ESR is planning to set up more real estate investment trusts and grow its data centre business after notching a record year in 2021, according to its chairman, Jeffrey Perlman.
The Hong Kong-listed fund management giant saw its assets under management jump 32 percent year on year to an all-time high of $39.4 billion in 2021 and posted record earnings attributable to shareholders of $377 million, based on its unaudited annual financial statement released late Thursday.
“2021 was another record year for ESR which was further punctuated by the transformational acquisition of ARA to create APAC’s largest real asset manager powered by the new economy,” ESR Group Chairman Jeffrey Perlman said. “As capital partners seek to deploy more and more capital with fewer managers in Asia Pacific, the ESR Group strives to deliver a fully integrated one-stop solution which will be fuelled by the leading new economy real estate platform with $59 billion in AUM and a development WIP (work-in-progress) of over $10 billion across Asia Pacific.”
Perlman noted the firm also posted new record highs in other aspects of its business, including leasing, fundraising and development project launches – which he sees enabling the group to focus on pursuing asset light development, expansion of its data centre business and fostering of the REITs it sponsors as it progresses through 2022.
Japan, China Bolster Earnings
ESR’s net profit attributable to owners for 2021 was up 31.7 percent from the $286.5 million reported a year earlier, with the company linking its improved performance to increased co-investments in funds, associated entities and joint ventures, as well as reduced borrowing costs.
That increase in profit came despite revenues inching up by just 4.1 percent to $404.4 million in 2021 from $388.3 million the year prior. While the group’s revenues in Japan and China surged by 47 percent and 31 percent respectively, Australia saw its revenues fall by 38 percent and in India, revenues dipped by 8.4 percent. Revenues from South Korea and Singapore both went up by nine percent, year on year.
The firm’s leasing activity in 2021 also hit a record high with over 3.3 million square metres (35.5 million square feet) of total space rented out last year and occupancy climbing to 94 percent from 89 percent a year earlier, driven by the huge demand from the e-commerce industry.
With $59 billion in new economy assets – which include logistics and data centres– the segment now accounts for 54 percent of ESR’s total AUM which is by far the biggest new economy portfolio in Asia Pacific.
The Warburg Pincus-backed group completed its $5.2 billion acquisition of Singapore-based ARA Asset Management in January, which more than quadrupled the enlarged ESR group’s overall assets under management to $140.2 billion as of end-2021 from just around $30 billion in 2020.
Investor commitments to ESR funds have also helped to boost the company’s business, with the firm raising $5.8 billion in fresh capital commitments last year across nine vehicles and partnerships, which was up 64 percent from 2020.
Currently, the Hong Kong-listed firm’s portfolio spans 25.5 million square metres of combined space both in operation and for development across Asia Pacific. In terms of value, it has $7.1 billion worth of projects under construction, which is up 51 percent year on year, and commenced work on $3.3 billion in projects last year.
In addition to its growing development pipeline, ESR also grew via acquisition in 2021, with the group’s Australian unit partnering with Singapore’s GIC to acquire the Milestone logistics portfolio from Blackstone for $2.9 billion.
Data Centres, REITs in Focus This Year
As ESR aims to expand its business in 2022, Perlman said the firm will look for opportunities to free up at least $1 billion in capital in part by divesting $800 billion or more of its existing assets, with China one of its top targets for disposals.
“If the markets continue to stay constructive and investors obviously continue to have the appetite, which we’re still seeing today, then we expect to be able to sell down and exceed even what we did in 2021 in terms of a sell down,” he said in a briefing on Thursday evening.
Pointing to ESR’s established pool of stabilised assets in China, Perlman said that, “We will recycle those assets which are obviously of material value. So, that comprises a big chunk of that capital recycling and our goal is to exceed $1 billion plus of capital recycling.”
The 38-year-old executive said his company will also continue growing its data centre platform, which currently has six assets all still under development across Hong Kong, Osaka, Sydney, Mumbai, Jakarta and Singapore which represent a total of 260 megawatts of total power capacity.
The company plans to expand that portfolio this year through a pipeline of digital infrastructure assets it has arranged across Tokyo, Osaka, Seoul, Beijing and Taipei, along with plans to launch its complementary inaugural data centre funds this year. Before the merger last year, both ESR and Logos had announced separate data centre vehicles.
“Beyond the continued growth of e-commerce, digital transformation is well underway, with data consumption growing by four times over the past five years alone in Asia. With the build up of the ESR data center efforts we’re looking to play into the critical need for digital infrastructure in a big way going forward,” he said.
The logistics specialist launched its first data centre development in April 2021 with a $2.15-billion project in Osaka.
After unitholders overwhelmingly approved the proposed merger of ESR-REIT and ARA Logos Logistics Trust earlier this week, ESR is also planning to expand the pool of REITs it sponsors this year and grow the existing ones in scale.
“We believe the REIT sector is set to take off across Asia Pacific. Over the remainder of the decade, JLL is projecting growth of up to $1 trillion of incremental market capitalization. We believe there are ample opportunities for us to create REITs in China, Japan, Australia, India and Southeast Asia across both diversified and new economy areas,” Perlman added.