Profits Are at Record Levels, So Why Aren't Stock Prices?

So if stock prices are a reflection of future earnings, why hasn’t the U.S. benchmark returned to this record high yet? Currently, the S&P 500 is 20 percent below that 2-year old peak.

“The expectation is that earnings may decline if Europe can’t get out of its own way,” said Karen Finerman, president of hedge fund Metropolitan Capital Advisors.

In other words, investors aren’t willing to pay as much for these earnings this time around with a possible European recession set to depress the future profits of U.S. multinationals, not to mention gum up the international banking system. The S&P 500, at a price-earnings ratio of 12.1, is near its lowest valuation of the last decade.

--CNBC

"In my research, I need to see all four indices move in the same direction..."All four indices have now structurally completed a base, and are projected to move higher. You're at the top of the range and three of the four closed above their resistance except for the Russell. If that doesn't close above it in the next couple of days, it could lead to a negative divergencey, and you'd have a sell off,I do think it's real. I do think we've started to see a turn here. I would not be surprised if we pulled back a bit, but this time dips should be purchased. We've been seeing signs for about a month now. October 4 was the key day. Things have really improved technically since then," LaRosa said earlier this week." said Paul LaRosa, chief market technician with Maxim Group .

2011 THIRD QUARTER FINANCIAL STATEMENTS ANNOUNCEMENT

China
In its September 2011 World Economic Outlook report, the International Monetary Fund
projected China’s economic growth to remain robust at 9.5% for 2011 and 9.0% in 2012. The
slightly lower projected growth in 2012 was a reflection of policy tightening and declining
external demand. Nonetheless, China’s growth will continue to outpace other economies.
Retail sales of consumer goods in China remained healthy, with retail sales growth of 17.0%
year on year in August 2011 (Source: National Bureau of Statistics of China). The second
quarter of 2011 saw further expansion by both international and domestic retailers in China, with
fast fashion stores continuing to account for the majority of prime leasing deals. Prime retail
rents increased in cities across China, including in Beijing, Shanghai, Tianjin, Wuhan and Xi’an.
(Source: CBRE).
CMA remains confident of our growth prospects in China and will be opening another three
malls by end this year. China’s underlying economic fundamentals remain strong, and credit
tightening policies by the government provide more acquisition opportunities for CMA. With our
extensive presence in China, CMA is well positioned to capture the opportunities provided by
the growth in Chinese consumption.
Malaysia
The Malaysian retail market performed commendably during the second quarter of this year
whereby private consumption grew by 6.4% with a moderate economy growth of 4.0% (Source:
BNM Quarterly Bulletin, Second Quarter 2011) following a weaker external environment in the
advanced economies.
Retail sales growth is expected to be driven by GDP growth, low unemployment rate, rising
disposable income and growing tourism in Malaysia. CMA is well positioned to benefit from this
spending trend as our malls are essentially focusing on necessity and day-to-day shopping
which will bode well with the current economic environment in Malaysia.
Japan
The Japan’s economy has been steadily improving since the earthquake in March 2011. Latest
GDP growth figures released by the Japanese Government forecast 2011 GDP growth to be
0.6%, and the growth in 2012 is projected to be over 2.0%. Economists expect the GDP will
expand in the 3Q 2011 for the first time in four quarters on the back of recovering supply chain
market and production and consumption. However the Yen's sharp appreciation and a
slowdown of the global economy may have some impact over the economic recovery.
CMA will continue to focus on improving the performance of the assets in Japan.
India
India’s economy grew 7.7% in the three months from April to June 2011, compared with the
same period of 2010 (Source: Ministry of Statistics and Programme Implementation). It was
India’s weakest growth in six quarters. The slowdown is expected to continue as India’s central
bank continues to raise interest rates to control inflation; inflation in July 2011 was 9.22%,
which was well above the Reserve Bank of India’s (RBI) target rate of 4.0% to 4.5%. The RBI is
predicting growth for the whole year of 8% (Source: BBC News).
In India, CMA has a first-mover advantage relative to domestic and foreign real estate
companies focusing on shopping malls, given its portfolio of nine projects. CMA India’s primary
focus in the coming months is to complete the leasing of The Celebration Mall, Udaipur and to
advance the construction of the remaining projects under development.
GROUP OVERALL PROSPECTS FOR 2011
Growth momentum seems to have stalled in US and Eurozone as the debt crisis drags on.
Asian economies are still growing, albeit at a slower pace, with China being the main growth
engine. Where opportunities arise, CMA will continue to strengthen its presence in the region.
CMA has also recently announced its maiden project in Suzhou to develop the largest
shopping mall in the city and increased its stakes in Minhang Plaza and Hongkou Plaza in
Shanghai.

