Final Results

AXA Property Trust Ld 25 October 2006 AXA PROPERTY TRUST LIMITED PRELIMINARY PROFIT ANNOUNCEMENT These are not the Company's statutory financial statements. All figures are based on audited financial statements. Chairman's Statement Introduction This is the first annual report of AXA Property Trust Limited ('the Company'). I am pleased that the period since flotation in May 2005 has been successful for the Company. As at 30 June 2006 AXA Real Estate Investment Managers UK Limited (the 'Real Estate Adviser') had invested Â£76,598,000 across Europe. As at 30 September 2006 the sum of committed funds (completed, contracted and optioned assets) amounted to some Â£115,885,000, representing the commitment of a substantial proportion of the Company's total funds available for investment (including 35% gearing). Overall, the Group has generated a net profit of Â£2,955,000 in the 57 week period to 30 June 2006. Excluding one-off formation costs, net profit was Â£4,220,000. After deduction of one-off costs incurred as part of the set-up and investment phase, net asset value at 30 June 2006 was Â£98,870,000 (98.87 pence per ordinary share). Portfolio Formation Through its European network of offices, the Real Estate Adviser has reviewed over Â£7 billion of prospective property purchases in Continental Europe and the UK during the reporting period. The Investment Manager, AXA Investment Managers UK Limited (the 'Investment Manager'), has focussed on selecting a portfolio which meets the objectives of the Company in providing the target income yield, offering value and potential for growth. With the advantage of unrivalled access to local markets I believe the Company has been able to build a quality tailor-made portfolio, rather than one which involves commitment to a single existing portfolio. Diversification is being achieved through differing lot sizes, spread through countries and regions within countries, further spread across types of sector and sub sector (for example, retail both in and out of town), across types of tenant and by differing lease lengths. The Investment Manager does not believe risk weighted returns will be enhanced through simple diversification over national boundaries. I am very pleased to report that as at 30 June 2006 the Company has achieved a portfolio current rental yield before property expenses and acquisition costs of 8.1% (current rental yield after property and acquisition costs of circa 6.8%). I believe that this can be primarily attributed to the Real Estate Adviser's understanding of local markets. In the Real Estate Adviser's view, the rental income can be considered to be well secured both in terms of duration and well rated tenant credentials. As the weight of money in the Continental property investment markets has continued to build over the last 18 months, trading prices have risen and yields have fallen, providing, in the Investment Manager's view, strong potential for capital appreciation on the acquired portfolio. Dividend The Company has paid dividends for the reporting period amounting to Â£5,000,000, representing a cumulative annualised dividend yield of 4.53% of the issue price for the reporting period to 30 June 2006. This is slightly below the distribution target in the Company's prospectus for the financial period to 30 June 2006 of around 5.0%. The lower dividend yield reflects a slightly slower rate of investment than initially anticipated together with lower yields on cash deposits than assumed in the Prospectus. The outlook for future dividends is positive as the Company becomes fully invested and the benefits of gearing are reflected in returns. In addition, the Company will benefit from the attractive income yields on the property investments already completed as well as potential future indexation and rental growth. Summary and Prospects As noted in the Investment Manager's Report, the Board has recently decided to approve a modest increase in gearing to 45%, providing an estimated potential total fund size of Â£160,660,000. The Company will continue to build on its successful acquisition programme, taking advantage of attractive acquisition opportunities potentially available, particularly in Continental markets. I believe that the property market, especially in selected parts of Continental Europe, has good prospects in the next financial year. Compared to the UK there are higher yields available, the weight of money overhanging the market is likely to persist over the year and rental markets appear to be gradually strengthening. None of these markets is however, immune to global economic forces and geo-political events, but rental flows backed by strong corporate tenants are likely to underwrite returns. I am confident of the Company's prospects for the next twelve months with the potential for value enhancement of the existing portfolio through active portfolio management, coupled with a sound income base and a good market background. Charles Hunter Chairman Investment Manager's Report Investment Manager AXA Real Estate Investment Managers UK Limited (the 'Real Estate Adviser') is a wholly owned, indirect subsidiary of AXA Real Estate Investment Managers S.A., which is in turn a wholly owned subsidiary of AXA Investment Managers S.A. AXA Real Estate Investment Managers S.A. is a specialist in European real estate investment management with over â‚¬30 billion of real estate assets under management, of which the Real Estate Adviser manages approximately â‚¬10.5 billion. Real Estate Market For the reporting period to 30 June 2006 most real estate markets across Europe have shown significant positive performance, primarily as a result of yield compression. The European investment market remained buoyant, with the strong inflow of debt and equity into real estate forcing property yields further downwards, especially in Germany, Spain, and France. Although there is still a considerable amount of capital committed to real estate investments, market sentiment and performance may ease in 2007, particularly should investors choose to realise their capital gains. However, as occupier demand increases on the back of the improving European economy and supply continues to lag, we expect rental growth in 2007 to improve further. In terms of sector performance and outlook, the second half of 2006 has seen an upturn in consumer demand, with household consumption and retail sales growth improving across European markets. We expect this growth to continue over the short to medium term in selected Western European countries, particularly Germany and France. We also expect growth to continue in the medium to long term across Central and Eastern Europe. Whilst there is still considerable shopping centre and retail park stock in the development pipeline we expect further rental growth and yield compression in selected markets. In particular, we expect prime locations in medium size and small cities in Germany to experience rental and capital growth. Although investment opportunities remain limited, shopping centres are particularly attractive due to the above average growth in retail sales and the potential for further capital growth in retail warehouses. In line with the improving European economy, there has been a gradual increase in demand for industrial real estate, particularly for distribution warehouses. Overall, the industrial sector has delivered substantial returns and we expect that the sector will continue to perform strongly again this year, with performance largely driven by yield compression. Although some office markets remain oversupplied, service sector take-up has improved across all major cities, resulting in a decrease in overall vacancy rate and modest rental growth. We expect occupier demand to increase moderately across selected financial centres over the second half of the year particularly in Germany. Investment Activity AXA Property Trust Limited was launched on 23 May 2005 raising equity of Â£100,000,000. The net equity was invested in certificates of deposit until suitable investment properties were identified and acquired. During the reporting period, the Real Estate Adviser reviewed information on over Â£7 billion of property in the industrial, office, retail and leisure sectors in countries across Continental Europe and the UK. As at 30 June 2006 the Group had completed on eleven real estate purchases valued at Â£77,442,000, with a further Â£15,589,000 of assets contracted and Â£3,435,000 under option. The portfolio's gross initial rental yield on purchase of such completed assets as at 30 June 2006 was 8.1%. As at 30 September 2006, the Group had achieved a 4.7% capital appreciation on purchase price (1.1% on purchase price plus acquisition costs) on the assets owned as at 30 June 2006. Between 1 July and 30 September 2006 the Group completed on two further transactions at a gross initial yield of 7.7%, bringing the total value of completed assets to Â£97,269,000. As at 30 September 2006, the total committed investment (completed, contracted and optioned) was Â£115,885,000, with a gross initial yield of 7.8%. With gearing of 35% (providing an estimated total potential fund size of