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27 Feb 2009 17:27
AXA Property Trust Limited
Half Year Report and Financial Statements
for the six month period ended 31 December 2008
AXA Property Trust Limited (the "Company") is an Authorised Closed-ended investment scheme domiciled in Guernsey and listed on the London Stock Exchange. As an existing closed-ended fund the Company is deemed to be granted an authorisation declaration in accordance with section 8 of the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended and rule 6.02 of the Authorised Closed-ended Investment Schemes Rules 2008 on the same date as the Company obtained consent under the Control of Borrowing (Bailiwick of Guernsey) Ordinance 1959 to 1989.
The investment objective of the Company is to secure attractive total returns for shareholders through a combination of dividends and capital appreciation from European properties (including the United Kingdom).
The Company aims to achieve its investment objective through a policy of investing in commercial properties across Europe (including the United Kingdom) which are predominantly freehold (or its equivalent) and in the following segments of the commercial property market: offices, retail (both in and out of town), industrial and 'other' sectors, including leisure and hotels.
Residential investments are not considered except where they form a small part of a larger commercial investment. The Company will not acquire any interests in properties which are in the course of construction unless pre-letting agreements exist in respect of at least 80% of the surface area of the relevant property.
The Company may invest in properties through joint ventures if the terms of any such joint ventures effectively allow it to trigger a disposal of the underlying properties held through the joint ventures or to dispose of its interest in the joint ventures at a time of the Company's choice. The Company will not invest in other investment companies.
Investment decisions are based on analysis of, amongst other criteria, prospects for future capital and income growth, sector and geographic prospects, tenant covenant strength, lease length and initial and equivalent yields.
AXA Property Trust is a member of the Association of Investment Companies.
www.axapropertytrust.com
Contents
Financial Highlights and Performance Summary
Chairman's Statement
Investment Manager's Report
Board of Directors
Directors' Responsibility Statement
Independent Review Report
Condensed Consolidated Financial Statements
Consolidated Income Statement
Consolidated Statement of Changes in Equity
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to the Condensed Financial Statements
Corporate Information
Financial Highlights and Performance Summary
Financial Highlights for the six month period to 31 December 2008
Total return on Net Asset Value (NAV) was -11.0%
NAV per share decreased by 12.7%
Losses were 28.05 pence per share
Cumulative dividends paid relating to the six month period were 2.0 pence per share as at 31 December 2008
Share price was 16.50 pence per share (31 December 2007: 74.13 pence)
Gearing (Note 2) on main facility was 47.0% (31 December 2007: 34.2%)
| Six month period ended 31 December 2008 | Six month period ended 31 December 2007 | % change | |
| Net Asset Value (NAV) (£000) | 100,207 | 109,160 | (8.2%) |
| NAV per share | 100.21p | 109.16p | (8.2%) |
| (Losses)/earnings per share | (28.05p) | 3.60p | - |
| Dividends paid in the period | 2.00p | 2.00p | - |
| Share price (Note 1) | 16.50p | 74.13p | (77.7%) |
| Share price discount to NAV | 83.5% | 32.1% | n/a |
| Gearing (Note 2) | 47.0% | 34.2% | n/a |
| Total assets less current liabilities (£000) | 210,583 | 170,541 | 23.5% |
| Total Return | Six month period ended 31 December 2008 | Six month period ended 31 December 2007 |
| NAV Total Return | (11.0%) | 11.2% |
| Share Price total Return | ||
| AXA Property Trust | (75.9 %) | (23.9%) |
| FTSE All Share Index | (21.1%) | (2.1%) |
| FTSE Real Estate Index | (32.2%) | (23.8%) |
Past performance is not a guide to future performance
Note 1: Mid market share price
Note 2: Gearing is calculated as bank debt/property portfolio on main facility only
Source: AXA Investment Managers UK Limited and Datastream
Chairman's Statement
While AXA Property Trust's rental income has remained stable, market conditions have led to a reduction in independent valuation levels and consequently in net asset value in the six months to December 2008. Although asset value deflation is affecting most investment classes and we cannot be immune from these global conditions, the Company benefits from well secured rental income flows from holdings in the strongest regions of the European Union.
Results
The Company generated a consolidated net loss of £28.05 million for the six month period to 31 December 2008. Excluding unrealised movements on the revaluation of investments and derivatives and related deferred tax, impairment of the shareholder loan to the Dutch office portfolio joint venture (Porto Kali) and foreign exchange gains, the Group made a profit of £2.51 million.
The unrealised loss on the revaluation of properties was £14.39 million (8.9% of market value at 30 June 2008) excluding foreign exchange translation effects. There were quarterly declines of 1.5% and 7.4% in the quarters ended 30 September 2008 and 31 December 2008 respectively. There was a corresponding reduction in deferred tax liabilities, resulting in £1.47 million of net income.
As a result in the difficult market conditions, the forecast performance of the Company's investment in the Porto Kali joint venture has been revised; an impairment charge of £3.55 million has been made to reflect the estimated reduction in cash flows and recoverability of the investment. The impairment is driven principally by lower capital values. The portfolio continues to generate stable rental income.
Net investment hedge accounting for movements in the fair value of certain hedging instruments through the Statement of Changes in Equity was discontinued during the period. The cumulative unrealised loss on such instruments of £13.34 million has been recognised in the Income Statement. The significant movement in the fair value of the net investment hedging instruments was due to the impact of declining interest rates on the volatility of currency exchange rates and as such the hedging arrangements no longer meet the criteria of "effective hedging" for hedge accounting pursuant to IFRS. This is not a change in management strategy or accounting policy. Shareholders should also note that Net Asset Value, revenue profits or cash flow are not affected.
