Straits Trading Revs Up Real Estate Growth Engine

Date: December 7, 2021


Despite spending nearly three decades of his career in the real estate investment and management industry, Desmond Tang has yet to experience a dull day.

That’s because the real estate industry has continued to prove its resilience amid disruptive trends. And Tang’s start-up experience – prior to leading Straits Real Estate (SRE), a wholly owned subsidiary of SGX-listed The Straits Trading Company – has come in handy.

“Real estate is never boring,” said Tang, the Chief Executive Officer of SRE. “Despite its image as a traditional old-fashioned industry – a common parochial view – real estate is difficult to replace, even as economies evolve, and technology changes lives and businesses.”

“People talk about modernising real estate, but the truth of matter is that it has never stopped adapting itself to new uses, new user requirements, and new occupier habits,” he added.

“When an old trade like real estate juxtaposes with never-ending changes in space usage, it’s both captivating and invigorating. It’s very much like playing a 40-year-old original-pressed vinyl on a modern sound system, and being surprised by the outcome.”

The 55-year-old, who holds a Bachelor of Science with Honours degree in Real Estate from the National University of Singapore, and a Master of Applied Finance degree from Macquarie University, has helmed SRE since February 2014.

At various times prior to joining SRE, he was Managing Director and Co-Head at Alpha Investment Partners, and Managing Director at GrowthPath Capital, which he co-founded.

“I’ve possibly had more involvement with start-up businesses than most real estate investment professionals,” Tang acknowledged. “Every start-up is an adventure, and every adventure requires a first step, as the Cheshire Cat in Alice of Wonderland says.”

“But mostly, that first step is error-laden, so the ability to respond, adjust and change course often makes the difference between ultimate success and failure. When you participate in a start-up knowing the odds are at best even, you‘re driven to better your chances, create options and seek control of your own luck. My career experience would have been that much poorer without all of that.”

Now at SRE, Tang is grateful for having had the opportunity to create and build the company from scratch into what it is today.

“My previous experience with start-up companies certainly helped. Having been mostly a real estate fund manager prior to this role, it was necessary for me and my colleagues to decide early on how the investment style should be adapted for a publicly listed company like Straits Trading,” he recalled.

“We also worked on delivering quick, tangible results to garner confidence from the market. We were fortunate to achieve what we planned quite quickly, kept our discipline, and continued to produce the goods over the years.”

Growth Driver

SRE was established as a private equity real estate investment company in 2013. Since then, it has grown to manage a diverse investment portfolio, with over S$2 billion in assets spanning China, Malaysia, Singapore, Japan, Australia and South Korea. Its portfolio includes logistics, retail, office and business park properties.

SRE is an important earnings driver and growth engine for Straits Trading. The latter is a conglomerate-investment company with operations and financial interests in resources, property, and hospitality.

These include majority or strategic stakes in the world’s third-largest tin producer, Malaysia Smelting Corporation, which is dual listed on Bursa Malaysia and SGX; ARA Asset Management and Far East Hospitality Holdings, as well as a diversified property portfolio and real estate investments that are wholly owned by the Group.

In August 2021, Straits Trading announced it was selling its 19% stake in ARA Asset Management for S$1.14 billion to Hong Kong-listed ESR Cayman.

For Tang, a key priority is ensuring that SRE remains relevant to its key stakeholders – namely its shareholders and employees – as it navigates the markets and takes advantage of business opportunities.

“The alignment of interest between stakeholders is not always natural, so you must work on finding the balance that gives you sustainability,” he added.

“I emphasise “work on” because you cannot leave that to chance. It requires conscious effort to ensure the company remains valid to shareholders and employees as environment and circumstances evolve.”

In particular, SRE has been anticipating and keeping abreast of new trends following the onset of the pandemic.

“COVID-19 brought about massive and swift changes in space usage habits that the industry could never have anticipated,” Tang noted. “Lockdowns, work-from-home regimes, exponential growth in online retailing, and safe-distancing requirements all contributed to the disruption.”

