ESR Group Limited (Incorporated in the Cayman Islands with limited liability) Stock Code: 1821 Annual Report 2022 FORWARD TOGETHER
SPACE AND INVESTMENT SOLUTIONS FOR A SUSTAINABLE FUTURE ESR is APAC’s leading real asset manager powered by the New Economy. On the back of the accelerating advancement, broad-based adoption and high frequency usage of technology, we are witnessing a once-in-a-multi-generation change in real estate and our vision is to deliver a fully integrated solution to leading global capital partners and customers. As a part of this continuous pursuit, we will leverage our scale, extensive offerings, capabilities and resources to provide a suite of best-in-class real estate development products and real asset investment solutions that spur meaningful, long-term sustainable growth of the business, the economy and the environment. We are fully focussed on contributing to a positive impact for our employees, customers, investors, capital partners and the communities around us. Visit www.esr.com for more information. INVESTMENT Our investment platform includes completed properties held on our balance sheet, our co-investments in the funds and investment vehicles and the public REITs we manage, as well as other investments. FUND MANAGEMENT We manage a broad range of funds and investment vehicles that invest in a diverse portfolio of premium real assets in various stages of the property life cycle, providing a single interface with multiple investment opportunities for our capital partners. NEW ECONOMY DEVELOPMENT Our New Economy development platform with an end-to-end integrated suite of technical capabilities and services covers every stage of the development cycle including land sourcing, design, construction and leasing.
10 Overview of ESR 18 Message from Chairman 21 Message from Group Co-founders & Co-CEOs 24 Financial Highlights 26 Year in Review 28 Operations Review 36 Financial Review 39 Capital Management 41 Awards & Accolades 42 Property Portfolio 44 ESG Performance 84 Directors’ Report 115 Independent Auditor’s Report 121 Consolidated Statement of Profit or Loss and Other Comprehensive Income 122 Consolidated Statement of Financial Position 124 Consolidated Statement of Changes in Equity 126 Consolidated Statement of Cash Flows 129 Notes to the Consolidated Financial Statements 240 Group Financial Summary End Corporate Information 51 Board of Directors 58 Group Leadership Team & Business Leadership Team 60 Corporate Structure 61 Investor Relations 64 Risk Management 70 Corporate Governance Report STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT Contents
ESR-LOGOS REIT ESR KendallSquare REIT Suntec REIT Prosperity REIT Fortune REIT ARA US HOSPITALITY TRUST ESR’s landmark acquisition of ARA Asset Management (“ARA”) enables us to capitalise on collective experience and expertise to further strengthen the Group’s business in diverse and dynamic ways. The addition of LOGOS, ARA's subsidiary which is a logistics and data centre specialist, cements ESR's position as the region’s largest New Economy real estate platform in Asia Pacific.
ESR Yokohama Sachiura Distribution Centre, Japan FORTIFYING OUR BALANCE SHEET STRENGTH ESR has a robust and well-capitalised balance sheet and a healthy gearing of 22.8% as of 31 December 2022. Throughout the year, the Group continued to expand and diversify its funding and capital structure which is crucial for fuelling the Group’s long-term growth. The Group remains focused on its asset-light approach through capital recycling of balance sheet assets to ESR-managed funds in FY2022. US$156 billion1 Total AUM US$1.8 billion Strong liquidity position AA- / stable Japan Credit Rating US$1.7 billion Divestments from B/S assets –>3x of annual target 3.2 US cents Maiden full year dividend per share2 1.9%3 Dividend Yield Notes: 1. Based on constant FX translation as of 31 December 2021 for a likefor-like comparison. Based on FX translation as of 31 December 2022, total AUM would be US$145 billion (US$11 billion FX translation impact). 2. The Board of Directors declared an interim dividend of HK$12.5 cents (approximately (1.6 US cents per share) per ordinary share and a final dividend of HK$12.5 cents (approximately (1.6 US cents per share) per ordinary share for the financial year ended 31 December 2022, amounting to a total of approximately US$141 million for FY2022. 3. Based on closing share price of HK$13.26 on 21 March 2023.
GROWTH ESR has continued to deliver solid growth and record highs in FY2022 — a strong testament to our business model even amidst macroeconomic headwinds and market volatility. Development starts and completions have scaled substantially to reach new heights on the back of near zero vacancies and record leasing across the New Economy portfolio. The Group continues to maintain its market leadership with the largest development workbook in APAC. US$19.9 billion Uncalled capital (“dry powder”) for deployment 4.6 million sqm Record leasing across New Economy portfolio US$11.9 billion Work-in-Progress1 (Development workbook) US$7.6 billion Capital raised through 28 new/upsized funds/ mandates US$6.5 billion Record development starts1 US$5.5 billion Record development completions1 First close of US$1 billion ESR Data Centre Fund Raised the Group’s inaugural US$1 billion infrastructure and renewables fund in ASEAN, in partnership with Export– Import Bank of China Note: 1. New economy assets only. Excludes ESR-LOGOS REIT and Sabana REIT.