The net rental yield on valuation was 6.83%. A detailed yield analysis based on cost is included in the Investment Manager's Report. The income stream is well secured both in terms of tenant covenant and duration, with an average unexpired weighted lease length of 6.0 years.
Net Asset Value (NAV) at 31 December 2008 was £100.21 million (100.21 pence per ordinary share), a decline of £14.6 million (12.7%) since 30 June 2008. The movement arose from the £28.05 million net loss for the period, £2.0 million dividend payments and £7.1 million unrealised net losses on derivatives (excluding net investment hedging) and £22.56 million foreign exchange translation gains.
The share price discount to NAV continues to be monitored closely by the Board and the Investment Manager. The Company's share price has suffered together with most of the real estate sector. The Company's discount widened significantly over the last quarter of 2008 following the Company's exit from the FTSE All-Share index from 20 December 2008. However, since the end of December the share price has partly recovered.
Dividend
The Board has approved two quarterly interim dividends in respect of the first six months of the financial year to 30 June 2009. Each dividend amounted to 1 pence per share, maintaining a dividend yield of 4.0% per annum on the issue price and 24.2% on the mid market share price at 31 December 2008. For the six month period to 31 December 2008, the dividends declared were 112% covered by "revenue" profit (profit excluding capital items). Please note that past performance is not a guide to future returns.
As far as the Company's gearing, profitability and cash flow allow, the Board will seek to maintain the current dividend.
Prospects
While I am less prepared than ever to attempt to predict the course of capital markets or occupational markets, I do believe the Company is well placed to weather further weakness. The Board, supported by the Investment Manager and Real Estate Adviser, is managing the portfolio and its income streams closely, and is alert to the threats and prepared for opportunities.
The Board is monitoring the company's financing position carefully and is in a position to apply cash resources to reduce debt if it deems that to be in the shareholders' interest. The Investment Manager is working proactively with the Company's lenders to manage its covenants and on-going financing position.
When the upturn comes the Company's potential is, I believe, good resulting from the continued strong position of the property portfolio with income-producing investment holdings in markets that are not oversupplied.
Charles Hunter
Chairman
27 February 2009
Investment Manager's Report
AXA Investment Managers UK Limited (the "Investment Manager") is the UK subsidiary of AXA Investment Managers, a dedicated asset manager within the AXA Group. AXA Investment Managers is an innovative and fast-growing multi-expertise investment manager with EUR485 billion of assets under management and 3,100 employees in 22 countries as at 31 December 2008.
AXA Real Estate Investment Managers UK Limited (the "Real Estate Adviser") is part of the real estate management arm of AXA Investment Managers S.A. ("AXA REIM"). AXA REIM is a specialist in European real estate investment management with approximately EUR40.2 billion of real estate assets under management in 19 European countries as at 31 December 2008.
Source: AXA Investment Managers UK Limited
Fund Manager
Martin McGuire has headed the AXA Property Trust Fund Management team since December 2007. He is a Chartered Surveyor and Senior European Fund Manager at AXA REIM UK. He has over 30 years' experience in commercial property with a significant proportion of this in Continental European property. Mr McGuire lived for five years in Brussels where he worked for Jones Lang Wootton. In 1985 he joined Standard Life and led their expansion into the Continental European markets where he managed the investment and development programme over many years taking the exposure to in excess of EUR1.5 billion and was Fund Manager of the Standard Life Investments' EUR800 million European Property Growth Fund. Latterly he was Investment Director at Standard Life investments and managed the £2 billion Unit Linked Life Fund. He holds a degree in Land Economy from the University of Aberdeen and also an Investment Management Certificate. He is resident in the United Kingdom.
Economic Background
Economic forecasts are continually becoming more negative across Europe. The concept of decoupling no longer holds any credibility, as it has become obvious that one country's consumption is another's exports. We expect EU GDP to fall by 2.3% in 2009 and 0.2% in 2010. As became evident at the end of 2008, rental yields are now rising in all markets, with expectations of further rises in 2009.
We are starting to see job losses, but unemployment rates are only rising slowly at this stage, and the European October 2008 average rate was 7.1%, compared to 7.0% in September 2008, and 6.9% in October 2007. Similarly, retail sales are just starting to fall (0.1% in the three months to October 2008), but the changes are erratic. Both of these will gather pace in 2009.
The Eurozone annual inflation rate dropped from 3% in September to 1.6% in December 2008, which is below the ECB's assumed target and this will facilitate further rate cuts. Interest rates, currently 1% in the UK and 2% in Eurozone, are at near historic low levels and are expected to fall to close to zero in 2009. This produces an attractive yield gap (although margins and costs need to be taken into account) compared to prime property yields, for those investors able to obtain financing.
Real Estate Market
As perceptions of the economic and banking problems have moved from being purely a sub-prime problem to a global recession, so the effects in the continental European property market are spreading more widely. After a slight pause in Q3 2008, European real estate transactional volumes fell again in Q4. Some of these transactions are, however, residuals from transactions agreed some time ago and we expect further falls in 2009, to about 60% of 2008's levels. This is exacerbated by the substantial withdrawal of the German open end funds, and with caution being expressed by the opportunistic funds that raised capital in the last year.
Although the UK, with its more transparent market, produced rises in real estate investment yields in 2007, Continental Europe has been slow to react. There is now, however, widespread acknowledgement of rises of 1% to 2% points from the yield troughs in 2007, with expectations of further rises in 2009. Additionally, investor concerns are now shifting to occupational demand and how that is going to fare in the recessions.
Retail
Retail sales figures are trending downwards as consumers adapt to the transition from a benign economic environment to one that is altogether more negative. Continental Europe is expected to be hit slightly less hard than the UK, due to lower levels of spending and personal debt over the past decade.
