Management Discussion & Analysis 10 STRENGTH IN UNITY BUSINESS REVIEW ESR is ranked as the largest real asset manager in APAC in the 2024 ANREV Fund Manager Survey1, in addition to being one of the top 10 global real estate investment managers. This is the second consecutive year that ESR has received this accolade, and it is a strong testament to its capabilities as the leader in New Economy and data centres in the APAC region. ESR’s fund management platform is well-diversified across major APAC markets, supported by strong partnerships with leading investors and global tenants. As at 30 June 2024, Fee-related AUM3,4 was US$80 billion, reflecting a 3-year CAGR2 of 52%. The elevated interest rates have substantially dampened the transaction activity and impacted asset revaluations in APAC real estate and globally. This has also delayed the timing of planned exits and promote fees from funds and slowed the pace of balance sheet sell-downs and non-core divestments. According to PERE5 data, fund raising in the first half of 2024 was only US$59 billion for private real estate, the lowest fund raising in the first half since 2012. Muted capital partner activity has not only affected capital raising volumes and demand for core transactions but it has also negatively impacted development starts in certain markets. However, as interest rates normalise, ESR continues to expect capital raising volumes to resume and return to historical levels. In Mainland China, while ESR continues to perform strongly with over 2.5 million sqm of renewals and new leases signed in 1H2024, the continued macroeconomic softness is putting significant pressure on overall leasing demand, thereby affecting valuations and the ability to promptly sell-down completed balance sheet assets. However, Management expects a gradual recovery in leasing going forward as new supply into the market is now limited. Notes: 1. Fund Manager Survey 2024 published by ANREV, INREV and National Council of Real Estate Investment Fiduciaries (NCREIF) 2. 3-year CAGR from 1H2021 to 1H2024 3. Based on FX rates as at 30 June 2024 4. Fee-related AUM excludes AUM from Associates and levered uncalled capital 5. PERE Fundraising Report H1 2024 6. Comprises the following: launch of the ESR C-REIT, progressive sale of the seed portfolio into the RMB Income Fund, and projects which are in active execution stage The Group recorded Total Revenue of US$312 million for 1H2024, with the fund management segment revenue contributing over 80% of this total. Fee Income and fund management EBITDA excluding promote fees stayed resilient — Fee Income excluding promote fees as a percentage of Fee-related AUM was approximately 70 basis points and the fund management EBITDA margin excluding promote fees was approximately 70%. The fund management EBITDA for the first half of 2024 was lower compared to the prior period, primarily due to the recognition of promote fees amounting to US$136 million in the prior period. In addition to lower promote fees, EBITDA and consequently PATMI were significantly impacted by non-cash asset revaluations which are reflective of current market conditions. Despite the impact of the non-cash asset revaluations, the Group’s underlying business remains healthy. Despite a challenging macro environment, ESR remains focused and continues to make steady progress towards its key business priorities: (i) balance sheet optimisation, (ii) business streamlining and simplification, and (iii) completing the integration of the ESR and LOGOS Property Group Limited (“LOGOS”) platforms to drive operational efficiency and position the business for further future growth. Alongside this, the Group is focused on the ramp-up of the data centres and infrastructure platforms to meet the projected surge in data centre demand in Asia, fuelled by advancements in AI and ongoing digital transformation. On balance sheet optimisation, the Group is on track to complete approximately US$0.7 billion worth of asset syndications6, including the listing of the ESR C-REIT which is expected to launch and complete by end of 2024. In the next 12 to 18 months, the Group aims to execute approximately US$1.5 to US$2.0 billion (in gross asset value) of additional balance sheet sell-down. Investment Properties As at 30 June 2024 62% Completed IP 38% Under Construction US$2.9 billion
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