Invesco Prop Inc Annual Financial Report

 
TIDMIPI 
 
Invesco Property Income Trust Limited 
 
Annual Financial Report Announcement 
 
for the year ended 31 March 2014 
 
CHAIRMAN'S STATEMENT 
 
As shareholders will no doubt be aware there have been some very significant 
developments for the Company since the publication of the last annual report, 
principally taking place after the end of the financial year, which have led to 
a delay in the publication of this year's report. 
 
Future of the Company 
 
We announced in July the outcome of discussions with the Group's lending bank 
relating to the borrowing facility which was due for repayment on 28 September 
2014. At that time the listing of the Company's shares in the UK and the 
Channel Islands was suspended. Since then we have agreed terms for an extension 
of the borrowing facility to 31 December 2014, the accelerated marketing and 
proposed sale of all the Group's remaining property assets and arrangements for 
the subsequent solvent winding up of the Company and its subsidiaries. 
 
It is expected that the proceeds of asset sales will not be sufficient to meet 
the outstanding loans in full and shareholders cannot expect any return at the 
end of the process. 
 
Performance 
 
The UK portfolio was stable in the year to 31 March 2014, even showing some 
very modest improvements, but the European valuations continued to fall, 
exacerbated by asset-specific factors. The UK portfolio's like-for-like capital 
values rose 4.9% and the European portfolio fell 12.4% in euros on the same 
basis. Adjusted shareholders' funds at the year end were GBP-29.8 million or 
-19.5p per share, down from GBP-17.6 million (-11.5p) a year earlier. 
 
Activity 
 
We were able to complete a number of disposals this year, both in the UK and in 
Europe. The investment manager's report sets out further details. Since the 
year end a further three properties have been sold and we have exchanged on a 
fourth in individual transactions and the remaining assets are currently being 
marketed for sale as a portfolio. 
 
Detail on leasing activity is provided in the investment manager's report. 
 
Financing 
 
The value of the Group's bank borrowings at 31 March 2014 was GBP150.8 million 
(2013: GBP191.9 million), comprising GBP51.9 million drawn in sterling and EUR119.6 
million drawn in euros. The loan to value (LTV) ratio at that date was 126% 
(2013: 104%), in excess of the maximum of 100% permitted under the Group's 
borrowing facility at that date. Since the year end GBP9.5 million and EUR4.9 
million of borrowings have been repaid from the proceeds of sales, and a 
liability of GBP7.761 million owed on closing out currency swaps has been 
transferred, with the agreement of the lending bank, to the loan balance. GBP2.3 
million was also owed at the year end under a borrowing facility with Invesco 
Ltd. 
 
Annual accounts - going concern 
 
As has been the case in recent years there has been uncertainty as to whether 
the Group's annual accounts could be prepared on a `going concern' basis. 
 
The Group has not been in compliance with the maximum permitted LTV ratio of 
100% since 31 December 2013 and accordingly the lending bank had the right to 
demand repayment of all amounts owed to it which, if exercised, would have 
meant that the Group could no longer be treated as a going concern. 
 
As noted earlier, we have agreed an extension to the loan facility with our 
principal lenders, including arrangements for the sale of the remaining 
property assets and a solvent winding up of the Group. Given that these 
proposals would effectively terminate the business, the Directors do not 
consider it appropriate to treat the Group as a going concern and financial 
statements have not been prepared on such a basis. 
 
Outlook 
 
All the Group's remaining property assets are being actively marketed for sale 
as a portfolio. Further weakness in European markets since the year end, asset 
specific issues and factors relating to the sales process mean that the year 
end valuations may not be realisable. The outcome of the process should be 
known in the next few weeks, and a further announcement will be made in due 
course. It is the intention of the Directors to wind up the group companies 
following completion of all assets sales but we do not expect there to be any 
return for shareholders as all net sales proceeds will be used to pay down bank 
debt. 
 
Richard Barnes 
 
Chairman 
 
27 November 2014 
 
. 
 
STRATEGIC REPORT 
 
FOR THE YEAR ENDED 31 MARCH 2014 
 
INVESTMENT MANAGER'S REPORT 
 
The Market 
 
While we have witnessed a period of relative stabilisation across the Eurozone 
economies, the associated increase in capital allocations to real estate remain 
primarily focused on stabilised 'Core' assets. This Company's portfolio 
comprises assets that do not fit this definition, and are therefore still being 
discounted by investors. While there is variation across countries, the general 
trend shows some improvement in sentiment with more debt availability and an 
appetite for more leasing risk to benefit from hoped-for growth in rents as 
businesses look to expand again. In the UK this trend has led to a 
stabilisation in the valuations of this Company's assets, whereas in Europe 
values are unfortunately still falling. 
 