Â£138,030,000), the Investment Manager is pleased to confirm that as at 30 September 2006 the remaining Â£22,145,000 has been allocated to specific investments by putting a number of target properties under offer. Property Portfolio at 30 June 2006 Property Country Sector Market Gross Net % of total Value rental rental assets yield yield2 (less (1) current Â£'000s liabilities) SS Bergamina, Agnadello Italy Industrial 20,809 7.5% 7.1% 21.0% Phoenix Centre, Furth Germany Retail 18,244 7.2% 6.5% 18.5% Smakterweg, Venray Netherlands Industrial 7,259 8.3% 7.4% 7.3% Ruednitzer Chaussee, Bernau Germany Retail 6,650 8.5% 7.6% 6.7% Keyser Center, Antwerp Belgium Retail 5,531 6.7% 6.3% 5.6% Frankfurter Strasse, Wurzburg Germany Retail 3,940 7.1% 6.3% 4.0% Burgermeister-Hess-Strasse, Muhldorf am Inn Germany Retail 3,837 7.2% 6.3% 3.9% Landshuter Strasse, Moosburg Germany Retail 3,457 7.1% 6.4% 3.5% Eppinger Strasse, Kraichtal Germany Retail 3,187 7.2% 6.4% 3.2% Die Weidenbach, Altenstadt -Lindheim Germany Retail 2,765 7.2% 6.4% 2.8% Braunschweiger Strasse, Berlin Germany Retail 1,763 7.6% 6.6% 1.8% Total property portfolio 77,442 7.5% 6.8% 78.3% Other non current assets and net current assets 21,428 21.7% Total assets less current liabilities 98,870 100.0% Note 1: Gross rental yield excludes property and acquisition costs Note 2: Net rental yield excludes property costs and includes acquisition costs and an estimated 5% of gross rent as property operating costs. Geographical Analysis at 30 June 2006 by market value Germany 57% Italy 27% Netherlands 9% Belgium 7% Within Germany, the portfolio's regional risk profile (at 30 June 2006) was 67.2% of German assets in Bavaria, 13.6% in Hessia, 4.0% in Berlin and 15.2% in Brandenburg. Sector Distribution at 30 June 2006 by market value Retail 64% Industrial 36% The Investment Manager believes that the Group's covenant profile is strong, with the majority of tenants rated Grade A or B. The effective unexpired lease length weighted by rental income for completed transactions as at 30 June 2006 was 5.7 years. By 30 September 2006, this had improved to 8.2 years on completed transactions. Rental income from Grade A covenants increased from 62.5% to 67.7% between 30 June 2006 and 30 September 2006. Vacant space in the portfolio on 30 June 2006, measured using market rent, represented 0.6% of the total gross rental income at 30 June 2006. Covenant Strength Analysis at 30 June 2006 Grade A 62.5% Nationally and internationally recognised companies Grade B 15.6% Regionally recognised companies Grade C 21.3% Locally recognised companies Vacant 0.6% Calculated using market rent Financing On 1 September 2006 the Board approved the Investment Manager's recommendation to increase the Company's gearing from up to 35% to up to 45% of the value of the Company's property portfolio, representing an increase in debt of approximately Â£24,000,000 and an estimated potential total fund size of Â£160,660,000 (after estimated acquisition costs). The increased gearing is within the 50% maximum limit outlined in the Company's Prospectus. This increased gearing provides the Company with further opportunity to benefit from yield compression generated by potential European rental growth and the high level of funds available for investment in the European and UK market. The Company will utilise the increased funding to continue to identify and purchase stock which shows income and capital growth in the context of a risk managed portfolio. A Company hedging programme is being implemented in the short term to provide medium term protection against exchange rate fluctuations that may arise as a result of investing the Sterling equity into Euro denominated assets. The key feature of the programme is an exchange of future net cash flows from Euro to Sterling for a five year period. The hedge will not be taken for the full amount of anticipated cash flows to allow for variations arising from the unpredictable nature of such forward estimates. The status of interest rate, currency and equity hedging will be regularly reviewed by the Investment Manager to adjust for variables such as property valuations and predicted cash flows. Outlook The modest increase in the Company's gearing will allow the Company to make further investment across Europe and thereby benefit from anticipated yield compression. Board of Directors Charles Hunter (Chairman) is a non executive director of a number of organisations involved in property investment, including, PIL Group Ltd, Protego Real Estate Funds plc and is on the Advisory Board of Schroder Exempt Property Unit Trust. He is also a trustee of St Monica Trust. He has around 30 years of experience in property investment, principally in UK commercial property. During this time, he was the Head of Property Investment of Insight Investment (formerly Clerical Medical Investment Group) and also was the Property Director of the investment management subsidiaries of The National Mutual of Australasia group in the United Kingdom. Charles is a Fellow of the Royal Institution of Chartered Surveyors and a member of the Investment Property Forum. He is resident in the United Kingdom. Richard Ray is Managing Director of AXA Real Estate Investment Managers Belgium S.A. (AXA REIM). He has around 25 years of property experience, especially with the commercial real estate markets in Belgium and in other parts of Europe. Prior to joining AXA, he was the Head of Investment at ATIS REAL August Thouard S.A. From 1987 to 2000, he worked with CB Richard Ellis S.A. (formerly Richard Ellis S.A.), first as an Investment and Valuation Surveyor and then as a Manager in the Investment Department. In 1994, Richard was appointed Director of Investment, Valuation and Research. He is a member of the Royal Institution of Chartered Surveyors and certified as a 'Titulaire' of the Belgian Institut Professionel de l'immobilier (Real Estate Institute). He is resident in Belgium. Stephane Monier has over 15 years of experience in fixed income, foreign exchange markets and asset allocation. Mr Monier is currently the Chief Investment Officer for European Fixed Income at Fortis Investments responsible for various sectors including money market, government bonds and corporate bonds. Prior to joining Fortis he was Head of Fixed Income and Currency in the Abu Dhabi Investment Authority (ADIA) and he spent seven years in JP Morgan Investment Management as a Fixed Income Manager both in London and Paris. Stephane has a Masters Degree in Science from INAPG (Paris) and a Masters Degree in International Finance from HEC Graduate School of Business (Jouy en Josas) (France). He is also a CFA charterholder. He is resident in the United Kingdom. John Marren is a Director of Northern Trust International Fund Administration Services (Guernsey) Limited (formerly Guernsey International Fund Managers Limited) where he is Head of Real Estate Fund Administration. Prior to joining Northern Trust International Fund Administration Services (Guernsey) Limited in 1992, he worked for KPMG in Guernsey where he was responsible for the audit of a portfolio of entities in the Finance Industry. John currently holds a number of non-executive board appointments in fund management and investment companies including several real estate funds. He has a Bachelor of Commerce Degree from University College Galway in Ireland, is a Fellow of the Institute of Chartered Accountants in Ireland and a Member of the Institute of Bankers in Ireland. He is resident in Guernsey. Gavin Farrell is qualified as a Solicitor of the Supreme Court of England and Wales, a French Avocat and an Advocate of the Royal Court of Guernsey. He is a partner at Ozannes, Advocates & Notaries Public, in Guernsey and specialises in international and structured finance and collective investment schemes. Gavin holds a number of directorships in investment and captive insurance companies. He is resident in Guernsey. Report of the Directors The Directors present their report and audited financial statements of the Group and parent Company for the period from incorporation on 5 April 2005 to 30 June 2006. Principal Activity AXA Property Trust Limited (the 'Company') is a Guernsey registered closed-ended property investment company listed on the London Stock Exchange. Trading in the Company's ordinary shares commenced on 18 April 2005. Results and Dividends The results for the period are set out in the attached accounts. The Company has paid quarterly dividends related to the period ended 30 June 2006 as follows: Payment date Rate per Share First interim 25 August 2005 0.45p Second interim 30 November 2005 1.10p Third interim 28 February 2006 1.00p Fourth interim 24 May 2006 1.00p A further dividend of Â£1,450,000 (1.45 pence per share) was approved on 4 August 2006. The ex-dividend date was 16 August 2006 and the payment date was 4 September 2006. Listing Requirements Throughout the period until 30 June 2005 the Company complied with the conditions applicable to property investment companies set out in paragraphs 21.27(e) to 21.27(i) of the Listing Rules in effect at that time. On 1 July 2005, new Listing Rules were brought into effect. The Company considers that