TIDMIPI
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Invesco Property Income Trust Limited
Annual Financial Report Announcement
for the year ended 31 March 2010
PERFORMANCE INFORMATION
Year Year
Ended Ended
31 March 31 March
Total Return 2010 2009
Adjusted net asset value total return N/A -92.0%
(annualised)
As At As At
31 March 31 March
Assets 2010 2009
Net (liabilities)/assets (GBP'000) (30,393) (21,050)
Adjusted net assets/(liabilities) (GBP'000) (7,225) 2,394
Net asset value per share per statement of
financial position (19.86)p (13.76)p
Adjusted net asset/(liability) value per (4.72)p 1.56p
share
Ordinary share mid-market price 4.75p 1.91p
Premium/(Discount) to adjusted net asset
value
per share 200.6% (22.4)%
Gearing, based on:
- gross assets 95% 92%
- net assets n/a n/a
Year Ended
31 March
2010
Highs/Lows High Low
Adjusted net asset value| per share (2.9)p (6.7)p
Ordinary share price 9.2p 1.7p
Year Year
Ended Ended
31 March 31 March
2010 2009
Earnings and Dividends
Earnings per ordinary share - basic and
diluted:
Revenue return 5.8p 3.7p
Capital return (12.6)p (70.8)p
(6.8)p (67.1)p
Dividends per ordinary share n/a 3.375p
Comprises dividends paid and proposed in
respect of the applicable period end
Total expense ratio
- on gross assets 1.1% 1.2%
- on net assets -11.7% 11.6%
Investment Properties
At 31 March 2010
Value % of
Property Country GBP Million Portfolio
Le Directoire, St Cloud France 36.1 15.1
St Michel Sur Orge, Ile de France France 20.5 8.6
Böblingen Germany 18.7 7.9
Le Diapason, Paris France 15.4 6.4
Colonel Bourg, Brussels Belgium 13.2 5.5
11 Old Jewry, London EC2 UK 9.8 4.1
Brackmills Industrial Estate, Northampton UK 9.5 4.0
Priory Business Park, Bedford UK 9.5 4.0
Le Verdun, Gentilly France 8.7 3.7
Sant Esteve Sesrovires, Barcelona Spain 8.6 3.6
Total of top ten investment properties 150.0 62.8
Other properties 88.7 37.2
Total Market Value of Properties (27 238.7 100.0
Properties)
Investment properties are analysed after deduction of obligations under finance
leases of GBP6.4 million.
Lease Expiry Profile
2010 2009
Annual % Of Annual % Of
Period Of Lease Income Annual Income Annual
GBP'000 Income GBP'000 Income
0-3 yrs 8,435 36.0 9,345 38.3
3-7 yrs 12,126 51.7 11,898 48.8
7-10 yrs 1,395 6.0 2,078 8.5
10-15 yrs 1,226 5.2 530 2.2
15-20 yrs 255 1.1 536 2.2
> 20 yrs 1 - 1 -
CURRENT Annual INCOME FROM
PROPERTIES 23,438 100.0 24,388 100.0
Annual income is derived from leases in place at 31 March 2010 and so will
differ from total annual income received by the Group for the year ended 31
March 2010.
Sector Weightings of Portfolio By Geographic Area
As At 31 March 2010
% of Portfolio
SECTOR UK France Belgium Spain Germany Total
Industrial 28.3 11.4 - 3.6 - 43.3
Offices 13.8 25.1 8.5 - 7.9 55.3
Retail 1.4 - - - - 1.4
Total 43.5 36.5 8.5 3.6 7.9 100.0
As At 31 March 2009
% of Portfolio
SECTOR UK France Belgium Spain Germany Total
Industrial 24.0 11.0 - 4.3 - 39.3
Offices 17.1 26.3 8.5 - 6.4 58.3
Retail 2.4 - - - - 2.4
Total 43.5 37.3 8.5 4.3 6.4 100.0
Chairman's statement
Introduction
Following two turbulent years, markets (including real estate markets)
experienced a period of relative stability in the year ended 31 March 2010. The
huge monetary and fiscal measures undertaken by governments and central banks
have provided support for economies in the UK and Continental Europe and equity
and bond markets have responded with strong performance. Real estate markets
have also produced good returns for prime stock.
Your Company has delivered improved returns at a property level in the year but
investor appetite has been focused away from the kind of higher-yielding
properties which characterise the portfolio and valuations have, on a like for
like basis, fallen over the year.
As a result the Company's financial position remains precarious. Shareholders'
funds have been negative since March last year and the Company is therefore
reliant on the continued support of its lending bank, which the Directors
expect will in turn depend on the portfolio's income generation. This has
remained strong throughout the Company's life and has continued to do so in the
year under review.
As shareholders will be aware, the Directors announced in February that they
had received an approach that may or may not lead to an offer for the Company.
The Board and its advisers are engaged in negotiations with a number of third
parties and with the Company's lending bank with the objective of securing the
best possible terms for shareholders. There is no certainty as to the outcome
of any of these negotiations.
