FORWARD
TOGETHER

Annual Report 2022

FORTIFYING
OUR BALANCE SHEET
ESR Yokohama Sachiura Distribution Centre, Japan
DELIVERING RECORD HIGHS AND
SOLID GROWTH PIPELINE
Rendering of Moorebank Logistics Park, New South Wales, Australia
LASER-FOCUSSED ON BUSINESS
TRANSFORMATION AND SIMPLIFICATION
ESR Amagasaki Distribution Centre, Japan
Transition to
a low carbon economy

INVESTMENT

Our investment platform includes completed properties held on our balance sheet, our co-investments in the funds and investment vehicles and the public REITs we manage, as well as other investments.

FUND MANAGEMENT

We manage a broad range of funds and investment vehicles that invest in a diverse portfolio of premium real assets in various stages of the property life cycle, providing a single interface with multiple investment opportunities for our capital partners.

NEW ECONOMY DEVELOPMENT

Our New Economy development platform with an end-to-end integrated suite of technical capabilities and services covers every stage of the development cycle including land sourcing, design, construction and leasing.

ESR is APAC’s leading real asset manager powered by the New Economy. On the back of the accelerating advancement, broad-based adoption and high frequency usage of technology, we are witnessing a once-in-a-multi-generation change in real estate and our vision is to deliver a fully integrated solution to leading global capital partners and customers. As a part of this continuous pursuit, we will leverage our scale, extensive offerings, capabilities and resources to provide a suite of best-in-class real estate development products and real asset investment solutions that spur meaningful, long-term sustainable growth of the business, the economy and the environment. We are fully focussed on contributing to a positive impact for our employees, customers, investors, capital partners and the communities around us.
Visit www.esr.com for more information.
SPACE AND INVESTMENT SOLUTIONS FOR A SUSTAINABLE FUTURE

ESR’s landmark acquisition of ARA Asset Management (“ARA”) enables us to capitalise on collective experience and expertise to further strengthen the Group’s business in diverse and dynamic ways. The addition of LOGOS, ARA's subsidiary which is a logistics and data centre specialist, cements ESR's position as the region’s largest New Economy real estate platform in Asia Pacific.

ARA US HOSPITALITY TRUST
Prosperity REIT
Fortune REIT
ESR-LOGOS REIT
Suntec REIT
ESR KendallSquare REIT

APAC’S #1 Real Asset ManagerPowered by the New Economy
Message from Group Co-founders & Co-CEOs
"The transformational integration post the acquisition of ARA has expanded ESR's size and scale, and we are continuously harnessing areas of synergies across our businesses, overall capabilities, scope and market presence to drive efficiencies."

STUART GIBSON And JINCHU SHEN

Group Co-founders & Co-CEOs

READ MORE
FY2022 Financial Highlights

Notes:

  1. Adjusted EBITA excludes amortisation of intangibles and transaction costs relating to ARA; and share of certain associates' fair value on investment properties and financial assets at fair value through profit or loss and financial instruments in relation to certain Associates; as well as share-based compensation expense.
  2. Adjusted PATMI/EPS excludes amortisation of intangibles, transaction costs and share-based compensation expenses relating to ARA; share of certain associates' fair value on investment properties and financial assets at fair value through profit or loss and financial instruments.
  3. The Board of Directors declared an interim dividend of HK$12.5 cents (approximately (1.6 US cents per share) per ordinary share and recommended a final dividend of HK$12.5 cents (approximately (1.6 US cents per share) per ordinary share for the financial year ended 31 December 2022, amounting to a total of approximately US$141 million for FY2022.
100%

Dear Unitholders,

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We started the year with an air of optimism having benefited from the accelerated growth of e-commerce and buoyed by green shoots of a recovery in late 2021. However, as the year progressed, challenges to the operating environment increased with several uncertainties in play. Geopolitical issues and supply chain disruptions arising from the Ukraine-Russia War fuelled the energy crisis, increasing the cost of energy and inflationary pressures on labour, materials, and services globally. In response to soaring inflation, central banks raised interest rates aggressively to curb demand in the near term. These developments had broad impact across economies and businesses, elevating the risk of a global recession.