it has, since that date, complied (and intends to continue to comply) with the conditions applicable to property investment companies set out in paragraph 15.5.15R of the new Listing Rules, save as disclosed below. At the time of acquisition and at year end, the value of each of the properties in Agnadello and Furth exceeded 15% of gross assets of the company (which at that time did not include gearing as the company had not drawn down on its loan facility with Calyon Corporate and Investment Bank), the maximum permitted under the UKLA Listing Rules. The ongoing investment programme and the disposal of 50% of the shareholding in the subsidiary holding the Agnadello asset have reduced the percentage value of both properties to below the 15% maximum. Directors The Directors who held office during the period as at 30 June 2006 were: C. J. Hunter (Chairman) - appointed 5 April 2005 G. J. Farrell - appointed 5 April 2005 R. G. Ray - appointed 5 April 2005 J. M. Marren - appointed 5 April 2005 S. C. Monier - appointed 5 April 2005 The directors have no interest in the shares of the Company. Mr Marren is a director of the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited. Mr Farrell is a partner of the Company's legal advisers, Ozannes, Advocates and Notaries Public. Mr Ray is Managing Director of AXA Real Estate Investment Manager Belgium S.A. Mr Hunter and Mr Ray are also directors of the three direct subsidiaries of AXA Property Trust Limited. Biographical details of each of the Directors are shown above. In accordance with the Company's Articles of Association each Director will retire at the Annual General Meeting, being the first such meeting following his appointment and, being eligible, offers himself for re-election. As stated under Corporate Governance below, an evaluation of the performance of individual Directors was not carried out during the period but will be undertaken during the next year. However, the Board believes that the performance of each Director continues to be effective and demonstrates commitment to the role. During the period the Directors of the Company received the following emoluments in the form of fees: C. J. Hunter Â£22,082 G. J. Farrell Â£16,562 R. G. Ray Â£16,562 J. M. Marren Â£16,562 S. C. Monier Â£16,562 ------------ Â£88,330 The Directors of the subsidiaries Property Trust Netherlands 1 B.V., Property Trust Luxembourg 1, Property Trust Sarl Luxembourg 2 Sarl and Property Trust Luxembourg 3 Sarl received total emoluments amounting to Â£7,218, resulting in total fees paid to Directors of the Group of Â£95,548. Management AXA Investment Managers UK Limited (the 'Investment Manager') provides management services to the Company. A summary of the contract between the Company and the Investment Manager in respect of management services provided is given in Note 3 to the accounts. Since the period end, the Board has reviewed the appropriateness of the Investment Manager's appointment. In carrying out the review the Board considered the investment performance of the Company during its first accounting period and the capability and resources of the Investment Manager to deliver satisfactory investment performance. It also considered the length of the notice period of the investment management contract and the fees payable to the Investment Manager, together with the standard of the other services provided. Following this review, it is the Directors' opinion that the continuing appointment of the Investment Manager on the terms agreed is in the interests of shareholders as a whole. Significant Shareholdings Shareholders with holdings more than 3 per cent. of the issued ordinary shares of the Company as at 16 October 2006 were as follows: Number of shares Percentage of share capital HSBC Global Custody Nominee (UK) Limited 36,147,123 36.15 Nutraco Nominees Limited 14,120,863 14.12 Morgan Stanley Quilter Nominees Limited 7,959,079 7.96 Nortrust Nominees Limited 4,583,837 4.58 Chase Nominees Limited 5,160,419 5.16 Statement of Directors' Responsibilities The Directors are responsible for preparing financial statements for each financial period which give a true and fair view of the state of affairs of the Company as at the end of the financial period and of the total profit or loss of the Company for that period. In preparing those financial statements the Directors are required to: â€¢ select suitable accounting policies and then apply them consistently; â€¢ make judgements and estimates that are reasonable and prudent; â€¢ state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and â€¢ prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements have been properly prepared in accordance with The Companies (Guernsey) Law, 1994. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Corporate Governance Introduction As a closed-ended investment company registered in Guernsey, the Company is eligible for exemption from the requirements of the Combined Code (the 'Code') issued by the Financial Reporting Council but must disclose whether or not it complies with the corporate governance regime of its country of incorporation and the significant ways in which its actual practice differs from the Code. In the absence of a formal corporate governance regime in its country of incorporation, the Board has put in place a framework for corporate governance which it believes is suitable for an investment company and which enables the Company voluntarily to comply with the main requirements of the Code, which sets out principles of good governance and a code of best practice. Arrangements in respect of corporate governance have therefore been made by the Board, which it believes are appropriate for the Company. Except as disclosed in the following paragraphs, the Company complied throughout the period with the provisions of the Code. Since all the Directors are non-executive the provisions of the Code in respect of Directors' remuneration are not relevant to the Company except in so far as they relate to non-executive Directors. In view of its non-executive nature and the requirement of the Articles of Association that all Directors retire by rotation at least every three years, the Board considers that it is not appropriate for the Directors to be appointed for a specified term as recommended by Code provision A.7.2, for a Senior Independent Director to be appointed as recommended by Code provision A.3.3, nor for there to be a Nomination Committee as recommended by Code provision A.4.1. In addition, the Board did not consider it appropriate to carry out an evaluation of the Board, Committees and individual Directors during the first accounting period and the Company is therefore not able to provide the disclosure recommended by Code provision A.6.1. However, an evaluation will be undertaken during the coming year. The Board consists solely of non-executive Directors of which Mr Hunter is Chairman. With the exception of Mr Ray all Directors are considered by the Board to be independent of the Company's Manager. New Directors receive an induction from the Managers and Secretary on joining the Board, and all Directors receive other relevant training as necessary. The Company has no executive directors or employees. All matters, including strategy, investment and dividend policies, gearing, and corporate governance procedures, are reserved for the approval of the Board of Directors. The Board currently meets at least quarterly and receives full information on the Company's investment performance, assets, liabilities and other relevant information in advance of Board meetings. The Audit Committee, which was formed on 1 September 2006, chaired by Mr Marren, operates within clearly defined terms of reference and comprises all the Directors except for Mr Ray. The duties of the Audit Committee in discharging its responsibilities include reviewing the Annual and Interim Accounts, the system of internal controls, and the terms of the appointment of the auditors together with their remuneration. It is also the forum through which the auditors report to the Board of Directors and meets at least twice yearly. The first meeting was held on 1 September 2006. The objectivity of the auditors is reviewed by the Audit Committee which also reviews the terms under which the external auditors are appointed to perform non-audit services. The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditors, with particular regard to non-audit fees. Such fees amounted to Â£8,953 for the Company for the period ended 30 June 2006 and related to a review of the interim financial information and services in connection with the launch of the Company which are normal practice. Notwithstanding such services the Audit Committee considers KPMG Channel Islands Limited to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit. The Management Engagement Committee, chaired by Mr Hunter, comprises the full Board, except for Mr Ray, and reviews the appropriateness of the Investment Manager's continuing appointment together with the terms and conditions thereof on a regular basis. The Management Engagement Committee held its first meeting on 1 September 2006. The table below sets out the number of