TIDMIPI
INVESCO PROPERTY INCOME TRUST LIMITED
Half-Yearly Financial Report for the Six Months to 30 September 2013
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 and, if it is able to meet 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 page 11 of the Annual Financial Report
for the year ended 31 March 2013, on the Manager's website at
http://www.invescoperpetual.co.uk/investmenttrusts
Manager
Invesco Asset Management Limited acts as the Manager to the Company.
Gearing
The Company is renegotiating a restructuring of its loan facility, including
revisions to covenants. The Company expects to be in compliance with the
revised covenants but gearing levels remain very high, with borrowing
representing 104.9% of property valuation as at 30 September 2013.
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
2013 2013
Assets
Net (liabilities)/assets (GBP'000) (32,738) (34,988)
Adjusted net (liabilities)/assets(1) (GBP'000) (17,471) (17,557)
Net (liability)/asset value per share (per (21.40)p (22.87)p
accounts)
Adjusted net (liability)/asset value per (11.43)p (11.47)p
share(1)
Ordinary mid-market share price 0.45p 0.56p
Gearing based on:
- gross assets(2) 104% 104%
- 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
In my statement in the last annual report I referred to some indications of
improving sentiment towards UK secondary assets. Values have been stable in our
portfolio since the year end and we have agreed two disposals. That said,
shareholders' funds remain in deficit, the LTV ratio is over 100% and there is
now less than a year to go before the repayment date under the existing bank
facility. We are in discussions with the lending bank with the aim of agreeing
amendments to the existing facility agreement as we will not be able to meet
the repayment date or to remain compliant with the facility's covenants.
Performance
On a like for like basis the value of the UK portfolio rose 0.7% over the six
months while the European assets fell by 0.8% in euro terms. The overall
portfolio valuation was down 0.6% in sterling terms.
The adjusted NAV per share as at 30 September 2013 was -11.43p, up from -11.47p
as at 31 March 2013, while the IFRS NAV rose to -21.40p (from -22.87p) over the
same period.
Activity
We were pleased to exchange contracts in September for two disposals: the
assets at Gerrards Cross and Hoeilaart in Belgium will be sold at values in
excess of the prevailing valuations. We have also, since the period end,
exchanged contracts for the disposal of the warehouse at Northampton, again for
a price in excess of valuation. Other assets are being reviewed for sale,
taking into account the Company's obligations to its lending bank, and we hope
to be making further announcements.
The Managers have, as always, also been focussed on maintaining the quantum,
and improving the quality, of the Company's rental income.
Financing
No repayments of debt were made in the period and borrowings stood at GBP191.6m
at the period end (31 March 2013: GBP191.9m). Loan to value and interest cover
ratios were 104.9% and 145.7% respectively as at 30 September, in each case
compliant with covenants applicable at the time.
As noted above we are aiming to agree amendments to the facility agreement,
including changes to covenants. This negotiation is likely to continue through
to the year end and is based upon a business plan `work out' which will enable
the company to realise its assets and repay its liabilities. However the
outcome of any agreed realisation programme, whether in the short or medium
term, remains unlikely to provide an easy exit for a number of assets, and the
total returns remain unlikely to achieve a full repayment of the company's
liabilities.
Outlook
Prospects of a return to shareholders are very remote, depending as they do on
a significant and sustained upturn in the markets in which we are invested, and
our lending bank adopting a time horizon which might allow the Company to
capture the benefits of such a market rally.
Richard Barnes
Chairman
20 November 2013
MANAGER'S REPORT
Property Activity
There has been a change in sentiment within the UK economy as a number of
indicators begin to show improvements. We are observing more secondary assets
being marketed and more portfolio sales, as investors look to take advantage of
the high initial yield on offer for shorter leases or over-rented property. The
potential to re-lease or re-gear such properties is now being accepted. This
does not yet mean values will rise as rents and lease incentives remain in
favour of tenants. However the market is at least seeing more transactions and
`good secondary' assets could be of interest to institutional investors for the
first time since 2007. We have reacted to this improvement by marketing eight
assets, of which three are under offer.
The picture is more mixed around Europe, with economic weakness still the main
concern suggesting a longer period to recovery than the UK for the secondary
property market. Disposals of the properties in Europe remain more challenging
as a result, but we are beginning to market assets where possible and have had
some success at Rozendal in Belgium.
The vacancy rate for the portfolio moved down significantly this quarter due
mostly to leases completing at Le Directoire (agreed in Q1 and Q2 but completed
this quarter). In addition we have maintained the weighted average unexpired
lease term through a number of deals, including a new ten year lease at
Leighton Buzzard from August 2013 and, post the quarter end, the 2015 break
option was removed at Bedford.
However on the horizon we have received notice to break at the St Michel
warehouse, to expire in June 2014. This has had an impact on the forward
looking ICR from this quarter. We are also attempting to secure a new lease at
Verdun and re-lease Combs la Ville, both significant properties in the
portfolio.
