Last checked at 
26 Feb 2010 12:35
To: Company Announcements
Date: 26 February 2010
Company: AXA Property Trust Limited
Subject: Half Year Report and Consolidated Financial Statements
AXA Property Trust Limited
Half Year Report and Consolidated Financial Statements for the six months ended 31 December 2009
Financial Highlights and Performance Summary
Financial Highlights for the six months ended 31 December 2009
Total return on Net Asset Value (NAV) was -7.0%
NAV per share decreased by 8.8% since 30 June 2009
Losses were 10.65 pence per share
Cumulative dividends paid relating to the six month period were 1.5 pence per share
As at 31 December 2009
Share price (Note 1) was 53.00 pence per share (31 December 2008: 16.50 pence)
Gearing (Note 2) was 53.4% (gross) and 41.3% (net) (31 December 2008: 47.6% and 35.8%).
Including Porto Kali investment, gearing on a "look through" basis was 56.6% (gross) and 45.8% (net) (31 December 2008: 50.7% and 40.5%)
Performance Summary
|
| Six months Ended 31 December 2009 | Year ended 30 June 2009 | % change | Six months ended 31 December 2008 | % change |
| Net Asset Value (NAV) (£000) | 76,127 | 83,462 | (8.8%) | 100,207 | (24.0%) |
| NAV per share | 76.13p | 83.46p | (8.8%) | 100.21p | (24.0%) |
| Losses per share | (10.65p) | (30.14p) | 64.7% | (28.05p) | 62.0% |
| Dividends paid in the period/year | 1.50p | 3.75p | n/a | 2.00p | (25.0%) |
| Share price(note 1) | 53.00p | 40.50p | 30.9% | 16.50p | 221.2% |
| Share price discount to NAV | 30.4% | 51.5% | n/a | 83.5% | n/a |
| Gearing (gross)(note 2) | 53.4% | 50.8% | n/a | 47.6% | n/a |
| Total assets less current liabilities(£000) | 170,823 | 170,353 | 0.3% | 210,583 | (18.9%) |
| Total return | Six months ended 31 December 2009 | Six months Ended 31 December 2008 |
| NAV Total Return | (7.0%) | (11.0%) |
| Share price Total Return
| ||
| - AXA Property Trust | 34.7% | (75.9%) |
| - FTSE All Share Index | 29.1% | (21.1%) |
| - FTSE Real Estate Investment Trust Index (note 3) | 36.3% | (27.0%) |
Past performance is not a guide to future performance.
Note 1: Mid market share price (source: Datastream)
Note 2: Gearing is calculated as bank debt/property portfolio, either gross or net of cash held by the Group.
Source: AXA Investment Managers UK Limited and Datastream
Note 3: FTSE Real Estate Index is not available
Chairman's Statement
Income maintenance and continued asset management remains a priority for AXA Property Trust's Investment Manager, as does securing refinancing. The capital markets background continued to undermine asset values in the second half of 2009, but the rate of valuation decline appears to be easing.
I believe the portfolio's particular exposure to food retail in Southern Germany is a strength in uncertain letting markets, and the Investment Manager's capability in having a presence on the ground in these markets helps to sustain and grow income flows.
Results
As investment yields show signs of stabilisation in Continental Europe, the rate of decline in AXA Property Trust's property portfolio slackened in the quarter to 31 December 2009 (-1.5%), compared to the previous quarter (-3.7%). The unrealised loss on the revaluation of properties was £7.70 million (5.2% of the market value at 30 June 2009) excluding foreign exchange translation effects. For the six months to 31 December 2009, AXA Property Trust Limited (the "Company") and its subsidiaries (together the "Group") made a total net loss after tax of -£10.65 million. Before unrealised movements on the revaluation of investments and derivatives and related deferred tax, foreign exchange gains and other capital items, the Group made a profit of £1.51 million.
The estimated recoverable value of the Company's loan receivable related to the Porto Kali investment increased by £0.86 million, as a result of the new financing terms agreed in December 2009 and an update to the business plan. The portfolio continues to generate stable rental income.
The net rental yield on valuation for the portfolio excluding Porto Kali was 7.5%. A detailed yield analysis is included in the Investment Manager's Report below. The income stream is well secured both in terms of tenant covenant and duration, with an average unexpired weighted lease length of 5.5 years, increasing to 5.9 years after inclusion of the recently announced Edeka lease agreement at the Fuerth shopping centre.
The Net Asset Value ("NAV") as at 31 December 2009 was £76.13 million (76.13 pence per share), a decline of £7.33 million (8.8%) since 30 June 2009. The decline was a result of the £10.65 million net loss for the period and £1.5 million dividend payments, offset in part by £0.72 million unrealised net gains on derivatives (excluding forward currency contracts) and £4.10 million foreign exchange translation gains.
The Company's share price has increased significantly since December 2008 reflecting a generally slowly improving outlook in the European commercial property sector. The discount to NAV at 31 December 2009 was 30.4%, compared to 51.50% at 30 June 2009. The discount to NAV at 25 February 2010 is 38.9%.
