TIDMIPI
Invesco Property Income Trust Limited
Annual Financial Report Announcement
for the year ended 31 March 2011
PERFORMANCE INFORMATION
YEAR YEAR
ENDED ENDED
31 MARCH 31 MARCH
TOTAL RETURN 2011 2010
Adjusted net asset value total return n/a n/a
(annualised)
AS AT AS AT
31 MARCH 31 MARCH
ASSETS 2011 2010
Net liabilities (GBP'000) (23,840) (30,393)
Adjusted net liabilities (GBP'000) (7,908) (7,225)
Net asset value per share per the consolidated
statement
of financial position (15.58)p (19.86)p
Adjusted net liability value per share (5.17)p (4.72)p
Ordinary share mid-market price 1.77p 4.75p
Premium to adjusted net asset value per share 134.2% 200.6%
Gearing, based on:
-gross assets 98% 95%
-net assets n/a n/a
YEAR ENDED
31 MARCH 2011
HIGHS/LOWS HIGH LOW
Adjusted net asset value per share (5.3)p (7.5)p
Ordinary share price 4.9p 1.4p
YEAR YEAR
ENDED ENDED
31 MARCH 31 MARCH
2011 2010
Earnings and dividends
Profit/(loss) per ordinary share - basic and
diluted:
Revenue return 3.9p 5.8p
Capital return (3.6)p (12.6)p
0.3p (6.8)p
Dividends per ordinary share - -
Total expense ratio
-on gross assets 1.2% 1.1%
-on net assets n/a n/a
CHAIRMAN'S STATEMENT
Introduction
The year to 31 March 2011 was a second relatively stable year in property
markets and one in which we have finally taken a significant step in securing
the short term future of the Company.
As announced on 24 March 2011, the Company agreed in principle with its lending
bank terms for amendments to its existing loan facility. The Company expects to
enter into an agreement with its lending bank to restructure its existing loan
facility in the near future. That agreement will finally remove much of the
uncertainty over the Company's future and, in view of the duration of our
discussions with the bank and the number of alternatives considered, the Board
can say with a good deal of confidence that the agreement reached represents
the best outcome available for shareholders. We believe that, with our
advisers, we have secured terms which strike an appropriate balance between the
interests of the lending bank and those of shareholders.
Much remains to be done to secure even a small return for shareholders. At the
year end, shareholders' funds remained negative, the LTV ratio remains over
95%, and the sectors of the property markets to which we have exposure have not
shown the signs of recovery shown by prime stock which drive IPD index returns.
Notwithstanding difficult market conditions, the Company has achieved three
asset disposals since September 2010, realising aggregate proceeds of
approximately GBP24.1 million (in aggregate 3.2% ahead of their respective latest
valuations prior to their sale and 22% ahead of their combined valuations as at
30 September 2010). Leasing activity has also achieved results which surpass
our previous expectations.
We need such asset level successes to continue, as the Board and Manager are
not optimistic for the short term prospects of a broad market recovery in
higher yielding assets such as we own.
Strategic review
In March the Company agreed in principle with its lending bank terms for
amendments to the existing loan facility, following an extended period in which
the Company had exceeded the covenanted maximum LTV ratio.
As I note above, the circumstances leading to this agreement lead the Board and
its advisers to conclude with some confidence that the revised terms constitute
the best outcome achievable. In particular, the margin and final maturity date
will be unchanged and there will be no covenanted targets for asset sales or
debt repayment. This will allow the Board and Manager to continue to manage the
Company's assets with a view to optimising shareholder value rather than simply
to meet debt repayment targets. However, additional fees will be paid to the
Company's lending bank out of the net proceeds of sales of the Group's
properties (these fees will reflect the fact that the current level of the LTV
ratio represents a higher risk profile for the Company's lending bank).
The amounts owing to the lending bank must, however, be paid in full on or
before 28 September 2014. Given the Company's current financial position it is
not expected that the Company's residual assets following debt repayment will
constitute a viable business and accordingly the Company's current investment
objective and policy will need to be amended. A circular to shareholders
convening the necessary Extraordinary General Meeting and containing details of
the revised facility will be sent to shareholders once the Company and its
lending bank have entered into a legally binding agreement.
