TIDMIPI
RNS Number : 3216M
Invesco Property Income Trust Ltd
15 August 2011
15 August 2011
INVESCO PROPERTY INCOME TRUST LIMITED
PROPOSED restructuring of existing loan facility
AND
PROPOSED CHANGES TO INVESTMENT OBJECTIVE AND POLICY
Introduction
On 24 March 2011, the Board announced that it had reached
agreement in principle with the Group's lending banks, The Royal
Bank of Scotland International Limited and The Royal Bank of
Scotland plc, to restructure the Group's existing loan facility.
The Board is pleased to report that the Group and the Banks have
now agreed the detailed terms for the Restructuring, conditional
on, inter alia, certain approvals by Shareholders.
The Shareholder approvals that are required in order for the
Restructuring to become effective relate to proposed material
changes to the Company's investment objective and policy and the
approval of the Principal Restructuring Agreements. In any event,
the UK Listing Rules require any material change to the Company's
published investment policy to be subject to prior Shareholder
approval. A circular containing further details of the Proposals
and convening an extraordinary general meeting of the Company at
which the requisite resolutions will be proposed will be sent to
Shareholders as soon as practicable. It is expected that the EGM
will be convened at 11.45 a.m. on Monday, 12 September 2011.
The Board believes that, if implemented, the Proposals will
finally remove much of the uncertainty over the Company's future
that has persisted for almost three years. In view of the duration
of the Board's discussions with the Banks and the number of
alternatives considered, the Board believes that the Proposals are
in the best interests of Shareholders as a whole.
Background to the Proposals
The summer of 2007 witnessed the beginning of a sharp correction
in commercial property values. This correction reflected in part a
measure of over-pricing at the end of an extended period of strong
capital performance to June 2007, and also early symptoms of the
subsequent credit crunch. The resulting substantial declines in the
values of the Group's property investments led to a significant
increase in the Group's LTV ratio in 2008 and 2009.
As a result, the Group has not complied with the maximum LTV
covenant permitted under the Existing Loan Facility (currently 65%)
since 31 December 2008 and, as at 30 June 2011 (being the last date
as at which compliance with the financial covenants under the
Existing Loan Facility were measured), the Group's LTV ratio was
97.2%. Furthermore, since 30 September 2010, the Group's interest
cover has been below the minimum (145%) permitted under the
Existing Loan Facility and, as at 30 June 2011, stood at 135.1%.
Shareholders' funds have now been negative for more than two years,
although the Company remains solvent as under Jersey insolvency
laws this is measured on a cashflow basis and the Company is
currently able to meet its obligations as they fall due.
In view of the uncertain outlook for valuations in the summer of
2008 and, anticipating that the Group would breach the LTV covenant
applicable under the Existing Loan Facility following the 31
December 2008 valuations of the Group's property investments, the
Board, together with its advisers, began exploring options to
address the level of the Group's bank borrowings in August 2008.
Options explored included the Group continuing to dispose of assets
and using the net proceeds to pay down the Existing Loan Facility,
seeking capital from third parties, potential mergers with other
companies, refinancing the Existing Loan Facility and winding up
the Company. Since then, discussions and negotiations exploring
various options have taken place with a wide variety of third
parties, but, with the exception of a limited number of asset
disposals, it has not proved possible to reach agreement with any
third party. In conjunction with exploring third party options, the
Company has also pursued negotiations with the Group's major
creditors, being the Banks and Invesco, and this has culminated in
the Proposals.
Benefits of the Proposals
The process outlined above has lasted almost three years and has
encompassed a review of a large number and a wide variety of
alternative proposals without there being any final agreement on
terms. This leads the Board and its financial advisers to conclude
that the revised terms agreed with the Group's major creditors
constitute the best outcome achievable for Shareholders. In
particular, under the Restructured Loan Facility, the margin will
be the same rate currently being paid to the Banks and the final
maturity date will be the same as under the Existing Loan Facility.
In addition, the Restructured Loan Facility will not impose any
obligation on the Group to repay debt or sell properties prior to
the final maturity date of 28 September 2014. This will allow the
Board and the Manager to continue to manage the Group's assets with
a view to optimising Shareholder value through an orderly
realisation of the Group's property portfolio rather than simply to
meet debt repayment targets.