As profit margins are eroded, those retailers who do not have a well-established market niche and marketing strategy are suffering. Falling discretionary spending is exacerbating an existing trend toward shopping at discount stores and we are seeing some expansion of those retailers. In Germany, where established discount retailers Lidl and Aldi already hold large market shares and there has not been such an aggressive expansion of retail stock, a relatively stable market is envisaged. In contrast, southern Europe is expected to experience an over-supply of comparative goods retail units. The level of rent paid by German supermarkets and discount retailers has remained relatively stagnant in past years.
Office
One of the characteristics of this downturn is that the size of the development pipeline that preceded it was lower than in previous downturns, such as that of the early 1990s and early 2000s. That has provided some comfort to the market. Nevertheless, our experience is that voids and rental values are driven much more in recessions by falling demand than by increased supply. Falling demand from the financial sector is now spreading to the broader office market. In the Netherlands, the vacancy rate has, to date, remained stable in the strong Randstad region compared to more peripheral cities. However, increased vacancy and downward pressure on rents are expected in 2009 as demand continues to fall.
Industrial
While demand for industrial units remains reasonably good, the logistics segment is increasingly at risk as prospective tenants find themselves in a strong negotiating position and force down lease lengths to three years, to match their typical distribution contracts. There is increasing evidence of falling rental values across Europe. Rental values in Italy are expected to fall by 3% in 2009, while rental values in the Netherlands are expected to fall by 8%. Strategic locations will, however, continue to be in demand.
Investment Portfolio Activity
The Company continues to hold a portfolio of 20 properties located across Europe, as well as holding an interest in a major Dutch office portfolio. No further acquisitions are currently being considered. As at 31 December 2008 the property portfolio was independently valued at £181.3 million. The 12% interest the Company holds in a Dutch office portfolio was written down to £8.84 million following updated investment and letting assumptions in the Dutch office market.
| Property portfolio at 31 December 2008 | |||||
| Location | Country | Sector | Net yield on valuation (Notes 1, 4) | Net yield on cost (Notes 2, 4) | % of total assets (less current liabilities) |
| Rothenburg ob der Tauber | Germany | Retail | 6.45% | 6.62% | 11.4% |
| Phoenix Center, Fürth | Germany | Retail | 6.11% | 5.75% | 10.9% |
| Curno, Bergamo | Italy | Leisure | 6.26% | 6.55% | 8.7% |
| Bergamina, Agnadello | Italy | Industrial | 6.47% | 7.27% | 7.5% |
| Smakterweg, Venray | Netherlands | Industrial | 7.62% | 8.46% | 4.9% |
| Am Birkfeld, Dasing | Germany | Industrial | 7.16% | 6.81% | 4.8% |
| Bahnhofstraße, Karben | Germany | Retail | 6.71% | 7.19% | 4.6% |
| Industriestraße, Montabaur-Heiligenroth | Germany | Retail | 6.54% | 5.97% | 4.5% |
| Rüdnitzer Chaussee, Bernau | Germany | Retail | 9.33% | 8.74% | 3.6% |
| Nürnberger Strasse, Treuchtlingen | Germany | Retail | 6.54% | 6.59% | 3.5% |
| Other | Germany, Belgium | Retail | - | - | 21.7% |
| Total property portfolio | 6.83% | 6.91% | 86.1% | ||
| Porto Kali investment (Note 3) | Netherlands | Office | 6.31% | 5.52% | 4.2% |
| Other non current assets and net current assets | - | - | 9.7% | ||
| Total assets less current liabilities | - | - | 100.0% | ||
Note 1: Net yield on valuation is based on the current market valuation after deduction of property-specific estimates of acquisition costs and operating costs.
Note 2: Net yield on cost (including capitalised acquisition costs) less non-recoverable costs.
Note 3: Total value of Porto Kali investment (equity and shareholder loan) is £8.84 million.
Note 4: Source: external independent valuers to the Company, Knight Frank LLP.
Note 5: Source: AXA Real Estate Investment Managers UK Limited.
Geographical Analysis at 31 December 2008 by Market Value
| Germany | 61.4% |
| Netherlands | 19.5% |
| Italy | 15.5% |
| Belgium | 3.6% |
Sector Analysis at 31 December 2008 by Market Value
| Retail | 59.7% |
| Industrial | 17.1% |
| Office | 14.5% |
| Leisure | 8.7% |
Source: AXA Real Estate Investment Managers UK Limited
Tenant covenant strength analysis at 31 December 2008 (including 12% interest in Porto Kali investment)
Grade A 66.4% Creditreform: < 199; D&B: A 1
Grade B 13.9% Creditreform: 200 - 249; D&B: B,C,D 1,2
Grade C 14.6% Creditreform: > 250; D&B: D + 3,4
Vacant 5.1%
The Company's tenant covenant profile is strong, with the majority of tenants rated Grade A or B. Rental income from Grade A covenants represents 66.4% of income and has a weighted unexpired lease length of 6.5 years. The large retail component of the portfolio is composed of trading-parks anchored by large supermarket and discounter chains. Such tenants are viewed as defensive covenants in the context of an increasingly difficult occupier market.
The Real Estate Adviser's continued asset management programme has contributed to maintaining the portfolio's strong lease profile. The weighted effective unexpired lease length for the portfolio as at 31 December 2008 was 6.0 years, with 57.4% of income secured for a term of over five years. Vacant space in the portfolio, measured using market rent, represented 5.1% of the total gross rental income. Of the 5.1% vacancy rate, 83% relates to the Porto Kali consortium investment.
The Real Estate Adviser has identified two cases where tenants will not renew their leases upon expiry in July 2009 and September 2010 and void periods are anticipated. Together these tenants represent 8.1% of the direct portfolio rental income. Letting campaigns to secure new tenants are already underway.
