MANAGEMENT DISCUSSION & ANALYSIS portfolio. The Group’s portfolio has a weighted average lease expiry (“WALE”) (by income) of 4.9 years5 and coupled with relatively subdued supply in many of the markets in which it operates, the Group expects to be able to continue to capture strong rental reversions. 40% of ESR’s expiring leases are due within the next 30 months, positioning the Group well to benefit from the outsized rental growth across its major markets. Strong commitment to a robust balance sheet and an accelerating asset light strategy The Group continues to take a disciplined approach to financial positioning with a well-capitalised balance sheet with US$2.0 billion of cash, and a low net gearing of 17.9%6. The Group continues to expand and proactively diversify its funding and capital structure. • In November 2021, the Group closed its first Sustainability-Linked Loan (“SLL”) of US$700 million which was subsequently upsized to US$1 billion at Libor plus 2.25% and Libor plus 2.75% for three-year and five-year tranches respectively. • In January 2022, the Group closed a five-year JPY28 billion SLL which was upsized to JPY32.5 billion at Tibor plus 1.8%. • In May 2022, the Group closed a five-year S$300 million SLL at SORA plus 1.65% The Group remains focused on its capital recycling strategy and asset-light approach. In 1H2022, the Group divested over US$1.4 billion of its balance sheet investments primarily in China to ESR managed funds, exceeding the Group’s annual capital recycling target. The sell down of over 873,000 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 its 18.16% holding in China Logistics Property Holdings Co., Ltd (CNLP; SEHK Stock Code: 1589) in May 2022, receiving US$349 million in proceeds, and crystalising a strong return on this four-year investment. Best-in-class practices to drive Environmental, Social and Governance (“ESG”) initiatives across the Enlarged Group The Group has made great progress on its ESG efforts set out in the ESG 2025 Roadmap. To date, the Group has closed a total of approximately US$2.5 billion in SLL, reinforcing the Group’s sustainable financing and operations, as it continued to integrate ESG into its financial management, operations and future planning. In June 2022, ESR became a signatory to the United Nations-supported Principles for Responsible Investment (“PRI”), reinforcing its commitment to adopting and promoting responsible investment practices. On diversity and inclusion, the Group continues to have strong female representation of over 40% across its workforce and 60% of its independent non-executive directors who are women. Sustainability features are increasingly being incorporated in the development of ESR’s assets. The Group is working to increase the deployment of rooftop solar power generation across the portfolio, with a target of 50% increase in solar power generation by 2025. Approximately 100 MW of rooftop solar capacity is being set up, including projects planned for this year. To further such commitment and efforts, the Group has commissioned ongoing thirdparty solar feasibility studies to increase renewable energy performance across the portfolio, leading to improved efficiency of tenants’ operations. In June 2022, the Group signed a memorandum of understanding with CLP Power Hong Kong Limited and CLPe Group to leverage their energy and infrastructure solutions expertise to develop sustainable data centres and logistics centre in Hong Kong. In addition, ESR is the first real asset manager to work with Enerbank in Japan to provide environmental value to tenants with the country’s authorised Green Energy Certificate system, with ESR’s self-generated solar power from its facilities now recognised as part of the power grid in Japan in exchange for renewable energy consumption. LOOKING AHEAD The Group remains confident in the strong fundamentals and future prospects for real assets. E-commerce acceleration and digital transformation will continue to drive demand for logistics infrastructure and data centres. Moreover, global investors are increasingly consolidating their relationships towards a limited number of large-scale managers and allocating more capital to a smaller roster of platforms. Capitalising on these trends, ESR is firmly focused on accelerating its growth in size, scale and offerings. Globally, especially in Asia Pacific, economies are rebounding as many pandemic related restrictions have been eased. The Group will continue to focus on meeting the outsized demand for logistics, industrial and life science space as a part of a renewed push by governments to onshore key activities. Additionally, the Group will continue to scale up its data centre efforts to deliver on the critical need for digital infrastructure across APAC. With its unique multi-asset class exposure and market leadership positions in APAC, the Group is poised to deliver a fully integrated one-stop solution to leading global capital partners and customers. While the Group remains cautious about the changing external environment, the Group is in a strong position to weather any unforeseen headwinds and further capitalise on opportunities that may present themselves. Note: 6. Net Debt / Total Assets as of 30 June 2022 R E A C H I N G N E W H E I G H T S 12
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