DELIVERING RECORD HIGHS AND SOLID GROWTH PIPELINE Rendering of Moorebank Logistics Park, New South Wales, Australia
TRANSFORMATION ESR has continued to drive business transformation and simplification. The Group’s commitment to delivering long-term shareholder value is reinforced through cost synergies with the integration of ARA and ongoing integration of LOGOS, streamlining the business with non-core divestments, managing our balance sheet, and redeploying capital back to its New Economy focus areas of data centres. US$15 million Cost synergies from ARA integration Up to US$750 million Non-core divestments identified to redeploy capital back to core growth areas 7.4% Average co-investment stake Well-placed to take on greater development capacity
ESR Amagasaki Distribution Centre, Japan LASER-FOCUSSED ON BUSINESS TRANSFORMATION AND SIMPLIFICATION
SUSTAINABILITY Since the launch of its ESG 2025 Roadmap in November 2020, ESR has made significant progress across the three key pillars under its ESG Framework — “Human Centric”, “Property Portfolio” and “Corporate Performance”. The Group continues to drive best-in-class sustainability practices as a unified platform to create sustainable value for its stakeholders. UN PRI Became a signatory to the United Nations-supported Principles for Responsible Investment (UN PRI) in June 2022 ~100MW Rooftop solar power capacity across the enlarged Group1 ~US$3 billion Sustainability-Linked Loans (SLLs) raised across the enlarged Group to date 39%2 Of the Group’ s portfolio of completed directly managed assets awarded sustainable building certifications and ratings, representing approximately 11 million sqm in GFA ESG Ratings MSCI “A” Sustainalytics “Low Risk” Zero ESR workforce fatalities3, with ongoing ISO 45001 Occupational Health & Safety (OHS) certification for ESR Data Centres, in addition to ISO 45001 OHS certification obtained under ARA Property Management Notes: 1. Across the enlarged Group as at December 2022, comprising completed solar power capacity of 85 MW and planned projects of 15 MW. 2. Based on the GFA of certified completed directly managed assets (approximately 10.6 million sqm), divided by total GFA of completed directly managed assets (approximately 27.3 million sqm) 3. Refers to ESR Group's employees.
TRANSITION TO A LOW CARBON ECONOMY
FORWARD TOGETHER 10 Overview of ESR US/EUROPE US$22billion AUM SOUTHEAST ASIA US$11billion AUM AUSTRALIA & NEW ZEALAND US$25billion AUM GREATER CHINA US$33billion AUM INDIA US$2billion AUM SOUTH KOREA US$15billion AUM JAPAN US$34billion AUM APAC2 US$14billion AUM New Economy REITs Alternatives / Others ABOUT ESR GROUP ESR is APAC’s largest real asset manager powered by the New Economy and the third largest listed real estate investment manager globally. With US$156 billion1 in total assets under management (AUM), our fully integrated development and investment management platform extends across key APAC markets, including Greater China, Japan, South Korea, Australia, Singapore, India, New Zealand and Southeast Asia, representing over 95% of GDP in APAC, and also includes an expanding presence in Europe and the U.S.. We provide a diverse range of real asset investment solutions and New Economy real estate development opportunities across our private funds business, which allow capital partners and customers to capitalise on the most significant secular trends in APAC. ESR is the largest sponsor and manager of REITs in APAC with a total AUM of US$46 billion1. Our purpose – Space and Investment Solutions for a Sustainable Future – drives us to manage sustainably and impactfully and we consider the environment and the communities in which we operate as key stakeholders of our business. Listed on the Main Board of The Stock Exchange of Hong Kong, ESR is a constituent of the FTSE Global Equity Index Series (Large Cap), Hang Seng Composite Index and MSCI Hong Kong Index. Visit www.esr.com. AUM 32% GREATER CHINA 11% JAPAN 13% SOUTH KOREA 19% AUSTRALIA / NEW ZEALAND 12% SOUTHERN ASIA 5% INDIA 5% APAC 3% US / EUROPE GFA by region US$156 billion 45 million sqm GFA * Information as of 31 December 2022
ESR Group Limited Annual Report 2022 11 ESR Group's Robust Scale, Vastly Expanded Capabilities and Deeper Breath of Offerings will Define the Future of APAC Real Estate Notes: 1. Based on constant FX translation as of 31 December 2021 for a like-for-like comparison. Based on FX translation as of 31 December 2022, total AUM would be US$145 billion (US$11 billion FX translation impact), New Economy AUM would be US$68 billion (US$5 billion FX translation impact) and public REITs AUM would be US$45 billion (US$1 billion FX translation impact). 2. Refers to AUM in ESR Data Centre Fund 1 and certain ARA funds with assets located in multiple regions in APAC. 3. Includes ESR-LOGOS REIT and ESR KendallSquare REIT. 4. Excludes the AUM of Associates as of 31 December 2022. 5. REITs + Core Capital defined as core funds and public REITs for ESR and public market assets (including Cromwell and Kenedix REITs) and core funds for ARA. 6. New Economy assets only. Excludes ESR-LOGOS REIT and Sabana REIT. 7. Based on 2020 Nominal GDP per Euromonitor. 12 of Top 20 Global LP Relationships US$11.9 billion Development WIP6 APAC’S #1 Real Asset Manager Powered by the New Economy AUM¹ Composition 1% 21% 22% Region Greater China Japan South Korea APAC Southeast Asia Australia/New Zealand India/Others US/Europe 9% 17% 9% 14% 7% 62% Sector4 New Economy REITs Alternatives/Others 25% 13% 60% Fund Type REITs + Core Capital5 Other Funds Balance Sheet 2% 38% New Economy AUM1 US$73 billion Listed Real Estate Investment Manager Globally 3rd Largest GDP in APAC Covered7 >95% Public REITs1 US$ 46 billion S REITs + Core Capital5 Countries; ~85% of AUM allocated in APAC 60% 28 #1 REAL ASSET MANAGER IN APAC POWERED BY THE NEW ECONOMY WITH A FULL SUITE OF INVESTMENT SOLUTION AND A GLOBAL FOOTPRINT WITH LEADING APAC PRESENCE STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
FORWARD TOGETHER 12 Our Purpose SPACE AND INVESTMENT SOLUTIONS FOR A SUSTAINABLE FUTURE As a part of this continuous pursuit, we will leverage our scale, extensive offerings, capabilities and resources to provide a suite of best-in-class real estate development products and real asset investment solutions that spur meaningful, long-term sustainable growth of the business, the economy and the environment. We are fully focussed on contributing to a positive impact for our employees, customers, investors, capital partners and the communities around us. CUSTOMERS Our network of superior, strategically located properties supports our customers’ businesses as they navigate the opportunities and challenges of the New Economy. With an unparalleled formula of strategic vision, industry insight and a customer-centric approach, we continue to create and deliver best-in-class space and provide integrated solutions which continually set new benchmarks in innovation and sustainable operations. INVESTORS Our robust fund management platform provides a unique fully-integrated closedloop solutions ecosystem, which affords capital partners a comprehensive approach in achieving their investment objectives. We offer compelling investment solutions to access New Economy and alternative assets in the most dynamic sector of the world’s fastest growing markets. COMMUNITIES ESG and sustainability are at the very heart of our business, driving each and every part of our operations. Our teams are bound together by the conviction that everything we do today can generate a profound and positive impact on the industry, the wellbeing of people and the broader community for generations to come. EMPLOYEES We strongly believe in diversity and having an inclusive culture in order to attract a diverse pool of talent that helps us build a first-rate team to achieve our goals and desired results. Our employees are encouraged to learn, grow and develop on both personal and professional levels – enabling them to progress and realise their fullest potential.
