Seeing value in non-property businesses owning property 

THE return on equity (ROE) is a key metric that investors in listed equities focus on. Investors contribute equity to a business and entrust management to use the equity to generate returns.  ROE improves when net profit, which is the numerator, is higher, and when the amount of equity, which is the denominator, is lower.

The orthodox theory is that businesses should lease their operating premises instead of sinking equity into owning their facilities, as this can help improve ROE.  Could this theory be wrong?

Singapore’s corporate history has numerous examples of businesses which made bonanzas from owning properties that were used for operations.  Food and beverage (F&B) group Fraser and Neave’s factory in River Valley was redeveloped into condominium units, serviced apartments and a mall cum office building.  The former factory, located in the Bukit Timah area, of another F&B group, Yeo Hiap Seng, today houses condominium developments.