ARA Asset Management

[FFNow]

May I know how does ARA work? How does this company make money?

[Nick]

May I know how does ARA work? How does this company make money?

The company is a REIT/Fund Manager. It charges a management fee based on a fixed percentage of the REIT's assets. Its income will grow as its REITs acquire more assets.

[FFNow]

How will ARA's income grow since Suntec REIT has acquired part of MBFC? The acquiring is done by ARA or Suntec REIT management?

[Nick]

How will ARA's income grow since Suntec REIT has acquired part of MBFC? The acquiring is done by ARA or Suntec REIT management?

After Suntec REIT acquires MBFC, its asset size will increase hence the management fees payable to ARA increase in turn.

The remarkable thing about ARA is that it doesn't need to gear up to grow - it gets its clients (REITs) to gear up and grow its asset base so that ARA can reap higher fees. Naturally the REIT unit-holders will gain yield accretion in the process.

Let me illustrate -

XYZ REIT owns $1 billion assets. REIT Manager charges 0.5% base fee so it gets $5 million fees a year. If XYZ acquires another $1 billion asset, the Management fees increases to $10 million.

[FFNow]

Thanks Nick for your explanation. Seems like a good business from the way u say. Haven't looked at its financial statements. But, I feel that the current P/E level of around 21 and low dividend yield makes it unattractive. What you think? I will analyse it soon.

[Nick]

It is fairly valued now unless you believe it is able to record annual compounded growth of at least 15% a year. There a few ways to grow - acquiring REIT Management companies, setting up new REITs, getting the current REITs to acquire more assets and launching more ADF funds. ARA is linked to the Cheung Kong Group.

[FFNow]

Nick, I believe it is fairly-valued now too.

[valueinvestor]

From Dr. Check, The Standard HK:-

Dr Check will think about selling part of any long-term holdings if three criteria are met.
1) First, if the stock soars in a short time.
2) Second, the valuation in terms of the price-earnings ratio rises above the market average.
3) Third, more people start to recommend the stock.

After selling, wait to buy back if it falls more than 20 percent.

I believe ARA has fallen into this category recently.
Share price run up too fast and steep, many talked about it recently, almost in most forum; CNA, Investideas, Shareinvestor.com, Sharejunction. Finally its PE ratio had gone too high against general market average. PER of around 20X is indeed too high , market has factored in too much , the future growth of its biz in advance.

[pianist]

who is this Dr Check? can you make some further introduction for us here? thanks

[valueinvestor]

who is this Dr Check? can you make some further introduction for us here? thanks

http://www.thestandard.com.hk/news_detai...01101&fc=8

Note: Dr Check used to contribute to this press.