ARA Asset Management

[Boon]

9M2015 results (all in SGD) :
 
AUM : Total (billion) :
FY2011 = 19.8
FY2012 = 22.6
FY2013 = 25.9
FY2014 = 26.7
9M2015= 28.8  (=> UP 7.8% in 9 months)
 
AUM : Reits (billion):
FY2011 = 14.6
FY2012 = 16.2
FY2013 = 18.7
FY2014 = 21.0
9M2015= 22.0  (=> UP 4.7% in 9 months)
 
AUM : Private Real Estate Funds – Real Estate (billion)
FY2011 = 4.7
FY2012 = 4.7
FY2013 = 5.4
FY2014 = 4.0
9M2015= 4.6    (=> UP 15.1% in 9 months)
 
AUM : Private Real Estate Funds - Capital (billion)
FY2011 = 0.2
FY2012 = 1.2
FY2013 = 1.3
FY2014 = 0.8
9M2015= 1.3   (=> UP 57.2% in 9 months)
 
Total Revenue (million):
FY2011 = 122.761
FY2012 = 133.530
FY2013 = 140.369
FY2014 = 173.058
9M2015= 112.563  (vs 9M2014 =130.824) => DOWN 14%
 
NPAT (million)
FY2011 = 68.202
FY2012 = 72.704
FY2013 = 74.250
FY2014 = 87.510
9M2015= 52.495   (vs 9M2014 = 69.350) => DOWN 24%
 
EPS (Cents)
FY2013 =   8.79
FY2014 =  10.35
9M2015=    6.21    (vs 9M2014 = 8.21) => DOWN 24%
 
Management Fees: Revenue (million):
FY2011 =   90.860
FY2012 = 102.615
FY2013 = 114.003
FY2014 = 125.517
9M2015=   95.001  (vs 9M2014 = 92.940) => UP 2%
 
Acquisition, divestment and performance fees(ADPF) : Revenue (million):
FY2011 = 21.228
FY2012 =   8.223
FY2013 = 14.671
FY2014 = 24.593
9M2015=   8.680  (vs 9M2014 = 19.479) => DOWN 55%
 
Finance Income (FI): Revenue (million):
FY2011 = 10.566
FY2012 = 21.997
FY2013 = 11.583
FY2014 = 20.393
9M2015=   8.662   (vs 9M2014 = 15.925) => DOWN 46%
 
Administrative Expenses (AE) - (million):
FY2011 = 33.789
FY2012 = 39.172
FY2013 = 41.468
FY2014 = 51.903
9M2015= 34.775  (vs 9M2014 = 40.516) => DOWN 14%
 
Comments:
1)  9M2015 NPAT/EPS were DOWN 24% due to decrease in ADPF (DOWN 55%) and FI (DOWN 46%).
2)  Irregular ADPF and FI could potentially boost up or drag down the headline NPAT in a particular year – FY2015 could well be a “drag down” year – unless there is a strong rebound in 4Q2015 – perhaps, a big bonus performance fee from ADF1 (pure speculation, ha-ha!)
3)  Total AUM has grown 7.8% in 9M which is not bad. Private Fund AUM seems to be bouncing back. According to the management: “development of the various private real estate fund franchises is further gaining traction………to further grow AUM”   
4)  AE seems to be under control.
5)  DPS of 5 cents seem sustainable. With current share price of 1.40 => 3.6% yield.
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[freedom]

5) DPS of 5 cents seem sustainable. With current share price of 1.40 => 3.6% yield.

Read the balance sheet and cash flow statements again, it will be easy for you to identify that ARA can't sustain its dividend of 5cents. Worse, it might not afford any cash dividend.

ARA's cash flow is severely damaged by not able to sell its Suntec Reit units. Not only that, it was buying more Suntec Reit units, which required even more cash. Unlikely that ARA will reverse course and sell its Suntec Reit units. The improved REIT governance rules make the REIT manager difficult not to have a skin in the REIT just as PE funds require capital from the fund manager.

ARA has already borrowed more than 100M for seed capitals and its additional Suntec Reit investment. If ARA starts even more private real estate funds, it will require even more cash for seed capital, which it generated little from operation even without dividends.

From what I see from the finance statements, soon, ARA will have to cut/eliminate its cash dividends or replace with scrip dividend. The days that ARA can raise cash by selling REIT units could be gone forever.

[Nick]

Why can't it divest Suntec REIT units ? Was there a new ruling ?

(Not Vested)

[Dividend Knight]

Why can't it divest Suntec REIT units ? Was there a new ruling ?

(Not Vested)

Taken from MAS website.


ALIGNMENT OF INCENTIVES


A. FEE STRUCTURE

2.1. MAS proposed to require the performance fee payable to a REIT manager to be

computed based on a methodology that meets certain principles that foster stronger alignment

between a REIT manager and unitholders. MAS also invited suggestions on the possible

methodologies that could be adopted to comply with the principles.


2.2. Respondents generally agreed that in principle, a REIT manager’s fee structure should

be aligned with the long-term interest of the REIT and its unitholders. Most respondents were

of the view that current disclosure in trust deeds and prospectuses is appropriate and

sufficiently effective to ensure alignment of interests. They commented that it would not be

appropriate for MAS to prescribe a standard metric for fee computation, such as net asset

value per unit or distributions per unit (“DPU”), as every REIT is different in terms of its

business model, focus, mandate and composition.


MAS’ Response

2.3. MAS notes respondents’ agreement that the performance fee structure adopted by a

REIT manager should be aligned with the long-term interests of the REIT’s unitholders.

