Adrian Chui, CEO of ESR-REIT’s manager, says the concept of capital return should be a consideration for the higher-yielding industrial assets. “Our long-term institutional investors look at total return, and they understand this concept of return of capital,” he adds.
Industrial property land lease decay was highlighted during ESR-REIT’s FY2025 results briefing, coupled with a five-point strategy to offset land lease decay through redeveloping assets with longer leases, acquiring freehold properties and divesting shorter-lease assets.
In a recent email interview, Nupur Joshi, CEO of REITAS, highlighted the impact of shortening land leases on assets. “Two issues arise. First, there is uncertainty over income continuity beyond the lease expiry. Second — and more immediately — this affects valuation. Property valuers typically use a combination of methodologies, including discounted cash flow analysis as a key approach. Where income streams are finite and shortening, the asset effectively behaves like a depreciating instrument. As the lease runs down, this exerts downward pressure on valuations and, by extension, the REIT’s NAV, particularly as the land lease has 15–20 years left.”
