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 ~