Interim Management Statement & Net Asset Value

RNS Number : 5216C

AXA Property Trust Ld

02 May 2012

To: Company Announcements

Date: 02 May 2012

Company: AXA Property Trust Limited

Subject: Interim Management Statement 31 March 2012

CORPORATE SUMMARY

- The Company's unaudited Consolidated Net Asset Value at 31 March 2012 was £62.34 million (62.34 pence per share), £63.65 million (63.65 pence per share) as at 31 December 2011), a decrease of £1.31 million;

- The Company and its subsidiaries made a loss after tax of -£0.78 million in the nine month period to 31 March 2012;

- The Company has restored the dividend to 0.75 pence per share in respect of the quarter ending 31 March 2012 (3.0 pence on an annualised basis). The dividend declared of 0.75 pence per share for the quarter will be paid on 25 May 2012;

- Following the successful disposal of the assets at Moosburg and Muhldorf, an offer of €5.7m has been accepted for the asset located at Treuchtlingen, Germany. These sales are a significant step in positioning the Company for the forthcoming LTV test on the main loan facility at 30 June 2012.

PORTFOLIO UPDATE

Country Allocation at 31 March 2012 (by value)

Country % of portfolio

Germany 69%

Italy 21%

Netherlands 5%

Belgium 5%

Sector Allocation at 31 March 2012 (by value)

Sector % of portfolio

Retail 68%

Industrial 20%

Leisure 12%

In Fuerth existing tenant C&A has completed the refurbishment works in the unit previously occupied by Rofu and are now in occupation and have been trading since February 2012. A new 10 year lease has been agreed with a local operator to take over the discotheque unit. The tenant will invest circa €250k and in return the landlord has agreed to a break option at the end of 2013.

Lease extensions have also been agreed and signed with existing tenants Danishes & Bettenlager (D&B) and Voegele. D&B has agreed to a five year extension to April 2018 in return for a landlord contribution of four months rent free and €43k towards the installation of a new air conditioning unit. Voegele has signed a 10 year extension to February 2023 with an option to break in February 2020 in return for two months rent free in 2013 and two months in 2014. The tenant will invest €185k in the refurbishment of the unit.

Following the letting at Fuerth with international furniture retailer Seats & Sofas, the planning application for change of use was submitted to the local authority and consent has now been granted. The refurbishment works will commence immediately and the unit is expected to be delivered to the tenant by the end of Q3 2012.

At Dasing the tenant DB Schenker is no longer in a position to extend their lease on two units (totalling 7,294m²) from June 2012 to June 2014. Negotiations are progressing with regards to an extension of the lease for the remaining 9,580m² expiring in September 2012.

Following the successful disposal of the assets at Moosburg and Muhldorf, an offer of €5.7m has been accepted for the asset located at Treuchtlingen. The notarisation took place on the 27 April 2012 and the completion is expected to take place before the end of Q2 2012.

A further asset in Germany is under offer, Pankower Allee, at a value above valuation. Further offers are expected following significant interest from prospective purchasers. The sale of this asset is in accordance with the Manager's strategy to divest from eastern Germany and diversify into other jurisdictions, notably France.

MARKET UPDATE

As we move into Q2 2012, the latest economic downturn, which was expected to have become a mild recession, appears to be ending. This is reflected in improvements to the leading indicators - suggesting that the economy will stabilise in Q2 2012. Compared to the 2008/9 recession and its subsequent muted recovery, the overall drop in output is not of great concern. There are, however, two significant issues that arise: confidence in the eurozone and the resulting regional polarisation. Consequently, while we expect growth to be positive in the remaining quarters of the year, we also expect it to be low, so that 2012's GDP will be little different from that of 2011 and marginally below our outlook from last quarter.

This more negative perspective for 2012 can be substantially attributed to both the recent extensions to existing austerity measures and our belief that the consequences of the programmes will be more detrimental to economies than we had previously estimated. The most extreme case of extended austerity is Greece, a country that is now in a depression, which was denied access to its second tranche of 'bail-out' finances until it agreed to a very demanding set of cost reductions. However, while Greece represents just over 2% of the eurozone's GDP, Italy, the third largest eurozone economy, implemented yet another programme in December 2011. But it is not just southern Europe that extended its austerity programmes - Germany's 2013 budget, currently in preparation, is expected to include many billions of euros in savings, together with bringing forward restrictions on state borrowing.

Germany could not decouple from the general European trend of detracting economic output in Q4 2011 as GDP fell by 0.3% over the quarter. Despite the weakness of last year's last quarter, sentiment and leading indicators improved markedly during the first months of this year. We nevertheless do not expect to see a quick economic recovery, but assess the improving sentiment to indicate a stabilisation - or stagnation - during the first half of this year with a return to growth in the second half.

