Last checked at 
3 Nov 2011 07:00
To: Company Announcements
Date: 3 November 2011
Company: AXA Property Trust Limited
Subject: Interim Management Statement
CORPORATE SUMMARY
- The Company and its subsidiaries made a net profit after tax of £0.48 million in the three month period to 30 September 2011;
- The Company's unaudited Consolidated Net Asset Value at 30 September 2011 was £67.91 million (67.91 pence per share) (£74.74 million (74.74 pence per share) as at 30 June 2011), a decrease of £6.83 million mainly due to foreign exchange translation losses;
- In order to prudently manage the Company's cash and as a result of capital expenditure requirements, combined with the costs of the recent refinancing, the dividend declared in respect of the quarter ending 30 September 2011 has been reduced to 0.50 pence per share. The Company also expects to maintain the 0.50 pence per share in respect of the dividend for the quarter ending 31 December 2011, however, it is the Company's intention torestore the 0.75 pence per share quarterly dividend by March 2012;
- The Board is of the view that the increased occupancy and higher income as a result of the lettings at Fuerth will provide long term benefits to the Company and that the necessary reduction to the dividend in the short term will lead to longer term benefits to shareholders.
PORTFOLIO UPDATE
Country Allocation at 30 September 2011
Country % of portfolio
Germany 63%
Netherlands 15%
Italy 18%
Belgium 4%
Sector Allocation 30 September 2011
Sector % of portfolio
Retail 62%
Industrial 17%
Office 11%
Leisure 10%
The letting agreed at Fuerth is a 10 year lease to international furniture retailer Seats & Sofas.It was previously reported that 15 year lease had been agreed, but in final negotiations this has been reduced. The Landlord will invest €750,000 to deliver the unit in a lettable condition, and an estimated 12% per annum return on investment based on the incremental income over existing estimated rental value (ERV) from this letting.
This letting represents, nevertheless, a significant achievement and demonstrates the improving position of the Centre within the catchment and will further enhance the Centre's profile by attracting new tenants after the expansion undertaken by existing tenants Edeka and C&A.
International German coffee and non-food products retailer Tchibo has made an offer to take the unit to be vacated by C&A (916 sqm) on a 5 year lease. Discussions are ongoing and an agreement should be reached in the coming weeks.
The interest on the 3 assets identified for sale in Germany has been strong, following the appointment of agents Corpus Sireo. A substantial number of investors have shown interest in the 3 assets and the deadline for offers is expected to be set by mid-November.
Completing on these sales will support the Company's position in the forthcoming LTV test on the main facility at 30 June 2012 (see the section on fund gearing below).
MARKET UPDATE
Eurozone growth slowed significantly during Q2 2011 (0.2% compared to an average of 0.5% over the previous three quarters) and H2 2011 is likely to see further deterioration in economic performance as front loaded austerity measures continue to impact. The Purchasing Managers Indices (PMIs), reflecting business confidence, are dipping down but remain close to expansionary levels and governments are expected to implement sufficient support to avoid a eurozone 'double-dip'. Whilst we believe that recession will be avoided, a euro-event may not.
Following strong GDP growth in the first quarter of 2011 (1.3% q-o-q), German growth slowed considerably in Q2 (0.1% q-o-q, 2.8% over the year). Whilst we expect the third quarter to have grown stronger again, the short-term outlook for the German economy has weakened. With global trade levels slowing following their strong post-recession recovery, and the effects of austerity and continued concern resulting from the ongoing euro crisis, we expect limited GDP growth during the final quarter of 2011 and early 2012.
Across Europe as a whole, household consumption, which would normally be expected to be a leading growth factor in this phase of the cycle, has been subdued, highlighting the continued fragility of the economic recovery. The peripheral Europe economies are being particularly impacted as austerity programmes are now directly impacting the consumer. In Germany, private consumption declined by 0.7% in Q2, despite real wage growth of 2% in H1 2011, which was triggered by low unemployment and good corporate results. Given the worsening economic outlook, we expect Germany's private consumption growth to remain weak in 2012. From 2013 onwards, however, we should see a pick-up of consumption in Germany and across Western Europe, as the impacts of front-loaded austerity measures reduce and consumer confidence builds.
Following the 2.2% increase of German prime retail rents over the second quarter of 2011, Q3 saw rents remaining flat, as has been the case for most of the period since mid-2008. Although the economic prospects for 2012 are weak, we expect prime rents to increase slightly, as a result of limited supply but continued demand from international retailers. However, as in most other markets, occupier demand is largely restricted to prime - secondary locations have suffered from weakening demand, with the continued squeeze of retailer profitability reducing expansionary plans and resulted in retailer failures.
