Financial Information

Financial information

Consolidated statement of total return

  Group
4QFY19
A$'000
4QFY18
A$ ‘000
Change
%
FY19
A$'000
FY18
A$ ‘000
Change
%
Revenue 61,616 60,439 1.9 240,758 195,766 23.0
Property operating expenses (11,124) (10,256) 8.5 (41,407) (33,975) 21.9
Net property income 50,492 50,183 0.6 199,351 161,791 23.2
Managers' management fee
- Base fee (3,381) (3,083) 9.7 (12,607) (9,450) 33.4
- Performance fee (1,583) (1,518) 4.3 (6,725) (5,330) 26.2
Trustees' fees (112) (109) 2.8 (457) (355) 28.7
Trust expenses (714) (949) (24.8) (2,890) (1,932) 49.6
Finance income 307 215 42.8 1,161 1,321 (12.1)
Finance costs (5,987) (7,646) (21.7) (27,882) (23,805) 17.1
Exchange gains/(losses) (net) (226) 142 N.M. (3,256) (6,451) (49.5)
Net income 38,796 37,235 4.2 146,695 115,789 26.7
Gain on divestment of investment property - 23,446 N.M. 1,649 23,446 (93.0)
Net change in fair value of investment properties 101,122 54,695 84.9 121,989 72,411 68.5
Net change in fair value of derivative financial instruments 1,763 (352) N.M. 2,101 2,349 (10.6)
Total return for the period before tax 141,681 115,024 23.2 272,434 213,995 27.3
Tax expenses (23,448) (18,136) 29.3 (44,530) (34,361) 29.6
Total return for the period 118,233 96,888 22.0 227,904 179,634 26.9
Attributable to:            
Unitholders of the Trust 116,897 96,129 21.6 225,617 178,728 26.2
Non-controlling interests 1,336 759 76.0 2,287 906 N.M.
  118,233 96,888 22.0 227,904 179,634 26.9
Distribution Statement
Total return after tax 116,897 96,129 21.6 225,617 178,728 26.2
Tax related and other adjustments (81,857) (62,174) 31.7 (80,037) (62,387) 28.3
Income available for distribution to Unitholders 35,040 33,955 3.2 145,580 116,341 25.1
Distribution from divestment gain 4,256 2,000 N.M. 4,256 2,000 N.M.
Distributable Income 39,296 35,955 9.3 149,836 118,341 26.6
For information:            
Adjusted NPI 50,233 49,306 1.9 195,911 155,398 26.1

Statements of financial position

  Group Trust
  30/9/2019
(A$ ‘000)
30/9/2018
(A$ ‘000)
30/9/2019
(A$ ‘000)
30/9/2018
(A$ ‘000)
Non-current assets
Investment properties 3,554,142 2,978,204 - -
Investment in subsidiaries - - 914,938 858,036
Loans to subsidiaries - - 1,848,932 1,568,967
Derivative financial instruments 2,117 1,133 2,117 1,133
Total non-current assets 3,556,259 2,979,337 2,765,987 2,428,136
Current assets
Cash and cash equivalents 128,381 105,664 47,608 53,130
Trade and other receivables 14,176 9,691 62,111 26,154
Derivative financial instruments 2,070 283 2,070 283
Investment property held for sale 18,000 - - -
Total current assets 162,627 115,638 111,789 79,567
Total assets 3,718,886 3,094,975 2,877,776 2,507,703
Current liabilities        
Trade and other payables 53,217 40,404 3,445 2,408
Derivative financial instruments 1,072 148 1,072 148
Borrowings 206,237 219,654 112,627 169,619
Current tax liabilities 10,429 6,741 144 84
Total current liabilities 270,955 266,947 117,288 172,259
Non-current liabilities        
Trade and other payables 3,367 2,459 - -
Derivative financial instruments 9,674 620 6,647 620
Borrowings 1,029,555 845,121 650,923 495,722
Deferred tax liabilities 62,598 36,574 - -
Total non-current liabilities 1,105,194 884,774 657,570 496,342
Total liabilities 1,376,149 1,151,721 774,858 668,601
Net assets attributable to Unitholders 2,342,737 1,943,254 2,102,918 1,839,102
Represented by:        
Unitholders' funds 2,313,810 1,924,388 2,102,918 1,839,102
Non-controlling interests 28,927 18,866 - -
Total equity 2,342,737 1,943,254 2,102,918 1,839,102

