Summary of ARA Analysis

Feedback indicates that ARA analysis was too long. And I agree. That was just too much verbal diarrhoea! So I shall summarize the key pts soon.

Coming soon!

ARA Analysis - Part VII

Conclusion

1. Valuations of ARA show that it is not cheap but neither is it expensive. According to Credit-Suisse, ARA is trading at a discount to its peers, when measured on a P/E basis.
2. ARA offer decent growth that comes with a strong ability to raise funds.
3. ARA is for the investor who has a positive outlook on real estate and want exposure to it
4. It provides exposure to an upturn in real estate prices come 2010/2011 as the real estate market turns and it exit from it private fund - ADF.
5. Offer a good yield that is expected to grow over time relative to your initial purchase price
6. Superior to REITs.
7. Good for investors who want a good yield while still getting some upside from improvements in capital values
8. Offer an attractive risk/reward proposition
9. Not for the investor who want to see strong capital gains in the share price - for that, developer stocks should be preferred
10. Best to combine ARA with developer stocks - might improve risk/reward proposition of the stock portfolio as opposed to a REIT+developer portfolio

In conclusion, ARA is a stock worth buying for a good yield with some capital upside and a 2 to 3-year hold to 2011/12 is recommended as 2011/12 should see ARA's results get boosted from an exit from its private fund.

ARA Analysis - Part VI

Valuations

With this outlook, which is reasonably decent - not breakaway growth but a steady ~10% - 20% growth in the bottom line in the next upturn for the real estate and equity market cycle - should we buy it? The answer to that is - at what price? Is it worth it at the current price?

At its current price, ARA's market cap is ~S$500m. Depending on the forecast, net profit is ~45 to 50m, which places P/FY09E at 10 to 11x. P/B is about 5x. Net cash of ~S$16m. ROE currently is 45% to 50%. Assuming a 10% growth rate in the bottom line, PEG is 1. And we are talking about 5 to 6 years before we recoup our investment.

All in all, valuations are not cheap. But not expensive either. If Credit Suisse's research is to be believed, ARA's P/E is below that of comparable peers (to verify).

Why Should You Buy ARA
Buyers of ARA should have a positive outlook on the real estate market. Taking a step back, potential buyers of ARA should be interested in the real estate market in general. The choice then, is not just whether to buy ARA or not. Rather, it should be why ARA and not other property stocks.

For discussion purposes, let split property stocks into 2 general types - REITs and property developers. Let us characterize the 2 types. The first type -REITs - offers exposure to the yield/rental component of a real estate investment but little exposure to the capital value component (only via increase in leverage made possible by a growing capital values of their assets). The second type - property developers - offer exposure to the capital value component but not the yield.

Comparision with REITs
REITs offer anywhere between 4% to 10% yield. The problem with REIT is that the yield doesnt really grow relative to your initial purchase price. DPU might increase across time and correspondingly, your yield (DPU/initial purchase price) might go up. But beyond a certain level (the actual yield achieveable in the real estate market/cap rates), no more yield accretive acquisitions can be made. And to make more acquisistions (so as to justify the REIT manager existance), equity has to be raised and which will bring DPU and yield back down. So as a REIT-owner, you really don't have much capital upside and your average yield/initial price will be quite steady across time.

ARA's yield, assuming a 70% dividend payout ratio, is ~6.4% to 6.9% - comparable to a REIT. On a 100% dividend payout ratio (like the way a REIT would and no reasons why ARA should not pay a 100%, unless it has plans to use the remainding amount - like to seed new funds), the yield would be 9.1% to 9.8%. Admittedly, this comparison is not perfect. For starters, the REIT's dividends comes solely from rental revenues, while the ARA dividends comes from both rental revenues (via the perf fee) and capital values (via the base fees). It was not possible to to do a like-for-like comparison because ARA doesn't provide the break-down between perf and base fees. Putting that aside, the key point is that ARA's yield is comparable to a REIT and the difference is that the yield will grow across time unlike a REIT's.

Therefore, ARA is superior to a REIT investment.

Comparison with Property Developers
Property developers benefit strongly from an upturn in the real estate market - the capital value component. However, they provide little yield - they do not have strong underlying cashflow to support a strong dividend yield.

ARA, in its current form, provides limited exposure to the capital value component. However, as it raised more private funds and as it continues to own a share in these private funds, ARA should increase its exposure and benefit from changes in capital values. This is because these private funds are capital-gains-focused.

