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 (£'000) (25,585) (25,343)
Adjusted net (liabilities)/assets(1) (£'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 £1.5m of the
bank facility was repaid in the second quarter. At 30 September the
amount outstanding amounted to £185.3m, made up of £75.3m in
sterling and €138.3M 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 £ 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 £7.5 million.
Lease Expiry Profile
30 September 2012 31 March 2012
annual % of annual % of
income annual income annual
£'000 income £'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
£'000 £'000 £'000 £'000 £'000 £'000 £'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)
£'000 £'000 £'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)
£'000 £'000 £'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
£'000 £'000 £'000 £'000 £'000 £'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 £'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