There has been always one risk that I did not completely figure out on ARA: default risk
Given the current hot property trends in both residential and commercial, there will be bound to have one day it will collapse. When such a collapse occur, will ARA be not impacted?
The idea is often sold as ARA is an asset light company and capable of earning high ROE and getting fantastic growth rates.
Theorectically speaking, ARA manages the asset like Suntec Reits, Fortune, Dragon Funds etc. If revaluation is to occur during a property crash, it can be understood that ARA will be quite safe as the losers will be the investors that invest in these funds. However, ARA owns certain substantial holdings in these assets around 10-20% for strategic and investor confidence purposes. So during a crash, we will see a direct write off in b/s due to mark to market revaluation and impact on the profit statements as DPU decreases. On top of that, if the markdown is not managed properly, there might be a loss in reputation and legal lawsuits may ensue.
So is this risk correct? If so, has it being priced into the current market price?
Note: I am vested
Given the current hot property trends in both residential and commercial, there will be bound to have one day it will collapse. When such a collapse occur, will ARA be not impacted?
The idea is often sold as ARA is an asset light company and capable of earning high ROE and getting fantastic growth rates.
Theorectically speaking, ARA manages the asset like Suntec Reits, Fortune, Dragon Funds etc. If revaluation is to occur during a property crash, it can be understood that ARA will be quite safe as the losers will be the investors that invest in these funds. However, ARA owns certain substantial holdings in these assets around 10-20% for strategic and investor confidence purposes. So during a crash, we will see a direct write off in b/s due to mark to market revaluation and impact on the profit statements as DPU decreases. On top of that, if the markdown is not managed properly, there might be a loss in reputation and legal lawsuits may ensue.
So is this risk correct? If so, has it being priced into the current market price?
Note: I am vested