ESR Group Limited Annual Report 2022 13 Highly Scalable Asset-Light Business Model Our Fully-Integrated Business Model Generates Recurring Fees Throughout the Whole Asset Life Cycle ESR’S ROBUST AND FULLY-INTEGRATED PRODUCT OFFERING • Land Sourcing and Entitlement • Premier Design and Construction Capabilities • Leasing and Customer Solutions • Asset and Property Management • Capital Management and Capital Recycling • Asset Enhancement and • Re-positioning • Property Conversions and Repurposing • Professional Asset Management • Asset Monetisation Solutions • Stable Income Returns • Full Suite of Public Market Capabilities NEW ECONOMY DEVELOPMENT ALTERNATIVES PUBLIC REITS Diverse and High Margin Fee Opportunities Across the Real Asset Value Chain Base / Asset Management Fees Acquisition Fees Property Management Fees Development Fees Leasing Fees Promote Fees STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
FORWARD TOGETHER 14 Our Values Our ambitions as a firm extend well beyond the pursuit of financial success. We provide innovative space and sustainable investment solutions that benefit the people and communities around us. We seek to achieve sustainable growth through a harmonious balance of personal, professional, and social values - pillars that define and set us apart as a great company. EXCELLENCE We strive for excellence in every aspect of our business. We maintain high standards of performance and accountability, and we seek to learn, explore and improve continuously. SUSTAINABILITY Sustainability is central to our mission because we aspire to improve the environmental prospects of our planet. Our responsibilities to stakeholders, local communities and the world at large grow in tandem with our business. Accordingly, we commit to lead and embrace the highest standards of governance in forging a path to become a carbon neutral business. INCLUSION We embrace diversity, equity and inclusion in the workplace. We believe trust and mutual respect among colleagues, partners and stakeholders are cornerstones of growth and success. ENTREPRENEURSHIP Our entrepreneurial spirit reflects our passion, courage and desire to succeed and ultimately drives the creation of opportunities and the delivery of superior outcomes in a competitive marketplace.
ESR Group Limited Annual Report 2022 15 Establishing a Fully-Integrated Closed Loop Solutions Ecosystem for our Capital Partners ESR Group offers leading global and regional investors a fully-integrated platform to rebalance their portfolios. By creating a one-of-a-kind closed loop solutions ecosystem for capital partners with the addition of ARA, ESR Group can leverage our perpetual capital vehicles to help them divest these assets and captively redeploy back into New Economy real estate via ESR and LOGOS — the largest New Economy real estate platform in APAC with US$73 billion of AUM. A fully-integrated closed loop solutions ecosystem for capital partners to leverage our perpetual capital vehicles and gain exposure to New Economy and Alternative asset classes Source: Company Filings Notes: 1. Include logistics and data centres via ESR and LOGOS. 2. On 21 March 2022, ESR-REIT and ARA LOGOS Logistics Trust unitholders approved the merger to form ESR- LOGOS REIT. + NEW ECONOMY REAL ESTATE¹ PUBLIC REITS² capital co-invest capital co-invest SIGNIFICANT MINIMAL INVESTING DIVESTING Growing Exposure Across New Economy and Other Alternative Asset Classes PRIVATE MARKET REAL ESTATE INVESTORS High Quality Prime Assets Retail Office Sovereign Wealth Funds Pension Funds Insurance STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
Key Trends to Support Our Growth Strategies FORWARD TOGETHER 16 Rapid rise of New Economy Growth in real assets Financialisation of real estate in APAC ASIA PACIFIC LOGISTICS – LARGEST SECULAR GROWTH OPPORTUNITY IN ASIA GLOBAL TRENDS OUR COMPETITIVE STRENGTHS 1 Real Asset Investment Manager Powered By The New Economy ESR is APAC’s largest real asset manager powered by the New Economy and the third largest listed real estate investment manager globally. With US$156 billion in total assets under management (AUM)1, our fully integrated development and investment management platform extends across key APAC markets, including China, Japan, South Korea, Australia, Singapore, India, New Zealand and Southeast Asia, representing over 95% of GDP in APAC, and also includes an expanding presence in Europe and the U.S. 2 Fully Integrated Closed-Loop-Solutions Ecosystem Offering a full suite of both public and private investment solutions, ESR has created the only fully integrated closed-loop-solutions ecosystem for real estate globally. The platform allows global capital partners to increase allocation to New Economy real estate where they are still significantly underweight. Leveraging an expanded network of capital partners and resources, the enlarged ESR Group will further expand and diversify its product offerings. 3 Well-established fund management platform that facilitates AUM growth Designed to provide us with long-term operational control of our assets and sustainable fees across the full asset life-cycle, our fund management platform supports AUM growth and generate multiple sources of fund fee income. 4 Network of high-quality tenants and best-in-class capital partners The size and scale of our capital partners combined with their longterm approach provide us with access to capital while we maintain strong and long-standing relationships with our network of high quality tenants. 5 Proven ability to grow organically and execute opportunistic M&A transactions to expand our capabilities Our strategy is to create long-term, scalable logistics platforms with proven development capabilities and we partnership with strong local leadership for expansion into new markets. 6 Strong management team and backed by reputable shareholders We are co-founded and are led by an experienced management team that has pioneered the asset class in every major market in Asia. Our key and strategic shareholders have provided us with the ability to leverage their capabilities, and access to capital, strategic land holdings and tenant relationships. Note: 1. Based on constant FX translation as of 31 December 2021 for a like-for-like comparison. Based on FX translation as of 31 December 2022, total AUM would be US$145 billion (US$11 billion FX translation impact).
