ARA AGM at Suntec City Convention - 10 am
Was happy to receive a door gift of $20 voucher (10+5+5), ARA is currently my biggest position at 60,000 shares so my following post may be strongly biased.
CEO started off by explaining the 3 core components of ARA.... REIT management, Private funds and Property Management.
The REIT management segment provides the bulk of recurring income, the earnings are stable and AUM in this area grows constantly. In the current environment, its difficult to list new reits.. however on the upside with the low interest rates its easier for the existing ones to gear up cheaply to make acquisitions. (thus increasing AUM)
In the coming years, a big portion of growth will come from the Private funds. As there's a change of liquidity trend.... with worries of currency devaluation and a need to investing outside of their home countries... hot money is pouring from sovereign wealth funds in China/Japan/Korea. Example ARA's new office in Korea is already managing 1 billion AUM from their local SWF, the equivalent of our Temasek/GIC. The figure is likely to explode upwards.
The earnings from Private funds however can sometimes be very volatile due to the lumpy fee structure. Performance fees are only received at the end of the fund life cycle, some which are set at 10 years, resulting in big one time gains.
Out of the 30 billion in AUM managed by ARA, only 1.4% comes from its pockets as seed capital. This percentage is much lower as compared to other asset management companies which on average put up 4%. This is because of ARA's backing from partners such as CK group and STC, which holds significant stakes in their respective reits. Example for Suntec reit ARA holds 4% while STC holds 6% for a combined 10%. Whereas for Private funds, ARA typically puts down 5-20% as seed capital which is more demanding.
This resulted in the 150 mil raised from the recent rights issue, which main goal is to grow AUM. The returns on this new capital is expected to be very high, as they are mostly used as seed capital for their new Private funds. Example if the PF investor makes around 15% returns, the fund manager (ARA) could make likes 25% returns due to the extra management and performance fees.
ROE% for 2015 looks pretty low mainly due to the accounting of seed capital. The gains made in the private funds seed capital are not reflected yearly in the profit and loss statement, these gains are only realized at the end when the fund is divested. So ARA is actually more profitable than what it seems.
In practice ARA does not sell any of their Cache & Suntec Reit shares, these are kept for long term. Whereas management fees paid in units by other reits are all sold to get cash, the cash inflow is decent and no more fund raising is expected in the next few years to come.
Short term wise, ARA should comfortably grow 2-3 billion in AUM each year.
In the mid term the target it to get to 40-50 bil AUM to be considered world class.
The long term goal would be a 100 bil AUM to be in the league of giants such as KKR and Blackrock.
ARA currently has a market cap of around 1.2 billion, in my view if it can triple AUM ARA could eventually reach a blue chips status on the STI.
Bonus pic, $9.90 Aston lunch using the free vouchers ^_^
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