Looking across the property sectors, our European retail rental value growth forecasts have been revised down from 1.8% to 1.7% p.a. for the period from 2012 to 2014. Generally, retail sales are expected to fall or, at best, to remain static over 2012 and this will be a large contributor to rental value falls, even at the prime end of the market. Two factors, in particular, will impact retailer performance over our forecast period - the first being the austerity programmes, and the second the growth of e-commerce. Despite these factors, for prime locations in main retail cities in Germany, for example, we expect tenant demand to remain robust, as a result of continued appetite from international retailers. However, average and secondary locations have not, and we believe will not, benefit from such demand and rents will have to fall to encourage occupation.

Our outlook for the office sector, reflecting our reduced economic forecasts, has weakened -we have revised down our European office rental value growth forecasts for 2012 to 2014 from a cumulative 6.4% to 4.9%. This is most evident in Spain and Italy where over the 3 year period our forecasts have been downgraded by 11% points and ultimately, the recovery lowered and pushed out by a year. We believe that office markets with exposure to the banking, finance, professional and business service sectors will remain the stronger performers over the years to 2013. The majority of regional office markets are struggling with the combined negative effects of a supply-overhang, historically high vacancy levels and a lack of demand from the public sector, limiting potential rental value growth in the short term.

With the growth in trade reduced in 2012, net demand for logistics space will be limited as the industry remains driven by consolidation in the short term. The deterioration in confidence amongst occupiers towards the end of 2011 is expected to hold during 2012. We expect tenants to continue focus on cost-cutting rather than funding expansionary activities. However, in the best locations there are tentative signs of voids falling at the prime end of the market, with pockets of undersupply emerging. Some developers have begun speculative development but only in the best locations in Germany and Poland, where fundamentals are stronger. We remain cautious about older stock and believe that obsolescence will be highest in the short term, as tenants continue relocating to modern units.

In this weak economic environment with limited occupier market improvement, we believe that risk aversion remains firmly intact for property investors, and that is not likely to change in the short-term. This will support the pricing for prime/core property in the next two years. But, conversely, that is also our estimate of time required before tenant demand perceptions and de-pricing converge to make secondary property more attractive.

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

	Unaudited	Unaudited
	6 months ended	9 months ended
	31 December 2011	31 March 2012	Quarterly Movement
	Pence per share	Pence per share	Pence per share /(%)
Net Asset Value per share	63.65	62.34	-1.31 (-2.1%)
Earnings per share	-0.48	-0.78	-0.30
Dividend paid in the period	1.25	1.75	0.50
Share price (mid market)	41.75	35.38	-6.37 (-15.3%)
Share price discount to Net Asset Value	34.4%	43.2%	8.8 percentage points.

Total return	Unaudited	Unaudited
	6 months ended	9 months ended
	31 December 2011	31 March 2012
Net Asset Value Total Return	-5.5%	-1.3%
Share Price Total Return
- AXA Property Trust	-14.5%	-26.5%
- FTSE All Share Index	-6.2%	-0.5%
- FTSE Real Estate Investment Trust Index	-27.7%	-13.1%

Source: Datastream; AXA Real Estate

Total net loss was -£0.78 million (-0.78 pence per share) for the nine months to 31 March 2012, including £3.33 million of "revenue" profit (excluding capital items such as revaluation of property) and -£4.11 million "capital" loss analysed as follows:

	Unaudited	Unaudited	Unaudited
	6 months ended	3 months ended	9 months ended
	31 December 2011	31 March 2012	31 March 2012
	£million	£million	£million
Net property income	5.36	2.39	7.75
Net foreign exchange gains/(losses)	0.55	(0.13)	0.42
Investment Manager's fees	(0.66)	(0.26)	(0.92)
Other income and expenses	(0.84)	(0.36)	(1.20)
Net finance costs	(1.73)	(0.81)	(2.54)
Current tax	(0.14)	(0.04)	(0.18)
Revenue profit	2.54	0.79	3.33

Unrealised losses on revaluation of investment properties	(3.06)	(0.47)	(3.53)
Losses on disposal of investment properties	0.00	(0.34)	(0.34)
Gains on derivatives (hedging interest rate and currency exposures)	0.50	0.14	0.64
Finance costs	(0.40)	(0.46)	(0.86)
Net foreign exchange losses	(0.03)	(0.04)	(0.07)
Deferred tax	(0.03)	0.08	0.05
Capital loss	(3.02)	(1.09)	(4.11)

Total net loss	(0.48)	(0.30)	(0.78)

NET ASSET VALUE

The Company's unaudited Consolidated Net Asset Value per share as at 31 March 2011 was 62.34 pence (63.65 pence as at 31 December 2011), a decrease of 1.31 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 31 March 2012, but does not include provision for the quarterly interim dividend of 0.75 pence per share announced on 02 May 2012 and to be paid on 25 May 2012.