ESR Group Limited Annual Report 2022 17 FOCUS PRIORITIES 1 Capitalise on significant market opportunities across Asia Pacific • Further develop our markets and build logistics infrastructure for the modern economy • Build on our network of high quality tenants • Leverage on our integrated fund platform by using our robust deal sourcing and development capabilities and capital pool 2 Leverage our scale and geographic presence to expand into new growth markets • Actively evaluate opportunities in new markets through potential partnerships and selective acquisitions in high growth markets • Deepen our regional connectivity by offering logistics solutions in multiple cities in multiple markets in our portfolio • Focused on building and strengthening long-term tenant relationships 3 Expand our fund management platform and attract new capital partners while bringing existing capital partners across markets • Global institutional investor base and capital recycling model • Inject select completed properties into our core/core-plus funds • Pursue acquisition opportunities for listed fund platforms and selectively expand existing REIT vehicles • Leverage the network effect to attract capital partners across Asia Pacific 4 Strategically explore and expand into adjacent businesses and investment products within Asia Leverage our ecosystem of shareholders, capital partners, local teams and tenants to penetrate adjacent businesses STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
Message from Chairman FORWARD TOGETHER 18 On the back of strong secular trends, we will focus on three pillars of growth — New Economy, Alternatives (including infrastructure and renewables) and REITs. Dear Shareholders, 2022 represented one of the most challenging market environments since the global financial crisis with sustained inflation, record rate hikes and significant geopolitical and macro challenges. I am very pleased that even amidst these headwinds and market volatility, ESR has continued to deliver solid growth which is a strong testament to our business model. The Group’s Revenue for FY2022 was US$821 million, up 103.0% from FY2021 revenue of US$404 million. Total EBITDA1 increased by 63.0% from US$707 million in FY2021 to US$1.15 billion in FY2022. PATMI2 grew 73.5% from US$377 million in FY2021 to US$655 million in FY2022. The higher revenue was driven by higher fees from the Group’s Fund Management segment while EBITDA was boosted by an increase in fee income, share of profits of co-investments and gains on divestment from balance sheet assets to ESR-managed funds in Australia and China. A standout year for fund management I am proud to report that our Fund Management segment achieved another year of outstanding performance in FY2022, backed by our deep capital partner relationships. Fund Management Segmental EBITDA3 grew 185.3% to US$568 million, driven by substantial recurring and other fee revenue from higher AUM, record development, leasing fees and solid promotes. The segment was propelled by the exceptional growth momentum of the Group’s fund AUM4,5 which rose 330% year-on-year to US$152 billion, Notes: 1. Total EBITDA excludes amortisation of intangibles and transaction costs relating to ARA; and share of certain associates' fair value on investment properties, financial assets at fair value through profit or loss and financial instruments; as well as share-based compensation expense. Statutory Total EBITDA was US$1,069 million. 2. PATMI excludes amortisation of intangibles and transaction costs and share-based compensation expenses relating to ARA; share of certain associates' fair value of investment properties and financial assets at fair value through profit or loss and financial instruments. Statutory PATMI was US$574 million. 3. Excludes share of certain associates' fair value on investment properties and financial assets at fair value through profit or loss and financial instruments. JEFFREY DAVID PERLMAN Chairman
ESR Group Limited Annual Report 2022 19 out of which New Economy AUM4,5 grew by 85% to US$73 billion, including a new Pan Asia discretionary logistics vehicle. The Group’s Fund Management segment also benefitted from ARA’s recurring and stable fee revenue. As global institutional investors sought to rebalance their portfolio allocations in light of the growth in Asia Pacific, we raised US$7.6 billion in committed capital across 28 new or upsized funds and mandates. In expanding our Fund Management business, we have a record US$19.9 billion of “dry powder” to capitalise on new opportunities, giving us the agility to take advantage of market dislocation. Powered by the New Economy With the growth in e-commerce and the need for greater local supply chain resilience, ESR has tapped the rising demand for large-scale and high-quality New Economy assets by scaling up our development starts and completions substantially to reach new heights. We achieved US$6.5 billion6 worth of development starts, as well as US$5.5 billion6 in completions, which accelerated in the second half of 2022. Given the record low vacancy rates across the portfolio, the Group substantially increased our development starts by 94% year-on-year Notes: 4. Based on constant FX translation as of 31 December 2021 for a like-for-like comparison. Based on FX translation as of 31 December 2022, Fund AUM would be US$142 billion (US$10 billion FX translation impact) and New Economy AUM would be US$68 billion (US$5 billion FX translation impact). 5. Refers to the sum of (i) the fair value of the properties held in the private funds and investment vehicles we manage; (ii) the total uncalled capital commitments in the private funds and investment vehicles; (iii) the additional debt that is estimated to be incurred with reference to the target leverage ratio of the relevant private funds and investment vehicles we manage when all capital is called and invested; and (iv) the appraised carrying value of listed REITs. 6. New Economy assets only. Excludes listed REITs and Associates. 