Strategic review
The Company has received proposals from a number of third parties, some of
which contemplate an offer being made for the Company's shares. The Board is
evaluating these proposals with its advisers alongside continued negotiations
with the lending bank, whose support for any third party proposal will be
critical to its implementation. Whilst discussions remain constructive, it is
too early to say with any confidence that they will prove fruitful and lead to
an offer or any other agreed proposal. However it is likely that any proposal
agreed by your Directors will require to be approved or accepted by
shareholders in general meeting or otherwise.
At the same time, and reflecting the uncertainties associated with third party
proposals, the Board and its advisers are seeking to agree terms with the
Company's lending bank for revisions to the banking facility which would
address the current non-compliance with the LTV covenant. In these negotiations
the Directors' objective is to secure terms which would offer the prospect, in
due course, of some recovery of value for shareholders. The quantum of any such
recovery will depend to a significant extent on the performance of property
markets and the Company's portfolio and the Company's ability to implement any
business plan agreed with the lending bank. The Directors expect that any
agreed terms on a revised facility will require amendments to be made, subject
to the approval of shareholders, to the Company's investment objective and
policy.
Annual accounts for the year ended 31 March 2010
The consolidated accounts have been prepared on a going concern basis. This
reflects the Directors' judgment that there is a reasonable prospect that the
current negotiations with third parties and/or the Group's lending bank will
lead to an agreement on revised financing arrangements. There can, however, be
no guarantee that these negotiations will be successful. Furthermore, it is
likely that any revised financing arrangements agreed with third parties and/or
the lending bank will require the approval of shareholders in general meeting,
the outcome of which is also uncertain. If the current negotiations do not lead
to a successful outcome or if shareholders do not approve revised financing
arrangements the Directors believe that the Group could not continue to be
treated as a going concern, given that it is not currently in compliance with
the LTV covenant under the existing bank facility and the increased likelihood
that the lending bank could call an event of default and declare the loan
balances to be immediately repayable.
Given the above, there is a material uncertainty which may cast significant
doubt as to the Group's ability to continue as a going concern and, therefore,
that it may be unable to realise its assets and discharge its liabilities in
the normal course of business. At the present time, the constructive
discussions with third parties and the Group's lending bank lead the Directors
to consider it appropriate to prepare the financial statements on a going
concern basis. In the event that a going concern basis should become
inappropriate, the assets of the Group would be written down to their
recoverable value and provision made for any further liabilities that may
arise. At this time it is not practicable to quantify the effect of such
adjustments on NAV but it is unlikely that shareholders would recover any value
from their investment in the Company. See further details in note 1 to the
financial statements.
Performance
Over the year the portfolio performance, on a like for like basis, showed
declines of 1.6 per cent. for the UK and 8.5 per cent. (in Euros) in Europe
(2009: -35.4 per cent. and -18.1 per cent. respectively). The aggregate
portfolio valuation was GBP238.7m at the year end, an overall decline on a like
for like basis of 7.9 per cent. (2009: -26.7 per cent.).
The UK portfolio delivered positive capital performance for each of the last
three quarters of the year. In Europe the Company's property values have
continued to fall but the last three quarters have shown the lowest rates of
decline experienced since their valuation peaked in June 2007.
At the year end the Company's NAV per share (IFRS basis) stood at -19.9p per
share (2009: -13.8p) and the adjusted NAV was -4.7p per share (2009: 1.6p).
Income generation has remained robust. Revenue earnings per share were 5.8p per
share (2009: 3.7p). This is a pleasing result and reflects asset management
efforts to retain and increase rental income as well as continued diligence in
controlling costs.
Activity
The Board and Manager continue to work hard on maintaining and enhancing the
value of the portfolios. We are pleased to report further successes in reducing
vacancy rates and extending lease terms, which are detailed in the Manager's
report. In the current economic environment it has proved necessary in some
instances to offer incentives to tenants in the form of rent free periods which
have a negative short term impact on cash flows.
Two disposals were completed in the year realising, in aggregate, in excess of
the prevailing valuations. We continue to look for opportunities to make
disposals but, as previously stated, the Board will consider a number of
factors over and above the reduction of bank debt in deciding whether or not to
approve terms.
Financing
The sterling value of the Company's bank borrowings was GBP227.6 million (31
March 2009: GBP249.2 million), comprising GBP102.5m drawn in sterling and EUR140.2m
drawn in Euros. GBP16.4 million of sterling borrowings were repaid during the
period following asset sales.
The bank loan to value ratio at the year end was 95.3 per cent. (31 December
2009: 91.9 per cent.), which exceeds the maximum of 65 per cent. permitted
under the Company's bank facility. The Company's interest cover stood at 151.5
per cent. at 31 March (31 March 2009: 156.7 per cent.), compared with the
covenanted minimum of 145 per cent.
The Company has outstanding GBP2m of the GBP10m working capital facility provided
by Invesco Ltd. Including accrued interest the liability stood at GBP2.2 million
at the year end.
