Making Sense Of ARA Asset Management

Most investors in Singapore have probably held a Real Estate Investment Trust (REIT) in their portfolios at one time for another.

One of the most striking things you might notice, if you look closely at a REIT’s financial statement, is the steady increase in managers’ fees.

One of the biggest REITs managers that is listed in Singapore is ARA Asset Management (SGX: D1R). ARA floated on the Singapore Exchange in 2003, with Asset Under Management (AUM) of S$0.6 billion. Over the last 12 years this has increased almost exponentially to around S$34.4 billion today.

Some S$22 billion of the S$34 billion of assets it manages comes from REITs. Six of them, namely, Fortune REIT (SGX: F25U), Suntec REIT (SGX: T82U), Cache Logistics Trust (SGX: K2LU), Prosperity REIT, AmFIRST REIT and Hui Xian REIT, are quoted companies. Of these, three are listed in Singapore, while the others are listed in either Hong Kong or Malaysia.

Apart from listed REITs, ARA also manages unlisted REITs in which it has a financial interest.

The other S$12 billion of assets that ARA is involved in come from private real estate funds, which it manages for large investors, through development funds that have been set up by ARA. They currently have about eight private funds.

So how does ARA’s business work? It’s quite simple. ARA charges a fixed percentage of the value of the assets they management every years as fees for the services it provides.

For example, Cache Logistics Trust pays 0.5% of the Net Property Value as fees every year. For the other listed REITs it is possible to find out how much they pay too. But it can be less easy for the private funds or unlisted REITS that ARA looks after. Those fees enable the manager to enjoy a steady stream of revenue, year after year.

ARA is currently trading at a $1.26 a share. The shares have a book value of S$0.38, which implies a Price-to-Book of around 3.3.

The shares are valued at 12.5 times earnings, and have a dividend yield of about 4%.

While its Price-to-Book ratio might seem high, ARA is primarily a services company, which means it might have fewer assets. The Price-to-Earnings ratio compares well with the market average, too.

ARA has also been able to pay S$0.05 dividends for the last couple of years. That is only half its profits, which probably means that the payout should not be onerous.

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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 Esjay owns shares in Cache Logistics Trust.