Byte Sized News Release: ARA posts 1H16 net profit of S$38.7 million

ARA Asset Management Limited (ARA) is reported total revenue of S$81.6 million and net profit of S$38.7 million for the quarter ended 30 Jun 16. Recurrent management fees for 1H16 grew strongly by 10% to S$68 million, underpinned by the growth in REIT management fees, portfolio management and service fees as well as real estate management fees. The Adjusted Net Profit was at S$36.5 million, 7% higher compared to previous year. ARA also undertaken approximately S$1 billion of asset acquisitions and secured new capital. Some of the key events are as follows:

1. Unlocking REITs whille seeking growth and diversification.
   1. Amfirst REIT completed the acquisition of the Mydin HyperMall for RM250 million and the divestment of AmBank Group Leadership Centre for RM36 million.
   2. Development of 177 Pacific Highway in North Sydney held by Suntec REIT is close to completion and is expected to complete in August 2016.
   3. Established ARA-ShinYoung REIT No. 2 in July 2016, a new private Korean REIT following the success of ARA-ShinYoung REIT.
2. New investments and capital for private funds.
   1. The SDF I made its second investment into a residential development in Australia.
   2. The PIP completed its acquisition of two Australian office properties worth A$284 million.  
   3. On 1 July 2016, the CIP obtained additional capital commitment of approximately US$500 million, further enlarging the total capital of the fund to more than US$1.3 billion to date

REIT base fees grew 4% year-on-year to S$43.7 million for 1H16 (see table below), mainly attributable to better asset performance from the existing properties post the successful asset enhancement initiatives undertaken which resulted in higher property valuations. Suntec REIT’s acquisition of three floors of strata office space at Suntec Tower Two and Cache’s acquisition of three Australian properties in the last quarter of 2015 also contributed to the higher REIT management fees.

Portfolio management and service fees grew 38% year-on-year to S$12.6 million in 1H2016, mainly due to higher management fees from the ARA China Investment Partners following the acquisition of two commercial properties in China in September and December 2015, in addition to the launch of the ARA Harmony Fund III and the ARA Harmony Fund V in August and December 2015 respectively, as well as Peninsula Investment Partners.

Real estate management fees grew 11% year-on-year to S$11.6 million in 1H2016, mainly due to higher property management fees received by the Group.

Lower acquisition, divestment and performance fees as 1H2015 had included Fortune REIT’s acquisition of Laguna Plaza. Acquisition fees received in 1H2016 were mainly in relation to AmFIRST REIT’s acquisition of Mydin HyperMall and Suntec REIT’s progressive development of 177 Pacific Highway in Australia.

The Group’s share of profit of associates and joint venture declined to S$2.3 million in 1H2016 from S$5.6 million in 1H2015 as the latter included (i) the acquisition fee recorded by Hui Xian Asset Management Limited in relation to Hui Xian REIT’s acquisition of Metropolitan Oriental Plaza in Chongqing, China in March 2015 and (ii) a higher income contribution from Cache Property Management Pte. Ltd. in 1H2015. The group’s joint venture comprised of ARA-ShinYoung REIT, the 40% equity interest in Cache Property Management Pte. Ltd., as well as 30% equity interest in Am ARA REIT Holdings Sdn. Bhd., Am ARA REIT Managers Sdn. Bhd., World Deluxe Enterprises Limited, Hui Xian Asset Management Limited and Beijing Hui Xian Enterprise Services Limited respectively.

As at 30 Jun 16, the Group’s total AUM stands at S$29.7 billion (approximately US$22 billion) from S$28.9 billion (Mar 16).

ARA has a strong and robust balance sheet with gearing ratio at 14% (up from 3% in 1Q2016), current ratio at 2.6 and cash ratio at 1.2.

Cash generated from operating activities before working capital decreased to S$4.4 million in 1H2016 compared to S$5.2 million in 1H2015 mainly due to the decrease in profit from share of  associates and joint venture.

It has announced a $0.023 per share of dividend, payable on 23 Aug 16. This sums up to S$22.9 million of dividend, a payout ratio of 59.3%.

As at 20 Aug 16, ARA share price is at S$1.37. It has a PE (TTM) of 15.75. Accounting only the adjusted profit and then annualising it, its PE (adjusted) stands at 19.

Note: Byte Sized Investments has vested stakes in ARA