Amidst this backdrop, we continued to take strategic steps to enhance our resilience and agility, positioning ESR-LOGOS REIT as a leading New Economy and Future-Ready APAC S-REIT, through the completion of the successful merger with ARA LOGOS Logistics Trust (now known as ALOG Trust)("ALOG") in April 2022 by way of a trust scheme of arrangement (the "Scheme”), and took further steps to focus our footprint in developed and mature markets that provides us with scale and presence — Singapore, Australia and Japan.

With 82 modern properties covering approximately 2.3 million sqm of gross floor area (“GFA”), we are better positioned to engage tenants in New Economy industries with strong tailwinds given the continued deep economic structural trends that are having a profound impact on the way goods are produced, delivered and consumed, thus pushing demand towards New Economy assets like logistics and high-specs properties. The future of e-commerce is expected to remain bright over the next few years, albeit at a slower pace as compared to the past two years. Market estimates indicate that approximately 200 million sqm of additional e-commerce-dedicated logistics space will be required globally over the next five years to support the growth of global retail e-commerce1. Furthermore, supply chain security is expected to be a major driver of demand for well-located quality warehousing spaces as companies continue to transition from ‘Just-in-Time’ to ‘Just-in-Case’ business strategies.

As a result, FY2022 gross revenue reached a record high of S$343.2 million, an increase of 42.3% from S$241.3 million in FY2021. The increase was primarily due to contributions from our enlarged portfolio after the merger with ALOG which was completed in April 2022. Amount available for distribution in FY2022 increased 54.8% to S$177.1 million, from S$114.4 million a year ago. With the strong performance, we provided Unitholders with a FY2022 distribution per unit of 3.000 Singapore cents.

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A NEW ECONOMY FUTURE-READY APAC S-REIT

During the year, we successfully executed on our 4R strategy: Rejuvenate, Recycle, Recapitalise, and Reinforce, to enhance the quality of ESR-LOGOS REIT’s portfolio and increase our exposure to the high-growth New Economy sector.

As at 31 December 2022, we have a portfolio of 82 quality and diversified assets (excluding 48 Pandan Road held through a joint venture) across key gateway markets, comprising 61 assets in Singapore, 20 in Australia and one in Japan. Including our investments in three property funds, ESR-LOGOS REIT closed the year with total assets of S$5.7 billion, compared with S$3.3 billion as at 31 December 2021.

On the back of sustainable demand and tight supply of modern quality warehouse spaces in our markets amidst our continued Asset Enhancement Initiatives (“AEIs”) and redevelopments, portfolio occupancy remained high at 92.7%, compared with 92.0%2 in the previous financial year. Leasing remained robust as we secured 516,501 sqm of total leases in FY2022, comprising 373,650 sqm of renewed leases and 142,851 sqm of new leases. As testament to the strength of our leasing teams, we realised average positive rental reversions of 11.8%, compared to -1.7%2 in the previous financial year. The strong rental reversion is broad-based with the Logistics (+15.7%) and High-Specs (+12.3%) segments driving the reversions.

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Portfolio Rejuvenation through Acquisitions, Redevelopments and AEIs

Our rejuvenation strategy covers three key areas: (1) acquisitions of quality value-accretive assets; (2) redevelopment of older-specs assets into modern and future-ready properties; and (3) AEIs to repurpose and rejuvenate dated assets to suit the demands of the New Economy.

As testament to the investment and asset management expertise and abilities of the ESR-LOGOS REIT Manager, we successfully rejuvenated our portfolio towards modern, in demand and scalable assets, ensuring their relevance to the needs of businesses in New Economy sectors. As at 31 December 2022, New Economy assets of Logistics and High-Specs spaces accounted for 62.8% of our total portfolio, a significant increase from 41.5%2 as at 31 December 2021.

In FY2022, we completed the AEI of 53 Peregrine Drive in Australia which added a new 10,115 sqm warehouse with a 16,220 sqm container-rated hardstand for A$19.2 million. Through this development, we secured the tenant at the asset for a long 13.7-year lease term.