Outlook
With the Group balance sheet showing negative shareholders' funds and the LTV
ratio well in excess of the covenanted minimum the prospect for a return of
value to shareholders depends on the outcome of negotiations with third parties
and the Company's lending bank and, in the absence of an offer for the Company,
on the extent and timing of a recovery in the markets and sectors in which the
Company is invested.
Richard Barnes
Chairman
30 July 2010
PropertyManager's Report
Property Markets
European property markets, it appears, have begun to move on from a period of
extreme volatility, and during the reporting period have started to show signs
of stability and in some cases recovery, albeit on a patchy basis. The UK,
having led the re-pricing cycle in late 2007 rebounded strongly during 2009
predominately driven by investor demand for the highest quality assets in all
sectors, leading to the most rapid rise in capital values in the third quarter
of 2009 as measured by IPD; a dramatic turnaround from what was the most rapid
decline in values ever recorded only three quarters previously. The continental
European markets and the higher yielding asset classes within the UK fared less
well, with either a small overall decline in value or marginal value increases
over the period.
It is also worth noting that towards the end of the period there were signs
that the rapid correction in UK pricing was slowing (particularly for prime
assets) whereas the major European investment markets were continuing to show
signs of recovery.
A recovery that was first driven by investor demand (enhanced in the UK by a
relatively weak currency) now seems in some markets to be benefiting from the
start of an improvement in underlying occupier markets. London and Paris have
both recorded stronger occupier demand and limited supply, leading to the first
signs of rents stabilising, and tenant incentives reducing.
There are clear concerns across European economies looking forward as a result
of the combined effect of widespread so called `austerity programmes' across
the majority of domestic economies. We highlight below the relative successes
that have been achieved across the portfolio in spite of current uncertainty,
but we are also very aware that the challenges are likely to increase again
before a more sustained recovery is possible, as these government-led
initiatives work through the respective economies, increasing the emphasis on
strong and proactive asset management.
Performance
Overall, the value of the portfolio fell, on a like for like basis, by 7.9 per
cent over the year. This breaks down as a 1.6 per cent fall for the UK
portfolio (in sterling terms) and an 8.5 per cent fall for Europe (calculated
in Euro, not reflecting exchange rate movements). Over the six months to 31
March 2010, the comparable valuation declines were 1.0 per cent overall,
reflecting a 6.3 per cent rise for the UK but a 3.5 per cent fall for Europe;
while the corresponding quarterly valuation movements were a 1.5 per cent fall
overall, with the UK higher by 0.7 per cent but Europe lower by 2.4 per cent.
Despite these movements in capital values, when combined with the impact of
transactions over the period, the gross property yield (after head lease rents)
was maintained at 9.5 per cent at 31 March 2010.
The portfolio valuation at 31 March 2010 was GBP238.7 million, with the UK
portfolio valued at GBP103.9 million and the European portfolio valued at EUR151.8
million
Asset Management
It is pleasing to note that the overall vacancy rate for the portfolio has been
falling over the last 12 months, mostly as a result of the successful tenant
retention and letting strategies that have been ongoing across the portfolio.
The sale of the property at Preston in February 2010 also contributed
positively to the reduction in the overall vacancy rate as the property was
vacant at the time of sale.
Since the Interim report there has been continued success in securing new
tenants for the portfolio, reducing the vacancy rate overall from 7.8 per cent.
at the end of September 2009, to 5.3 per cent. at the end of March 2010. Five
new lettings were completed (four in the UK), and in addition two further
Agreements for Lease were signed (both of which subsequently became
unconditional after the year end). If these two additional leases are included,
the total annual rent contracted under the seven leases amounts to GBP602,000 in
the UK and EUR420,650 in France.
A number of these new tenants were offered initial rent free periods as part of
the lease negotiation meaning that the net cash receipts for the Company will
not increase by the full amount of these new lease agreements until the rent
free periods have run their course. In addition to attracting new tenants a
number of important tenants across the European portfolio have either agreed
terms to stay beyond their natural lease expiry/break option, or have simply
failed to operate their break options, in total retaining EUR1,245,000 of annual
income.
Across the whole portfolio only one tenant, at the Old Jewry property, actually
chose to leave at the expiry of their lease, however, we have already been
successful in re-letting the space to a new tenant, with the new rent included
as one of the 7 new leases identified earlier in this report.
Indexation in France had a marginally negative effect on rents during the
second half of the reporting period, with the overall rental income from France
reducing by some EUR270,000 p.a. (2 per cent.) through negative indexation. We
expect indexation to return to positive levels in due course, helping to
reverse this movement.
