TIDMIPI
Invesco Property Income Trust Limited
Half-Yearly Financial Report for the Six Months to 30 September 2010
Key Facts
Invesco Property Income Trust Limited (`the Company') is a closed-ended
investment company with limited liability incorporated in Jersey. The Company's
ordinary shares are listed on the London and the Channel Islands Stock
Exchanges.
Objective of the Company
The investment objective of the Company is to provide shareholders with an
attractive level of income together with the prospect of income and capital
growth through investing in commercial properties in the European Union.
As noted in the 2010 annual financial report's Chairman's Statement, the
Company is unlikely to pay any dividends for the foreseeable future.
Full details of the Company's Investment Policy (incorporating the Company's
investment objective) can be found on page 13 and 14 of the 2010 annual
financial report at: http://itinvestor.invescoperpetual.co.uk/UK/
investmenttrustliterature/InvescoPropertyIncomeTrust/ipit_annual_report_2010.pdf.
Investment Manager
Invesco Asset Management Limited acts as Investment Manager to the Company.
Gearing and Hedging
As a result of falling asset values the Company's current borrowing levels
significantly exceed the Board's target ratio and are also in excess of the
maximum permitted under the Company's bank facility. Falls in asset values in
Europe have also resulted in the Company's Euro exposure being over-hedged
through forward currency contracts. As noted in the Chairman's statement,
amendments to the investment objective and policy may be required depending on
the outcome of negotiations with the Company's lending bank. Any such
amendments will be subject to shareholder approval. The Company hedges the
majority of interest rate exposure through the use of interest rate swaps.
Foreign currency exposure is managed by matching investment in euro denominated
assets with borrowings in euro or by cross currency swaps.
Share Capital
The Company's share capital consists of 153,000,000 ordinary shares of no par
value.
Financial Highlights
At At
30 September 31 March
2010 2010
Assets
Net (liabilities) /assets (GBP'000) (32,672) (30,393)
Adjusted net (liabilities) /assets(1) (11,119) (7,225)
(GBP'000)
Net asset value per share (per (21.4)p (19.9)p
accounts)
Adjusted net (liability) /asset value
per
share(1) (7.3)p (4.7)p
Ordinary mid-market share price 1.98p 4.75p
Gearing based on:
- gross assets(2) 98% 95%
- net assets n/a n/a
Note:
(1) The difference between the Accounts Net Asset Value per share and the
Adjusted Net Asset Value per share arises from the treatment of derivatives,
goodwill and tax charges in the published accounts as explained in Note 5.
(2) Gearing represents the LTV ratio under the Company's banking arrangements
(excluding applicable cash balances).
INTERIM MANAGEMENT REPORT INCORPORATING THE CHAIRMAN'S STATEMENT
Chairman's statement
It is frustrating to report that third party discussions have been unable to
agree terms satisfactory to all parties, which include the Company's lending
bank. As previously announced, such discussions are now at an end.
For the period there has been a modest decline, like for like, at the portfolio
level and also in shareholders' funds, which remain in deficit. As a result the
Company remains reliant on the support of its lending bank, with which we
remain in active discussions. Now that third party discussions are over we hope
to conclude negotiations for revisions to the banking facility in the near
future. Our objective will be, as always, to secure the best possible terms to
allow some recovery of value for shareholders in due course. Shareholders
should note that the business plan under discussion with the bank does not
contemplate the payment of any dividends.
The Directors expect that any agreed terms for revision of the banking facility
will require amendments to be made, subject to shareholder approval, to the
Company's investment objective and policy.
The financial statements in this half yearly report have been prepared on a
going concern basis but, as disclosed in the annual report for the year ended
31 March 2010 and in note 6 to this report, there are uncertainties as to the
Company's ability to continue as a going concern. The Directors expect that
these uncertainties would be resolved in the event of a successful
renegotiation of the banking facility.
Performance
The UK portfolio, on a like for like basis, fell 6.8% over the half year, with
Europe down 3.8% in local currency. A weaker Euro meant that in sterling terms
the overall portfolio showed a decline of 7.0%.
The adjusted net asset value per share (excluding goodwill, deferred tax and
the value of interest rate hedges) fell from -4.7p to -7.3p, with the IFRS net
asset value per share decreasing from -19.9p to -21.4p.
