ESR Group Limited Interim Report 2023 11 Doubling down on New Economy is paying off with strong underlying operational performance ESR leased 2.1 million sqm5 of space, putting the Group on par to exceed its record year in 2022, with record weighted average rental reversions of over 10%5, 6 for 1H2023 across the portfolio. The leasing momentum for North Asia continues to be very strong with nearly 1 million sqm of new leases and renewals for 1H2023. The New Economy segment, spurred by e-commerce growth in APAC, continues to fuel demand for large-scale modern logistics space, representing 72% of new leases signed in 1H2023. Among the Group’s top 10 tenants by income, nine out of 10 tenants are e-commerce or 3PL related. In 1H2023, the Group achieved an overall occupancy rate of 92%7. Excluding China, the Group achieved occupancy rate of 98%7, with close to full occupancies in Australia/New Zealand, India, Japan and South Korea. Although China’s post-COVID recovery has been slower than expected, the Group has been very selective with the portfolio in China, with nearly 85% of the assets located in Tier 1 and 1.5 cities where there is long-term growth potential. Demand is still strong in major economic hubs areas in the Yangtze River Delta and the Greater Bay Area, driven by the strong activity in renewable energy industries and cross-border e-commerce respectively. The Group’s weighted average lease expiry (“WALE”) (by income) currently sits at 4.7 years5 and with relatively subdued supply and elevated inflation in many of the markets where it operates, the Group is positioned to capture outsized rental growth with 29% of leases due in the next 18 months. Notes: 5. New Economy assets only. Excludes listed REITs and Associates 6. Weighted by AUM of each respective country 7. Stabilised New Economy assets only. Excludes listed REITs and Associates ESR’s large New Economy development workbook underpins continued organic AUM growth ESR had over 27.4 million sqm of GFA in development pipeline across its portfolio including a sizeable landbank of over 6.4 million sqm for future development as of 30 June 2023. The Group achieved a record US$3.8 billion of development starts in 1H2023, up 9% year-on-year and US$6.8 billion on a last-twelve-months basis. The Group accelerated US$2.2 billion in completions in 1H2023 and US$5.7 billion on a last-twelve-months basis demonstrating its ability to deliver at scale. To date, ESR has a development work-in-progress (“WIP”) of US$13.0 billion, making it the largest development workbook in APAC. This provides clear visibility on future fee income for the Group. More than 90% of the development workbook is focussed on Tier 1 gateway cities in ESR’s key markets and over 70% of WIP is planned for completion between 2024 to 2026. Beyond logistics, in 1H2023, nearly 20% of the starts were in data centres and for the full year, the Group expects to start up to US$1.5 billion of data centre projects across key gateway markets, including Tokyo, Osaka and Seoul. In addition, ESR’s strong development pipeline includes a number of landmark projects that are set to create new benchmarks in the market and drive future fees and development profit: • In Japan, the Group is developing a US$1.5 billion multi-phase logistics park, ESR Kawanishi Distribution and Techno Park on a 505,281 sqm site located in Greater Osaka, unveiling one of the largest and most significant urban rezoning developments to accommodate Japan’s ongoing expansion in e-commerce driven New Economy real estate.
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