Looking ahead, we remain confident that a number of ongoing asset management
initiatives currently under negotiation will offer the opportunity to further
enhance income security and reduce the risk of rising vacancy rates. We are all
aware of the risks associated with the ongoing financial and economic
uncertainty across the UK and Europe. We are very conscious of the need to
remain resolute in our aim of retaining as many tenants as possible, and
continuing to keep the vacancy rate at a very low level. Success in this area
has helped contribute to the earnings growth highlighted by the Chairman in his
report, but if we are to continue to be able to report success in this area
asset management activity must remain focused and committed. We are aware that
there are tenants across the portfolio that have the opportunity to operate
break options, and/or renegotiate their leases over the coming 12 months, and
we are working with these tenants to try and secure ongoing occupations. We are
prepared for such negotiations to be unsuccessful in some cases, and we do
expect the vacancy rate to rise in the short term as refurbishment and
re-letting of this accommodation takes place.
Transactions
As announced at the time, two assets were successfully sold from the UK
portfolio during the year, both at prices at or in excess of the prevailing
valuation levels. The sale of the property at Finsgate House was announced on 7
October 2009, for GBP10.55 million, reflecting a premium of 6% over the most
recent valuation, while the property at Preston was sold on 22 February 2010
for GBP2,140,000, in line with the prevailing valuation at the time.
Further disposal opportunities continue to be identified, but such disposals
will only be progressed where the disposal offers a material positive benefit
to the Company, in terms of either improving earnings, reducing the loan to
value ratio or reducing the risk in the portfolio.
Rory Morrison
Invesco Asset management Limited
30 July 2010
Insert Related Party Transactions
No director has an interest in any transactions which are or were unusual in
their nature or significant to the nature of the Group. The Directors of the
Group received fees for their services.
On 31 March 2008, the Company entered into an agreement with Invesco Ltd
(`Invesco'), the parent company of the Manager, under which Invesco agreed to
provide a credit facility of up to GBP10 million at 8% per annum. The facility is
repayable on 31 March 2011. GBP2m has been drawn under the facility and no
further drawdowns are available under the terms of the facility.
Mr Angus Spencer-Nairn retired on 31 December 2009 as the Senior Partner of
Rawlinson & Hunter Jersey, which owns R&H Fund Services (Jersey) Limited (`R&
H'), the Company Secretary and Administrator appointed on 30 March 2007. Mr
Spencer-Nairn retired as a director of R&H on 1 January 2010. R&H were paid
fees of GBP79,013 (2009: GBP102,010) and out of pocket expenses.
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be divided into various
areas:
Investment Policy
There is no guarantee that the Investment Policy adopted by the Company will
provide the returns sought by the Company. There can be no guarantee,
therefore, that the Company will achieve its investment objective.
The Board has established guidelines to ensure that the Investment Policy that
is approved by
shareholders is pursued by the Manager.
Ordinary Shares and Dividends
The market value of an ordinary share reflects supply and demand. As well as
being affected by the NAV, it also takes into account its dividend yield and
prevailing interest rates. As such, the market value of an ordinary share can
fluctuate and may not always reflect its underlying NAV and the price of an
ordinary share may trade at a discount to its NAV.
There can be no guarantee that any appreciation in the value of the Company's
investments will occur and investors may not get back the full value of their
investment. Due to the potential difference between the mid-market price of the
ordinary shares and the prices at which they are sold, there is no guarantee
that their realisable value will reflect their market price.
While it has been the intention of the Directors to pay dividends to ordinary
shareholders quarterly, the ability to do so depends on rental income from the
underlying assets, the Company's financial position, and conditions imposed by
banking covenants. Dividends have been suspended and no further dividends are
expected to be paid for the foreseeable future.
Gearing
Whilst the use of borrowings by the Company should enhance the capital return
on the ordinary shares where the value of the Company's underlying assets is
rising, it has had the opposite effect where the value of the underlying assets
are falling. Furthermore, should any fall in the underlying asset value or
expected revenues result in the Company or any property owning subsidiary
breaching the financial covenants contained in any loan agreement (including
any bank facility), the Company may be required to repay such borrowings in
whole or in part, together with any attendant costs. This could adversely
affect the capital and income return to shareholders. The Company is not
currently compliant with its existing loan to value covenant and its lending
bank is entitled to demand repayment of loan balances.
In consequence of the Company's non-compliance with the loan to value covenant,
the lending bank has imposed limits on certain activities, including capital
expenditure, that the Company is able to undertake without the lending bank's
prior consent. If such consent is withheld the Company may be unable to carry
out such activities which the Directors and Manager believe to be desirable and
may have an adverse impact on the performance of the Company.
If the Company is required to repay all or part of its borrowings, it may be
required to sell assets from the property portfolio at less than their market
value or at a time or in circumstances where the realisation proceeds are
reduced because of a downturn in property values generally or because there is
limited time to market the property.
If the rental income realised from the Group's property investments falls for
any reason, the use of borrowings by the Company may increase the impact of
such a fall and will have an adverse effect on the Company's ability to service
its borrowings and pay dividends. More information relating to the Company's
gearing policy can be found on the following page.