Financing
The sterling value of the Company's borrowings at 30 September were GBP217.2m,
down from GBP227.6m at the year end. This reflects the repayment of GBP6.0m of
sterling borrowings following the sale of Fleet House and the effect of
currency movements on the Euro loan balances, which remain unchanged in local
currency.
Calculated according to the banking facility agreement, the Company's loan to
value ratio stood at 97.9 per cent (31 March: 95.3 per cent) and the interest
cover ratio at 139.2 per cent (31 March: 151.5 per cent). The reduction in
interest cover has arisen partly from increased vacancies, notably in France,
but also as a result of rent free periods offered to tenants. This effect had
been expected and the ratio should improve as secured rental income begins to
flow under the new leases.
Outlook
As stated in the annual report for the year to 31 March 2010, the prospects for
recovery of value for shareholders depend on a successful outcome to
negotiations with the Company's lending bank and, given the deficit in
shareholders' funds, on the performance of the Company's assets.
Richard Barnes
Chairman
15 November 2010
Manager's report
Property Activity
While it is disappointing to see that the continued uncertainty in property
markets has led to further (though more modest) value declines within the
Company's portfolio, we continue to be pleased with the relatively stable
income profile from the portfolio. This has been achieved by diligent rent
collection, active asset management, and successful leasing discussions on a
number of the vacant areas within the portfolio. In addition the portfolio has
not suffered from any business failures during the period.
We continue to prioritise active asset management across the portfolio, and
resulting from those efforts we have managed in a number of cases in the UK and
Europe to remove tenant break options or extend leases. To secure these
benefits it has, as previously reported, proved necessary to offer tenants
initial rent free periods. The effect of these rent free periods has been a
reduction in cash flow in the second half of the period, impacting negatively
on the ICR ratio as at 30 September. Over the coming months as these rent free
periods expire the rent receipts relating to these specific leases will be
restored. The benefit of this asset management activity has been to maintain
and improve the average weighted unexpired lease term from 4.2 to 4.4 years
over the period.
At 30 September the vacancy rate stood at 7.0% overall (31 March 2010 4.8%),
which while showing a rise over the period, still compares favourably with the
IPD European index vacancy index vacancy rate as at December 2009 of 8.65%
(reported annually), and the comparable UK figure standing at 8.8% as at the
end of September 2010. The rise reflects a small number of tenant departures in
the European portfolio, specifically within the Paris region, where tenants
operated their break options. We are working hard to secure re-letting of this
accommodation in the coming months, supported by our reasonably optimistic
market prospects for the Parisian property markets.
As previously announced, during the period, the sale of Fleet House,
Peterborough completed for GBP6.125m, reflecting a premium over the most recent
valuation of 5.1%.
Outlook
While we are expecting the property markets in both the UK and Europe to
continue the trend towards relative stability, there remains underlying
uncertainty both from investors and occupiers. The rally in values seen in the
previous year for the most prime assets has been sustained despite the wider
concerns over the impact of the `austerity measures' across most European
economies, as other investment classes suffer similar uncertainty and
volatility and investors are increasing allocations to real estate.
The majority of the assets owned by the Company have yet to benefit from the
rally in values. However, we are starting to see investors moving slowly up the
risk curve, becoming prepared to take more risk on non-prime assets as
available returns from core opportunities become squeezed. Where buildings have
shorter income, or doubts over ongoing occupation by tenants, valuations
continue to reflect those concerns about vacancy risks; however, other assets
in the portfolio have seen their value increase where lease expiries have been
removed or extended.
Looking ahead, it is likely that there will be continuing headwinds for
European property markets, as the real effects begin to be felt of the various
programmes instigated by Governments to address budget deficits. Investor
appetite for property does, however, seem to be improving and as mentioned
above a desire for higher returns appears to be encouraging some investors to
start to look at taking a little more risk. Clearly this wider market sentiment
is outside our control, and its direction and momentum will be determined by
many interconnected factors, but by focusing on the active asset management of
the portfolio, seeking to secure tenants for longer periods and minimise the
risk of vacancy, the Manager is seeking to make best use of the control it can
exert on the Company's assets. This continues to prove a challenge in many
cases, and while we continue to progress many discussions with tenants in a
positive direction, we will inevitably experience some additional vacancy in
the coming months where break options have been exercised or leases not
extended.
Rory Morrison
Invesco Asset Management Limited
15 November 2010
Related Party
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Limited, acts as Investment Manager to the Company. Details of IAML's services
and fees arrangements are given in the latest annual financial report, which is
available on the Company's website.