In selected locations we have recently started to see investment demand 
spreading out into more secondary markets, driven initially by local investor 
groups looking to re-invest in higher yielding assets following sales in the 
core markets. However this optimism needs to be balanced against the reality; 
in these second tier/secondary markets the occupier demand is proving slow to 
materialise; vacancy rates remain high, limiting the potential for rental 
growth in the near term. Some transaction activity is taking place, helping to 
improve liquidity, but without the visible return of key fundamental drivers of 
performance (occupier demand and rental growth) we do not anticipate this 
interest driving significantly higher prices across the secondary sector. 
 
The overall 2.6% fall in valuations of the held portfolio over the last 
quarter, or 8.1% fall over the last year, is predominantly due to a fall in the 
held continental European portfolio, most of which was recognised in the last 
two quarters. This is due to asset specific reasons and continued occupier 
market weakness in those markets. In particular this reflects the increased 
vacancy across the portfolio and recognition within the valuations of greater 
capital investment required. 
 
Asset Management 
 
The asset management strategy is focussed on achieving the most secure 
contracted income possible over the short to medium term, in order to enhance 
the liquidity and value of the asset. The finite cash resources for capital 
investment means speculative refurbishment is not possible however this will be 
undertaken where necessary and value improvement can be identified and we have 
invested approximately GBP0.8 million into the assets over the year. 
 
The weighted lease term across the portfolio was 3.1 years at the year-end, but 
below 2 years in the Euro-denominated portfolio. With the expiry of the largest 
lease in the portfolio at the logistics asset in St Michel, Paris during 
January 2014 the vacancy rate has increased to 21.6%, from 15.4% last year. 
 
At the start of the financial year in April 2013, GBP4 million of the GBP17 million 
rent passing (24% of the portfolio) was subject to lease expiries or break 
options within one year. With the St Michel lease expiry over half of this 
income expired. However, GBP0.8 million of this income has either renewed or been 
replaced while a further GBP0.9 million was holding over pending lease 
negotiations. In addition to replacing or renewing some of this rent, we have 
agreed additional new leases on vacant areas totalling GBP0.2 million of rent, 
and we have removed break options relating to periods beyond 31 March 2014 for 
a further GBP1.2 million of rent, as reflected in the stable weighted lease term 
overall. 
 
In the coming year GBP2.3 million of the current income (20% of the total) is due 
to expire or is subject to break options. This is the focus of attention in the 
short term. 
 
Disposals 
 
A total of eight properties were sold during the year, realising net proceeds 
of GBP47.6 million. At the year-end GBP38.9 million of this had been applied to 
debt reduction with a further GBP7.5 million repaid immediately after the year 
end and a final amount of GBP1.2 million repaid in June. 
 
The sales included five warehouse properties in the UK, plus the vacant office 
at Gerrards Cross, with the overall balance of sales in the UK 5.0% ahead of 
valuation. In Europe we sold the multi-let office assets at Le Diapason in 
Paris and Rozendal in Belgium. Both assets had recently achieved some leasing 
success and reached full occupancy but subject to relatively short lease terms 
creating a short term peak in value. Agreed sales prices on these two assets in 
aggregate were 8.7% below the prevailing valuation however, mainly due to the 
result at Le Diapason. All sales have been openly and widely marketed. 
 
Subsequent to the year-end we have sold a further three assets, two in the UK 
and one in France, to separate purchasers but representing a combined price of 
GBP13.9 million, 1.0% ahead of the year end valuation. The UK assets were sold 
following new or extended leases, while the asset in France, Combs la Ville, 
was a vacant warehouse with significant ongoing costs to the Company. 
 
We have also exchanged contracts on the sale of the Le Verdun asset in France 
following a renewal of the lease, due to complete in December 2014, and the 
remaining assets are being openly marketed for sale as a single portfolio of 12 
properties; seven in the UK and five in Continental Europe. 
 
Outlook 
 
While there needs to be a more sustained recovery in the fundamentals for 
prices to start to recover in the secondary sector, particularly outside the 
UK, the increase in capital allocations to real estate is providing more