Financial Information

Financial information

Consolidated statement of total return

  Group
2QFY19 A$'000 2QFY18 A$ ‘000 Change %
Revenue 59,666 43,575 36.9
Property operating expenses (10,698) (7,868) 36.0
Net property income 48,968 35,707 37.1
Managers' management fee
- Base fee (3,047) (1,989) 53.2
- Performance fee (1,720) (1,221) 40.9
Trustees' fees (107) (78) 37.2
Trust expenses (614) (342) 79.5
Finance income 242 333 (27.3)
Finance costs (7,239) (4,883) 48.2
Exchange gains/(losses) (net) 2,731 254 N.M
Net income 39,214 27,781 41.2
Net change in fair value of investment properties - - N.M
Net change in fair value of derivative financial instruments 462 1,492 (69.0)
Total return for the period before tax 39,676 29,273 35.5
Tax expenses (5,697) (4,030) 41.4
Total return for the period 33,979 25,243 34.6
Attributable to:      
Unitholders of the Trust 33,641 25,243 33.3
Non-controlling interests 338 - N.M
  33,979 25,243 34.6
Distribution Statement
Total return after tax 33,641 25,243 33.3
Tax related and other adjustments 3,268 623 424.6
Income available for distribution to Unitholders 36,909 25,866 42.7
For information:      
Adjusted NPI 47,866 33,414 43.3

Statements of financial position

  Group Trust
  31/3/2019 (A$ ‘000) 30/9/2018 (A$ ‘000) 31/3/2019 (A$ ‘000) 30/9/2018 (A$ ‘000)
Non-current assets
Investment properties 3,002,650 2,978,204 - -
Investment in subsidiaries - - 858,036 858,036
Loans to subsidiaries - - 1,622,688 1,568,967
Derivative financial instruments - 1,133 - 1,133
Total non-current assets 3,002,650 2,979,337 2,480,724 2,428,136
Current assets
Cash and cash equivalents 99,131 105,664 51,574 53,130
Trade and other receivables 13,360 9,691 41,694 26,154
Derivative financial instruments 584 283 584 283
Investment property held for sale 15,289 - - -
Total current assets 128,364 115,638 93,852 79,567
Total assets 3,131,014 3,094,975 2,574,576 2,507,703
Current liabilities        
Trade and other payables 33,365 40,404 1,665 2,408
Derivative financial instruments - 148 - 148
Current tax liabilities 3,428 6,741 142 84
Borrowings 233,718 219,654 169,882 169,619
Total current liabilities 270,511 266,947 171,689 172,259
Non-current liabilities        
Trade and other payables 2,290 2,459 - -
Derivative financial instruments 3,472 620 3,472 620
Borrowings 859,357 845,121 568,184 495,722
Deferred tax liabilities 41,194 36,574 - -
Total non-current liabilities 906,313 884,774 571,656 496,342
Total liabilities 1,176,824 1,151,721 743,345 668,601
Net assets attributable to Unitholders 1,954,190 1,943,254 1,831,231 1,839,102
Represented by:        
Unitholders' funds 1,934,878 1,924,388 1,831,231 1,839,102
Non-controlling interests 19,312 18,866 - -
Total equity 1,954,190 1,943,254 1,831,231 1,839,102

Review of performance

Review of Performance for the quarter from 1 January 2019 to 31 March 2019 ("2QFY19") vs 1 January 2018 to 31 March 2018 ("2QFY18")

Adjusted NPI for 2QFY19 of A$47.9 million was A$14.5 million (or 43.3%) higher than 2QFY18. The higher Adjusted NPI for 2QFY19 was contributed by the FY2018 Australian Acquisition, the FY2018 European Acquisition and the FY2019 Dutch Acquisition. These were partly offsetted by the effect of the FY2018 Divestments.

2QFY19 finance costs of A$7.2 million was A$2.4 million higher than 2QFY18. This was due mainly to higher borrowings to finance the various acquisitions in FY2018 and FY2019 and after net proceeds from the FY2018 Divestments. Weighted average interest rate (excluding upfront debt related expenses) for 2QFY19 was 2.4% per annum and 2QFY18 was 2.9% per annum. At 31 March 2019, 79% (31 March 2018: 85%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for 2QFY19 of A$33.6 million was A$8.4 million (or 33.3%) higher than 2QFY18 which included (a) exchange gain of A$2.7 million which relates to translation of the Trust's foreign currency borrowings; (b) fair value gain on foreign currency forward contracts of A$0.5 million to hedge the currency risk on distributions to Unitholders and was partly offsetted by higher trust expenses of A$0.3 million.

Tax expenses for 2QFY19 of A$5.7 million was A$1.7 million (or 41.4%) higher than 2QFY18. Current income tax was higher due mainly to higher distributable income.

The REIT Manager has elected to receive 100% of the 2QFY19 management fee in the form of units (2QFY18: 67.5%).

Income available for distribution to Unitholders was A$36.9 million, an increase of A$11.0 million (or 42.7%) over 2QFY18.