Dividend
The second interim dividend of 0.75 pence per share in respect of the year ending 30 June 2010 was declared on 3 February 2010, to be paid on 26 February 2010. The cumulative interim dividends of 1.5 pence per share or £1.50 million declared in respect of the six months to
31 December 2009 were 100% covered by revenue profits and 127% covered by operating cash flow (excluding capital expenditure and foreign exchange). The annual dividend yield is 3.0% on the issue price and 5.7% on the mid market share price at 31 December 2009. Shareholders and investors should please note that past performance is not a guide to future returns.
Bank Finance
The ongoing discussions with Credit Agricole Corporate & Investment Bank ("Credit Agricole") on the refinancing of the Company's £71.83 million (€78.6 million) long term bank facility have been prolonged, and further complicated by the negative mark to market value of the forward rate hedging agreements.
Following the lapse of the waiver on quarterly testing, the Investment Manager is discussing the best route to remedy a potential breach of the 50% maximum Loan to Value ("LTV"). Based on the Company's 31 December 2009 valuation the current LTV is 52.9%. Nevertheless, at this level relative to its peers the Company is lowly geared.
Prospects
The economic recovery in Europe and the rest of the world has been weak and its future course remains particularly uncertain. While this only underlines the relatively poor outlook noted by the Investment Manager for occupational property markets, as they also note, capital markets in 2010 in property should be quite well supported. After nine quarters of decline in the property valuation of our Company's portfolio, often appraised by the independent
valuers with little market evidence, the prospects for stability or even modest growth, going forward must be better. There now seems to be more transactional activity and in the UK values have recovered strongly.
I believe the portfolio's particular exposure to food retail in Southern Germany is a strength in uncertain letting markets, and the Investment Manager's capability in having a presence on the ground in these markets helps to sustain and grow income flows. I remain confident of AXA Property Trust's defensive strength, its potential to benefit from market strengthening as it comes, and of the Company's ability to agree a beneficial financing strategy and LTV covenants in its bank funding.
Charles Hunter
Chairman
26 February 2010
Investment Manager's Report
Investment Manager
AXA Investment Managers UK Limited (the 'Investment Manager', 'AXA IM') 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 €499
billion of assets under management and 3,000 employees in 22 countries as at 31 December 2009.
AXA Real Estate Investment Managers UK Limited (the 'Real Estate Adviser') is part of 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 €38.4 billion of real estate assets under management in 21 countries as at 31 December 2009.
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. 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 €1.5 billion and was Fund Manager of the Standard Life Investments' €800 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.
Real Estate Market
Continental European markets underwent a significant re-pricing in 2009. While actual transaction volumes remained low in the first half of the year, volumes rose by 32% between quarter three and quarter four 2009 (Note 1), indicating a renewed investor interest in the market. DTZ have estimated (Note 2) that there is US$315 billion of capital available for investment in direct real estate globally in 2010, which is double the US$157billion in transaction volume in 2009. Approximately 50% of this capital is thought to be targeting Europe. Corporate optimism is now rising across Continental Europe and government stimulus packages continue to operate in 2010, particularly in France and Germany. The role that commercial real estate plays in supporting Continental European economies should not be underestimated. Continental European businesses rely to a much greater extent on bank financing due to limited equity and corporate bond markets compared to the UK. This explains the much greater level of European corporate owner-occupation, which is in fact required to provide security for the bank debt. AXA REIM believes that a concerted desire across continental economies to support asset values, combined with increased investor interest in the real estate market, will together go a long way to support property values in 2010.
A more significant factor is, however, falls in rental values, driven by reduced tenant demand and space availability. In this case performance comes down to both the attributes of a specific property and its situation within its sub-market, as well as the resourcefulness and ability of the asset manager. The Company continues to benefit from the local, in-territory capabilities of AXA REIM acquisition and asset management teams who work to
pre-empt tenant vacancies and re-secure leases due to expire.
Investment Manager's Report
Note 1: DTZ Research, ITD January 2010
Note 2: The great wall of money, December 2009
The Eurozone interest rate has remained at 1% as central banks are focussing more on economic recovery than on inflation (which, fortunately, is low). This means that interest rates will probably rise more slowly in this cycle than in previous ones.
Retail
The ability to take advantage of price discounts is the main factor distinguishing successful retailers. A shift in shopping habits, as consumers 'trade-down' to lower-margin goods or buy in discount stores, leaves some traditional shopping centre retailers particularly exposed. Such trends in shopping habits tend to persist for a considerable time and this one is not expected to be limited to the period of the recession.
In this environment there are a number of retailers that are gaining market share at the expense of their weaker competitors and these often have expansion plans, which in some cases are extensive.
Office
While the overspill of the development pipeline into the downturn has not been as large as in previous recessions, we are now seeing speculative schemes completing into a lacklustre market. This space is principally being absorbed by occupiers taking advantage of current pricing opportunities to upgrade. As a result there is an increasing amount of second-hand space, some of it obsolescent.
Void or vacancy rates are continuing to grow significantly in almost every European office market - exceptions being Frankfurt, Budapest, Amsterdam,
Berlin, and Lisbon. Such increased vacancy is perhaps a better reflection of the situation in the wider market than the stabilization seen in prime rents secured by new grade A product.