As ARA changes as a company (to having more pte funds), one might argue that an investment into ARA is superior because it offers the capital value exposure and a decent yield at the same time. Note that I do not fool myself to believe that the share price for developers will perform worse than ARA when the real estate market turns. The developers have higher beta and their share price will move more because the yoy change in their profit levels are much more significant - its a famine and feast model. But this comes with increase volatility and increased risk. What I am proposing is that ARA may offer a better risk/reward proposition with its more stable cashflow, even as it provides a similar exposure to the capital value component.

Therefore, ARA may be a comparable investment to developers stock

If an investor is strongly convinced that the real estate market will turn and turn strongly and therefore the capital value component outweigh the yield component, I will suggest shares of developers. But if you want a wait-and-see approach, while still getting some dividends when waiting, then I say buy ARA.

Note that you can have both ARA and stocks of developers in a portfolio - not mutually exclusive. And may not be a bad idea - get dividend from ARA while holding some investments in developers stock which may provide the real kick in share price appreciation as and when the real estate market turns around.

Conclusion: ARA and developer stocks may complement each other

ARA Analysis - Part V

Outlook for ARA

2010
As discussed in the earlier section, we see that base fees should fall 5-10%, while performance fee should fall by 10% as well. Therefore top-line revenue should see a fall 7 -10% yoy for 2010 (7% = 2/3*5%+1/3*10% as base fee makes up ~2/3 of revenue)

The fall in revenue should be partially off-set by gain-on-disposal of REIT units received in 2009 at lower prices. We note the potential for more acquisitions at the level of the existing REITs - which should see acquisition fees being booked and may partially offset the top-line decline too. The acquisitions should also increase AUM and the base and performance fees received. The best example is the Fortune REIT acquisitions which increases AUM by ~S$500m from a base of ~S$12b - a 4% increase. The net results of these two factors will likely see top-line revenue maintain unchanged at best - not very exciting prospects.

However, we can expect AUM to increase as ARA raises new funds. A recently announced Shariah-compliant hospitality REIT done with Regency Group, planned to be completed in 2H2010, is expected to increase AUM by S$1b. As a side note, ARA's share price did not move when it was announced. One may suspect that the news was not that "new".

A quick googling online turned up a recruitment ad whose company profile seems to describe ARA. The ad mentioned that the firm was hiring for a planned new REIT in the logistic/industrial space. Co-incidentally, a SGX-listed company also announced plans to list a REIT when quizzed by SGX on sudden movements in the share price. One can expect the fund size, as with any decent REIT nowadays, to be between S$500m to S$1b.

But that's just a side note, which does not change the fact that AUM will increase by ~S$1 to 2b - a 8% to 15% increase in AUM ( currently ~S$12.5b) which should translate to a 8% to 15% increase in the top-line ( assuming that AUM and NPI increase by the same %, which implies that the NPI/AUM of new funds is the same as existing funds). The bottom-line might not grow as much because cost might increase much more revenue at the beginning due to start-up cost.

On top of these 2 funds, it is likely that ARA will announce new funds in 2H10 that might only realize in 2011.

2011
Capital values should rebound by 2011 and AUM will naturally increase with that. As equity markets improve and real estate prices moves upwards, it will make it easier to raise funds. It is likely that new funds - both REITs and private funds - will be raised. All these will increase AUM and help boost base fees.

With new REITs, the NPI and in turn performance fees will increase as well. Rental rates should have bottom then and performance fees of existing funds should stabilized by then.

Likely to see earnings boost as ADF enters into divestment fees and ARA recognizes carried interest and their share in ADF's returns via their 2% stake in the fund.

~ To Be Continued ~

ARA Analysis - Part IV

Part IV

Office Market Analysis

I have done a market analysis of the office market in Singapore. As this research was a joint effort with a friend, I feel it is not appropriate to mention the details of our conclusions. But let me just note a few general points that will be crucial for the discussion below.

i) vacancy rates having reached a level where the odds of it reaching a peak soon is high. A peaking in the vacancy rates will translate to a bottoming in capital values.

ii) bottoming in capital values has consistently been preceded by a leading indicator which has since convincingly shown a positive signal.

iii) cap rates has been a much more significant driver of capital values than rental rates, which lag capital values

iv) supply has surprisingly shown little impact on the movements in capital values

From these few points, we believe that capital values for the office market should bottom some time in mid-2010 despite talks about a huge supply of office space coming online (which really is small relative to the total office space available)

Rentals rates should continue its downward movement with a bottoming expected only in 2011.