Currently, we have three ongoing AEIs and redevelopments which present immediate organic growth opportunities:

  • 16 Tai Seng Street is undergoing enhancement to maximise its plot ratio. At a cost of approximately S$32.0 million, the works will increase GFA by approximately 2,793 sqm, bringing the total GFA to approximately 22,800 sqm. The AEI is expected to complete in 1Q2024 and deliver an estimated yield-on-cost of approximately 6.0%.
  • 7002 Ang Mo Kio Ave 5 is also undergoing enhancement to maximise its plot ratio. At a cost of approximately S$53.3 million, the AEI will deliver an additional multi-tenanted high-specs building with a GFA of 24,600 sqm suitable for advanced manufacturing, info-comm and data centre tenants. The AEI is expected to be completed in 3Q2023 with an estimated yield-on-cost of approximately 7.1%.
  • 21B Senoko Loop is currently undergoing a two-phase built-to-suit redevelopment to transform the property from a general industrial building to a high-specs property. Phase 1 is expected to complete in 1H2023 and Phase 2 is expected to be completed in 1Q2024. At a cost of approximately S$38.5 million, the AEI will deliver an estimated yield-on-cost of approximately 6.6%.
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Recycling Capital through Divestments of Non-Core Assets

Our second strategy allows us to recycle our portfolio by divesting non-core assets which are relatively smaller in size and/or have relatively short land tenures with limited redevelopment potential. Funds raised through the sale of non-core assets will be channelled to pare down our debt levels or be redeployed towards higher quality assets which cater primarily to the New Economy sector.

In FY2022, we announced the divestments of five non-core properties that were executed at a premium of 14.9% to fair value. These non-core properties comprised 28 Senoko Drive, 3 Sanitarium Drive, 2 Jalan Kilang Barat, 49 Pandan Road and 70 Seletar Aerospace View. Four of the divestments have been completed and the divestment of 70 Seletar Aerospace View is slated to be completed in 2Q2023.

Looking ahead, we have also identified a portfolio of non-core assets valued at up to S$450 million for divestment over the next 12 months.

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Recapitalising Our Balance Sheet for Future Growth

As part of our proactive approach to capital management, we closed the year with a gearing level of 41.8% and an all-in cost of debt of 3.66%. We have a well spread-out and staggered debt maturity profile with a weighted average debt expiry of 2.9 years and no more than 21% of debt will expire per year over the next three years. Mitigating the volatility of interest rate movements, 72.0% of borrowings are on fixed interest rates with a weighted average fixed debt expiry of 2.0 years.

In FY2022, we also executed several capital raising initiatives to further optimise our capital structure and provide support for our growth strategy. We entered into a S$835.0 million and A$365.0 million unsecured loan facilities agreement in relation to the merger of ESR-REIT and ALOG.

In June 2022, we also successfully issued S$150.0 million 5.50% subordinated perpetual securities, which were issued pursuant to the S$750.0 million Multicurrency Debt Issuance Programme of ESR-LOGOS REIT. In October 2022, we entered into a JPY7.1 billion unsecured loan facility agreement and a JPY12.2 billion secured loan facility agreement for the partial financing of our maiden acquisition in Japan, which we will elaborate on further below. To round off FY2022, we also announced the reset of the distribution rate for the S$150.0 million 4.60% subordinated perpetual securities which were issued pursuant to the S$750.0 million Multicurrency Debt Issuance Programme of ESR-LOGOS REIT in November 2022, as well as the redemption of the S$100.0 million 5.50% subordinated perpetual securities (which were issued pursuant to the S$1 billion Multicurrency Debt Issuance Programme of ALOG) in December 2022.

We maintained a good level of financial flexibility to fund our growth aspirations with a debt headroom of S$858.8 million as at 31 December 2022. We have access to S$320.4 million of committed undrawn revolving credit facilities at attractive margins, which can be utilised to refinance our FY2023 debt expiries of S$230.0 million, thereby reducing interest expense and commitment fees on the revolving credit facilities. ESR-LOGOS REIT remains well supported by 11 local and international banks.

We continue to focus on strengthening our financial position and preserving Unitholder value over the long-term.

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Reinforcing Sponsor Support for Quality Growth

We will continue to rejuvenate our portfolio by leveraging our Sponsor’s network, footprint and local expertise with a focus on New Economy assets. ESR Group has a global portfolio of over US$68 billion in New Economy assets, providing us with an executable asset pipeline. This is a significant competitive advantage as quality modern logistics assets continue to be scarce across major logistics markets globally amidst increasing competition and the comparative advantage of private equity funds for such assets.