Industrial
Demand for logistics property grew strongly in the pre-recessionary period as manufacturing shifted from the countries of consumption to those of the emerging markets - requiring much greater transport facilities and, allied to that, storage and distribution facilities.
The logistics business is, however characterised by low margin activity and high capital requirements. Reflecting the latter, much equipment is leased rather than bought. The effect of this is that landlords are dealing with businesses that are highly operationally geared and, in most cases, highly financially geared.
One effect has been a concentration of demand into larger modern distribution facilities (in some cases requiring a bespoke building rather than a generic one) and the acceleration of obsolescence for older smaller buildings.
Investment Activity
The direct property portfolio has experienced a capital value loss of 12.68% over the twelve months to 31 December 2009 and 23.29% over the twenty four month period from 31 December 2007, the valuation peak, to 31 December 2009. Following this significant correction, the Investment Manager believes that valuations should now stabilise going into 2010. Entering 2010 the Investment Manager will review the Company's holdings and strategy in the light of the significant market developments and upheavals since the Company's launch in 2005. The Investment Manager remains confident in the performance prospects of the acquired portfolio. Future performance, however, will also be assessed against opportunities that are now appearing in other Continental European markets and sectors.
The focus on comprehensive management of tenants, leases and physical premises will remain a priority.
A significant (and pre-let) development and restructuring project is commencing at the Phoenix Center retail park in Fuerth, Germany. A number of substantial lettings and lease extensions, both retail and industrial, are also in the course of being negotiated and the Company looks forward to announcing these as they are finalised over the coming months.
Property Portfolio at 31 December 2009
| Investment name | Country | Sector | Net yield on valuation (Note 1 and 3) | % of total assets(less current liabilities) |
| Rothenburg ob der Tauber | Germany | Retail | 6.91% | 11.81% |
| Phoenix Center, Fuerth | Germany | Retail | 7.23% | 10.66% |
| Curno, Bergamo | Italy | Leisure | 6.83% | 8.80% |
| Bergamina, Agnadello | Italy | Industrial | 7.43% | 7.85% |
| Smakterweg, Venray | Netherlands | Industrial | 8.10% | 5.25% |
| Am Birkfeld, Dasing | Germany | Industrial | 8.30% | 4.86% |
| Bahnhofstraße, Karben | Germany | Retail | 7.00% | 4.79% |
| Industriestraße, Montabaur-Heiligenroth | Germany | Retail | 8.09% | 4.21% |
| Keyser Centre, Antwerp | Germany | Retail | 7.38% | 3.38% |
| Nuernberger Straße, Treuchtlingen | Germany | Retail | 7.75% | 3.25% |
| Pankower Allee, Berlin | Germany | Retail | 7.05% | 3.43% |
| Other | Germany | Retail | - | 17.00% |
| Total property portfolio |
|
| 7.50% | 85.29% |
| Porto Kali investment (Note 2) | Netherlands | Office | 6.51% (Note 4) | 5.26% |
| Other non current assets and net current assets |
|
|
| 9.45% |
| Total assets less current liabilities |
|
|
| 100.00% |
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: total value of Port Kali investment (equity and shareholder loan) is £8.98 million.
Note 3: source - external independent valuers to the Company, Knight Frank LLP.
Note 4: source - AXA Real Estate Investment Managers UK Limited.
Geographical Analysis at 31 December 2009 by Market Value
| Germany | 60% |
| Netherlands | 20% |
| Italy | 17% |
| Belgium | 3% |
Sector Analysis at 31 December 2009 by Market Value
| Retail | 58% |
| Industrial | 18% |
| Office | 15% |
| Leisure | 9% |
Source: AXA Real Estate Investment Managers UK Limited
Investment Manager's Report
Covenant strength analysis at 31 December 2009 (including 12% interest in Porto Kali investment)
| Grade A | 57.7% | Creditreform: |
| Grade B | 14.1% | Creditreform:200-249; D&B:B,C,D 1,2 |
| Grade C | 22.1% | Creditreform:>250; D&B: D + 3,4 |
| Vacant | 6.2% |
|
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 57.7% of income and has a weighted unexpired lease length of 6.3 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 competitive occupier markets.
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 2009 was 5.5 years. Vacancy within the portfolio stands at 6.2%, measured by rental income. Excluding the Porto Kali consortium investment, vacancy in the direct portfolio stands at 2.6%.
Average unexpired lease length profile
|
| 31 December 2009 | 30 June 2009 |
|
| Years | Years |
| Grade A | 6.3 | 6.4 |
| Grade B | 3.8 | 4.1 |
| Grade C | 4.9 | 5.2 |
| Average | 5.5 | 5.7 |
Lease expiry profile
|
| 31 December 2009 | 30 June 2009 |
|
| Rental income (as a % of total gross rental income) | Rental income (as a % of total gross rental income) |
| Vacant | 6% | 6% |
| 1 year | 17% | 9% |
| 2 years | 9% | 16% |
| 3 years | 5% | 7% |
| 4 years | 4% | 3% |
| 5 years | 18% | 10% |
| 5-10 years | 28% | 33% |
| 10-15 years | 13% | 8% |
| 15+ years | 0% | 8% |
Source: AXA Real Estate Investment Managers UK Limited
Financing
Main Facility
Refinancing negotiations with Credit Agricole Corporate & Investment Bank ("Credit Agricole") on the Company's
£71.83 million (€78.60 million) long term bank facility have been delayed beyond the expected timetable. With one exception, all major points of negotiation between Credit Agricole and the Company have largely been resolved. The delaying factor has been and continues to be the current negative mark to market value of the long term forward rate hedging agreements. Activities revolve around the resolution of this issue. Despite this, the Investment Manager remains confident of the efficiency of this hedging strategy in the long term.