CapitaMalls Asia year-to-date 2011 PATMI increases 25.7% to S$250.6 million (HK$1,506.8 million)

Mr Lim Beng Chee, CEO of CapitaMalls Asia, said, “Shopper traffic in our malls in Singapore
grew 2.9% in the first nine months of this year, compared to the same period last year. More
importantly, our tenants’ sales grew even faster in the same period, at 6.7%. This shows that
the additional shoppers we attract to our malls are spending more at our tenants’ shops. Our
Singapore malls also have an occupancy rate of more than 96.0%, which is higher than the
industry average.”
“In China, our malls achieved 20.6% growth in Net Property Income on a same-mall basis in the
first nine months of this year, compared to the same period last year. This came on the back of
strong growth in tenants’ sales and shopper traffic, which increased 13.3% and 8.4%
respectively in the first nine months of this year. We acquired the remaining stakes in two malls
in Shanghai – Minhang Plaza and Hongkou Plaza – and also announced our maiden project in
Suzhou to develop the largest shopping mall in the city.”
“We continued to build our industry-leading network of 10,000 leases in the region by
organising the inaugural Retail Global Connexion 2011 in Singapore last week, following the
success of our inaugural Retailers’ Forum in Chengdu in May. The Retail Global Connexion
was attended by more than 500 international and Singapore retailers and another 500
Singapore tertiary students. The successful retailers who spoke at the forum were the bosses
of Desigual, Daiso, Country Style Cooking, Awfully Chocolate, Eu Yan Sang, Jeric Salon and
Soo Kee Group.”
“These forums showcase our retailers and provide them with additional opportunities to meet
new investors, business partners, including franchisees, and potential employees. They also
highlight to our retailers our competitive advantage in helping them expand to our malls in the
other countries that we are present in, for our mutual growth. We will continue to explore ways
to add value to our retailers to help them grow, as their success is fundamental to our long-term success.”

The quality of the business model in ARA is undisputed. Trouble is, those guys in the West has cooked up an economic storm and we are likely to face an asset deflationary environment. Yes, ARA does not quite get involved in the prop cycles as they collect fees and does not own any real estate in the books. They do however, hold stakes in REITs and invest capital in their private funds as seed capital. They now have 40m shs in Suntec, 12m in Cache and 23m shares in AMFirst. To elaborate on this topic requires a whole new chapter.

Anyhow, I just saw the latest Jaguar XF and I love it.... but will I pay $265k for it? Likewise, do I want to pay $1.18 for ARA today? Looks cheap now, if you see that ARA was trading @ $1.75 only 4 months ago. Since ARA fundamentals didnt deteriorate since May, (in fact ARA is better today versus May with a $10m kitty coming) ... so was ARA overvalued then, or its undervalued today? Or neither?

Let's look at a common valuation method for asset managers. AUM/Mkt cap... the higher the cheaper.

Ok here goes.

1. ARA is 18.8/0.906 = 20.75X
So who to compare?
ARA took a 15% stake in a Aussie peer (http://www.ara-asia.com/Document_Library/newsLetter/22-Jul-1008-07-54_APN-Placement-220710.pdf) in July 2010. So lets look at APN Property Group.

2. APN's AUM/Mkt cap is 2.253/0.026 = 86.65X
So now we know why John bought into APN... anyway, his entry price is 22cts. Its now doing 16cts.

3. Using ARA's 20.75X matrix, let us also look at CMA. Why CMA? Coz, its got an ARA-business embedded within. (most people don't realise this)
CMA's AUM for their fee-income biz is abt $25bn. So at ARA's valuation, their fee-income business is worth $1.2bn. CMA mkt cap is $4.6bn today but it has got lots of real estates inside there whereas ARA's NAV is their shares in REITs + tables + chairs. Once again, going through CMA's valuation would be a new long winded topic altogether.

--Morten

source nextinsight

News tonight: Trek 2000 International says it has reached an out- of-court settlement with Verbatim Corporation Group, two of eight companies against which Trek filed an International Trade Commission (ITC) complaint for alleged infringement of four USB-flash drive patents.
Under the settlement, Trek grants to Verbatim a non-exclusive, non-transferable, irrevocable license under the licensed patents to make, have made, use, import, offer to sell and/or sell licensed products worldwide during the term of the licensed patents.

Trek’s ITC complaint filed on June 15, 2011 requests an exclusion order from the ITC that prohibits the importation of infringing products into the United States, as well as a cease and desist order prohibiting the sales of infringing products in the United States. The Complaint seeks to block the importation of infringing USB flash drives that violate Trek’s intellectual property rights.

ARA ASSET’S has a REIT management business which is pretty well understood since REITS are listed entities that have been on the market for many years.

Lesser known is its private real estate fund management business, which is a channel for ARA to diversify its revenue sources and something that is all the more relevant when the economic outlook is uncertain.

