(a) Statement of Net Income and Distribution (Actual vs Forecast)
Notes:
(b) Review of performance (Actual vs Forecast)
Financial quarter ended 30 September 2017 ("Quarter")
Adjusted NPI for the Quarter at A$32.3 million was A$1.5 million or 4.7% higher than Quarter Forecast. The four completed properties of the Acquisition Transaction contributed Adjusted NPI of A$0.8 million for the two months period from its completion on 1 August 2017. The higher Adjusted NPI was also partly due to the recovery of an insurance claim which had been provided for in the previous quarter.
Interest income of A$0.4 million for the Quarter was mainly contributed from the coupon interest income on the initial payment for the three development properties in the Acquisition Transaction.
Actual trust expenses for the Quarter of A$0.4 million were 35.3% lower than the Quarter Forecast.
Actual finance costs of A$4.5 million for the Quarter were A$0.7 million lower than Quarter Forecast due mainly to (a) the interest savings from an actual weighted average interest rate of 2.8% per annum which was lower than the Forecast weighted average interest rate of 3.4% per annum (both rates exclude the upfront debt related expenses); (b) lower debt funding required for the Martin Brower ("MB") acquisition as compared to Forecast which was partly offset by (c) the finance cost incurred on the A$40 million drawn for the financing for the Acquisition Transaction.
FLT has entered into interest rate swaps to hedge 100% of the total term loan facilities of A$420 million. 72% of the interest rate risk on the total borrowings are hedged.
The actual total return for the Quarter of A$29.0 million is A$27.5m higher than the Quarter Forecast and included (a) net fair value gain of A$11.5 million arising from the valuation of the investment properties as at 30 September 2017 compared to Forecast net fair value loss of A$19.9 million; (b) net exchange gains of A$0.2 million which relates mainly to unrealised exchange differences arising from translation of the Group's cash balance held in Singapore dollars; and (c) net fair value loss of A$0.2 million on foreign currency forward contracts to hedge the currency risk on distributions to Unitholders.
Tax expenses for the Quarter were A$7.1 million which was 91.4% higher than the Quarter Forecast. Actual tax expenses comprised withholding tax on interest income and distributable income of A$1.8 million and deferred tax charge of A$5.3 million. The higher actual tax expenses of A$3.4 million was due mainly to a higher deferred tax charge for the properties due to the differences between the carrying values and the tax bases on 30 September 2017.
Income available for distribution for the Quarter at A$26.5 million was 12.1% higher than the Quarter Forecast. DPU for the Quarter is 1.77 Singapore cents which is 8.6% higher than the Quarter Forecast DPU of 1.63 Singapore cents. The distributable income for the quarter ended 30 September 2017 had been hedged at a higher exchange rate compared to the Forecast exchange rate.
Financial period from 20 June 2016 to 30 September 2017 ("FY2017")
Actual FY2017 adjusted NPI at A$157.5 million was A$1.3 million or 0.8% higher than FY2017 Forecast. The four completed properties of the Acquisition Transaction contributed Adjusted NPI of A$0.8 million for the two months period from its completion on 1 August 2017. The higher Adjusted NPI was also due to lower land tax expense than FY2017 Forecast which was partially offset by repairs and maintenance costs incurred for some of the properties that had their leases extended and those undergoing leasing negotiations and the delay in the acquisition of the MB property.
Interest income of A$1.0 million comprises bank interest income from deposits and the coupon interest income on the initial payment for the three development properties in the Acquisition Transaction.
Actual FY2017 trust expenses of A$11.2 million were 22.0% lower than the FY2017 Forecast. These were due mainly to lower issue costs incurred for the IPO and a higher amount of issue costs capitalised in equity.
Actual FY2017 finance costs of A$20.8 million were A$4.4 million lower than the FY2017 Forecast due mainly to (a) the interest savings from an actual FY2017 weighted average interest rate of 2.8% per annum which was lower than FY2017 Forecast weighted average interest rate of 3.4% per annum (both excluding upfront debt related expenses); (b) lower debt required and the delay in the acquisition of MB property as compared to Forecast, which was partly offset by (c) the finance cost incurred on the A$40 million drawn for the financing for the Acquisition Transaction.
FLT has entered into interest rate swaps to hedge 100% of the total term loan facilities of A$420 million. 72% of the interest rate risk on the total borrowings are hedged.
The actual FY2017 total return for the period of A$101.6 million included (a) net fair value gain of A$8.1 million comprising of A$11.5 million net fair value gain arising from the valuation of the investment properties as at 30 September 2017 which was partially offset by the net fair value loss of A$3.4 million based on the valuation as 30 September 2016; (b) FY2017 net exchange losses of A$2.1 million which relates mainly to unrealised exchange differences arising from translation of the Group's cash balance held in Singapore dollars; and (c) FY2017 net fair value change in foreign currency forward contracts of A$2.4 million which were entered into to hedge the currency risk on distributions to Unitholders.
FY2017 actual tax expenses were A$24.9 million which were 32.8% higher than the FY2017 Forecast. FY2017 actual tax expenses comprised withholding tax on interest income and distributable income of A$8.5 million and deferred tax charge of A$16.4 million. The higher actual tax expenses of A$6.2 million was due mainly to higher deferred tax charge for the properties due to the differences between the carrying values and the tax bases at 30 September 2017.
FY2017 Income available for distribution for the period of A$127.9 million was 6.2% higher than the FY2017 Forecast. FY2017 DPU is 8.85 Singapore cents which is 6.1% higher than the FY2017 Forecast DPU of 8.34 Singapore cents.
Australian industrial supply is generally in line with the long-term average with development activity focused in the eastern seaboard cities. Demand remains strong and developments are predominately leased prior to completion. Year-to-date gross take-up levels are above the 10- year average and this strong growth is largely attributable to the benefits of population growth, increased public infrastructure investment, tenant consolidations and activity driven by withdrawals from inner locations. Prime rents in Sydney have recorded the strongest year-onyear growth in the past 10 years of 4.7% and the momentum is forecast to continue given an increasing scarcity of development land. Melbourne has experienced positive net absorption with good levels of tenant take up in existing facilities, together with high levels of precommitment for new stock. However, the strong supply levels and aggressive competition for pre-leases continue to maintain incentives at elevated levels. The Brisbane market continues to be challenging with extended letting up periods putting pressure on face rents.
Australian investment activity has been characterised by a lack of on-market investment grade stock. Portfolio transaction levels remain strong and more than a third of the national sales volumes recorded in 2017 occurred in Sydney. Given a limited pool of stabilised assets, some institutional investors are shifting up the risk curve with a focus on land purchases and secondary assets with value-add opportunities. These transactions have underscored a tightening in the yields for secondary assets.
In addition, merger and acquisition activity has re-emerged in Australia as seen with recent positions taken in Centuria Industrial REIT, Propertylink Group and Industria REIT by other larger institutions.
Looking ahead, the REIT Manager will continue to grow FLT's prime industrial portfolio with a focus on generating sustainable, long-term value for our unitholders.