TIDMIPI
Invesco Property Income Trust Limited
Half Yearly Financial Report for the Six Months to 30 September 2011
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 repay its bank borrowings and
other liabilities on or before 28 September 2014 and, having met those
obligations, to provide a return for shareholders.
Full details of the Company's Investment Policy (incorporating the Company's
investment objective) can be found on pages 6 and 7 of the circular to
shareholders dated 17 August 2011 at: http://itinvestor.invescoperpetual.co.uk/
UK/investmenttrustliterature/InvescoPropertyIncomeTrust/circulars/
IPIT-Circular_Restructuring-Proposals-(Final-17-08-11).pdf.
Investment Manager
Invesco Asset Management Limited acts as Investment Manager to the Company.
Gearing
The Company's loan facility has been restructured, including revisions to
covenants. The Company is in compliance with the revised covenants but gearing
levels remain very high, with borrowing representing 99.1 per cent of property
valuation as at 30 September 2011.
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
2011 2011
Assets
Net (liabilities)/assets (GBP'000) (28,951) (23,840)
Adjusted net (liabilities)/assets(1) (GBP'000) (12,536) (7,908)
Net asset value per share (per accounts) (18.9)p (15.6)p
Adjusted net (liability)/asset value per share(1) (8.2)p (5.2)p
Ordinary mid-market share price 1.35p 1.77p
Gearing based on:
- gross assets(2) 99% 98%
- 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 with some relief that we can finally report to shareholders that the
outcome of the strategic review announced three years ago is complete and that
the revised loan facility agreement is now wholly unconditional. Your directors
believe that the terms agreed represent the best outcome that could have been
achieved in the current market.
Performance
In my statement in the last annual report I expressed little optimism for a
broad market recovery in the short term for the types of secondary asset that
we own. It is therefore unsurprising to report that, on a like for like basis,
the value of the UK portfolio fell 3.4% over the six months while the European
assets added 1% in euro terms. Overall, in sterling, the like for like capital
return was -1.6% for the half year.
The adjusted NAV per share as at 30 September 2011 was -8.19p, down from -5.17p
as at 31 March 2011, while the IFRS NAV also fell to -18.92p (from -15.58p)
over the same period.
Activity
There was one disposal completed during the period; the sale of Pegasus House,
which locked in the value added through a lease restructuring last December. We
will continue to pursue, on a selective basis, opportunities to realise
investments, especially where we have been successful in adding value through
active asset management as was the case here.
We have achieved further asset management successes, notably in Europe where
vacancies had risen sharply due to departing tenants in the second half of last
year. The re-letting of a significant proportion of this vacated space over the
period has improved the overall portfolio vacancy rate. Negotiations since the
period end have secured further leases. Further details are set out in the
Investment Manager's report below.
The Directors are pleased with asset management progress across the portfolio,
and value the commitment of the Investment Manager's teams around Europe in
seeking to deliver, consistently, leasing successes ahead of schedule and
within budget.
Financing
As at 30 September 2011 borrowings comprised GBP75.3m in sterling and EUR140.2m in
Euros. GBP10m of sterling borrowings were repaid following the sale of Pegasus
House. Following the revisions to the loan agreement the Company is once more
compliant with its banking covenants. The loan to value ratio at 30 September
was 99.1% (31 March: 97.6%) and interest cover had improved to 146.7% (31
March: 132.8%). The covenants are to maintain these ratios below 110% and above
110% respectively.
Outlook
Shareholders will need no reminding of the economic and political headwinds
facing Europe and the UK. If anything the situation has worsened since my
statement in the last annual report and supports even less hope that economic
growth or positive investor appetite will, in the short term, offer any
sustained stimulus to asset values. In these circumstances the importance to
shareholder returns of seeking to improve values through asset-specific
initiatives is critical.
Richard Barnes
Chairman
16 November 2011
Investment Manager's report
Property Activity
The property portfolio has continued to provide a stable income flow,
benefitting from the diversity created through more than 70 different tenancies
and the relative lack of exposure to recession-sensitive occupiers. There are a
number of active tenant negotiations for new leases or to remove break options.
