ESR Interim Report 2020 (EN)

Note: 3 The largest single-phase, single-asset warehousing project in terms of GFA, as at July 2020. Sources: CBRE data and ESR research. Fund Management Segment The impact of COVID-19 has underscored the importance of investing in resilient and durable assets. As a result, we are seeing investors adjust their weighting towards structural and defensive plays, with recent examples include institutional investors forming partnerships with logistics developers or committing capital to logistics funds 2 . The pandemic has also triggered a second wave of structural change in the logistics sector, with e-commerce distribution centres, cold storage, last mile facilities and the redevelopment of outdated warehouses all attracting a considerable amount of interest from investors. Capitalisation rates are expected to continue to trend downwards with continued strong long-term investor and tenant interest. The Group sees opportunities to grow its fund management business which in turn will continue to contribute to its growth in recurring fee income. Investors are increasingly looking to boost their exposure into logistics assets on the back of the growing importance of e-commerce. During 1H2020, ESR raised US$2.4 billion through new vehicles across its platform, demonstrating the strong support of its top-tier capital partners. These include a US$500 million development joint venture with GIC and a core fund joint venture with Manulife in China; a US$416 million core-plus partnership in Australia; a US$1 billion development joint venture with APG and CPP Investments in South Korea; and a separate account of US$257 million with AXA in Japan. The Group also actively deployed capital from its balance sheet and third party funds, acquiring assets and deploying over US$700 million across various markets to fuel its platform expansion. Based on the latest fundraising initiatives, there was also over US$3.6 billion of committed but uncalled capital in ESR’s third party funds as at 30 June 2020. Development Segment The Group will continue to strengthen its leadership position in its six markets. As at 30 June 2020, the Group has a development pipeline of over 15.3 million sqm across its portfolio including landbank of over 3.8 million sqm. Development demand continues to increase, and the Group has achieved US$0.8 billion of development starts for 1H2020. In June 2020, the Group completed the development of ESR Amagasaki Distribution Centre in Greater Osaka, the largest logistics warehousing project in Asia Pacific 3 at 388,570 sqm. Several key projects in South Korea held in the development funds are also expected to be completed in 2020 including two modern logistics facilities in Greater Seoul. In China, the Group expects to complete the development of Qingpu Yurun Phase I into a high standard warehouse logistics facilities which includes cold storage with a total planned GFA of over 340,000 sqm; as well as the Dushangang project in Jiaxing which is expected to be completed in 2022 with total planned GFA over 235,000 sqm. We also divested US$601.3 million worth of assets from our balance sheet with cash/receivable recycled of US$221 million to help fund future developments on our balance sheet. The Group will continue to leverage on third party capital to fund development starts and exercise a disciplined approach to deliver its targeted development completions slated for 2020 and beyond. Sustainable Growth Beyond Expansion Committed to delivering 21st century logistics infrastructure that Asia Pacific needs to succeed in the new economy, ESR looks beyond space to build a sustainable business. With Environmental, Social and Governance (“ ESG ”) as an integral part of its operations that forms the forefront of ESR’s strategic priorities, the Group has set forth a comprehensive ESG framework encompassing clear objectives, policies and procedures led by the Group ESG Committee. This framework guides the Group in evaluating opportunities and advancing industry standards in its operations and governance, ensuring ESR to ever improve its ability to generate long-term shareholder value, and improve the wellbeing for all in the communities that it operates in. In the second half of 2020, the Group will formally announce its five-year ESG vision as part of its ESG - 2025 plan. Looking ahead, despite a challenging near-term economic environment, the Group remains confident in the strong fundamentals of the logistics sector and the positive long- term demographic and economic trends within Asia Pacific. Capital flows are already starting to pivot towards Asia Pacific, which remains under-penetrated. Superior growth prospects coupled with strong demographic and urbanisation trends are fuelling demand for investments in the region. Notwithstanding the challenges of the prolonged pandemic and geopolitical tensions which may further weigh on business confidence, the Group remains grounded to take advantage of current macroeconomic trends and the structural shift in consumer behaviour. The Group remains mindful of the evolving environment and continues to monitor current global events and potential further market disruptions. 11 ESR Interim Report 2020 MANAGEMENT DISCUSSION AND ANALYSIS