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 £-29.8 million or
-19.5p per share, down from £-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 £150.8 million
(2013: £191.9 million), comprising £51.9 million drawn in sterling and €119.6
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 £9.5 million and €4.9
million of borrowings have been repaid from the proceeds of sales, and a
liability of £7.761 million owed on closing out currency swaps has been
transferred, with the agreement of the lending bank, to the loan balance. £2.3
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 £0.8 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, £4 million of the £17 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, £0.8 million of this income has either renewed or been
replaced while a further £0.9 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 £0.2 million of rent,
and we have removed break options relating to periods beyond 31 March 2014 for
a further £1.2 million of rent, as reflected in the stable weighted lease term
overall.
In the coming year £2.3 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 £47.6 million. At the year-end £38.9 million of this had been applied to
debt reduction with a further £7.5 million repaid immediately after the year
end and a final amount of £1.2 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
£13.9 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
liquidity. An increased appetite for risk, and yield, is forcing investors to
consider portfolios. This presents an opportunity to conduct a realisation of
the portfolio albeit that prevailing valuations may not be realisable.
Rory Morrison
Invesco Asset Management Limited
27 November 2014
.
BUSINESS REVIEW
Invesco Property Income Trust Limited is a Jersey domiciled property investment
company and its investment objective is set out below. The strategy the Board
follows to achieve that objective is to set investment policy and limits, and
to monitor how they are applied. These are also set out below and have been
approved by shareholders.
The business model the Company has adopted to achieve its objective has been to
contract investment management and administration to appropriate external
service providers, who are subject to oversight by the Board. The Company's
main supplier of services is Invesco Asset Management Limited (the `Investment
Manager') which provides investment portfolio and management services. Further
details of the external service providers are contained in the Report of the
Directors on page 21.
Investment Objective and Policy
The Company's Investment Objective and Policy, set out below, have been
designed to set out clearly the investment objective of the Company and provide
shareholders with information on the policies that the Company follows in order
to try to achieve its objective. These relate to asset allocation, risk
diversification and gearing, including maximum exposures. The objective and
policy were revised in 2011 to reflect a realisation programme, rather than an
indefinite life as was the case previously, and further revised (and approved
by shareholders) in 2013.
Investment Objective
The Company holds a diversified portfolio of European commercial properties.
The investment objective of the Company has been to repay its bank borrowings
and other liabilities and, if it is able to meet these obligations, to provide
a return for shareholders. The Directors no longer expect to be able to meet
the Group's liabilities in full and so do not expect there to be any surplus
for shareholders.
Investment Policy
The Company has pursued its investment objective by seeking to optimise value
from the Group's current portfolio, comprising a diversified portfolio of
investment properties located in the UK and continental Europe. It is expected
that the principal source of funds from which to repay borrowings and meet
other liabilities will be the net proceeds from disposals of assets in the
Group's property portfolio. It is likely that all of the property investments
will need to be sold to meet the Company's obligations to its lenders and other
creditors and that not all such obligations will be met in full.
The Directors do not expect that:
• any new investments will be made (other than cash or near cash equivalent
securities);
• any net new borrowings will be drawn down; or
• any dividends will be paid.
Performance
Key Performance Indicators
The Board reviews performance by reference to a number of Key Performance
Indicators which include the following:
• Asset Performance
• Income generation
• Ongoing Charges Ratio
Asset Performance
In the circumstances faced by the Company the key metric for asset performance
has been the LTV ratio. LTV has been greater than 100% at each quarter end
during the period.
Income Generation
The Board has also monitored closely the Group's cash revenues against the
interest cover covenants in the loan facility. The Group has remained cash flow
positive and compliant with the covenants.
Ongoing Charges Ratio
The expenses of the Company are reviewed by the Board at every Board meeting.
It is the aim of the Board to minimise charges. The ongoing charges ratio
provides a guide to the effect on performance of the costs of the Company. The
ratio of charges to gross assets for the year was 1.6% (2013: 1.5%). The
increase in the ratio masks a small reduction in expenses payable and is due to
the fall in gross assets as assets were sold in the year.
Financial Position
Assets and Liabilities
At the year end, the Group had a total net liabilities position of £37.7
million (2013: total net liabilities of £35.0 million) equal to -24.6p per
share (2013: -22.9p). The assets comprised a portfolio of European property in
the office and industrial sectors and the liabilities included bank borrowings
totalling £150.8 million (2013: £191.3 million).
