ESR Group Limited Interim Report 2023 15 FINANCIAL REVIEW The Group reported a consistent growth in its AUM and fund management segment for the six months ended 30 June 2023. In line with its asset light strategy, the Group continues to make good progress in recycling capital from its balance sheet assets into stable and recurring fee income. ESR remains proactive and disciplined in capital management with net debt over total assets of 27.6% as of 30 June 2023. With the divestments announced post 30 June 2023, the Group’s net debt over total assets shall be 25.9%. The Group has US$3.0 billion of cash and undrawn facilities that is sufficient to cover its aggregate loan repayments for the next 3 years without further capital recycling or non-core divestments. REVENUE The Group’s revenue increased by 5.5% from US$431.7 million in 1H2022 to US$455.4 million in 1H2023, driven mainly by higher management fee. Management fee increased by 8.6% from US$371.0 million in 1H2022 to US$402.9 million in 1H2023. The increase was contributed by higher recurring fee revenue from AUM growth and development starts. In 1H2023, US$136.0 million promote income was recognised. Construction revenue increased from US$0.1 million in 1H2022 to US$12.6 million in 1H2023, contributed by new projects in Australia. Cost of sales increased correspondingly from US$9.3 million in 1H2022 to US$12.7 million in 1H2023. In line with the Group’s ongoing commitment towards its asset light strategy to sell down balance sheet assets into ESR managed funds, rental income decreased by 36.4% from US$57.7 million in 1H2022 to US$36.7 million in 1H2023. In 2H2022, the Group divested nine China balance sheet assets into an ESR managed core fund. Geographically, 95% of the Group’s revenue for 1H2023 contributed from Greater China, Japan, South Korea, Southeast Asia and Australia and New Zealand; with India and Europe made up the remaining 5%. 1H2023 Revenue Contribution By Region 10% Japan 18% Greater China 32% South Korea 18% Australia and New Zealand 1% India 17% Southeast Asia 3% Europe 1% Others 1H2023 Revenue Contribution By Segment 88% Fund Management 9% Investment 3% New Economy Development PATMI AND EBITDA EBITDA decreased by 15.6% from US$637.1 million in 1H2022 to US$537.4 million in 1H2023. PATMI decreased by 24.1% from US$380.6 million in 1H2022 to US$289.0 million in 1H2023. Lower fair value gains, absence of one-off income and divestment gains recognised in 1H2022 were the main drivers to the decline in EBITDA and PATMI. Additionally, PATMI was impacted by higher interest expense as a result of increase in base rates. The decline was offset by strong performance of the fund management segment. The Group recorded fair value gain on investment properties of US$115.3 million for 1H2023 (1H2022: US$162.9 million) arising mainly from assets under development in China. The Group’s share of profits from joint ventures and associates decreased by 45.9% from US$145.0 million in 1H2022 to US$78.4 million in 1H2023, mainly due to lower valuation gains from the Group’s investments in Australia and South Korea which have seen capitalisation rate expansion; and development progress in China.
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