Until shareholders have approved the changes, there will remain a residual
uncertainty regarding the Company's position as a going concern. The Board
believes it is likely that the lending bank would declare an event of default
if the resolutions to be proposed at the EGM were not to be passed, in which
case the Company could not continue as a going concern. As has been the case in
the last two years, the accounts have been prepared on a going concern basis
despite this uncertainty and no attempt has been made to quantify the effects
on the Financial Statements of any adjustments required to reflect a different
basis of preparation.
Performance
Over the year the UK portfolio, on a like for like basis delivered an increase
of 3.8% (2010: -1.6%). The European assets declined 7.3% (in Euros) for the
year (2010: -8.5%). The aggregate portfolio valuation was GBP213.8 million at the
year end, an overall decline on a like for like basis of 3.7% (2010: -14.3%).
This was the first positive annual performance from our UK portfolio since
valuations peaked in June 2007 and owes much to the hard work carried out by
our asset managers, who have achieved some notable successes this year with our
assets at Pegasus House Peterborough, Priory Business Park Bedford and Old
Jewry in the City of London. In Europe the Company's property values have
continued to fall, reflecting a rise in vacancy rates.
At the year end the Company's NAV per share (IFRS basis) stood at -15.6p per
share (2010: -19.9p) and the adjusted NAV was -5.2p per share (2010: -4.7p).
Income generation has remained robust. Weaker rental income from France was
offset by the receipt of a lease surrender premium as part of the lease
restructuring at Pegasus House. Revenue earnings per share were 3.9p per share
(2010: 5.8p).
Activity
The year has been a busy and successful one in the UK. We have, as ever, sought
to add value to assets where we can but also, mindful of the Company's debt
burden, taken opportunities to realise value where the risks and rewards of
continuing to hold assets have become unfavourable. At 31 March 2011 the UK
portfolio had a lower vacancy rate and longer unexpired lease term than at the
previous year end and GBP18.7 million had been raised from three asset sales,
each of which realised a premium over their most recent valuations. In line
with the strategy above we have, since the year end, sold Pegasus House
Peterborough, thus realising the 46% valuation uplift secured through a lease
restructuring in December.
The European portfolio has, unfortunately, seen vacancies rise with the
departure of three important tenants in the second half of the year. The asset
management teams working on our behalf have been working hard to re-let space
and have already achieved some pleasing results, securing income much earlier
than our business plans projected. Rebuilding the European rental income will
be a priority for this year.
Financing
The sterling value of the Company's bank borrowings was GBP208.6 million (31
March 2010: GBP227.6 million), comprising GBP85.3 million drawn in sterling and EUR
140.2 million drawn in Euros. GBP17.2 million of sterling borrowings were repaid
during the period following asset sales.
The bank loan to value ratio at the year end was 97.6% (31 March 2010: 95.3%).
The Company's interest cover stood at 132.8% at 31 March (31 March 2010:
151.5%).
The Company has outstanding GBP2 million of the GBP10 million working capital
facility provided by Invesco Ltd. Including accrued interest the liability
stood at GBP2.3 million at the year end. The repayment date under this facility
has been extended so as to be co-terminous with the revised banking facility.
The Group's liabilities under interest rate hedge contracts have reduced in the
year. GBP10.0 million of sterling interest rate swaps have been cancelled
alongside repayment of sterling borrowings. A further GBP10.5 million swap has
also been cancelled since the year end following the sale of Pegasus House and
subsequent repayment of debt.
Outlook
As discussed in more detail in the Manager's report there are as yet few causes
for optimism in the market for higher yielding assets of the type held by the
Company, despite some positive signals and returns from prime stock. It seems
likely that we will need to be patient before economic growth and/or investor
appetite provides a stimulus for these markets. In this context the terms
agreed with our lending bank, with no reduction in the facility term, leave the
Company as well placed as it could be for this outcome.
Pending any market upturn we will continue to focus on seeking to add value
through asset level initiatives.
Corporate Governance
The new UK Code of Corporate Governance, which succeeds the Combined Code was
published in June 2010 and applies to accounting periods beginning on or after
29 June 2010. Your Board intends to comply with the provisions of the new UK
Code of Corporate Governance with effect from 1 April 2011, save in respect of
matters which will be explained within the 2012 annual financial report.