“Some people think that as a fund manager, we would be affected by economic problems in Europe and the US. On the contrary, if the China property market bubble bursts, that is the greatest opportunity for us because our private real estate property fund manager can then go out and buy,” said CEO John Lim at a recent talk at Kim Eng Securities.

Secondly, unlike equity funds, private real estate funds do not face redemption risk, where a call by investors on capital committed poses liquidity problems for investment manager.

All of its 5 private real estate funds have delivered stellar performances so far. It has an Internal Rate of Return target of 20% and its track record has so far ranged from 23.7% to 64.8%.

ARA's other core business -- REIT management -- is not vulnerable to real estate downturns.

“We manage real estate, but our income does not follow real estate cycles,” said Mr Lim.

As a real estate fund manager, ARA's income is primarily fee-based, so any fluctuation in the value of assets under management affects its income in only a small way.

Unlike equity fund managers, which can have very volatile stock prices due to income being pegged to the stock market performance, ARA’s income is pegged to property valuation and property rental income, which are relatively stable.

Below is a summary of questions raised by investors at the Kim Eng event, and Mr Lim’s replies.

Q: What are the synergies between your REIT management business and its private property fund?

Property funds tend to acquire assets during an up-cycle while REITs prefer to acquire assets under management during a down-cycle when cap rates are high. This diversification improves the income stability of ARA.

Secondly, the REITs that ARA manages are a ready pool of potential buyers for the assets that may be divested by the private property funds that we manage. We receive a commission of about 1.0% from the REIT upon any successful acquisition that it arranges. Also, we have in place stringent rules that ensure such transactions are conducted at arm’s length.
Cheung Kong, which holds 16% in ARA, is one of the region’s largest real estate developers, and the alliance certainly helped us become one of the region’s largest real estate fund managers.
Q: What sectors and geographies are you looking at for expansion?

Our core markets where we have listed our REITS - China, Hong Kong and Southeast Asia, including Singapore and Malaysia. These are markets where we are relevant and strong, where we have very good network and connections. And we will continue to grow in those markets.

The other markets in Asia are Japan, India, Australia and the Middle East. We have made some headway in two of these countries. We have invested in a small Aussie fund manager, APN, with A$2 billion of assets under management. It has a similar recurring fee-based income model as us. We hope to invest in Australia through this vehicle.

We also have a partner in Qatar to do hospitality trusts. But we intend to hold back on our Middle East expansion for a while. We are still working on Japan and India. India is a very tough market to crack. China is going to be the immediate focus for the next couple of years.

As for sectors, to be honest, we do anything that has to do with real estate without actually buying the physical real estate. We do mezzanine loans to real estate. We do REITS to real estate. We do under-performing loans. We cover all sorts of shapes and sizes, from a private fund to the public market.

Q: Is there any opportunity for you to raise your fees?

For the REIT product, the answer is no. The reason is because the REIT is an established product in Singapore, Hong Kong and Malaysia.

But for private fund management, the answer is yes. How much we charge depends on our track record, the product and the market. For example, given the current economic outlook, if we are able to do a non-performing loan fund and bring in the returns, we have a lot of leeway in the rates we command.

Similar to boutique fund managers, if we have this gilt-product and the connections, people are even willing to pay 5%. On the other hand, if we offer a product that anyone can do, then we have to reduce our fees to be competitive.

In general, the whole industry doesn't compete on fees. We are not property agents. People come to us because we are good in terms of our track record, not because we are cheaper.

Being cheap is no use if we can’t deliver. Our customers are coming in with S$5 million to S$500 million in ticket size and fees are not an issue. If we cut our fees, the institutions think we are desperate and we lose our business. So we even raise our fees when rolling out premium products. In this type of market, if I outperform my target, I will charge a higher rate for the portion on profit sharing.

source: nextinsight

ARA Asset Management group CEO John Lim has bought another 1 m shares of his company, just about a month after accumulating 2 m shares.

The latest purchases were made on Sept 27, 28 and 29 at an average of $1.208 apiece.

That brings his direct shareholding to 5.21 million shares, or a 0.68% stake in the company that he co-founded.

He has a deemed interest in 281.1 million shares, or a 36.59%.

His purchases were the first in at least a year, and were made amidst the recent market turmoil. ARA stock has come off from its 52-week high of $1.76 achieved in late May this year.

Currently sporting a market cap of about S$1 billion, ARA is a real estate fund management company that focuses on the management of public-listed real estate investment trusts, REITs.

An affiliate of the Cheung Kong group, ARA manages REITs, private real estate funds, specialist equity funds and offers corporate finance advisory services.

It reported an 18% increase in net profit to S$29.6 million for the six months ended 30 June 2011. Total assets under management soared 36% to a record S$18.8 billion as at 30 June 2011 from S$13.8 billion a year ago.

source:nextinsight

Financial crisis unlikely

"The Asian banking system has done extremely well since the last crisis. Capital levels are high, reserve levels are high, they've been well provisioned, and there's a lot of liquidity.