Proposed Restructuring of the Existing Loan Facility
Restructured Loan Facility
The principal terms of the Restructured Loan Facility will be as
follows:
-- Final repayment date: As with the Existing Loan Facility, the
Restructured Loan Facility will have a maturity date of 28
September 2014.
-- Borrowing limit: The LTV ratio must not exceed 110% during
the period commencing on the Effective Date and ending on 31
December 2012. Thereafter, until the Final Repayment Date, the LTV
ratio must not exceed 100%.
-- Pricing: The margin will be unchanged from that currently
being paid to the Banks.
-- Interest cover ratio: The Group's interest cover will be
measured on two bases - forward looking over the next 12 months and
backward looking over the previous 12 months. In both cases, on
each interest payment date falling within the period from the
Effective Date up to 30 June 2012 (forward looking) or 31 December
2012 (backward looking), the Group's relevant interest cover must
be not less than 110%. Thereafter, until the Final Repayment Date,
on each interest payment date the Group's relevant interest cover
must be not less than 145%.
-- Acquisitions and disposals: The Group will not be permitted
to make any new acquisitions. All net proceeds from property
disposals will be used to prepay borrowings under the Restructured
Loan Facility and meet any hedging termination payments.
-- Observer rights: The Royal Bank of Scotland International
Limited will be entitled to nominate a non-executive director to
the Board at any time. The Royal Bank of Scotland International
Limited has not yet advised the Company whether it intends to
exercise that right.
Under the terms of the Restructured Loan Facility, there are
also a number of operating restrictions applicable to the Group's
activities and day to day operations (these operating restrictions
include requiring the Banks' consent for the development or
material change of use of the Group's properties and any new
financial indebtedness being incurred by the Group, as well as
restrictions on the entering into of new occupational leases and
making any changes to rents payable under existing leases).
Profit Participation Fee Agreement
The Restructured Loan Facility provides for a higher maximum LTV
covenant and, initially, a lower minimum interest cover covenant.
The Board recognises that the revised covenants are more typical of
a mezzanine credit facility than a senior loan, which reflects the
fact that the current level of the Group's LTV ratio represents a
higher risk profile for the Banks. Accordingly, and as a
pre-condition to the Restructuring becoming effective, the Jersey
Companies are also required to enter into a profit participation
fee agreement with West Register Number 2 Limited, a wholly owned
subsidiary of The Royal Bank of Scotland plc.
Under the Profit Participation Fee Agreement, fees will be
payable to West Register on the Final Repayment Date or, if
earlier, on the date on which (i) all sums due to the Banks under
the Restructured Loan Facility have been repaid or (ii) any
material default occurs under the Profit Participation Fee
Agreement (e.g. the insolvency of either of the Jersey
Companies).
The fees payable to West Register under the Profit Participation
Fee Agreement will be calculated by reference to the balance of the
proceeds of sale of the Group's property investments (or, where
appropriate, the market value of any remaining property
investments) remaining after payment by the Jersey Companies of all
sums due under the Restructured Loan Facility, payment of (or
provision for) the remaining Management Fee Arrears and certain
other permitted deductions (e.g. taxes and contractual payments due
to tenants) (together, the "Net Proceeds"). Different percentages
(ranging from 50% up to a maximum of 80%) of the Net Proceeds are
payable to West Register until the IVZ Working Capital Facility has
been repaid and West Register has received a fee broadly equivalent
to a return of 20% on the Group's borrowings in excess of a 65% LTV
ratio as at 30 June 2011. Thereafter, West Register will be
entitled to 20% of any remaining Net Proceeds.
West Register may transfer its rights under the Profit
Participation Fee Agreement without the Company's consent, although
the Company will be given a right of first offer. If the RBS Group
no longer holds the position of a majority lender under the
Restructured Loan Facility, West Register will be required to give
its consent for changes to certain operating restrictions
applicable to the Group (being the operating restrictions
summarised under the sub-heading "Restructured Loan Facility"
above, other than the restriction on incurring financial
indebtedness).
