There is a saying: For a structure to grow tall, its foundations must be strong and sturdy. That is the ethos adopted by AIMS APAC REIT (AA REIT) O5RU CEO Russell Ng, who has been steadily building on its real estate business, laying it out stone by stone, asset by asset.
“From a long-term strategic perspective, we’re very much focused on acquiring assets that are of quality and developing assets to a modern and high standard… that really adds to the overall strength of the portfolio,” says Ng.
This strategy seems to have paid off. Today, AA REIT has a portfolio comprising 26 properties in Singapore and three in Australia. Listed on the Singapore Exchange S68 , AA REIT’s objective is to invest in a diversified portfolio of high-quality, income-producing logistics, business parks and industrial real estate across Asia Pacific.
It has also focused its efforts on building a balanced portfolio. About one-third of AAREIT’s portfolio is anchored by business parks and high-tech properties, where long-term leases with built-in rental escalations go to global food and consumer staples, telecommunications and life sciences companies. That offers some income “stability”, Ng explains.
Logistics makes up another sizeable segment of its portfolio, where the leases are typically shorter and are marked to market upon renewal. “This allows us to reposition the portfolio according to market conditions. In an uptrend rental market, these leases provide the potential for growth,” says Ng.
By having a combination of 44% of master leases and 56% of multi-tenanted properties, it allows the REIT to “strike a balance between long-term leases with annual escalation and short-term leases, which allows us to benefit from positive rental reversion”, explains Ng.
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Another key differentiating factor is AAREIT’s active approach in redeveloping its assets, says Ng. Over the past decade, it has completed six development projects, five asset enhancement initiatives, which had led to long-term leases and maximization of underutilised plot ratio to increase total floor area.
AA REIT managed to achieve record occupancy of 98% in the fiscal year ending March 31 (FY2023). With its revenue increasing by 18%, AA REIT grew its distribution per unit (DPU) by 5.1% from the previous year. How does one achieve that? “It’s a combination of having good-quality assets and favourable market supply and demand dynamics,” says Ng.
Property as a people business
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AA REIT’s financial performance can be attributed in part to the leadership of Ng, who joined as manager in September 2020 and was appointed as the CEO a year later.
In his role, he works with the board and management team to determine the strategic direction, investment strategy and overall business, as well as the day-to-day management and execution of the business plan. Ng has made his rounds in the industry, with over 19 years of experience in real estate investment, asset management and corporate finance in the Asia Pacific region.
Prior to joining AA REIT, he held senior fund management and investment roles with a global real estate developer, private equity real estate funds and listed REITs.
Reflecting on what has kept him going for so long, Ng says: “Property, fundamentally, is a people business.” Ng believes that stakeholder engagement is key to navigating the ups and downs of the real estate cycle.
He says: “First and foremost, it’s working with customers (tenants) and the ability to see things from their perspective. You also deal with different people within the ecosystem. If you’re looking at a new development, you’re engaging the architects, you’re talking with the engineers, and if we need to get approvals, you’re talking to the authorities. But being a REIT manager, it’s also about dealing with the bankers, investors and research analysts...There are many facets of our business which makes it dynamic and interesting.”
In balancing the needs and motivations of different stakeholder groups, Ng dishes out a unique perspective on how he approaches things. “You’ve got to look at the shoes, you’ve got to look straight ahead, you’ve got to look over the horizon,” he says.
In that regard, he devotes a significant portion of his time to operations and commercial decisions to drive the business forward.
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Another chunk of his time is spent engaging the investment community and key equity and debt capital providers, and working with the Board to guide the long-term strategic direction of the business.
Opportunity from supply chain reconfiguration
Market conditions have also played a big role in driving AA REIT’s transformation. With rising geopolitical tensions between the US and China, the world has seen a significant “reconfiguration of supply chains”, observes Ng.
Manufacturing has shifted out of China to other markets like Vietnam, India and Singapore, creating a wealth of opportunities for the city-state’s logistics sector.