Following the lapse of the waiver, noted in the most recent Interim Management Statement RNS (dated 5 November 2009), the Investment Manager is seeking the best solution to resolve an LTV in excess of covenant as at 31 December 2009.
Capital Expenditure and Cash Position
The Company and its subsidiaries held total cash of £17.64 million (€19.85 million) at 31 December 2009 of which £11.60 million (€13.00 million) is held on short-term deposit to be released as required for the capital expenditure programme and other cash requirements. The £17.64 million has been allocated between working capital and capital expenditure. £4.30 million (€4.80 million) capital expenditure is committed for the development of the Company's retail asset in Fuerth, Germany which was announced in December 2009 (RNS dated 15 December 2009). The remaining amount on short-term deposit is reserved for uncommitted capital expenditure. If this cash were utilised to repay part of the bank debt, the 50% Gross LTV would be met until property valuations declined by more than 8.2% from 31 December 2009 levels assuming a 1:1 valuation increase at Fuerth as a result of the committed capital expenditure).
The Company's loans with Credit Agricole are fully hedged at an average rate of 5.21% via interest rate swaps until July 2010 and then by interest rate caps at a strike rate of 4.5% until April 2011 when the loan facility expires.
Porto Kali Investment and Loan Facility
Following the restructuring of the loan facility with HSH Nordbank the Loan to Value at 31 December 2009 at 74.3% is within the new covenant of 80.0% and the interest service cover ratio at 212.0% is above the covenant of 20.0%. The loan is amortised by €1.50 million per annum. The loan is without recourse to the Company.
AXA REIM, as portfolio adviser to the Porto Kali investment, has adopted a tactical approach to sales and lettings as part of the business strategy of the Porto Kali portfolio. Early negotiations with tenants resulted in eight lease renewals in the final quarter of 2009, which were above estimated rental value on a cumulative basis. In addition three new leases were signed. Nevertheless the portfolio continues to be affected by the weak occupier market. The portfolio experienced a capital return of -8.8% for the year 2009.
Outlook
We believe the portfolio's income stream remains well protected with a vacancy rate in the direct portfolio of 2.6%. AXA REIM in-territory asset management teams are currently in the process of renewing lease contracts with several tenants where leases are due to expire in 2010. Although rental values are coming under pressure across Europe, rents paid in particular by German supermarkets, an important sub-sector for the Company, are expected to remain stable or decline only marginally in the coming year. In addition to the development project at Fuerth, limited and highly targeted landlord investment is budgeted to facilitate letting and renewal projects where value can be captured. Expenditure is only undertaken once a new lease has been signed.
We believe that investment yields are now stabilising following significant re-pricing across the continent. With strong property fundamentals and a conservative financing approach, we are confident that that the Company remains well positioned as European economies emerge from recession. The Investment Manager, supported by AXA REIM local teams across Europe, is keen to exploit opportunities it believes will arise in the new market environment of 2010.
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 Standards 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
26 February 2010 26 February 2010
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 2009 which comprises the condensed half year consolidated statement of comprehensive income, the condensed half year consolidated statement of changes in equity, the condensed half year consolidated statement of financial position, the condensed half year consolidated statement of cash flow and the related explanatory notes. 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.
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
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 DTR of the UK FSA.
As disclosed in note 2, the annual consolidated financial statements are prepared in accordance with IFRSs. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 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 UK. A review of interim financial information consists of making enquiries, 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 2009 is not prepared, in all material respects, in accordance with IAS 34 and the DTR of the UK FSA.
