1 billion, an improvement of 2.4% from the end of 2013. If divestments were accounted for, ARA’s AUM would have been US$29.8 billion. Investors might also be happy to note that the company’s partnership with Straits Trading could “support up to S$10.0 billion of new ARA private funds over time.” If this comes to fruition, it would help to significantly boost ARA’s recurrent management fees. Given the growth-potential involved here, it’d pay for investors to keep track of the strategic alliance’s progress.

ARA’s shares last changed hands at S$1.705 on Monday.

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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 Limited.