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ESR’s maintains focus on fee-related AUM, doubles down on data centres

The Edge Singapore
The Edge Singapore  • 2 min read
ESR’s maintains focus on fee-related AUM, doubles down on data centres
ESR Group's FY2023 Patmi declined by 59.8%, in line with peers. Plans to double down on data centres continue
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ESR Group’s FY2023 revenue rose by 6% y-o-y to US$871 million, but Patmi fell by 59.8% US$230.8 million because of the absence of fair value gains (accounting-based) and of one-off income, and higher interest expense in FY2023.

Adjusted Patmi, excluding amortisation of goodwill and one-off costs from the ARA acquisition coupled with share-based compensation related to ARA, fell by 38.8% to US$400 million. The extent of ESR's y-o-y Patmi decline was similar to peers.   

Operationally and the underlying performance of the assets were better than the headline numbers. ESR’s fund managemet Ebitda of US$579 million comprised around 60% of group Ebitda.

Excluding promote fees, fund management Ebitda grew 8.9% y-o-y. Total AUM and fee-related AUM increased by 7.3% to US$156.1 billion, and 6.3% y-o-y to US$81.1 billion repsectively on the back of US$7.5 billion of new capital raised.

Stabilised New Economy occupancy remains at 98% ex-China with, but lower at 91% including China. Ex-China, ESR experienced record leasing of 5.3 million sqm across the portfolio and strong rental reversions of 14.3%.

ESR has three priorities this year: its divestment programme of non-core assets; increasing its exposure to data centres and focusing cost synergies.

See also: NetLink NBN Trust reports 2HFY2024 DPU of 2.65 cents, up 1.1% y-o-y

Data centres are expected to be an increasing contribution to ESR Group, with 24% of development starts in FY2023.  The Group will have 575 MW upon the completion of 8 sites (including a 100% pre-leased site in Hong Kong and India).  In addition, the Group’s pipeline of land and projects will contribute more than one additional gigawatt (1 GW+).

Gearing rose from 22.8% in 2022 to 30.7% in 2023. However, this should reduced following the sale of the ARA Private Funds announced earlier in March with pro forma gearing down to 28%. The target is to bring gearing down to the 20% to 25% range. This is likely by the end of this year when ESR’s divestment targets are attained.

On the capital management front, US$1.5 billion to US$2 billion of assets in mainland China, Hong Kong, Japan and India are ready for either divestment or syndication (into funds). The ARA Private Funds divestment is part of this plan. If the sell-down of these assets is completed by the end of the year, gearing would fall to 25%, and interest costs would fall, leading to savings of around US$40 billion as the weighted average cost of debt declined from 5.3% in 2023 to less than 5%.

ESR announced a final dividend of 12.5 HK cents giving a total dividend of 25 HK cents per share. 

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