Review of Performance for the six months period from 1 April 2020 to 30 September 2020 (“2HFY20”) vs 1 April 2019 to 30 September 2019 (“2HFY19”)

Adjusted NPI for 2HFY20 of S$161.4 million was S$72.0 million (or 80.6%) higher than 2HFY19. The higher Adjusted NPI for 2HFY20 was mainly contributed by the Merger, the FY2019 Acquisitions, the German Properties Acquisition and the FY2020 Acquisitions. These were in part offset by the effect of the FY2019 Divestments¹, the Heatherton Road Divestment and the impact of the Covid-19 pandemic of approximately S$5.7 million. These comprised mainly rental waivers for tenants under the Singapore and Australian government concession deeds and provision for doubtful debt.

Excluding the impact of the interest expense on lease liabilities recognised due to the adoption of FRS 116, 2HFY20 finance costs increased by S$13.0 million as compared to 2HFY19. This was due mainly to higher borrowings due to the Merger and to finance the various acquisitions. The weighted average cost of debt for 2HFY20 was 1.9% per annum and 2.4% per annum for 2HFY19. At 30 September 2020, 55% (30 September 2019: 60%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for 2HFY20 of S$387.3 million was S$241.0 million (or 164.7%) higher than 2HFY19 which included (a) net fair value gain on investment properties of S$334.3 million (refer to Note 6 of Paragraph 1(a)) and (b) net exchange gains of S$0.7 million which relate to translation of the Group’s foreign currency borrowings and the exchange differences arising from settlement of foreign currency forward contracts, which was partially offset by (c) fair value loss on foreign currency forward contracts of S$3.4 million to hedge the currency risk on distributions to Unitholders.

Tax expenses for 2HFY20 of S$61.3 million were S$31.6 million (or 106.5%) higher than 2HFY19. This was due mainly to higher deferred tax on the net fair value gain on investment properties.

The REIT Manager has elected to receive 92.8% of the 2HFY20 management fee in the form of units (2HFY19: 92.7%).

Income available for distribution to Unitholders was S$124.9 million, an increase of S$60.0 million (or 92.4%) over 2HFY19.

Review of Performance for the period from 1 October 2019 to 30 September 2020 ("FY20") vs 1 October 2018 to 30 September 2019 ("FY19")

Adjusted NPI for FY20 of S$258.3 million was S$81.7 million (or 46.2%) higher than FY19. The higher Adjusted NPI for FY20 was contributed by the Merger and the various acquisitions in FY19 and FY20. These were in part offset by the effect of the FY2019 Divestments¹, the Heatherton Road Divestment and the impact of the Covid-19 pandemic of approximately S$5.7 million. These comprised mainly rental waivers for tenants under the Singapore and Australian government concession deeds and provision for doubtful debt.

Excluding the impact of the interest expense in lease liabilities recognised due to the adoption of FRS 116, FY20 finance costs increased by S$11.0 million as compared to FY19. This was due mainly to higher borrowings due to the Merger and also to finance the various acquisitions. The weighted average cost of debt for FY20 was 1.9% per annum and 2.4% per annum for FY19. At 30 September 2020, 55% (30 September 2019: 60%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for FY20 of S$454.7 million was S$251.3 million (or 123.5%) higher than FY19 which included (a) net fair value gain on investment properties of S$334.3 million (refer to Note 6 of Paragraph 1(a)), (b) gain on the Heatherton Road Divestment of S$1.4 million and (c) net exchange gains of S$2.1 million which relate to translation of the Group’s foreign currency borrowings and the exchange differences arising from settlement of foreign currency forward contracts, which was partially offset by (d) fair value loss on foreign currency forward contracts of S$2.9 million to hedge the currency risk on distributions to Unitholders.

Tax expenses for FY20 of S$71.7 million were S$31.6 million (or 78.6%) higher than FY19. This was due mainly to higher deferred tax on the net fair value gain on investment properties.

The REIT Manager has elected to receive 95.4% of the FY20 management fee in the form of units (FY19: 92.2%).

Income available for distribution to Unitholders was S$201.1 million, an increase of S$69.8 million (or 53.2%) over FY19.

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

Overview

The global spread of COVID-19 continues to disrupt the business environment and operating conditions across global markets. There remains significant uncertainty on the duration and extent of the spread of the pandemic, which impacts how long the shut-down and containment measures implemented by governments must last, especially in view of recent infection resurgences. Accordingly, the operating environment is expected to remain challenging in the months ahead.

In Australia, even as the number of COVID-19 cases has continued to decline as a result of stringent mitigation strategies, COVID-19 remains a major public health issue and is having significant effects on the domestic economy and financial system. There are also concerns relating to the deterioration of relationships between both the Australian and Chinese governments and any implications that may arise as a result of any trade restrictions implemented by China. In October 2020, the Australian Government reported a record 7.0% decline in GDP for the June quarter, and anticipates national GDP growth for the September quarter to remain subdued. According to Reserve Bank of Australia in August 2020, the full-year 2020 GDP is expected to contract by around 6.0% given the resurgent outbreak of the virus in the state of Victoria in July 2020 and the associated reintroduction of restrictions on activity, as well as the impact that uncertainty and diminished confidence have on household spending and business hiring and investment plans.

In Singapore, the COVID-19 outbreak has progressively come under control and the authorities are gradually easing containment restrictions, including allowing more people to return to workplaces since end-September 2020, subject to meeting social distancing conditions. The Singapore economy contracted by 7.0% on a year-on-year (“y-o-y”) basis in the third quarter of 2020, an improvement from the 13.3% y-o-y contraction in the previous quarter, according to the Ministry of Trade and Industry (“MTI”). The improved performance came on the back of the phased re-opening of the economy following the Circuit Breaker restrictions that were implemented between 7 April and 1 June 2020. MTI announced on 11 August 2020 that it expects 2020 GDP contraction of -7.0% to -5.0%.

In Germany, the United Kingdom and the Netherlands, following a surge in infection cases across Europe, the respective authorities have tightened their COVID-19 restrictions to contain the spread of virus. Accordingly, the pandemic is expected to have significant adverse effects on the German, British and Dutch economies. According to the World Bank, the German, British and Dutch economies may contract by 6.0%, 5.4% and 9.8% respectively in 2020.

As we continue to navigate through this period of global uncertainty, FLCT will continue to remain focused on managing any financial implications arising from COVID-19 and will continue to work closely with our tenant community to overcome this trying period together.

There has been no material impact to the FLCT portfolio to-date, although the situation remains dynamic with continued uncertainties. Capital and liquidity management remains a key strategic priority. FLCT’s resilient portfolio, strong balance sheet and financial flexibility, well positions the REIT to face the current challenging global environment.

Looking ahead, the REIT Manager will continue to focus on proactive asset and lease management strategies to generate sustainable long-term value for FLCT unitholders.