Interest and Currency Risks
As the Company has significant borrowings, the Company is exposed to interest
rate fluctuations as borrowings are obtained either based on floating or fixed
term interest rates. In addition, the Company invests in Continental European
property exposing the Company to movements in the euro exchange rate. Where the
Company hedges against both of these risks, it may not be successful in doing
so. Any increase in interest rates or adverse changes in the euro exchange rate
will have a negative impact on the NAV of the ordinary shares.
Market Movements and Portfolio Performance
Rental income and the market value for properties are affected by general
economic conditions and/or by the political and economic climate of the
jurisdictions in which the Group's property assets are situated as well as in
the rest of the world. The marketability and value of investments held by the
Company will, therefore, depend on many factors some of which may be beyond the
control of the Company such as changes in gross domestic products, employment
trends, inflation, interest rates, natural disasters, the environment, changes
in the supply and demand for real estate in an area and credit risks. There is
therefore no assurance that there will be either a ready market for any
investments or that investments will be sold at a profit or will yield positive
cash flows.
Both rental income and market value of properties are also 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 lease properties on
favourable terms, the inability to collect rents, the periodic need to
renovate, repair and let space and the costs thereof, the costs of maintenance
and insurance, and increased operating costs. In addition, certain significant
expenditure, including operating expenses, must be met by the owner even when
the property is vacant.
While the Board obviously cannot influence the aforementioned factors, it is
vigilant in monitoring and taking steps to mitigate the effects of them should
they occur. The performance of the Manager is carefully monitored by the Board,
and the continuation of the investment mandate is reviewed each year.
Past performance of the Company is not necessarily indicative of future
performance.
For a fuller discussion of the economic and market conditions facing the
Company and the current and future performance of the portfolio of the Company,
please see both the Chairman's Statement and Manager's Report.
Regulatory
The Company is subject to various laws and regulations by virtue of its status
as a collective investment fund holding a permit under CIF Law, and regulated
by the Commission under the Jersey Listed Fund Guide, as well as its listings
on the London Stock Exchange and Channel Islands Stock Exchange. A serious
breach of regulatory rules may lead to suspension from the above Stock
Exchanges or a qualified Audit Report. Other control failures, either by the
Manager or any other of the Company's service providers, may result in
operational or reputational issues, erroneous disclosures, loss of assets
through fraud, as well as breaches of regulations.
Changes in taxation, legal, regulatory, corporate governance, environmental,
landlord and tenant and planning laws, regulations and guidelines may occur in
the European Union that may adversely affect the Company, its investments in
the affected jurisdiction and/or position of shareholders, and may reduce
returns for shareholders.
The Risks and Risk Management Policies are detailed in note 24 to the financial
statements in the Annual Financial Report.
Directors' Responsibilities Statement
in respect of the preparation of the Annual Financial Report
The Directors are responsible for preparing the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare group
financial statements in accordance with International Financial Reporting
Standards (`IFRS') as adopted by the European Union and have also elected to
prepare the parent company financial statements in accordance with IFRSs as
adopted by the European Union. The financial statements are required by law to
be properly prepared in accordance with the Companies (Jersey) Law 1991.
International Accounting Standard 1 requires that financial statements present
fairly for each financial period the Company's financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's `Framework
for the preparation and presentation of financial statements'. In virtually all
circumstances, a fair presentation will be achieved by compliance with all
applicable IFRS. However, directors are also required to:
* properly select and apply accounting policies;
* present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
* provide additional disclosures when compliance with the specific requirements
in IFRS are insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial position
and financial performance; and
* make an assessment of the Company's ability to continue as a going concern.
The Directors, to the best of their knowledge, state that:
* the financial statements, prepared in accordance with IFRS as adopted by the
European Union, give a true and fair view of the assets, liabilities, financial
position and results of the Company and the Group; and
* the Report of the Directors includes a fair review of the development and
performance of the business and the position of the Company and the Group
together with a description of the principal risks and uncertainties that it
faces.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements
comply with the Companies (Jersey) Law 1991. They are also responsible for
safeguarding the assets of the Company and the Group, and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Jersey and the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Signed on behalf of the Board of Directors
Richard Barnes
Chairman
30 July 2010Consolidated Statement of Comprehensive Income
For The Year Ended 31 March 2010
2010 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income
Rental and service 30,893 - 30,893 30,715 - 30,715
charge income
Interest receivable 2,135 - 2,135 645 - 645
and other income -
see note 2
Realised gains on - - - - 3,030 3,030
swaps
Unrealised gains/ - 988 988 - (5,595) (5,595)
(losses) on swaps
(Losses)/gains on
investment
properties
Unrealised losses - (17,000) (17,000) - (94,432) (94,432)
on revaluation of
properties
Lease incentive - (720) (720) - - -
Realised gains/ - 477 477 - (11,763) (11,763)
(losses) on
disposal of
properties
33,028 (16,255) 16,773 31,360 (108,760) (77,400)
Expenses
Management fees - (921) (126) (1,047) (1,443) (197) (1,640)
see note 3
Property expenses (8,835) - (8,835) (6,393) - (6,393)
Professional fees (1,962) - (1,962) (3,040) - (3,040)
Goodwill impairment - (2,301) (2,301) - (5,797) (5,797)
(11,718) (2,427) (14,145) (10,876) (5,994) (16,870)
Profit/(loss) 21,310 (18,682) 2,628 20,484 (114,754) (94,270)
before finance
costs and tax
Finance costs (12,657) (1,725) (14,382) (15,018) (2,048) (17,066)
Profit/(loss) 8,653 (20,407) (11,754) 5,466 (116,802) (111,336)
before tax
Tax credit 240 1,147 1,387 217 8,480 8,697
Profit/(loss) for 8,893 (19,260) (10,367) 5,683 (108,322) (102,639)
the year
attributable to
equity shareholders
Other comprehensive income/(expenses)
Exchange - - (634) - - 4,911
differences on
translating foreign
operations
Unrealised gain/ - - 512 - - (4,695)
(loss) on
revaluation of
cross currency swap
Unrealised gain/ - - 1,146 - - (14,917)
(loss) on
revaluation of
interest rate swaps
(9,343) (117,340)
Loss per ordinary (6.8)p (67.1)p
share - basic and
diluted
The total column of this statement represents the Company's consolidated income
statement. The supplementary revenue and capital columns are presented for
information in accordance with the Statement of Recommended Practice issued by
the Association of Investment Companies. All items in the above statement
derive from continuing operations. No operations were acquired or discontinued
in the year.