Review of performance

Review of Performance for the quarter from 1 July 2019 to 30 September 2019 ("4QFY19") vs 1 July 2018 to 30 September 2018 ("4QFY18")

Adjusted NPI for 4QFY19 of A$50.2 million was A$0.9 million (or 1.9%) higher than 4QFY18. The higher Adjusted NPI for 4QFY19 was contributed by the effect of the various acquisitions in FY2018 and the recently completed German and Australian Properties Acquisition. These were in part offset by the effect of the divestments in FY2018, the South Park Drive Divestment and the Sandstone Place Divestment.

4QFY19 finance costs of A$6.0 million were A$1.7 million lower than 4QFY18. This was due mainly to interest savings from the refinancing of A$170 million borrowings and from repayment of debt from the proceeds of the various divestments in FY2018 and FY2019. The weighted average interest rate (excluding upfront debt related expenses) for 4QFY19 was 2.2% per annum and 2.5% per annum for 4QFY18. At 30 September 2019, 60% (30 September 2018: 82%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for 4QFY19 of A$116.9 million was A$20.8 million (or 21.6%) higher than 4QFY18 which included (a) fair value gain on investment properties of A$101.1 million; (b) fair value gain on foreign currency forward contracts of A$1.8 million to hedge the currency risk on distributions to Unitholders; which was partially offset by (c) net exchange losses of A$0.2 million which relates to translation of the Trust's foreign currency borrowings partially offset by the exchange differences arising from settlement of foreign currency forward contracts.

Tax expenses for 4QFY19 of A$23.4 million were A$5.3 million (or 29.3%) higher than 4QFY18. This was due mainly to higher current income tax, tax arising from the gain on the Sandstone Place Divestment, and higher deferred tax on the fair value gain on investment properties.

The REIT Manager has elected to receive 100% of the 4QFY19 management fee in the form of units (4QFY18: 100%).

Income available for distribution to Unitholders was A$35.0 million, an increase of A$1.1 million (or 3.2%) over 4QFY18. The REIT Manager has declared a distribution of A$4.3 million from the gain on divestments.

 

Review of Performance for the period from 1 October 2018 to 30 September 2019 ("FY19") vs 1 October 2017 to 30 September 2018 ("FY18")

Adjusted NPI for FY19 of A$195.9 million was A$40.5 million (or 26.1%) higher than FY18. The higher Adjusted NPI for FY19 was contributed by the various acquisitions in FY2018 and FY2019 and other income of A$2.4 million which relates to the early surrender fee received for 63-79 South Park Drive, Dandenong South, Victoria and make good income for both 63-79 South Park Drive, Dandenong South, Victoria and 610 Heatherton Road, Clayton South, Victoria. These were in part offset by the effect of the various divestments in FY2018 and FY2019.

FY19 finance costs of A$27.9 million were A$4.1 million higher than FY18. This was due mainly to higher borrowings to finance the various acquisitions in FY2018 and FY2019, partially offset by interest savings from the refinancing of A$170 million borrowings and from repayment of debt from the proceeds of the various divestments in FY2018 and FY2019. The weighted average interest rate (excluding upfront debt related expenses) for FY19 was 2.2% per annum and 2.5% per annum for FY18. At 30 September 2019, 60% (30 September 2018: 82%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for FY19 of A$225.6 million was A$46.9 million (or 26.2%) higher than FY18 which included (a) the gain on the South Park Drive Divestment of A$1.6 million; (b) fair value gain on investment properties of A$122.0 million; (c) fair value gains on foreign currency forward contracts of A$2.1 million to hedge the currency risk on distributions to Unitholders which were in part offset by (d) net exchange losses of A$3.3 million which relate to the translation of the Trust's foreign currency borrowings and were partially offset by the exchange differences arising from settlement of foreign currency forward contracts.

Tax expenses for FY19 of A$44.5 million were A$10.2 million (or 29.6%) higher than FY18. This was due mainly to higher current income tax, tax arising from the gain on the South Park Drive Divestment and the Sandstone Place Divestment, and higher deferred tax on the fair value gain on investment properties.

The REIT Manager has elected to receive 92.2% of the FY19 management fee in the form of units (FY18: 88.2%).