As testament to our ability to tap into our Sponsor’s quality portfolio, we realised our maiden entry into Japan with the acquisition of ESR Sakura Distribution Centre ("ESR Sakura DC") from ESR Group for S$169.8 million (JPY17,800 million) in October 2022. With net lettable area of 81,507 sqm, the 5-storey modern freehold logistics property will set the foundation for us to ride on the strong logistics growth trends in the Greater Tokyo area.

While we enjoy good access to our Sponsor’s portfolio, we will continue to exercise prudence in our investment process. We will continue to focus on high-quality New Economy assets in scalable markets where we are able to leverage ESR Group’s real estate platform and local expertise, to achieve value add to our Unitholders.

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OUR ESG COMMITMENTS

The Board and Management team have outlined in this year’s Sustainability Report our longer-term ESG targets and aspirations which are built on the United Nations’ Sustainability Development Goals and aligned with the ESG objectives of our Sponsor. Post merger with ALOG, we introduced new material topics and targets, and removed outdated material topics to better reflect our sustainability ambitions as a larger REIT.

On the Environmental front, we have set goals for the reduction of total energy and water consumption across our multi-tenanted buildings. Cognizant of the challenges posed by climate change to our operations, we are also developing a decarbonisation roadmap for our portfolio.

As at 31 December 2022, there are 11 properties in our portfolio with BCA Green Mark Gold/Gold Plus certifications, as well as one property with LEED Platinum certifications. Moving forward, we target to achieve Green Mark certification for 80% of our buildings by 2030.

On the Social element, we continue to maintain fair employment practices and are a signatory to Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP). We maintain high levels of employee satisfaction and all of our employees received professional training in 2022, covering technical skills related to their functions and other soft skills.

During the year, we co-organised a portrait taking session for the elderly from low-income families in Kembangan Chai Chee together with Kampong Chai Chee Community Centre, as well as provided a space at ESR BizPark @ Chai Chee for the operation of Kidzcare Tuition Centre as part of our ongoing efforts in supporting disadvantaged youth in partnership with Kembangan-Chai Chee (KCC) Youth Network. We also provided sponsorship for the SportCares Community Futsal Programme, a structured programme to keep youths at-risk off the streets and bring about holistic behavioural changes through sports.

On the Governance front, we continue to uphold high standards of corporate governance to ensure ESR-LOGOS REIT is aligned with best practices and is responsive to change. We value Board and Management team diversity and are committed to zero lapses in corporate governance. Having experienced the disruptions brought about by the pandemic, we continue to ensure that procedures and business continuity plans are in place for preparedness and resilience.

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OUTLOOK

The multitude of macroeconomic and geopolitical challenges are expected to carry into 2023 with recession expected to set into two of the largest economies — U.S. and Europe. Supply chain disruptions and continued interest rate hikes will affect economic sentiments, trade, financial and business activities which will impact companies along the value chain, demand for space, rental growth, and operating costs.

On a positive note, in the medium to longer term, the depth and pace of economic structural trends are expected to continue benefiting ESR-LOGOS REIT as demand trends towards New Economy assets in the logistics and high-specs segments. The opening up of China’s borders is expected to help alleviate the supply chain disruptions and ease inflationary pressures.

ESR-LOGOS REIT remains focused on our continued efforts to optimise the value of our portfolio, ensuring our capital structure remains sound to tide us through these difficult times and leverage on the deep economic structural reforms for sustainable growth. Despite the potential uplift in the medium to longer term with our New Economy pivot, in the short term, we may expect uneven distribution growth as we continue to rejuvenate and recycle our assets with AEIs, redevelopments and divestments, coupled with continued cost pressures. We remain cautiously optimistic given the progress that we have made with our 4R strategy and in transforming ESR-LOGOS REIT into a leading New Economy and Future-Ready APAC S-REIT.

We continue to transform and enhance ESR-LOGOS REIT for the benefit of Unitholders with long-term horizons.

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A WORD OF APPRECIATION

Following the completion of the merger with ALOG, Mr. Ooi Eng Peng and Mr. Tong Jinquan retired as Non-Executive Directors on 1 July 2022 and 29 July 2022 respectively. Mr. Khor Un-Hun stepped down as Independent Non-Executive Director on 2 August 2022, while Mr. Philip Pearce stepped down as Non-Executive Director and was appointed as Alternate Director to Mr. Jeffrey Perlman, Non-Executive Director on 3 June 2022. On behalf of the Board, we would like to extend our heartfelt appreciation to Mr. Ooi, Mr. Tong and Mr. Khor for their invaluable contributions during their tenure of service.