At the year end, liabilities included an amount of £7.98 million representing
the mark to market value of currency swaps. With the agreement of the lending
bank the swaps were closed out on 17 April 2014, crystallising a liability of £
7.76 million. This was settled from a new drawdown on the Group's borrowing
facility.
Share Valuations and Net Asset Value (`NAV')
On 31 March 2014, the mid-market share price, the NAV and the adjusted NAV (see
glossary on page 65) per ordinary share were 0.25p, -24.6p and -19.5p (2013:
0.6p, -22.9p and -11.5p) respectively. The NAVs per ordinary share are
calculated on 153 million shares in issue at the year end and net liabilities
attributable to ordinary shareholders of £37,671,000 (2013: £34,988,000). The
listing of the Company's shares was suspended on 28 July 2014 and there is no
longer any market price.
Revenue and Dividends
The financial results for the year are shown in the Consolidated Statement of
Comprehensive Income on page 32. No dividends have been paid during the year
under review (2013: £nil), and no further dividends are expected to be paid.
Borrowing
The Group's borrowing facility in place at the year end fell due for repayment
on 28 September 2014. The Directors did not expect to be able to meet the
repayment obligation and, with their advisers, had been engaged in discussions
with the lending banks for some time over how to address the position. The
conclusion to these discussions, announced in July 2014 and with the support
and consent of the lending bank, was for the Company's remaining properties to
be marketed in a structured sales process, aiming to achieve a sale of all
assets before the end of 2014. To facilitate this, the repayment date of the
facility has now been extended to 31 December 2014. Other terms of the facility
remain largely unaltered, including covenants. The Group is in breach of the
Loan to Value covenant, but in the circumstances this will not act to inhibit
implementation of the sales process. It is not expected that the net sales
proceeds will be sufficient to meet all amounts due to lenders and the lending
banks have agreed that amounts still outstanding following the process will be
treated as no longer owing, allowing the group companies to be wound up
solvently.
The Group also has borrowings due to Invesco Limited (`Invesco'), the parent
company of the Investment Manager. The Invesco facility is subordinated to the
bank facility and no amounts are permitted to be paid to Invesco until the
lending bank has been paid in full. Invesco has consented to the sales process
and will also waive any amounts due to it that cannot be paid at completion of
the sales process.
Hedging
Hedging policy is under the control of the Board. Cashflow hedging was used to
limit the extent of earnings exposure to fluctuations in interest rates. The
terms of the Group's borrowing facility require the Group generally to hedge
its interest rate exposure but during the year the Lender consented to waivers
of this requirement in view of the disposal and debt repayment programme under
way.
The Group's interest rate exposure remains partially hedged through the use of
a basket of interest rate swaps. As at 31 March 2014, interest on 97% of
sterling borrowings and 33% of euro borrowings was payable at fixed rates of
interest. The rate payable amounted to a weighted average of 2.9% (2013: 4.5%)
per annum, including the margin. The euro interest rate hedges were cancelled
in April 2014 with the currency swaps as described below and have not been
replaced. The remaining sterling interest rate hedges expired on 28 September
2014 and have not been replaced.
The Group hedged against fluctuations in the euro for the net investment in
European assets, by hedging against future movements in the euro/sterling
exchange rate for the amount of the investment in euro denominated assets less
borrowings in euros. As a result of falling asset values in Europe the Group's
exposure to the Euro is overhedged. At the year end these particular hedges
were ineffective and they were cancelled at a cost of £7.8 million in April
2014. The currency exposure is now unhedged.
Current and Future Developments
As described in the Chairman's statement the Board and the Investment Manager
are engaged in a process to dispose of all the remaining property assets. The
objective is to have completed the sale before the end of 2014, following which
the Directors expect to begin the process of winding up the group companies. In
the event that the sales process is not successful alternative outcomes will be
discussed with the lending banks but in no circumstances is it expected that
shareholders will receive any return.
Principal Risks and Uncertainties
The principal risk factors relating to the Company can be divided into various
areas:
Investment Policy
The Board has established guidelines to ensure that the Investment Policy
approved by shareholders is pursued by the Investment Manager.
There is no guarantee that the Investment Policy adopted by the Company will
provide the returns sought by the Company. There can be no guarantee,
therefore, that the Company will achieve its investment objective and, as set
out under Current and Future Developments above it currently appears unlikely
that the Company will be able to.