Principal Risks and Uncertainties
The principal risks and uncertainties that could affect the Company's business
can be divided into the following various areas:
* Investment Policy;
* Ordinary Shares and Dividends;
* Gearing;
* Interest and Currency Risks;
* Market Movements and Portfolio Performance; and
* Regulatory.
A detailed explanation of these principal risks and uncertainties can be found
on pages 17 to 19 of the 2010 annual financial report, which is available on
the Company's website at http://itinvestor.invescoperpetual.co.uk/UK/
investmenttrustliterature/InvescoPropertyIncomeTrust/
ipit_annual_report_2010.pdf.
In the view of the Board, these principal risks and uncertainties are equally
applicable to the remaining six months of the financial year as they were to
the six months under review.
Going Concern
As noted on page 36 of the 2010 annual financial report, 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.
DIRECTORS' RESPONSIBILITY STATEMENT
In respect of the preparation of the half-yearly financial report
The Directors are responsible for preparing the half-yearly financial report
using accounting policies consistent with applicable law and International
Financial Reporting Standards.
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements contained within the half-yearly
financial report have been prepared in accordance with International Accounting
Standards 34 `Interim Financial Reporting';
- the interim management report includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R of the FSA's Disclosure and Transparency
Rules; and
- the interim management report includes a fair review of the information
required on related party transactions.
The half-yearly financial report has not been audited or reviewed by the
Company's auditors.
Signed on behalf of the Board of Directors.
Richard Barnes
Chairman
15 November 2010
Investment Properties
As at 30 September 2010
Value % of
Property Country GBP'000 Portfolio
Directoire, St Cloud France 33,081 14.9
St Michel Sur Orge, Ile de France France 18,938 8.5
Schickardstraße 30, Böblingen Germany 17,991 8.1
Le Diapason, Paris France 14,031 6.3
Colonel Bourg, Brussels Belgium 12,137 5.5
11 Old Jewry, London EC2 UK 10,290 4.6
Brackmills Industrial Estate, Brants Bridge UK 9,215 4.2
Priory Business Park, Bedfordshire UK 8,975 4.0
Hellaby Lane, Rotherham UK 8,095 3.7
Verdun, Paris France 8,092 3.7
Total of top ten investment properties 140,845 63.5
Other properties: 81,051 36.5
Total market value of properties (26 properties) 221,896 100.0
Investment properties are analysed after deduction of obligations under finance
leases of GBP6.4 million.
Lease expiry profile
30 September 2010 31 March 2010
Annual % of Annual % of
Income Annual Income Annual
GBP'000 Income GBP'000 Income
0-3 yrs 8,710 39.3 8,435 36.0
3-7 yrs 10,243 46.2 12,126 51.7
7-10 yrs 1,789 8.1 1,395 6.0
10-15 yrs 1,097 4.9 1,226 5.2
15-20 yrs 255 1.1 255 1.1
>20 yrs 93 0.4 1 -
Current annual income 22,187 100.0 23,438 100.0
from properties
Annual income is derived from leases in place at 30 September 2010 and so will
differ from total annual income received by the Group.