Review of Performance for the period from 1 October 2018 to 31 March 2019 ("1HFY19") vs 1 October 2017 to 31 March 2018 ("1HFY18")

Adjusted NPI for 1HFY19 of A$96.8 million was A$30.0 million (or 44.9%) higher than 1HFY18. The higher Adjusted NPI for 1HFY19 was contributed by the FY2018 Australian Acquisition, the FY2018 European Acquisition, the FY2019 Dutch Acquisition and other income of A$1.2 million which relates to the early surrender fee received for 63-79 South Park Drive, Dandenong South, Victoria. These were partly offsetted by the effect of the FY2018 Divestments.

1HFY19 finance costs of A$14.8 million was A$5.1 million higher than 1HFY18. This was due mainly to higher borrowings to finance the various acquisitions in FY2018 and FY2019 and after net proceeds from the FY2018 Divestments. Weighted average interest rate (excluding upfront debt related expenses) for 1HFY19 was 2.4% per annum and 1HFY18 was 2.9% per annum. At 31 March 2019, 79% (31 March 2018: 85%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for 1HFY19 of A$63.4 million was A$12.6 million (or 24.7%) higher than 1HFY18 which included (a) exchange gains of A$1.1 million which relates to translation of the Trust's foreign currency borrowings and the exchange differences arising from settlement of foreign currency forward contracts; (b) fair value gain on investment properties of A$0.1 million; (c) fair value gain on foreign currency forward contracts of A$0.6 million to hedge the currency risk on distributions to Unitholders and was partly offsetted by higher trust expenses of A$0.8 million.

Tax expenses for 1HFY19 of A$11.6 million was A$3.4 million (or 41.2%) higher than 1HFY18. Current income tax was higher due mainly to higher distributable income.

The REIT Manager has elected to receive 91.6% of the 1HFY19 management fee in the form of units (1HFY18: 72.8%).

Income available for distribution to Unitholders was A$73.6 million, an increase of A$21.9 million (or 42.3%) over 1HFY18.



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

The Australian economy grew by 2.3% for the 12-month period ended December 2018, compared to 2.8% for the 12-month period ended September 2018, with the slower growth due largely to softening in the construction and residential sectors. Public infrastructure investment continues to support the economy, with approximately A$260 billion worth of major transport infrastructure projects under construction or planned across 315 projects, up from A$211 billion across 260 projects three years ago.2 Australia's Consumer Price Index (CPI) rose 1.3% year-on-year over the 12-month period ended March 2019, compared with 1.8% for the 12-month period ended December 2018. This is below the Reserve Bank of Australia's target of 2% - 3% year on year, raising expectations that the central bank may cut interest rates in the coming months.

Australian industrial take-up levels have been robust with approximately 2.5 million sq m leased over the 12-month period to March 2019, underpinned by demand from retail, food and logistics occupiers. The strong demand for industrial space is largely attributable to population growth, public infrastructure spending, and the growth in e-commerce. Australia's population growth over the next five years is projected to rank third amongst the world's advanced economies.

Year-to-date industrial supply was recorded at approximately 1.2 million sq m. As national take-up levels have consistently exceeded new completions, vacancy is at a five-year low across the three major industrial markets of Sydney, Melbourne and Brisbane. Prime face rents have recorded steady year-on-year growths of 3.5% and 2.2% in Sydney and Melbourne respectively. The Brisbane industrial market is recovering with prime rents returning to pre-2017 levels. Rental growth in the three main industrial markets is expected to remain positive as land values have appreciated considerably on the back of the demand-led expansion in development activity amid a shortage of developable land.

Investor demand for industrial space remains strong with evidence of further yield compression as compared to the first quarter of 2018.

Germany and the Netherlands3

The German economy grew 1.5% for 2018, compared to 2.5% a year ago. Solid domestic fundamentals, supported by low unemployment rate of 3.1% in February 2019 provides support even as ongoing US-China trade tensions and Brexit continue to have an impact on economic growth.

Take-up levels for logistics and industrial properties of above 5,000 sq m remained high at 1.2 million sq m for the first quarter of 2019, as new supply for the rental market remained limited with users continuing to seek build-to-suit solutions. Average yields for the major German logistics hubs stabilised at 4.1% for the first quarter of 2019. Investment volumes were lower in the first quarter of 2019 due to a lack of available logistics products in the major distribution hubs.

The Dutch economy grew 2.7% year-on-year for 2018, with positive contributions from household consumption, capital investments as well as a strong labour market. The unemployment rate in the Netherlands decreased to 3.3% in March 2019, from 3.6% in December 2018.

Underpinned by higher consumption and investment, all major Dutch industrial markets recorded strong volumes of transaction in the first quarter of 2019, with Venlo confirming its strong market position. Prime rents have largely remained unchanged from the preceding quarter, while prime yields remained stable for the first quarter of 2019, with yield at 4.5% for 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 prime industrial portfolio with a focus on generating sustainable long-term value for unitholders.

  1. Source: JLL Research – Industrial Market Snapshot 1Q 2019; Knight Frank Research – Australian Capital View Outlook 2019
  2. Capital Markets Australia & New Zealand Investment Review, Year in Review and Outlook 2019 - Industrial, Colliers International
  3. Source: BNP Paribas Real Estate International Research, April 2019

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