The conclusions from this analysis will support the conclusions drawn below on several areas which we earlier said (in Part III) more work needs to be done:

Rental Rate Risk

As agreed, rental rates reversion is likely - the question is how much. Rental rates specific to ARA-managed assets were not available. But basing off general market data for Singapore (from URA), we see that rents for offices in the central region peaked in 2Q2008 and have since dropped 27% from the the peak. Rental rates are still dropping but at a slowing rate on a q-o-q basis. We can expect rental rates to keep dropping before reaching a bottom some time in mid-2011.

Even though rental rates have been dropping in 2Q2008, the effect of the drop should only be more apparent in 2010 (i.e. it lags). This is because rental contracts in the office market is done on a 3-year lease. So the average rental rates receieved by the landlord is effectively an average of the rental rates for the past 3 years - a 3-year rolling rent. As a result of this, the average rental rate receivable by a landlord has still been somewhat sheltered from the drop in rental rates as old leases (yr 2007) based off the high rental rate have helped hold the average rental rate up. However, as the 2007 leases expire, we should see the average rent receivable drop much more on a y-o-y basis. The only saving grace is that it is on a rolling basis. So on a q-o-q basis, the fall in NPI will accelerate but it still going to be gradual (a few % pts) and not drastic.

Once again, because its on a rolling basis, the % change in rental rates received by a landlord will be much less than what you see in the papers - the rolling leases help to smooth up the changes in rental rates. Hence, it will fall less on the downside and correspondingly, gain less on the upside.

On a y-o-y basis, we expect the rent receivable by a landlord in 2011 to fall by 10%. This means that ARA's peformance fee should drop by a corresponding 10% as the performance fee is a based off a % of NPI, which moves in tandem as rental revenues ( linear change or disproportionate?)

Capital Value Risk

We note that ARA has done recent revalutions for Fortune REIT and Prosperity REIT in 2H09 and the revaluations were upwards. ARA has yet to do a revaluation for Suntec REIT. As a REIT manager where fees are paid when valuations increases, ARA has all the reasons to do a valuation when they expect it to increase. Hence, the fact that ARA has yet to do one for Suntec REIT implies that the revaluations will likely be downwards. Suntec REIT will have to do a revaluation for its Y/E accounts.

But the % drop is hard to estimate, though the recent fund raising by Suntec REIT could give us a sign. The fund raising help reduced gearing by 3% pts. If the amount raised was to prepare Suntec REIT for a rise in gearing as asset values dropped and the amount raised was just enough such that when revaluations hit, the gearing will be back at the original level , then we can expect ~10% drop in valuation.

Mathematical proof: debt/asset = 34/100 = 34%. Gearing drop to 31%, meaning assets increased to 110. To move back to 34%, asset must drop back to 100 - i.e. drop by 10. 10/100 where 100 is the value of the assets, is a fall of 10%.

The effect for ARA is mixed because some of the funds (Prosperity and Fortune) have experienced a revaluation upwards while Suntec REIT should experience a devaluation.

But as mentioned above, we expect capital values to bottom in mid 2010. And if that happen, then ARA will quickly revalue Suntec REIT and this will swiftly mitigate whatever drop in valuations expected to come through at the start of the year.

In conclusion, base rate receivable for ARA in 2010 should drop by 5 to 10% on a y-o-y basis.

Ability to Raise Funds - Performance of ADF

As mentioned, we might also need to assess the probability of success for ARA's flagship Asian Dragon Fund (ADF). Given the lack of transparency on the private funds, we have to do some guesswork here.

ADF has a 4 year investment period. Because of the restriction that ARA can't raise similar fund as long as invested amount is <75%>

In conclusion, the ADF fund should do decently well. In 2011, we might see ARA's financial results being bumped up as the fund exits and ARA book some carried interest and profit from the asset sale. We should also expect ARA to raise new private funds in late 2010/2011 as >75% of ADF gets invested.

~ To Be Continued ~

ARA Analysis - Part III

Part III

Now that we understand the risks we face, let's get comfortable with the risks.

