Review of Performance for the quarter from 1 January 2020 to 31 March 2020 (“2QFY20”) vs 1 January 2019 to 31 March 2019 (“2QFY19”)

Adjusted NPI for 2QFY20 of A$54.7 million was A$6.8 million (or 14.2%) higher than 2QFY19. The higher Adjusted NPI for 2QFY20 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, 2QFY20 finance costs decreased by A$0.8 million as compared to 2QFY19. This was due mainly to interest savings from refinancing of borrowings and repayment of debt from the proceeds of the divestments in FY2019. The weighted average cost of debt for 2QFY20 was 1.9% per annum and 2.4% per annum for 2QFY19. At 31 March 2020, 61% (31 March 2019: 79%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for 2QFY20 of A$41.3 million was A$7.7 million (or 22.8%) higher than 2QFY19 which included (a) a gain on divestment of investment property held for sale of A$1.0 million, (b) a fair value gain on foreign currency forward contracts of A$2.4 million to hedge the currency risk on distributions to Unitholders and (c) net exchange gains of A$2.2 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 2QFY20 of A$6.0 million were A$0.3 million (or 6.0%) higher than 2QFY19. Current tax expenses were higher due mainly to income tax on the Group’s European entities.

The REIT Manager has elected to receive 100% of the 2QFY20 management fee in the form of units (2QFY19: 100%).

Income available for distribution to Unitholders was A$43.1 million, an increase of A$6.2 million (or 16.7%) over 2QFY19.

Review of Performance for the period from 1 October 2019 to 31 March 2020 (“1HFY20”) vs 1 October 2018 to 31 March 2019 (“1HFY19”)

Adjusted NPI for 1HFY20 of A$107.6 million was A$10.8 million (or 11.1%) higher than 1HFY19. The higher Adjusted NPI for 1HFY20 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, 1HFY20 finance costs decreased by A$2.3 million as compared to 1HFY19. This was due mainly to interest savings from refinancing of borrowings and repayment of debt from the proceeds of the divestments in FY2019. The weighted average cost of debt for 1HFY20 was 1.9% per annum and 2.4% per annum for 1HFY19. At 31 March 2020, 61% (31 March 2019: 79%) of borrowings were at fixed rates.

The total return attributable to Unitholders of the Trust for 1HFY20 of A$74.8 million was A$11.4 million (or 18.0%) higher than 1HFY19 which included (a) a gain on divestment of investment property held for sale of A$1.6 million, (b) a fair value gain on foreign currency forward contracts of A$0.6 million to hedge the currency risk on distributions to Unitholders and (c) net exchange gains of A$1.5 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 1HFY20 of A$11.5 million were A$0.1 million (or 0.5%) lower than 1HFY19. This was due mainly to lower deferred tax expense.

The REIT Manager has elected to receive 100% of the 1HFY20 management fee in the form of units (1HFY19: 91.6%).

Income available for distribution to Unitholders was A$84.5 million, an increase of A$10.9 million (or 14.8%) over 1HFY19.

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 has severely disrupted the business environment and operating conditions across global markets. The pandemic, which has prompted authorities to implement travel bans and lockdowns, is slowing demand across almost all industries, created supply-chain disruptions and also resulted in an unprecedented oil price crash. There is significant uncertainty on how wide the outbreak will spread and how long it will last, which impacts how long the shutdown and various containment measures implemented by governments must last. Accordingly, the operating environment is expected to remain challenging in the months ahead.

In Australia, the growth in number of new COVID-19 cases has continued to decline as a result of mitigation strategies implemented over the past month, such as social distancing measures that had resulted in the partial or complete shutdown of several sectors. Nevertheless, COVID-19 remains a major public health issue and is having significant effects on the domestic economy and financial system. The Reserve Bank of Australia has also reported that national output in Australia is likely to fall by around 10% over the first half of 2020, with most of this decline taking place in the June quarter.

In Europe, the COVID-19 outbreak has gradually come under control in April for Germany and the Netherlands, with both countries announcing progressive steps to relax restriction measures. Nevertheless, the pandemic is expected to have significant adverse effects on the German and Dutch economies. Economic researchers have also highlighted that the German economy could shrink by over 4% in 2020. In the United Kingdom (“UK”), Oxford Economics forecast that the UK economy may contract by 1.4% in 2020 due to significant disruption to business activities from the COVID-19 outbreak.

In Singapore, given the unprecedented nature of the COVID-19 outbreak and the public health measures taken in many countries to contain the outbreak, the Ministry of Trade and Industry has also projected full year GDP contraction to be in the range of -4.0% to -1.0% for 2020.

Operationally, the REIT Manager is closely collaborating with tenants to provide support and roll out relief measures, as necessary. Such measures vary and will be reviewed on an individual basis, considering factors that include the impact of COVID-19 on the tenant, available government assistance, among others. The REIT Manager’s objective is to help tenants cope with their immediate cashflow constraints and extend as much flexibility as reasonable to accommodate their needs.

The REIT Manager is also focused on managing any financial implications arising from COVID-19 and will continue to work closely with FLCT’s customers to overcome this trying period together. Capital and liquidity management will continue to be a key strategic priority.

Update on merger with FCOT

On 2 December 2019, the respective managers of FLT and FCOT jointly announced the proposed merger of FLT and FCOT by way of a trust scheme of arrangement, with FLT acquiring all FCOT units held by FCOT unitholders in exchange for a combination of cash and new units in FLT. The proposed merger was approved by the unitholders of FLT and FCOT on 11 March 2020. On 15 April 2020, the respective managers of FLT and FCOT jointly announced that the trust scheme had become effective and binding on 15 April 2020. FCOT was delisted on 29 April 2020 with the merged entity renamed Frasers Logistics & Commercial Trust from 29 April 2020.

With the merger, FLCT’s enlarged portfolio of 99 quality industrial and commercial properties will maintain a high occupancy rate in excess of 97% as at 31 March 2020, and be a diversified portfolio across five countries and two different asset classes.

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