Income available for distribution to Unitholders was A$145.6 million, an increase of A$29.2 million (or 25.1%) over FY18. The REIT Manager has declared a distribution of A$4.3 million from the gain on divestments.

Commentary

Commentary on the significant trends and competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months

Australia1

Australian industrial take-up levels have been robust with approximately 2.3 million sq m leased over the 12-month period to September 2019, supported by demand from eCommerce, food and grocery, pharmaceutical and third party logistics (3PL) users. The strong demand for industrial space is largely attributable to strong population growth, public infrastructure spending and growth in the e-commerce sector. Australia's population growth over the next five years is projected to rank third amongst the world's advanced economies.

New industrial supply is slightly below the long-term average with approximately 1.3 million sqm of new stock being completed over the previous 12 months to 30 September 2019. There continues to be a strong pipeline of industrial developments primarily in Sydney and Melbourne. Developers are seeking to capitalise on the continued strength of the industrial market by constructing new stock on a speculative basis. We note however that new industrial supply has dropped in 2019 compared to 2018 as a result of the reduction in development activity and a shortage in serviced industrial land in Sydney.

National take-up levels continue to exceed new completions and as a result, vacancies are at their lowest level in five years across the three major industrial markets of Sydney, Melbourne and Brisbane. Prime face rents have recorded steady year-on-year growths of 3.0% and 1.3% in Sydney and Melbourne respectively. We note that prime rents in Sydney and Melbourne are expected to normalise with modest growth projected for the next 12 months.

The Brisbane industrial market is recovering with prime rents returning to pre-2017 levels with 2.4% prime rental growth in the last 12 months. The recovery has been driven by stronger tenant demand, limited new development and declining vacancies. Tenant demand is expected to remain stable with JLL projecting rental growth of 3.00% in the next 12 months.

Investor demand for industrial space remains strong with evidence of further yield compression compared to the second quarter of 2019 however, the yield compression is forecast to stabilise. In the absence of capital growth, rental growth is expected to drive industrial returns in future years.

Germany and the Netherlands2

German economic growth softened over the course of 2019 due mainly to a slowdown in the German automotive industry. Despite the weakness in the automotive sector, the German economy still has strong domestic fundamentals that include a skilled workforce and low unemployment rate of 3.1% as at August 2019. The ongoing US-China trade tensions and Brexit will continue to weigh on confidence levels and economic growth.

According to BNP, in the nine months to September 2019, total transaction volumes in the German industrial and logistics market totalled €4.97 billion, which represents a marginal decline of 0.8% when compared to the same period in 2018. The German industrial market is characterised by a lack of investment stock and a large pool of investors seeking to deploy their capital. There is increasing competition from foreign investors for industrial and logistics assets in Germany.

In Germany, take-up levels for logistics and industrial properties of above 5,000 sq m has remained high at 4.67 million sq m for the nine months to September 2019. This represents a 4.5% increase from the corresponding period in 2018. Average prime yields for the major German logistics hubs has sharpened to record lows of approximately 3.8%.

The Dutch economy has remained resilient in 2019 supported by a strong labour market, strong household consumption and capital investments. The unemployment rate on a seasonally adjusted basis remains low at 3.5% in August 2019. Tenant demand in the Netherlands remains strong with leasing volumes for warehouses above 5,000 sq m totalling 2.17 million sq m in the nine months to September 2019. This represents a 13.6% increase compared to the same period in 2018.

In the nine months to September 2019, total transaction volume in the Dutch industrial and logistics investment market totalled €1.66 billion. This represents a 49% decline in investment volumes compared to the same period in 2018. The Dutch market continues to be characterised by a lack of investment stock and strong investor demand. Average prime yields have firmed slightly in 3Q 2019 but are expected to stabilise over the short term. Average prime yields are currently 4.4% in the market of Venlo.

Overview

The REIT Manager continues to monitor developments on the global trade tensions and Brexit. Looking ahead, the REIT Manager will continue to grow FLT's portfolio with a focus on generating sustainable long-term value for unitholders.

  1. Sources: JLL Research - Industrial Market Snapshot 3Q 2019; Knight Frank Research - Australian Capital View Outlook 2019
  2. Source: BNP Paribas Real Estate International Research ("BNP"), 3Q 2019

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