Ordinary Shares and Dividends
The market value of an ordinary share is affected by its NAV, but also reflects
supply and demand for those ordinary shares, along with wider economic and
political factors and changes in the law, including tax law. As such, the
market value of an ordinary share can fluctuate and may not always reflect its
underlying NAV.
The Company's NAV is negative. It is not likely that sufficient appreciation in
the value of the Company's investments will occur to allow investors to get
back any of their investment. The listing of the Company's shares has been
suspended and accordingly there is no market for the shares and no quoted
price.
Dividends have been suspended and no further dividends are expected to be paid.
Borrowings
The Company has, since its inception, used borrowings to fund, in whole or in
part, purchases of property assets. Use of borrowings in this way will tend to
magnify the proportional effect on the NAV of movements up or down in the value
of the investment portfolio. Borrowings were used in the hope of enhancing
shareholders returns but the Company has experienced the opposite effect.
Accumulated losses in portfolio values over recent years have exceeded the net
asset value and have resulted in a deficit in shareholders funds. It is not
expected that this deficit will be recovered.
Borrowings also expose the Company to the risk of breach of covenants and terms
in relevant financing agreements. The Company has been since December 2013, and
at the date of this document remains, non-compliant with the Loan to Value
covenant in its facility agreement.
Interest and Currency Risks
As the Company has significant borrowings, the Company is exposed to interest
rate fluctuations as a significant proportion of borrowings are based on
floating interest rates. In addition, the Company invests in Continental
European property exposing the Company to movements in the euro exchange rate.
Any increase in interest rates or adverse changes in the euro exchange rate
will have a negative impact on the NAV of the ordinary shares.
Market Movements and Portfolio Performance
Rental income and the market value for properties are affected by general
economic conditions and/or by the political and economic climate of the
jurisdictions in which the Group's property assets are situated as well as in
the rest of the world. The marketability and value of investment properties
held by the Group will, therefore, depend on many factors some of which may be
beyond the control of the Company such as changes in gross domestic products,
employment trends, inflation, interest rates, natural disasters, the
environment, changes in the supply and demand for real estate in an area and
credit risks. There is therefore no assurance that there will be either a ready
market for any investment properties or that investment properties will be sold
at a profit or will yield positive cash flows.
Both rental income and market value of properties are also affected by other
factors specific to the real estate market, such as competition from other
property owners, the perceptions of prospective tenants of the attractiveness,
convenience and safety of properties, the inability to lease properties on
favourable terms, the inability to collect rents, the periodic need to
renovate, repair and let space and the costs thereof, the costs of maintenance
and insurance, and increased operating costs. In addition, certain significant
expenditure, including operating expenses, must be met by the owner even when
the property is vacant.
While the Board obviously cannot influence the aforementioned factors, it is
vigilant in monitoring and taking steps to mitigate the effects of them should
they occur. The performance of the Investment Manager is carefully monitored by
the Board, and the continuation of the investment mandate is reviewed each
year.
It is expected that all future cash returns will be applied in reducing debt or
paying operating and winding up costs.
For a fuller discussion of the economic and market conditions facing the
Company and the current and future performance of the portfolio of the Company,
please see both the Chairman's Statement and Investment Manager's Report.
Regulatory
The Company is regulated by the Jersey Financial Services Commission under the
Jersey Listed Fund Guide. It is subject to various laws and regulations by
virtue of its status as a collective investment fund holding a permit under
applicable Jersey law, as well as its listings on the UKLA's Official List and
Channel Islands Stock Exchange, not withstanding that these listings have been
suspended and its admission to trading on the London Stock Exchange. A serious
breach of regulatory rules may lead to suspension from the above Stock
Exchanges or a qualified Audit Report. Other control failures, either by the
Manager or any other of the Company's service providers, may result in
operational or reputational issues, erroneous disclosures, loss of assets
through fraud, as well as breaches of regulations.
Changes in taxation, legal, regulatory, corporate governance, environmental,
landlord and tenant and planning laws, regulations and guidelines may occur in
the European Union that may adversely affect the Company, its investments in
the affected jurisdiction and/or position of shareholders, and may reduce
returns for shareholders.
Reliance on Third Party Service Providers
The Company has no employees and the Directors have all been appointed on a
non-executive basis. The Company is therefore reliant upon the performance of
third party service providers for its executive function. In particular, the
Investment Manager performs services which are integral to the operation of the
Company. Failure by any service provider to carry out its obligations to the
Company in accordance with the terms of its appointment could have a materially
detrimental impact on the operation of the Company and could affect the ability
of the Company to successfully pursue its Investment Policy.
