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

On Thursday evening, ARA Asset Management Limited (SGX: D1R) released its earnings for the quarter and year ended 31 December 2015.

As its name might suggest, ARA manages real estate investment trusts (REITs) and private real estate funds. It also oversees physical real estate and provides corporate finance advisory services. Some of the Singapore-listed REITs under the firm’s care are Fortune Real Estate Investment Trust (SGX: F25U)Suntec Real Estate Investment Trust (SGX: T82U), and Cache Logistics Trust (SGX: K2LU).

Financial highlights

Let’s have a brief look at the company’s latest financial numbers:

  1. Revenue for the full year came in at S$156 million, a decline of 10%. The lower revenue was due to decreased finance income, other income, and acquisition, divestment and performance fees. But, for the fourth-quarter, revenue actually increased by 7% year-on-year to S$46 million.
  2. Net profit tumbled 10% for the year as well to S$78 million. It was a different story for the reporting quarter though as net income actually spiked by 41% to S$26 million.
  3. Earnings per share for the year was at 8.96 Singapore cents, down from 10.11 cents a year ago.
  4. At the cash flow front, it didn’t look too good. ARA managed to generate S$21.9 million in free cash flow (cash flow from operations of S$23 million and capital expenditures of S$1.1 million) in 2015, but that’s a far cry from the S$101 million in free cash flow (CFFO of S$102 million and capex of S$1.2 million) seen in 2014. For the reporting quarter, free cash flow came in at S$17.1 million (CFFO of S$17.5 million and capex of S$0.4 million), also down significantly from S$30.3 million (CFFO of S$30.5 million and capex of S$0.2 million) a year ago.
  5. As of 31 December 2015, the firm had total borrowings of S$14 million and a cash hoard of S$77 million. This is a vast improvement from a year ago when total debt was S$34 million and the cash balance was S$64 million.

Overall, despite the slightly poorer performance in terms of profits and cash flow, the balance sheet of ARA seems to be rock-solid.

Business highlights

For the year and for the quarter, management fees, which are recurring in nature, put on a good showing. Management fees from REITs grew 12% to S$86.8 million in 2015. This was largely on the back of new acquisitions made by the REITs managed by ARA and better asset performance from the existing properties.

The firm also reported that its assets under management had grown by 11.9% to S$29.8 billion in 2015, driven by both ARA Private Funds and the REITs division.

Looking ahead

For the REITs division, ARA said it will continue to “proactively enhance the properties in its REIT portfolio, pursue opportunistic acquisitions and divestments which add value to its stakeholders, as well as seek opportunities to further grow the platform through the establishment of new REITs in new markets and jurisdictions.”

As for the private funds, the company revealed that it is looking to grow ARA Private Funds further and is seeking to “capitalise on investment and capital raising opportunities in the target markets of China, South Korea and Australia.”

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 the year will come to 5.0 cents, unchanged from last year. This is despite the firm increasing its share count through a 18 for 100 rights issue in 2015.

At its current price of S$1.04, ARA is now trading at 11.6 times its latest earnings and has a dividend yield of 4.8%.

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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.