DEAR SHAREHOLDERS, 2021 was an extraordinary year. It marked another year of outstanding performance and record achievements for ESR despite the challenges posed by COVID-19 which has continued to impact the way we live, work and manage. With the dedication of the ESR workforce, our people came together and remained focused on all aspects of the business and helped to deliver stellar performance with record AUM, development starts, leasing, capital raising and PATMI. 2021 was also a year of new frontiers for the Group including our inaugural US$1 billion Sustainability-Linked Loan (“SLL”), the build-out of our digital infrastructure team and our expansion into Southeast Asia. I could not be prouder of the way the ESR team stepped up in support of their colleagues, customers, capital partners and other key stakeholders, especially in an operating environment that is undergoing major transformation. The year has been further punctuated by the landmark acquisition of ARA Asset Management (“ARA”) which will cement and further transform the Group’s growth trajectory going forward. In August 2021, we announced our plan to acquire 100% of ARA, the largest real asset manager in APAC with a captive and fast growing New Economy real estate platform via its subsidiary, LOGOS. The acquisition closed on 20 January 2022, officially bringing together the best-in-class platforms of ESR, ARA and LOGOS to form APAC’s largest real asset manager powered by the New Economy and the third largest listed real estate investment manager globally. I am excited to welcome our new strategic shareholders, Non-executive Directors as well as the talented ARA and LOGOS teams to ESR, and together we will chart a new phase of sustainable growth. Another year of record achievements In 2021, we witnessed an acceleration in e-commerce penetration rates, continued digital transformation and structural shifts in supply chain management which continue to create strong demand from our customers and capital partners for New Economy real estate. With this backdrop, the Group’s total AUM reached a record US$39.4 billion in 2021, up 32% y-o-y and our Fund Management EBITDA grew even faster at 34.8% y-o-y to US$199 million driven by greater economies of scale. Revenue (excluding construction revenue) for the year was US$360.6 million, up 21.7% y-o-y. Total segmental EBITDA1 increased 17.2% to US$776.8 million and total PATMI2 grew 31.7% to hit a record US$377.3 million. Our capital partners, many of whom have become repeat investors with ESR across different strategies and markets, committed substantial new capital to the Group during the year. We raised a record US$5.8 billion in committed capital across nine new or upsized funds and mandates, representing remarkable 64.3% y-o-y growth. We now have over US$5.7 billion in committed but uncalled capital to invest in new projects going forward. Meanwhile, development activities remained robust, and our development workbook witnessed significant expansion in volume, scale and value. In 2021, our WIP surged 51% to a record US$7.1 billion, while development starts increased to US$3.3 billion. Our 17.7 million sqm development pipeline, including a strong land bank of 3.9 million sqm, is one of the largest in the region. Going forward, we will continue to leverage third-party capital to fund development starts and exercise a disciplined, assetlight approach to achieve our targeted development completions. While our business is expanding rapidly, we continue to manage our balance sheet in a very prudent manner. We closed the year with US$1.6 billion in cash along with healthy gearing with net debt over total assets of 27.9%. To fuel the Group’s long-term growth, we also continued to expand and diversify our funding and capital structure. Key corporate funding activities included our S$200 million (approximately US$148.6 million) NC5 fixed-rate perpetual resettable step-up subordinated securities at a distribution rate of 5.65% (“Perpetual Securities NC5 5.65%”) under our US$2.0 billion Multicurrency Debt Issuance Programme; our US$400 million (with a US$100 million incremental option) unsecured term loan facility, which consists of a three-year tranche of US$267 million at Libor plus 2.75% and a five-year tranche of US$133 million at Libor plus 3.25%; and a further tranche within the Perpetual Securities NC5 5.65% amounting to S$150 million (approximately US$111.6 million), bringing the aggregate total amount to S$350 million (approximately US$260.2 million). In November 2021, we also took our first step into sustainable financing with our US$1 billion SLL, a demonstration of our ongoing commitment to ESG. ESR’s asset-light strategy has been key to its rapid expansion and the Group remains committed to this approach. In 2021, we had more than US$800 million in divestments from our balance sheet to ESR managed funds. This translated into over US$500 million of net cash which was recycled back to the Group for future growth. Acquisition of ARA and pro forma operational highlights The ARA acquisition marked a major milestone for ESR and for the APAC real estate industry as a whole. Given ARA’s strong performance in 2021, the transaction is highly accretive for ESR shareholders and the acquisition multiple of 15.4x LTM 2021 ARA Group EBITDA3 is also well below where other comparable M&A transactions have been completed. In fact, ESR’s acquisition of ARA has been a catalyst for other sizeable acquisitions of Asian asset managers in the first half of 2022 at valuations of over 30x LTM EBITDA. We are proud that this highly accretive and strategic transaction was named “Deal of the Year: Asia” in the 2021 PERE Global Awards by our peers. Notes: 1 Segmental EBITDA represents total segment result of Investment, Fund Management and Development. 2 PATMI excludes transaction costs related to ARA. 3 Purchase consideration based on ESR's closing price of HK$25.15 at the time of transaction closing on 20 January 2022. Based on HK$27 per share, the multiple is 16.2x. EBITDA includes fair value gains from Cromwell in FY2021. "The enlarged ESR team - a diverse, highly motivated and exceptionally talented group that is incredibly focused on delivering for all of our stakeholders. Our people have been fundamental in keeping ESR at the forefront of everything it does - growing the company, advancing the industry and giving back to the community." E S R C A Y M A N L I M I T E D A N N U A L R E P O R T 2 0 2 1 37
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