On 3 June 2022, we welcomed Mr. Nagaraj Sivaram as Independent Non-Executive Director. A Chartered Accountant by training, Mr. Sivaram has extensive experience in auditing listed companies in the logistics and real estate industries. On 1 July 2022, Mr. Trent Iliffe was appointed as Non-Executive Director, bringing with him significant experience, expertise and network in the real estate space across Asia including Australia. We welcomed Dr. Julie Lo as Independent Non-Executive Director on 1 November 2022. Dr. Lo comes with extensive legal experience in the public healthcare sector and with global companies. Mr. Sivaram, Mr. Iliffe and Dr. Lo continue to provide further depth and diversity to the competencies and skillsets of the Board.

On behalf of the Board and Management team, we would like to extend our heartfelt appreciation to our Unitholders, our Sponsor, our tenants and our partners for their loyalty, trust and continued support. We would also like to thank our dedicated employees for their resilience and tenacity in implementing our strategies to deliver quality returns for Unitholders over the longer-term.

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Sincerely yours,

STEFANIE YUEN THIO

Independent Non-Executive Chairperson

ADRIAN CHUI

Chief Executive Officer and Executive Director

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ESR delivered a set of outstanding results in 2022 — a transformational year for the Enlarged Group post the acquisition of ARA. With increased scale and reach, the Group continued to leverage APAC’s leading New Economy real estate platform, which further propelled our strength and resilience as Asia Pacific’s largest real asset manager. Despite the challenging global macro issues, ESR has entered 2023 from a position of fundamental strength with a well-capitalised balance sheet to take advantage of market dislocation and seize on new opportunities.

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Exceptional fund management performance

In 2022, we generated an exceptional year of raising capital as APAC remains the engine of growth for New Economy assets (i.e. logistics and data centres). The region’s industrial and logistics sector grew through the pandemic and will continue to generate more opportunities as China finally emerged from its zero-COVID policy. Given the under allocation of funds in Asia Pacific, and the secular trends that underpin the Group’s growth, a big focus for us is to drive investments in sectors which are adjacent to logistics, such as renewables, data centres, life sciences and infrastructure to drive synergies, which add significantly to what we do.

Our key milestone fund initiatives in 2022 include our US$1 billion inaugural APAC data centre fund comprising a development pipeline of eight seed projects; our first US$1 billion infrastructure and renewables fund in ASEAN, in partnership with Export–Import Bank of China and our first collaboration between ESR and LOGOS in the Pan Asia core plus discretionary fund with US$250 million of initial equity commitments, investing in prime logistics assets in the APAC region.

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Record high leasing and rental reversions with close to zero vacancies in most markets

We are pleased that the Group achieved strong leasing in 2022 with a record of over 4.6 million sqm1 of space leased, driven by e-commerce acceleration and supply chain resilience which continues to generate demand for modern, institutional-grade logistics facilities in key gateway markets. We have witnessed the portfolio occupancy at record levels of 95%1 (98%1 ex-Greater China), with close to full occupancies in Australia/New Zealand, Japan, India and South Korea. With high occupancy generating strong rental growth in many of the markets where the Group operates, ESR has seen an overall positive weighted average portfolio rental reversion of 7.5%1,2 which was recorded across the New Economy portfolio. In fact, with one-third of our leases due in the next 24 months and development completions between 4 to 5 million sqm3, the Group is well-positioned to benefit from the outsized rental growth across major markets.

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Pushing new frontiers with New Economy development

With the largest development workbook in APAC, our development pipeline comprises a number of landmark projects that are set to create new benchmarks in the market. These best-in-class facilities include the ESR Yokohama Sachiura Logistics Park in Greater Tokyo, a multi-phase development which provides approximately 720,000 sqm logistics space over four phases, set to be the largest logistics park (by value) in Japan and one of the largest ever developed (by value) in APAC upon completion. Other major projects include one of Japan’s tallest distribution centres, the nine-storey ESR Higashi Ogishima Distribution Centre, with a GFA of 365,385 sqm; the collaboration between LOGOS and its partners in developing the US$3 billion Moorebank Logistics Park, Australia’s largest intermodal logistics facility at Moorebank and our partnership with PGIM Real Estate in a build-to-suit redevelopment facility in Singapore for POKKA, which has signed a 10-year lease to commit a minimum of 70% of the building space.