Arrangements with Invesco
Management Fees
Since 1 January 2009, the Manager has been entitled to a reduced
management fee at an annual rate equal to the higher of 1% of the
Group's adjusted net assets (determined in accordance with the
accounting policies of the Group) and GBP1 million. Following the
Restructuring, the Manager will be entitled to a quarterly
management fee of GBP250,000 (equivalent to an annual rate of GBP1
million). In addition, in respect of the accrued but unpaid
management fees due to the Manager in respect of the nine months
ended 30 September 2007 (which amounted to GBP3.13 million as at
the date of this announcement), the Manager will be entitled to
payments of up to GBP125,000 per quarter, provided that the
aggregate of such payment and the quarterly management fee payable
to the Manager in respect of the relevant quarter does not exceed
8.5% of the net rental income received by the Group from its
property investments in the relevant quarter.
The Manager will be entitled to payment of any remaining
Management Fee Arrears in priority to any fees payable to West
Register under the Profit Participation Fee Agreement. However, the
Manager has agreed to defer payment of 50% (or, if lower, GBP1.0
million) of any remaining Management Fee Arrears (the "Deferred
Management Fee Arrears") until such time as the aggregate value of
all cash distributions paid to Shareholders after the Effective
Date has exceeded the amount of the Deferred Management Fee Arrears
(and, until that rime, the deferred amount will be ring-fenced for
the benefit of Shareholders). Once the aggregate value of all cash
distributions paid to Shareholders after the Effective Date has
exceeded the Deferred Management Fee Arrears, the Deferred
Management Fee Arrears will then be payable to Invesco in priority
to any further cash distributions to Shareholders.
IVZ Working Capital Facility
In March 2008, Invesco agreed to provide the Company with a
working capital facility for up to GBP10.0 million, originally
bearing rolled-up interest at the rate of 8% per annum and being
repayable on 31 March 2011. Invesco has agreed, with effect from 31
March 2011, to extend the repayment date for the amounts drawn down
and due under the IVZ Working Capital Facility to 28 September 2014
and to waive the accrual of any interest after 31 March 2011. As at
the date of this announcement, the amount outstanding under the IVZ
Working Capital Facility (including rolled-up interest) was GBP2.3
million.
If the net sale proceeds resulting from the sale of any of the
Group's property investments exceed 110% of that property's
valuation as at 30 June 2011, 15% of such excess will be used to
prepay the amount outstanding under the IVZ Working Capital
Facility.
Furthermore, once all sums due to the Banks under the
Restructured Loan Facility have been repaid, any net sale proceeds
from the Group's investment properties will be applied equally to
the repayment of the IVZ Working Capital Facility and the payment
of the fee payable to West Register under the Profit Participation
Fee Agreement.
Proposed Changes to Investment Objective and Policy
The Company's current investment objective 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. Given the Group's
current level of gearing and the Board's assessment of the outlook
for the commercial property markets in which the Group operates,
the Board does not expect to be able to refinance the Group's
current borrowings as they fall due in 2014. Accordingly, the Group
will aim to fund payment of the amounts owing to the Banks in full
on or before 28 September 2014 principally out of the net proceeds
from sales of existing property investments. The Board does not
expect that, even with the Restructured Loan Facility in place, the
Company's residual assets following debt repayment will constitute
a viable business. Furthermore, the Board does not expect that the
Company will be able to resume the payment of dividends, which were
suspended at the end of 2008, in the foreseeable future.
Accordingly, Shareholder approval is being sought for the Company's
investment objective to be changed to:
The Company's investment objective is to repay its bank
borrowings and other liabilities on or before 28 September 2014
and, having met those obligations, to provide a return for
Shareholders.
The Company's investment policy will also require amendment to
reflect the proposed new investment objective. However, the UK
Listing Rules and the CISX Listing Rules require any material
change to the Company's published investment policy to be subject
to prior Shareholder approval. Accordingly, and as a pre-condition
to the Restructured Loan Facility being effective, the Directors
will also seek Shareholder approval at the EGM to change the
Company's published investment policy. If Shareholder approval is
obtained, the Company will adopt and adhere to the following new
investment policy:
The Company will pursue its investment objective by seeking to
optimise value from the Group's current portfolio, comprising a
diversified portfolio of investment properties located in the UK
and continental Europe. It is expected that the principal source of
funds from which to repay borrowings and meet other liabilities
will be the net proceeds from disposals of assets in the Group's
property portfolio. It is possible that all, or substantially all,
of the property investments will need to be sold to meet the
Company's obligations to its lending banks and other creditors.