Board meetings held during the period from the Company's launch to 30 June 2006 and the number of meetings attended by each Director. Board of Directors Audit Committee Management Engagement Committee Held Attended Held Attended Held Attended C. J. 25 12 - - - - Hunter G. J. 25 19 - - - - Farrell R. G. Ray 25 14 - - - - J. M. 25 18 - - - - Marren S. C. 25 7 - - - - Monier The Audit Committee meeting was attended by Mr Marren (Chairman), Mr Hunter, Mr Farrell and Mr Monier, and Mr Ray who was invited to attend as an observer. The Management Engagement Committee on 1 September 2006 was attended by Mr Marren, Mr Hunter, Mr Farrell and Mr Monier. Individual directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Company maintains appropriate Directors' and Officers' liability insurance. After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts. Internal Controls The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. The Board has therefore established an ongoing process designed to meet the particular needs of the Company in managing the risks to which it is exposed, consistent with the guidance provided by the Turnbull Committee. Such review procedures have been in place throughout the financial period and up to the date of approval of the Annual Report, and the Board is satisfied with their effectiveness. By their nature these procedures can provide reasonable, but not absolute, assurance against material misstatement or loss. At each Board meeting the Board monitors the investment performance of the Company in comparison to its stated objective and against comparable companies. The Board also reviews the Company's activities since the last Board meeting to ensure that the Investment Manager adheres to the agreed investment policy and approved investment guidelines and, if necessary, approves changes to such policy and guidelines. In addition, at each quarterly Board meeting the Board receives reports from the Secretary in respect of compliance matters and duties performed on behalf of the Company. The Board has reviewed the need for an internal audit function. The Board has decided that the systems and procedures employed by the Investment Manager and the Secretary, including their internal audit functions, provide sufficient assurance that a sound system of internal control which safeguards the Company's assets is maintained. An internal audit function specific to the Company is therefore considered unnecessary. Relations with Shareholders The Board welcomes shareholders' views and places great importance on communication with its shareholders. The Board receives regular reports on the views of shareholders and the Chairman and other Directors are available to meet shareholders if required. The Annual General Meeting of the Company provides a forum for shareholders to meet and discuss issues with the Directors and Investment Manager of the Company. Directors' Authority to Buy Back Shares The authority of the Company to make market purchases of up to 14.99 per cent. of the issued Ordinary Share Capital was renewed by way of a Special Resolution at the Annual General Meeting held on 5 October 2006 until the earlier of the Annual General Meeting in 2007 and 31 December 2007. Any buy back of shares will be made subject to Guernsey law and within guidelines established from time to time by the Board (which will take into account the income and cash flow requirements of the Company) and the making and timing of any buy backs will be at the absolute discretion of the Board. Purchase of Shares will only be made through the market for cash at prices below the prevailing Net Asset Value of the Shares where the Directors believe such purchase will enhance Shareholder value. Such purchases will also only be made in accordance with the rules of the UK Listing Authority which set a cap on the price that the Company can pay. The Company passed a special resolution to cancel the amount standing to the credit of its share premium account on 13 April 2005. On 24 June 2005 the Royal Court of Guernsey confirmed the reduction of capital by way of cancellation of the Company's and Group's share premium account. The amount cancelled, being Â£100 million, has been credited as a distributable reserve established in the Company's books of account and shall be available as distributable profits to be used for all purposes permitted under Guernsey law, including the payment of dividends. Auditors KPMG Channel Islands Limited have expressed their willingness to continue in office as auditors and a resolution proposing their re-appointment will be submitted at the Annual General Meeting. Charles Hunter John Marren Chairman Director 25 October 2006 25 October 2006 Independent Auditors Report We have audited the Group and parent Company financial statements (the 'financial statements') of AXA Property Trust Limited (the 'Company') for the period ended 30 June 2006 which comprise the consolidated and Company income statements, the consolidated and Company balance sheets, the consolidated and Company cash flow statements, the consolidated and Company statements of changes in equity and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the Company's members, as a body, in accordance with section 64 of The Companies (Guernsey) Law, 1994. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's 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 and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable Guernsey law and International Financial Reporting Standards as set out in the Statement of Directors' Responsibilities above. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with The Companies (Guernsey) Law, 1994. We also report to you if, in our opinion, the Company has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit. We read the Directors' Report and consider the implications for our report if we become aware of any apparent misstatements within it. We read the other information accompanying the financial statements and consider whether it is consistent with those statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements: â€¢ give a true and fair view, in accordance with International Financial Reporting Standards, of the state of the Group's and the Company's affairs as at 30 June 2006 and of the Group's and the Company's profit for the period then ended; and â€¢ have been properly prepared in accordance with the Companies (Guernsey) Law, 1994. KPMG Channel Islands Limited Chartered Accountants Guernsey 25 October 2006 Income Statement Consolidated and Company Income Statements for the period from 5 April 2005 to 30 June 2006 Notes Group Company Â£'000s Â£'000s Gross rental income 4 1,864 - Service charge income 79 - Property operating expenses (190) - Net rental and related income 1,753 - Net interest income from certificates on deposit and bank deposits 3,750 3,721 Interest income from loans to subsidiaries - 1,588 Foreign exchange gains on loans granted to subsidiaries - 458 Net investment income 3,750 5,767 Valuation gains on investment properties 701 - Valuation losses on investment properties (414) - Net valuation gains on investment property 287 - Distribution income 18 - 7,478 Formation expenses (1,265) (1,019) Investment management fees (208) - Administrative expenses 5 (1,330) (362) Total expenses (2,803) (1,381) Other income 10 10 Net operating profit before net financing income/(costs) 2,997 11,874 Profit before tax 2,997 11,874 Income tax expense 12 (42) - Profit for the period 2,955 11,874 Basic and diluted profit per ordinary share (pence) 0.0295 The accompanying notes form an integral part of these financial statements. Statement of Changes in Equity Consolidated Statement of Changes in Equity for the period from 5 April 2005 to 30 June 2006 Share Revaluation Revenue Distributable Foreign Total premium reserve reserve reserve exchange reserve Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Note 16 Note 16 Note 16 Balance at 5 - - - - - - April 2005 Movements during the period: Share premium 100,000 - - - - 100,000 on issue Cancellation of share premium (100,000) - - 100,000 - - Placing fees - - - (981) - (981) Net profit for - 287 2,668 - - 2,955 the period Dividends - - (2,668) (882) - (3,550) paid Foreign exchange translation gains - - - - 446 446 Balance at 30 - 287 - 98,137 446 98,870 June 2006 Statement of Changes in Equity for the Company for the period from 5 April 2005 to 30 June 2006 Share Capital Revenue Distributable Foreign Total premium reserve reserve reserve exchange reserve Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Â£'000s Note 16 Note 16 Note 16 Balance at 5 - - - - - - April 2005 Movements during the period: Share premium 100,000 - - - - 100,000 on issue Cancellation of share premium (100,000) - - 100,000 - - Placing fees - - - (981) - (981) Distribution income - 7,478 - - - 7,478 Net profit for - - 4,396 - - 4,396 the period Dividends - - (3,550) - - (3,550) paid Balance at 30 - 7,478 846 99,019 - 107,343 June 2006 Share capital has not been included in the Statement of Changes in Equity as the shares were issued at no par value. The accompanying notes form an integral part of these financial statements. Balance Sheet