Earlier, I discussed the pros and cons of investing in a family business. In the same post, I went through my own stock portfolio to identify all family businesses and the families behind them. Among them were a few of my REIT holdings too. Let's discuss those first.
A REIT is a property business which must be run according to a set of strict guidelines. Formal restrictions are meant to prevent the majority shareholder or REIT manager from taking advantage of the other, minority shareholders. Of course, abuse is still possible and we should be alert to it. A family that controls a REIT is able to dump their undesirable properties into it, for example when they also own a property developer which is in need of cash. This means the REIT does not buy the best properties available in the market. Additionally, the family could also be overcharging for such properties. It's a subtle form of abuse, but let's still try to determine if this could potentially happen in my current REIT holdings.
ESR-LOGOS REIT
ESR-LOGOS has a 6% shareholder in the person of Mr Tong Jinquan. He is the owner of Summit Group, a real-estate developer in Shanghai. I don't think there is any overlap in the activities of Summit and ESR. As a side note, ESR Group is a larger shareholder and Mr Tong recently sold a large part of his shareholding to them. ESR-LOGOS was likely just an investment to Mr Tong and he seems to be withdrawing his involvement.
AIMS APAC REIT
On the list of major shareholders in AIMS APAC REIT two private shareholders attract our attention: Chan Wai Kheong 5.83% and George Wang 9.28%. Mr Chan is a hedge fund manager, who was also involved in a recent boardroom drama within Sabana Industrial REIT. Besides Sabana, I could not find any other real estate interests of him. Mr Wang, on the other hand, is not only a shareholder of AIMS APAC REIT but also Chairman of The Board of Directors of its manager. Furthermore, he is the founder of AIMS Financial Group which still has an interest of 7.61% in AIMS APAC REIT which they founded, as the name already suggests. All in all, a powerful position, but I could not find any cases where AIMS APAC bought properties in which Mr Wang had an interest. Also, in this REIT we find the ESR Group again with a shareholding of 12.82% to somewhat counterpoint his influence.
Frasers Centrepoint Trust, Frasers Logistics & Commercial
The Sirivadhanabhakdi family has large stakes in Frasers Centrepoint Trust and Frasers Logistics & Commercial Trust through their stake in Frasers Property. All three entities are multi-billion dollar operations with their own business dynamics. Although they still share the same website, I did not see any suspicious transactions between them. Let us also note that Charoen Sirivadhanabhakdi did not set up this network of companies himself. He inherited this structure when he took over Fraser Property after winning the battle for its parent company the Fraser & Neave conglomerate in 2013. A battle that he mainly fought for the soft drinks division of Fraser & Neave rather than its real-estate holdings.
Sunway REIT
40.89% of the shares in Sunway Real Estate Investment Trust are owned by Sunway Berhad, which is controlled by the Cheah family. Sunway Berhad is a large Malaysian conglomerate with a lot of property development activities. As such, Sunway REIT taking over properties developed by Sunway Berhad is the whole idea behind the REIT. It owns malls, hotels, offices, a medical centre, industrial properties and a university campus, all developed by Sunway Berhad. I am not aware of any signals that these acquisitions were executed at any disadvantage to the minority shareholders of Sunway REIT.
Hutchison Port Holdings Trust
Hutchison Port Holdings Trust is not a REIT, but a business trust, which is comparable in nature. CK Hutchison Holdings Limited holds 30.07%, with the Li Ka-Shing family controlling CK Hutchison. Part of the port activities of CK Hutchison was disposed to the trust at its conception in 2011, more specifically the container terminals in the Pearl River Delta, China. I don't think any assets were added to the trust ever since, so there is not much to watch here. The share has been performing quite bad for other reasons. It looks like the valuation (P/E, P/B) simply deteriorated rather than the business performance. Maybe the stock is too boring to hold for a long time and consequently it can now be bought at a very low valuation, which I did.
The other REITs I hold have no family involvement. If I overlooked anything, feel free to alert me in the comments below.
ESR Group Ltd
I am not invested in ESR Group, but I noticed their presence in AIMS APAC, ESR-LOGOS (obviously), Sabana Industrial REIT (20%) and Cromwell European REIT (28% through Cromwell Property Group).
Perhaps this should not surprise me because I prefer to invest in industrial and logistics properties and ESR considers itself a REIM (Real Estate Investment Manager) in this particular sector and focused on Asia too. This means they develop, buy, sell and manage logistics properties, similar to the recently transformed Capitaland Investment Ltd. I don't like to invest in REIM's, since it is basically trading and the profits come and go depending on economic cycles. It's also a key people-based business and those key people may leave. There is not really any moat. Besides all that, the balance sheet of ESR looks quite over-levered with debt.
ESR Group grew fast in recent years. In 2021, they took over ARA/LOGOS. Their holdings in Cromwell and ARA-LOGOS (now ESR-LOGOS) are the result of this acquisition. The last one is clearly within the focus of ESR Group, but I am not so sure about the office-oriented Cromwell Property Group, which is an Australian developer. Their Cromwell European REIT is 50/50 invested in offices and logistics properties in Europe. But note that ESR Group's focus is Asia rather than Europe. I wonder if Cromwell Property Group and Cromwell European REIT might be disposed of by ESR at some time.
Maybe the conclusion from this review is that I should monitor ESR Group more closely rather than the family holdings in the REITs I own.
Disclosure: at the time of posting this article, I hold shares in Sunway REIT, ESR-LOGOS REIT, AIMS APAC REIT, CK Hutchison, Hutchison Port Holdings Trust, Cromwell European REIT, Sabana Industrial REIT, Fraser & Neave, Frasers Centrepoint Trust and Frasers Logistics & Commercial.
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