7. Net Debt/Total Assets. to US$6.5 billion6 which was further complemented by development completions which increased by 304% year-on-year to US$5.5 billion6. To further capture the favourable operating backdrop, we are very pleased that our development workbook has reached a record US$11.9 billion, which remains the largest in APAC. Robust capital management and asset light strategy Our robust capital management has given us a strong and well-capitalised balance sheet with US$1.8 billion in cash and a healthy gearing7 of 22.8% as of 31 December 2022. Throughout the year, we continued to expand and diversify our funding and capital structure which is crucial for fuelling the Group’s long-term growth. Staying focussed on our asset light approach, we divested US$1.7 billion of assets from our balance sheet to ESR managed funds in FY2022, achieving 3 times our annual historical target with a specific focus on crystalising gains from selected China balance sheet assets. Our sell-down of a 850,000 sqm portfolio in China represented the Group’s largest self-developed balance sheet sell-down to date. The Group also executed on the successful tender of our 18.16% holding in China Logistics Property Holdings Co., Ltd in May 2022, receiving US$349 million and delivering a strong return on this four-year investment. ESR Jiangsu Friends III, Kunshan, China STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
Message from Chairman FORWARD TOGETHER 20 Laser-focussed on business transformation and simplification A key emphasis for us has been to drive business transformation and simplification, which underscore our commitment to delivering long-term shareholder value. We have achieved approximately US$15 million of cost synergies from the integration of ARA, exceeding our target plan, and successfully integrated part of the LOGOS business. We expect to create additional synergies as we further integrate various aspects of the LOGOS business over the next 12 months. As part of our priority to streamline and further simplify the business, the Group is evaluating an additional up to US$750 million of non-core divestments with the plan to redeploy the capital back into core areas of growth. We have also further lowered our average co-investment stake to 7.4%, placing us in a good position to take on greater development capacity without increasing our existing balance sheet annual commitments. The Group’s business transformation backed by our asset light model has provided us with robust liquidity to redeploy the capital back into our New Economy focus areas. This includes creating our data centre platform with the first close of the US$1 billion ESR Data Centre Fund and investing in market leaders through our recent strategic investment and partnership with BW Industrial Development in Vietnam to provide best-in-class development, leasing and other fund management services to the company. Anchored by three key pillars of growth On the back of strong secular trends, we will focus on three pillars of growth — New Economy, Alternatives (including infrastructure and renewables) and REITs. With e-commerce expanding at 10% across APAC through 2025, hyperscale data centres growing at a 30%+ CAGR through 2025, and heightened focus on R&D and pharmaceuticals, we will continue to seize opportunities to deploy capital into sectors including data centres, logistics, life sciences and high-tech industrial. The New Economy Pillar will in turn fuel the growth of our Alternatives segments such as infrastructure and renewables as well as our REIT business. With the largest amount of rooftop space in APAC, the Group started an ambitious rollout of solar projects with the support of our capital partners. These renewable opportunities will power New Economy assets such as data centres and cold storage across the Group. In addition, with the APAC REIT market expected to grow by a 12% CAGR to reach US$1.3 trillion of market capitalisation by 2030, ESR is in a unique position to grow our REITs over time. Our capital partners are increasingly turning to us to sell down high-quality assets and there is positive REIT legislation that will continue to open new markets and opportunities for us across the region. Our potential C-REIT spinout is a testament to how REITs remain as the natural takeout of New Economy assets upon stabilisation. Leading the way forward in ESG At ESR, we believe in doing what is right for the environment and the communities that we operate in. During the year and with the support of multiple stakeholders, we have achieved great progress on our ESG initiatives including the appointment of two new female independent non-executive directors, Ms Serene Nah and Ms Kwee Wei-Lin, maintaining a diverse Board composition with the appropriate mix of gender, background and experience. As a result, 60% of our independent non-executive directors are women at the Board level. Other key highlights include becoming a signatory of the United Nations-supported Principles for Responsible Investment (UN PRI), reinforcing our commitment to adopting and promoting responsible investment and asset management practices as part of the Group’s ongoing ESG efforts. In line with international ESG benchmarks and global ratings, ESR continues to be recognised for our robust and exemplary ESG disclosure practices with creditable 2022 rankings in the Global Real Estate Sustainability Benchmark (“GRESB”) Assessment, MSCI ESG Ratings and Sustainalytics ESG Risk Ratings. I am proud that every day we are making a choice to raise the bar for ESG integration and deliver on our ESG Roadmap. Appreciation and looking ahead I would like to extend my sincere gratitude to our Board of Directors for their invaluable support. I am also delighted to welcome Serene and Wei-Lin to the Board as Independent Non-executive Directors. I thank our management team led by Stuart and Jeffrey and all our employees who strive each day to be the best at what they do. To our capital partners, customers and shareholders, we thank you for your unwavering trust and support. The scale of ESR today is truly remarkable. As APAC’s largest real asset manager powered by the New Economy and the biggest REIT platform across the region, we remain a trusted partner for 12 of the top 20 global capital partners to deploy capital across APAC. Despite the growing uncertainty in the market — geopolitical, future rate hikes, inflation and others, ESR is armed with a well-capitalised balance sheet to capture the right opportunities, chart the next chapter of our growth and deliver long-term value for shareholders. JEFFREY DAVID PERLMAN Chairman 22 March 2023
