Financial Information

Financial information

Consolidated statement of total return

  Group
4QFY18 A$'000 4QFY17 A$ ‘000 Change % FY18 A$'000 FY17 A$ ‘000 Change %
Revenue 60,439 42,217 43.2 195,766 163,060 20.1
Property operating expenses (10,256) (9,947) 3.1 (33,975) (29,086) 16.8
Net property income 50,183 32,270 55.5 161,791 133,974 20.8
Managers' management fee
- Base fee (3,083) (2,032) 51.7 (9,450) (7,433) 27.1
- Performance fee (1,518) (1,200) 26.5 (5,330) (4,610) 15.6
Trustees' fees (109) (75) 45.3 (355) (294) 20.7
Trust expenses (949) (388) 144.6 (1,932) (1,699) 13.7
Finance income 215 446 (51.8) 1,321 838 57.6
Finance costs (7,646) (4,457) 71.6 (23,805) (16,942) 40.5
Exchange gains/(losses) (net) 142 191 (25.7) (6,451) 1,027 N.M
Net income 37,235 24,755 50.4 115,789 104,861 10.4
Gain on divestment of investment properties 23,446 - N.M 23,446 - N.M
Net change in fair value of investment properties 54,695 11,461 377.2 72,411 11,461 N.M
Net change in fair value of derivative financial instruments (352) (162) 117.3 2,349 177 N.M
Total return for the period before tax 115,024 36,054 219.0 213,995 116,499 83.7
Tax expenses (18,136) (7,076) 156.3 (34,361) (18,737) 83.4
Total return for the period 96,888 28,978 234.4 179,634 97,762 83.7
Attributable to:            
Unitholders of the Trust 96,129 28,978 231.7 178,728 97,762 82.8
Non-controlling interests 759 - N.M 906 - N.M
  96,888 28,978 234.4 179,634 97,762 83.7
Distribution Statement
Total return after tax 96,129 28,978 231.7 178,728 97,762 82.8
Tax related and other adjustments (62,174) (2,461) N.M (62,387) 3,739 N.M
Income available for distribution to Unitholders 33,955 26,517 28.0 116,341 101,501 14.6
Distribution from divestment gain 2,000 - N.M 2,000 - N.M
Distributable Income 35,955 26,517 35.6 118,341 101,501 16.6
For information:            
Adjusted NPI 49,306 32,320 52.6 155,398 124,735 24.6

Statements of financial position

  Group Trust
  30/9/2018 (A$ ‘000) 30/9/2017 (A$ ‘000) 30/9/2018 (A$ ‘000) 30/9/2017 (A$ ‘000)
Non-current assets
Investment properties 2,978,204 1,910,975 - -
Investment in subsidiaries - - 858,036 789,746
Loans to subsidiaries - - 1,568,967 1,065,658
Derivative financial instruments 1,133 3,077 1,133 3,077
Total non-current assets 2,979,337 1,914,052 2,428,136 1,858,481
Current assets
Cash and cash equivalents 105,664 56,097 53,130 48,495
Trade and other receivables 9,691 5,719 26,154 4,208
Derivative financial instruments 283 456 283 456
Total current assets 115,638 62,272 79,567 53,159
Total assets 3,094,975 1,976,324 2,507,703 1,911,640
Current liabilities        
Trade and other payables 40,404 41,348 2,408 1,296
Derivative financial instruments 148 2,870 148 2,870
Current tax liabilities 6,741 1,793 84 56
Borrowings 219,654 - 169,619 -
Total current liabilities 266,947 46,011 172,259 4,222
Non-current liabilities        
Trade and other payables 2,459 2,336 - -
Derivative financial instruments 620 - 620 -
Borrowings 845,121 574,109 495,722 574,109
Deferred tax liabilities 36,574 16,352 - -
Total non-current liabilities 884,774 592,797 496,342 574,109
Total liabilities 1,151,721 638,808 668,601 578,331
Net assets attributable to Unitholders 1,943,254 1,337,516 1,839,102 1,333,309
Represented by:        
Unitholders' funds 1,924,388 1,337,516 1,839,102 1,333,309
Non-controlling interests 18,866 - - -
Total equity 1,943,254 1,337,516 1,839,102 1,333,309

