Latest Earnings from ARA Asset Management Limited: Solid Growth Seen

ARA Asset Management Limited (SGX: D1R) released its second-quarter earnings yesterday evening.

As a brief background, ARA Asset Management earns its keep mainly by managing real estate funds and real estate investment trusts.

With that, let’s take a closer look at its earnings.

Financial highlights

The following are some of the company’s latest financial figures:

  • Revenue for the reporting quarter came in at S$40.3 million, up 9% from the S$36.8 million recorded the year before.
  • Profit attributable to equity holders followed suit by coming in 18% higher at S$19.3 million. But after stripping out one off adjustments from the results of both the second-quarter of 2015 and 2016, the company’s profit in the reporting quarter would be S$17.5 million, up 4% from the previous year.
  • Earnings per share (EPS) however, came in at 1.94 cents, 0.5% lower than in the second-quarter of 2015. There was a big jump in the number of shares outstanding as a result of a rights issue that was launched in late 2015.
  • Free cash flow for the reporting quarter was positive at S$3.1 million (operating cash flow of S$3.6 million and capital expenditure of S$0.5 million). This was an improvement from the second-quarter of 2015 when free cash flow came in at a negative S$3.5 million (negative operating cash flow of S$3.3 million and capital expenditure of S$0.2 million).
  • On the balance sheet, ARA Asset Management’s total borrowings for the reporting quarter came in at S$78.4 million as compared to cash and cash equivalents of S$74.1 million. This is an improvement from the second-quarter of 2015 when total borrowings and cash and cash equivalents came in at S$110.7 million and S$61.4 million, respectively.
  • The company had proposed an interim dividend of 2.3 cents per share for the reporting quarter, unchanged from a year ago.

Business highlights

ARA Asset Management’s revenue growth in the second-quarter of 2016 came mainly from higher management fees and finance income. You can see the company’s revenue changes in the different businesses below:

ARA Asset Management revenue table
Source: ARA Asset Management’s earnings presentation

The higher management fees had grown by 6% to S$33.6 million for a few reasons. Let’s touch on two.

First, there was higher REIT management fees as a result of “better asset performance from the existing properties post the successful asset enhancement initiatives undertaken which resulted in higher property valuations.” Second, there were recent acquisitions made by some of the REITs managed by ARA Asset Management; the REITs in question would be Suntec Real Estate Investment Trust (SGX: T82U) and Cache Logistics Trust (SGX: K2LU).

Finance income had nearly doubled for the following reason:

“A net gain on fair valuation / disposal of financial assets of S$1.9 million during the quarter (2Q2015 had recorded a net loss on fair valuation / disposal of financial assets of S$0.3 million under finance costs) and higher distribution income received of S$1.1 million during the same period.”

Investors may also want to note that ARA Asset Management’s assets under management is currently at S$29.7 billion, up from the S$26.9 billion seen a year ago.

The road ahead

Speaking on the road ahead for ARA Asset Management, the company’s chief executive John Lim said:

“Significant market events during the second quarter further compound the overall prevailing uncertainty.  However, the performance of our property portfolios under management continues to be stable, and opportunities to secure good investments at attractive valuations are still present in Asia, especially in these volatile times.”

ARA Asset Management’s shares closed at S$1.32 each yesterday. At that price, the company has a trailing price to earnings ratio of 15.

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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 does not own shares in any companies mentioned.