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ARA Asset Management Limited’s Latest Earnings: Broad-Based Growth Seen

On Monday evening, ARA Asset Management Limited (SGX: D1R) released its fiscal fourth quarter earnings for the year ended 31 December 2014. The reporting period was for 1 October 2014 to 31 December 2014.

ARA manages real estate investment trusts (REITs) and private real estate funds. It also helps manage physical real estate itself and also provides corporate finance advisory services.

With such business activities, ARA segments its revenue streams predominantly into Management fees; Acquisition, divestment and performance fees; and Finance income.

Some Singapore-listed REITs which are under ARA’s umbrella include Fortune Real Estate Investment Trust (SGX: F25U)Suntec Real Estate Investment Trust (SGX: T82U), and Cache Logistics Trust (SGX: K2LU).

Financial highlights

With all the above as a backdrop, let’s dig into ARA’s latest set of financial figures:

  1. Total revenue slid by 1% to S$43.2 million for the quarter, mainly as a result of a 57% year-on-year decline in acquisition, divestment, and performance fees from S$11.76 million a year ago to S$5.11 million. A 9% increase in Management fees to S$32.58 million helped to partially offset the decline.
  2. For the whole of 2014, total revenue came in 23% higher at S$173.1 million, driven by broad-based growth across most of the revenue segments. Management fees jumped 10% to S$125.5 million; Acquisition, divestment and performance fees surged by 68% to S$24.6 million; and Finance income spiked by 76% to S$20.39 million.
  3. Profit for the quarter slipped by 18% to S$18.16 million, although profit for the year actually grew by 18% to S$87.51 million.
  4. Consequently, earnings per share (EPS) for the quarter fell 18% to 2.15 cents. EPS for the whole of 2014 came in 18% higher at 10.35 cents.
  5. ARA’s cash flow from operations for 2014 came in at S$102.2 million. With capital expenditures of just S$1.22 million, this gives the company a healthy free cash flow of S$101 million, more than double 2013’s figure of S$47.1 million.
  6. ARA ended 2014 with cash and cash equivalents of S$64.4 million and total borrowings of S$34.36 million. This is a big improvement over end-2013, when it had cash and cash equivalents of S$39 million and total borrowings of S$30.47 million.

Tying it all up, ARA enjoyed double-digit revenue and earnings growth in 2014. The company also improved its balance sheet and generated great amounts of free cash flow.

It’s also worth noting that ARA’s Management fees, which are recurrent in nature and which provide a stable revenue base for the firm, are still growing.

Shareholders will receive a final dividend of 2.70 Singapore cents for the fourth quarter. Including the 2.30 cents already paid out in the second quarter, the total dividend for 2014 will come to 5.0 cents. This is unchanged from 2013.

Operational highlights

ARA ended 2014 with assets under management (AUM) of S$26.3 billion, up slightly from the figure of S$25.9 billion seen at end-2013. After accounting for the effects of divestments, ARA’s AUM at end-2014 would be S$31.1 billion, up from S$29.2 billion a year ago.

The growth in ARA’s AUM is important to note as it’s a main driver for the company’s revenue.

In late 2013, ARA had set up a strategic alliance with Straits Trading Company Limited (SGX: S20). The alliance saw ARA managing Straits Trading’s property portfolio and the establishment of Straits Trading as an important source of capital to support the future growth of ARA’s private real estate funds business.

Just last month, ARA established its Australian platform and has now enlarged its geographical reach to a “regional network that spans 15 cities across six countries, namely Singapore, Hong Kong, China, South Korea, Malaysia, and Australia.”

It will be interesting to see how these initiatives undertaken by ARA – the partnership with Straits Trading and the expanded geographical network – is going to pan out and contribute to the company’s bottom-line.

ARA is now trading at 16.3 times its latest earnings per share of 10.35 cents and has a dividend yield of 3% (based on its payout for the whole of 2014).

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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.