KPMG Channel Islands Limited
Guernsey
26 February 2010
Condensed Half Year Consolidated Statement of Comprehensive Income
(Unaudited)
For the six months ended 31 December 2009
|
|
Notes | 1 July 2009 to 31 December 2009 £000s | 1 July 2008 to 31 December 2008 £000s |
| Gross rental income | 3 | 6,473 | 6,119 |
| Service charge income |
| 293 | 517 |
| Property operating expenses |
| (831) | (1,202) |
| Net rental and related income |
| 5,935 | 5,434 |
| Net foreign exchange loss |
| (567) | (527) |
| Net investment loss |
| (567) | (527) |
| Valuation loss on investment properties |
| (7,700) | (14,393) |
| Impairment gain/(loss) | 7 | 857 | (3,549) |
| Net valuation loss on investment properties and financial assets |
| (6,843) | (17,942) |
| Unrealised loss on forward currency contracts |
| (5,358) | (13,344) |
| Unrealised loss on other derivatives |
| (24) | (216) |
|
|
|
|
|
| Investment management fees |
| (638) | (782) |
| Sponsor's fees |
| (21) | (27) |
| Administrative expenses | 4 | (939) | (886) |
| Total expenses |
| (6,980) | (15,255) |
| Net operating loss |
| (8,455) | (28,290) |
| Financial income/expenses |
|
|
|
| Interest income from bank deposits |
| 20 | 361 |
| Interest income from loans to joint ventures |
| - | 385 |
| Finance costs |
| (2,084) | (1,860) |
| Loss before tax |
| (10,519) | (29,404) |
| Income tax (expense)/income |
| (136) | 1,354 |
| Loss for the period |
| (10,655) | (28,050) |
|
|
|
|
|
| Loss attributable to: |
|
|
|
| Owners of the Company |
| (10,655) | (28,050) |
| Loss for the period |
| (10,655) | (28,050) |
|
|
|
|
|
| Basic and diluted loss per ordinary share (pence) |
| (10.65) | (28.05) |
|
|
|
|
|
| Loss for the period |
| (10,655) | (28,050) |
| Other comprehensive income: |
|
|
|
| Effective portion of changes in fair value of cash flow hedges |
| 719 | (7,103) |
| Foreign exchange translation gains |
| 4,101 | 22,563 |
| Other comprehensive income for the period | 2 | 4,820 | 15,460 |
|
|
|
|
|
| Total comprehensive loss for the period |
| (5,835) | (12,590) |
|
|
|
|
|
| Total comprehensive loss attributable to: |
|
|
|
| Owners of the Company |
| (5,835) | (12,590) |
| Total comprehensive loss for the period |
| (5,835) | (12,590) |
The accompanying notes below form an integral part of these condensed half year financial statements.
Condensed Half Year Consolidated Statement of
Changes in Equity
(Unaudited)
For the six months ended 31 December 2009
|
| Revaluation reserve £000s | Hedging reserve £000s | Revenue reserve £000s | Distributable reserve £000s | Foreign currency reserve £000s | Total £000s |
| Balance at 1 July 2009 | (25,568) | (5,696) | - | 92,948 | 21,778 | 83,462 |
| Net loss | (6,843) | - | (3,812) | - | - | (10,655) |
| Other comprehensive income | - | 719 | - | - | 4,101 | 4,820 |
| Contributions by and distributions to owners |
|
|
|
|
|
|
| Dividends to equity holders | - | - | - | (1,500) | - | (1,500) |
| Balance at 31 December 2009 | (32,411) | (4,977) | (3,812) | 91,448 | 25,879 | 76,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the six months ended 31 December 2008 | ||||||
|
|
|
|
|
|
|
|
|
| Revaluation reserve £000s | Hedging reserve £000s | Revenue reserve £000s | Distributable reserve £000s | Foreign currency reserve £000s | Total £000s |
| Balance at 1 July 2008 | 6,413 | (839) | 639 | 94,469 | 14,115 | 114,797 |
| Net loss | (17,942) | - | (10,108) | - | - | (28,050) |
| Other comprehensive income | - | (7,103) | - | - | 22,563 | 15,460 |
| Contributions by and distributions to owners |
|
|
|
|
|
|
| Dividends to equity holders | - | - | - | (2,000) | - | (2,000) |
| Balance at 31 December 2008 | (11,529) | (7,942) | (9,469) | 92,469 | 36,678 | 100,207 |
The accompanying notes below form an integral part of these condensed half year financial statements.
Condensed Half Year Consolidated Statement of
Financial Position
(Unaudited)
As at 31 December 2009
|
| Notes | 31 December 2009 £000s | 30 June 2009 £000s |
| Non-current assets |
|
|
|
| Investment properties | 6 | 145,690 | 146,988 |
| Non-group loan receivables | 7 | 8,983 | 7,789 |
| Derivative financial instruments | 10 | 19 | 40 |
| Other assets |
| - | 65 |
| Deferred tax assets |
| - | 118 |
|
|
|
|
|
| Current assets |
|
|
|
| Cash and cash equivalents |
| 17,639 | 17,324 |
| Trade and other receivables | 8 | 1,178 | 1,670 |
| Total assets |
| 173,509 | 173,994 |
|
|
|
|
|
| Current liabilities |
|
|
|
| Trade and other payables | 9 | 2,686 | 3,641 |
|
|
|
|
|
| Non-current liabilities |
|
|
|
| Deferred tax liability |
| 515 | 629 |
| Long-term loan |
| 77,875 | 74,606 |
| Derivative financial instruments | 10 | 16,306 | 11,656 |
| Total liabilities |
| 97,382 | 90,532 |
| Net assets |
| 76,127 | 83,462 |
| Equity |
|
|
|
| Share capital |
| - | - |
| Reserves |
| 76,127 | 83,462 |
| Total equity |
| 76,127 | 83,462 |
|
|
|
|
|
| Number of ordinary shares |
| 100,000,000 | 100,000,000 |
| Net asset value per ordinary share (pence) |
| 76.13 | 83.46 |
The accompanying notes below form an integral part of these condensed half year financial statements.
