TIDMIPI
Invesco Property Income Trust Limited
Half Yearly Financial Report for the Six Months to 30 September 2012
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.
Manager
Invesco Asset Management Limited acts as 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 103.1 per cent of property
valuation as at 30 September 2012.
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
2012 2012
Assets
Net (liabilities)/assets (GBP'000) (25,585) (25,343)
Adjusted net (liabilities)/assets(1) (GBP'000) (13,637) (11,911)
Net asset value per share (per accounts) (16.72)p (16.56)p
Adjusted net (liability)/asset value per share (8.91)p (7.78)p
(1)
Ordinary mid-market share price 0.36p 1.22p
Gearing based on:
- gross assets(2) 103% 101%
- 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
There has been a consistent theme in my recent statements that the Directors
hold little hope in the short to medium term of a change in sentiment and/or
market conditions that will stimulate a broader recovery in valuations for the
type of assets in which the Company is invested. It gives us no pleasure to
have been, once again, proved right in the first half of this year. Indeed the
sterling value of our portfolio has now fallen at each of the last five
quarterly valuation points and the likely timing of any recovery is, in the
Directors' view, receding.
Performance
On a like for like basis the value of the UK portfolio fell 2.7% over the six
months while the European assets declined by 2.9% in euro terms.
The adjusted NAV per share as at 30 September 2012 was -8.91p, down from -7.78p
as at 31 March 2012, while the IFRS NAV fell to -16.72p (from -16.56p) over the
same period.
Activity
No sales took place during the period. We regularly assess the relative merits
of holding or selling assets, taking into account the Company's obligations to
shareholders and to its lending bank, and will pursue transactions when the
terms are favourable.
The Managers have also been focussed on maintaining and improving the Company's
net income, which remains robust with an interest cover ratio of 160% at 30
September. Details are included in the report that follows.
Financing
The LTV ratio has been slowly rising over the last few quarters due to the fall
in property values and it has proved necessary to re-visit the borrowing terms
agreed with our lending bank. The maximum LTV ratio was to have reduced from
110% to 100% after 31 December 2012. It has now been agreed that this lower
limit will not apply until 30 September 2013. Approximately GBP1.5m of the bank
facility was repaid in the second quarter. At 30 September the amount
outstanding amounted to GBP185.3m, made up of GBP75.3m in sterling and EUR138.3M in
Euro. This represents a LTV ratio of 103.1% (31 March: 102.2%),
Outlook
The prevailing state of European economies and property markets give the
Directors no optimism for any improvement in the relevant market segments over
the coming period. Against this backdrop and given the deficit in shareholders'
funds the Directors now believe it to be most unlikely that the Company will be
able to achieve its objective of meeting all its liabilities by September 2014.
The Directors and the Manager are engaged in discussions with the lending bank
to address the situation.
In the meantime the Directors and the Manager will continue to work to protect
and, where possible, enhance value through asset-specific initiatives. We
believe our track record is good in this regard.
Richard Barnes
Chairman
19 November 2012
Manager's report
Property Activity
There has been no respite in the tough environment in which we have been
working over recent quarters. If anything we are seeing the conditions
worsening for real estate investors, particularly those with portfolios of more
secondary property, pushing back hopes of a sustainable recovery.
The general economic conditions in the UK and across the relevant European
markets are in particular making it difficult for many occupiers to commit to
new lease agreements. Across most of Europe, and for offices as well as
industrial properties, we are finding that tenants are negotiating harder and
pushing for shorter, more flexible lease terms at lower rents. The fact that
they are able to do so is indicative of the wider occupational market, where
vacancy rates are rising, rents are declining and there is in general more
vacant space than active occupier requirements.
In the face of these worsening economic and property market conditions, we can
take some comfort that the active asset management across the portfolio has
continued with some success over the period. While overall the vacancy rate has
risen from 9.4% to 12.9% (with the UK portfolio showing a rise of 6.4%, and
Europe a rise of 0.9%), this masks the signing of 8 separate leases across the
portfolio. Of this total, we managed to retain 2 tenants who had break options
in their leases and 2 tenants who would otherwise have vacated at the expiry of
their lease. The remaining leases were signed with new tenants to the
portfolio.