1. Ability to raise funds

Rasing new real estate funds
ARA's ability to raise funds has somewhat been affected by the downturn in the real estate market. But despite the downturn, ARA has been able to raise US$1.13b worth of capital commitments for its ARA Asia Dragon Fund - US$716m in 2007 and US$400m in 2008. On top of this US$1.13b, there is a US$500m co-investment opportunity with one single investor and which could boost the total AUM managed. The recently announced Shariah-compliant fund to be established with Qatar-based Regency Group and which could eventually house $1b worth of asset, is again a testament to ARA's ability to raise fund. Hence, despite the financial crisis and the poor performance of the real estate market, ARA has been able to demonstrate its strenght in raising funds. When the real estate market recovers, it is likely that ARA's odds of raising funds should improve and the pace of fund-raising should increase. Note also that, this is contingent on ARA's ability in not just being a REIT manager (which is more passive) but being also a capable active fund manager (i.e. good performance in its private fund)

However, this growth in funds will be constrained by the "conflict of interest between funds" which we talked about. Hence, expect ARA to venture into more niche areas such as healthcare assets, hospitality assets, carparks, industrial, etc, to grow its AUM. This can be made possible by hiring resources who have experience in this field and is not an unlikely scenario.

Increasing AUM of Existing Funds
Expect ARA to also increase the AUM by acquiring more assets via its existing funds. We can look at Fortune REIT's announced acquisition of 3 retail assets in HK. Despite the fact that the acquisition was non-yield-accretive, ARA managed to get the acquisitions approved. Moreover, the rights issue for the acquisition was 15.8% over-subscribed. The acquisition increases Fortune REIT's AUM from HK$9m to HK$11m - a 22% increase.

ARA has also faciliated acquistions of Suntec Convention Centre for Suntec REIT (S$25m) and partial interest in The Summit Subang USJ for AmFirst REIT (RM11m). Admittedly, besides the Fortune REIT's acquisitions, these other transactions are not meaningful in terms of size. Furthermore, with yields of the REITs being where they are now, not many REITs (ARA-managed REITs included?) will be able to acquire any assets without diluting unitholders' yield. Hence, increasing the AUM of existing funds will not be easy. Nonetheless, we note the potential to raise AUM of existing funds, even in the face of a yield-dilution exercise as evidenced by the Fortune REIT's transaction.

In conclusion, ARA's ability to raise funds even in tough time allows us to seek comfort on the level of risk involved. Nonetheless, there run a risk that ARA's private fund fails to perform and affect its fund-raising ability. Therefore - low to medium risk.

2. Rental Rate Risk
This is a real risk. Rents have fell since late 2008. Properties in ARA-managed REITs may only start experiencing the rental revision now as they may previously have been protected by rental contracts that were made at higher rates. The risk is quantifiable and should be quantified.

3. Capital Value Risk
This is also a real risk. In the past year, rental rates have fallen while cap rates have expanded. Both factors lead to a fall in capital values. However, capital values have fallen less than expected as owners of real estate were "strong hands" and were able to hold onto their investment, unlike "weak hands" which have to sell at depressed prices. In the Singapore office market, capital values are expected to remain depressed with anticipation of new supply coming online and demand being insufficient to absorb the new supply. However, unless demand dropped sharply (an unlikely event since it has already dropped significantly in the light of the financial crisis), it is likely that the downside risk has already been priced in, and surprise remains largely on the upside. (i.e. the likelihood of capital values moving up from here is high). Analysis of the Singapore retail, HK retail, HK office and Malaysia commercial will be necessary to fully understand and quantify (if possible) the risks. However, as a high level analysis, it would not be wrong to say that the possibility of real estate market moving up is much higher than the odds of it moving down, giving the low base which we are right now (depressed state due to the weak economic conditions).

Given that ARA provides quite a significant exposure to capital values by virtue of its base fee structure and the returns it could potentially get via ADF (both as an investor into ADF and via the carried interest structure), a buyer of ARA needs to get very comfortable on this risk. And comfort on underwriting this risk comes only if you have a positive view of the general real estate sector.

It is likely that we going to see some downward movement before an upward trend is re-established. The "we are starting from a low base" argument holds only if ARA-managed funds have revalued their properties to this "low base" (to verify). If not, there runs a risk where we see the AUM being reduced significantly as these funds are forced to revalue their assets. Likelihood of that? Uncertain. It is likely that they had to revalue when they got their bank loans refinanced but surprisingly nothing of that sort was reported. They might be forced to revalue during the preparation of annual accounts - i.e. the year end.

4. Ability to Acquire Assets
With the backing of Cheung Kong, offices across Asia and experienced professionals such as CEO, Mr. John Lim, ARA's ability to acquire assets are unquestionable. Hence, this is a low risk.