"If you look at the Latin American banking system, that's the case as well. The US is in a completely different place than in 2008," he said. "The banking system as a whole has raised a lot of capital. Capital levels are quite high, liquidity levels are quite high, and reserves are high."

CapitaMalls Asia’s secondary listing

by introduction in Hong Kong
Singapore and Hong Kong, 30 September 2011 – CapitaMalls Asia Limited is pleased to
announce that it received approval-in-principle from the Stock Exchange of Hong Kong Limited
(“HKEx”) today to list on the Main Board of HKEx. The listing is expected to take place on 18
October 2011. The stock code for the company is 6813.
The Listing Document relating to CapitaMalls Asia’s Listing by Introduction in Hong Kong is now
available in the main offices of China International Capital Corporation Hong Kong Securities
Limited (“CICC”), J.P. Morgan Securities (Asia Pacific) Limited (“J.P. Morgan”), Computershare
Hong Kong Investor Services Limited, as well as on the websites of HKEx, Singapore
Exchange (“SGX”) and CapitaMalls Asia.
CapitaMalls Asia is one of the largest listed shopping mall developers, owners and managers in
Asia by total property value of assets and geographic reach. It is listed on the Main Board of
the SGX and is a component stock of the Straits Times Index (“STI”).
China currently accounts for about 42.0%
1
of CapitaMalls Asia’s total property portfolio. Given
the growing importance of its China business going forward, the proposed secondary listing will
complement CapitaMalls Asia’s expansion in the country, enabling the company to achieve its
longer-term strategic objectives via:
Creating a platform to widen its investor base and enhance CapitaMalls Asia’s
attractiveness to investors in Hong Kong and China;
Attracting research coverage on CapitaMalls Asia and helping to raise its profile and
enhance its market visibility; and
Enhancing CapitaMalls Asia’s ability to access additional sources of capital in two
leading global capital markets in Singapore and Hong Kong.
Mr Liew Mun Leong, Chairman of CapitaMalls Asia, said: “CapitaMalls Asia is Asia’s leading
mall developer, owner and manager, with 96 malls in 51 cities in Singapore, China, Malaysia,
Japan and India. Our proposed secondary listing on HKEx will widen our investor base and
make us more attractive to investors both in Hong Kong and China, which will augment our

1
On an effective interest basis. 2
growth in China. We thank HKEx for its efficient handling of our secondary listing application,
as well as SGX for being our primary listing platform.”
“As this is a listing by introduction on HKEx, no equity will be raised. As such, we do not expect
any immediate, short-term impact on our share price. However, we view our secondary listing
on HKEx as a long-term, strategic move. This will enable us to tap capital from the top two
financial markets in Asia in the future.”
Mr Lim Beng Chee, CEO of CapitaMalls Asia, said: “Since our IPO on SGX in November 2009,
we have consolidated our leadership positions in our key markets of China, Singapore and Malaysia with 11 acquisitions with investments worth a total of about S$4 billion – seven
∗
in
China, and two each in Singapore and Malaysia. We are the market leader in Singapore and
Malaysia, are growing strongly in China, and continue to build up our operations in Japan and
India.”
“With the dual listing, investors will have a choice of exchange to trade CapitaMalls Asia
shares. We are happy to help facilitate the transfer of CapitaMalls Asia shares for our
shareholders who wish to trade on HKEx, and have put in place a Batch Transfer system. In
order to commence trading of shares upon our planned listing in Hong Kong on Tuesday, 18
October 2011, shareholders should submit both the share withdrawal form to The Central
Depository (Pte) Ltd (“CDP”) and share removal form to the Boardroom Corporate & Advisory
Services (“Boardroom”) by 5 pm on Tuesday, 4 October 2011.”
“We have also arranged a second transfer of shares, under which shareholders should submit
both the share withdrawal form to CDP and share removal form to Boardroom by 5 pm on
Thursday, 20 October 2011. They will then be able to trade CapitaMalls Asia shares on HKEx
from Thursday, 3 November 2011.”
CapitaMalls Asia will bear part of the costs for the first two batch transfers, but shareholders will
be able to transfer their shares from SGX to HKEx and vice-versa at any time after these two
transfers. More details on the Batch Transfer process can be found in CapitaMalls Asia’s
announcement today.
CICC and J.P. Morgan are the joint sponsors of the proposed secondary listing

Gold Could Fall to $1,100

"We overshot on the upside when we went over $1,900," said the fund manager, who has 25 percent of his portfolio in gold. "We're now close to bottoming at $1,500, and if that doesn't hold it could bottom to between $1,100-$1,200."