Consolidated and Company Balance Sheets as at 30 June 2006 Group Company Note Â£'000s Â£'000s Non-current assets Investment properties 7 77,442 - Property, plant and equipment 3 - Investment in subsidiary undertakings 19 - 1,646 Intra group loans receivable 18 - 94,243 Other assets 7 344 171 Deferred tax assets 12 349 - Current assets Cash and cash equivalents 8 22,077 2,187 Intra group loans receivable 18 - 7,581 Trade and other receivables 9 6,095 1,616 Total assets 106,310 107,444 Current liabilities Trade and other payables 10 7,075 101 Non-current liabilities Deferred tax liability 12 365 - Total liabilities 7,440 101 Net Assets 98,870 107,343 Equity Share capital 13 - - Reserves 16 98,870 107,343 Total equity 98,870 107,343 Number of ordinary shares 100,000 Net asset value per ordinary share (pence) 14 98.87 This preliminary profit announcement was approved by the Board of Directors on 25 October 2006. The accompanying notes form an integral part of these financial statements. Statement of Cash Flows Statement of Cash Flows for the period from 5 April 2005 to 30 June 2006 Group Company Â£'000s Â£'000s Operating activities Net profit for the period 2,997 11,874 Adjustments for: Unrealised gain on revaluation of investment property (287) - Unrealised gain on revaluation of loans to fair value - (7,478) Foreign exchange loss - 19 Increase in trade and other receivables (1,133) (1,616) Increase in trade and other payables 1,265 101 Investment income (2,769) (3,056) Bank interest (694) (665) Net cash outflow from operating activities (621) (821) Investing activities Investment in subsidiaries - (1,646) Investment income received 3,056 3,056 Interest paid (18) - Interest received 712 664 Tax paid (17) - Acquisition of investment properties (76,598) - Acquisition of other investments (173) - Acquisition of certificates of deposit (167,000) (167,000) Proceeds from sale of certificates of deposit 167,000 167,000 Loans to subsidiaries - (94,346) Other (5) - Net cash outflow from investing activities (73,043) (92,272) Financing activities Proceeds from the issue of shares 100,000 100,000 Finance costs (171) (171) Issue costs (981) (981) Dividends paid (3,550) (3,550) Net cash inflow from financing activities 95,298 95,298 Effect of exchange rate fluctuations on cash held 443 (18) Increase in cash and cash equivalents 22,077 2,187 Cash and cash equivalents at start of period - - Cash and cash equivalents at 30 June 2006 22,077 2,187 The accompanying notes form an integral part of these financial statements. Notes to the Financial Statements Notes to the Financial Statements for the Period from 5 April 2005 to 30 June 2006 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 Consolidated Financial Statements of the Company for the period ended 30 June 2006 comprise the Financial Statements of the Company and its subsidiaries (together referred to as the 'Group'). 2. Principal Accounting Policies (a) Statement of compliance The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') issued by, or adopted by, the International Accounting Standards Board (the 'IASB'), interpretations issued by the International Financial Reporting Standards Committee, applicable legal and regulatory requirements of Guernsey Law and the Listing Rules of the UK Listing Authority. (b) Basis of preparation The preparation of Financial Statements in conformity with IFRS requires management to make judgement, 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. (c) Foreign currency translation (i) Functional and presentation currency The Company's functional currency is Sterling and the subsidiaries functional currency is Euro. The presentation currency of the Company and the Group is Sterling. (ii) Foreign currency transactions Transactions in foreign currencies are translated to Sterling at the spot foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Sterling at foreign exchange rates ruling at the dates the fair value was determined. (iii) Financial statements of foreign operations The assets and liabilities of foreign operations arising on consolidation are translated to Sterling at the foreign exchange rates ruling at the balance sheet date. The income and expenses of foreign operations are translated to Sterling at an average rate. Foreign exchange differences arising on retranslation are recognised as a separate component of equity. (d) Basis of consolidation (i) Subsidiaries Subsidiaries are those entities, including special purpose entities, controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The Company owns 100% of the issued share capital of Property Trust Luxembourg 1 Sarl, Property Trust Luxembourg 2 Sarl, and Property Trust Luxembourg 3 Sarl, companies incorporated in Luxembourg whose principal business is that of an investment holding company and property company. The consolidated results of these subsidiaries are included in the consolidated financial statements. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Subsidiaries are accounted for at cost less impairment in the Company's financial statements. (ii) Transactions eliminated on consolidation. Intra group balances and any unrealised gains and losses arising from intra group transactions are eliminated in preparing the consolidated financial statements. (e) Income recognition Income from certificates of deposit and interest income from banks and subsidiaries are recognised on an effective yield basis. Rental income from investment property leased out under operating leases is recognised in the income statement on a straight-line basis over the term of the lease. (f) Expenses Expenses are accounted for on an accruals basis. Service costs for service contracts entered into by the Group acting as the principal are recorded when such services are rendered. The Group is entitled to recover such costs from the tenants of the investment properties. The recovery of costs is recognised as service income on an accrual basis. (g) Formation and placing expenses Formation and placing expenses include fees arising from the establishment of the Company, the offer for subscription and admission. These include the Sponsor's fee, set up costs, legal and accounting fees and any other initial expenses. An amount equal to two per cent. of the subscription proceeds has been accrued to meet the expenses. Any excess will be settled by the Investment Manager. The Investment Manager will be reimbursed for any formation and initial expenses paid above the initial expenses provision by way of commission for his services. A total balance of Â£1,019,000 has been expensed to the income statement in respect of formation expenses for the Company (Â£1,265,000 for the Group). Placing expenses are the expenses incurred in the raising of share capital. Placing expenses amounted to Â£981,000 and have been set off against the special distributable reserve. (h) Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits carried at cost. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (i) Dividends Dividends are recognised as a liability in the period in which they become obligations of the Company. All dividends are paid as interim dividends. Interim dividends are recognised when paid. Final dividends are recognised once they are approved by shareholders. (j) Provisions A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. (k) Investment properties Investment properties are those which are held to earn rental income and capital appreciation and are recognised as such once all material conditions in the exchanged purchase contracts are satisfied. They are initially recognised at cost, being the fair value of consideration given, including transaction costs and any acquisition costs directly attributable to the acquisition of the property. Acquisition costs incurred on exchanged but not completed contracts are recognised as other assets in the balance sheet. Acquisition costs on properties under offer which had not exchanged by 30 June 2006 are expensed in the income statement. After initial recognition, investment properties are measured at fair value using the fair value model with unrealised gains and losses recognised in the consolidated income statement. Realised gains and losses upon disposal of properties are recognised in the consolidated income statement. Quarterly valuations 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. Valuations reflect, where appropriate, the types of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting of vacant accommodation and the market's general perception of their creditworthiness, the allocation of maintenance and insurance responsibilities between lessor and lessees, and the remaining economic life of the property. It has been assumed that whenever rent reviews or lease renewals are pending with anticipated reversionary increases, all notices and where appropriate counter notices have been served validly and within the appropriate time. Properties are leased out under operating leases and classified as investment property. (l) Short term investments Certificates of deposit are measured at fair value which is market value, all having a maturity of less than one year. Certificates of deposit are recognised