Richard Barnes
Chairman
29 July 2011
PROPERTY MANAGER'S REPORT
Property Markets
There has been little change in the overall investment environment over the
period, with prime property values continuing their steady upward progression
first seen in 2009 in the UK, and the lack of apparent recovery in the
secondary markets persisting. It is important to make this distinction as this
Company's portfolio is made up of predominately higher yielding secondary
properties.
With investor demand for prime assets remaining ahead of supply, it is clear to
see where the stimulus for the growth in value has come from. Underlying
property fundamentals have also started to improve in a number of specific
locations around Europe, offering some confidence for a sustainable recovery
cycle. Investment activity has spread across a wider range of markets, but
investors remain risk averse, focussing on well-let, good quality assets in the
best locations.
Overall transaction volumes across Europe rose by over 40% during 2010, peaking
in Q4 at EUR35.8 billion. This is still a considerable under-estimate of the
amount of capital currently allocated to European real estate, which we
conservatively estimate to be in the region of EUR200 billion, as `prime' real
estate remains in short supply.
As values have continued to rise there has been an increase in the supply of
investment product, but the growth in demand continues to outpace supply in the
most popular markets, while in markets where transaction volumes are still
fairly subdued there is still a significant mismatch between vendor and
purchaser expectations of pricing.
Property values for the best assets in the core markets continued to rise
across many locations in H2 2010, with markets in France, Southern and Central
Europe experiencing the strongest recovery. Within the office market, for
higher quality properties rents have stabilised in most locations in Europe,
while in specific cities (London, Paris and Stockholm being examples) where
rental growth was first seen late in 2009, growth continued through 2010.
Rental growth across the industrial/logistics sector was significantly more
subdued, but turned positive on average in the second half of 2010.
I highlighted at the beginning of this report the significance to this Company
of the disparity between prime and secondary property, as determined by both
location and building quality. It is tempting to read the `headlines' from the
property press and translate the improvements in performance and prospects for
prime property across to this Company. While improving market conditions for
prime property give reason to be optimistic that more secondary property will
start to pick up as investors widen their appetite, it is important to
recognise that there is no evidence of this happening yet, and there can be no
certainty as to whether or when conditions will start to improve.
By example, values in UK regional office markets slowed to stagnation, and
there was little movement in the traditionally stable German markets. Evidence
regarding value movements in the secondary markets is scarce, but UK IPD data
and anecdotal evidence across Europe suggests that there has been little
movement in secondary values.
From an occupational perspective, demand from potential tenants in the more
secondary markets is patchy, putting tenants in a relatively strong bargaining
position. Rents are therefore under pressure and incentive packages remain
large. Leasing activity is still dominated by lease renegotiations (where
tenants remain in occupation after a lease expiry, but on new terms), although
to a lesser extent than in 2009/10. Some tenants are also looking for
opportunities to trade up from older space to Grade A space while rents are
still relatively low, although costs of moving may be sufficient to dissuade
occupiers from relocating unless absolutely necessary. Consequently, the supply
of Grade A space has begun to decline, while the availability of second hand/
secondary space has continued to rise even though overall vacancy rates are
stabilising and, in some cases, falling.
Recent IPD figures for both the UK and European property markets have indicated
that the rate of recovery slowed over the year to end March 2011. In the UK the
quarterly capital growth in Q1 2010 of 4.3% slowed to 0.8% by Q1 2011. The
overall vacancy rate, as a percentage of ERV, stood at 8.9% by end Q1 2011 down
from 9.5% at the end of Q1 2010.
Across Europe, based on the calendar year annual numbers from IPD (the most
recent data available), capital values began to recover in France with 4% value
growth recorded for 2010 from a decline of 7.1% in 2009. The rates of decline
slowed in Belgium (2010: -1.2% versus -2.6% for 2009), Germany (2010: -0.9%
versus -2.8% for 2009) and Spain (2010: -1.2% versus -13.3% for 2009).
