Quick Commentary on ESR’s FY24 Results

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• ESR reported a loss for FY24, extending the loss reported from 1H24. We continue to view ESR as a stable issuer, considering a majority of the losses had been contributed by non-cash impairment losses owing to property revaluation. Additionally, default risk remains minimal for now, given the Group’s robust liquidity and further balance sheet optimisation to come.
  
  
• For the year ended 31 December 2024 (“FY24”), ESR reported a negative profit after taxes and minority interests (“PATMI”) of USD -699.8m, as compared to a profit of USD 230.8m recorded in FY23. ESR saw a considerable drop in EBITDA across the year, falling from USD 724.6m (FY23) to USD -415.6m (FY24). The decline was contributed by lower revenue (see below), alongside significant non-cash revaluation losses associated with divestments of non-core assets and Mainland China properties.
  
  
• The decline in revenue (-27% YoY) was primarily due to lower management fees, falling from USD 736.7m (FY23) to USD 497.8m (FY24). Management indicated that it was affected by the decline in promote fees, with USD 182.3m recorded in FY23. Promote fees could be understood as performance-based fees and ESR explained that they are recognised upon the recapitalisation or realisation of the Group’s managed funds. As such, promote fees are greatly dependent on performance across the life cycle of the managed funds, while noting that the pace of transaction activities has slowed significantly in FY24.
  
  
• Meanwhile, we saw the non-cash revaluation losses extending from ESR’s 1H24 results, particularly with further impairments experienced for Mainland China assets. Across FY24, ESR recorded the following non-cash losses amounting to approximately USD 591m – (1) USD 97.4m for the divestment of ARA US Hospitality Trust, (2) USD 65.3m for the divestment of assets under Cromwell Property Group (“Cromwell”), (3) USD 106.1m revaluation losses associated with Mainland China assets under ESR C-REIT, and (4) USD 322.4m revaluation losses associated with newly completed properties in Mainland China.
  
  
• On an adjusted basis (primarily for the impairment of assets held for sale and losses associated with Cromwell), ESR reported an adjusted EBITDA of USD -79.6m (FY24) as compared to USD 885.3m (FY23). If we further exclude the fair value gains/losses on investment properties, the adjusted EBITDA figure will be a positive of USD 232.4m (FY24) against USD 697.7m (FY23).
  
  
• The underlying business operations remain resilient in our view. ESR continues to see growth in its fee-related AUM and fee income (excluding promote fees) on a pro-forma basis, adjusting for the divestment of non-core assets. Pro-forma Fee-related AUM and fee income grew by +5.9% YoY and +6.6% YoY respectively, underpinning ESR’s key strategy of becoming asset-light and focusing on stable management fees as its core income. Additionally, operating cash flow for ESR remains positive, seeing an increase from USD 224.5m (FY23) to USD 356.4m (FY24).
  
  
• Recently in January, we saw the successful listing of ESR C-REIT on the Shanghai Stock Exchange (SSE Stock Code: 508078), raising more than RMB 2.1b. ESR retained a 41% stake in the ESR C-REIT, with 12 cornerstone institutional investors attracted for the initial public offering. We believe the listing reflects the consistent effort in ESR’s ongoing balance sheet optimisation strategy. The proceeds raised from the listing are expected to be utilised towards further debt repayment plans.
  
  
• At the same time, we view the privatisation proposal by the consortium of investors as positive for ESR Group. This ultimately validates ESR’s intrinsic value in the extended term, affirmed by the consortium proposing to take ESR private.
  
  
• On ESR’s credit and liquidity profile, we note several key improvements despite a general deterioration in debt metrics owing to the non-cash impairments. Weighted average interest cost further fell to 4.7% as of December 2024, down from 4.9% as of June 2024 and 5.3% as of December 2023. Meanwhile, earlier in December, ESR secured a five-year syndicated sustainability-linked term loan and revolving credit facilities totalling USD 2.5b. This enabled ESR to have a robust liquidity position of USD 3.9b from cash and committed facilities.
  
  
• On the other hand, borrowings saw a slight increase from USD 5,980m (Dec 23) to USD 6,148m (Dec 24). This was mostly due to a delay in receipt of net proceeds from capital recycling transactions which were completed in late December 2024 and January 2025. Net-debt-to-total-assets and net-debt-to-equity rose from 30.7% and 57.0% (Dec 23) to 35.3% and 70.2% (Dec 24) respectively, due to the considerable decline in assets and equity.
  
  
• Overall, despite the recent losses, we believe default risk remains minimal for now. With further USD 2.7b of capital recycling earmarked for the balance sheet optimisation, we expect the proceeds and current liquidity to be more than sufficient for its maturing debt. On top of that, we believe the positive operating cash flow experienced by ESR reflects the underlying resilient business operations, despite its overall losses.
  
  
• Nonetheless, we wish to highlight the general risks associated with perpetual securities for ESR’s outstanding issuances. Investors ought to consider the possibility of a non-call on the perpetual securities, while the recent losses increase the probability of interest deferral (albeit still a low likelihood of it happening).
  
  
• Among the three ESR perpetual securities, we continue to prefer the ESRCAY 5.650% Perpetual Corp (SGD) owing to its short ~0.9 year remaining to call. At the yield to call of ~6.8%, we believe this remains sufficient to compensate the relatively high risk for the perpetual security and given the issuer’s credit profile.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in ESRCAY 5.650% Perpetual Corp (SGD), and the analyst who produced this report hold a NIL position in the abovementioned securities.

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