In spite of this positive asset management activity, the overall impact has
been that the weighted average unexpired lease term has shortened from 3.7
years to 3.3 years over the period.
We remain confident that our asset management activities are maintaining
occupancy as far as possible in the current conditions.
Outlook
Market indicators have yet to show any real signs of improvement, either in
occupier markets or investor appetite. If anything the challenges are going to
get a bit tougher before any meaningful recovery can be talked about. One
indicator of current market conditions is the IPD All Property Quarterly Index,
which has now recorded three consecutive quarters of value decline, a true
`double dip' for the real estate markets following the initial cyclical decline
triggered by the global financial crisis.
At the prime level investor demand is still strong, where international
investors are seeking the best quality buildings in `Gateway Cities' across
Europe, let to strong tenants on long term leases. Outside of these narrow
criteria demand is weak, with limited active capital, and no interest from the
banking market to provide investment financing.
At the macro level, we are not expecting any sustainable growth from the major
European economies until mid 2013, suggesting that we may have to wait until
2014 to see a turnaround in occupier sentiment. The implication for secondary
property is that market stabilisation and recovery will be delayed still
further.
In the meantime, there is the clear risk that occupancy rates will continue to
fall in the short term, with declining rents delivering a `double whammy' for
sustainable cashflow.
We remain dedicated to our stated strategy of working for the highest possible
occupancy rates, in order to maintain income streams wherever possible. We will
continue to consider selected asset disposals when in the Company's best
interests. By so doing we will help support the Company through this
challenging period.
Rory Morrison
Invesco Asset Management Limited
19 November 2012
Related Party
Invesco Asset Management Limited (`IAML'), a wholly owned subsidiary of Invesco
Ltd, acts as 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
Manager's website.
Principal Risks and Uncertainties
The principal risks and uncertainties that could affect the Company's business
can be summarised as follows:
* Investment Policy - the adopted policy may not achieve the Company's
published objective;
* Ordinary Shares and Dividends - the price of the shares may not reflect their
underlying NAV and is affected by other factors including market sentiment and
supply and demand. No dividends are expected to be paid for the foreseeable
future;
* Gearing - borrowing will amplify the effect on shareholders' funds of
portfolio gains and losses. Covenants attached to the borrowing facility also
impose limits on certain activities and if repayment is required could
necessitate the sale of assets at adverse prices;
* Interest and Currency Risks - the Company is exposed to interest rate
fluctuations on its borrowings and the effect on asset values and rental income
of movements in the euro exchange rate;
* Market Movements and Portfolio Performance - rental income and the market
value of properties are affected, amongst other things, by general economic
conditions and/or by the political and economic climate of the jurisdictions in
which the Group's property assets are situated;
* Regulatory - whilst compliance with rules and regulations is closely
monitored, breaches could affect returns to shareholders;
* Reliance on Third Party Service Providers - the Company has no employees, so
is reliant upon the performance of third party service providers, particularly
the Manager, for it to function.
A detailed explanation of these principal risks and uncertainties can be found
on pages 15 to 17 of the 2012 annual financial report, which is available on
the Manager's website at:
http://www.invescoperpetual.co.uk/site/ip/pdf/fncl-stmnt-it-ipit-annual-2012.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 34 of the 2012 annual financial report there was, at the time
that report was prepared, uncertainty regarding the likelihood of remaining
compliant with the Group's loan to value covenant, and therefore a material
uncertainty which may have cast significant doubt as to the Group's ability to
continue as a going concern. Notwithstanding this position the Directors
considered it appropriate to prepare the annual financial report on a going
concern basis.