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Synergies to drive efficiencies and organisational excellence

The transformational integration after  the acquisition of ARA has expanded ESR’s size and scale, and we are continuously harnessing areas of synergies across our businesses, overall capabilities, scope and market presence to drive efficiencies. We have tapped into our talent pipeline across ESR and LOGOS to provide leadership support for LOGOS’s China and Indonesia businesses. In addition, we have set up new functions to leverage LOGOS's established expertise in domains such as Insurance and Business Resilience and Health & Safety Functions at Group level. Across the Group, we have centralised capital raising functions to strengthen the strong investor relationships we have across the businesses and enhance the expertise of our inhouse capital raising teams. The Group will continue with our integration efforts to achieve further synergies.

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To meet the future people pipeline as the Group forges ahead with the growth of e-commerce, accelerated digitalisation and financialisation of real estate, we have established an official Talent Management and Learning team as an independent Centre of Excellence (COE) within the Group HR function to drive group-wide talent management and learning strategies and initiatives.

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Shaping a sustainable future

We have made significant progress across the three key pillars under our ESG Framework — “Human Centric”, “Property Portfolio” and “Corporate Performance”.

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As an Enlarged Group, we are committed to drive best-in-class ESG practices as a unified platform for our stakeholders. To build a more inclusive and equitable workplace, we increased the proportion of women in senior management positions to 40%. We continued to foster a human centric environment in our design philosophy for our tenants, exemplified by the creation of nine BARNKLÜBB day-care centres at our distribution centres in Japan, to support employees and their families with greater flexibility and inclusiveness. In our commitment to health and safety, and well-being of our stakeholders, the Group worked closely with local authorities and industry bodies to maintain zero ESR workforce fatalities for our employees.

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On the environmental front, the Group has installed close to 100 MW of rooftop solar power capacity across our assets globally, in line with our ESG 2025 Roadmap to maximise onsite renewable energy generation and sources in the transition to a low carbon future. In Japan, ESR is the first real asset manager to work with Enerbank to issue Renewable Energy Certificates (“RECs”) to tenants from solar power generated from our assets’ rooftops. The Group also continues to pursue our target of obtaining sustainable building certificates for 50% of our portfolio, to enhance operational efficiency.

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In recognition of our ESG performance in various leading global sustainability benchmarks and rankings — the Group has attained outstanding results in the 2022 GRESB Assessment and achieved “A” in MSCI ESG Rating and “Low Risk” in Sustainalytics.

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Looking ahead

While we remain cautious about the changing external environment, we are in a strong position to weather any unforeseen headwinds and capitalise on opportunities that may present themselves. ESR will continue to further strengthen our market-leading position in New Economy real estate and our REITs across APAC while starting to build up a scaled infrastructure and renewables platform. We remain focussed on accelerating our asset light trajectory, maintaining cost discipline which continues to drive fund management EBITDA margin improvement and further diversify our funding sources and lower our borrowing costs.

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In addition, our ambition is to push forward our ESG and sustainability efforts, embedding them in all aspects of our operations as we embark on our Group-wide ESG 2025 Roadmap to shape a low carbon and climate resilient future.

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We would like to thank our local management teams for their dedication and commitment in this incredible transformation of the Group, and our Board Directors for their vision and guidance. In addition, we are grateful to our customers and investors for their trust in us as a Partner of Choice.

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STUART GIBSON and JINCHU SHEN

Group Co-founders & Co-CEOs

22 March 2023

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Notes:

  1. Stabilised New Economy assets only. Excludes listed REITs and Associates.
  2. Weighted by AUM.

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Dear Shareholders,

2022 represented one of the most challenging market environments since the global financial crisis with sustained inflation, record rate hikes and significant geopolitical and macro challenges. I am very pleased that even amidst these headwinds and market volatility, ESR has continued to deliver solid growth which is a strong testament to our business model.

