17 ESR Group Limited Interim Report 2024 Mainland China Negative fair value movements relating to assets in Mainland China comprising: • US$60.0 million arising from the revaluation loss of three balance sheet assets in Mainland China to be spun-off to ESR C-REIT. ESR had previously announced that these assets will be spun-off through a publicly offered infrastructure securities investment fund on the Shanghai Stock Exchange (the “Proposed Spin-off”). The listing was approved by the relevant regulatory authorities on 21 June 2024. This revaluation was an adjustment conducted in connection with the Proposed Spin-off. The Proposed Spin-off forms a central part of the Group’s efforts to optimise its balance sheet, including via divestments to ESR-managed vehicles such as this, which will enhance its recurring fee revenue going forward. • US$125.5 million decline in fair values attributable to two key factors. Firstly, fair values have been adjusted downwards in Northern China owing to a short-term oversupply of completed projects in the market. Secondly, in 1H2023, the Group benefited from valuation uplifts as three prime properties in the Greater Shanghai and Greater Bay area transitioned from development to completed investment properties, which led to a positive revaluation. For the current financial year, the Company did not record similar fair value gains given the challenging macroeconomic conditions in Mainland China, resulting in lower fair value gains recognised in 1H2024. Finance cost decreased by 3.2% from US$158.8 million in 1H2023 to US$153.6 million in 1H2024. As at 30 June 2024, the Group’s weighted average interest costs reduced to 4.9% from 5.3% as at 31 December 2023, as the Group continues to refinance its borrowings with lower margin financing. Administrative expenses increased by 57.3% from US$204.5 million in 1H2023 to US$321.7 million in 1H2024, mainly due to the US$97.4 million impairment of assets held for sale for the non-core divestment of the ARA US Hospitality Trust manager and units as mentioned above. SEGMENT RESULTS Fund Management segment results decreased by US$159.3 million or 48.5% from US$328.7 million in 1H2023 to US$169.4 million in 1H2024, mainly due to lack of promote fee as mentioned above. Nonetheless, Fee Income and fund management EBITDA excluding promote fees stayed resilient, where margins remain in the region of 70%. The Investment segment reported a loss of US$160.9 million in 1H2024 compared to profit of US$120.2 million in 1H2023. This was mainly due to the US$60.0 million revaluation loss of three balance sheet assets in Mainland China to be spun-off to ESR C-REIT, downward fair values adjustments of assets in Northern China, share of fair value loss from Cromwell of US$44.6 million, and the abovementioned impairment of assets held for sale of non-core divestment of the ARA US Hospitality Trust manager and units of US$97.4 million. Excluding the effects of the impairment and fair value losses of Cromwell, the loss from Investment segment would be US$18.9 million. New Economy Development segment results decreased by 73.3% from US$147.7 million in 1H2023 to US$39.4 million in 1H2024. The decrease was mainly attributable to the abovementioned lower fair value from the Group’s Mainland China assets in 1H2024. 1H2024 1H2023 y-o-y variance % Segmental Results US$ million US$ million Investment (161) 120 N.M. Fund Management 169 329 (48) New Economy Development 39 148 (73) ASSETS AND LIABILITIES Total assets reported a slight change from US$16.2 billion as at 31 December 2023 to US$15.9 billion as at 30 June 2024. Main movements are as described below. Investment properties decreased by 10.5% to US$2.9 billion as at 30 June 2024 (31 December 2023: US$3.2 billion). The decrease was mainly due to the reclassification of properties amounted to US$282.3 million as assets held for sale as at 30 June 2024, sales of assets which amounted to US$114.0 million and downwards valuation of certain properties in Mainland China. The reduction was offset by an increase in the properties under development during the period.
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