Financial Information

Consolidated statement of total return

  Group
3QFY18 A$'000 3QFY17 A$ ‘000 Change % 9MFY A$'000 9MFY A$ ‘000 Change %
Revenue 49,322 40,226 22.6 135,327 120,843 12.0
Property operating expenses (8,209) (6,436) (27.5) (23,719) (19,139) (23.9)
Net property income 41,113 33,790 21.7 111,608 101,704 9.7
Managers' management fee
- Base fee (2,375) (1,751) (35.6) (6,367) (5,401) (17.9)
- Performance fee (1,388) (1,142) (21.5) (3,812) (3,410) (11.8)
Trustees' fees (84) (75) (12.0) (246) (219) (12.3)
Trust expenses (211) (537) 60.7 (983) (1,311) 25.0
Finance income 329 176 86.9 1,106 392 182.1
Finance costs (6,506) (4,220) (54.2) (16,159) (12,485) (29.4)
Exchange (losses)/gains (net) 3 (5,890) 852 N.M (6,593) 836 N.M
Net income 24,988 27,093 (7.8) 78,554 80,106 (1.9)
Net change in fair value of derivative financial instruments (2,748) 3,198 N.M 2,701 339 696.8
Net change in fair value of investment properties 17,716 - N.M 17,716 - N.M
Total return for the period before tax 39,956 30,291 31.9 98,971 80,445 23.0
Tax expenses (8,013) (4,046) (98.0) (16,225) (11,661) (39.1)
Total return for the period 31,943 26,245 21.7 82,746 68,784 20.3
Attributable to:            
Unitholders of the Trust 31,796 26,245 21.2 82,599 68,784 20.1
Non-controlling interests 147 - N.M 147 - N.M
  31,943 26,245 21.7 82,746 68,784 20.3
Distribution Statement
Total return after tax 31,796 26,245 21.2 82,599 68,784 20.1
Tax related and other adjustments (1,130) (1,198) 5.7 (213) 6,200 N.M
Income available for distribution to Unitholders 30,666 25,047 22.4 82,386 74,984 9.9

Statements of financial position

  Group Trust
  30/6/2018 (A$ ‘000) 30/9/2017 (A$ ‘000) 30/6/2018 (A$ ‘000) 30/9/2017 (A$ ‘000)
Non-current assets
Investment properties 2,839,672 1,910,975 - -
Investment in subsidiaries - - 845,668 789,746
Loans to subsidiaries - - 1,565,992 1,065,658
Derivative financial instruments 1,441 3,077 1,441 3,077
Total non-current assets 2,841,113 1,914,052 2,413,101 1,858,481
Current assets
Cash and cash equivalents 56,345 56,097 25,661 48,495
Trade and other receivables 18,758 5,719 4,024 4,208
Derivative financial instruments 638 456 638 456
Investment property held for sale 64,536 - - -
Total current assets 140,277 62,272 30,323 53,159
Total assets 2,981,390 1,976,324 2,443,424 1,911,640
Current liabilities        
Trade and other payables 27,533 41,348 2,067 1,296
Derivative financial instruments 26 2,870 26 2,870
Current tax liabilities 1,690 1,793 68 56
Borrowings 236,575 - 169,488 -
Total current liabilities 265,824 46,011 171,649 4,222
Non-current liabilities        
Trade and other payables 1,763 2,336 - -
Derivative financial instruments 555 - 555 -
Borrowings 839,091 574,109 487,553 574,109
Deferred tax liabilities 25,317 16,352 - -
Total non-current liabilities 866,726 592,797 488,108 574,109
Total liabilities 1,132,550 638,808 659,757 578,331
Net assets attributable to Unitholders 1,848,840 1,337,516 1,783,667 1,333,309
Represented by:        
Unitholders' funds 1,830,551 1,337,516 1,783,667 1,333,309
Non-controlling interests 18,289 - - -
  1,848,840 1,337,516 1,783,667 1,333,309

Review of performance

Review of Performance for the quarter from 1 April 2018 to 30 June 2018 ("3QFY18") vs 1 April 2017 to 30 June 2017 ("3QFY17")

Adjusted NPI for 3QFY18 at A$39.3 million was A$8.4 million (or 27.4%) higher than 3QFY17. The four completed properties in the 2017 Acquisition Transaction and the Beaulieu, Stanley Black & Decker and Clifford Hallam facilities, which had achieved practical completion on 13 October 2017, 17 November 2017 and 4 May 2018 respectively, contributed adjusted NPI of A$2.4 million. The 2018 Acquisition Transaction contributed NPI of A$5.0 million (€3.2 million) from 26 May 2018 to 30 June 2018. The net effect of the annual fixed increment in the Australian portfolio also contributed to the increase in the Adjusted NPI.

Finance income of A$0.3 million for 3QFY18 included the coupon interest income on the initial payment for the development property of Clifford Hallam facility in the 2017 Acquisition Transaction.