Global corporates and advanced manufacturing companies are eyeing Singapore as a hub, and snapping up industrial buildings in the city-state to stockpile essential products and goods like electronic chips in these warehouse spaces.
To date, AA REIT has been able to secure “strong occupiers”, such as those in high value-added industries like life sciences, manufacturing, and pharmaceutical healthcare, which are taking up leases at the REIT’s industrial buildings.
One of the key attractions for tenants lies in the REIT’s high-specs logistics facilities, says Ng. A third of its portfolio has rampup facilities, or a ramp on every floor, which acts as a “ground floor”.
Describing how the ramp raises efficiency and operations, Ng says: “You’re not just waiting to load up your goods and wait in the loading bay for the lift and so forth. You just drive up and unload, pack and go.”
In another example, the REIT developed a property in Tuas so that it had a high clearance height and heavy floor-loading capacity that could be suitable for either a third-party logistics operator or industrial user. The building was taken up by a global healthcare company on a 10-year master lease.
AA REIT has observed a healthy appetite by players in the market, especially for its modern-specs warehouse and logistics properties, so much so that every time a tenant vacates, there are several prospects “waiting in the wings”, says Ng.
This take-up rate remains strong — AA REIT saw a positive rental reversion of 18.5% in its latest fiscal year. “We believe we’re in the right space to benefit from the supply and demand imbalance across the logistics and industrial market and from having a large proportion of our portfolio with modern specs following the re-development and asset enhancements over the years,” says Ng.
Learning to cope with failure
For Ng, the biggest challenge is having to steer the company through the ups and downs of the property market cycle. For many years, the property market has benefited from low interest rates. But the reversal of interest rates now has sparked concerns about how this may affect credit markets and property values. Persistent inflation can also lead to higher operating and construction costs.
For AA REIT, the impact of rising costs is mitigated through its combination of balanced lease structure. For its master leases, tenants are responsible for property outgoings such as maintenance, security and utility costs, whereas for its multi-tenanted properties, the rising operating and utility costs are offset by built-in annual rental escalations and an increase in service charge which was implemented at the start of January 2023. In an environment of rising interest rates, AA REIT adopts a proactive hedging and risk management policy.
Of AA REIT’s borrowings, 88% are hedged to fixed rates as at the end of FY2023, with no refinancing requirements for the next financial year. It goes back to building a strong foundation for growth, a philosophy that Ng actively tries to practise with his team.
He counts himself fortunate to have a team that is “professional and proactive”, with many having stayed with the company over many years. Having team members with strong industry expertise and business know-how has helped bring the company to where it is today.
Having worked through a number of property transactions, Ng has encountered his own share of failures. All of his biggest learnings have come from big failures, he says.
Citing a “stoic philosophy”, he adds: “You cannot always control what is happening in your environment. You can only change your thoughts and improve what’s within your control.” This has helped him fine-tune his edge in judgment and develop a deeper appreciation of business.
“When the wind is flowing high your way, don’t be too happy; when the wind stops and the sails are down, don’t be too down. Everything happens in cycles. The key is to practice consistency and work hard. The harder you work, hopefully the luckier you become,” he reflects.
AIMS APAC REIT (AA REIT)
AA REIT was established with the principal investment objective of owning and investing in a diversified portfolio of income-producing industrial, logistics and business park real estate, located across the Asia Pacific region. The real estate assets are utilised for a variety of purposes, including but not limited to warehousing and distribution activities, business park activities and manufacturing activities. AA REIT’s existing portfolio consists of 29 properties, of which 26 properties are located across Singapore, and three properties located in Australia, including a property located in Gold Coast, Queensland; a 49.0% interest in Optus Centre located in Macquarie Park, New South Wales; and Woolworths HQ located in Bella Vista, New South Wales. The company website is: https:// www.aimsapacreit.com/
About kopi-C: The Company Brew
kopi-C is a regular column that features C-level executives of leading companies listed on SGX. The series is curated by SGX Research in partnership with Beansprout (https://growbeansprout.com), a MASlicensed investment advisory platform, and is aimed at helping investors better understand the individuals who run these corporations
