Unsexy But Oh, The Cash Flow
By Conrad RajJeffrey Schwartz leaves very little double that he is one very smart cookie. A graduate of Harvard Business School and first in his class at Emory University in 1981 with a Bachelor of Business Administration, he answers most questions without a moment’s hesitation and rattles off figures from the top of his head.
He is also Deputy Board Chairman and Chairman of the executive committee of Global Logistic Properties (GLP) – Asia’s largest warehouse space provider, whose biggest stakeholder is the Government of Singapore Investment Corporation (GIC).It has been only four years since he and Mr Ming Z. Mei co-founded GLP, in the wake of the global financial crisis. Mr Schwartz was then Chairman and Chief Executive of Prologis, the world’s largest owner, manager and developer of industrial warehouse facilities.
The market turmoil in 2008 saw Prologis’ stock take a sharp dive of over 70 per cent. He quit the company following disagreements with the board over the issuing of new shares. “They thought it would be dilutive – but it was not nearly as dilutive as when they sold the best part of the business at (six times earnings),” he says, referring to when he and Mr Ming eventually took over the Chinese and Japanese operations of Prologis, which became GLP.
After handing in his resignation, Mr. Schwartz’s initial though had been to take a year off to see the world with his wife, a former tax partner at KPMG. But within a week, that plan evaporated and he and Mr Ming were at the negotiating table with Prologis.
The company’s Chinese and Japanese operations were then very much in need of a cash infusion. GIC was the biggest investor in those assets, and it ended up as the main partner – with 93 per cent – of the newly formed GLP.
Mr Schwartz says of his choice of GIC as partner: “We came to respect them; they were very good partners, very smart, willing to act swiftly when needed and quite frankly, during the financial crisis, they had the conviction and the courage to make what turned out to be a fantastic investment for them.” (While others were keen to invest in GLP, they came in only after he had closed the deal with Prologis.)The Singapore sovereign wealth fund has more than doubled its initial investment in GLP since taking the company public in October 2010, in an exercise that raised over S$3.5 billion.
Today, GIC holds a 30-per-cent stake while Mr Schwartz and Mr Ming each own 61.5 million shares – and although this amounts to just over 1 per cent each, it still makes them very wealthy men indeed at today’s price of around S$2.70 a share.
JUNIOR PARTNER AT 26Although an accountant by training, Mr Schwartz, 53, prefers to be described “as a builder and manager of organisations and businesses”.
He had wanted to be a real estate investment banker after graduating from Harvard but, like with many successful people, fate took a hand in matters. A senior tax partner at the now-defunct accounting firm of Arthur Andersen, after failing to get Mr Schwartz back into the firm where he had spent two years, asked him to meet up with some of the firm’s clients.
“One of them, who happened to deal in industrial real estate, offered me a position as a junior partner at the age of 26 – with a low salary base but a cut of all the business I brought in – and I have never looked back.”
At 29, he co-founded The Krauss/Schwartz Company in Florida, which soon became the state’s largest provider of distribution facilities. In 1994, it was acquired by Prologis, and Mr Schwartz rose rapidly through the ranks there. As Vice-Chairman in 1997, he spearheaded the company’s entry into Europe and soon made it the leading space provider there.
He then set his eyes on Asia, relocating to Japan in 2002, recruiting in the process his GLP co-founder Ming to head China and later all of Asia. Two years later, Mr Schwartz was appointed as Prologis Chairman and CEO.STOREHOUSES OF VALUE
Today, he is keeping GLP focused on China, Japan and Brazil. China and Brazil, he explains, are where the best growth prospects and the greatest profits for the business are. Although Japan is a mature market, only in the last decade or so has it begun to look at improving its logistics. “Our returns there are fantastic,” he notes.
As for India, “I have not found a way of making money in that market”.On why GLP is not in other areas of logistics, Mr Schwartz explains that margins in transportation are abysmal. “There are 11.5 million trucks in China, with 10.5 million individual owners who make a meagre living out of them.”
He goes on to say: “ We are in a very simple business, but we are better than most in our execution… it’s not a glamorous business but the cash flows are fantastic, so much better than the other so called sexier areas of real estate.”
“The capex (capital expenditure) is not high – you change the roof after 20 years, paint the premises perhaps every seven years, but you get annuity-like cash flows. And each unit is a storehouse of value over the next 50 to 60 years.”
As at the end of last year, GLP had under its portfolio nearly 250 million sq ft of gross floor area worth US$13.58 billion (S$17 billion) in 438 properties in 33 cities. It also reported net operating cash flow of US$418 million.
GIRL OF HIS HEART Mr Schwartz, who has homes here and elsewhere, devotes an awfully huge amount of time to his business – travelling extensively, or on the phone with employees, clients and business associates.
“When you love what you do, it doesn’t feel like work,” says the father of four children aged 10 to 27.While he does not expect his staff to work as hard as he does, he observes: “When you are committed to excellence, you tend to attract people with similar commitment and enthusiasm.”
Yes, his worklife balance often suffers – but he does remember the important dates in his family’s life, especially that of his 10 year old daughter. “If I have to fly halfway around the world to keep an appointment with her, I’ll do it, and then fly back to whatever I have to attend to the next day.”
Good friends also matter. This month he will be flying to Phoenix, Arizona, to be with a friend recovering from surgery on his cancer.
What Mr Schwartz wants to be remembered for, ultimately, “is being very fair, honest, and having integrity; a good father, a good husband, a good boss and a good friend. And as one always trying to do the right thing”.