The offer of reasonable quality, efficient office and industrial space at cost
effective rents has supported much of the successful leasing activity. This
strategy has been particularly effective over the period in the French office
portfolio, where following the departure of a number of tenants at the start of
2011 new tenants have been attracted to the empty offices more quickly than
anticipated. Le Diapason is a case in point where 2,500 sqm of office space was
vacated by a tenant departing in January 2011, taking vacancy in the building
from 9% to around 46%. We have since attracted 3 new tenants, who together with
the expansion of an existing tenant, have now committed to leasing all of the
vacated space. The vacancy rate at the building is now back to 9% with further
tenant discussions on-going for the remaining space.
Along with other successful leasing events, the overall vacancy rate, which
peaked at 15% in June 2011, has trended down to 12.4% as at the end of
September 2011, with the overall weighted average unexpired lease term
maintained at around 3.6 years.
With the revised loan facility now in place, the Investment Manager is able
once again to consider undertaking capital expenditure on a highly selective
basis, to improve individual properties with the intention of improving letting
prospects. This may be required in locations where there is a weaker underlying
tenant market, and higher competition from other landlords for the few `active'
tenants.
With the greater certainty provided by the signing of the new loan facility, we
will continue to seek to hold on to the properties through the current weak
market conditions to give us time for the secondary markets to recover, while
focusing on active asset management initiatives to help secure a stronger exit
position for each asset.
Selective disposals will continue to be considered across the portfolio, and as
mentioned by the Chairman a good example of this being the sale of Pegasus
House in Peterborough, where the valuation increase of some 46% following a
lease re-gear with the existing tenant achieved in December 2010, was felt to
be a peak and this uplift was crystallised with the conclusion of the sale to
the tenant, at the improved valuation level.
Outlook
We wrote 12 months ago of our expectations for the UK and European property
markets, of a continuing trend towards relative stability, in the face of
on-going uncertain economic conditions. It is fair to say that the reality of
the position in which we find ourselves today is one of rather greater
uncertainty than anticipated. The wider Eurozone economic turmoil continues,
with the UK continuing to face its own challenges both domestically and from
its associations with Europe. As a result the UK and continental European
property markets continue to face a set of challenges that have remained
broadly unchanged over the last 12 months or more.
We expect the current climate of subdued growth, patchy occupier demand, and a
more challenging financing market to prevail through much of 2012, delaying
further any expectations of a recovery in values for more `secondary' property
assets such as those owned by the Company. Investors continue to shy away from
higher risk assets, and the focus on `prime' assets remains in most markets
around the UK and Europe. Against this background we continue to seek to
`control the controllables', by prioritising high quality asset management to
fill empty space, and retain tenants on longer term leases.
This strategy is designed to help to preserve and potentially improve values
through this on-going period of uncertainty, while giving more time to allow
for an orderly disposal of assets before September 2014 into a stronger
investment market. The revised terms secured with the Company's lending bank
give the Manager the flexibility to be able to take this approach, having no
specific short term disposal targets to be met.
Invesco Asset Management Limited
16 November 2011
Related Party
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Ltd, acts as Investment Manager to the Company. Invesco Ltd has provided a
credit facility to the Company. Details of IAML's services and fee
arrangements and the Invesco loan are given in the latest annual financial
report, which is available on the Investment Manager'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 2011 annual financial report, which is available on
the Investment Manager's website at
http://itinvestor.invescoperpetual.co.uk/UK/investmenttrustliterature/
InvescoPropertyIncomeTrust/ipit_annual_report_2011.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 2011 annual financial report there was, at the time
that report was prepared, uncertainty regarding the outcome of the discussions
with the lending bank, and therefore a material uncertainty which may have cast
significant doubt as to the Group's ability to continue as a going concern.
The restructuring of the Company's loan facility completed in September 2011,
thereby resolving the previous uncertainties. Accordingly, this half-yearly
financial report has been prepared on a going concern basis. The Directors
consider this is the appropriate basis as they have a reasonable expectation
that the Company has adequate resources to continue in operational existence
for the foreseeable future. In considering this, the Directors took into
account the revenue forecasts for the year and the cash resources which can be
used to meet the Company's short term liabilities and ongoing expenses.