The Investment Manager may be exposed to the risk that litigation, misconduct,
operational failures, negative publicity and press speculation, whether or not
it is valid, will harm its reputation. Any damage to the reputation of the
Investment Manager could result in potential counterparties and third parties
being unwilling to deal with the Investment Manager and by extension the
Company. This could have an adverse impact on the ability of the Company to
successfully pursue its Investment Policy.
Please also refer to the potential for environmental claims as outlined under
Environmental and Social Policies below.
The Risks and Risk Management Policies are detailed in note 23 to the financial
statements.
Board Diversity
The Company's policy on diversity is set out on page 17. The Board comprises
five non-executive directors all of whom are male. Summary biographical details
of the Directors are set out on page 14. The Company has no employees.
Environmental and Social Policies
The Group assumes all property ownership rights and liabilities relating to its
acquired properties and could face substantial risk of loss from environmental
claims based on environmental problems associated with such property, as well
as from safety issues and third party liability risks. Despite due diligence,
environmental liabilities in relation to properties in which the Group invests
may not be ascertainable or fully ascertained prior to acquisition and the
Group may therefore be exposed to clean-up and other remedial costs. The cost
of any required remedy and the owner's liability for such remediation work in
relation to any affected property may not be limited under the applicable
environmental laws and could exceed the value of the property and/or the
aggregate assets of the property owning subsidiary which holds the affected
property. Furthermore, the presence of hazardous substances or the failure
properly to remedy contamination from such substances may adversely affect the
Group's ability to sell the relevant property and may also affect the Group's
ability to borrow using the affected property as collateral. The Company does
not have a human rights policy, although the Investment Manager applies the
United Nations Principles for Responsible Investment.
This Strategic Report was approved by the Board on 26 November 2014
R&H Fund Services (Jersey) Limited
Company Secretary
.
PROPERTY PORTFOLIO INFORMATION
INVESTMENT PROPERTIES
at 31 March 2014
PROPERTY VALUE % OF
COUNTRY £ MILLION PORTFOLIO
Le Directoire, St Cloud France 31.83 26.6
Schickardstrasse 30, Böblingen Germany 16.12 13.5
11 Old Jewry, London EC2 UK 13.70 11.4
St Michel Sur Orge, Ile de France France 10.58 8.8
Offices, Priory Business Park, Bedford* UK 7.60 6.3
135-139 Rue Colonel Bourg, Brussels Belgium 5.83 4.9
Walworth Industrial Estate, Andover UK 5.38 4.5
Forum One, Station Road, Theale UK 5.05 4.2
Combs la Ville, Ile de France* France 4.51 3.8
Le Verdun, Gentilly* France 4.05 3.4
Chittening Industrial Estate, Avonmouth UK 3.62 3.0
Can Estella Industrial Estate, Barcelona Spain 3.47 2.9
Armstrong Road, Basingstoke UK 3.06 2.6
Grovebury Road, Leighton Buzzard* UK 3.00 2.5
Chalfon Court, Amersham UK 1.21 1.0
Webner Industrial Estate, Wolverhampton UK 0.77 0.6
119.76 100.0
Investment properties are analysed after deduction of obligations under finance
leases of £7.6 million.
* Properties sold or contracted to be sold since the year end.
LEASE EXPIRY PROFILE
2014 2013
ANNUAL % OF ANNUAL % OF
INCOME ANNUAL INCOME ANNUAL
PERIOD OF LEASE £'000 INCOME £'000 INCOME
0-3 yrs 8,135 69.0 10,854 63.0
3-7 yrs 3,112 26.0 4,641 27.0
7-10 yrs 340 3.0 1,094 6.4
10-15 yrs 0 0.0 536 3.1
15-20 yrs 278 2.0 93 0.5
> 20 yrs 1 0.0 1 0.0
CURRENT ANNUAL INCOME FROM PROPERTIES 11,866 100.0 17,219 100.0
Annual income is derived from leases in place at 31 March 2014 and so will
differ from total annual income received by the Group for the year ended 31
March 2014.