The Group’s Revenue for FY2022 was US$821 million, up 103.0% from FY2021 revenue of US$404 million. Total EBITDA1 increased by 63.0% from US$707 million in FY2021 to US$1.15 billion in FY2022. PATMI2 grew 73.5% from US$377 million in FY2021 to US$655 million in FY2022. The higher revenue was driven by higher fees from the Group’s Fund Management segment while EBITDA was boosted by an increase in fee income, share of profits of co-investments and gains on divestment from balance sheet assets to ESR-managed funds in Australia and China.

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A standout year for fund management

I am proud to report that our Fund Management segment achieved another year of outstanding performance in FY2022, backed by our deep capital partner relationships. Fund Management Segmental EBITDA3 grew 185.3% to US$568 million, driven by substantial recurring and other fee revenue from higher AUM, record development, leasing fees and solid promotes. The segment was propelled by the exceptional growth momentum of the Group’s fund AUM4,5 which rose 330% year-on-year to US$152 billion, out of which New Economy AUM4,5 grew by 85% to US$73 billion, including a new Pan Asia discretionary logistics vehicle. The Group’s Fund Management segment also benefitted from ARA’s recurring and stable fee revenue.

As global institutional investors sought to rebalance their portfolio allocations in light of the growth in Asia Pacific, we raised US$7.6 billion in committed capital across 28 new or upsized funds and mandates.

In expanding our Fund Management business, we have a record US$19.9 billion of “dry powder” to capitalise on new opportunities, giving us the agility to take advantage of market dislocation.

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Powered by the New Economy

With the growth in e-commerce and the need for greater local supply chain resilience, ESR has tapped the rising demand for large-scale and high-quality New Economy assets by scaling up our development starts and completions substantially to reach new heights. We achieved US$6.5 billion6 worth of development starts, as well as US$5.5 billion6 in completions, which accelerated in the second half of 2022. Given the record low vacancy rates across the portfolio, the Group substantially increased our development starts by 94% year-on-year to US$6.5 billion6 which was further complemented by development completions which increased by 304% year-on-year to US$5.5 billion6. To further capture the favourable operating backdrop, we are very pleased that our development workbook has reached a record US$11.9 billion, which remains the largest in APAC.

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Robust capital management and asset light strategy

Our robust capital management has given us a strong and well-capitalised balance sheet with US$1.8 billion in cash and a healthy gearing7 of 22.8% as of 31 December 2022. Throughout the year, we continued to expand and diversify our funding and capital structure which is crucial for fuelling the Group’s long-term growth.

Staying focussed on our asset light approach, we divested US$1.7 billion of assets from our balance sheet to ESR managed funds in FY2022, achieving 3 times our annual historical target with a specific focus on crystalising gains from selected China balance sheet assets. Our sell-down of a 850,000 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 our 18.16% holding in China Logistics Property Holdings Co., Ltd in May 2022, receiving US$349 million and delivering a strong return on this four-year investment.

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Laser-focussed on business transformation and simplification

A key emphasis for us has been to drive business transformation and simplification, which underscore our commitment to delivering long-term shareholder value. We have achieved approximately US$15 million of cost synergies from the integration of ARA, exceeding our target plan, and successfully integrated part of the LOGOS business ahead of schedule. We expect to create additional synergies as we further integrate various aspects of the LOGOS business over the next 12 months. As part of our priority to streamline and further simplify the business, the Group is evaluating an additional up to US$750 million of non-core divestments with the plan to redeploy the capital back into core areas of growth. We have also further lowered our average co-investment stake to 7.4%, placing us in a good position to take on greater development capacity without increasing our existing balance sheet annual commitments.

The Group’s business transformation backed by our asset light model has provided us with robust liquidity to redeploy the capital back into our New Economy focus areas. This includes creating our data centre platform with the first close of the US$1 billion ESR Data Centre Fund and investing in market leaders through our recent strategic investment and partnership with BW Industrial Development in Vietnam to provide best-in-class development, leasing and other fund management services to the company.