Toshiba is to launch the world's first WiFi-enabled SD memory card, the company announced today at the IFA consumer technology show in Berlin. The new FlashAir card looks outwardly like a standard SDHC memory card and weighs in at a measly 2g. It will initially be available in a capacity of 8GB. Building wireless communication directly into the memory card means users of devices like digital cameras will be able to use it to upload and download photos, videos and other files to their PC, phone, tablet or other WiFi-equipped device directly over a wireless network, without having to faff around with cables or card readers. The cards will be compatible with the 802.11n wireless standard, and backwards-compatible with the b and g variants. Security is provided by WEP, TKIP and AES encryption (WPA and WPA2). According to Toshiba's specs, the card's power draw is similar to that of a standard SD card, so users shouldn't see too much of a dent in their camera's battery life when using the FlashAir card. Toshiba is currently seeking Wi-Fi certification for FlashAir in Japan, North America and Europe, and says the first FlashAir cards will go on sale in February 2012. Read more: http://www.thinq.co.uk/2011/9/1/worlds-first-wireless-sd-card-toshiba-ifa/#ixzz1X562UgJX

On any other normal market day, unlike today's gloomy day, Trek would have soared with this news >> SINGAPORE – 21 September, 2011 - Trek 2000 International Ltd. (“Trek”), inventor and patent owner of the ThumbDriveTM , today announced that it will start delivering customized FluCard® to PLUS Corporation (“Plus”) from October 2011 onwards, a premier provider of leading-edge digital projectors and electronic Copy/White boards. Trek will deliver approximately 50K units of Flu Card to Plus in FY2012. It will have a positive financial impact on Trek’s FY2012 earnings

ThumbDrive inventor out to prove he is no one-hit wonder

Henn Tan could have ruled the global market in what became the ubiquitous USB flash drive that helped consign the floppy disk to the dustbin of technological history. But his grip on the ThumbDrive slipped and the market was flooded with a myriad of brands for the handy memory device which could be small enough to dangle on a key ring. Now the Singaporean entrepreneur hopes to prove he was no one-hit wonder. Tan, who holds the patent for the compact data storage device in over 30 markets and the global trademark for the ThumbDrive brand, now has a firmer hold on another invention with a rather unusual name. The FluCard - a postage stamp-size storage device that can also transmit data wirelessly - is Tan's new baby, and he hopes to see it used by millions of people; just like the USB drive. Tan said many thought the ThumbDrive was a one-hit wonder. "I told them no, but many refused to believe me," the 54-year-old said. "We are more than just about ThumbDrives and the power of this FluCard is going to be immense," insisted the chairman and chief executive of Trek 2000 International, which is listed on the Singapore Exchange. Tan laments that he made a mistake with the ThumbDrive by going it alone instead of partnering with an established player in 2000, an admittedly "naive" move that allowed rivals to get big slices of the USB-based data storage pie. This time around, he has teamed up with Japan's Toshiba Corp to promote the FluCard and ensure its patent is protected globally. Why the name? "It's contagious and easy to recall," says Tan, a marketing man who employs technical experts to flesh out his ideas. "You go to Afghanistan, you say flu, and they understand." Marc Einstein, regional manager at technology consultancy Frost and Sullivan, said the FluCard is a sign of the convergence underway in consumer electronics and computer technology. "I do think that this is where the future lies for technologies and consumer devices," he said, adding that securing Toshiba's support "is a good first step" for the Singapore firm. Tan said his company and Toshiba, now the second largest shareholder in Trek 2000 International after him, formed a consortium of camera makers to adopt the FluCard as the industry standard. Terence Wong, co-head of research at Singapore brokerage DMG and Partners, sees good commercial prospects for the FluCard and also feels partnering Toshiba is a right move for Tan. "This FluCard can potentially kill off the dummy SD card if they get it right," Wong said. Shaped exactly like the Secure Digital (SD) memory cards now used widely in compact digital cameras, the FluCard comes embedded with Wi-Fi to transmit data to other wireless-enabled devices such as mobile phones, laptops and tablet computers. "It can do more than what an ordinary dumb, dumb SD card can do which is just to store data," Tan said. "As long as you have a hardware embedded with Wi-Fi, you can download anything from the FluCard." Launched earlier this year, the FluCard works in any device that has an SD slot and the camera market is the most obvious target for Tan. SD cards are predominantly used in compact digital cameras, 100 million of which were sold in 2009 alone, according to industry estimates. Using a FluCard in the digital camera the user has the option of uploading new photos directly to the internet for sharing with friends on Facebook and other social networks. It also functions as a data storage back-up since the content inside the FluCard can be instantly transferred to a private user account on a portal set up by Trek 2000 International. Tan's idea for the FluCard came about after a holiday with his family in China five years ago was ruined when they lost their camera. "You can't be going back to the places to retake the photos, and I felt lousy there wasn't any data backup," said Tan. "The power of this FluCard is going to be immense if I get it right," he said, adding it could catapult his company from a fringe player into the major leagues of the data storage industry with Toshiba's support. Tan's anguish was clear as he recalled how his company lost out to the "big boys" of data storage who came out with their own USB-based devices - and to pirates who simply made ThumbDrive knockoffs. "Right now we are still generating income [from royalties] but not much," said Tan. "Size counts, and I learnt my lesson real hard." In retrospect, Tan said it would have been better if he had partnered one of the big brands when the ThumbDrive was launched in March 2000, but his eagerness got the better of him at the time. "I was naive, I was gullible and I decided to take this product all alone, believing that we can do it." "Now I have Toshiba, I am riding on the coat-tails of Toshiba." AFP