Message from Group Co-founders & Co-CEOs ESR Group Limited Annual Report 2022 21 ESR delivered a set of outstanding results in 2022 — a transformational year for the Enlarged Group after the acquisition of ARA. With increased scale and reach, the Group continued to leverage APAC’s leading New Economy real estate platform, which further propelled our strength and resilience as Asia Pacific’s largest real asset manager. Despite the challenging global macro issues, ESR has entered 2023 from a position of fundamental strength with a well-capitalised balance sheet to take advantage of market dislocation and seize on new opportunities. Exceptional fund management performance In 2022, we generated an exceptional year of raising capital as APAC remains the engine of growth for New Economy assets (i.e. logistics and data centres). The region’s industrial and logistics sector grew through the pandemic and will continue to generate more opportunities as China finally emerged from its zero-COVID policy. Given the under allocation of funds in Asia Pacific, and the secular trends that underpin the Group’s growth, a big focus for us is to drive investments in sectors which are adjacent to logistics, such as renewables, data centres, life sciences and infrastructure to drive synergies, which add significantly to what we do. Our key milestone fund initiatives in 2022 include our US$1 billion inaugural APAC data centre fund comprising a development pipeline of eight seed projects; our first US$1 billion infrastructure and renewables fund in ASEAN, in partnership with Export–Import Bank of China and our first collaboration between ESR and LOGOS in the Pan Asia core plus discretionary fund with US$250 million of initial equity commitments, investing in prime logistics assets in the APAC region. Record high leasing and rental reversions with close to zero vacancies in most markets We are pleased that the Group achieved strong leasing in 2022 with a record of over 4.6 million sqm1 of space leased, driven by e-commerce acceleration and supply chain resilience which continues to generate demand for modern, institutional-grade logistics facilities in key gateway markets. We have witnessed the portfolio occupancy at record levels of 95%1 (98%1 ex-Greater China), with close to full occupancies in Australia/ New Zealand, Japan, India and South Korea. With high occupancy generating strong rental growth in many of the markets where the Group operates, ESR has seen an overall positive weighted average portfolio rental reversion of 7.5%1,2 which was recorded across the New Economy portfolio. In fact, with one-third of our leases due in the Notes: 1. Stabilised New Economy assets only. Excludes listed REITs and Associates. 2. Weighted by AUM. STUART GIBSON AND JINCHU SHEN Group Co-founders & Co-CEOs The transformational integration after the acquisition of ARA has expanded ESR's size and scale, and we are continuously harnessing areas of synergies across our businesses, overall capabilities, scope and market presence to drive efficiencies. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
Message from Group Co-founders & Co-CEOs FORWARD TOGETHER 22 next 24 months and development completions between 4 to 5 million sqm3, the Group is well-positioned to benefit from the outsized rental growth across major markets. Pushing new frontiers with New Economy development With the largest development workbook in APAC, our development pipeline comprises a number of landmark projects that are set to create new benchmarks in the market. These best-in-class facilities include the ESR Yokohama Sachiura Logistics Park in Greater Tokyo, a multi-phase development which provides approximately 720,000 sqm logistics space over four phases, set to be the largest logistics park (by value) in Japan and one of the largest ever developed (by value) in APAC upon completion. Other major projects include one of Japan’s tallest distribution centres, the nine-storey ESR Higashi Ogishima Distribution Centre, with a GFA of 365,385 sqm; the collaboration between LOGOS and its partners in developing the US$3 billion Moorebank Logistics Park, Australia’s largest intermodal logistics facility at Moorebank and our partnership with PGIM Real Estate in a build-to-suit redevelopment facility in Singapore for POKKA, which has signed a 10-year lease to commit a minimum of 70% of the building space. Note: 3. New Economy assets only. Excludes listed REITs and Associates. Synergies to drive efficiencies and organisational excellence The transformational integration after the acquisition of ARA has expanded ESR’s size and scale, and we are continuously harnessing areas of synergies across our businesses, overall capabilities, scope and market presence to drive efficiencies. We have tapped into our talent pipeline across ESR and LOGOS to provide leadership support for LOGOS’s China and Indonesia businesses. In addition, we have set up new functions to leverage LOGOS's established expertise in domains such as Insurance and Business Resilience and Health & Safety Functions at Group level. Across the Group, we have centralised capital raising functions to strengthen the strong investor relationships we have across the businesses and enhance the expertise of our inhouse capital raising teams. The Group will continue with our integration efforts to achieve further synergies. To meet the future people pipeline as the Group forges ahead with the growth of e-commerce, accelerated digitalisation and financialisation of real estate, we have established an official Talent Management and Learning team as an independent Centre of Excellence (COE) within the Group HR function to drive group-wide talent management and learning strategies and initiatives. ESR Higashi Ogishima Distribution Centre, Japan
