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ESR-LOGOS REIT’s Chui: Logistics assets are not an alternative asset class

Toh Ee Ming
Toh Ee Ming • 10 min read
ESR-LOGOS REIT’s Chui: Logistics assets are not an alternative asset class
Chui believes that fundamentally, his team needs to ensure that the right risk-return metric is achieved / Photo: ESR LOGOS REIT
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Managing real estate is all about anticipating evolving trends and needs of the tenants to reconstruct relevant properties. When it comes to REITs, there is an additional and increasingly important element to consider — the state of financial or capital markets.

From an asset level perspective, having to navigate an intricate ecosystem of tenants, regulators and service providers, anticipating where might be the next emerging need and even identifying “sunset industries”, to taking into consideration the state of the financial markets to weigh out and make the most appropriate decisions — it is something that continues to fascinate and keeps it going for Adrian Chui, CEO and executive director of ESR-LOGOS Funds Management, manager of ESR-LOGOS REIT (E-LOG)J91U -

, to this day.

For Chui, qualities like trust, respect and openness to views and criticisms within the E-LOG team are crucial. Armed with the belief that “no one knows everything”, the deal team’s collective view allows Chui to make better-informed and sometimes unpopular decisions. He adds: “What inspires me is to see a deal through to fruition and have each member know that they are and have contributed to the ecosystem, gaining new expertise and knowledge from their peers.”

Chui’s motivation stems from constantly anticipating trends and identifying opportunities. He also greatly emphasises teamwork to plan, negotiate and execute potential deals and transactions. By doing so, his team enables E-LOG to achieve sustainable growth mid to long-term while achieving the right risk-return metric rather than solely prioritising short-term gains.

“Managing uncertainties and accepting the right level of risks for the return required is always the hardest. With REITs, availability and certainty of funding are of utmost importance because, fundamentally, REITs do not retain any cash — we pay out everything as dividends — so the conditions or state of the financial markets can make or break a REIT if execution strategies are not carefully planned or evaluated”, says Chui.

Identifying potential areas of growth

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Since 2000, Chui has had a front-row seat to witnessing Asia’s real estate market and REIT cycles. In his view, three “paradigm-shifting events” in the last 20 years have shaped Asia’s real estate market today.

One key event was China emerging as a core real estate market and making its mark on international investors — “inevitable” given its mammoth population and economic size.

Secondly, the development and growth of S-REITs play to Singapore’s strengths as a global city with the rule of law and a business-friendly environment. What came as a surprise, however, was the pace of growth in depth and breadth, especially when considering the size of the Singapore real estate market relative to its regional peers. REITs have put the financial markets element into the real estate game and turbo-charged its growth by availing what used to be an illiquid asset class into the hands of many, observes Chui.

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The third and most recent event was the growth of e-commerce and how the pandemic has fundamentally transformed how people produce, deliver and consume goods and services in their daily lives.

Such secular trends profoundly impact how logistics assets are viewed today as a sustainable asset class for investors, he says. Logistics assets were once viewed as an “alternative” or even visually unappealing investment class compared to swanky offices, retail malls and hotels. Logistics have become the backbone of the economy due to their importance to economic supply chains.

The outlook for this sector remains robust as more occupiers and industrialists build up inventories of just-in-case storage because of possible supply chain disruptions. New trends and segments have emerged in the logistics sector that challenges landlords to recalibrate their portfolio mix to capture emerging opportunities like cold stores and pharmaceutical logistics. Chui says this continues to underpin the higher demand for industrial and logistics space.

Under his leadership, E-LOG has grown to have some $5.7 billion in assets under management as of Dec 31. Its portfolio of 82 assets spans Singapore, Australia and Japan, with logistics assets and high-spec assets — collectively known as New Economy Assets — making up over 51% and 12% of the portfolio value. As a testament to the quality and focus on its New Economy Assets, the logistics and high specs segment enjoyed positive rental reversions at 15.7% and 12.3%, respectively, for FY2022. This helped lift overall portfolio rental reversion by 11.8%.

Despite the slowdown in the global economy, E-LOG sees “sustained growth” in the logistics segment primarily due to favourable demand-supply dynamics and secular trends. Chui says that E-LOG’s portfolio will be more pivoted towards these New Economy Assets, with logistics driving this pivot.

Expanding overseas

Beyond having the foresight to see the potential of the logistics sector, Chui’s new strategy is to diversify the company portfolio geographically. The main bugbear for Singapore’s industrial sector is that land leases are very short, with a maximum of 30 years. This results in a rapid land lease decay, thereby affecting the REIT’s net asset value. This short runway also does not allow the REIT to meaningfully redevelop or enhance the asset to meet the required returns.

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Addressing this is important as the land lease decay problem will erode the REIT’s underlying value. The E-LOG team is now looking outwards and channelling its efforts into overseas acquisitions. As of FY2022, approximately 20% of the REIT’s assets by AUM are in Australia, and in October 2022, E-LOG marked its foray in Japan with the acquisition of the ESR Sakura Distribution Centre in Tokyo. The properties in Australia and Japan are either freehold or are on land leases longer than 30 years, lengthening the lease expiry profile of the portfolio.