ARA ASSET: Resilient Earnings, Super-High Profit Margins, Steady Dividends

ARA Asset Management is a billion-dollar company listed on the Singapore Exchange. Especially in turbulent market conditions such as currently, stocks like ARA get noticed by investors searching for businesses that are resilient and offer decent dividend yields.

NextInsight met up with ARA’s management as well as attended a presentation by its Group CEO recently to come to grips with its business model – it’s unique and powerful. To begin with, its strategic partner is Cheung Kong Group of Hong Kong whose boss is, of course, Li Ka Shing. Having the region's largest real estate developer as a substantial shareholder gives it access to a critical mass of real estate assets. Other barriers to entry include its track record, which is what regulators look at, the network and knowhow in real estate...

1. What is ARA’s business?

Founded in 2002 as a joint venture between ARA Group's CEO, John Lim, and the Cheung Kong group, ARA has grown to become one of the largest real estate fund managers in Asia. It deals only with physical real estate, not equity.

The assets under management amount to S$18.8 billion as at end-June this year. It takes pride being an Asian manager focusing on Asian assets and attracting global capital.

ARA manages 6 REITs - Fortune (SGX and HK-listed), SUNTEC and Cache Logistics Trust (SGX-listed), Prosperity and Hui Xian (HK-listed), and AmFirst (KLSE-listed).

Its portfolio of assets spans every sector -- office, retail, industrial/office and logistics - as well as private real estate funds investing in real estate in Asia.
There are also supporting services that it also owns (more on this later).

2. How does ARA generate revenue?

ARA is well diversified with 5 revenue streams – REIT management fees, private real estate fund management fees, real estate management fees, acquisition and performance fees as well as distribution and other income.

REIT management

A REIT manager’s income increases with the number of buildings held under the REIT. REIT managers’ base fees are a percentage of gross property value (assets under management) and net property income.

For example, ARA collects 0.3% of Fortune REIT’s gross property value and 3% of its net property income. Fees may be marginally higher or lower from REIT to REIT.
According to John Lim, the CEO, about US$500 million in assets under management for a REIT manager is the break-even point.

Beyond that, the margins of the REIT manager grow rapidly because of economies of scale and operating leverage.

REIT management fees accounted for 51.4% of ARA’s 1H2011 revenues

Private real estate fund management

Other than REIT management fees, ARA derives significant management fees from its private real estate funds, which has attracted top-notch American pension funds such as Calpers.

While REITS hold stable mature real estate with over 90% of its space leased out, private real estate funds typically invest in newly completed properties, properties under development, turnaround properties and distressed real estate.

ARA derives management fees for these funds based either on investors’ committed capital or gross property value. Such fees accounted for 21.8% of ARA’s 1H2011 revenues.

Real estate management services

At this point, it is useful to bear in mind that ARA derived 73.2% of its 1H revenue from managing REITS and private funds. ARA has two other business segments that provide supporting services to its core businesses.

One of these is real estate management services such as property management and convention and exhibition services. This segment belongs to the more traditional realm where, for example, it handles the human resources necessary for building maintenance and space leasing.

This is obviously a less scalable business but it complements the core business units of the group. Its real estate management service segment employs about 500 even though the segment contributed only 11.7% to 1H2011 revenues.

Corporate finance advisory

ARA Financial Pte Ltd is the Group’s in-house corporate finance advisory arm that provides 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.

3. Is this a unique business model?

Yes. It is the only one of its kind on the Singapore Exchange - in fact, the whole of Asia. It is highly scalable, resulting in greater profits as it expands its assets under management. And its net profit margin is very attractive.

4. What kind of profit margins does such a business generate?
The Group’s 1H2011 net profit margins were 56.3%. It has consistently exceeded its internal net profit margin target of 50% since listing in 2007. It is one of a very few listed companies anywhere that can enjoy such lucrative margins.
5. What else is attractive about investing in ARA?

Resilient earnings model
ARA is one of the region’s largest real estate fund managers with a very well diversified portfolio of physical buildings.

In 1H2011, 85% of its revenue are from recurring income derived from REIT, private real estate fund and real estate management fees.