Diversification of the Group's property portfolio is therefore
likely to reduce significantly as assets are sold and it is
possible that, in due course, the Group's real estate assets will
comprise a single property which may subsequently be sold.
Until the repayment in full of the Company's bank borrowings or
such time as the balance sheet shows a significant surplus of
assets over liabilities:
-- no new investments will be made (other than cash or near cash
equivalent securities);
-- no new borrowings will be drawn down; and
-- no dividends will be paid.
Outlook if the Restructuring Becomes Effective
Management and Realisation of the Group's Property Assets
There are, as yet, few causes for optimism in the market for
secondary quality assets of the type held by the Company, despite
some positive signals and returns from prime property assets. It
seems likely that the Company will need to be patient before
economic growth and/or investor appetite provides a stimulus for
these markets. The Board believes that the Restructuring, with no
reduction in the bank facility term, will leave the Company as well
placed as it could be for this outcome.
Notwithstanding difficult market conditions, the Company has
achieved three asset disposals since 30 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). In addition, recent asset management initiatives have
resulted in leasing activity that has surpassed the Board's
previous expectations. Pending any market upturn, such asset level
successes need to continue. Accordingly, the Board and the Manager
will continue to focus on seeking to add value through asset level
initiatives.
Trading in the Ordinary Shares
The Directors believe that it is in the interests of
Shareholders to maintain a market in the Ordinary Shares whilst the
Company implements its new investment objective and policy and the
Group seeks to realise its property investments in an orderly
manner with the objective of repaying the Group's bank borrowings
and other liabilities on or before 28 September 2014 and, having
met those obligations, provide a return to Shareholders.
Accordingly, following the Restructuring, the Ordinary Shares will
continue, at least for the time being, to be listed on the UK
Official List and the CISX Official List and traded on the London
Stock Exchange's Main Market and the CISX. However, the Board will
monitor and review on an ongoing basis the costs, direct and
indirect, of maintaining these arrangements relative to the
benefits to Shareholders of such maintenance. Whilst the Company
continues to fulfil the requirements of the UK Listing Rules for
the continued listing of the Ordinary Shares on the UK Official
List, that listing may only be cancelled with the prior approval
(by special resolution) of Shareholders.
If at any time the Board believes that the Company no longer
fulfils, or will no longer fulfil, the requirements of the UK
Listing Rules for the continued listing of the Ordinary Shares on
the UK Official List (in particular by reason of not having an
adequate spread of investment risk following disposals of the
Group's property investments), the Board will notify the UK Listing
Authority and request the suspension and subsequent cancellation of
the Ordinary Shares on the UK Official List (cancellation of the
listing in these circumstances does not require Shareholder
approval).
The Ordinary Shares would no longer be capable of being traded
on the Main Market if their listing on the UK Official List were to
be cancelled. The listing of the Ordinary Shares on the CISX
Official List would also be cancelled at the same time as the
listing of the Ordinary Shares on the UK Official List is
cancelled.
Returns to Shareholders
The Directors currently expect that, once all or substantially
all of the Group's property investments have been disposed of, an
extraordinary general meeting of the Company will be convened to
consider a special resolution for the winding up of the Company. At
present, the Board believes that it is unlikely that the Company
will distribute any cash to Shareholders until after that
resolution has been passed.
Risk Factors
The Board considers the following to be key risk factors
relating to the Proposals (assuming they are implemented):
-- There is no guarantee that the changes to the Company's
investment policy will result in the Company achieving its new
investment objective.