Average unexpired lease length profile weighted by rental income
| 31 December 2008 | 30 June 2008 | |
| Years | Years | |
| Grade A | 6.5 | 7.2 |
| Grade B | 5.7 | 5.9 |
| Grade C | 6.2 | 4.3 |
| Average | 6.0 | 6.3 |
Lease expiry profile weighted by rental income
| 31 December 2008 | 30 June 2008 | |
| Rental income (as a % of total gross rental income) | Rental income (as a % of total gross rental income) | |
| Vacant | 5% | 5% |
| 1 year | 5% | 5% |
| 2 years | 17% | 9% |
| 3 years | 9% | 14% |
| 4 years | 4% | 6% |
| 5 years | 2% | 3% |
| 5-10 years | 41% | 37% |
| 10-15 years | 9% | 13% |
| 15+ years | 8% | 8% |
Financing
The Company's gearing is relatively low compared to many in the sector.
Main Facility
The Company has maintained a strong cash position and at 31 December 2008 held total cash of £21.5 million (EUR22.3 million) of which £13.5 million (EUR14.0 million) is held on deposit and is available to pay down debt in the event of a breach of the loan to value covenant. The loan to value on the Company's £77.7 million (EUR80.4 million) facility with Calyon Corporate and Investment Bank ("Calyon") was 47.0% at 31 December 2008, compared to the facility limit of 50.0%.
The Company's historic Interest Cover Ratio (net financing expense payable as a percentage of gross rental income less movement in tenant arrears) remains strong at 309% compared to the minimum required under the bank covenant of 250% reflecting the strong rental income on the underlying investment properties and continued management of the tenant base.
EUR30 million of the loan was syndicated to Berlin-Hannoversche Hypothekenbank AG on 23 November 2007. The Company's main facility is in place until 3 April 2011, with the interest rate risk fully hedged via interest rate swaps for three years (at an average rate of 5.21%) and interest rate caps in the final year.
During December 2008, the Investment Manager initiated discussion with its lenders on the future management of the debt. The dialogue is ongoing and an update to investors will be provided as soon as possible.
Other Facilities
The loan to value on the Calyon facility held by the joint venture invested in the asset at Agnadello, Italy (50% of £17.4 million (EUR18.0 million)) was 55.1% at 31 December 2008, compared to a 65.0% limit.
At 31 December 2008 the loan to value of the Porto Kali Dutch office portfolio investment was 68.9%, which exceeded the 65.0% maximum under the terms of the facility. Discussions with the lender HSH Nordbank AG are in progress and the business plan strategy is under review. The loan is without recourse to the Company.
Hedging
Cross currency swaps have been executed to cover quarterly net Euro cash flows to the value of £1.1 million (EUR1.6 million) through to 2012. To reduce the volatility of the Net Asset Value arising from fluctuations in the Euro/Sterling exchange rate, the Company hedged EUR120 million of its net investment in Euros ("Euro equity") in three tranches in the first half of 2008. The status of interest rate, currency and equity hedging is regularly reviewed by the Investment Manager to adjust for variables such as property valuations and predicted cash flows.
Outlook
As we move into a difficult occupier market, the Investment Manager and Real Estate Adviser are focussed on maintaining rental income as a first priority. This involves strengthening the existing relationships between tenants and our local asset managers across Europe and a willingness to deal proactively with tenants where income is threatened. The portfolio's income stream is well secured against strong tenant covenants and benefits from a low vacancy rate.
Capital expenditure is required to maintain and increase rental income and to protect capital values. The difficult real estate market and related financing issues demand even more careful appraisal of capital projects before any commitment is made. The Company's lenders have indicated their support for the EUR5.3 million project to expand and refurbish the existing retail asset at Fürth in Germany. The Board and the Investment Manager are keen to take advantage of the attractive development opportunity, but will only proceed with the project once the new unit is pre-let to the anchor tenant and the Company's financing position is secure.
The portfolio is not immune from deteriorating capital markets and further valuation adjustment is anticipated in 2009. However, the defensive nature of the underlying properties and an established emphasis on prudent management position the Company well in this difficult economic environment.
Board of Directors
Charles Hunter (Chairman) is a non-executive director of a number of organisations involved in property investment, including, Protego Real Estate Funds plc and is on the Supervisory Board of Schroder Exempt Property Unit Trust. He is also a trustee of St Monica Trust. He has around 30 years of experience in property investment, principally in UK commercial property. During this time, he was the Head of Property Investment of Insight Investment (formerly Clerical Medical Investment Group) and also was the Property Director of the investment management subsidiaries of The National Mutual of Australasia group in the United Kingdom. Mr Hunter is a Fellow of the Royal Institution of Chartered Surveyors and a member of the Investment Property Forum. He is resident in the United Kingdom.
Gavin Farrell is qualified as a Solicitor of the Supreme Court of England and Wales, a French Avocat and an Advocate of the Royal Court of Guernsey. He is a partner at Ozannes, Advocates & Notaries Public in Guernsey, having worked previously at Simmons and Simmons, both in Paris and London, and specialises in international and structured finance and collective investment schemes. Mr Farrell holds a number of directorships in investment and captive insurance companies. He is resident in Guernsey.
John Marren is a Director of Northern Trust International Fund Administration Services (Guernsey) Limited where he is Head of Client Servicing. Prior to joining Northern Trust International Fund Administration Services (Guernsey) Limited in 1992, he worked for KPMG in Guernsey where he was responsible for the audit of a portfolio of entities in the finance industry. Mr Marren currently holds a number of non-executive board appointments in fund management and investment companies including several real estate funds. He has a Bachelor of Commerce Degree from University College Galway in Ireland, is a Fellow of the Institute of Chartered Accountants in Ireland and a Member of the Institute of Bankers in Ireland. He is resident in Guernsey.
