ESR Posts 39% Earnings Growth, 37% Jump in AUM Ahead of ARA Buyout

ESR on Friday reported that its revenues grew nearly 25 percent in the first half of 2021, at the same time that its assets under management shot up 36.9 percent to an all-time high of $36.3 billion, putting an exclamation point on a dynamic period for the Hong Kong-listed fund manager and industrial specialist.

With the shift towards e-commerce continuing to boost warehouse demand, and investors pouring record amounts of capital into logistics strategies, the group’s earnings before interest, tax, depreciation and amortisation rose 38.6 percent year-on-year to $373.5 million for the six months, while fund management EBITDA surged 50.9 percent to $97.1 million, the company said in a release.

“Despite the challenging backdrop posed by COVID-19, our growth is accelerating and the first half of 2021 was distinguished by a host of new developments and exciting breakthroughs for us across the region,” said chairman Jeffrey Perlman.

ESR’s stellar interim results capped a busy period that saw the Asia Pacific powerhouse acquire the $2.9 billion Milestone portfolio (alongside Singapore sovereign fund GIC) in the largest-ever logistics property transaction in Australia; raise $2.5 billion in new or upsized capital commitments for various investment vehicles across the region; and agree to buy Singapore’s ARA Asset Management for $5.2 billion, with an eye towards creating the world’s third-largest listed real estate investment manager.

Profit Jump

Excluding construction revenue, ESR’s top line grew to $177.7 million in the period from January to June, compared with $142 million one year ago.

“Today, we are witnessing a once-in-a-generation change in real estate,” Perlman said. “E-commerce acceleration, digital transformation and the financialisation of real estate are underpinning the continued outsized growth of our business.”

Profit after tax and minority interest soared 60.9 percent to a record $213.9 million, driven by low borrowing costs and growth in ESR’s co-investments in funds, associates and joint ventures, the company said.

After growing its assets under management to record levels in the first half of the year, ESR’s fundraising momentum has continued in recent weeks with the firm announcing on Monday that it had teamed up with Dutch fund manager APG and Singapore’s GIC for a new logistics development fund set to build up to $4 billion in new warehouses.

Dual Dragon

The proposed acquisition of ARA will merge ESR with its industrial rival Logos, forming what Perlman called a “two-headed dragon” with development work in progress of over $10 billion and the largest logistics and data centre pipeline in Asia Pacific at over 7.7 million square metres (82.9 million square feet) of warehouse space and more than 1,200 megawatts of power capacity.

During a media presentation, ESR’s chairman described Sydney-based Logos as more complementary than competitive, offering the example of the players’ recent moves Down Under.

“In the last six months, we were able to acquire the landmark Milestone acquisition under ESR, whereas Logos was able to acquire the largest development opportunity in Australia, which was the Moorebank project,” Perlman said. “The combination of those in just a six-month period, we feel that it’s something that we wouldn’t be able to do as one platform. We think it’s very powerful, very enhancing and the development should stand out quite considerably.”

Doubling Down on New Economy

In the wake of its maiden data centre investments in Japan and Hong Kong, ESR expects to accelerate the build-out of its server-hosting portfolio after the merger with Logos, which kicked off its own efforts with a Jakarta hyperscale project in June.

The group plans to “double down” on new-economy real estate with the addition of Logos, which in practice means boosting logistics and data centre AUM by 45.7 percent to $52.9 billion and raising gross floor area by 39.4 percent to 31.5 million square metres under the merger.

Co-CEOs Jeffrey Shen and Stuart Gibson said the supersized ESR would thrive on the growth of the new economy and create a positive impact for communities and partners.

“With the recently announced landmark acquisition of ARA/Logos, we see tremendous growth synergies between our two platforms,” said the pair, who co-founded ESR with Charles de Portes and US private equity major Warburg Pincus. “The enlarged ESR group will build on our original vision and further capture the outsized market opportunity.”

ESR already boasts one of the biggest development pipelines in the region, totalling over 16.1 million square metres across the portfolio. The group anticipates completion of the first phase at ESR Shanghai Qingpu Yurun, a 340,000 square metre logistics facility in China’s commercial capital, by the end of this year, with Phase II to be completed by 2023.

In Japan, the group has commenced construction of the second phase at ESR Yokohama Sachiura Logistics Park at over 195,000 square metres, to be completed in early 2023. The development, at roughly 800,000 square metres over four phases, is set to be the largest logistics park in the country when fully developed, ESR said.