Worsley Inv Ltd Regulatory News (WINV)

To: Company Announcements

Date: 29 November 2013

Company: AXA Property Trust Limited

Subject: Net Asset Value 30 September 2013 (Unaudited)

CORPORATE SUMMARY

The Company's unaudited Consolidated Net Asset Value at 30 September 2013 was £54.25 million (54.25 pence per share), a decrease of £4.97 millionsince 30 June 2013 when the NAV was £59.22 million (59.22 pence per share).

The Company and its subsidiaries made a loss after tax of -£4.55 million in the three month period to 30 September 2013.

MARKET UPDATE

The rise of 0.2% in Q3 EU28 GDP represented a second consecutive quarter of growth in the region. Whilst we do not yet have the breakdown for this growth, the picture that emerged from the second quarter's data was reasonably encouraging, given that it included a 0.2% rise in household consumption - only its second rise in the last 10 quarters. In addition, there was a small rise in fixed investment and the strongest contribution from government spending for over three years, reflecting that many of the harshest elements of the austerity measures are coming to an end. Moreover, Europe's confidence indicators are generally improving and are on the verge of turning positive, which would be the first time since 2011.

After 'testing the market' in May on the possible phasing out of its quantitative easing programme, the market's reaction to the US Federal Reserve's announcement - with a 1% point rise in 10-year US bond yields - was apparently more than it had expected. Consequently, it held back from even a nominal reduction. Short-term interest rates are, however, determined by domestic central banks, and the ECB and the BoE have continued to assure the markets that they will not be raised until a point much further ahead.

The recovery in retail sales in both the EU28 and the eurozone is becoming more clearly established, with the low point in sales established at the end of 2012, and growth of 0.7% and 0.6% recorded respectively in both areas in the three months to August compared to the previous three months.

The EU28 unemployment rate was 11.0% in September, with the eurozone at 12.2%, both unchanged from August, but the eurozone in particular still appears to be on an upward trend. The two main southern European countries remain of particular concern: Spain with 26.6% (the highest in Europe), and Italy at 12.6%, high and growing: it was 10.9% in September 2012.

The trend of deterioration in the RICS European Commercial Property Survey was again evident in the results of the Q2 survey. Greece and France stand at the bottom of the country rankings, while Germany and Belgium are at the top and the only two countries to record positive readings. Even in Germany, however, the demand indicator dipped slightly in the quarter. In France, the demand indicator has been very negative and, although improving somewhat in the previous two quarters, took a further dip in the second quarter. In the UK, the survey shows a continuing improvement in the occupier market with tenant demand remaining positive.

For Europe as a whole, prime retail rental values rose by 3.8% over the year to September 2013, a significantly better performance than for prime offices over the same period. But the recent quarterly growth has been more modest: Q1 was 0.5%, followed by -0.3%, and then 0.2% in Q3. Stripping out exceptional transactions in Q4 2012 would take the European rental value growth over the year to just over 1%.

In Italy persistently high unemployment and further austerity will continue to weigh on retail performance into 2014. Consumer confidence has improved but remains fragile as real disposable income declines further. Logistics activity is suffering from both the contraction in economic output and uncertain outlook. Logistics prime vacancy in Milan increased slightly since the end of 2012, to 7.2% at mid-2013, with vacancy in Rome also increasing, to an estimated 13% at mid-2013.

The third quarter transaction volume was EUR27bn, a 14% rise on the second quarter, which was, in turn, an 8% fall on the first quarter. There is, as we have mentioned before, a degree of seasonality in these figures, but stripping that out provides evidence of a rising quarterly trend of activity, suggesting that volumes in 2013 will exceed those of 2012.

In the RICS Investment Sentiment Index, Italy and Greece were at the bottom of the country rankings, with France and Spain also negative, while Germany and Belgium again topped the ranks with positive readings, albeit that Germany was less positive than in the first quarter.

Germany's five tier-one cities' prime retail yields each edged down by 0.1% point, the first falls since the third quarter of 2012. In the UK, it was the regional cities where the falls occurred. Having achieved in the second quarter an average prime yield level in the retail sector below that of the 'boom' period (pre-2009 recession), France recorded no change in the third quarter: the yield in central Paris is now 4.0%, identical to that of CBD offices. In Italy investment volumes started to increase in 2013 with total volumes during the first half of the year approaching 2009 levels. The outlook remains characterised by cautious optimism but there remains very limited investor interest, or financing available, for secondary assets in Italy.

OUTLOOK FOR 2014

OUTLOOK FOR RETAIL SECTOR

European consumer confidence has improved steadily since the beginning of 2013 and is now almost positive, pointing to a modest increase in consumption growth in the short to medium-term. Much will, however, depend on wage growth to sustain consumer spending. Because we believe that this will lag, we do not expect consumer spending to return to its long-term average before until at least late 2014. Significant national differences are likely to prevail in the next five years, with the strongest economies of northern Europe (Nordics, Poland), contrasting with the weakest southern European markets where retail spending is expected to remain below the levels reached pre-recession.

However, the retailers who have survived the recession have gained market share and are now in a better position to increase their profitability. Differentiation between retailers increasingly relies on the service provided and less on the products distributed, pointing towards a standardisation of multi-channel strategies which still require fairly large investments. As a result of this structural change, we expect retail markets to continue concentrating, with competition for the strongest locations supporting prime rental value growth. This will continue to be driven by high-end fashion and luxury goods, with earnings and profit growth from such retailers having far outperformed the general retail sector in recent years.