The £1.31 million decrease in Net Asset Value over the quarter ended 31 March 2012 can be analysed as follows:

	Unaudited	Unaudited
	3 months ended	3 months ended
	31 December 2011	31 March 2012
	£million	£million
Opening Net Asset Value	67.91	63.65

Net loss after tax	(0.96)	(0.30)
Unrealised movement on derivatives	(0.41)	(0.37)
Dividends paid	(0.50)	(0.50)
Foreign exchange translation losses	(2.39)	(0.14)
Closing Net Asset Value	63.65	62.34

The Euro valuation of the property portfolio decreased by 0.6% to €149.8 million. In Sterling currency terms, the property valuation was £124.92 million (including the effects of valuation movements, capital expenditure and foreign exchange movements). The £/€ foreign exchange rate applied to the Company's Euro investments in its subsidiary companies at 31 March 2012 was 1.20 (31 December 2011: 1.19).

The Company's net property yield on current market valuation (after acquisition and operating costs) as at 31 March 2012 was 7.17% (7.33% as at 31 December 2011).

SHARE PRICE AND DISCOUNT TO NET ASSET VALUE

As at close of business on 31 March 2012, the mid market price of the Company's shares on the London Stock Exchange was 35.38 pence, representing a discount of 43.2% on the Company's Net Asset Value at 31 March 2012 and a forecast 7.1% annual dividend yield for the year to 30 June 2012.

As at close of business on 30 April 2012, the mid market price of the Company's shares was 34.50 pence, representing a discount of 44.6% on the Company's Net Asset Value at 31 March 2012 and a forecast 7.2% annual dividend yield.

DIVIDENDS

The Company has restored the dividend of 0.75 pence per share in respect of the quarter ended 31 March 2012 as advised in the last dividend announcement.

The interim dividend of 0.75 pence per share was declared on 02 May 2012, with an ex-dividend date of 9 May 2012, record date of 11 May 2012 and payment date of 25 May 2012. Dividends will be paid from the Company's cash of £5.80 million at the quarter end.

The cumulative dividends of £1.75 million declared and paid during the 9 month period ended 31 March 2012 were 190.2% covered by "revenue" profits.

FUND GEARING

	Unaudited	Unaudited
	31 December 2011	31 March 2012	Movement
	£million /%	£million /%	£million /%
Property portfolio	133.10	124.92	-8.18 (-6.1%)*
Borrowings (net of capitalised issue costs)	67.45	62.90	-4.55 (-6.7%)*
Total gross gearing	50.6%	50.3%	-0.3 percentage pts
Total net gearing	48.7%	45.7%	-3.0 percentage pts

*Includes the impact of the recent asset sales in Germany at Mossburg (€4.22 million) and Muehldorf (€4.63), resulting in a decrease in property portfolio and related borrowings.

Fund gearing decreased by -0.3 percentage points over the quarter to 50.3% as at 31 March 2012.

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	Unaudited	Unaudited
	31 December 2011	31 March 2012	Maximum
Main loan facility *	52.2%	49.5%	65.0%
Joint venture Property Trust Agnadello S.r.l.*	62.5%	60.4%	65.0%

* Portfolio value based on the Company's independent valuation.

As at 31 March 2012, the loan-to-value ratio on the main facility was 49.5% based on the Company's independent valuation from Knight Frank, and after applying the surplus proceeds from the two realised asset sales in February 2012.

The next covenant testing on the main facility will be at 30 June 2012, where the loan should not be in excess of 50% loan-to-value. Applying the surplus proceeds from the expected asset sale post March 2012 at Treuchtlingen, Germany, would enable the Company to achieve a projected LTV of 47.4%. This implies a 5% headroom on the property valuation over and above the 50% LTV ratio.

Interest Cover Ratio at 31 March 2012

Historic

(Unaudited)

Minimum

Projected

(Unaudited)

Minimum

Net rental income headroom

Main loan facility covenant

291.5%

200.0%

294.1%

185.0%

37.1%

Joint venture Property Trust Agnadello S.r.l.

458.9%

125.0%

488.8%

125.0%

76.3%

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 £5.80 million (€6.95 million) at 31 March 2012, including surplus proceeds of £2.68 million (€3.22 million) in relation to the recent asset sales. The anticipated capital expenditure over the next twelve months is £1.08 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 31 March 2012 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

Broker Services

7 Newgate Street

London EC1A 7NX

Tel: 0845 766 0184
Email: broker.services@axa-im.com

Sponsor and Broker

Oriel Securities Limited

Joe Winkley