Sector weightings of portfolio by geographic area
As at 30 September 2010
% of Portfolio
Sector Total UK France Belgium Spain Germany
Industrial 44.3 29.5 11.2 - 3.6 -
Offices 54.0 12.5 24.9 8.5 - 8.1
Retail 1.7 1.7 - - - -
Total 100.0 43.7 36.1 8.5 3.6 8.1
As at 31 March 2010
% of portfolio
Sector Total UK France Belgium Spain Germany
Industrial 43.3 28.3 11.4 - 3.6 -
Offices 55.3 13.8 25.1 8.5 - 7.9
Retail 1.4 1.4 - - - -
Total 100.0 43.5 36.5 8.5 3.6 7.9
Condensed statement of comprehensive income
Six Months to Six Months to Year
Ended
30 September 2010 30 September 2009
(Unaudited) (Unaudited) 31 March
2010
(Audited)
Revenue Capital Total Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income
Rental and service 13,294 - 13,294 15,557 - 15,557 30,893
charge income
Interest 37 - 37 2,110 - 2,110 2,135
receivable and
other income
Unrealised gains - 1,487 1,487 - - - 988
on swaps
Losses on
investment
properties
Unrealised losses - (7,638) (7,638) - (17,204) (17,204) (17,000)
on revaluation of
properties
Lease incentive - (158) (158) - - - (720)
Realised gains on - 1,023 1,023 - - - 477
disposal of
properties
13,331 (5,286) 8,045 17,667 (17,204) 463 16,773
Expenses
Management fees (445) (60) (505) (470) (64) (534) (1,047)
Property expenses (3,610) - (3,610) (4,675) - (4,675) (8,835)
Professional fees (882) - (882) (930) - (930) (1,962)
Goodwill - - - - (2,301) (2,301) (2,301)
impairment
(4,937) (60) (4,997) (6,075) (2,365) (8,440) (14,145)
Profit/(loss) 8,394 (5,346) 3,048 11,592 (19,569) (7,977) 2,628
before finance
costs and tax
Finance costs (5,990) (817) (6,807) (6,441) (878) (7,319) (14,382)
Profit/(loss) 2,404 (6,163) (3,759) 5,151 (20,447) (15,296) (11,754)
before tax
Tax (charge)/ (48) 851 803 237 2,203 2,440 1,387
credit
Profit/(loss) for 2,356 (5,312) (2,956) 5,388 (18,244) (12,856) (10,367)
the period
attributable to
equity
shareholders
Loss per ordinary 1.5p (3.6)p (1.9)p (8.4)p (6.8)p
share - basic and
diluted
Other 677 1,618 1,024
comprehensive
income/(expenses)
Total (2,279) (11,238) (9,343)
comprehensive
profit/(loss), net
of tax
The total column of this statement represents the Group's consolidated income
statement. The supplementary revenue and capital columns are presented in
accordance with the Statement of Recommended Practice issued by the Association
of Investment Companies. All items in the above statement are derived from
continuing operations. No operations were discontinued in the period. For
details on other Comprehensive income/(expenses) please refer to the Condensed
Consolidated statement of changes in equity.
Condensed Consolidated Statement of financial position
At At At
30 30 31 March
September September
2010 2009 2010
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Investment properties 228,322 259,697 245,142
Intangible assets - goodwill 6,278 6,521 6,489
234,600 266,218 251,631
Current assets
Trade and other receivables 5,647 5,725 7,278
Cash and cash equivalents 10,769 13,130 8,821
16,416 18,855 16,099
Total assets 251,016 285,073 267,730
Current liabilities
Trade and other payables (15,377) (16,788) (17,142)
Taxation - - -
Bank loan (217,156) (247,410) (227,631)
Total assets less current liabilities 18,483 20,875 22,957
Non-current liabilities
Other payables (3,634) (2,090) (2,077)
Interest rate swaps liability (15,407) (15,517) (15,864)
Currency swaps liability (13,264) (16,083) (15,190)
Obligations under finance lease (6,426) (6,431) (6,426)
Deferred taxation (12,424) (13,042) (13,793)
(51,155) (53,163) (53,350)
Net assets (32,672) (32,288) (30,393)
Capital and reserves
Stated capital 101,368 101,368 101,368
Other reserve (15,407) (15,517) (15,864)
Translation reserve 1,650 1,677 1,430
Capital reserves (175,627) (169,299) (170,315)
Revenue reserve 55,344 49,483 52,988
Issued capital and reserves (32,672) (32,288) (30,393)
Net asset value - note 5 (21.4)p (21.1)p (19.9)p
Condensed consolidated Statement of cash flow
Six Months Six Months For the
Ended Ended Year Ended
30 September 30 31 March
September
2010 2009 2010
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Operating activities
Rent and service charges received 13,642 17,819 32,054
Bank interest received 2 8 14
Proceeds on swap disposal - - -
Bank loan interest paid (6,805) (7,319) (14,382)
Operating expense payments (3,979) (6,277) (12,080)
Tax received/(paid) 42 32 42
Net cash inflow from operating activities 2,902 4,263 5,648
Investing activities
Investment in group undertakings - - -
Purchase of investment properties (968) (1,391) (3,254)
Sale of investment properties 6,125 - 12,690
Net cash (outflow)/inflow from investing 5,157 (1,391) 9,436
activities
Financing activities