Outlook
The markets are in a more stable place than 12 months ago and the outlook is
somewhat more predictable at least, though this may not feed to higher prices
in the short term given the levels of over-renting built up as rents have
fallen, and the amount of secondary assets being held ready for sale. The sale
success will continue to be dependent on the income profile of the asset but at
least in the UK there appears to be increased activity and liquidity in the
secondary markets.
Rory Morrison
Invesco Asset Management Limited
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 http://www.invescoperpetual.co.uk
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 14 to 16 of the 2013 annual financial report, which is available on
the Manager's website at http://www.invescoperpetual.co.uk/investmenttrusts
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 33 of the 2013 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, as the principal uncertainty above is expected to be resolved following
the restructuring of the facility. 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 FCA'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
20 November 2013
INVESTMENT PROPERTIES
Top ten investments as at 30 September 2012
Value % of
Property Country GBP million Portfolio
Directoire, St Cloud France 32.2 17.6
St Michel Sur Orge, Ile de France France 17.3 9.5
Schickardstrasse 30, Boeblingen Germany 16.8 9.2
Le Diapason, Paris France 15.9 8.7
11 Old Jewry, London EC2 UK 12.9 7.1
Hellaby Lane, Rotherham UK 8.0 4.4
Interface Business Park, Wooton UK 7.9 4.3
Basset
Unipath Building, Bedfordshire UK 7.4 4.1
Brackmills Industrial Estate, UK 7.2 3.9
Northampton
Rozendal, Hoeilaart Belgium 6.7 3.7
Total of top ten investment 132.2 72.5
properties
Other properties: 50.2 27.5
Total market value of properties (23 properties) 182.4 100.0%
Investment properties are analysed after deduction of obligations under finance
leases of GBP7.6 million.
Lease Expiry Profile
30 September 2013 31 March 2013
annual % of annual % of
income annual income annual
GBP'000 income GBP'000 income
0-3 yrs 12,797 71.0 10,854 63.0
3-7 yrs 4,331 24.0 4,641 37.0
7-10 yrs 90 0.5 1,094 6.4
10-15 yrs 706 3.9 536 3.1
15-20 yrs 93 0.5 93 0.5
>20 yrs 1 0.0 1 0.0
Current annual income from 18,017 100.0 17,219 100.0
properties
Annual income is derived from leases in place at 30 September 2013 and so will
differ from total annual income received by the Group.
Sector Weightings of Portfolio by Geographic Area
As at 30 September 2013
% of portfolio
SECTOR Total UK France Belgium Spain Germany
Industrial 41.3 27.3 12.0 - 2.0 -
Offices 58.7 12.4 30.0 7.1 - 9.2
100.0 39.7 42.0 7.1 2.0 9.2
As at 31 March 2013
%of portfolio
SECTOR Total UK France Belgium Spain Germany
Industrial 42.5 28.4 12.1 - 2.0 -
Offices 57.5 10.8 29.8 7.3 - 9.6
100.0 39.2 41.9 7.3 2.0 9.6
Condensed Statement of Comprehensive Income
Year
Six months to Six months to ended
30 September 2013 30 September 2012 31 March
2013
(Unaudited) (unaudited) (audited)
Revenue Capital Total Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Continuing operations
Income
Rental and service 10,128 - 10,128 11,322 - 11,322 21,652
charge income
Other income 1 - 1 33 - 33 707
Realised (loss)/gains on - - - - 183 183 183
swaps
Unrealised (loss)/gains - 764 764 - 2,262 2,262 289
on swaps
Gains on investment
properties
Unrealised (loss)/gain - (1,481) (1,481) - (6,170) (6,170) (9,200)
on revaluation of
properties
Lease incentive - (216) (216) - (103) (103) (177)
Realised (loss)/gains on - - - - - - -
disposal of properties
10,129 (933) 9,196 11,355 (3,828) 7,527 13,454
Expenses
Management fees (437) (60) (497) (385) (53) (438) (1,057)
Property expenses (3,854) - (3,854) (3,786) - (3,786) (7,033)
Professional fees (714) - (714) (868) - (868) (2,258)
Goodwill impairment - - - - - - (5,897)
(5,005) (60) (5,065) (5,039) (53) (5,092) (16,245)
Profit/(loss) before 5,124 (993) 4,131 6,316 (3,881) 2,435 (2,791)
finance costs and tax
Finance costs (3,494) (476) (3,970) (3,772) (514) (4,286) (8,657)
Profit/(loss) before tax 1,630 (1,469) 161 2,544 (4,395) (1,851) (11,448)
Tax (236) (87) (323) 90 1,077 1,167 474
Net Profit/(loss) for 1,394 (1,556) (162) 2,634 (3,318) (684) (10,974)
the period from
continuing operations
attributable to equity
shareholders
Assets held for sale
Profit for the period 71 726 797 - - - -
from assets held for
sale
Net profit/(loss) for 1,465 (830) 635 - - - -
the period attributable
to equity shareholders
Basic and diluted 1p (0.6)p 0.4p 1.7p (2.2)p (0.4)p (7.2)p
earnings per ordinary
share (pence)
Other comprehensive 1,679 442 1,329
income/(expenses)
Total comprehensive 2,314 (242) (9,645)