Consolidated Statement of Changes in Equity
for the year ended 31 March 2010
Stated Other Translation Capital Revenue
Capital Reserve Reserve Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 101,368 (2,093) 1,336 (42,733) 43,576 101,454
March 2008
(Loss)/profit - - - (108,322) 5,683 (102,639)
for he year
Other
Comprehensive
Income:
Unrealised loss - - (4,695) - - (4,695)
on revaluation
of cross
currency swaps
Exchange - - 4,911 - - 4,911
differences on
translating
foreign
operations
Unrealised loss - (14,917) - - - (14,917)
on revaluation
of interest
rate swaps
Dividends paid - - - - (5,164) (5,164)
- see note 5
Balance at 31 101,368 (17,010) 1,552 (151,055) 44,095 (21,050)
March 2009
(Loss)/profit - - - (19,260) 8,893 (10,367)
for the year
Other
Comprehensive
Income:
Unrealised gain - - 512 - - 512
on revaluation
of cross
currency swaps
Exchange - - (634) - - (634)
differences on
translating
foreign
operations
Unrealised gain - 1,146 - - - 1,146
on revaluation
of interest
rate swaps
Balance at 31 101,368 (15,864) 1,430 (170,315) 52,988 (30,393)
March 2010
Company Statement of Changes In Equity
For The Year Ended 31 March 2010
Stated Other Translation Capital Revenue
Capital Reserve Reserve Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 101,368 176 - (4,098) 32,511 129,957
March 2008
Loss for the year - - - 3,302 (107,129) (103,827)
Unrealised loss - (7,896) - - - (7,896)
on revaluation of
interest rate
swaps
Dividends paid - - - - - (5,164) (5,164)
see note 5
Balance at 31 101,368 (7,720) - (796) (79,782) 13,070
March 2009
Profit/(loss) for - - - (2,427) (3,135) (5,562)
the year
Unrealised loss - (240) - - - (240)
on revaluation of
interest rate
swaps
Balance at 31 101,368 (7,960) - (3,223) (82,917) 7,268
March 2010
Consolidated Statement of Financial Position
At 31 March 2010
2010 2009
Consolidated Company Consolidated Company
GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Investment in - 136,762 - 155,055
subsidiary
companies
Investment 245,142 - 277,965 --
properties
Intangible assets 6,489 - 9,127 --
251,631 136,762 287,092 155,055
Current assets
Trade and other 7,278 87 4,242 126
receivables
Cash and cash 8,821 1,151 10,074 5,502
equivalents
16,099 1,238 14,316 5,628
Total assets 267,730 138,000 301,408 160,683
Current liabilities
Trade and other (17,142) (5,063) (15,506) (4,252)
payables
Taxation - (5) (60) (5)
Bank loans (227,631) (102,513) (249,189) (118,945)
(244,773) (107,581) (264,755) (123,202)
Total assets less 22,957 30,419 36,653 37,481
current liabilities
Non-current
liabilities
Other payables (2,077) - (2,010) -
Interest rate swaps (15,864) (7,961) (17,010) (7,720)
liability
Currency swaps (15,190) (15,190) (16,691) (16,691)
liability
Obligations under (6,426) - (6,431) -
finance leases
Deferred taxation (13,793) - (15,561) -
(53,350) (23,151) (57,703) (24,411)
Net (liabilities)/ (30,393) 7,268 (21,050) 13,070
assets
Capital and
reserves
Stated capital - 101,368 101,368 101,368 101,368
see note 6
Other reserve (15,864) (7,960) (17,010) (7,720)
Translation reserve 1,430 - 1,552 -
Capital reserves (170,315) (3,223) (151,055) (796)
Revenue reserve 52,988 (82,917) 44,095 (79,782)
Issued capital and (30,393) 7,268 (21,050) 13,070
reserves
Net asset value - (19.9)p (13.8)p
see note 7
Consolidated Statement of Cash Flow
For The Year Ended 31 March 2010
2010 2009
Consolidated Company Consolidated Company
GBP'000 GBP'000 GBP'000 GBP'000
Operating activities
Rent and service 32,054 272 29,457 16
charges received
Bank interest 14 7 267 190
received
Proceeds on swap - - 3,030 3,030
disposal
Interest from - 16,765 - 20,242
subsidiaries
Bank loan interest (14,382) (7,996) (15,185) (8,815)
paid
Operating expense (12,080) (94) (9,097) (760)
payments
Tax recovered/(paid) 42 - (79) 4
Net cash inflowfrom 5,648 8,954 8,393 13,907
operating activities
Investing activities
Investment in group - - (1,024) -
undertakings
Repayments by group - 5,422 - 51,601
undertakings
Capital expenditures (3,254) - (4,114) -
and incentives
Sale of investment 12,690 - 71,310 -
properties
Net cash inflow from 9,436 5,422 66,172 51,601
investing activities
Financing activities
Loan facility fee - - (1,250) (1,250)
Bank loan drawdown - - - -
Repayment of loan (16,432) (16,432) (69,000) (69,000)
Dividends paid - - (5,164) (5,164)
Net cashoutflow from (16,432) (16,432) (75,414) (75,414)