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
Standard 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
16 November 2011
Investment Properties
Top ten investments as at 30 September 2011
Value % of
Property Country GBP'000 Portfolio
Directoire, St Cloud France 38,250 18.7
St Michel Sur Orge, Ile de France France 19,316 9.5
Schickardstrase 30, Boblingen Germany 17,837 8.7
Le Diapason, Paris France 16,358 8.0
11 Old Jewry, London EC2 UK 11,790 5.8
Priory Business Park, Bedforshire UK 8,950 4.4
Brackmills Industrial Estate, Brants UK 8,490 4.2
Bridge
Verdun, Paris France 8,214 4.0
Colonel Bourg, Brussels Belgium 8,179 4.0
Hellaby Lane, Rotherham UK 7,960 3.9
Total of top ten investment 145,344 71.2
properties
Other properties: 53,767 28.8
Total market value of properties (23 199,111 100.0
properties)
Investment properties are analysed after deduction of obligations under finance
leases of GBP6.9 million.
Lease Expiry Profile
30 September 2011 31 March 2011
annual % of annual % of
income annual income annual
GBP'000 income GBP'000 income
0-3 yrs 11,328 59.0 8,716 43.5
3-7 yrs 5,574 29.0 7,871 39.3
7-10 yrs 1,682 8.7 2,822 14.0
10-15 yrs 281 1.5 281 1.4
15-20 yrs 255 1.3 255 1.3
>20 yrs 93 0.5 93 0.5
Current annual income from 19,213 100.0 20,038 100.0
properties
Annual income is derived from leases in place at 30 September 2011 and so will
differ from total annual income received by the Group.
Sector Weightings of Portfolio by Geographic Area
As at 30 September 2011
% of portfolio
SECTOR Total UK France Belgium Spain Germany
Industrial 44.2 28.1 12.7 - 3.4 -
Offices 55.8 10.3 29.1 7.4 - 9.0
Retail - - - - - -
100.0 38.4 41.8 7.4 3.4 9.0
As at 31 March 2011
%of portfolio
SECTOR Total UK France Belgium Spain Germany
Industrial 43.4 27.9 11.9 - 3.6 -
Offices 56.6 14.5 25.3 8.2 - 8.6
Retail - - - - - -
100.0 42.4 37.2 8.2 3.6 8.6
Condensed Statement of Comprehensive Income
Six months to Six months to Year ended
30 September 2011 30 September 2010 31 March
2011
(unaudited) (unaudited) (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 12,843 - 12,843 13,294 - 13,294 25,906
charge income
Interest receivable (77) - (77) 37 - 37 4,134
and other income
Unrealised (loss)/ - (528) (528) - 1,487 1,487 1,814
gains on swaps
(Losses)/gains on
investment
properties
Unrealised (loss)/ - (1,733) (1,733) - (7,638) (7,638) (6,864)
gain on revaluation
of properties
Lease incentive - (739) (739) - (158) (158) (1,601)
Realised (loss)/ - (329) (329) - 1,023 1,023 1,833
gains on disposal of
properties
12,766 (3,329) 9,437 13,331 (5,286) 8,045 25,222
Expenses
Management fees (470) (64) (534) (445) (60) (505) (987)
Property expenses (5,329) - (5,329) (3,610) - (3,610) (8,800)
Professional fees (1,696) - (1,696) (882) - (882) (2,009)
Goodwill impairment - - - - - - (273)
(7,495) (64) (7,559) (4,937) (60) (4,997) (12,069)
Profit/(loss) before 5,271 (3,393) 1,878 8,394 (5,346) 3,048 13,135
finance costs and
tax
Finance costs (5,712) (779) (6,491) (5,990) (817) (6,807) (13,959)
Profit/(loss) before (441) (4,172) (4,613) 2,404 (6,163) (3,759) (806)
tax
Tax (credit)/charge (49) (1,964) (2,013) (48) 851 803 1,242
Profit/(loss) for (490) (6,136) (6,626) 2,356 (5,312) (2,956) 436
the period
attributable to
equity shareholders
Loss per ordinary (0.3)p (4.0)p (4.3)p 1.5p (3.6)p (1.9)p 0.3p
share - basic and
diluted
Other comprehensive 1,516 677 6,116
income/(expenses)
Total comprehensive (5,110) (2,279) 6,552
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 September 30 September 31 March
2011 2010 2011
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Investment properties 206,057 228,322 220,647
Intangible assets - goodwill 6,069 6,278 6,128
212,126 234,600 226,775
Current assets
Trade and other receivables 4,785 5,647 4,152
Cash and cash equivalents 15,721 10,769 17,846