By order of the Board
Charles Hunter John Marren
Chairman Director
26 February 2010 26 February 2010
Condensed Half Year Consolidated Statement of
Cash Flows
(Unaudited)
For the six months ended 31 December 2009
|
| 1 July 2009 to 31 December 2009
£000s | 1 July 2008 to 31 December 2008 (Restated) £000s |
| Operating activities |
|
|
| Loss before tax | (10,519) | (29,404) |
| Adjustments for: |
|
|
| Valuation loss on investment properties | 7,700 | 14,393 |
| Impairment (gain)/loss | (857) | 3,549 |
| Unrealised loss on forward currency contracts | 5,358 | 13,344 |
| Unrealised loss on other derivatives | 24 | 216 |
| Decrease in trade and other receivables | 859 | 442 |
| (Decrease)/increase in trade and other payables | (904) | 4,008 |
| Investment income | - | (385) |
| Bank interest | (20) | (361) |
| Interest expense | 2,041 | 1,860 |
| Foreign exchange loss | 567 | 527 |
| Amortisation of loan facility fees | 43 | 41 |
| Net cash generated from operations | 4,292 | 8,230 |
| Interest income received | 31 | 386 |
| Interest paid | (2,100) | (1,636) |
| Investment income received | - | 173 |
| Tax paid | (317) | (114) |
| Net cash inflow from operating activities | 1,906 | 7,039 |
|
|
|
|
| Investing activities |
|
|
| Acquisition of property plant and equipment | (192) | (306) |
| Net cash outflow from investing activities | (192) | (306) |
|
|
|
|
| Financing activities |
|
|
| Finance costs | - | 181 |
| Calyon loan facility repaid | - | (2,368) |
| Dividends paid | (1,500) | (2,000) |
| Net cash outflow from financing activities | (1,500) | (4,187) |
|
|
|
|
| Effect of exchange rate fluctuations | 101 | (1,109) |
| Increase in cash and cash equivalents | 315 | 1,437 |
| Cash and cash equivalents at start of the period | 17,324 | 20,111 |
| Cash and cash equivalents at period end | 17,639 | 21,548 |
The accompanying notes below form an integral part of these condensed half year financial statements.
Notes to the Condensed Half Year Consolidated Financial Statements
(Unaudited)
1. Operations
AXA Property Trust Limited (the "Company") is a limited liability, closed-ended investment company incorporated in Guernsey. The Company invests in commercial properties in Europe which are held through its subsidiaries. The Condensed Unaudited Consolidated Half Year Financial Statements of the Company for the six month period ended 31 December 2009 comprise the Financial Statements of the Company and its subsidiaries (together referred to as the "Group").
2. Significant accounting policies
(a) Statement of compliance
The Condensed Half Year Consolidated 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 2009, which were prepared under full IFRS requirements.
(b) Basis of preparation
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 2009, except for as described in note 2(c) Change in accounting policy.
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, in accordance with the 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.
Changes in relation to previously published Statement of Cash Flows
The comparative information for the six months ended 31 December 2008 has been restated as follows:
(i) Foreign exchange movement of £2,077,000 have been reclassified from Net cash generated from operations to Effect of exchange rate fluctuations to aid comparison. As a result of these changes there has been no change to the net result or net assets of the Group as previously reported.
(c) Change in accounting policy
Except as described below, the accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended
30 June 2009.
(i) Determination and presentation of operating segments
The Board of Directors is charged with setting the Company's investment strategy in accordance with the Prospectus. They have delegated the day to day implementation of this strategy to its Investment Manager but retain responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions. The investment decisions of the Investment Manager are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the board. The Investment Manager has been given full authority to act on behalf of the Company. Under the terms of the Investment Management Agreement dated 18 April 2005, subject to the overall supervision of the Board, the Investment Manager advises on the general allocation of the assets of the Company between different investments, advises the Company on its borrowing policy and geared investment position, manages the investment of the Company's subscription proceeds and short term liquidity in fixed income instruments and advises on the use of (and management of) derivatives and hedging by the Company. Whilst the Investment Manager may make the investment decisions on a day to day basis regarding the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions have to be approved by the Board, even though they may be proposed by the Investment Manager. The Board therefore retains full responsibility as to the major allocations made on an ongoing basis. The Investment Manager will always act under the terms of the Prospectus and the Investment Management Agreement dated 18 April 2006 which cannot be radically changed without the approval of the Board of Directors.
The Board has considered the requirements of IFRS 8 'Operating Segments'. The Board is of the view the Company is engaged in a single segment of business, being investment in properties in Europe including the United Kingdom.
(ii) Presentation of financial statements
The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January
2009. This presentation has been applied in these condensed interim financial statements as of and for the six months ended 31 December 2009.
Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
(iii) IFRS 7 Financial Instruments: Disclosures
The amended standard requires additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierarchy, by class, for all financial instruments recognised at fair value, as presented in note 10. In addition, reconciliation between the beginning and ending balance for level 3 fair value measurements is now required, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The fair value measurement disclosures are presented in note 10. The liquidity risk disclosures are not significantly impacted by the amendments and are presented in note 10.