Review of performance

Review of Performance for the quarter from 1 July 2018 to 30 September 2018 ("4QFY18") vs 1 July 2017 to 30 September 2017 ("4QFY17")

Adjusted NPI for 4QFY18 of A$49.3 million was A$17.0 million (or 52.6%) higher than 4QFY17. The higher Adjusted NPI for 4QFY18 was contributed by the 2018 Australian Acquisition (A$0.3 million); the 2018 European Acquisition (A$13.2 million (€8.4 million)); and the 2017 Acquisition Transaction (A$2.7 million). The net effect of the annual fixed rental increment in the Australian portfolio and other income of A$2.0 million for 4QFY18 which relates to the early surrender fee received for Lot 105 Springhill Road, Port Kembla, New South Wales, also contributed to the increase in the Adjusted NPI. These were partly offset by the effect of the 2018 Divestments.

4QFY18 finance costs of A$7.6 million was A$3.2 million higher than 4QFY17. This was due mainly to higher borrowings to finance the 2018 European Acquisition during the financial year and the 2017 Acquisition Transaction. Actual weighted average interest rate (excluding upfront debt related expenses) for 4QFY18 was 2.5% and 4QFY17 was 2.8% per annum. At 30 September 2018, 82% (30 September 2017: 72%) of borrowings were at fixed rates.

The actual total return attributable to Unitholders of the Trust for 4QFY18 of A$96.1 million was A$67.2 million (or 231.7%) higher than 4QFY17 which included (a) gain on the 2018 Divestments of A$23.4 million (4QFY17: Nil); (b) a fair value gain on investment properties of A$54.7 million (4QFY17: A$11.5 million).

Tax expenses for 4QFY18 of A$18.1 million was A$11.1 million (or 156.3%) higher than 4QFY17. Current income tax was higher due mainly to higher distributable income, tax arising from the gain recorded for the 2018 Divestments and on other income. Deferred tax charge was also higher due mainly to the fair value gain recorded for investment properties.

The REIT Manager has elected to receive 100% of the 4QFY18 quarterly base management fee in the form of units (4QFY17:100% in units).

Income available for distribution to unitholders was A$34.0 million, an increase of 28.0% over 4QFY17. The REIT Manager has declared a distribution of A$2.0 million from the gain on the 2018 Divestments.



Review of Performance from 1 October 2017 to 30 September 2018 ("FY18") vs 1 October 2016 to 30 September 2017 ("FY17")

Adjusted NPI for FY18 at A$155.4 million was A$30.7 million (or 24.6%) higher than FY17. This was due mainly to the contributions of the various acquisitions completed in FY2018 and the 2017 Acquisition Transaction and the net effect of the annual fixed increment in the Australian portfolio, and other income of A$2.0 million which relates to the early surrender fee received for Lot 105 Springhill Road, Port Kembla, New South Wales. These were partly offset by the impact of the 2018 Divestments.

Finance income of A$1.3 million for FY18 included the coupon interest income on the initial payment for the three development properties in the 2017 Acquisition Transaction.

FY18 finance costs of A$23.8 million was A$6.9 million higher than FY17. This was due mainly to higher borrowings of A$1.1 billion as at 30 September 2018 as compared to A$580 million as at 30 September 2017. This was due mainly to the financing of the 2018 European Acquisition during the financial year and the 2017 Acquisition Transaction. Actual weighted average interest rate (excluding upfront debt related expenses) for FY18 was 2.5% and FY17 was 2.8% per annum. At 30 September 2018, 82% (30 September 2017: 72%) of borrowings were at fixed rates.