financing activities
Decrease in cash and (1,348) (2,056) (849) (9,906)
cash equivalents
Cash and cash 10,074 5,502 11,908 7,270
equivalents at
beginning of year
Effect of foreign 95 (2,295) (985) 8,138
exchange changes
Cash and cash 8,821 1,151 10,074 5,502
equivalents at end of
year
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout this and the previous period, is set out below.
(a) Going Concern
As disclosed in the Chairman's Statement and the Report of the Directors and
notes 5, 16 and 24 to the Financial Statements in the Annual Financial Report,
at 31 March 2010 the Group had bank loans of GBP227.6 million secured on the
Group's investment properties. Under the terms of the bank loan, the Group has
to comply with a number of financial covenants, of which the two most material
are a loan to value (`LTV') covenant and an interest cover ratio (`ICR')
covenant. The Group have not complied with the LTV which at 31 March 2010 is
95.4%, however, ICR is in compliance.
The non-compliance with the LTV at 31 December 2008 which has remained the case
up to and since 31 March 2010, has resulted in the bank being able, at their
discretion, to serve a notice of default. Agreement needs to be reached with
the bank to agree a revised financing package which includes consideration of
the ICR and LTV covenants.
The Directors remain in discussions with the lending bank in order to agree a
revised financing arrangement which they believe has a reasonable prospect of
ultimately being satisfactorily concluded. It is likely that any revised
financial package agreed will require the approval of the shareholders in a
general meeting.
The Group's GBP10 million loan facility with Invesco Limited also has cross
default provisions tied to the bank loan. Invesco Limited have not to date
called an event of default and at the balance sheet date the amount drawn down
was GBP2 million (2009: GBP1 million).
In order for the Group to continue to trade as a going concern, the Directors
of each of the entities in the Group need to be satisfied that they will
continue to be able to meet their operating costs and expenses as they fall
due. The Directors have prepared cash flow forecasts covering the period to 31
July 2011 which show, after taking into account reasonable possible changes,
that there is a generation of positive operational cash flow of the Group in
the period.
However, given the uncertainty regarding the outcome of the discussions with
the lending bank, there is a material uncertainty which may cast significant
doubt as to the Group's ability to continue as a going concern and therefore,
that it may be unable to realise its assets and discharge its liabilities in
the normal course of business.
At the present time, the Directors consider it appropriate to prepare the
financial statements on the going concern basis. In the event that a going
concern basis should become inappropriate, the assets of the Group would be
written down to their recoverable value and provision made for any further
liabilities that may arise. At this time it is not practicable to quantify such
adjustments.
(b)Basis of Accounting
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards (`IFRS') as adopted for use in the
European Union, which comprise standards and interpretations approved by the
International Accounting Standards Board (`IASB'), and International Accounting
Standards and Standing Interpretations Committee interpretations approved by
the International Accounting Standards Committee (`IASC') that remain in
effect.
The financial statements have been prepared on the historical cost basis,
except for the revaluation of investment properties and derivative financial
instruments. Where presentational guidance set out in the Statement of
Recommended Practice (`SORP') for investment trusts issued by the Association
of Investment Companies (`AIC') in January 2009 is consistent with the
requirements of IFRS, the Directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the SORP.
The preparation of the financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgements about the carrying value of assets and liabilities that are
not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision
only affects that period, or in the period of the revision and future periods
if the revision affects both current and future periods.