3. Gross rental income
Gross rental income for the six months ended 31 December 2009 amounted to £6.42 million (2008: £6.12 million). The Group leases out all of its investment property under operating leases.
|
| 31 December 2009 | 30 June 2009 |
|
| Rental income p.a. (£000s) | Rental income p.a. (£000s) |
| 0-1 year | 12,472 | 12,957 |
| 1-5 years | 36,576 | 36,391 |
| 5+ years | 27,904 | 32,054 |
4. Administrative expenses
|
| 31 December 2009 | 31 December 2008 |
|
| £000s | £000s |
| Legal and professional fees | 165 | 348 |
| Administration fees | 252 | 193 |
| Audit fees | 126 | 120 |
| General expenses | 343 | 172 |
| Directors' fees | 53 | 53 |
| Total | 939 | 886 |
5. Dividends
| Dividend payment date | No. of Ordinary Shares | Rate pence | 31 December 2009 | 31 December 2008 |
|
|
|
| £000s | £000s |
| 29 August 2008 | 100,000,000 | 1.00 | - | 1,000 |
| 28November 2008 | 100,000,000 | 1.00 | - | 1,000 |
| 28 August 2009 | 100,000,000 | 0.75 | 750 | - |
| 27 November 2009 | 100,000,000 | 0.75 | 750 | - |
| Total |
|
| 1,500 | 2,000 |
A further dividend of £750,000 (0.75 pence per share) was approved by the Board of Directors on 2 February 2010. The ex-dividend date was 10 February 2010 and the payment date is 26 February 2010.
6. Investment properties
|
| 31 December 2009 | 30 June 2009 |
|
| £000s | £000s |
| Cost at the beginning of the period | 134,277 | 133,809 |
| Capital expenditure | 65 | 468 |
| Cost of investment properties | 134,342 | 134,277 |
| Fair value adjustments | (28,901) | (21,201) |
| Foreign exchange translation | 40,249 | 33,912 |
| Fair value of investment properties at end of period | 145,690 | 146,988 |
7. Non-group loan receivables
Based on the new financing terms agreed in December 2009 and an update to the business plan of the Porto Kali portfolio, the estimated recoverable value of the Company's loan receivable related to the Porto Kali investment as at 31 December 2009 increased to £8.98 million (€10.1 million). The related reversal of impairment loss using a discounted cash flow model in the Group accounts was £0.86 million (€0.97 million) (2008: impairment loss £3.55 million (€4.35 million)), resulting in a revaluation gain allowance of £0.86 million (2008: impairment loss £3.55 million (€4.35 million)).
The discounted cash flow model involves the projection of expected cash receipts such as gross income less vacancy and collection losses and less operating and financial expenses for a period of 3 years starting from January 2010 along with an estimate of the exit value. To this projected cash flows series, a discount rate of 3% was applied, based on current short-term Eurozone interest rates plus a risk margin, to establish an indication of the present value of the loan.
8. Trade and other receivables
|
| 31 December 2009 | 30 June 2009 |
|
| £000s | £000s |
| VAT receivable | 230 | 852 |
| Witholding tax receivable | 524 | 270 |
| Accrued income | 163 | 256 |
| Rent receivable | 192 | 218 |
| Prepayments | 63 | 56 |
| Other receivable | 6 | 18 |
| Total | 1,178 | 1,670 |
9. Trade and other payables
|
| 31 December 2009 | 30 June 2009 |
|
| £000s | £000s |
| Investment Manager's fee | 836 | 1,061 |
| Other | 383 | 758 |
| Tax | 298 | 403 |
| Interest payable on drawdown facility | 317 | 376 |
| Legal and professional fees | 368 | 349 |
| VAT payable | 181 | 325 |
| Audit fee | 133 | 194 |
| Administration and Company Secretarial fees | 106 | 107 |
| Property acquisition costs | 32 | 31 |
| Directors' fees | 7 | 7 |
| Sponsor fees | 25 | 30 |
| Total | 2,686 | 3,641 |
10. Financial instruments
The Group is exposed to various types of risk that are associated with financial instruments. The Group's financial instruments comprise bank deposits, cash, derivative financial instruments receivables and payables that arise directly from its operations. The carrying value of financial asset and liabilities approximate the fair value.
The main risks arising from the Group's financial instruments are market risk, credit risk, liquidity risk, interest risk and currency risk. The Board review and agrees policies for managing its risk exposure. These policies are summarised below and have remained unchanged for the period under review.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate
as a means of mitigating the risk of financial loss from defaults. The Group and Company's exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-ratings agencies.
Liquidity risk
The Group may encounter liquidity risk when realising assets or otherwise raising funds to meet financial commitments. Investments in property are relatively illiquid, however, the Group has mitigated this risk by investing in desirable properties in strong locations.
The Group prepares forecasts annually in advance which enable the Group's operating cash flow requirements to be anticipated and ensures that sufficient liquidity is available to meet foreseeable needs and to invest any surplus cash assets safely and profitably. The Group also monitors the cash position in all subsidiaries to ensure that any working capital needs are addressed as early as possible.