20,506 16,416 21,998
Total assets 232,632 251,016 248,773
Current liabilities
Trade and other payables (17,575) (15,377) (18,331)
Taxation - - -
Bank loan (197,305) (217,156) (208,558)
Total assets less current 17,752 18,483 21,884
liabilities
Non-current liabilities
Other payables (3,845) (3,634) (3,739)
Interest rate swaps liability (8,413) (15,407) (9,805)
Currency swaps liability (13,430) (13,264) (12,976)
Obligations under finance (6,946) (6,426) (6,949)
lease
Deferred taxation (14,069) (12,424) (12,255)
(46,703) (51,155) (45,724)
Net assets (28,951) (32,672) (23,840)
Capital and reserves
Stated capital 101,368 101,368 101,368
Other reserve (8,413) (15,407) (9,805)
Translation reserve 1,611 1,650 1,488
Capital reserves (182,049) (175,627) (175,913)
Revenue reserve 58,532 55,344 59,022
Issued capital and reserves (28,951) (32,672) (23,840)
Net asset value - note 5 (18.9)p (21.4)p (15.6)p
Condensed Consolidated Statement of Cash Flow
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2011 2010 2011
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Operating activities
Rent and service charges 14,145 13,642 32,386
received
Bank interest received 6 2 2
Bank loan interest paid (6,491) (6,805) (13,959)
Operating expense payments (10,133) (3,979) (8,257)
Tax received/(paid) (142) 42 43
Net cash inflow from (2,615) 2,902 10,215
operating activities
Investing activities
Capital expenditure and (756) (968) (2,456)
incentives
Sale of investment properties 11,335 6,125 18,524
Net cash (outflow)/inflow 10,579 5,157 16,068
from investing activities
Financing activities
Repayment of loan (9,967) (6,027) (17,213)
Net cash (outflow)/inflow (9,967) (6,027) (17,213)
from financing activities
Change in cash and cash (2,003) 2,032 9,070
equivalents
Cash and cash equivalents at 17,846 8,821 8,821
beginning of period
Effect of foreign exchange (122) (84) (45)
changes
Cash and cash equivalents at 15,721 10,769 17,846
end of 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 2011 (unaudited)
Balance at 31 March 2011 101,368 (9,805) 1,487 (175,913) 59,022 (23,841)
(Loss)/profit for the - - - (6,136) (490) (6,626)
period
Other comprehensive
income:
Unrealised gain on - - 73 - - 73
revaluation of cross
currency swaps
Exchange differences on - - 51 - - 51
translating foreign
operations
Unrealised gain on - 1,392 - - - 1,392
revaluation of interest
rate swaps
Balance at 30 September 101,368 (8,413) 1,611 (182,049) 58,532 (28,951)
2011
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
Year ended 31 March 2011
(audited)
Balance at 31 March 2010 101,368 (15,864) 1,430 (170,315) 52,988 (30,393)
(Loss)/profit for the - - - (5,598) 6,034 436
period
Other comprehensive
income:
Unrealised gain on - - 399 - - 399
revaluation of cross
currency swaps
Exchange differences on - - (342) - - (342)
translating foreign
operations
Unrealised gain on - 6,059 - - - 6,059
revaluation of interest
rate swaps
Balance at 31 March 2011 101,368 (9,805) 1,487 (175,913) 59,022 (23,841)
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 2011 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
Profits arising in the Company 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 2011 and 2010 has
not been audited. The figures and financial information for the year ended 31
March 2011 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 2011.
Reconciliation of accounts NAV per share to adjusted NAV:
30 September 2011
Pence
Per share GBP'000
Accounts net asset value (18.9) (28,951)
Adjustments:
Accounting for derivatives on balance 5.5 8,413
sheet
Goodwill (4.0) (6,069)
Tax charge: deferred tax 9.2 14,071
Adjusted net asset value (8.2) (12,536)
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
16 November 2011
END
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