This is augmented by performance fees. For example in Aug, it announced the divestment of the interests of the private investors in the ARA Harmony Fund.

The ARA Harmony Fund is a private real estate fund established by ARA in September 2009 to acquire the Suntec Singapore International Convention & Exhibition Centre and had achieved an IRR of 64.8%.

For such an instance of fantastic performance, ARA is receiving a whopping one-off income of over S$10 million in 3Q2011 of performance fees for crossing its hurdle rate.

Its unique business model gives investors, who are less risk-averse, the desirables such as resilient fee-based income model and consistent dividends even in uncertain economic times. As John Lim said: "We are not like equity fund managers. We don't have redemption issues."

Even in an economic downturn, it can increase its AUM by setting up a property fund for distressed assets. And ARA has proven to be innovative, having launched the Hui Xian REIT in Hong Kong in April this year, the world's first offshore RMB-denominated equity offering.

Rapid growth

Its AUM has grown by a CAGR of 61% since incorporation in 2002, rising to S$18.8 billion as of Jun 2011.

REIT management is a highly scalable business as the same manager can manage all the physical assets in the REIT portfolio.

For example, FORTUNE REIT does not need to hire another manager when a new mall is added to its portfolio of malls.
Strong balance sheet

Its balance sheet is as clean as can be. It is debt-free, and has cash of S$40.0 million.

Consistent Dividends

ARA paid out dividends of 4.8 cents a share per annum in FY09 and FY10. On top of that, it had a 1-for-5 bonus issue and a 1-for-10 bonus issue in those years, which effectively raised the dividend payout by 32%. Based on its recent stock price of S$1.345, it dividend yield is 3.6%.

Powerful strategic partner

The Cheung Kong Group of companies, with its worldwide presence of over a quarter of a million employees, combined market cap of HK$865 billion (as at Jun) and shareholding interest in ARA as well as the REITS means ARA has a very powerful strategic partner.
6. What are the roles of its other business segments?
The role of the REIT manager is to obtain financing for acquisition, capital management of the trust, engage in asset enhancement activities such as increasing traffic and source for new real estate assets that the trust may acquire.

Unlike the REIT manager or the real estate fund manager, a real estate manager handles the human resources necessary for building maintenance and space leasing.

With its corporate finance advisory arm, the entire supply chain of the real estate management business is taken in-house.

What makes things happen in ARA, in the words of Fortune REIT CEO Anthony Ang: “John Lim is a very creative person. He is very focused and persistent. When he gives you a task, he doesn’t forget and constantly reminds you about it. When he sees an opportunity, he goes for it.”

ARA’s personnel are from 16 to 17 nationalities. Over the past 5 years, ARA has experienced an influx of senior people from leading organizations like Merrill Lynch, GIC, DBS, Ascendas and Mapletree.

It prides itself on its corporate culture, which is neatly summarized by the acronym REIT - Respect, Excellence, Integrity, Teamwork:

RESPECT - Treat our colleagues and business partners with consideration and respect at all times.

EXCELLENCE – Excel not just in financial performance, but in every aspect. We do not cut corners and always put our customers first.

INTEGRITY – Integrity is a commitment to honor the trust placed on us. We abide by a strong code of ethics and uphold the highest standards of professional conduct.
TEAMWORK – We constantly support each other and build an environment that values the team player, while working creatively, and performing to our best potential.

ARA Asset Management

Last Friday, I divested GRP (I may buy in again) and bought shares of ARA Asset Management with a longer time horizon. At the moment, ARA Asset Management is trading to new one year low with P/E 15x. For me, I am planning to buy in batches and average down should the price of ARA Asset Management becomes more attractive.

About ARA
ARA Asset Management is an Asian real estate fund management company focusing mainly on the management of REITS and private real estate funds. ARA currently manages REITS listed in Singapore, Malaysia, and Hong Kong with a diversified portfolio of retail, office, industrial and logistics; private funds investing in real estate and real estate securities in Asia.

Here are quick 5 pointers why I chose ARA Asset Management:



1) Growth of Asian REITS
According to industry chamber Assocham, Asian REITS currently accounts for 10.6% of global REITS and expected to grow to US$500 billion in 8-10 years time, a projected figure of USS$100m billion from 2010. Majority of revenue (FY2010 reports 41%) of ARA is from REITS management fees, thus ARA is well positioned to maximize opportunities mid to long term. Indirectly, ARA could benefit from Singapore's aim of being the world's leading wealth management hub, overtaking Switzerland & London. This in turn attract rich private investors to park their monies in funds - one of which is properties. Already, Europe and America are facing troubled times, especially Greece debt situation.

