ARA Asset Management

ARA Asset Management: profits rose 36.2% y/y to $20.8m in 2Q14 on the back of 16.6% rise in revenue to $40.4m and net gain on fair valuation. Revenue from REIT management increased 19.0% to $18.9m post-AEI. Better asset performance, higher valuations and new revenue contribution from two-privately-held Korean REITs. Portfolio and real estate management fees were down 9.0% and 8.5% respectively. Overall, recurring management fees improved 6.2%. Income from acquisition, divestment and performance fees in 2Q was low at $0.6m, but for 1H14 was 40% higher y/y on acquisition fees received from 9 Chong Yip Street and progress payments for 1777 Pacific Highway. Finance income jumped 67%^to $6.4m due to net gains on fair valuation and disposal of financial assets, and finance costs shrank 95% to $0.2m in the absence of losses on fair valuation. ARA’s gearing dropped from 11% in Dec 13 to 9% as of Jun 14 after repayment of RM12.0m debt and is in net cash position. Acquisitions and developments in 2Q14 were aplenty. Two Korean private REITs were acquired through real estate management company Macquarie Real Estate Korea (since renamed ARA Korea) and the ARA Summit Development Fund was launched to invest in real estate development projects in expanded geographical reach in Asia Pacific. Total AUM is now $25.8b. Going forward, management expects to remain Asia-focused while seeking reputable developers to partner in. The company will adopt a similar model as the ARA Asia Dragon Fund for future investments. ARA maintained 2.3 cents interim dividend and at yesterday’s close price of $1.705, this represents a 5.4% dividend yield. Balance sheet and cash flow are rather strong with stable source of recurring revenue. EPS and NAVPS are 2.47 cents and 34.62, ARA is trading at 10.9x P/E and 3.1x P/BV.