5. Demand for REITs/Ability to Raise Equity/Equity Market Risk
Demand for REITs remains robust. Share prices of REITs have moved up with the general market up-trend. Rights issue by REITs have been over-subscribed. In particular, rights issues for ARA-managed REITs were all over-subscribed (check?). Demand for REITs should remain robust as yield-seeking retail investors who can't gain access to fixed income products will look towards REITs for a stable, yielding investment. In more developed markets, REITs have become a common product in the marketplace (check trading volumes?). Hence, REITs are here to stay and demand for REITs is expected to be robust or at the very least - stable.

Ability to raise equity is proven by the same point - rights issue by REITs have been over-subscribed. Plus, the equity market have seem to recover to some form of normalcy.

Equity market risk associated with REITs' share price is perceived to be low as many are still trading at below book values - hence bad news seem to be priced in already and upward movements of prices are more likely than downward movements.

In view of all these factors, this is placed as a low risk.

6. Ability to Raise Debt
ARA's ability to raise debt for its funds is remarkable. For instance, Suntec REIT was able to refinance its loan at a cost of only 3.75%. Fortune REIT was also able to raise debt at <4%.>

As interest rates rise, the ability for ARA to finance acquisitions will be harder as the cost of financing will go up (makes it harder for acquisitions to be yield accretive) and the amount raised will become smaller (as cashflows are unable to support as much debt - interest cover drop). However, the low interest rate environment is expected to persist, even as credit-lending improves - a sweet spot.

Hence, this is a low risk for now.

7. Conclusion
In conclusion, 2 risks out of the 6 are risks that needs more work to get comfortable on - rental rate risk and capital value risk. Rental rates reversion is likely - the question is how much. Capital values require more analysis before we can get comfort on it. However, the high level analysis put this as a risk worth undertaking (i.e. positive outlook on asset prices). A check on revaluations performed by the REITs is also necessary.

We might also need to assess the probability of success for ARA's flagship Asian Dragaon Fund. The rest are deemed to be low risks - risks that we are comfortable to underwrite.

~ To Be Continued ~

ARA Analysis - Part II

Part II

Now that we have a basic understanding of ARA and before we dive into the details of ARA's various business segments, the questions we need to ask ourselves is - What are we buying? What are the risks that we underwrite when we buy ARA?

What are We Buying
Let's us attempt to answer the first question. The common-sense answer to that will be - we are buying a fund manager. However, that is only half the answer. What we are buying is a portfolio of [REITs and real estate funds]. If we look at how ARA makes money, this become obvious because ARA's cashflow ( perf fee as a % of net property income) is contingent on the REIT's cashflow.

But to say that we are buying a fund manager + a portfolio of [REITs and real estate funds] is only 75% right. To say that we are buying a portfolio of REITs is slightly misleading because a REIT mainly provides exposure to the rental streams of an asset . A buyer of a REIT does not directly or necessary suffer from a change in capital value of the asset. On the other hand, ARA gets exposure to both the rental stream (via its perf fee structure) and capital values (via its base fee structure - % of gross asset values)

Because of how ARA obtain it revenue streams - via a base fee that is a % of gross asset values and perf fee that is a % of rental stream (net property income) - we need to see through the REITs and real estate funds to see what these funds are holding. And if we do that, then we see that what we are really buying is a fund manger + a portfolio of real estate.

A fund manager + a portfolio of real estate will be true if ARA receives all its income by cash. But because of its arrangements with some of the REITs to receive payments in kind (REIT units), you end up buying a fund manager + a portfolio of real estate + a portfolio of REITs.

What are the Risk(s) Underwritten
Now that we understand what we are buying, we can much more easily comprehend the risks that we are getting exposure to. Consequently, we need to do some questioning as to whether the risk level is too high and whether we are willing to take on such risks.

Firstly, as a fund manager, a risk is ARA's ability to raise funds. This affect the ARA's profit as a huge proportion of their revenue is derived from a % base fee on the AUM being managed. It is generally easier to raise funds in a up-cycle in the real estate market. The ability to raise funds is also dependent on the demand for REITs (i.e. equity market risk) since a huge amount of funds under management are in REITs and one of ARA's core businesses is being a REIT manager. Lastly, the ability to raise fund is dependent on the funds that ARA has currently. Oftentimes, when raising funds, ARA will not be able to raise funds with mandates that are similar to what they have already, in fear of a conflict of interest. Hence, ARA faces a dilemma/constraint here.