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Anchored by three key pillars of growth

On the back of strong secular trends, we will focus on three pillars of growth — New Economy, Alternatives (including infrastructure and renewables) and REITs. With e-commerce expanding at 10% across APAC through 2025, hyperscale data centres growing at a 30%+ CAGR through 2025, and heightened focus on R&D and pharmaceuticals, we will continue to seize opportunities to deploy capital into sectors including data centres, logistics, life sciences and high-tech industrial. The New Economy Pillar will in turn fuel the growth of our Alternatives segments such as infrastructure and renewables as well as our REIT business. With the largest amount of rooftop space in APAC, the Group started an ambitious rollout of solar projects with the support of our capital partners. These renewable opportunities will power New Economy assets such as data centres and cold storage across the Group. In addition, with the APAC REIT market expected to grow by a 12% CAGR to reach US$1.3 trillion of market capitalisation by 2030, ESR is in a unique position to grow our REITs over time. Our capital partners are increasingly turning to us to sell down high-quality assets and there is positive REIT legislation that will continue to open new markets and opportunities for us across the region. Our potential C-REIT spinout is a testament to how REITs remain as the natural takeout of New Economy assets upon stabilisation.

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Leading the way forward in ESG

At ESR, we believe in doing what is right for the environment and the communities that we operate in. During the year and with the support of multiple stakeholders, we have achieved great progress on our ESG initiatives including the appointment of two new female independent non-executive directors, Ms Serene Nah and Ms Kwee Wei-Lin, maintaining a diverse Board composition with the appropriate mix of gender, background and experience. As a result, 60% of our independent non-executive directors are women at the Board level. Other key highlights include becoming a signatory of the United Nations-supported Principles for Responsible Investment (UN PRI), reinforcing our commitment to adopting and promoting responsible investment and asset management practices as part of the Group’s ongoing ESG efforts. In line with international ESG benchmarks and global ratings, ESR continues to be recognised for our robust and exemplary ESG disclosure practices with creditable 2022 rankings in the Global Real Estate Sustainability Benchmark (“GRESB”) Assessment, MSCI ESG Ratings and Sustainalytics ESG Risk Ratings. I am proud that every day we are making a choice to raise the bar for ESG integration and deliver on our ESG Roadmap.

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Appreciation and looking ahead

I would like to extend my sincere gratitude to our Board of Directors for their invaluable support. I am also delighted to welcome Serene and Wei-Lin to the Board as Independent Non-executive Directors. I thank our management team led by Stuart and Jeffrey and all our employees who strive each day to be the best at what they do. To our capital partners, customers and shareholders, we thank you for your unwavering trust and support.

The scale of ESR today is truly remarkable. As APAC’s largest real asset manager powered by the New Economy and the biggest REIT platform across the region, we remain a trusted partner for 12 of the top 20 global capital partners to deploy capital across APAC. Despite the growing uncertainty in the market — geopolitical, future rate hikes, inflation and others, ESR is armed with a well-capitalised balance sheet to capture the right opportunities, chart the next chapter of our growth and deliver long-term value for shareholders.

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Jeffrey David Perlman

Chairman

22 March 2023

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Notes:

  1. Total EBITDA excludes amortisation of intangibles and transaction costs relating to ARA and M&A related items such as bargain purchase, share of fair value on investment properties and financial assets at fair value through profit or loss and financial instruments in relation to certain Associates; as well as share-based compensation expense. Statutory Total EBITDA was US$1,069 million.
  2. PATMI excludes amortisation of intangibles and transaction costs relating to ARA and M&A related items such as bargain purchase, share of fair value of investment properties and financial assets at fair value through profit or loss and financial instruments in relation to certain Associates. Statutory PATMI was US$574 million.
  3. Excludes share of certain associates’ fair value of investment properties and financial assets at fair value through profit or loss and financial instruments.
  4. Based on constant FX translation as of 31 December 2021 for a like-for-like comparison. Based on FX translation as of 31 December 2022, Fund AUM would be US$142 billion (US$10 billion FX translation impact) and New Economy AUM would be US$68 billion (US$5 billion FX translation impact).
  5. Refers to the sum of (i) the fair value of the properties held in the private funds and investment vehicles we manage; (ii) the total uncalled capital commitments in the private funds and investment vehicles; (iii) the additional debt that is estimated to be incurred with reference to the target leverage ratio of the relevant private funds and investment vehicles we manage when all capital is called and invested; and (iv) the appraised carrying value of listed REITs.
  6. New Economy assets only. Excludes listed REITs and Associates.
  7. Net Debt/Total Assets.

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