on acquisition and shown in current assets on the balance sheet, they are derecognised on disposal with any realised gains or losses being included on the income statement. Income from certificates of deposit is recognised on an effective yield basis. (m) Impairment The carrying amounts of the Group's assets, other than investment property, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement. (n) Segmental reporting The Directors are of the opinion that the Group is engaged in a single segment of business being the property investment business. It operates in a single geographical segment (Europe) and the properties are let mainly to commercial entities. (o) Intercompany loans Loans between the parent Company and its subsidiaries that are not at a market rate of interest are initially recognised at fair value based on an estimated market rate with the resultant gain or loss being recognised initially in the Company's income statement. Subsequently, these are measured at amortised cost on an effective yield basis. Interest on these loans will accrue to the Company at the market rate on an effective yield basis over the term of the loans. See Note 18 for more details of these loans. (p) Taxation The Company has obtained exempt company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly is subject to an annual fee of Â£600. The Directors intend to conduct the Group's affairs such that it continues to remain eligible for exemption. The Company's subsidiaries are subject to income tax on any income arising on investment properties, after deduction of debt financing costs and other allowable expenses. However, when a subsidiary owns a property located in a country other than its country of residence the taxation of the income is defined in accordance with the double taxation treaty signed between the country where the property is located and the residence country of the subsidiary. Income tax on the profit or loss for the year comprises current tax. Current tax is the expected tax payable on the taxable income for the year as determined under local tax law, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous periods. Deferred income tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the asset is utilised. Details of current tax and deferred tax assets and liabilities are disclosed in note 12. 3. Material Agreements (i) AXA Investment Managers UK Limited has been appointed as the Investment Manager of the Group pursuant to an Investment Management Agreement dated 18 April 2005. The Investment Manager will be responsible for advising the Group on the overall management of the Group's investments and for managing the Group's investments in fixed income instruments in accordance with the Group's investment objective and policy, subject to the overall supervision of the Directors. Under the terms of the Investment Management agreement, the Investment Manager will be entitled to a management fee of 90 basis points per annum of gross assets together with reasonable expenses payable quarterly in arrears, save for the first accounting period ended 30 June 2006 during which the investment management fee will be calculated based on the property portfolio value which does not excludes the value of fixed income instruments held by the Company during its first financial period. The management fee shall be reduced by an amount equal to the fees payable to the Real Estate Adviser by the property subsidiaries such that the total fees payable by the Group to the Investment Real Estate Adviser and Investment Manager will not exceed 90 basis points per annum. The Investment Management Agreement may not be terminated by either the Company or the manager without cause prior to the second anniversary of the Investment Management Agreement. Thereafter, either party may terminate the Investment Management Agreement on not less than twelve months' notice in writing. (ii) UBS Limited has been appointed as the Sponsor. The Sponsor's fee is 20 basis points per annum of gross assets calculated as at 30 September and payable on 30 December annually in arrears, save for the Company's first financial period ending 30 June 2006 during which the Sponsor's fee will be 20 basis points per annum of the property portfolio value which excludes the value of fixed income instruments held by the Company. (iii) Northern Trust International Fund Administration Services (Guernsey) Limited has been appointed as Administrator, Secretary and Registrar pursuant to the Administration Agreement dated 13 April 2005. The administrator will be entitled to receive a fixed fee of Â£65,000 per annum plus a variable fee which is dependent on additional work carried out by the Administrator for the Company from time to time. In addition, the Administrator shall be entitled to be reimbursed for all reasonable out of pocket expenses incurred in the performance of its duties. (iv) HSBC Global Investors has been appointed as Custodian in respect of the Company's fixed income investments. 4. Gross Rental Income Gross rental income for the period ended 30 June, 2006 amounted to Â£1,864,000. The Group leases out all of its investment property under operating leases. 5. Administrative Expenses and Directors' Fees 30 June 2006 30 June 2006 Group Company Â£'000s Â£'000s Directors' fees (96) (88) Insurance fees (10) (10) Administration fees (120) (105) Audit fees (179) (18) Acquisition costs (347) - Legal and professional fees (435) (114) General expenses (143) (27) Administrative expenses as at 30 June 2006 (1,330) (362) Each of the Directors receives a fee of Â£15,000 per annum from the Company. The Chairman receives a fee of Â£20,000 per annum. The aggregate remuneration and benefits in kind of the directors in respect of the Company's accounting period ending on 30 June 2006 amounted to Â£88,330 in respect of the Company and Â£95,548 in respect of the Group. 6. Dividends Dividend pay date No. of Ordinary Shares Rate pence 30 June 2006 Company Â£'000s 25 August 2005 100,000,000 0.45 450 30 November 2005 100,000,000 1.10 1,100 28 February 2006 100,000,000 1.00 1,000 24 May 2006 100,000,000 1.00 1,000 Total dividends paid at 30 June 2006 3,550 A further dividend of Â£1,450,000 (1.45 pence per share) was approved on 4 August 2006. The ex-dividend date was 16 August 2006 and the payment date was 4 September 2006. 7. Investment Properties Investment properties are stated at fair value, which is determined based on valuations performed by Knight Frank LLP as at 30 June 2006, on the basis of open market value, supported by market evidence, in accordance with the RICS Appraisal and Valuation Standards. 30 June 2006 Group Â£'000s Cost of investment properties at beginning of period - Additions during the period at cost 77,152 Disposal proceeds during the period - Cost of investment properties at 30 June 2006 77,152 Unrealised profit 287 Foreign exchange translation 3 Market value of investment properties at 30 June 2006 77,442 Investment properties comprise a number of commercial properties that are leased to third parties. There were four contracts to purchase investment property exchanged in the period which were not completed at 30 June 2006. Related acquisition costs totalled Â£173,000 in relation to these contracts which is shown in other assets on the balance sheet. The portfolio in the Investment Manager's Report shows the properties acquired by the Group. A fee of Â£171,000 has been incurred in setting up a loan facility with Calyon Corporate and Investment Bank and has been shown in other assets in the balance sheet. This fee will be amortised over the length of the facility. 8. Cash and Cash Equivalents 30 June 2006 30 June 2006 Group Â£'000s Company Â£'000s Bank balances 20,197 307 Call deposits 1,880 1,880 Cash and cash equivalents at 30 June 2006 22,077 2,187 9. Trade and Other Receivables 30 June 2006 30 June 2006 Group Â£'000s Company Â£'000s VAT receivable 4,291 - Other assets 938 - Rent receivable 617 - Prepayments 203 10 Accrued income 46 - Intragroup loan interest - 1,606 Trade and other receivables at 30 June 2006 6,095 1,616 10. Trade and Other Payables 30 June 2006 30 June 2006 Company Â£'000s Group Â£'000s Amounts due on completion of property purchase contracts 3,116 - Property acquisition costs 2,413 - Initial expenses 370 - Investment manager fee 225 - Legal and professional fees 207 - Other 195 80 Rent prepaid 185 - Audit fee 168 17 VAT payable 154 - Tax 25 - Administration and Company Secretarial fees 9 - Directors' fees 8 4 Trade and other payables at 30 June 2006 7,075 101 11. Long Term Loan On 3 April 2006, the Company entered into a loan facility from Calyon Corporate and Investment Bank totalling Â£56,343,000 (â‚¬81,500,000). As at 30 June 2006, there were no drawdowns. Loans drawndown on the facility will be secured over the shares in the Company's subsidiaries, Property Trust Luxembourg 1 Sarl, Property Trust Luxembourg 2 Sarl and Property Trust Luxembourg 3 Sarl. 12. Taxation Reconciliation of 30 June 2006 effective tax rate Group Â£'000s Profit before tax 2,997 Effect of: Current tax - Italy 15 Current tax - Netherlands 11 Deferred tax charge 16 Tax charge incurred during the year 42 Payment on account (17) Taxation (paid in advance)/payab le 25 Assets 2006 Liabilities Net 2006 2006 Recognised deferred Â£'000s Â£'000s Â£'000s tax and liabilities Investment property 129 (365) (236) Tax value of loss carry forwards recognised 220 - 220 Tax assets/liabili ties 349 (365) (16) Movement in Balance at Recognised in Recognised Balance at temporary beginning of income statement in equity end of period differences period Investment property - (236) - (236) Tax value of loss carry forwards recognised - 220 - 220 Tax assets/liabili ties - (16) - (16) 13. Share Capital Shares of no par value issued and fully paid Number of shares Share premium Â£'000s Received on the placing of shares 100,000,000 100,000 Conversion to special distributable reserve - (100,000) 100,000,000 - On 24 June 2005 the Royal Court of Guernsey confirmed the reduction of capital by way of cancellation of the Company's share premium account. The amount cancelled, being Â£100,000,000, has been credited as a distributable reserve established in the Company's books of account and shall be available as distributable profits to be used for all purposes permitted under Guernsey law, including the payment of dividends. 