Stephane Monier has over 15 years of experience in fixed income, foreign exchange markets and asset allocation. Mr Monier is currently the Global Head for Fixed Income and Currencies at Fortis Investments responsible for various sectors including money market, government bonds, corporate bonds emerging market debt, currencies and absolute return. Prior to joining Fortis he was Head of Fixed Income and Currency in the Abu Dhabi Investment Authority (ADIA) and he spent seven years in JP Morgan Investment Management as a Fixed Income Manager both in London and Paris. Mr Monier has a Masters Degree in Science from INAPG (Paris) and a Masters Degree in International Finance from HEC Graduate School of Business (Jouy en Josas) (France). He is also a CFA charterholder. He is resident in the United Kingdom.
Richard Ray is Managing Director of AXA Real Estate Investment Managers Belgium S.A. He has around 25 years of property experience, especially in the commercial real estate markets in Belgium and in other parts of Europe. Prior to joining AXA, he was the Head of Investment at ATIS REAL August Thouard S.A. From 1987 to 2000, he worked with CB Richard Ellis S.A. (formerly Richard Ellis S.A.), first as an Investment and Valuation Surveyor and then as a Manager in the Investment Department. In 1994, Mr Ray was appointed Director of Investment, Valuation and Research. He is a member of the Royal Institution of Chartered Surveyors and certified as a "Titulaire" of the Belgian Institut Professionel de l'immobilier (Real Estate Institute). He is resident in Belgium.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
the Condensed Half Year Financial Statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting; and
this Half Year Report provides a fair review of the information required by:
a)DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the Condensed Half Year Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
b)DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
By order of the Board
Charles Hunter John Marren
Chairman Director
27 February 2009 27 February 2009
Independent Review Report
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2008 which comprises the Consolidated Balance Sheet as of 31 December 2008, and the related Consolidated Income Statement, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and the related explanatory notes that have been reviewed. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 December 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
KPMG Channel Islands Limited
Guernsey
27 February 2009
Condensed Half Year Consolidated Income Statement
(Unaudited)
For the period from 1 July 2008 to 31 December 2008
| Notes | 1 July 2008 to 31 December 2008 £000s | 1 July 2007 to 31 December 2007 £000s | |
| Gross rental income | 3 | 6,119 | 5,135 |
| Service charge income | 517 | 422 | |
| Property operating expenses | (1,202) | (1,002) | |
| Net rental and related income | 5,434 | 4,555 | |
| Net foreign exchange (losses) / gains | (527) | 98 | |
| Net investment income | (527) | 98 | |
| Valuation gains on investment properties | - | 2,070 | |
| Valuation losses on investment properties | 8 | (14,393) | (423) |
| Gains on fair value of financial assets | - | 119 | |
| Impairment losses | 4 | (3,549) | - |
| Net valuation (losses)/gains on investment properties and derivatives | (17,942) | 1,766 | |
| Unrealised losses on discontinued net investment hedging | 11 | (13,344) | - |
| Unrealised (losses)/gains on derivatives | (216) | 146 | |
| Investment management fees | (782) | (813) | |
| Sponsor's fees | (27) | (179) | |
| Administrative expenses and Directors' fees | 5 | (886) | (908) |
| Total expenses | (15,255) | (1,754) | |
| Other income | - | 139 | |
| Net operating (loss)/profit | (28,290) | 4,804 | |
| Financial income/expenses | |||
| Interest income from bank deposits | 361 | 83 | |
| Interest income from loans to joint ventures | 385 | 326 | |
| Finance costs | (1,860) | (1,396) | |
| (Loss)/profit before tax | (29,404) | 3,817 | |
| Income tax income/(expense) | 6 | 1,354 | (215) |
| (Loss)/profit for the period | (28,050) | 3,602 | |
| Basic and diluted (losses)/earnings per Ordinary Share (pence) | (28.05) | 3.60 |
Condensed Half Year Consolidated Statement of Changes in Equity (Unaudited)
For the period from 1 July 2008 to 31 December 2008
| Revaluation reserve £000s | Hedging reserve £000s | Revenue reserve £000s | Distributable reserve £000s | Foreign exchange reserve £000s | Total £000s | |
| Note 12 | Note 12 | |||||
| Balance at 1 July 2008 | 6,413 | (839) | 639 | 94,469 | 14,115 | 114,797 |
| Movements during the period | ||||||
| Net profit for the period | (17,942) | - | (10,108) | - | - | (28,050) |
| Fair value of derivatives | - | (7,103) | - | - | - | (7,103) |
| Dividends paid | - | - | - | (2,000) | - | (2,000) |
| Foreign exchange translation gains | - | - | - | - | 22,563 | 22,563 |
| Balance at 31 December 2008 | (11,529) | (7,942) | (9,469) | 92,469 | 36,678 | 100,207 |
For the period from 1 July 2007 to 31 December 2007
| Revaluation reserve £000s | Hedging reserve £000s | Revenue reserve £000s | Distributable reserve £000s | Foreign exchange reserve £000s | Total £000s | |
| Note 12 | Note 12 | |||||
| Balance at 1 July 2007 | 7,226 | 412 | - | 94,469 | (2,128) | 99,979 |
| Movements during the period | ||||||
| Net profit for the period | 1,912 | - | 1,690 | - | 3,602 | |
| Fair value of derivatives | - | (1,452) | - | - | - | (1,452) |
| Dividends paid | - | - | (1,690 ) | (310 ) | - | (2,000) |
| Foreign exchange translation gains | - | - | - | - | 9,031 | 9,031 |
| Balance at 31 December 2007 | 9,138 | (1,040) | - | 94,159 | 6,903 | 109,160 |
Condensed Half Year Consolidated Balance Sheet
(Unaudited)
As at 31 December 2008
| Notes | 31 December 2008 £000s | 30 June 2008 £000s | |
| Non-current assets | |||