-- In order to repay the Group's borrowings under the
Restructured Loan Facility, the Directors anticipate that all, or
substantially all, of the Group's current property investments will
need to be realised. Having regard to the current level of the
Group's bank borrowings (GBP201.2 million as at 30 June 2011)
relative to the value of the Group's property investments (GBP207.2
million as at 30 June 2011) and the lack of any apparent recovery
in the secondary markets persisting, it may take a considerable
period of time to achieve this. During that time, the Group's
portfolio of property investments will not be managed in a balanced
manner and will become increasingly more concentrated. As a result,
the performance of an individual property investment can be
expected to have a greater impact on the portfolio than it would on
the current portfolio. This may adversely affect the portfolio's
performance.
-- Disposals of the Group's property investments and repayment
of the Group's bank borrowings may result in the termination of
some or all of the Group's interest rate and currency swaps.
Termination of the Group's interest rate swaps and currency swaps
may reduce the proceeds that may be available for distribution to
Shareholders in due course. These costs are already reflected in
the Company's NAV. However, when the Company terminates the
interest rate and/or currency swaps, any losses associated with
those swaps will change from unrealised losses to realised losses.
As at 30 June 2011, the Group had unrealised losses of GBP8.7
million and GBP14.1 million attributable to its interest rate swaps
and currency swaps respectively. The actual termination costs of
any of the interest rate and/or currency swaps will vary depending
on the market conditions as of the dates of termination. The
Manager's business plan for realising the Group's property
investments will take into account the potential termination costs
of the Company's interest rate and currency swaps, but it is
unlikely that such costs can be avoided in their entirety.
-- There can be no guarantee that the NAV will rise and, even if
it does, that it will return to a positive number. In any event,
Shareholders will have to wait until after all, or substantially
all, of the Group's current property investments have been realised
before receiving any cash distributions from the Company and there
is no guarantee that the Company will have sufficient profits or
net assets, after satisfying or providing for all of its
liabilities, to enable it to make any distributions to
Shareholders, on a winding up or otherwise, at any time in the
future.
-- If the Proposals become effective, the listing of the
Ordinary Shares may subsequently be cancelled, at which point the
Ordinary Shares will no longer be capable of being traded on the
London Stock Exchange's Main Market or the CISX.
General
The Company will continue to announce its portfolio valuations,
the amount of the outstanding borrowings under the Restructured
Loan Facility, the Company's LTV ratio and interest cover and the
NAV per Ordinary Share on a quarterly basis consistent with its
current practices.
Consequences of the Restructuring Not Becoming Effective
The Restructuring remains conditional on the resolutions to be
proposed at the EGM being passed. The Directors believe that, if
those resolutions are not passed, it is likely that the Banks will
seek to accelerate the repayment of the Existing Loan Facility and
exercise their rights in relation to an event of default
accordingly. In that event, the Company would not be able to
continue as a going concern, the Ordinary Shares would no longer be
capable of being traded on the London Stock Exchange's Main Market
or the CISX and the Company could be made subject to a Jersey or UK
insolvency procedure (such as administration, creditors' winding up
or desastre, a form of bankruptcy), with the administrator,
liquidator, Viscount or other relevant insolvency officer seeking
to realise the Group's assets as soon as practicable. In the
Directors' opinion, if the Banks were to enforce their rights in
relation to an event of default under the Existing Loan Facility
and seek to exercise their rights accordingly, it is unlikely that,
after satisfying or providing for all of its liabilities, the Group
would have sufficient profits or net assets to enable it to make
any distributions to Shareholders, on a winding up or otherwise, at
any time in the future.
EGM
A circular convening an extraordinary general meeting of the
Company at which the requisite resolutions approving the proposed
restructuring of Existing Loan Facility and the proposed changes to
investment objective and policy described in this announcement will
be proposed will be sent to Shareholders as soon as practicable. It
is expected that the EGM will be convened at 11.45 a.m. on Monday,
12 September 2011. The EGM will be held at the offices of R&H
Fund Services (Jersey) Limited at Ordnance House, 31 Pier Road, St
Helier, Jersey JE4 8PW.
Enquiries
Sue Inglis Canaccord Genuity Limited 020 7050 6779
Richard Barnes Invesco Property Income Trust Limited 01534 629 001
Rory Morrison/ Invesco Asset Management Limited 020 7543 3581/
Angus Pottinger 020 7065 3714
Note
Canaccord Genuity Limited is acting solely for Invesco Property
Income Trust Limited and no one else in connection with the matters
referred to in this announcement and will not be responsible to
anyone other than Invesco Property Income Trust Limited for
providing the protections afforded to clients of Canaccord Genuity
Limited or for providing advice in relation to the matters referred
to in this announcement.
