Financial information

Consolidated statement of total return

  Group
1QFY20 A$'000 1QFY19 A$ ‘000 Change %
Revenue 64,404 59,524 8.2
Property operating expenses (8,962) (9,272) (3.3)
Net property income 55,442 50,252 10.3
Managers' management fee
- Base fee (3,644) (3,084) 18.2
- Performance fee (1,890) (1,694) 11.6
Trustees' fees (127) (104) 22.1
Trust expenses (1,260) (912) 38.2
Finance income 96 281 (65.8)
Finance costs (7,376) (7,512) (1.8)
Exchange losses (net) (738) (1,589) (53.6)
Net income 40,503 35,638 13.7
Net change in fair value of derivatives (1,816) 162 N.M.
Net change in fair value of investment properties - 108 N.M.
Gain on divestment of investment property held for sale 623 - N.M.
Total return for the period before tax 39,310 35,908 9.5
Tax expenses (5,490) (5,896) (6.9)
Total return for the period 33,820 30,012 12.7
Attributable to:      
Unitholders of the Trust 33,457 29,721 12.6
Non-controlling interests 363 291 24.7
  33,820 30,012 12.7
Distribution Statement      
Total return after tax 33,457 29,721 12.6
Tax related and other adjustments 7,989 6,977 14.5
Income available for distribution to Unitholders 41,446 36,698 12.9
For information:      
Adjusted NPI 52,905 48,930 8.1

Statements of financial position

  Group Trust
  31/12/2019 (A$ ‘000) 30/9/2019 (A$ ‘000) 31/12/2019 (A$ ‘000) 30/9/2019 (A$ ‘000)
Non-current assets
Investment properties 3,813,350 3,554,142 - -
Investment in subsidiaries - - 914,938 914,938
Loans to subsidiaries - - 1,928,407 1,848,932
Derivative assets 6,468 2,117 6,378 2,117
Total non-current assets 3,819,818 3,556,259 2,849,723 2,765,987
Current assets
Cash and cash equivalents 104,773 128,381 10,205 47,608
Trade and other receivables 20,504 14,176 48,147 62,111
Derivative assets 573 2,070 573 2,070
Investment property held for sale 13,500 18,000 - -
Total current assets 139,350 162,627 58,925 111,789
Total assets 3,959,168 3,718,886 2,908,648 2,877,776
Current liabilities        
Trade and other payables 58,096 53,217 3,275 3,445
Loans and borrowings 250,475 206,237 112,727 112,627
Derivative liabilities 1,053 1,072 1,053 1,072
Current tax liabilities 8,704 10,429 152 144
Total current liabilities 318,328 270,955 117,207 117,288
Non-current liabilities
Trade and other payables 4,317 3,367 - -
Loans and borrowings 1,263,408 1,029,555 761,744 650,923
Derivative liabilities 8,164 9,674 6,047 6,647
Deferred tax liabilities 63,884 62,598 - -
Total non-current liabilities 1,339,773 1,105,194 767,791 657,570
Total liabilities 1,658,101 1,376,149 884,998 774,858
Net assets attributable to Unitholders 2,301,067 2,342,737 2,023,650 2,102,918
Represented by:        
Unitholders' funds 2,268,923 2,313,810 2,023,650 2,102,918
Non-controlling interests 32,144 28,927 - -
Total equity 2,301,067 2,342,737 2,023,650 2,102,918

Review of performance

Review of Performance for the quarter from 1 October 2019 to 31 December 2019 ("1QFY20") vs 1 October 2018 to 31 December 2018 ("1QFY19")

Adjusted NPI for 1QFY20 of A$52.9 million was A$4.0 million (or 8.1%) higher than 1QFY19. The higher Adjusted NPI for 1QFY20 was contributed by the FY2019 Acquisitions. These were in part offset by the effect of the FY2019 Divestments1.