| Investment properties | 8 | 181,273 | 162,211 |
| Property, plant and equipment | - | 1 | |
| Non-group loan receivables | 8,841 | 10,490 | |
| Derivative financial instruments | 11 | 156 | 1,857 |
| Other assets | 102 | 271 | |
| Deferred tax assets | 326 | 613 | |
| Current assets | |||
| Cash and cash equivalents | 21,548 | 20,111 | |
| Trade and other receivables | 9 | 4,278 | 4,298 |
| Total assets | 216,524 | 199,852 | |
| Current liabilities | |||
| Trade and other payables | 10 | 5,941 | 5,669 |
| Non-current liabilities | |||
| Deferred tax liability | 1,780 | 3,210 | |
| Long term loan | 86,354 | 73,009 | |
| Derivative financial instruments | 11 | 22,242 | 3,167 |
| Total liabilities |
| 116,317 | 85,055 |
| Net assets | 100,207 | 114,797 | |
| Equity | |||
| Share capital | - | - | |
| Reserves | 100,207 | 114,797 | |
| Total equity | 100,207 | 114,797 | |
| Number of Ordinary Shares | 100,000,000 | 100,000,000 | |
| Net Asset Value per Ordinary Share (pence) | 100.21 | 114.80 |
Charles Hunter John Marren
Chairman Director
27 February 2009 27 February 2009
Condensed Half Year Consolidated Statement of Cash Flows
(Unaudited)
For the period from 1 July 2008 to 31 December 2008
| 1 July 2008 to 31 December 2008 £000s | 1 July 2007 to 31 December 2007 £000s | |
| Operating activities | ||
| (Loss)/Profit before tax | (29,404) | 3,817 |
| Adjustments for: | ||
| Unrealised losses/(gains) on revaluation of investment property | 14,393 | (1,647) |
| Unrealised losses/(gains) on derivatives | 13,560 | (265) |
| Decrease in trade and other receivables | 442 | 1,180 |
| Increase in trade and other payables | 4,008 | 1,680 |
| Investment income | (385) | (327) |
| Bank interest | (361) | (83) |
| Interest expense | 1,860 | 1,396 |
| Foreign exchange gains | (22,036) | (98) |
| Impairment losses | 3,549 | - |
| Decrease/(increase) in derivative financial assets/liabilities | 20,486 | (108) |
| Other | 41 | 39 |
| Net cash generated from operations | 6,153 | 5,584 |
| Investment income received | 173 | 327 |
| Interest paid | (1,636) | (851) |
| Interest received | 386 | 88 |
| Tax paid | (114) | (315) |
| Net cash inflow from operating activities | 4,962 | 4,833 |
| Investing activities | ||
| Acquisition of investment properties | (306) | (6,604) |
| Acquisition of other investments | - | 39 |
| Net cash (outflow) from investing activities | (306) | (6,565) |
| Financing activities | ||
| Finance costs | 181 | 40 |
| Calyon loan facilities (repaid)/drawn | (2,368) | 4,592 |
| Dividends paid | (2,000) | (2,000) |
| Net cash (outflow)/inflow from financing activities | (4,187) | 2,632 |
| Effect of exchange rate fluctuations on cash held | 968 | 359 |
| Increase in cash and cash equivalents | 1,437 | 1,259 |
| Cash and cash equivalents at start of period | 20,111 | 6,158 |
| Cash and cash equivalents at end of period | 21,548 | 7,417 |
Notes to the Half Year Consolidated Financial Statements
(Unaudited)
For the period 1 July 2008 to 31 December 2008
1. Operations
AXA Property Trust Limited (the "Company") is an Authorised Closed-ended investment scheme domiciled in Guernsey and listed on the London Stock Exchange. As an existing closed-ended fund the Company is deemed to be granted an authorisation declaration in accordance with section 8 of the Protection of Investors (Bailiwick of Guernsey) Law 1987, as amended and rule 6.02 of the Authorised Closed-ended Investment Schemes Rules 2008 on the same date as the Company obtained consent under the Control of Borrowing (Bailiwick of Guernsey) Ordinance 1959 to 1989.
The Company invests in commercial properties in Europe which are held through its subsidiaries. The Condensed Half Year Financial Statements of the Company for the six month period ended 31 December 2008 comprise the Consolidated Financial Statements of the Company and its subsidiaries (together referred to as the "Group").
2. Principal Accounting Policies
(a) Statement of compliance
The Condensed Half Year Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by, or adopted by, the International Accounting Standards Board (the "IASB"), interpretations issued by the International Financial Reporting Interpretations Committee, guidelines set out in the Statement of Recommended Practice ("SORP") for Investment Companies issued by Association of Investment Companies ("AIC"), applicable legal and regulatory requirements of Guernsey Law and the Listing Rules of the UK Listing Authority.
(b) Basis of preparation
The Condensed Half Year Financial Statements have been prepared in accordance with the Disclosure Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim Financial Reporting'. They do not include all of the information required for the full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended 30 June 2008, which were prepared under full IFRS requirements.
The same accounting policies and methods of computation have been applied to the Condensed Half Year Consolidated Financial Statements as in the Annual Financial Statements at 30 June 2008.
The Condensed Half Year Financial Statements are presented in Sterling which is also the functional currency of the Company. The Condensed Half Year Financial Statements have been prepared on a historical cost basis except for the measurement of the investment properties, derivative financial instruments and financial assets designated at fair value through profit or loss.
The preparation of Condensed Half Year Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Quarterly valuations of investment properties are carried out by Knight Frank LLP, external independent valuers to the Company, in accordance with the Royal Institution of Chartered Surveyors' ("RICS") Appraisal and Valuation Standards. The properties have been valued on the basis of open market value which is the estimated amount for which a property should exchange on the date of valuation in an arm's-length transaction.