Prime shopping centre rental growth prospects are expected to underwhelm relative to recent history. On the supply side, the pipeline of European shopping centre space, estimated at 7m sq m[1], remains above its 10-year average (6.5m sq m). The vast majority of this, however, is in central and eastern Europe. However, it continues to contract, with more schemes being delayed. This fall is expected to continue over the medium-term as developers wait for the retail market to improve. As a result, new completions are not expected to have a significant dampening impact on prime rental value growth over the forecast period.

Our forecast of average prime rental value growth, at 2.1% p.a. over 2014 to 2016 (inclusive) masks different profiles of prime rental value growth with positive demand in the stronger northern European markets of the UK, Germany, and the Nordics, still contrasting with rental value falls in the south in the short-term. We are entering a phase in the cycle in which southern Europe will start to recover, but it will take time for tenant demand to gain enough traction to drive stronger prime rental value growth. In this context, only the top shopping centres and prime high streets are likely to garner new retailer demand, suggesting rental value falls for secondary retail property beyond 2014.

OUTLOOK FOR LOGISTICS SECTOR

With a gradual recovery in the European economy now taking hold, we would expect to see a similar improvement in occupier demand within the industrial sector, albeit with a short lag. This is becoming evident in the region's strongest economies and logistics regions, where vacancy rates are falling and build-to-suit construction is being initiated. However, with effective rental levels well below construction costs in many markets, the amount of speculative construction remains exceptionally low (below 5% of all space under construction).

We expect Grade-A, well-located assets in the relatively strong economies of Poland and the Nordics to outperform over the next three years because of stronger foreign and domestic demand, while the major logistics hubs in Belgium and Germany will also perform well. More generally, the sector will see changing dynamics in some markets, with those seeing the largest impact from the growth of online likely to see an emergence of the distribution models being seen in the US and the UK - large regional distribution hubs and then, increasingly, smaller distribution units around the major conurbations.

OUTLOOK FOR INVESTMENT MARKET

In the past few years, prime property has been perceived as something of a bond substitute, seeing yields decline not on the basis of rental value growth, but on a relative pricing basis compared to similar assets. We therefore expect prime property yields will begin to rise across Europe from 2014 as rising bond yields place upward pressure on pricing, despite our expectations of an improvement in rental value growth prospects. This is the picture at a European level and there will of course be markets where prime yields will be falling - Copenhagen, Dublin and, more generally, the logistics sector - as markets previously ignored by investors see growing interest and activity. At a European level, we expect the bulk of the prime yield rises to be recorded between 2014 and 2016. In southern Europe, of course, property yields have been rising since the recession, as the slow process of price discovery progresses. But their bond yields have actually been falling, both in absolute terms and relative to the northern European markets. This 'convergence of pricing' has provided an opportunity for prime property purchases, which would suggest that competition may soon start pushing down yields in these markets, in contrast to northern Europe.

Our expectation of falling industrial yields in 2014 and growing competition for product in the periphery fits alongside our view that as risk aversion wears off, demand will move towards second-tier locations and property types (although initially not both at the same time). We are already seeing evidence of this in the UK, which is leading the cycle and the recovery. Indeed, demand is spreading out beyond what we would deem 'good secondary' assets to the broader secondary market. The cycle is not so far advanced in the rest of Europe, where we expect the agents' quoted secondary property yields to rise further towards the levels being seen in the (admittedly thinly traded) transactional markets. Good secondary product will begin to garner more interest as the recovery strengthens, but yields for these properties are unlikely to fall quickly given their limited rises to-date.

CONSOLIDATED PERFORMANCE SUMMARY

Source: Datastream; AXA Real Estate

Total net loss was -£4.55 million (-4.55 pence per share) for the three months to 30 September 2013, including £0.40 million of "revenue" profit (excluding capital items such as revaluation of property) and -£4.55 million "capital" loss analysed as follows:

NET ASSET VALUE

The Company's unaudited Consolidated Net Asset Value per share as at 30 September 2013 was 54.25 pence (59.22 pence as at 30 June 2013), a decrease of 4.97 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 2013.

The £4.97 million decrease in Net Asset Value over the quarter ended 30 September 2013 can be analysed as follows:

In Sterling terms the property valuation decreased by £17.37m (15.4%) to £95.74m (including the effects of valuation movements, capital expenditure, disposals and foreign exchange movements). On a like-for-like basis the Euro valuation of the property portfolio decreased by EUR5.0m (4.19%) to EUR114.54 million for the quarter. The £/EUR foreign exchange rate applied to the Company's Euro investments in its subsidiary companies at 30 September 2013 was 1.196 (30 June 2013: 1.167).

SHARE PRICE AND DISCOUNT TO NET ASSET VALUE

As at close of business on 30 September 2013, the mid market price of the Company's shares on the London Stock Exchange was 43.00 pence, representing a discount of 20.7% on the Company's Net Asset Value at 30 September 2013.

As at close of business on 27 November 2013, the mid market price of the Company's shares was 44.13 pence, representing a discount of 18.7% on the Company's Net Asset Value at 30 September 2013.

FUND GEARING

*Portfolio value based on the Company's independent valuation

Fund net gearing decreased by 1.5 percentage points over the quarter to 38.8% as at 30 September 2013.

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.

Company website:

http://www.axapropertytrust.com

All Enquiries:

Investment Manager 

AXA Investment Managers UK Limited

Broker Services

7 Newgate Street

London EC1A 7NX

Tel: +44 (0)20 7003 2345Email: broker.services@axa-im.com

Broker

Oriel Securities Limited

Neil Winward

Tel: +44 (0)20 7710 7600

Company Secretary

Northern Trust International Fund Administration Services (Guernsey) Limited

Trafalgar Court

Les Banques

St Peter Port

GY1 3QL

Tel: +44 (0)1481 745324

Fax: +44 (0)1481 745085