SECTOR WEIGHTINGS OF PORTFOLIO BY GEOGRAPHIC AREA
AS AT 31 MARCH 2014
% OF PORTFOLIO
SECTOR UK FRANCE BELGIUM SPAIN GERMANY TOTAL
Industrial 13.21 12.60 - 2.90 - 28.71
Offices 23.01 29.95 4.87 - 13.46 71.29
Total 36.22 42.55 4.87 2.90 13.46 100.00
AS AT 31 MARCH 2013
% OF PORTFOLIO
SECTOR UK FRANCE BELGIUM SPAIN GERMANY TOTAL
Industrial 28.40 12.10 - 2.00 - 42.50
Offices 10.80 29.80 7.30 - 9.60 57.50
Total 39.20 41.90 7.30 2.00 9.60 100.00
.
DIRECTORS' RESPONSIBILITIES STATEMENT
in respect of the preparation of the annual financial report
The Directors are responsible for preparing the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare group
financial statements in accordance with International Financial Reporting
Standards (`IFRS') as adopted by the European Union. The financial statements
are required by law to give a true and fair view of the state of affairs of the
Group and of the profit or loss of the Group for that period.
International Accounting Standard 1 requires that financial statements present
fairly for each financial period the Group's financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's `Framework
for the preparation and presentation of financial statements'. In virtually all
circumstances, a fair presentation will be achieved by compliance with all
applicable IFRS. However, directors are also required to:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides
relevant, reliable, comparable information;
• provide additional disclosures when compliance with the specific requirements
in IFRS are insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial position
and financial performance; and
• make an assessment of the Company's ability to continue as a going concern.
The Directors, to the best of their knowledge, state that:
• the financial statements, prepared in accordance with IFRS as adopted by the
European Union, give a true and fair view of the assets, liabilities, financial
position and results of the Group;
• this annual report includes a fair review of the development and performance
of the business and the position of the Group together with a description of
the principal risks and uncertainties that it faces; and
• they consider that this annual financial report, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Group's performance, business model and strategy.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Group and enable them to ensure that the financial statements comply with the
Companies (Jersey) Law 1991. They are also responsible for safeguarding the
assets of the Group, and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Signed on behalf of the Board of Directors
Richard Barnes
Chairman
27 November 2014
.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2014
2014 2013
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTES £'000 £'000 £'000 £'000 £'000 £'000
Income
Rental income 14,934 - 14,934 17,634 - 17,634
Service charge income 3,779 - 3,779 4,018 - 4,018
Interest receivable 2 16 - 16 707 - 707
and other income
Realised gains on - - - - 183 183
swaps
Unrealised gain on - 333 333 - 289 289
swaps
Losses on investment
properties
Unrealised loss on - (9,914) (9,914) - (9,200) (9,200)
revaluation of
properties
Lease incentive - (187) (187) - (177) (177)
Realised loss on - (280) (280) - - -
disposal of
properties
Total income 18,729 (10,048) 8,681 22,359 (8,905) 13,454
Expenses
Management fees (903) (124) (1,027) (930) (127) (1,057)
Property expenses (7,381) - (7,381) (7,033) - (7,033)
Professional fees (1,719) - (1,719) (2,258) - (2,258)
Goodwill impairment - - - - (5,897) (5,897)
Total expenses (10,003) (124) (10,127) (10,221) (6,024) (16,245)
Profit/(loss) before 3 8,726 (10,172) (1,446) 12,138 (14,929) (2,791)
finance costs and tax
Finance costs (7,653) (1,044) (8,697) (7,617) (1,040) (8,657)
Profit/(loss) before 1,073 (11,216) (10,143) 4,521 (15,969) (11,448)
tax
Tax (charge)/credit (602) 2,889 2,287 (69) 543 474
Profit/(loss) for the 471 (8,327) (7,856) 4,452 (15,426) (10,974)
year attributable to
equity shareholders
Other comprehensive
income/(expenses)
Items that will not
be reclassified
subsequently to
profit or loss
Exchange differences (1,306) (89)
on translating
foreign operations
Items that may be
reclassified
subsequently to
profit or loss
Unrealised gain on 1,807 -
revaluation of cross
currency swaps
Unrealised gain on 4,670 1,418
revaluation of
interest rate swaps
6,477 1,329
Total comprehensive (2,685) (9,645)
expenses
Loss per ordinary
share
- basic and (5.1)p (7.2)p
diluted
The total column of this statement represents the Group's consolidated
statement of comprehensive income. The supplementary revenue and capital
columns are presented for information in accordance with the Statement of
Recommended Practice issued by the Association of Investment Companies. All
items in the above statement derive from continuing operations. No operations
were acquired or discontinued in the year.