Excluding the impact of the interest expense in lease liabilities recognised due to the adoption of FRS 116, 1QFY20 finance costs decreased by A$1.4 million as compared to 1QFY19. This was due mainly to interest savings from the refinancing of A$170 million borrowings and repayment of debt from the proceeds of the divestments in FY2019. The weighted average cost of debt for 1QFY20 was 2.0% per annum and 2.4% per annum for 1QFY19. At 31 December 2019, 53% (31 December 2018: 79%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for 1QFY20 of A$33.5 million was A$3.7 million (or 12.6%) higher than 1QFY19 which included (a) a gain on divestment of investment property held for sale of A$0.6 million, which was partially offset by (b) a fair value loss on foreign currency forward contracts of A$1.8 million to hedge the currency risk on distributions to Unitholders and (c) net exchange losses of A$0.7 million which relate to translation of the Trust’s foreign currency borrowings and are partially offset by the exchange differences arising from settlement of foreign currency forward contracts.

Tax expenses for 1QFY20 of A$5.5 million were A$0.4 million (or 6.9%) lower than 1QFY19. This was due mainly to lower deferred tax.

The REIT Manager has elected to receive 100% of the 1QFY20 management fee in the form of units (1QFY19: 83.1%).

Income available for distribution to Unitholders was A$41.4 million, an increase of A$4.7 million (or 12.9%) over 1QFY19.

  1. On 9 May 2019, FLT completed the divestment of 63-79 South Park Drive, Dandenong South, Victoria. On 24 July 2019, FLT completed the divestment of 50% interest in 99 Sandstone Place, Parkinson, Queensland. On 29 October 2019, FLT completed the Lot 1 Heatherton Road Divestment (collectively, the "FY2019 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

National take-up levels over the 12 months to 31 December 2019 were 2.0 million sq m, with Melbourne continuing to be the top performing industrial market in terms of leasing activity, accounting for approximately 39% of total Australian take-up over the past 12 months. Melbourne's continued strength has been supported by strong economic fundamentals and rental affordability. The demand for industrial space is largely attributable to strong population growth, public infrastructure spending and growth in the e-commerce sector.

New industrial supply is below the long-term average with approximately 1.1 million sq m being completed over the past 12 months, lower compared to 2018 as a result of a shortage of serviced industrial land and a reduction in development activity. In the last 12 months national take up continues to outpace new supply. As such, vacancies in the three major industrial markets of Sydney, Melbourne and Brisbane remain near their historic five year low.

Despite the decrease in new supply in 2019 there continues to be a strong development pipeline of industrial property in Sydney and Melbourne which are due to complete in 2020. Developers are currently seeking to capitalise on the strength of the industrial market and increase the development pipeline on a speculative basis.

Prime face rents have recorded steady year-on-year growth of 2.4% and 1.3% in Sydney and Melbourne respectively. The Brisbane industrial market has recovered well in the last 12 months with 2.3% prime rental growth. The recovery has been driven by a strengthening local economy, limited new development and declining vacancies.

Investor demand for industrial space remains strong with evidence of further yield compression compared to the third 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

In Germany, take-up levels for logistics and industrial properties above 5,000 sq m were approximately 5.0 million sq m in 2019, albeit lower in some of the main hubs due to a lack of available modern space. The overall market remained strong with companies shifting to smaller locations outside the traditional hubs to due to supply limitations. Average prime yields for the major German logistics hubs firmed to 3.7% as at December 2019, which is the lowest yield recorded for Europe.

For the Netherlands, take-up levels for logistics and industrial properties above 5,000 sq m also remained high at approximately 2.7 million sq m in 2019, with all of the major occupier markets recording healthy transaction volumes. Prime rents increased, while prime yields firmed to 4.4% for the Venlo logistics market over the course of 2019.

Overview

The REIT Manager continues to monitor key macro developments, including the ongoing global trade tensions, Brexit, and the recent outbreak of the novel coronavirus. The REIT Manager is also closely monitoring the Australian bushfires that had impacted certain rural regions. FLT’s properties are unaffected as they are located away from the affected areas.

Looking ahead, the REIT Manager will remain focused on its proactive asset and lease management strategies and will continue to grow FLT’s portfolio with a focus on generating sustainable long-term value for unitholders.

  1. Sources: JLL Research – Industrial Market Snapshots 4Q 2019; Knight Frank Research – Australian Capital View Outlook 2019, Knight Frank Research – Sydney Industrial Vacancy October 2019, Knight Frank Research – Melbourne Industrial Vacancy October 2019, Knight Frank Research – Melbourne Industrial Vacancy October 2019
  2. Source: BNP Paribas Real Estate International Research (“BNP”), 3Q 2019

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