This half-yearly financial report also has been prepared on a going concern
basis, notwithstanding that the uncertainty mentioned above persists. 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
19 November 2012
Investment Properties
Top ten investments as at 30 September 2012
Value % of
Property Country GBP million Portfolio
Directoire, St Cloud France 35.6 17.2%
St Michel Sur Orge, Ile de France France 21.1 10.2%
Schickardstrasse 30, Boeblingen Germany 21.0 10.1%
Le Diapason, Paris France 18.9 9.1%
11 Old Jewry, London EC2 UK 12.1 5.8%
Le Verdun, Gentilly France 9.1 4.4%
Unipath Building, Bedfordshire UK 9.1 4.4%
Colonel Bourg, Brussels Belgium 8.6 4.2%
Hellaby Lane, Rotherham UK 8.0 3.8%
Interface Business Park, Wooton UK 7.9 3.8%
Basset
Total of top ten investment 151.3 73.1%
properties
Other properties: 28.4 26.9%
Total market value of properties (23 179.7 100.0%
properties)
Investment properties are analysed after deduction of obligations under finance
leases of GBP7.5 million.
Lease Expiry Profile
30 September 2012 31 March 2012
annual % of annual % of
income annual income annual
GBP'000 income GBP'000 income
0-3 yrs 11,565 64.2 10,790 56.7
3-7 yrs 3,980 22.1 5,202 27.4
7-10 yrs 1,783 9.9 2,197 11.6
10-15 yrs 590 3.3 536 2.8
15-20 yrs 93 0.5 278 1.5
>20 yrs 1 0.0 1 0.0
Current annual income from 18,012 100.0 19,004 100.0
properties
Annual income is derived from leases in place at 30 September 2012 and so will
differ from total annual income received by the Group.
Sector Weightings of Portfolio by Geographic Area
As at 30 September 2012
% of portfolio
SECTOR Total UK France Belgium Spain Germany
Industrial 44.1 29.6 12.2 - 2.3 -
Offices 55.9 11.2 28.1 7.3 - 9.3
100.0 40.8 40.3 7.3 2.3 9.3
As at 31 March 2012
%of portfolio
SECTOR Total UK France Belgium Spain Germany
Industrial 44.3 28.6 12.3 - 3.4 -
Offices 55.7 11.0 28.4 7.3 - 9.0
100.0 39.6 40.7 7.3 3.4 9.0
Condensed Statement of Comprehensive Income
Six months to Six months to Year
ended 31
30 September 2012 30 September 2011 March
2012
(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 11,322 - 11,322 12,843 - 12,843 25,197
charge income
Interest receivable 33 - 33 (77) - (77) 640
and other income
Realised (loss)/gains - 183 183 - - - -
on swaps
Unrealised (loss)/ - 2,262 2,262 - (528) (528) 1,895
gains on swaps
(Losses)/gains on
investment properties
Unrealised (loss)/ - (6,170) (6,170) - (1,733) (1,733) (5,736)
gain on revaluation
of properties
Lease incentive - (103) (103) - (739) (739) (1,096)
Realised (loss)/gains - - - - (329) (329) (329)
on disposal of
properties
11,355 (3,828) 7,527 12,766 (3,329) 9,437 20,571
Expenses
Management fees (385) (53) (438) (470) (64) (534) (1,041)
Property expenses (3,786) - (3,786) (5,329) - (5,329) (8,392)
Professional fees (868) - (868) (1,696) - (1,696) (2,221)
(5,039) (53) (5,092) (7,495) (64) (7,559) (11,654)
Profit/(loss) before 6,316 (3,881) 2,435 5,271 (3,393) 1,878 8,917
finance costs and tax
Finance costs (3,772) (514) (4,286) (5,712) (779) (6,491) (12,771)
Profit/(loss) before 2,544 (4,395) (1,851) (441) (4,172) (4,613) (3,854)
tax
Tax (credit)/charge 90 1,077 1,167 (49) (1,964) (2,013) (1,733)
Profit/(loss) for the 2,634 (3,318) (684) (490) (6,136) (6,626) (5,587)
period attributable
to equity
shareholders
Loss per ordinary 1.7p (2.2)p (0.4)p (0.3)p (4.0)p (4.3)p (3.7)p
share - basic and
diluted
Other comprehensive 442 1,516 4,085
income/(expenses)
Total comprehensive (242) (5,110) (1,502)
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
2012 2011 2012
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Investment properties 187,240 206,057 197,570
Intangible assets - goodwill 5,596 6,069 5,842
192,836 212,126 203,412
Current assets
Trade and other receivables 5,967 4,785 5,752
Cash and cash equivalents 10,441 15,721 14,004