Interest rate risk
Floating rate financial assets comprise the cash balances which bear interest at rates based on bank base rates. The Group is exposed to cash flow risk as the Group borrows funds under the loan facility with Credit Agricole Corporate and Investment Bank (formerly Calyon Corporate and Investment Bank) at floating interest rates. The Group manages this risk by using interest rate swaps and caps denominated in Euro. The swaps mature following the maturity of the related loans and have swap rates ranging
from 3.815% to 4.722%. At 31 December 2009, the Group had interest rate swaps with a notional contract amount of £77.86 million (€87.64 million) (June 2009: £74.64 million (€87.64 million)). This exposes the Group to interest rate risk as fluctuations in interest rates will affect the fair value of hedges.
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 from 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 recognized in profit and 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 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 (€1.60 million) quarterly interest receipts in Euro through the use of cross currency swaps.
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable for asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
| 31 December 2009 | Level 1 | Level 2 | Level 3 |
|
| £000s | £000s | £000s |
| Assets measured at fair value | |||
| Interest rate swaps | - | 19 | - |
| Liabilities measured at fair value | |||
| Interest rate swaps | - | 2,056 | - |
| Currency hedges | - | 2,912 | - |
| Forwards | - | 11,338 | - |
| Total |
| 16,306 | - |
|
|
|
|
|
| 30 June 2009 |
|
|
|
| Assets measured at fair value | |||
| Interest rate swaps | - | 40 | - |
| Liabilities measured at fair value | |||
| Interest rate swaps | - | 2,922 | - |
| Currency hedges | - | 2,754 | - |
| Forwards | - | 5,980 | - |
| Total | - | 11,656 | - |
11. Related party transactions
The Directors are responsible for the determination of the Company's investment objective and policy and have overall responsibility for the Group's activities including the review of investment activity and performance.
Mr Hunter, Chairman of the Company and Mr Ray, a Director of the Company, form the majority of the Directors of its subsidiaries, Property Trust Luxembourg 1 Sàrl, Property Trust Luxembourg 2 Sàrl and Property Trust Luxembourg 3 Sàrl and are able to control the investment policy of the Luxembourg subsidiaries to ensure it conforms with the investment policy of the Company. Mr Ray is also a Managing Director of AXA Real Estate Investment Managers Belgium S.A.
Mr Farrell, a Director of the Company, is also a partner in 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 £1,620 (2008: £nil) which was settled during the period.
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 statement of comprehensive income in respect of Northern Trust administration fees is £124,950 (2008: £96,548) for the period of which £nil (2008: £51,886) remained payable at the period end.
Under the Investment Management Agreement, fees are payable to the Investment Manager, Real Estate Adviser and other entities within the AXA Group. These entities are involved in the planning and direction of the Company and Group, as well as controlling aspects of their day to day activity, subject to the overall supervision of the Directors. During the period, fees of £638,001 (2008: £781,882) were expensed to the statement of comprehensive income. The total amount payable at the period end was £836,220 (2008: £1,061,397).
12. Commitments
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 £16.0 million (€18.0 million) secured over the property and shares of the joint venture. The Company has provided a guarantee to the lender, Credit Agricole Corporate and Investment Bank (formerly Calyon Corporate and Investment Bank), for £8.0 million (€9.0 million) on a several basis. The joint venture partner, European Added Value Fund Limited, has guaranteed the remaining 50% of the loan.
Commitments
On 19 November 2009, the Group entered into a lease with the German supermarket retailer Edeka for a new anchor store at its Phoenix Center retail park at Fuerth in Bavaria, Germany. The lease with Edeka Grundstücksgesellschaft Nordbayern-Sachsen-Thüringen mbH is for a fixed term of 15 years and six months and is conditional upon achieving a building permit to develop the 3,737m² unit. Receipt of the permit is anticipated in the first quarter of 2010 and delivery of the new unit is expected by October 2010.
Edeka currently occupy a 2,500m² unit, which will be refurbished and let to other existing tenants keen to expand within the retail park, as well as being marketed to new occupiers which will improve the tenant mix and the retail destination for the catchment population. The development project and the new lease to Edeka will secure the long-term prospects of the wider centre and is expected to have a positive impact on rental levels across the scheme.
The budgeted cost for the development of the 3,737m² unit and refurbishment of the 2,500m² unit is £4.3 million (€4.8 million), of which £3.24 million (€3.65 million) is committed under the terms of the Edeka lease. The project shows a yield on total cost (including current valuation of land and the former Edeka unit) of 9.43%. The Investment Managers believe that implementation of this project will provide exciting capital and income growth potential.
13. Post balance sheet events
Refinancing negotiations with Credit Agricole Corporate & Investment Bank ("Credit Agricole") on the Company's £71.83 million (€78.6 million) long term bank facility have been delayed beyond the expected timetable. With one exception, all major points of negotiation between Credit Agricole and the Company have largely been resolved. The delaying factor has been and continues to be the current negative mark to market value of the long term forward rate hedging agreements. Activities revolve around the resolution
of this issue. Despite this, the Investment Manager remains confident of the efficiency of this hedging strategy in the long term.
Following the lapse of the waiver, noted in the most recent Interim Management Statement RNS (dated 5 November 2009), the Investment Manager is seeking the best solution to resolve an LTV in excess of covenant as at 31 December 2009. Although the Company has sufficient free cash to reduce the LTV to the covenant level, it is currently discussing alternative solutions with Credit
Agricole.
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 Limited
125 Wood Street
London EC1A 7NX
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