3QFY18 finance costs of A$6.5 million was A$2.3 million higher than 3QFY17. This was due mainly to higher borrowings drawn to finance the 2017 and the 2018 Acquisition Transactions and existing debt of approximately €265.2 million (A$418.6 million) assumed with the 2018 Acquisition Transaction. Actual weighted average interest rate for 3QFY18 was 2.5% and 3QFY17 was 2.8% per annum. At 30 June 2018, 81% (30 June 2017: 79%) of borrowings were hedged.

The actual total return attributable to Unitholders of the Trust for 3QFY18 of A$31.8 million was A$5.6 million (or 21.2%) higher than 3QFY17 which included (a) a fair value gain on investment properties of A$17.7 million which relates to the adjustment on investment properties from the 2018 Acquisition Transaction; (b) a fair value loss of A$2.7 million due to settlement on foreign currency forward contracts to hedge the currency risk on distributions to Unitholders for 3QFY18 compared to a fair value gain of A$3.2 million for 3QFY17; (c) net exchange losses of A$5.9 million which was due mainly to the realised loss on settlement of foreign currency forward to hedge the purchase consideration for the 2018 Acquisition Transaction.

Tax expenses for 3QFY18 of A$8.0 million was A$4.0 million (or 98.0%) higher than 3QFY17. This was due mainly to current income tax on the New Properties of A$0.4 million, higher withholding tax paid on distributable income and interest income of A$0.9 million and higher deferred tax charge of A$2.7 million.

The REIT Manager has elected to receive 100% of the 3QFY18 quarterly base management fee in the form of units (3QFY17:100% in units).



Review of Performance from 1 October 2017 to 30 June 2018 ("9MFY18") vs 1 October 2016 to 30 June 2017 ("9MFY17")

Adjusted NPI for 9MFY18 at A$106.1 million was A$13.7 million (or 14.8%) higher than 9MFY17. This was due mainly to the contributions of the 2017 Acquisition Transaction of A$6.4 million and the 2018 Acquisition Transaction of A$5.0 million. The net effect of the annual fixed increment in the Australian portfolio also contributed to the increase in the Adjusted NPI.

Finance income of A$1.1 million for 9MFY18 included the coupon interest income on the initial payment for the three development properties in the 2017 Acquisition Transaction.

9MFY18 finance costs of A$16.2 million was A$3.7 million higher than 9MFY17. This was due mainly to higher borrowings drawn to finance the 2017 and the 2018 Acquisition Transactions and existing debt of approximately €265.2 million (A$418.6 million) assumed with the 2018 Acquisition Transaction. Actual weighted average interest rate for 9MFY18 was 2.5% and 9MFY17 was 2.8% per annum. At 30 June 2018, 81% (30 June 2017: 79%) of borrowings were hedged.

The actual total return attributable to Unitholders of the Trust for 9MFY18 of A$ 82.6 million was A$13.8 million (or 20.1%) higher than 9MFY17. This was due mainly to a fair value gain on investment properties of A$17.7 million which relates to the adjustment on investment properties from the 2018 Acquisition Transaction.

Tax expenses for 9MFY18 of A$16.2 million was A$4.6 million higher than 9MY17. This was due mainly to current income tax for the New Properties of A$0.4 million, higher withholding tax paid on interest income and higher distributable income of A$1.9 million and higher deferred tax charge of A$2.3 million.

During the financial period, the REIT Manager had elected to receive A$1.74 million of quarterly base management fee in cash.

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 leasing market has been robust with national take-up levels 13% above the 10-year average over the past 12 months. Third party logistics and consumer sectors have been leading demand nationally with the rise of online retailing becoming more significant. E-commerce growth potential and increased government infrastructure continue to have positive spill over effects on demand for industrial space. Australian supply levels are above the long-term average and set to continue at solid levels in the second half of 2018, with the majority of space concentrated in Sydney and Melbourne. In addition, land values have been rising across the three major cities, driven by the demand-led expansion in development activity and re-zoning of land in inner submarkets of Sydney and Melbourne.

Yields across prime and secondary assets continued to tighten over the year to June 2018. In the absence of the yield compression that has driven returns in recent years, the rental growth in the three major cities is expected to be positive, supported by improving economic fundamentals.

Germany and the Netherlands2

The German industrial and logistics market remains underpinned by increasing demand, including growth in e-commerce and a favourable economic environment. New industrial supply remains limited, with prime rents stable in most markets. Logistics assets continue to attract capital, with approximately €3 billion in investments recorded in the first half of 2018. Following a strong compression in 2016 and 2017, yields saw a slight decrease in the second quarter of 2018 in the major logistics hubs.

Business confidence in the Netherlands has been boosted by improving domestic demand and industrial output. Industrial and logistics investment continued to increase sharply, representing 20% of total commercial real estate investment over the past 12 months to June 2018, with further yield tightening in markets such as Venlo, Breda, Amsterdam and Rotterdam.

Overview

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

  1. M3property Research - m3commentary National Industrial, Winter 2018; JLL Real Estate Intelligence Service - Industrial Market Snapshot 2Q2018; Colliers Radar - the e-Commerce growth potential, July 2018
  2. Source: BNP Paribas Real Estate International Research, July 2018

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