16,408 20,506 19,756
Total assets 209,244 232,632 223,168
Current liabilities
Trade and other payables (14,093) (17,575) (15,692)
Interest rate swaps liability - - (6,088)
Currency swaps liability - - (11,082)
Obligations under finance (451) - -
lease
Bank loan - (197,305) -
Total assets less current 194,700 17,752 190,306
liabilities
Non-current liabilities
Bank Loan (184,512) - (192,269)
Other payables (3,325) (3,845) (2,911)
Interest rate swaps liability (6,040) (8,413) -
Currency swaps liability (7,812) (13,430) -
Obligations under finance (7,092) (6,946) (7,283)
lease
Deferred taxation (11,504) (14,069) (13,186)
(220,285) (46,703) (215,649)
Net assets (25,585) (28,951) (25,343)
Capital and reserves
Stated capital 101,368 101,368 101,638
Other reserve (6,040) (8,413) (6,088)
Translation reserve 2,249 1,611 1,855
Capital reserves (187,766) (182,049) (184,449)
Revenue reserve 64,604 58,532 61,971
Issued capital and reserves (25,585) (28,951) (25,343)
Net asset value - note 5 (16.7)p (18.9)p (16.6)
Condensed Consolidated Statement of Cash Flow
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2012 2011 2012
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Operating activities
Rent and service charges 8,992 14,145 27,065
received
Bank interest received 2 6 13
Proceeds on swap disposal (825) - -
Bank loan interest paid (4,286) (6,491) (12,771)
Operating expense payments (4,770) (10,133) (17,890)
Tax received/(paid) (78) (142) (191)
Net cash inflow from (965) (2,615) (3,774)
operating activities
Investing activities
Capital expenditure and (1,003) (756) (1,321)
incentives
Sale of investment properties - 11,335 11,335
Net cash (outflow)/inflow (1,003) 10,579 10,014
from investing activities
Financing activities
Repayment of loan (1,508) (9,967) (9,967)
Net cash (outflow)/inflow (1,508) (9,967) (9,967)
from financing activities
Change in cash and cash (3,476) (2,003) (3,727)
equivalents
Cash and cash equivalents at 14,004 17,846 17,846
beginning of period
Effect of foreign exchange (87) (122) (115)
changes
Cash and cash equivalents at 10,441 15,721 14,004
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 Septe
mber 2012 (unaudited)
Balance at 31 March 2012 101,368 (6,088) 1,855 (184,449) 61,971 (25,343)
(Loss)/profit for the - - - (3,317) 2,633 (684)
period
Other comprehensive
income:
Unrealised gain on - - - - - -
revaluation of cross
currency swaps
Exchange differences on - - 394 - - 394
translating foreign
operations
Unrealised gain on - 48 - - - 48
revaluation of interest
rate swaps
Balance at 30 September 101,368 (6,040) 2,249 (187,766) 64,604 (25,585)
2012
Six months ended 30 Sep
tember 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
Year ended 31 March 2012
(audited)
Balance at 31 March 2011 101,368 (9,805) 1,487 (175,913) 59,022 (23,841)
(Loss)/profit for the - - - (8,536) 2,949 (5,587)
period
Other comprehensive
income:
Exchange differences on - - 368 - - 368
translating foreign
operations
Unrealised gain on - 3,717 - - - 3,717
revaluation of interest
rate swaps
Balance at 31 March 2012 101,368 (6,088) 1,855 (184,449) 61,971 (25,343)
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 2012 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 2012 and 2011 has
not been audited. The figures and financial information for the year ended 31
March 2012 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 2012.
Reconciliation of accounts NAV per share to adjusted NAV:
30 September 2012
Pence
per share GBP'000
Accounts net asset value (16.72) (25,585)
Adjustments:
Accounting for derivatives on balance 3.95 6,040
sheet
Goodwill (3.66) (5,596)
Tax charge: deferred tax 7.52 11,504
Adjusted net asset value (8.91) (13,637)
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
19 November 2012
END
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