Repayment of loan (6,027) - (16,432)
Dividends paid - - -
Net cash (outflow)/inflow from financing (6,027) - (16,432)
activities
Change in cash and cash equivalents 2,032 2,872 (1,348)
Cash and cash equivalents at
beginning of period 8,821 10,074 10,074
Effect of foreign exchange changes (84) 184 95
Cash and cash equivalents at end of 10,769 13,130 8,821
period
Condensed consolidated statement of changes in equity
Stated Other Translation Capital Revenue
Capital Reserve Reserve Reserve Reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Six months ended 30
September 2010
(Unaudited)
Balance at 31 March 2010 101,368 (15,864) 1,430 (170,315) 52,988 (30,393)
(Loss)/profit for the - - - (5,312) 2,356 (2,956)
period
Other comprehensive
income:
Unrealised gain on - - 439 - - 439
revaluation of cross
currency swaps
Exchange differences on - - (219) - - (219)
translating foreign
operations
Unrealised gain on - 457 - - - 457
revaluation of interest
rate swaps
Balance at 30 September 101,368 (15,407) 1,650 (175,627) 55,344 (32,672)
2010
Six months ended 30
September 2009
(Unaudited)
Balance at 31 March 2009 101,368 (17,010) 1,552 (151,055) 44,095 (21,050)
(Loss)/profit for the - - - (18,244) 5,388 (12,856)
period
Other comprehensive
income:
Unrealised gain on - - 607 - - 607
revaluation of cross
currency swaps
Exchange differences on - - (482) - - (482)
translating foreign
operations
Unrealised gain on - 1,493 - - - 1,493
revaluation of interest
rate swaps
Balance at 30 September 101,368 (15,517) 1,677 (169,299) 49,483 (32,288)
2009
Year ended 31 March 2010
(Audited)
Balance at 31 March 2009 101,368 (17,010) 1,552 (151,055) 44,095 (21,050)
(Loss)/profit for the - - - (19,260) 8,893 (10,367)
period
Other comprehensive
income:
Unrealised gain on - - 512 - - 512
revaluation of cross
currency swaps
Exchange differences on - - (634) - - (634)
translating foreign
operations
Unrealised gain on - 1,146 - - - 1,146
revaluation of interest
rate swaps
Balance at 31 March 2010 101,368 (15,864) 1,430 (170,315) 52,988 (30,393)
Notes to the Condensed Financial Statements
1. Accounting Policies
Accounting Standards and Policies
The condensed financial statements of the Group have been prepared using the
same accounting policies as those adopted in the 2010 annual financial report,
which are consistent with International Financial Reporting Standards (`IFRS'),
and Standing Interpretation Committee and International Financial Reporting
Interpretation Committee interpretations issued by International Accounting
Standards Board to the extent adopted by the EU.
2. Taxation
With effect from the 2009 year of assessment Jersey has abolished the exempt
company regime for existing companies. Profits arising in the Company for the
2009 year of assessment and future periods are subject to Jersey income tax at
the rate of 0%.
3. Basis of Returns
The total, revenue and capital, basic and diluted earnings per ordinary share,
are based on the applicable net returns for the period and on 153,000,000
ordinary shares being the amount of ordinary shares in issue in the period.
4. Status of Half-Yearly Financial Report
The financial information contained in this half-yearly financial report, which
has not been audited or reviewed by the auditors, does not constitute statutory
accounts as defined in Article 104 of Companies (Jersey) Law 1991. The
financial information for the half years ended 30 September 2010 and 2009 has
not been audited. The figures and financial information for the year ended 31
March 2010 are extracted and abridged from the latest published accounts and do
not constitute the statutory accounts for that period. Those accounts included
the Report of the Independent Auditors, which was unqualified.
5. Net Asset Value per Ordinary Share
The NAV per ordinary share is based on 153,000,000 ordinary shares of no par
value in issue at 30 September 2010.
Reconciliation of accounts NAV per share to adjusted NAV:
30 September 2010
Pence
Per share GBP'000
Accounts net asset value (21.4) (32,672)
Adjustments:
Accounting for derivatives on balance sheet (4.1) (6,278)
Goodwill 8.1 12,424
Tax charge: deferred tax 10.1 15,407
Adjusted net asset value (7.3) (11,119)
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.
By order of the Board
R & H Fund Services (Jersey) Limited
Company Secretary
15 November 2010
By order of the Board
R & H Fund Services (Jersey) Limited
Company Secretary
30 November 2010
Enquiries:
Rory Morrison
Invesco Real Estate
020 7543 3581
Angus Pottinger
Invesco Asset Management
020 7065 3714
Sue Inglis
Canaccord Adams
020 7050 6779
END
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