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 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 2013 (Unaudited)
Balance at 31 March 2013 101,368 (4,670) 1,766 (199,874) 66,422 (34,988)
(Loss)/profit for the - - - (902) 738 (164)
period
(Loss)/profit for the - - - 71 726 797
period from assets held
for sale
Other comprehensive
income:
Exchange differences on - - 90 - - 90
translating foreign
operations
Unrealised loss on - 1,589 - - - 1,589
valuation of interest rate
swaps
Other reserve - Swaps - (63) - - - (63)
associated with assets
held for sale
Transfer to income - - - - - -
realised gains on interest
swaps
Balance at 30 September 101,368 (3,144) 1,856 (200,705) 67,886 (32,739)
2013
Six months ended 30
September 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
Year ended 31 March 2013
(Audited)
Balance at 31 March 2012 101,368 (6,008) 1,855 (184,449) 61,971 (25,343)
(Loss)/profit for the - - - (15,426) 4,452 (10,974)
period
Other comprehensive
income:
Exchange differences on - - (89) - - (89)
translating foreign
operations
Unrealised gain on - 1,418 - - - 1,418
revaluation of interest
rate swaps
Balance at 31 March 2013 101,368 (4,670) 1,766 (199,874) 66,422 (34,988)
Condensed Consolidated Statement of Financial Position
At At At
30 September 30 September 31 March
2013 2012 2013
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Non-current assets
Investment properties 180,094 187,240 191,028
Intangible assets - goodwill - 5,596 -
180,094 192,836 191,028
Current assets
Trade and other receivables 5,678 5,967 5,744
Cash and cash equivalents 11,402 10,441 11,198
17,080 16,408 16,942
Assets held for sale 10,436 - -
Total assets 207,610 209,244 207,970
Current liabilities
Trade and other payables (14,392) (14,093) (14,058)
Taxation (383) - -
Interest rate swaps liabilities (3,081) - (149)
Currency rate swaps liabilities (9,024) - -
Obligations under finance lease (458) (451) (458)
Liabilities directly associated (9,458) - -
with assets held for sale
(36,796) - -
Total assets less current 170,814 194,700 193,305
liabilities
Non-current liabilities
Bank loan (181,362) (184,512) (191,288)
Other payables (2,904) (3,325) (2,796)
Interest rate swaps liability - (6,040) (4,521)
Currency rate swaps liability - (7,812) (9,785)
Obligations under finance lease (7,163) (7,092) (7,142)
Deferred taxation (12,123) (11,504) (12,761)
(203,552) (220,285) (228,293)
Net assets (32,738) (25,585) (34,988)
Capital and reserves
Stated capital 101,368 101,368 101,368
Other reserve (3,081) (6,040) (4,670)
Other reserve - Swaps associated (63) - -
with assets held for sale
Translation reserve 1,856 2,249 1,766
Capital reserves (200,704) (187,766) (199,874)
Revenue reserve 67,886 64,604 66,422
Issued capital and reserves (32,738) (25,585) (34,988)
Net asset value - note 5 (21.4)p (16.7)p (22.9)p
Condensed Consolidated Statement of Cash Flow
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2013 2012 2013
(unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
Operating activities
Rent and service charges received 8,549 8,992 21,140
Bank interest received 1 2 5
Proceeds on swap disposal - (825) (825)
Bank loan interest paid (4,232) (4,286) (8,656)
Operating expense payments (2,914) (4,770) (11,423)
Tax received/(paid) 260 (78) (128)
Net cash inflow from operating 1,664 (965) 113
activities
Investing activities
Capital expenditure and (1,179) (1,003) (1,473)
incentives
Sale of investment properties - - -
Net cash (outflow)/inflow from (1,179) (1,003) (1,473)
investing activities
Financing activities
Repayment of loan - (1,508) (1,597)
Loan facility fee (150) - -
Net cash (outflow)/inflow from (150) (1,508) (1,597)
financing activities
Change in cash and cash 335 (3,476) (2,957)
equivalents
Cash and cash equivalents at 11,198 14,004 14,004
beginning of period
Effect of foreign exchange 36 (87) 151
changes
Cash and cash equivalents at end 11,569 10,441 11,198
of period
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 2013 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 2013 and 2012 have
not been audited. The figures and financial information for the year ended 31
March 2013 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 2013.
Reconciliation of accounts NAV per share to adjusted NAV:
30 September 2013
Pence
Per share GBP'000
Accounts net (liability)/asset value (21.40) (32,738)
Adjustments:
Accounting for derivatives on balance 2.05 3,144
sheet
Goodwill - -
Tax charge: deferred tax 7.92 12,123
Adjusted net asset value (11.43) (17,471)
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
20 November 2013
END
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