ESR Group Limited Annual Report 2022 23 Shaping a sustainable future We have made significant progress across the three key pillars under our ESG Framework — “Human Centric”, “Property Portfolio” and “Corporate Performance”. As an Enlarged Group, we are committed to drive best-in-class ESG practices as a unified platform for our stakeholders. To build a more inclusive and equitable workplace, we increased the proportion of women in senior management positions to 40%. We continued to foster a human centric environment in our design philosophy for our tenants, exemplified by the creation of nine BARNKLÜBB day-care centres at our distribution centres in Japan, to support employees and their families with greater flexibility and inclusiveness. In our commitment to health and safety, and well-being of our stakeholders, the Group worked closely with local authorities and industry bodies to maintain zero ESR workforce fatalities for our employees. On the environmental front, the Group has installed close to 100 MW of rooftop solar power capacity across our assets globally, in line with our ESG 2025 Roadmap to maximise onsite renewable energy generation and sources in the transition to a low carbon future. In Japan, ESR is the first real asset manager to work with Enerbank to issue Renewable Energy Certificates (“RECs”) to tenants from solar power generated from our assets’ rooftops. The Group also continues to pursue our target of obtaining sustainable building certificates for 50% of our portfolio, to enhance operational efficiency. In recognition of our ESG performance in various leading global sustainability benchmarks and rankings — the Group has attained outstanding results in the 2022 GRESB Assessment and achieved “A” in MSCI ESG Rating and “Low Risk” in Sustainalytics. Looking ahead While we remain cautious about the changing external environment, we are in a strong position to weather any unforeseen headwinds and capitalise on opportunities that may present themselves. ESR will continue to further strengthen our market-leading position in New Economy real estate and our REITs across APAC while starting to build up a scaled infrastructure and renewables platform. We remain focussed on accelerating our asset light trajectory, maintaining cost discipline which continues to drive fund management EBITDA margin improvement and further diversify our funding sources and lower our borrowing costs. In addition, our ambition is to push forward our ESG and sustainability efforts, embedding them in all aspects of our operations as we embark on our Group-wide ESG 2025 Roadmap to shape a low carbon and climate resilient future. We would like to thank our local management teams for their dedication and commitment in this incredible transformation of the Group, and our Board of Directors for their vision and guidance. In addition, we are grateful to our customers and investors for their trust in us as a Partner of Choice. STUART GIBSON and JINCHU SHEN Group Co-founders & Co-CEOs 22 March 2023 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
FORWARD TOGETHER 24 Financial Highlights US$655 million ADJUSTED PATMI² 74% Notes: 1. Adjusted EBITDA excludes amortisation of intangibles and transaction costs relating to ARA; and share of certain associates' fair value on investment properties and financial assets at fair value through profit or loss and financial instruments; as well as share-based compensation expense. 2. Adjusted PATMI/EPS excludes amortisation of intangibles, transaction costs and share-based compensation expenses relating to ARA; share of certain associates' fair value on investment properties and financial assets at fair value through profit or loss and financial instruments. 3. The Board of Directors declared an interim dividend of HK$12.5 cents (approximately (1.6 US cents per share) per ordinary share and recommended a final dividend of HK$12.5 cents (approximately (1.6 US cents per share) per ordinary share for the financial year ended 31 December 2022, amounting to a total of approximately US$141 million for FY2022. 63% US$1,152million ADJUSTED EBITDA1 3.2 US cents Dividend Per Share3 Assigned AA-/Stable Japan Credit Rating 14.7 US cents Earnings per share2 19% US$1.8 billion Cash
ESR Group Limited Annual Report 2022 25 Notes: 4. Excludes transaction costs related to ARA 5. Excludes amortisation of intangibles, transaction costs and share-based compensation expenses relating to ARA; share of certain associates' fair value on investment properties and financial assets at fair value through profit or loss and financial instruments. 6. Excludes share of certain associates' fair value on investment properties, financial assets at fair value through profit or loss and financial instruments. 7. Net debt is calculated as bank and other borrowings less cash and bank balances. # EBITDA, Adjusted EBITDA and Adjusted PATMI are non-IFRS measures. These measures are presented because the Group believes they are useful measures to determine the Group's financial condition and historical ability to provide investment returns. EBITDA, Adjusted EBITDA, Adjusted PATMI and any other measures of financial performance should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net profit or indicators of the Group's operating performance on any other measure of performance derived in accordance with IFRS. Because EBITDA, Adjusted EBITDA and Adjusted PATMI are not IFRS measures, these may not be comparable to similarly titled measures presented by other companies. Refer to non-IFRS measures reconciliation in page 241. BALANCE SHEET (US$ MILLION) FY2018 FY2019 FY2020 FY2021 FY2022 Total Assets 4,432 6,352 7,687 9,338 16,199 Cash and bank balances 581 884 1,515 1,638 1,807 Bank and other borrowings 1,460 2,571 3,295 4,248 5,497 Net debt7 879 1,687 1,780 2,610 3,690 Net debt/total assets 19.8% 26.6% 23.2% 27.9% 22.8% FY2022 FY2021 FY2020 FY2019 707 585 584 411 FY2018 1,152 63% FY2022 FY2021 FY2020 FY2019 4104 315 278 213 FY2018 7125 73% FY2022 FY2021 FY2020 FY2019 404 388 357 254 FY2018 821 103% Profit after Tax (US$ million) Total Segmental Results (US$ million) ADJUSTED EBITDA1 (US$ million) Revenue (US$ million) 777 663 633 459 1,2846 115 110 234 245 Investment Fund Management New Economy Development FY2022 FY2021 FY2020 FY2019 FY2018 65% 132 256 289 148 226 235 199 342 342 568 374 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