Vacancy rates for Spain and France fell during the course of 2010 to end at
13.2% and 9.3% respectively. Germany and Belgium saw vacancy rates increase to
8.3% and 7.3% respectively.
While these overall figures offer some cause for optimism, I must reiterate
that the movements in this `index' data is still being driven predominately by
the prime end of the market, leaving the secondary markets somewhat lagging.
With current and prospective tenants in the more secondary quality buildings
and locations benefitting from greater choice, property owners are facing an
ever increasing need to emphasise high quality asset management strong tenant
relations, and a flexible approach to lease negotiations.
Asset Management
In spite of the challenges highlighted above, we have been pleased with
progress in managing vacancy rates across the UK portfolio, and holding onto
tenants through lease restructuring. In March 2010, the UK vacancy rate for the
portfolio was running at 10% with an average weighted unexpired term of 5.39
years. These metrics have now both improved to 7.3% and 6 years respectively as
a result of these lease restructuring new lettings, and asset disposals. The UK
vacancy rate now compares favourably with the UK IPD average rate of 8.9% as at
the end of March 2011.
In the UK particularly positive results were achieved over the period at the
Old Jewry, London; Pegasus, Peterborough; and Unipath, Bedford properties. At
Old Jewry the final vacant area of offices was let in December 2010, leading to
the full occupation of the office floors for the first time since acquisition.
The building now has 12 office tenants, with a ground floor restaurant. The
remaining vacancy in the building comprises a second ground floor restaurant
space, where tenant interest is giving us some optimism for a letting in the
near future.
Activity at both Peterborough and Bedford has secured tenants for longer lease
terms, and created significant `added value' for the portfolio. At Pegasus we
secured a revised lease with the existing tenant in December 2010, whereby the
tenant committed to a term expiring in 2025, with a break option in 2020. The
rent remained unchanged, the tenant was incentivised with a rent free period
ending in June 2011, resulting in the value being increased to GBP11.5 million
(March 2010: GBP7.89 million). We also secured a new 10 year lease at Bedford,
for the office element of the property, with a company associated with the
occupational tenant. The previous tenant company wished to vacate the property
and had a break option over the whole property that would have been effective
in September 2011. This negotiated agreement secured ongoing occupation of the
offices. We simultaneously accepted the vacancy of the warehouse, in return for
the receipt of a cash premium of GBP2.3 million and a dilapidations payment of GBP
1.3 million. The impact of this transaction was to increase the value of the
property to GBP11.1 million (March 2011) from GBP8.85 million (December 2010) over
and above the cash receipts mentioned. It is likely that we will have to invest
the GBP1.3 million in the property to assist in the marketing of the vacant
warehouse.
In Europe we have seen vacancy rates within the Company's portfolio rise more
recently, principally following the departure of three tenants: two from office
buildings; and one from a warehouse in Paris. In March 2010 the vacancy rate
for the European portfolio stood at 4.4%, with a weighted average unexpired
lease term of 3.14 years. The three tenant departures mentioned above
contributed to the rise in vacancy to 17.8% in March 2011, with the weighted
unexpired lease term having improved a little to 3.43 years. While our
re-leasing strategies are still at an early stage we are pleased to have
managed to secure three new lettings over the period within the offices
comprising a total of 2,000 square metres of space, at a total annual rent of EUR
433,000 per annum in line with the current rental value of the space. As at 31
March 2011 there remains 7,200 square metres of vacant office space across the
Le Diapason and Directoire properties, and the warehouse at Combs la Ville of
15,900 square metres is also vacant, however we are pleased that we are already
seeing some occupier interest in part of the vacated space in the two office
buildings, which we hope to result in lettings in due course.
The majority of leases agreed over the year, whether new lettings or lease
restructurings, have been secured with minimal capital investment by the
Company. Lease terms have included initial tenant incentives that are based on
rent free periods, helping the Company by preserving cash balances, but having
the consequential effect of reducing cash flow during the rent free period.
These rent free periods, combined with the vacancy in the French portfolio have
contributed to the reduction in the interest cover ratio.
Disposals
We have had some success over the period in disposing of selected assets, in
the UK. The properties at Fleet House, Peterborough, Staines Road, Hounslow,
and Afton Centre, Bracknell were all sold at prices in excess of prevailing
valuation, realising total proceeds of GBP18.524 million, allowing the repayment
of GBP17.21 million of bank debt.