In view of market instability, the valuers refer to the RICS Valuation Standards Guidance Note 5 (Valuation Uncertainty). Investor sentiment towards property investment has weakened considerably over the past months. Far fewer negotiations are resulting in transactions as many investors wait to see how market pricing will ultimately adjust to changing economic and restrictive credit conditions. In consequence, there are a limited number of comparable transactions. Knight Frank LLP's opinion of Market Value is provided in light of these conditions.
3. Gross rental income
Gross rental income for the six months ended 31 December 2008 amounted to £6.12 million (2007: £5.14 million). The Group leases out all of its investment property under operating leases.
Minimum lease payments
| 31 December 2008 | 30 June 2008 | |
| Rental income p.a. £000s | Rental income p.a. £000s | |
| 0-1 year | 11,874 | 10,444 |
| 1-5 years | 34,042 | 32,649 |
| 5+ years | 33,377 | 34,233 |
4. Impairment losses on non-Group loan receivables
The Porto Kali joint investment was funded by equity of £1.02 million (EUR1.50 million) and a Euro-denominated shareholder loan (non-Group loan receivable) of £9.11 million (EUR13.53 million).
For accounting purposes the equity component has been reported at a fair value of nil since 30 June 2007 as the portfolio of underlying entities reported negative net assets, largely as a result of capitalised acquisition costs which have since been included in unrealised losses on the fair valuation of the property portfolio.
The loan is unsecured, bears interest at Euribor plus 2.25% per annum and is repayable on 18 June 2017. After two asset disposals in December 2007, £0.22 million (EUR0.28 million) of the shareholder loan was repaid, reducing the outstanding amount to £10.05 million (EUR13.25 million) as at 30 June 2008.
Based on updated investment and letting assumptions in the Dutch office market, the current investment model projects that the shareholder loan is not fully recoverable. The estimated recoverable value of the loan in the Group accounts as at 31 December 2008 has been reduced to £8.84 million (EUR9.15 million). The related impairment expense was £3.55 million (EUR4.35 million), including the £0.20 million (EUR0.24 million) accrued interest.
5. Administrative Expenses and Directors' Fees
| 1 July 2008 to 31 December 2008 £000s | 1 July 2007 to 31 December 2007 £000s | |
| Directors' fees | 53 | 49 |
| Administration fees | 193 | 170 |
| Audit fees | 120 | 111 |
| Legal and professional fees | 348 | 310 |
| Commitment fees | - | 66 |
| General expenses | 172 | 202 |
| Total | 886 | 908 |
Each of the Directors of the Company receives a fee of £15,000 per annum from the Company. The Chairman receives a fee of £20,000 per annum. The aggregate remuneration and benefits in kind of the Directors in respect of the period ending 31 December 2008 amounted to £40,000 (2007: £40,000) in respect of the Company and £52,795 (2007: £49,067) in respect of the Group.
6. Income tax income/expense)
| 1 July 2008 to 31 December 2008 £000s | 1 July 2007 to 31 December 2007 £000s | |
| Current tax | (119) | (2) |
| Deferred tax | 1,473 | (213) |
| Total | 1,354 | (215) |
Deferred income tax arose on the reversal of deferred tax liabilities following the downward revaluation of the property assets held by the Group.
7. Dividends
| Dividend payment date | No. of Ordinary shares | Rate pence | 1 July 2008 to 31 December 2008 £000s | 1 July 2007 to 31 December 2007 £000s |
| 29 August 2007 | 100,000,000 | 1.00 | - | 1,000 |
| 30 November 2007 | 100,000,000 | 1.00 | - | 1,000 |
| 29 August 2008 | 100,000,000 | 1.00 | 1,000 | - |
| 28 November 2008 | 100,000,000 | 1.00 | 1,000 | - |
| Total |
| 2,000 | 2,000 |
A further dividend of £1.0 million (1.0 pence per share) was approved by the Board of Directors on 4 February 2009. The ex-dividend date was 11 February 2009 and the payment date was 27 February 2009.
8. Investment Properties
| 31 December 2008 £000s | 30 June 2008 £000s | |
| Cost of investment properties at beginning of period | 133,809 | 128,169 |
| Additions during the period at cost | 227 | 5,640 |
| Disposal proceeds during the period | - | - |
| Cost of investment properties | 134,036 | 133,809 |
| Fair value adjustments | (7,556) | 6,837 |
| Foreign exchange translation | 54,793 | 21,565 |
| Market value of investment properties at end of period | 181,273 | 162,211 |
9. Trade and Other Receivables
| 31 December 2008 £000s | 30 June 2008 £000s | |
| Prepayments | 2,104 | 2,242 |
| Accrued income | 778 | 600 |
| VAT receivable | 421 | 303 |
| Rent receivable | 320 | 532 |
| Tax receivable | 300 | 254 |
| Interest on deposits | 296 | - |
| Other receivables | 59 | 367 |
| Total | 4,278 | 4,298 |
10. Trade and Other Payables
| 31 December 2008 £000s | 30 June 2008 £000s | |
| VAT payable | 1,912 | 2,142 |
| Investment Manager's fee | 1,662 | 1,170 |
| Interest payable on Calyon loan | 839 | 614 |
| Other | 449 | 649 |
| Legal and professional fees | 350 | 204 |
| Tax | 205 | 150 |
| Administration and company secretarial fees | 188 | 119 |
| Property acquisition costs | 159 | 176 |
| Audit fee | 144 | 171 |
| Sponsor's fees | 14 | 38 |
| Rent prepaid | 10 | 230 |
| Directors' fees | 9 | 6 |
| Total | 5,941 | 5,669 |
11. Derivative financial instruments
Derivative financial instruments consist of the following:
| 31 December 2008 | 30 June 2008 | |||
| Assets | Liabilities | Assets | Liabilities | |
| £000s | £000s | £000s | £000s | |
| Interest rate swaps | 156 | 2,442 | 1,833 | 184 |
| Cross currency swaps | - | 5,588 | 24 | 2,176 |
| Net investment hedges | - | 14,212 | - | 816 |
| Total | 156 | 22,242 | 1,857 | 3,167 |
Interest rate risk
The Group manages this risk by using interest rate swaps and caps denominated in Euro. The swaps mature over the next three years following the maturity of the related loans and have swap rates ranging from 3.82% to 4.72%. At 31 December 2008, the Group had interest rate swaps with a notional contract amount of £86.41 million (EUR89.39 million) (June 2008: £70.76 million; EUR89.39 million).