Secondly, as a owner of a real estate portfolio, you face rental rate risk - a fall in rental income. In addition, you face capital value risk - a risk that capital values of the properties might fall. The latter is a more significant risk than the former because ARA derives more income from its base fees than performance fees for REITs. Going forward, as ARA's private funds exit, ARA's exposure to capital value risk will increase. This is because ARA shares in the returns of its private funds and the returns are dependent on capital values when the fund exit from its investments.

Also, as both a fund manager and an owner of a real estate portfolio, you want to grow your asset base. And ARA has every incentive to because they get fees whenever they acquire or divest assets for the REITs. So another risk is ARA's ability to acquire assets. This in turn brings into question ARA's ability to raise equity (i.e. equity market risk) and ability to raise debt to finance the acquistions.

Lastly, ARA faces equity market risks because some it may not necessarily receive its revenue in cash but in terms of units in the REITs. And under some circumstances, they may not be able to divest immediately nor are they able to sell all the units at the price which they got it for. This ties back to a former point on the demand for REITs and in turn the REIT's share price (i.e. equity market risk).

In concluson, the risks are

1) ability to raise funds - which in turn is partly related to the condition of the real estate market - link to pt 3

2) rental rate risk

3) capital value risk

4) ability to acquire assets

5) equity market risk/demand for REITs/ability to raise equity

6) ability to raise debt

Note that pt 2 is link to pt 3 as capital values are detemined partly by rental rate levels. However, they are not synonymous because capital values is a function of rental rates and cap rates. Think cap rates like the P/E ratio. The cap rate is partly determined by expectations of future rental levels and relative returns of other similar investments like bonds.

~To Be Continued~

Let grace the opening of this new blog with an analysis of a SGX-listed stock - ARA Asset Management.

This analysis shall be done and released in several parts.

Part I

For a start, let us know more about ARA - what is ARA, who is behind ARA and how ARA makes money.

ARA's Profile

ARA is a manager of real-estate funds. It is the REIT manager of familiar names such as Suntec REIT and Fortune REIT. It also manages private real estate funds.

Mr. John Lim is ARA's CEO - a well known player in the industry with more than 28 years of experience under his belt.

Mr Justin Chiu is ARA's chairman and has more than 29 years of international experience in real estate. He is also the executive director of Cheung Kong Holding and is one of the most respected professionals in the property business in Hong Kong.

ARA is backed by Cheung Kong Holding and has implicit support from the company in terms of deal flow.

Shareholding as at 26 Aug is as follows:

John Lim - 36.7%

Cheung Kong -15.6%

Prudential Asset Management - 6.9%

Other - 40.8%

Overview of ARA's Main Business Segments

ARA's business can be split into 4 segments - REITs, Private Funds, Corp Finance and Advisory and a newly established, Real Estate Management Services. However, the first 2 segments make up almost the entire revenue stream.

Let us understand how ARA makes money from each segment.

REITs

For the REITs ARA manages, they earn

(i) base fees based on the property or gross asset value of the REITs we manage;

(ii) performance or variable fees based on the net property income of the REITs; and

(iii) acquisition or divestment fees based on the value of acquisitions or divestments by the REIT

Note that the actual % fee charged, how they get paid (cash or in-kind payments with REIT units) and when they get paid vary with the different REITs.

Private Funds

For the private funds ARA manages, they earn

(i) portfolio management fees based on the committed capital, gross assets or net asset value of the private funds we manage;

(ii) performance fees comprising of a share of the returns of the funds beyond certain hurdle rates; and

(iii) returns on seed capital

Note that ARA has not been transparent on the fee structures with the private funds. This might pose an issue with forecasting.

Real Estate Management Services
For real estate management services, ARA earns management fees based generally on a percentage of the gross revenues of the properties they manage.

Corporate Finance Advisory Services

For ARA's corporate finance services arm, they provide advisory services on asset acquisitions to the REITs managed by the Group and advises the Group on the establishment of REITs, partnerships and joint ventures as well as mergers and acquisitions. The revenue contribution from this is minimial. It serves mainly as a support function.

The figure below nicely summarizes the group structure and its components:

The figure might be a bit small and grainy. So please visit http://www.ara-asia.com/home/corp/GroupStructure.html for the full blown diagram.

~ To be continued ~