The actual total return attributable to Unitholders of the Trust for FY18 of A$178.7 million was A$81.0 million (or 82.8%) higher than FY17 which included (a) gain on the 2018 Divestments of A$23.4 million; (b) fair value gain on investment properties of A$56.0 million arising from the valuation of the investment properties as at 30 September 2018 and a fair value gain of A$16.4 million which relates to the accounting adjustment on investment properties from the 2018 European Acquisition; (c) a fair value gain of A$2.3 million arising from foreign currency forward contracts entered into to hedge the currency risk on distributions to Unitholders for FY18; (d) net exchange losses of A$6.5 million which was due mainly to the exchange differences arising from settlement of foreign currency forward contracts.

Tax expenses for FY18 of A$34.4 million was A$15.6 million higher than FY17. Current income tax was higher due mainly to higher distributable income, tax arising from the gain recorded for the 2018 Divestments and on other income. Deferred tax charge was also higher due mainly to the fair value gain recorded for investment properties.

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

Income available for distribution to unitholders was A$116.3 million, an increase of 14.6% over FY17. The REIT Manager has declared a distribution of A$2.0 million from the gain on the 2018 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

Australia is in the midst of a development cycle with the majority of space concentrated in Sydney and Melbourne. There has been increasing speculative developments in Sydney which reflects confidence in the leasing market, with all new space leased prior to completion over the past year. Robust and above-average national take-up levels have continued to be supported by public infrastructure spending and the growth of e-commerce in Australia. Demand has outpaced supply across the three major cities, resulting in a contraction in vacant space. In addition, land values have appreciated considerably on the back of the demand-led expansion in development activity amid a shortage of developable land, with Sydney experiencing the highest annual growth of 14.5%. The falling vacancy and increasing land price have translated into rental growth in Sydney and Melbourne. The Brisbane market is stabilising and rental growth is forecast to be positive, supported by improving economic fundamentals.

Both offshore and domestic investors remain bullish on the industrial market however, this intensified competition has been restrained by a lack of stock being available, in particular a dearth of portfolio opportunities. Given the pent-up investor demand, prime yields remain at historically low levels. There is evidence of a polarisation of yields between capital cities with the eastern seaboard cities experiencing stronger capital appreciation than Perth and Adelaide.

Germany and the Netherlands2

The German economy is experiencing a steady and broad-based upswing with a solid domestic economic foundation. Around €4.4 billion were invested in German industrial and logistics assets in the first three quarters of 2018. General conditions remain consistently favorable for investors in Germany, promising stability, low interest rates and rising rents. The market share generated by light industrial assets has increased notably in past months. Industrial assets accounted for around one third of transaction volume at the end of Q3, or roughly €1.5 billion. The gross prime yield in the top 7 investment clusters is at a low but stable level of 4.65 %. The main driver behind this favorable development is the e-commerce business, which is boosting demand for industrial and logistics properties in Germany and encouraging new project developments. Growing customer expectations for same-day and same-hour delivery are forcing an increasing number of service providers to build smaller logistics centers of up to 10,000 sq m in the cities.

In the Netherlands, the supply of industrial and logistics real estate has declined though demand remained high. The take-up volume of the first three quarters of 2018 has exceeded the volume of the first three quarters of 2017. In the south of the Netherlands more large distribution centers are being developed, mainly because of a lower land price and the east-west transport corridor from the Rotterdam harbor and Germany, Poland and other markets. In addition, development in this region is cheaper, given the fact that there is no or hardly any need for driving piles for the foundations. In the industrial market, there is a growing demand for smaller industrial units, partly because of a growing construction sector and an increasing number of independent entrepreneurs in this sector.

In the short term, demand for industrial and logistics real estate are expected to remain high and rental rates to rise further. For the near future, the economy is expected to grow and drive demand for both industrial and logistics real estate. The increase of e-commerce will result in both new large scale e-fulfillment centers and smaller city hubs for the last-mile city distribution.

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. Source: JLL Real Estate Intelligence Service- Industrial Market Snapshot 3Q 2018; Jones Lang LaSalle Real Estate Data Solution- Industrial Occupier Moves from 3Q08 to 3Q18; Colliers International Research- Industrial Second Half 2018
  2. Source: Colliers International Deutschland GmbH; Industrial & LogisticsLeasing & Investment Market Germany Q1 to Q3 2018; Industrial & LogisticsLeasing & Investment Market Netherlands

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