2) Unique Business Model
ARA is asset light and does not own any properties but earn recurring income from managing it, appointing REITS Manager to take care of day-to-day operations. As long as Asian REITS exist or ARA wishes to create a new REIT in Asia to capitalize opportunities in rental income (e.g. buying distressed properties during economic slowdown), a portion will be made payable as "management fees" to ARA. In addition, ARA is not subjected to redemption issues - no matter what happens, someone will have to own the REITS and the Manager can't dump the assets. ARA also earns the fees from private real estate funds such as Harmony and Dragon. As of June 2011, AUM (assets under management) reaches S$18.8 billion.

3) Clean balance sheet, consistent earnings and high ROE
Using the data from Share Investor and my primary calculation, the average net earnings margin and ROE from 2007-2010 inclusive is 54.9% and 39.2% respectively. Debt-free with a cash of S$40 million with double digit FCF (free cash flow).

4) Strong Sponsor
Cheung Kong Holdings owned by Li-Ka Shing has a 15.7% stake in ARA as of now. ARA is a joint collaboration between John Lim and Cheung Kong Holdings.

5) People
This will be a little subjective - to each and every individual point of view. From my opinion, I view the management astute to some extent. Under the stewardship of John Lim, AUM rose to S$18.8billion and ARA was chosen by Forbes Asia 2010: "Asia's best 200 companies under a billion market capitalization". John Lim emphasizes strong values in ARA. There are other compelling reasons but I shall leave them for you to decide - please feel free to put in your comments.

Of course, there are risks and disadvantages of investing in ARA Asset Management. Which company does not? We can think of 101 reasons of good and bad - the most important question is "does ARA fits into your overall investment objective and profile".

Now, I will look forward to the future growth of ARA, having it as part of my portfolio that focuses on capital appreciation.

Source:http://ktwealth.blogspot.com/2011/09/ara-asset-management.html

The Rise and Fall of Yahoo! (Infographic)

The Rise and Fall of Yahoo! (Infographic):

'via Blog this'

Three Litmus Tests for Chinese Listings in the US

A former senior executive of a Chinese company that listed on the Nasdaq in 2005 says investors need to stay wary of new initial public offerings (IPOs) from the mainland, because many firms keep multiple sets of books.


"I've been investing in China for the last 10 years and there's one thing I've learnt - with many Chinese companies there are usually two sets of books, and whenever there are two sets of books, there are usually three," Eric Rosenkranz, Chairman and Founder of strategy consulting firm E.Three and a former Vice Chairman of Focus Media China

Rosenkranz says the first set of books, which tend to minimize profits and taxes, are generally submitted to the government; the second set, usually shown to investors, aim to maximize earnings. But it's the third set of books, that reflect the true information on the company, which investors need to seek before investing, he adds.

Rosenkranz recommends investors check off three boxes before betting on a listing. First, whether the company is listing on a "reputable" exchange such as the NYSE, Nasdaq or Hong Kong stock exchange.

Second, if it’s a new or reverse listing. Rosenkranz says investors should avoid reverse mergers that use U.S. shell companies to list, noting that of the 200 Chinese companies that have gone public in the U.S. over the last four years, 75 percent had done so via reverse listings.

And third, Rosenkranz says, invesors should look at whether the company is using one of the “big four” accounting firms: KPMG, Ernst & Young, Deloitte and PWC.

"Failing any one of those three things is a worrying sign and the investor should run away," he said.

Of the three points flagged, the use of a reputable auditor is most crucial, says Rosenkranz.

Rosenkranz is currently the independent non-executive director of Focus Media Network (a company unrelated to Focus Media China), which listed on the Hong Kong stock exchange's GEM board in July 2011. He says Focus Media Network keeps only one set of books, passed the tough regulations of the Hong Kong exchange, and retains PricewaterhouseCoopers as its accounting firm.

"Over the last 3 years there have been 40 U.S. accounting firms with less than 10 employees auditing Chinese IPOs," Rosenkranz said. "Now let's not forget that one of the reasons Bernie Madoff was able to get away with what he did - he used a three-man ‘mom-and-pop’ shop to audit his books."

But even “big four” accounting firms haven't been immune from controversy. Deloitte for example has come under scrunity over possible accounting fraud at the Chinese financial software firm Longtop Financial, which it audited. Rosekranz suggests that this incident was different and was largely a result of the lack of SEC oversight of accounting firms in China.

"It's not Deloitte U.S., it's a subsidiary of theirs, which is a Chinese company and one of the issues is U.S. regulators are not allowed into China to look at the books. So the U.S. regulators from the SEC have been forbidden because of country sovereignty issues from looking at the books," he said.

Longtop, which was listed on the New York Stock Exchange in 2007, had its shares suspended in May, and resumed over the counter trading in August.

Rosenkranz says Deloitte was working to fix the issues and he expects a change in regulations in the next three months, which would give the SEC broader oversight of Chinese accounting issues.

© 2011 CNBC.com