Since period end, and following the successful completion of a significant
asset management initiative mentioned above, on 25 May 2011 the sale of the
property at Pegasus, Peterborough, completed for GBP11.5 million (in line with
the March 2011 valuation), crystallising the value enhancement highlighted
above. The net sale proceeds will be applied to repaying bank debt.
Under the terms for the refinancing, the Company will retain the flexibility to
progress the current strategy of managing the portfolio on an asset by asset
basis, seeking to maximise the return potential from the portfolio through a
combination of effective asset management, and selective asset disposals timed
to maximise performance of each asset for the Company.
Outlook
While there clearly continue to be risks within European economies, with
sovereign default risk hanging over Portugal, Ireland and Greece, Invesco Real
Estate's `house view' does not expect `double dip' recessions in the UK or in
any of the major European economies in which the Company is invested. We
believe that the economic progress of the countries in which the Company has
invested will be modest, as most countries implement some form of `austerity'
measures or economic pragmatism. The impact on the property markets is likely
to be further stability in values overall, with some of the core markets
strengthening further, while the more secondary assets are likely to remain at
similar valuation levels to today for the short term, although there will
undoubtedly be variations on this theme depending on the asset and
market-specific dynamics.
The management of the UK portfolio over 2009 and 2010 has returned this element
of the portfolio back close to full occupancy and secured the income as far as
is possible, however the underlying weak occupational markets means rents
remain under pressure as tenants exercise relative strength in lease
negotiations. From a European perspective we have seen the vacancy rate rise in
recent months, due to tenants departing at lease expiry or break option. While
we continue to progress active marketing of the vacant space it is clear that
interest from prospective tenants is relatively slow, and it should be expected
that it will take a number of months to secure lettings for all of the vacant
space.
We do not expect this situation or the market to improve much in the short term
and with an increased vacancy in the French portfolio, there are clearly
ongoing challenges for property values. We do expect, however, investor
appetite to start to flow from the increasingly expensive `core' markets into
the more secondary markets, as investors search for higher available returns.
This phenomenon has yet to materialise in any meaningful way in Europe,
principally we believe because underlying concerns about business stability,
and growth in non-core locations has kept investors in what they perceive to be
the lowest risk assets.
It is unclear at this stage when we will start to see this widening of
investors' risk tolerance to include more secondary assets, and it will be the
development of investor appetite for this subset of the property market that
will provide the best opportunity for value recovery for this portfolio.
Rory Morrison
Invesco Asset Management Limited
29 July 2011
PROPERTY PORTFOLIO INFORMATION
INVESTMENT PROPERTIES
AT 31 MARCH 2011
VALUE % OF
PROPERTY COUNTRY GBP MILLION PORTFOLIO
Le Directoire, St Cloud France 31.6 14.8
St Michel Sur Orge, Ile de France France 19.3 9.0
Böblingen Germany 18.4 8.6
Le Diapason, Paris France 14.2 6.7
Pegasus Buildings, Cambridgeshire UK 11.5 5.4
Unipath Building, Bedfordshire UK 11.1 5.2
Colonel Bourg, Brussels Belgium 10.9 5.1
11 Old Jewry, London EC2 UK 10.8 5.0
Brackmills Industrial Estate, Northampton UK 8.9 4.1
Le Verdun, Gentilly France 8.3 3.9
Total of top ten investment properties 145.0 67.8
Other properties 68.7 32.2
TOTAL MARKET VALUE OF PROPERTIES (24 213.7 100.0
properties)
Investment properties are analysed after deduction of obligations under finance
leases of GBP6.9 million.
LEASE EXPIRY PROFILE
2011 2010
ANNUAL % OF ANNUAL % OF
INCOME ANNUAL INCOME ANNUAL
PERIOD OF LEASE GBP'000 INCOME GBP'000 INCOME
0-3 yrs 8,716 43.5 8,435 36.0
3-7 yrs 7,871 39.3 12,126 51.7
7-10 yrs 1,790 8.9 1,395 6.0
10-15 yrs 1,313 6.5 1,226 5.2
15-20 yrs 255 1.3 255 1.1
> 20 yrs 93 0.5 1 -
CURRENT ANNUAL INCOME FROM
PROPERTIES 20,038 100.0 23,438 100.0
Annual income is derived from leases in place at 31 March 2011 and so will
differ from total annual income received by the Group for the year ended 31
March 2011.