FORWARD TOGETHER 26 Year in Review MAY JANUARY APRIL MARCH FEBRUARY JUNE JULY • ESR India announced the development of its first in-city 8.2-acre distribution centre in Delhi catering to e-commerce, pharmaceutical delivery services, cloud kitchens and cold storage companies. • ESR China completed the acquisition of a prime 550,000 sqm logistics and industrial portfolio in Greater Shanghai, with a leading global investor, representing the largest logistics and industrial portfolio ever sold in Greater Shanghai. • ESR Group announced the successful completion of the US$5.2 billion acquisition of ARA. • ESR Group closed a five-year JPY28 billion Sustainability-Linked Loan (“SLL”), which was upsized to JPY32.5 billion at Tibor +1.75%. • ARA Korea more than doubled its investment returns from the sale of Alpharium Tower, representing one of the largest office transactions closed in South Korea since the onset of the pandemic. • ESR Japan announced its US$1.5 billion multi-phase logistics development in Greater Osaka, ESR Kawanishi Distribution Centre, representing one of the largest and most significant urban rezoning projects. • ESR KendallSquare REIT was selected as the first listed K-REIT to be included as a constituent of FTSE EPRA Nareit Global Developed Index and FTSE EPRA Nareit Developed Asia Index. • The merger of ESR-REIT and ARA LOGOS Logistics Trust was approved by their respective unitholders, to form ESR-LOGOS REIT, which started trading on SGX-ST on 5 May 2022. • In Singapore, ESR partnered with PGIM Real Estate in a build-to-suit redevelopment to create a 64,490 sqm logistics facility for POKKA. • ESR Japan acquired a key data centre asset in Higashi Kurume, in the Mitaka area in Tokyo, for the creation of a 20 megawatt ("MW") IT Load data centre. • ESR Group successfully tendered its 18.16% stake in China Logistics Property Holdings Co., Ltd. (SEHK Stock Code: 1589) and crystalised a strong return on its four-year investment. • ESR Group closed a five-year S$370 million SLL at SORA +1.6%. • ESR also entered into a JV with a leading global institutional investor following the sell-down of ESR’s RMB4.9 billion balance sheet portfolio in China. • In South Korea, ESR upsized its second development joint venture with APG and Canada Pension Plan Investment Board (“CPP Investments”) by up to US$1 billion for investment in and development of a best-in-class industrial and warehouse logistics portfolio. • ESR is the first real asset manager to work with Enerbank to issue Renewable Energy Certificates ("RECs") to tenants from solar power generated from its assets’ rooftops; ESR's self-generated solar power from its facilities is now recognised as part of the power grid in Japan. • ESR Group established and announced its Dividend Policy. • ESR announced its maiden entry into the Hong Kong logistics market by winning the government Kwai Chung LOT KCT531 land bid to develop a modern logistics site. • ESR Group announced the first close of over US$1 billion for its inaugural Data Centre fund which has a development pipeline of eight seed projects with over 260 megawatts of capacity. • ESR Group acquired a further 25% stake in ESR-LOGOS REIT Manager in July, and another 7.7% in September to reach a 99% stake. • ESR Group signed a memorandum of understanding ("MOU") with CLP Power Hong Kong Limited and CLPe Group to leverage their energy and infrastructure solutions expertise to develop sustainable data and logistics centres in Hong Kong. • ESR Group became a signatory to the United Nations-supported Principles for Responsible Investment ("UNPRI"), reinforcing its commitment to adopting and promoting responsible investment and asset management practices across the Group. • ESR Japan completed ESR Yokohama Sachiura Distribution Centre 1 in Greater Tokyo, the first phase of the master-planned 720,000 sqm ESR Yokohama Sachiura Logistics Park which is set to be the largest logistics park (by value) in Japan. • In the first half of 2022, ESR-KendallSquare completed a total of 520,000 sqm of fully pre-leased Class A logistics warehouse space across the Greater Seoul Metropolitan area.
ESR Group Limited Annual Report 2022 27 DECEMBER AUGUST NOVEMBER OCTOBER SEPTEMBER • ESR acquired its first life sciences business park in Shanghai Zhangjiang Hi Tech Development Zone for RMB268 million with its JV partner. • ESR together with M&G Real Estate announced a long-term partnership on behalf of M&G Asia Property Fund, to deploy up to US$350 million for the development of a portfolio of logistics properties across Tokyo, Osaka and Nagoya. • ESR Group closed a five-year SLL of approximately HK$4.65 billion at Hibor +1.8% which was further upsized to HK$8.88 billion subsequent to year-end. • In South Korea, STACK Infrastructure and ESR announced a JV to develop and deliver a 48MW facility in Incheon. • Partnership with GIC on the ESR Australia Logistics Partnership III (EALP III) to expand ESR’s core plus logistics strategy with equity commitments of A$600 million. • Kendall Square Asset Management signed a MOU with SK Plug Hyverse and Coupang Fulfilment Services to develop and operate South Korea’s first hydrogen powered fulfilment centre. • ESR Australia closed a partnership with GIC on the A$1 billion ESR Australia Development Partnership II (EADP II), for a combined anchor close of A$540 million. • ESR China announced the completion of its first rooftop solar project in ESR Guangdong Jieyang Logistics Park by E-Power Technology Co., Ltd, ESR China’s renewables subsidiary. • First collaboration between ESR and LOGOS in the Pan Asia Core+ discretionary fund with US$250 million of initial equity commitments, investing in prime logistics assets in the APAC region. • ESR and GIC established a US$600 million JV to invest in core industrial and logistics assets in India. • The Group’s first US$1 billion infrastructure and renewables fund in ASEAN, in partnership with Export– Import Bank of China • In Japan, STACK Infrastructure and ESR announced another partnership to jointly develop and deliver 72MW of data centre capacity in Osaka’s eastern suburb of Keihanna. • ESR China completed the construction of Wenzhou Ruian Logistics Park and Langfang Chunhui Business Park. ESR Bringelly Road Business Hub, New South Wales, Australia STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENT
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