Continued, heightened risk-aversion resulting from the ongoing euro crisis, within a weak economic growth environment, is driving investors towards 'safer' assets and the market continues to polarise. Investors are increasingly differentiating between assets with upside potential and those with significant downside risk resulting. Germany will remain a main target for investments due to investors' perception of it being a relative safe haven.
As the general prospects for rental growth and yield compression remain weak across Europe, we anticipate income returns to be the main driver of the Company's returns. The implementation of identified asset management initiatives, particularly at Fuerth, to reduce vacancy and improve the Company's income profile remains the focus and should be the main driver of performance in the medium term.
CONSOLIDATED PERFORMANCE SUMMARY
Audited | Unaudited | ||
12 months ended | 3 months ended | ||
30 June 2011 | 30 September 2011 | Quarterly Movement | |
Pence per share | Pence per share | Pence per share /(%) | |
Net Asset Value per share | 74.74 | 67.91 | -6.83 (-9.1%) |
Earnings per share | -4.38 | +0.48 | n/a |
Dividend declared in the period | 3.00 | 0.75 | n/a |
Share price (mid market) | 50.13 | 48.50 | -1.63 (-3.2%) |
Share price discount to Net Asset Value | 32.9% | 28.5% | -4.4 percentage pts. |
Total return | Audited | Unaudited |
12 months ended | 3 months ended | |
30 June 2011 | 30 September 2011 | |
Net Asset Value Total Return | -0.4% | -8.1% |
Share Price Total Return | ||
- AXA Property Trust | 14.2% | -1.8% |
- FTSE All Share Index | 25.6% | -13.5% |
- FTSE Real Estate Investment Trust Index | 43.8% | -20.8% |
Source: Datastream; AXA Real Estate
Total net profit was £0.48 million (+0.48 pence per share) for the three months to 30 September 2011, including £1.56 million of "revenue" profit (excluding capital items such as revaluation of property) and -£1.08 million "capital" loss analysed as follows:
Audited | Unaudited | |
12 months ended | 3 months ended | |
30 June 2011 | 30 September 2011 | |
£million | £million | |
Net property income | 10.33 | 2.82 |
Net foreign exchange (losses)/gains | (1.07) | 0.42 |
Investment Manager's fees | (1.35) | (0.35) |
Other income and expenses | (1.48) | (0.42) |
Net finance costs | (2.06) | (0.87) |
Current tax | (0.33) | (0.04) |
Revenue profit | 4.04 | 1.56 |
Unrealised losses on revaluation of property | (1.19) | (1.11) |
Gain on disposal of investment property | 0.41 | - |
Unrealised losses on revaluation of Porto Kali investment (loan receivable) | (7.29) | - |
(Losses)/gains on derivatives (hedging interest rate and currency exposures) | (5.82) | 0.29 |
Finance costs | (0.92) | (0.21) |
Net foreign exchange gains/(losses) | 6.37 | (0.02) |
Deferred tax | 0.02 | (0.03) |
Capital loss | (8.42) | (1.08) |
Total net (loss)/profit | (4.38) | 0.48 |
NET ASSET VALUE
The Company's unaudited Consolidated Net Asset Value per share as at 30 September 2011 was 67.91 pence (74.74 pence as at 30 June 2011), a decrease of 6.83 pence.
The Net Asset Value attributable to the Ordinary Shares is calculated under International Financial Reporting Standards. It includes all current year income after the deduction of dividends paid prior to 30 September 2011, but does not include provision for the quarterly interim dividend of 0.50 pence per share announced on 3 November 2011 and to be paid on 29 November 2011.
The £6.83 million decrease in Net Asset Value over the quarter ended 30 September 2011 can be analysed as follows:
Audited | Unaudited | |
3 months ended | 3 months ended | |
30 June 2011 | 30 September 2011 | |
£million | £million | |
Opening Net Asset Value | 74.06 | 74.74 |
Net profit after tax | +4.68 | +0.48 |
Unrealised movement on derivatives | +1.40 | (2.47) |
Dividends paid | (0.75) | (0.75) |
Foreign exchange translation losses | (4.65) | (4.09) |
Closing Net Asset Value | 74.74 | 67.91 |
The sterling valuation of the property portfolio decreased to £139.0 million (including the effects of foreign exchange movements and capital expenditure) (30/06/2011: £145.98 million). The £/€ foreign exchange rate applied to the Company's Euro investments in its subsidiary companies at 30 September 2011 was 1.167 (30 June 2011: 1.1073).
The Company's net property yield on current market valuation (after acquisition and operating costs) as at 30 September 2011 was 7.23% (7.08% as at 30 June 2011).