14. Net Asset Value per Ordinary Share The net asset value per ordinary share at 30 June 2006 is based on the net assets attributable to the ordinary shareholders of Â£98,870,000 and on 100,000,000 ordinary shares in issue at the balance sheet date. 15. Financial Instruments The Group's investment objective is to secure attractive Sterling based total returns for shareholders through a combination of dividends and capital appreciation from European properties (including the United Kingdom). The Group aims to achieve this investment objective by investing in commercial properties across Europe (including the United Kingdom) which are predominately freehold and in the following segments of the commercial property market: office, retail, industrial and other sectors, including leisure and hotels. The Group's financial instruments comprise bank deposits, certificates of deposit, cash, receivables and payables that arise directly from its operations. The main risks arising from the Group's financial instruments are market risk, credit risk, liquidity risk, interest risk and currency risk. Market risk Property and property related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where a sale occurs shortly after the valuation date. Rental income and the market value for properties are generally affected by overall conditions in the local economy, such as growth in Gross Domestic Product, employment trends, inflation and changes in interest rates. Changes in Gross Domestic Product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may affect the cost of financing for real estate companies. Both rental income and property values may be affected by other factors specific to the real estate market, such as competition from other property owners, the perceptions of prospective tenants of the attractiveness, convenience and safety of properties, the inability to collect rents because of the bankruptcy or the insolvency of tenants, the periodic need to renovate, repair and release space and the costs thereof, the costs of maintenance and insurance, and increased operating costs. The Investment Manager addresses this risk through a selective investment process, credit evaluations of tenants, on going monitoring of tenants and through effective management of the properties. The Directors monitor the market value of investment properties through independent valuations carried out on a quarterly basis by Knight Frank LLP. Credit risk Credit risk arises when an issuer or counterparty is unable or unwilling to meet a commitment that it has entered into with the Group. In the event of a default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property. The Group has a credit policy in place and credit evaluations are performed on all tenants. At the balance sheet date there were no concentrations of credit risk. 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. Interest rate risk Floating rate financial assets comprise the cash balances which bear interest at rates based on bank base rates. The Group had not engaged in any borrowings at the balance sheet date. However, since drawing down debt at a floating interest rate on 11 September 2006 the Group is exposed to the risk of interest rate fluctuations. The Group, based on the advice of the Investment Manager, has hedged against interest rate risk. Interest re-pricing Effective Total per Fixed Floating interest rate balance sheet rate rate 3 months or less % Â£'000s Â£'000s Â£'000s Group: Cash and cash equivalents 2.29 22,077 - 22,077 Total Group 22,077 - 22,077 Company: Interest bearing loans and borrowings: Back to back loans 6.08 60,592 - 60,592 Mezzanine loans 9.75 33,537 33,537 - Working capital and VAT loans 1.00 4,569 4,569 - Low interest loans 0.50 2,988 2,988 - Total Company 101,686 41,094 60,592 The Company balance above of Â£101,686,000 is disclosed in the balance sheet in non-current and current intra group loan receivables, which also include current account loans of Â£138,000 on which there was no interest. 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 Company will review and manage currency exposure on an appropriate basis and will hedge foreign exchange risk in relation to income and equity. 16. Reserves (a) Revaluation reserves Revaluation reserves of the Group arose from the revaluation gain on properties. (b) Capital reserves Capital reserves of the Company arose on the fair value adjustment of loans to subsidiaries granted at rates higher than prevailing market interest rates. (c) Distributable reserves Distributable reserves arose from the cancellation of the share premium account pursuant to the special resolution passed at the Extraordinary General Meeting on 13 April 2005 and approved by the Royal Court of Guernsey on 24 June 2005. (d) Foreign exchange reserves Foreign exchange reserves arose as a result of the translation of the financial statements of foreign operations, the functional and presentation currency of which is not Sterling. 17. 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 and Mr Ray form the majority of the Directors of its subsidiaries, Property Trust Luxembourg 1 Sarl, Property Trust Luxembourg 2 Sarl and Property Trust Luxembourg 3 Sarl 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 Â£6,930 which was settled in full 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 income statement in respect of Northern Trust administration fees is Â£104,952 for the period, of which Â£26,618 remained payable at the period end. During the period, the Company made various loans to its subsidiaries, of which details are disclosed in Note 18. 18. Intercompany Loans The Company made various loans to the subsidiaries as follows: (a) Mezzanine loans Included in non-current receivables from subsidiaries are loans for the purpose of property acquisition amounting to Â£25,997,000 with a fair value of Â£33,537,000. The difference of Â£7,540,000 between the fair value of these loans and their settlement values is recognised as distribution income in the Company's income statement. These are unsecured and bear interest at the coupon rate of 9.75% per annum, their repayable dates ranging between 2015 and 2016. Based on the Company's accounting policies the difference between the fair value of the loans and their settlement amounts is recognised at the date of the granting of the loans as distribution income in the Company's income statement. (b) Back to back loans Included in non-current loan receivable from subsidiaries are loans for the purpose of property acquisition amounting to Â£60,592,000. These are unsecured and bear interest at Euribor plus 2.75% per annum, their repayable dates ranging between 2015 and 2016. (c) Low interest loans Included in current loan receivables from subsidiaries are loans for the purpose of property acquisition amounting to Â£2,988,000. These are unsecured and bear interest at the coupon rate of 0.5% per annum and are repayable within less than one year. (d) Working capital loans Included in non-current loan receivables from subsidiaries are loans for the purpose of working capital amounting to Â£175,000 with a fair value of Â£113,000. The difference of Â£62,000 between the fair value of these loans and their settlement values is recognised in the Company's income statement. These are unsecured and bear interest at the coupon rate of 1% per annum, their repayable dates ranging between 2015 and 2016. (e) VAT loans Included in current loan receivables from subsidiaries are loans for the purpose of working capital amounting to Â£4,456,000. These are unsecured and bear interest at the coupon rate of 1% per annum and are repayable within less than one year. (f) Current accounts Included in current loan receivables from subsidiaries are short term loans amounting to Â£138,000. These do not bear interest and are repayable within six months. 