MAS will not prescribe a list of permissible fee computation methodologies as REITs vary in

business models and each methodology has its merits and shortcomings. Net asset value per

unit and DPU are two possible metrics that could meet the principles on performance fees.

Other metrics could be used if they meet these principles.


My interpretation is that ARA can still sell REIT units but they need to justify that the fee structure is aligned with long-term interests of unit-holders.

(Not vested in ARA)

[Dividend Knight]

Read the balance sheet and cash flow statements again, it will be easy for you to identify that ARA can't sustain its dividend of 5cents. Worse, it might not afford any cash dividend.

From what I see from the finance statements, soon, ARA will have to cut/eliminate its cash dividends or replace with scrip dividend. The days that ARA can raise cash by selling REIT units could be gone forever.

Seems like ARA is striving to build a business model similar to Blackstone by growing its AUM and collect more management fees.

However, like you mentioned, ARA is not as financially robust as Blackstone. So it needs to forge partnership and raise seed capital. Talking about partnership, I remember ARA and Straits Trading had some kind of collaboration last year? Did anything bear fruit? Can anyone shed some light on it?

(Not vested)

[Boon]

5)  DPS of 5 cents seem sustainable. With current share price of 1.40 => 3.6% yield.

Read the balance sheet and cash flow statements again, it will be easy for you to identify that ARA can't sustain its dividend of 5cents. Worse, it might not afford any cash dividend.

ARA's cash flow is severely damaged by not able to sell its Suntec Reit units. Not only that, it was buying more Suntec Reit units, which required even more cash. Unlikely that ARA will reverse course and sell its Suntec Reit units. The improved REIT governance rules make the REIT manager difficult not to have a skin in the REIT just as PE funds require capital from the fund manager.

ARA has already borrowed more than 100M for seed capitals and its additional Suntec Reit investment. If ARA starts even more private real estate funds, it will require even more cash for seed capital, which it generated little from operation even without dividends.

From what I see from the finance statements, soon, ARA will have to cut/eliminate its cash dividends or replace with scrip dividend. The days that ARA can raise cash by selling REIT units could be gone forever.

Firstly, ARA has non-current financial assets of SGD 373.177 million as at 30 September 2015 comprised primarily of
(i)            94.3 million Suntec REIT units held by the Group as a strategic stake;
(ii)          16.5 million Cache units held by the Group as a strategic stake;
(iii)         36.2 million AmFIRST REIT units held by the Group as strategic stake;
(iv)         seed capital investments in the ADF I, the ADF II, the CIP, the MIP and the Harmony III;
(v)           a 10.02% strategic stake in ARA-NPS Real Estate Investment Company;
(vi)         seed capital investments in ARA ShinYoung Residential Development Real Estate Investment Company and
(vii)        investment in the APN SICAV-APN Asian Asset Income Fund previously known as ARA Asian Asset Income Fund). As at 30 September 2015, the liquidation of APN SICAV-APN Asian Asset Income Fund has been substantially completed, along with the receipt of the proportionate amount of liquidation proceeds by its investors.
 
There is no reasons why ARA could not divest away any of its strategic stakes when the time is right.
 
For Private Funds, seed capital could be recycled from old funds to new funds.
 
Secondly, in 9M2015, ARA received SGD48.404 million worth of management fees paid in units of REITs (hence low operating cash flow).
 
Again, there is no reason why ARA could not turn them into cash to pay for cash dividend.
 
The point is ARA has been generating enough “earnings” (of more than EPS= 5 cents) to sustain a DPS of 5 cents – earning above 5 cents has been retained and reinvested.
 
No doubt, it is a investment (or reinvestment) vs distribution decision – for which optitons and possibilities are many. However, to claim that “the days that ARA can raise cash by selling units could be gone forever” is an overstatement, IMO.
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[Contrarian]

> Secondly, in 9M2015, ARA received SGD48.404 million worth of management fees paid in units of REITs (hence low operating cash flow).

This is correct. They will sell it to pay admin costs, John Lim said at AGM.

THe other thing to remember, is ADF I performance is determined this year. So there will be a bumper rise in the earnings for ADF performance

[greengiraffe]

Fun mgt business is highly dependent on assets under mgt...

In an environment where $ is cheap and everyone is looking for mgrs to achieve better returns, only those with assets to seed into REITs or even pte funds will ensure their survival...

Armed with $ and looking to buy assets to mgt is a fun but tough business. Rather, one should seize opportunities to buy a big platform and slowly seed (stripped) these assets over time into REITs or funds under mgt...

John Lim is a smart guy... he diluted a sizable stake alongside with Superman when S Trading Chew came along... sadly should one be tracking S Trading long enough, one would have felt that apart from the historical assets accumulated century ago, there was little real value added to S Trading... even that tussle for WBL was a lucky Tikam that forced OCBC Lee's hands.

Personally, anything that S Trading or Mdm Chew touch, GG will stay away... John dilute is a good signs of tough business ahead for his baby. If business is so good at ARA, why would John dilute to set up his private office?

Not Vested
Busy Body
GG

[Boon]

> Secondly, in 9M2015, ARA received SGD48.404 million worth of management fees paid in units of REITs (hence low operating cash flow).

This is correct.  They will sell it to pay admin costs, John Lim said at AGM.

THe other thing to remember, is ADF I performance is determined this year.  So there will be a bumper rise in the earnings for ADF performance

According to ARA website:

http://www.ara-asia.com/businesses/priva...ragon-fund

13 out of 14 of ADF I assets have been divested. One more to go...................
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[Contrarian]

> 13 out of 14 of ADF I assets have been divested. One more to go..................

Good one. Is the payout calculated at the end of the divestment or at end of every year bro?