ARA Asset Management

[gutman]

can somebody explain why ARA cannot be bought with CPF money? tks

I think it is because ARA is incorporated in Bermuda.

One of SGX's criteria for considering the inclusion of shares under CPFIS is : The shares are offered by a company that is incorporated in Singapore.

[Nick]

ARA POSTS FY2013 NET PROFIT OF S$74.3 MILLION TOTAL ASSETS UNDER MANAGEMENT GREW 13% TO S$25.5 BILLION

http://www.ara-asia.com/news/ARA%204Q201...cement.pdf [Financial Statements]

http://www.ara-asia.com/news/ARA%204Q201...Slides.pdf [Slides]

http://www.ara-asia.com/news/ARA%204Q201...elease.pdf [Press Release]

ARA released its FY 2013 results with core profits soaring by 28% reflecting the growth in AUM to a record high of S$25.5 billion fueled primarily by organic growth in REIT management fees and creation of new private funds. Dividends maintained at 5.00 cents per share implying a dividend yield of 2.85%.

Points of Interest:

1) AUM increased by 12.7% to $25.5 billion resulting in record high management fees of $128 million of which $114 million are recurring in nature. The steep decline in operating margins in FY 2012 was arrested and margins rebounded this year. This is likely due to the one off cost incurred in the failed Dynasty REIT listing. Operating margins rebounded from 58% to 67% while recurring operating margins rebounded from 50% to 54% which is in line with figures reported from 2008. Distribution income was stable though share of results from associates took a dip. Overall, core profits increased by 28% to $81 million with core EPS of 9.63 cents translating to a PER of 18x.

2) What surprised me was the sharp increase in the real estate management division which reported 45% increase in revenue from $15 million to $22 million. This division was boosted by the acquisition of the property managers companies that were managing the Chinese properties held by ADF in 2012. It was also aided by leasing commission income from the new Suntec Mall - I do wonder is this primarily one off income ?

3) The main drawback of the private fund business is the requirement to co-invest ie having a strategic stake or seed capital in the fund often in the tune of 10%. This implies that for every $900 million raised, ARA needs to fork out $100 million of its cash to co-invest with the private investors. While in the long run this could generate decent returns to ARA if the Funds perform well (over $50 million distributions received from its stakes in private funds and REITs since 2008), it does hamper its ROE and ability to grow. It will not be able to launch numerous funds if it cannot finance the necessary capital contribution for its strategic stake. In FY 2013, ARA invested $89 million in the form of seed capital resulting in its debt increasing from $5 million to $30 million. It is likely further capex will be required with the launch of new funds in 2013. The FY 2013 Annual Report will reveal the capital commitments in the coming years. This challenges the asset light model ARA was meant to be.

4) Fortunately, this challenge highlights the motivations behind the STC deal with John Lim and ARA reported last year. One of the key agreement was a formation of a $950 million fund between STC and JL to finance seed capital contribution in future funds launched by ARA. This implies the 'capex' ARA has to incur will be substantially curtailed for the next $10 billion of private fund AUM raised. While previous growth in AUM was constraint by the ability to source for investors and its ability to finance the seed capital, this deal removes the second constraint enabling ARA to focus on what it does best - sourcing for investors and managing their investments. I am not too certain if ADF 3 seed capital will be financed from this venture - I have to check with their IR. This brings ARA back to its asset light roots.

5) I expect 2014 to be another year of growth barring a major crash in the property markets in Asia. The REIT management division will benefit from the completion of Suntec Mall AEI Phase 2 - boosting asset value and NPI - both of which are used to compute ARA's base fees. It is likely the individual REITs will make acquisitions over the year. I don't think a new REIT will be launched in the current muted market due to tapering. The private fund business will benefit from the full year contribution of new funds raised last year. The acquisition of Macquarie REIT management team in Korea will boost AUM by over US$0.5 billion and allow ARA to enter a new Asian country. Not too sure if ADF 1 will complete its divestment this year. Key things to watch out will be its seed capital capex and operating margins.

Would welcome comments from fellow buddies.

(Vested)

[Nick]

LAUNCH OF PLACEMENT OF NEW UNITS IN SUNTEC REIT TO RAISE GROSS PROCEEDS OF NO LESS THAN S$350.0 MILLION

http://infopub.sgx.com/FileOpen/SuntecRE...eID=289138

More AUM.

(Vested)

[Nick]

http://infopub.sgx.com/FileOpen/Incorpor...eID=290517

New fund coming soon ?

(Vested)

[Boon]

AR2013 is out.

http://infopub.sgx.com/Apps?A=COW_Prospe...te&F=20127

(vested)

[Nick]

ARA COMPLETES THE ACQUISITION OF MACQUARIE REAL ESTATE KOREA LIMITED

http://infopub.sgx.com/FileOpen/ARA%20co...eID=292173 [Press Release]

http://infopub.sgx.com/FileOpen/Announce...eID=292174 [Announcement]

Small acquisition but a landmark one since it breaks into a new market. The acquisition looks attractively priced - $11.1 million acquisition price though the asset has $10.7 million net cash. Coupled with the AUM of $708 million, it is likely revenue of > $3.5 million could be generated assuming 0.5% of AUM as fees.

(Vested)

[Contrarian]

can somebody explain why ARA cannot be bought with CPF money? tks

I think it is because ARA is incorporated in Bermuda.

One of SGX's criteria for considering the inclusion of shares under CPFIS is : The shares are offered by a company that is incorporated in Singapore.

I asked this few years back. There are some tax implications if coy is listed in Singapore.

[Nick]

STC acquired 1.4% stake in Suntec REIT for $60.2 million.

http://infopub.sgx.com/FileOpen/Acquisit...eID=295307

[Muser]

Why buy
- asset light, low leverage, fee-based income, multiple income streams
- owners & mgmt with good track record (john lim, li ka shing group, straits trading)
- good track record in growing revenes & profits
- consistently high ROE
- significant share holding by CEO and strategic owners (straits trading, li ka shing group)
- sidecar investment (ability to gain access to real estate investments which others may not be able to, due to track record & relationships)
- selling at >40% discount to EPV (my calculation may be wrong)

What can go wrong?
- my bias. I like the company
- increase in debt
- change from asset-light model to asset-heavy model (like higher ownership/stake in assets managed)

Catalyst to sell
- when valuation gap closes (my EPV estimate is ~$3)

[Nick]

Why buy
- asset light, low leverage, fee-based income, multiple income streams
- owners & mgmt with good track record (john lim, li ka shing group, straits trading)
- good track record in growing revenes & profits
- consistently high ROE
- significant share holding by CEO and strategic owners (straits trading, li ka shing group)
- sidecar investment (ability to gain access to real estate investments which others may not be able to, due to track record & relationships)
- selling at >40% discount to EPV (my calculation may be wrong)

What can go wrong?
- my bias. I like the company
- increase in debt
- change from asset-light model to asset-heavy model (like higher ownership/stake in assets managed)

Catalyst to sell
- when valuation gap closes (my EPV estimate is ~$3)

How did you get $3 EPV ? Could you share the assumptions you made in your calculations ? Thanks.