All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce the Group's cash flow exposure resulting in variable interest rates on borrowings. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount deferred in equity is recognised in profit or loss over the loan period.
Foreign currency risk
The European subsidiaries will invest in properties using currencies other than Sterling, the Company's functional and presentational currency, and the balance sheet may be significantly affected by movements in the exchange rates of such currencies against the Sterling. The Group will review and manage currency exposure on an appropriate basis.
The Group has hedged foreign currency exposure in respect of £1.31 million (EUR1.60 million) quarterly interest receipts in Euro over the next four years through the use of cross currency swaps.
During the financial year ended 30 June 2008, the Group designated certain forward contracts as a hedge of its net investment in subsidiaries, whose functional currency is the Euro. The Group has hedged the Sterling equivalent of EUR120 million foreign currency risk arising on the translation of foreign operations. During the current period, the Company's net investment hedges were tested for ongoing effectiveness for accounting purposes and were found to have become ineffective, due primarily to the effect of falling interest rates and the fair value of the hedging instruments. As a result, in accordance with the Company's accounting policy, the net investment hedging accounting has been discontinued and the cumulative loss of £13.34 million which was deferred in equity has been recognised in profit and loss.
12. Reserves
Foreign exchange reserves
Foreign exchange reserves arose as a result of the translation of the financial statements of foreign operations, the functional currency of which is not Sterling. The assets and liabilities of foreign operations, arising on consolidation, are translated to Sterling at the foreign exchange rates ruling at the balance sheet date. Foreign exchange differences arising on this retranslation are recognised as a separate component of equity.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments where the hedged transaction has not yet occurred.
| 31 December 2008 £000s | 30 June 2008 £000s | |
| Balance at the beginning of the period | (839) | 412 |
| Gain/(loss) recognised on cash flow hedges: | ||
| - Interest rate swaps | (3,843) | (325) |
| - Currency swaps | (3,260) | (1,127) |
| Balance at the end of the period | (7,942) | (1,040) |
13. Related Party Transactions
Mr. Farrell, a director of the Company, is also a partner of Ozannes, the Guernsey legal advisers to the Company. The total charge to the Income Statement during the period in respect of Ozannes' legal fees was nil (2007: £713). There were no fees outstanding at the end of the period (2007: nil).
Mr. Marren, a director of the Company, is also a director of Northern Trust International Fund Administration Services (Guernsey) Limited ("Northern Trust"), the Administrator, Secretary and Registrar for the Company. The total administration fees charged to the Income Statement in respect of Northern Trust administration fees was £96,548 (2007: £81,001) for the period of which £51,886 (2007: £40,012) remained payable at the period end.
14. Post balance sheet events
On 23 January 2009, the subsidiary Property Trust Kali S.à.r.l. provided a guarantee to Fortis Intertrust (Netherlands) B.V., "Fortis", corporate manager to the entities forming the Dutch office portfolio investment, for fees not settled by the investment entities on a several basis in proportion to its 12% interest in the portfolio. 12% of the typical annual fee is approximately £29,000 (EUR29,000); 12% of the amount due from the Dutch office portfolio entities to Fortis at 31 December 2008 was £7,000 (EUR7,000).
15. Contingent liabilities
Guarantees
In addition to the main loan facility, the Group has a 50% interest in the joint venture Property Trust Agnadello S.r.l. which holds long term bank debt of £17.4 million (EUR18.0 million) secured over the property and shares of the joint venture. The Company has provided a guarantee to the lender, Calyon Corporate and Investment Bank, for £8.7 million (EUR9.0 million) on a several basis. The joint venture partner, European Added Value Fund Limited, has guaranteed the remaining 50% of the loan.
Commitments
During the half year period, repairs and improvements to the logistics asset held by the joint venture Property Trust Agnadello S.r.l. have been completed at an estimated cost of £1.35 million (EUR1.40 million) for which the Group has provided 50% of the funding. £0.1 million (EUR0.1 million) for final testing which may be required during 2009 is excluded. The consolidated Financial Statements include the Group's 50% share of capital expenditure incurred as at 31 December 2008 (£0.16 million; EUR0.16 million) and the related payable £55,000; (EUR57,000).
Corporate Information
Directors (all non-executive)
C.J. Hunter (Chairman)
G.J. Farrell
R.G. Ray
J.M. Marren
S.C. Monier
Registered Office
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Channel Islands
Investment Manager
AXA Investment Managers UK Limited
7 Newgate Street
London EC1A 7NX
United Kingdom
Real Estate Adviser
AXA Real Estate Investment Managers UK Limited
7 Newgate Street
London EC1A 7NX
United Kingdom
Sponsor and Broker
Oriel Securities
125 Wood Street
London EC2V 7AN
United Kingdom
Administrator, Secretary and Registrar
Northern Trust International Fund
Administration Services (Guernsey) Limited
P.O. Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Channel Islands