PROPERTY PORTFOLIO INFORMATION
continued
SECTOR WEIGHTINGS OF PORTFOLIO BY GEOGRAPHIC AREA
AS AT 31 MARCH 2011
% OF PORTFOLIO
SECTOR UK FRANCE BELGIUM SPAIN GERMANY TOTAL
Industrial 27.9 11.9 - 3.6 - 43.4
Offices 14.5 25.3 8.2 - 8.6 56.6
Retail - - - - - -
Total 42.4 37.2 8.2 3.6 8.6 100.0
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
REPORT OF THE DIRECTORS
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
agreement was amended on 31 March 2011, extending the termination date to 28
September 2014. No further interest will accrue on amounts outstanding and no
further draw downs are available. At the year end GBP2 million had been drawn
down and GBP0.3 million of interest was accrued (2010: GBP2 million drawn down and
GBP0.2 million accrued).
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 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 GBP60,000
(2010: GBP79,013) 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 supply and demand for
those ordinary shares, along with wider economic factors and changes in the
law, including tax law, and political factors. 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.
More information relating to the Company's gearing policy can be found on page
19 of the Annual Financial Report.
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.
Reliance on Third Party Service Providers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. The Company is therefore reliant upon the performance of
third party service providers for its executive function. In particular, the
Manager performs services which are integral to the operation of the Company.
Failure by any service provider to carry out its obligations to the Company in
accordance with the terms of its appointment could have a materially
detrimental impact on the operation of the Company and could affect the ability
of the Company to successfully pursue its Investment Policy.
The Manager may be exposed to the risk that litigation, misconduct, operational
failures, negative publicity and press speculation, whether or not it is valid,
will harm its reputation. Any damage to the reputation of the Manager could
result in potential counterparties and third parties being unwilling to deal
with the Manager and by extension the Company. This could have an adverse
impact on the ability of the Company to successfully pursue its Investment
Policy.
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 Manager'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
29 July 2011
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2011
2011 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTES GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income
Rental and
service
charge income 25,906 - 25,906 30,893 - 30,893
Interest
receivable and
other income 2 4,134 - 4,134 2,135 - 2,135
Unrealised gains - 1,814 1,814 - 988 988
on swaps
(Losses)/gains
on
investment
properties
Unrealised
losses on
revaluation of
properties - (6,864) (6,864) - (17,000) (17,000)
Lease incentive - (1,601) (1,601) - (720) (720)
Realised gains
on disposal
of properties - 1,833 1,833 - 477 477
30,040 (4,818) 25,222 33,028 (16,255) 16,773
Expenses
Management fees (869) (118) (987) (921) (126) (1,047)
Property (8,800) - (8,800) (8,412) - (8,412)
expenses
Professional (2,009) - (2,009) (1,962) - (1,962)
fees
Goodwill - (273) (273) - (2,301) (2,301)
impairment
(11,678) (391) (12,069) (11,295) (2,427) (13,722)
Profit/(loss)
before finance
costs and tax 3 18,362 (5,209) 13,153 21,733 (18,682) 3,051
Finance costs (12,284) (1,675) (13,959) (13,080) (1,725) (14,805)
Profit/(loss) 6,078 (6,884) (806) 8,653 (20,407) (11,754)
before tax
Tax (charge)/ (46) 1,288 1,242 240 1,147 1,387
credit
Profit/(loss)
for the year
attributable to
equity
shareholders 6,032 (5,596) 436 8,893 (19,260) (10,367)
Other
comprehensive
income/
(expenses)
Exchange
differences on
translating - - (342) - - (634)
foreign
operations
Unrealised gain
on revaluation
of cross - - 399 - - 512
currency swap