19. Group Entities AXA Property Trust Limited, the Company, is the parent of the Group. It was incorporated in Guernsey on 5 April 2005. The Company owns the following subsidiaries: Directly owned by the Company at 30 June 2006 Subsidiaries Investment in Country of Date of Ownership Principal Subsidiaries Â£ Incorporation Incorporation Interest % Activities Property Trust Luxembourg 1 Sarl 920,169 Luxembourg 20-July-05 100 Holding Company Property Trust Luxembourg 2 Sarl 708,607 Luxembourg 24-Nov-05 100 Holding Company Property Trust Luxembourg 3 Sarl 17,283 Luxembourg 2-Jun-06 100 Holding Company Total Cost 1,646,059 Owned by Property Trust Luxembourg 1 Sarl and Property Trust Luxembourg 2 Sarl Country of Incorporation Ownership Interest % Property Trust Luxembourg 1 Sarl Property Trust Karben Sarl Luxembourg 100 Property Trust Treuchtlingen Sarl Luxembourg 100 Property Trust Altenstadt-Lindheim Sarl Luxembourg 100 Property Trust Wurzburg Sarl Luxembourg 100 Property Trust Moosburg Sarl Luxembourg 100 Property Trust Muhldorf Sarl Luxembourg 100 Property Trust Berlin 1 Sarl Luxembourg 100 Property Trust Furth Sarl Luxembourg 100 Property Trust Berlin 4 Sarl Luxembourg 100 Property Trust Netherlands 1 B.V. Netherlands 100 Keyser Center N.V. Belgium 0.05 Property Trust Luxembourg 2 Sarl Property Trust Bernau Sarl Luxembourg 100 Property Trust Rothenburg 1 Sarl Luxembourg 100 Property Trust Rothenburg 2 Sarl Luxembourg 100 Property Trust Investment 1 Sarl Luxembourg 100 Property Trust Investment 2 Sarl Luxembourg 100 Property Trust Investment 3 Sarl Luxembourg 100 Property Trust Investment 4 Sarl Luxembourg 100 Keyser Center N.V. Belgium 99.95 Property Trust Agnadello s.r.l. Italy 100 Property Trust Luxembourg 3 Sarl Property Trust Investment 5 Sarl and Property Trust Investment 6 Sarl were incorporated in Luxembourg on 6 October 2006. Both subsidiaries are wholly owned by Property Trust Luxembourg 3 Sarl. 20. Contingent Liabilities (a) Acquisitions of a further three real estate assets were contracted prior to the year end. The transactions are expected to be completed on payment of the purchase prices as follows: (S) Â£3,960,000 (â‚¬5,700,000) retail property in Berlin, Germany (completion estimated February 2007); (S) Â£6,400,000 (â‚¬9,200,000) retail property in Karben, Germany (completion estimated November 2006); (S) Â£5,300,000 (â‚¬7,600,000) retail property in Treuchtlingen, Germany (completion estimated November 2006). On successful completion of these contracts, the Group will be liable to pay fees to property agents amounting to approximately Â£216,000 (â‚¬313,000). (b) If certain tenant-related conditions to the sale of the Dasing property (described below) are fulfilled, contingent liabilities amounting to a maximum of Â£190,000 (â‚¬275,000) will be payable to the vendor by 2010 by Property Trust Investment 3 Sarl, a subsidiary of the holding company Property Trust Luxembourg 2 Sarl. (c) In connection with the acquisition of Keyser Center N.V., contingent consideration of up to Â£23,000 (â‚¬33,000) will be due to the vendor should vacant space in the property be let by 19 May 2008. (d) Prior to its acquisition by Property Trust Luxembourg 2 Sarl, Keyser Center N.V. was engaged in legal action against the trustee in bankruptcy of a former tenant which had entered liquidation. Keyser Center N.V. may be required to pay part of the Â£171,000 (â‚¬248,000) received through the exercise of the tenant's bank guarantee to the trustee. An agreement has been provisionally reached with the trustee to repay Â£16,000 (â‚¬23,000). Up to Â£68,000 (â‚¬98,000) of any payment to the trustee will be recoverable from the vendor, which reflects the portion- of the purchase price that has been held in escrow. (e) As foreseen in the sale and purchase contract entered into by Property Trust Luxembourg 2 Sarl to acquire Multiplex s.r.l., an adjustment of Â£129,000 (â‚¬187,000) to the preliminary purchase price will be paid to the vendor by 25 October 2006. 21. Post Balance Sheet Events (a) On 11 September 2006, the Company drew down Â£6,913,000 (â‚¬10,000,000) under a debt facility agreement with Calyon Corporate and Investment Bank. The agreement provides a Euro facility of â‚¬81,500,000 for a term of five years at an annual interest rate of Euribor plus 0.8%. The loan is secured on the shares of the Company's direct subsidiaries. The Company has put in place hedging to cover the interest rate exchange risks arising from the third party debt. On 17 October 2006, the Company entered into a four year interest rate swap to hedge the interest rate risk on the Â£6,913,000 (â‚¬-10,000,000) drawn down under the loan facility with Calyon Corporate and Investment Bank. Under the terms of the swap, the rate payable on the nominal amount of Â£6,913,000 is 3.85% per annum. The swap is effective from 31 October 2006 and terminates 30 July 2010. At the same date, the Company purchased an interest rate cap to hedge the one year period from 30 July 2010 at a Euribor strike price of 4.5%. Together, the interest rate swap and cap provide a full five year hedge for the loan, with flexibility with respect to refinancing opportunities in the final year. (b) The purchase price of Â£2,973,000 (â‚¬4,300,000) for the acquisition of the retail property in Kraichtal, Germany was paid on completion of the transaction on 3 July 2006. (c) The acquisition of a logistics warehouse in Dasing, Germany, which was contracted on 9 June 2006, was completed on 15 September 2006 by the payment of Â£7,614,000 (â‚¬11,013,000) cash to the vendor. For the purposes of the acquisition, the Company invested the following into Property Luxembourg 2 Sarl: Â£138,000 (â‚¬200,000) share capital, a loan of Â£4,937,000 (â‚¬7,141,000) at Euribor plus 2.75% margin with a ten year term, a loan of Â£362,000 (â‚¬523,000) at a fixed rate of 0.5% with a one year term and a loan of Â£2,825,000 (â‚¬4,087,000) at a fixed rate of 9.75% with a ten year term. Property Trust Luxembourg 2 Sarl invested share capital of Â£3,324,000 (â‚¬4,808,000) and a loan of Â£4,937,000 (â‚¬7,141,000) into Property Trust Investment 3 Sarl. Property Trust Investment 3 Sarl, which holds the Dasing property, was renamed Property Trust Dasing Sarl on 14 September 2006. (d) On 19 July 2006, the Group acquired the Italian company Multiplex 1 s.r.l. for a total consideration of Â£11,555,000 (â‚¬16,714,000), representing a purchase price of Â£6,219,000 (â‚¬8,996,000) and a debt contribution of Â£5,336,000 (â‚¬7,718,000). Multiplex 1 s.r.l. owns the freehold to a nine screen cinema complex located in Bergamo, Italy. Property Trust Luxembourg 2 Sarl invested Â£5,336,000 (â‚¬7,719,000) debt into Multiplex 1 s.r.l. The Company provided related party loans to finance the acquisition to Property Trust Luxembourg 2 Sarl as follows: a loan of Â£5,336,000 (â‚¬7,719,000) at Euribor plus 2.75% margin with a ten year term, a loan of Â£843,000 (â‚¬1,220,000) at a fixed rate of 0.5% with a one year term and a loan of Â£5,555,000 (â‚¬8,036,000) at a fixed rate of 9.75% with a ten year term. (f) At 30 June 2006, the subsidiary Property Trust Investment 2 Sarl was contracted to acquire a retail property in Bonn, Germany for Â£7,259,000 (â‚¬10,500,000). Environmental due diligence identified potential contamination on the site and on 5 July the subsidiary withdrew from the transaction, without incurring any penalties or other obligations, as permitted under the terms of the sale and purchase agreement. (g) The disposal of 50% of the Group's shareholding in the Italian subsidiary Property Trust Agnadello s.r.l. was completed on 16 October 2006. The 50% interest in Property Trust Agnadello s.r.l., which holds a logistics warehouse in Agnadello, Italy, was acquired by European Added Value Fund Sarl, a subsidiary of European Added Value Fund Limited Partnership ('EAVF'). The sale price of Â£1,626,000 (â‚¬2,352,000) represented 50% of the total underlying property value of Â£20,809,000 (â‚¬30,100,000), after taking into account 50% of the Euro-denominated debt of Â£22,265,000 (â‚¬32,206,000) and 50% of the other net assets of Â£4,708,000 (â‚¬6,810,000) of Property Trust Agnadello s.r.l. Under the terms of the transaction, within two months of the completion date, 50% of the intra group loan provided by Property Trust Luxembourg 2 Sarl to Property Trust Agnadello s.r.l. will be replaced by financing from EAVF. The Manager of EAVF is Partnership Incorporations Limited, which has appointed AXA Real Estate Investment Managers UK Limited as Property Adviser. AXA Real Estate Investment Managers UK Limited acts as Real Estate Adviser to the Company. The transaction was at arms length and the sale price represented market value. The underlying property value was confirmed by Knight Frank LLP, independent valuers to the Company. A partial disposal was envisaged when this property was acquired to meet the Real Estate Adviser's strategy of diversifying risk in terms of single assets, tenants and location. (h) On 6 October 2006 two companies, Property Trust Investment 5 Sarl and Property Trust Investment 6 Sarl, were incorporated in Luxembourg as wholly owned subsidiaries of Property Trust Luxembourg 3 Sarl. This information is provided by RNS The company news service from the London Stock Exchange

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