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ARA Asset Management Limited’s Latest Earnings: What Investors Should Know

ARA Asset Management Limited (SGX: D1R) reported its second-quarter earnings yesterday. The reporting period was for 1 July 2015 to 30 September 2015.

ARA Asset Management earns its keep mainly from the management of real estate investment trusts and real estate funds. It has four revenue segments: Management Fees; Acquisition, divestment and performance fees; Finance income; and Other income.

You can read more about the company here or catch up with the previous earnings report here .

Financial highlights

The following’s a quick take of ARA Asset Management’s latest financial figures:

  1. Overall revenue for ARA Asset Management fell 28% year on year to $38.2 million. 
  2. Net profit for the period followed suit with a 44% fall to around $17.1 million.
  3. As a result, earnings per share (EPS) fell 44% from 3.63 cents in the third quarter last year to 2.02 cents in the reporting quarter.   
  4. Cashflow from operations came in at $2.4 million while capital expenditure was $345,000. This gives ARA Asset Management a free cash flow of $2 million for the reporting quarter.
  5. As of 30 September 2015, the company had $42.3 million in cash and equivalents and $137.7 million in debt. This gives a net debt position of $95.4 million.

If last quarter’s results was weak, it got worse in this reporting quarter. ARA Asset Management’s revenue and profit experienced significant declines. While the company got back into positive free cash flow territory, its cash position declined compared to the prior quarter.

As mentioned last quarter, ARA Asset Management purchased a strategic stake in Suntec Real Estate Investment Trust (SGX: T82U). At the end of September 2015, ARA Asset Management had 94.3 million units of Suntec REIT and 16.5 million units in Cache Logistics Trust (SGX: K2LU) which were held as non-current financial assets. Non-current financial assets on its balance sheet was worth $373.2 million at the end of the reporting quarter.

Operational Highlights

Let’s take a look at how the individual business segments performed.

Revenue from management fees rose by 4% year on year to come in at $33.2 million for the reporting quarter. Overall, the management fees segment for ARA Asset Management can be deemed to be recurring, so it is important to keep an eye on this source of revenue.

Revenue from Acquisition, Divestment and Performance fees fell 93% year on year to just $1.2 million. The revenue segment had to contend with a one-off $16.1 million performance fee which was received in the third quarter of 2014. Its Finance income segment and Other income segment fell 12% and 72% year on year respectively as well.

John Lim, Chief Executive Office of ARA Asset Management, said:

“The REIT division continued to make acquisitions that provide income and geographical diversification. Cache [Logistics Trust] has during the year announced and completed the acquisition of four Australian properties for a total purchase value of approximately A$97.0 million, marking its first investments into Australia.

In addition, the development of DHL Supply Chain Advanced Regional Centre which commenced in FY2014 was completed in the third quarter of FY2015. We have also launched our third privately-held Korean REIT named ARA ShinYoung Residential Development Real Estate Investment Company and the successful completion of its first investment in a residential development project in Seoul with a total development cost of approximately KRW43.0 billion.

I’m excited that the development of the various private real estate fund franchises is further gaining traction and in particular the establishment of the PIP [Peninsular Investment Partners], with the option to upsize its capital commitment which creates a scalable platform to build up a larger fund size over time. We look to partner our investors in the form of seed capital in more of such scalable platforms to further grow our assets under management.

As of 30 September 2015, ARA Asset Management had assets under management (AUM) of S$28.8 billion.

Foolish summary

At its closing price yesterday of $1.40, ARA Asset Management traded at around 16.8 times trailing earnings and a trailing dividend yield of 3.6%.

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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 Chin Hui Leong owns shares in ARA Asset Management.