Unrealised gain
on revaluation
of interest rate - - 6,059 - - 1,146
swaps
- - 6,116 1,024
Total
comprehensive
income/
(expense) - - 6,552 - - (9,343)
Profit/loss per
ordinary share
-basic and 0.3p (6.8)p
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 2011
STATED OTHER TRANSLATION CAPITAL REVENUE
CAPITAL RESERVE RESERVE RESERVE RESERVE TOTAL
NOTES GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 101,368 (17,010) 1,552 (151,055) 44,095 (21,050)
March 2009
(Loss)/profit for - - - (19,260) 8,893 (10,367)
the year
Other
comprehensive
income/(expense):
Unrealised gain
on revaluation
of cross currency - - 512 - - 512
swaps
Exchange
differences on
translating - - (634) - - (634)
foreign
operations
Unrealised gain
on revaluation
of interest rate - 1,146 - - - 1,146
swaps
Balance at 31 101,368 (15,864) 1,430 (170,315) 52,988 (30,393)
March 2010
(Loss)/profit for - - - (5,598) 6,034 436
the year
Other
comprehensive
(expense)/income:
Unrealised gain
on revaluation
of cross currency - - 399 - - 399
swaps
Exchange
differences on
translating - - (342) - - (342)
foreign
operations
Unrealised gain
on revaluation
of interest rate - 6,059 - - - 6,059
swaps
Balance at 31 101,368 (9,805) 1,487 (175,913) 59,022 (23,841)
March 2011
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2011
2011 2010
NOTES GBP'000 GBP'000
Non-current assets
Investment in subsidiary
companies - -
Investment properties 220,647 245,142
Intangible assets 6,128 6,489
226,775 251,631
Current assets
Trade and other receivables 4,152 7,278
Cash and cash equivalents 17,846 8,821
21,998 16,099
Total assets 248,773 267,730
Current liabilities
Trade and other payables (18,331) (17,142)
Taxation - -
Bank loans (208,558) (227,631)
(226,889) (244,773)
Total assets less current
liabilities 21,884 22,957
Non-current liabilities
Other payables (3,739) (2,077)
Interest rate swaps liability (9,805) (15,864)
Currency swaps liability (12,976) (15,190)
Obligations under finance
leases (6,949) (6,426)
Deferred taxation (12,255) (13,793)
(45,724) (53,350)
Net (liabilities)/assets (23,840) (30,393)
Capital and reserves
Stated capital 4 101,368 101,368
Other reserve (9,805) (15,864)
Translation reserve 1,488 1,430
Capital reserves (175,913) (170,315)
Revenue reserve 59,022 52,988
Issued capital and reserves (23,840) (30,393)
Net asset value 5 (15.6)p (19.9)p
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 31 MARCH 2011
2011 2010
NOTES GBP'000 GBP'000
Operating activities
Rent and service charges
received 32,386 32,054
Bank interest received 2 14
Interest from subsidiaries - -
Bank loan interest paid (13,959) (14,382)
Operating expense payments (8,257) (12,080)
Tax recovered 43 42
Net cash inflow from
operating activities 10,215 5,648
Investing activities
Repayments by group
undertakings - -
Capital expenditures and
incentives (2,456) (3,254)
Sale of investment properties 18,524 12,690
Net cash inflow
from investing activities 16,068 9,436
Financing activities
Repayment of loan (17,213) (16,432)
Net cash outflow
from financing activities (17,213) (16,432)
Increase/(decrease) in cash
and cash equivalents 9,070 (1,348)
Cash and cash equivalents
at beginning of year 8,821 10,074
Effect of foreign exchange
changes (45) 95
Cash and cash equivalents
at end of year 17,846 8,821
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 year, is set out below.
(a) Going Concern
As disclosed in the Chairman's Statement, at 31 March 2011 the Group had bank
loans of GBP208.6 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 has not complied with
the LTV as per the original loan agreement which at 31 March 2011 is 97.6%.
Furthermore, since 30 September 2010, the Group's interest cover has been below
the minimum (145%) permitted under the existing loan facility and, at 31 March
2011, stood at 132.8%.
The non-compliance with the LTV at 31 December 2008 which has remained the case
up to and since 31 March 2011, has resulted in the bank being able, at their
discretion, to serve a notice of default.