Definitions
The following definitions apply throughout this announcement
unless the context otherwise requires:
"Banks" The Royal Bank of Scotland
International Limited and The Royal
Bank of Scotland plc
"Board" or "Directors" the directors of the Company
"CISX" The Channel Islands Stock Exchange,
LBG
"CISX Listing Rules" the listing rules produced by the CISX
for companies whose securities are
listed on the CISX
"CISX Official List" the Daily Official List of the CISX
"Company" Invesco Property Income Trust Limited
"Effective Date" the date on which the Restructured
Loan Facility becomes effective
"EGM" the extraordinary general meeting of
the Company at which the requisite
resolutions approving the proposed
restructuring of Existing Loan
Facility and the proposed changes to
investment objective and policy
described in this announcement will be
proposed, which will be convened as
soon as practicable and is expected to
be held on Monday, 12 September 2011
at 11.45 a.m.
"Existing Loan Facility" the loan facility granted to the
Company and certain of its
subsidiaries by the Banks pursuant to
the amended and restated credit
agreement between the Company, the
Banks and others dated 25 June 2008
"Final Repayment Date" 28 September 2014 or, if earlier, the
date on which all borrowings under the
Restructured Loan Facility have been
repaid in full
"FSA" Financial Services Authority
"Group" the Company and each of its subsidiary
undertakings from time to time
"Invesco" the Manager in relation to management
fees and Invesco Ltd. in relation to
the IVZ Working Capital Facility
"IVZ Working Capital Facility" the working capital facility provided
to the Company by Invesco Ltd (the
parent company of the Manager)
pursuant to the credit agreement
between the Company and Invesco Ltd
dated 31 March 2008 (as subsequently
amended by agreements between those
parties dated 30 April 2008 and 31
March 2011)
"Jersey Companies" the Company and Invesco PIT Limited (a
wholly owned subsidiary of the
Company)
"LTV" the loan to value of the Group's cash
and property portfolio that has been
directly or indirectly charged to the
security agent under the Existing Loan
Facility or the Restructured Loan
Facility (as the case may be)
"Manager" Invesco Asset Management Limited
"Management Fee Arrears" the accrued but unpaid asset
management fees due to the Manager in
respect of the nine months ended 30
September 2007
"NAV" net asset value
"Ordinary Shares" ordinary shares of no par value in the
capital of the Company
"Principal Restructuring Agreements" the Restructured Loan Facility and the
Profit Participation Fee Agreement
"Profit Participation Fee Agreement" the profit participation fee agreement
to be entered into between the Jersey
Companies and West Register, details
of which are set out under the
sub-heading "Profit Participation Fee
Agreement" in this announcement
"Proposals" the Restructuring and the proposed
changes to the Company's investment
objective and policy described under
the heading "Proposed Changes to
Investment Objective and Policy" in
this announcement
"RBS Group" The Royal Bank of Scotland plc and its
subsidiary undertakings from time to
time
"Restructured Loan Facility" the loan facility entered into by the
Company, certain of its subsidiaries
and the Banks pursuant to the amended
and restated credit agreement between
the Company, the Banks and others
dated 8 August 2011, which agreement
remains conditional on, inter alia,
the passing of the resolutions to be
proposed at the EGM
"Restructuring" the restructuring of the Existing Loan
Facility by replacing that facility
with the Restructured Loan Facility
and the execution of the Profit
Participation Fee Agreement by the
Jersey Companies
"Shareholders" holders of Ordinary Shares
"UK Listing Authority" the FSA acting in its capacity as the
competent authority for the purpose of
admissions to the UK Official List
"UK Listing Rules" the listing rules made by the FSA
under section 73A of the Financial
Services and Markets Act 2000
"UK Official List" the Official List of the UK Listing
Authority
"West Register" West Register Number 2 Limited (a
wholly owned subsidiary of The Royal
Bank of Scotland plc)
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCGMGMRVZNGMZM
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