SHARE PRICE AND DISCOUNT TO NET ASSET VALUE
As at close of business on 30 September 2011, the mid market price of the Company's shares on the London Stock Exchange was 48.50 pence, representing a discount of 28.5% on the Company's Net Asset Value at 30 September 2011 and a forecast 5.2% annual dividend yield for the year to 30 June 2012.
As at close of business on 1 November 2011, the mid market price of the Company's shares was 46.25 pence, representing a discount of 31.8% on the Company's Net Asset Value at 30 September 2011 and a forecast 5.4% annual dividend yield.
DIVIDENDS
In order to prudently manage the Company's cash and as a result of capital expenditure requirements, combined with the costs of the recent refinancing, the dividend declared in respect of the quarter ending 30 September 2011 was reduced to 0.50 pence per share. The Company also expects to maintain the 0.50 pence per share in respect of the dividend for the quarter ending 31 December 2011; however, it is the Company's intention torestore the 0.75 pence per share quarterly dividend by March 2012.
The interim dividend of 0.50 pence per share in respect of the quarter ending 30 September 2011 was declared on 3 November 2011, with an ex-dividend date of 9 November 2011, record date of 11 November 2011 and payment date of 29 November 2011. Dividends will be paid from the Company's cash resources of £3.14 million at the quarter end.
The dividends of £0.50 million declared in respect of the 3 months period ended 30 September 2011 were 312.0% covered by "revenue" profits.
FUND GEARING
Audited | Unaudited | ||
30 June 2011 | 30 September 2011 | Movement | |
£million /% | £million /% | £million /% | |
Property portfolio | 145.98 | 139.00 | -6.98 (-4.8%) |
Borrowings | 72.59* | 69.41* | -3.18 (-4.4%) |
Total gross gearing | 49.7% | 50.0% | +0.3 percentage pts |
Total net gearing | 46.9% | 47.6% | +0.7 percentage pts |
*Net of capitalised issue costs.
Fund gearing increased by +0.3 percentage points over the quarter to 50.0% as at 30 September 2011.
Fund gearing is included to provide an indication of the overall indebtedness of the Company and does not relate to any covenant terms in the Company's loan facilities. Gross gearing is calculated as debt over property portfolio at fair value. Net gearing is calculated as debt less cash over property portfolio at fair value.
LOAN FACILITIES
Gross Loan to Value (LTV) Covenants | Audited | Unaudited | |
30 June 2011 | 30 September 2011 | Maximum | |
Main loan facility | 55.0%* | 51.5%** | 65.0% |
Joint venture Property Trust Agnadello S.r.l. | 59.6%* | 62.5%** | 65.0% |
*Portfolio value based on lenders valuation.
** Portfolio value based on the Company's independent valuation.
The next covenant testing on the main portfolio will be at 30 June 2012, where the loan should not be in excess of 50% loan-to-value. As at 30 September 2011 this ratio is 51.5% based on the Company's independent valuation.
Interest Cover Ratio at 30 September 2011 | Historic (Unaudited) | Minimum | Projected (Unaudited) | Minimum | Net rental income headroom |
Main loan facility covenant | 300.4% | 200.0% | 281.2% | 185.0% | 34.21% |
Joint venture Property Trust Agnadello S.r.l. | 568.9% | 125.0% | 573.7% | 125.0% | 78.2% |
Interest Cover Ratio (ICR) is calculated as net financing expense payable as a percentage of net rental income less movement in arrears. Net rental income headroom is based on projected interest cover.
CASH POSITION AND CAPITAL EXPENDITURE
The Company and its subsidiaries held total cash of £3.14 million (€3.64 million) at 30 September 2011. The anticipated capital expenditure over the next twelve months is £1.1 million.
MATERIAL EVENTS
Except for those noted above, the Board of the Company is not aware of any significant event or transaction which occurred between 30 September 2011 and the date of the publication of this Statement which would have a material impact on the financial position of the Company.
Company website:
http://www.axapropertytrust.com
All Enquiries:
Investment Manager
AXA Investment Managers UK Limited
7 Newgate Street
London EC1A 7NX
Tel: 0845 766 0184Email: broker.services@axa-im.com
Sponsor and Broker
Oriel Securities Limited
Joe Winkley
Tel: +44 (0)20 7710 7600
Email: joe.winkley@orielsecurities.com
Neil Winward
Tel: +44 (0)20 7710 7460
Email: neil.winward@orielsecurities.com
Company Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
Trafalgar Court
Les Banques
St Peter Port
GY1 3QL
Tel: +44 (0)1481 745604
Fax: +44 (0)1481 745085