In applying the Group's accounting policies, the Directors make key judgements
and assumptions; the key sources of estimation and uncertainty are in the
following areas:
Property valuations
In determining the fair value of investment properties under IAS 40 at open
market value, there is a degree of uncertainty and judgement involved. The
Group uses external professional valuers to determine the relevant amounts. The
valuer's opinion is that, with market conditions which currently prevail, there
is likely to be a greater than usual degree of uncertainty in respect of
valuations. Until the number and consistency of comparable transactions
increase, this situation is likely to remain.
Classification of leases
In determining whether leases and related properties represent operating or
finance leases, consideration is given to whether the tenant or landlord bears
the risks and rewards of ownership.
Goodwill
Goodwill is reviewed for impairment. Judgement is exercised in determining
whether there is an impairment and requires an estimation of the value in use
of the cash generating unit to which the goodwill has been allocated.
Judgements will include cashflow forecasts, based on reasonable and supported
assumptions, and the discount rate to be applied, based on the rate that the
market would expect on an investment of an equivalent risk.
2. Interest receivable and other income
year year
ended ended
31 March 31 March
2010 2009
GBP'000 GBP'000
Interest receivable 14 377
Other income 2,121 268
2,135 645
Other income includes GBP1.9 million surrender premium received for the Hounslow
property.
3. Management fees
Details of the management fee agreement are shown on page 20 of the Annual
Financial Report.
4. Profit/(loss) before finance costs and tax
Profit/(loss) before finance costs and tax is stated after charging:
year ended year ended
31 March 2010 31 March 2009
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Directors' fees 123 - 123 133 - 133
Fees payable to the
Company's auditors for
the audit of the
financial statements:
- Current period 100 - 100 100 - 100
Fees payable to the
Company's auditors for
the audit of the
Company's subsidiaries
pursuant to legislation
- Current period 137 - 137 137 - 137
- Prior year additional - - - 34 - 34
fees
Total audit fees - 237 - 237 339 - 339
current period
Other fees payable to
the Company's auditors
Tax services 39 - 39 12 - 12
Corporate finance - - - 94 - 94
services
Total non-audit fees 39 - 39 106 - 106
Amounts for corporate finance services have been capitalised as part of the
costs of the transactions and accordingly whilst included in the above analysis
have not been charged to the income statement.
5. Dividends
Amounts recognised and paid as distributions to equity holders in the year:
year ended year ended
31 March 2010 31 March 2009
Pence GBP'000 Pence GBP'000
Fourth interim paid in respect of previous year - - 1.6875 2,582
First interim paid - - 1.6875 2,582
- - 3.375 5,164
Dividends payable in respect of the financial year:
year ended year ended
31 March 2010 31 March 2009
Pence GBP'000 Pence GBP'000
First interim paid - - 1.6875 2,582
- - 1.6875 2,582
6. Stated capital
2010 2009
GBP'000 GBP'000
Authorised:
153,000,000 ordinary shares of no par value - -
Allotted, called-up and fully paid:
153,000,000 ordinary shares of no par value 101,368 101,368
7. Net asset value per ordinary share
(a) The net asset value per ordinary share and the net asset values
attributable at the year end calculated in accordance with the Articles of
Association were as follows:
2010 2009
Net Assets Net Assets
Net Asset Attributable Net Asset Attributable
Value GBP'000 Value GBP'000
Ordinary shares (19.9)p (30,393) (13.8)p (21,050)
Net asset value per ordinary share is based on net assets at the year end and
153,000,000 ordinary shares, being the number of ordinary shares in issue at
the year end.
(b) Reconciliation of consolidated NAV per share to adjusted NAV:
2010 2009
Pence Pence
Per Share GBP'000 Per Share GBP'000
Consolidated NAV per
accounts (19.9) (30,393) (13.8) (21,050)
Adjustments:
Goodwill (4.3) (6,489) (5.9) (9,127)
Deferred tax 9.1 13,793 10.2 15,561
Swaps 10.4 15,864 11.1 17,010
Adjusted NAV (4.7) (7,225) 1.6 2,394
The adjusted NAV is per the European Public Real Estate Association (`EPRA')
measure, published in January 2006. The EPRA NAV per share excludes the fair
value adjustments for debt and interest rate derivatives, deferred taxation on
revaluations, capital allowances and goodwill.
8. The audited Annual Financial Report will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
Registered Office, Ordnance House, 31 Pier Road, St Helier, Jersey, JE4 8PW and
will be available shortly from Invesco Perpetual on the following website:
www.invescoperpetual.co.uk/investmenttrusts
The Annual General Meeting will be held on 2 September 2010 at 12 noon at
Ordnance House, 31 Pier Road, St Helier, Jersey, JE4 8PW.
By Order of the Board
R&H Fund Services (Jersey) Limited
Company Secretary
30 July 2010
Enquiries to:
Invesco Asset Management Limited
Angus Pottinger
020 7065 3714
Rory Morrison,
020 7543 3581
END
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