In March 2011, the Directors agreed in principle with the lending bank, heads
of terms for amendments to the existing loan facility, following an extended
period in which the Group had exceeded the covenanted maximum LTV ratio. The
Directors anticipate that the amended and restated loan agreement (`revised
agreement') will be finalised in due course. In order to implement the terms of
this revised agreement, the current investment objective and policy will need
to be amended. It is a condition precedent in the heads of terms agreed with
the bank that shareholder approval is required, the details of which will be
included in a circular to shareholders for their approval. Shareholder approval
for this circular will be required to determine the going concern status of the
Group and, in the absence of such approval, it is unlikely that the Group will
be able to continue as a going concern.
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 year end the amount drawn down including
accrued interest was GBP2.3 million (2010: GBP2.2 million). Following the agreement
of terms with the bank, the facility with Invesco Limited was amended on 31
March 2011 extending the termination date to 28 September 2014. No further
interest will accrue on amounts outstanding.
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
July 2012 which show, after taking into account reasonable possible changes,
that there is a generation of positive operational cash flow for the Group in
the period.
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
valuers' 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.
Valuation of derivatives
All derivatives are measured at fair value. Fair value is the value at which a
position could be closed out or sold in a transaction to a willing and
knowledgeable counterparty over a reasonable period of time under current
market conditions. Fair values of the Group's derivatives are determined by
reference to observable market prices and so valued using quoted prices
obtained from financial institutions. The pricing methodology does not entail
material subjectivity because the methodologies utilised do not include
significant judgement and unobservable inputs but actively quoted prices. The
ultimate realisable value and fair value at any period end date will fluctuate
depending upon market movements principally in interest rates and foreign
exchange rates. The ultimate realisable value at the value date of the
derivative contracts may materially differ from the fair value at the period
end.
2. Interest receivable and other income
YEAR YEAR
ENDED ENDED
31 MARCH 31 MARCH
2011 2010
GBP'000 GBP'000
Interest receivable 2 14
Other income 4,132 2,121
4,134 2,135
Other income includes GBP2.8 million surrender premium received for the Priory
Business Park property. (2010: GBP1.9 million received for Hounslow property).
3. Profit/(loss) before finance costs and tax
Profit/(loss) before finance costs and tax is stated after charging:
YEAR ENDED YEAR ENDED
31 MARCH 2011 31 MARCH 2010
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Directors' fees 123 - 123 123 - 123
Fees payable to the
Company's
Auditor for the audit of
the financial statements 90 - 90 100 - 100
Fees payable to the
Company's
Auditor for the audit of the
Company's subsidiaries
pursuant to legislation 121 - 121 137 - 137
Total audit fees - current 211 - 211 237 - 237
period
Other fees payable to the
Company's Auditor:
Tax services 85 - 85 39 - 39
Corporate finance services 55 - 55 - - -
Total non-audit fees 140 - 140 39 - 39
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 statement of comprehensive income.
4. Stated capital
2011 2010
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
5. 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:
2011 2010
NET ASSETS NET ASSETS
NET ASSET ATTRIBUTABLE NET ASSET ATTRIBUTABLE
VALUE GBP'000 VALUE GBP'000
Ordinary shares (15.6)p (23,840) (19.9)p (30,393)
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:
2011 2010
PENCE PENCE
PER SHARE GBP'000 PER SHARE GBP'000
Consolidated NAV per
accounts (15.6) (23,840) (19.9) (30,393)
Adjustments:
Goodwill (4.0) (6,128) (4.3) (6,489)
Deferred tax 8.0 12,255 9.1 13,793
Swaps 6.4 9,805 10.4 15,864
Adjusted NAV (5.2) (7,908) (4.7) (7,225)
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.
6. 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 12 September 2011 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
29 July 2011
Enquiries to:
Invesco Asset Management Limited
Angus Pottinger
020 7065 3714
Rory Morrison,
020 7543 3581
END
Invesco Uk Property Income Trust (LSE:IPI)
Historical Stock Chart
From Jun 2024 to Jul 2024
Invesco Uk Property Income Trust (LSE:IPI)
Historical Stock Chart
From Jul 2023 to Jul 2024
