Management Discussion & Analysis FORWARD TOGETHER 16 Finance cost increased by 59.9% from US$99.3 million in 1H2022 to US$158.8 million in 1H2023, contributed by rising interest rates, as well as increase in total borrowings from US$4.9 billion as at 30 June 2022 to US$5.6 billion as at 30 June 2023. The weighted average interest cost for the Group had increased to 5.6% due to higher interest rates and additional borrowing drawn for transitionary bridging of projects. Excluding bridging funding, the weighted average interest rate would have been 5.2% for 1H2023. Administrative expenses decreased by 14.4% from US$239.0 million in 1H2022 to US$204.5 million in 1H2023 primarily due to one-off costs relating to the acquisition of ARA of US$22.5 million incurred in 1H2022, and other professional fees. SEGMENT RESULTS Fund management segment results increased by US$40.8 million or 14.2% from US$287.9 million in 1H2022 to US$328.7 million in 1H2023 despite muted investment activity across markets and weak Asian currencies. Strong growth was driven by higher recurring fee revenue from growth in fee generating AUM and development starts. The growth was further boosted with the crystallisation of promotes as development fund assets are being rolled over to core funds. Supported by higher fee revenue, cost containment and broader economies of scale, fund management EBITDA margin had increased from 78% in 1H2022 to 82% in 1H2023. Investment segment results decreased by 43.0% from US$210.8 million in 1H2022 to US$120.2 million in 1H2023, reflecting the Group’s proactive capital recycling strategy. Lower rental income as the Group divested nine China balance sheet assets into ESR managed core fund in 2H2022. The decrease was further contributed by lower one-off investment income and valuation gains from significant capital recycling transaction in 1H2022. Fair value recognised in 1H2023 in relation to certain projects in China had also taken into consideration of domestic headwinds. New Economy development segment results decreased by 35.4% from US$228.7 million in 1H2022 to US$147.7 million in 1H2023. The decrease was mainly attributable to lower fair value gains partly due to delay in the development timing in China that was contributed by last year’s COVID situation and longer expected period to lease up as well as stabilise new assets. In Australia and Korea, there was the effect of the expansion of capitalisation rate. Additionally, 1H2022 had also benefitted from divestment gain from sell-down of a development asset, while similar transactions have been moved to 2H2023. 1H2023 Segmental Results 55% Fund Management 20% Investment 25% New Economy Development 1H2023 1H2022 Variance* Segmental Results US$ million % US$ million % US$ million % Investment 120 20% 211 29% (91) (43%) Fund Management 329 55% 288 40% 41 14% New Economy Development 148 25% 229 31% (81) (35%) * Year-on-Year (“YoY”) change % represents a comparison between the first half of current year (1H2023) and the first half of last year (1H2022).
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