“So we zeroed-in on opportunities that provide short- to mid-term insulation against current challenges, with asset quality to benefit from the eventual market recovery, such as new economy assets and business parks.”

Looking ahead, SRE will continue to focus on building a portfolio of predominantly income-producing assets with stable cash flows. In the near term, it is looking to acquire business parks and warehouse retail parks in the UK, as well as logistics assets across key geographies.

It has also ventured into greenfield developments in South Korea and Australia to reap development upside through build-to-suit opportunities, which are geared to fulfil secular, or longer term, demand.

“We always focus on return maximisation by driving capital efficiency. This is reflected in SRE’s consistent ROE track record of 10% over the last five years,” Tang pointed out, referring to the key industry metric of return on equity.

“We achieve this through a disciplined approach to capital allocation, risk pricing, asset management and divestment – all of which ensure capital is recycled into higher-returning investments in a systematic and timely manner. As part of our active asset management process, we also implement enhancement initiatives to improve the marketability and operational efficiency of these assets.”

Burgeoning Potential

In addition, the outlook remains bright in SRE’s key markets. South Korea offers enormous potential, driven by its rapidly emerging domestic e-commerce market and a supply shortfall in modern logistics assets, while in Japan, its real estate sector has emerged as one of the most resilient and best-performing property investment markets in the world amidst the pandemic.

As for China, the quick containment of the pandemic and swift rebound in consumption has instilled confidence in domestic and foreign brands, which is set to spur further investment in the expansion of retail store networks in the country.

Meanwhile, in Australia, a robust economy, continued expansion in e-commerce and infrastructure spending, coupled with a shortage of high-specification logistics space, continues to underpin growth.

Despite such rosy prospects, challenges loom, not the least of which is how the pandemic has dramatically altered lives and livelihoods.

“The current overriding concern, from the perspective of a real estate investment company, is how much of the changes in user habits that occurred during the pandemic are going to be permanent, and how much of that are temporary,” Tang said.

“What can we do to our portfolio of properties to keep them relevant to users? What’s the impact on asset value if some of the pandemic-induced changes become permanent? Must new buildings be designed for a future pandemic that may or may not happen?”

SRE is also competing with record amounts of private capital dry powder for deals – many investors are flush with cash and looking to deploy their funds.

“There’s also a mismatch in price expectations between potential buyers and sellers,” he added. “The low interest-rate environment is a double-edged sword – there’s ample funding for investors, but also stronger holding and bargaining power for owners of distressed assets due to lower borrowing costs.”

However, unlike conventional private equity funds, SRE is not constrained by a mandate. This gives the company the agility to allocate capital in the most efficient manner, allowing it to punch above its weight despite its relatively small size.

“We have the advantage of being sector-agnostic, of being able to pursue opportunities that generate attractive risk-adjusted returns,” Tang added.

“Our investment decisions are not only informed by our market outlook or the competitive landscape, but also the expected return on investment or invested capital, and our country-specific strategy.”

The Straits Trading Company Ltd

Incorporated in 1887, Straits Trading is a conglomerate-investment company with operations, as well as financial interests, in resources, property, and hospitality. These include majority or strategic stakes in Malaysia Smelting Corporation – the world’s third-largest tin producer that is dual-listed on Bursa Malaysia and SGX – ARA Asset Management, Far East Hospitality Holdings, as well as a diversified property portfolio and real estate investments that are wholly owned by the Group. In August 2021, Straits Trading announced it was selling its 19% stake in ARA Asset Management for S$1.14 billion to Hong Kong-listed ESR Cayman.

The company website is:

Click here for the company’s StockFacts page.

For the half year ended 30 June 2021 financial results, click here.

First published on SGX website on 2 December 2021

About kopi-C: the Company brew

Text: Jennifer Tan-Stanisic
Photo: Company file

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