In evaluating overseas acquisitions, Chui has laid out “fundamental criteria” — there must be a rule of law, and funds must be able to flow freely in and out of the country to facilitate the payment of dividends. In addition, there should be good access to local currency funding, allowing capital and income FX risks to be managed. Finally, the market must be scalable, allowing the REIT to acquire and grow meaningfully. These markets are where its sponsor, ESR Group, already has a footprint, with trusted local colleagues to help manage the assets efficiently.

Having a strong team of professionals with a proven track record of value creation across the various real estate practices, from finance to asset management to investment management, has helped keep the REIT competitive, says Chui.

“4R” growth strategy

To keep thriving, E-LOG has embarked on and successfully executed a 4R portfolio strategy: Rejuvenate, recycle, recapitalise, and reinforce.

The first, rejuvenation, covers three main areas, namely acquisitions of quality value-accretive assets; redevelopment of older-specs assets into modern and future-ready properties; and asset enhancement initiatives (AEI) to repurpose and rejuvenate dated assets to suit new demands. Acquisition of new assets involves a rigorous investment evaluation process to discover assets in high-growth industries, overseas sectors, or assets with long lease terms aligned with their strategy. The focus here will be on logistics assets. A periodic monitoring and assessment process will also identify mature assets needing refurbishment or redevelopment to attract tenants, says Chui. It will enhance and reposition a general industrial property to a high-spec property or redevelop a conventional warehouse into a coldstore facility. This will attract higher rent-paying tenants, providing a rental and valuation uplift. Another approach is to develop an unutilised plot ratio to “future ready” its properties and engage tenants in trending industries with long tailwinds.

The second portfolio initiative is “recycling” capital through divestments of non-core assets — typically smaller-sized and with short land leases. Proceeds from the divestments can be used to pare down debt or be redeployed to the acquisitions of higher-quality assets. By doing so, the REIT can “recalibrate” its portfolio, says Chui.

He is also “recapitalising” E-LOG’s balance sheet for future growth – part of his proactive approach to capital management. He maintains a well-spread-out and staggered debt maturity profile. With good financial flexibility to fund the REIT’s growth aspirations with adequate debt headroom, Chui can continue to focus on strengthening E-LOG’s financial position over the long term.

Finally, “reinforcing” sponsor support for quality growth. E-LOG will continue rejuvenating its portfolio by leveraging ESR Group’s network, footprint and local expertise, focusing on New Economy assets. To realise this, the firm can leverage its sponsor’s portfolio of over US$68 billion ($91 billion) in New Economy assets, with US$2 billion of the visible and executable pipeline for E-LOG. “This is a key differentiator for E-LOG in an increasingly scarce environment for logistics assets,” adds Chui.

Accepting criticisms and accolades

Outside of work, the 47-year-old is a father of three children, aged 12, 10 and 6. In his downtime, he plays squash and is a confessed foodie who enjoys checking out street food and fine dining.

Chui explains that his approach to food can also be applied to work: The quality of the work matters more than the optics and the presentation. He is aware there are different tastes and preferences. Some might wonder how could a restaurant win a Michelin star but others might think the same place deserves two stars.

In this spirit, Chui accepts criticisms and accolades for how E-LOG is run. Take his 4R strategy: For example, there is feedback that this approach is seemingly doing too many things at once and thus is creating too many uncertainties; others want E-LOG to speed up instead and get that first mover advantage.

“Fundamentally, we need to ensure that the right risk-return metric is achieved and our assets remain relevant to tenants’ space needs to ensure the REIT is run sustainably and not go for short-term gains,” says Chui.

Asked what lessons he would share with his staff and children, Chui dishes out one key piece of advice — never give up. “We all go through highs and lows in life like property cycles. What matters most is how we make the most of it. Every time we come away from a difficult situation, we need to learn from it, not repeat mistakes and use that experience to anticipate or manage the situation the next time we are faced with a similar situation”.


Listed on the Singapore Exchange Securities Trading Limited since July 25, 2006, ESR-LOGOS REIT invests in quality income-producing industrial properties in key gateway markets. As at Dec 31, 2022, ESR-LOGOS REIT holds interests in a diversified portfolio of logistics properties, highspecifications industrial properties, business parks and general industrial properties with total assets of approximately $5.7 billion. Its portfolio comprises 82 properties (excluding 48 Pandan Road held through a joint venture) located across the developed markets of Singapore (61 assets), Australia (20 assets) and Japan (one asset), with a total gross floor area of approximately 2.3 million sq m, as well as investments in three property funds in Australia.

About kopi-C: The Company

Brew kopi-C is a regular column by SGX Research in collaboration with Beansprout, a MAS-licensed investment advisory platform, that features C-level executives of leading companies listed on SGX. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations

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