The accompanying notes are an integral part of these financial statements.
.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2014
STATED
CAPITAL OTHER TRANSLATION CAPITAL REVENUE
RESERVE RESERVE RESERVE RESERVE RESERVE TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 March 101,368 (6,088) 1,855 (184,449) 61,971 (25,343)
2012
(Loss)/profit for the - - - (15,426) 4,452 (10,974)
year
Other comprehensive
income:
Exchange differences - - (89) - - (89)
on translating foreign
operations
Unrealised gain on - 1,418 - - - 1,418
revaluation of interest
rate swaps
Balance at 31 March 101,368 (4,670) 1,766 (199,874) 66,422 (34,988)
2013
Loss for the year - - - (8,327) 471 (7,856)
Other comprehensive
income:
Exchange differences - - (1,306) - - (1,306)
on translating foreign
operations
Unrealised gain on - - 1,807 - - 1,807
revaluation of cross
currency swaps
Unrealised gain on - 4,670 - - - 4,670
revaluation of interest
rate swaps
Balance at 31 March 101,368 - 2,267 (208,202) 66,893 (37,674)
2014
The accompanying notes are an integral part of these financial statements.
.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2014
2014 2013
NOTES £'000 £'000
Non-current assets
Investment properties 108,221 191,028
108,221 191,028
Current assets
Trade and other receivables 3,187 5,744
Cash and cash equivalents 24,190 11,198
27,377 16,942
Assets classified as held for sale 19,156 -
Total assets 154,754 191,028
Current liabilities
Trade and other payables (13,001) (14,058)
Taxation (3,753) -
Interest rate swap liabilities (1,474) (149)
Currency rate swap liabilities (7,979) -
Obligations under finance lease (461) (458)
Bank loan (150,777) -
(177,445) (14,665)
Total assets less current liabilities (22,691) 176,363
Non-current liabilities
Bank loan - (191,288)
Other payables (1,420) (2,796)
Interest rate swap liabilities - (4,521)
Currency rate swap liabilities - (9,785)
Obligations under finance leases (7,154) (7,142)
Deferred taxation (6,409) (12,761)
(14,983) (228,293)
Net liabilities (37,674) (34,988)
Capital and reserves
Stated capital 4 101,368 101,368
Other reserve - (4,670)
Translation reserve 2,267 1,766
Capital reserves (208,202) (199,874)
Revenue reserves 66,893 66,422
Issued capital and reserves (37,674) (34,988)
Net asset value per ordinary share 5 (24.6)p (22.9)p
Approved by the Board of Directors on 27 November 2014.
Richard Barnes
Chairman
The accompanying notes are an integral part of these financial statements.
.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2014
2014 2013
£'000 £'000
Operating activities
Rent and service charges received 19,790 21,140
Bank interest received 3 5
Proceeds on swap disposal - (825)
Bank loan interest paid (8,357) (8,656)
Operating expense payments (10,921) (11,423)
Tax paid (134) (128)
Net cash from operating activities 381 113
Investing activities
Capital expenditures and incentives (1,080) (1,473)
Sale of investment properties 53,164 -
Net cash from/(used in) investing activities 52,084 (1,473)
Financing activities
Loan facility fee (324) -
Repayment of loan (39,172) (1,597)
Net cash used in financing activities (39,496) (1,597)
Increase/(decrease) in cash and cash equivalents 12,969 (2,957)
Cash and cash equivalents at beginning of year 11,198 14,004
Effect of foreign exchange changes 23 151
Cash and cash equivalents at end of year 24,190 11,198
.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout this and the previous year, is set out below.
(a) Going Concern
It was announced on 28 July 2014 that the Company would seek purchasers for all
the Group's remaining property assets. Since that date the Company has agreed
arrangements with its lenders for the extension of the loan facility to 31
December 2014 and the marketing and proposed sale of investment properties,
following which the Directors intend to begin the winding up of the Group
companies. Given these proposals for the effective termination of the Company's
business, the Directors do not consider it appropriate to treat the Company as
a going concern and the accounts have been prepared on a basis other than that
of a going concern.
The financial statements do not include any provision for the future costs of
winding up the group companies except to the extent that they were committed at
the end of the reporting period.
(b) Basis of Accounting
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards (`IFRS') as adopted for use in the
European Union, which comprise standards and interpretations approved by the
International Accounting Standards Board (`IASB'), and International Accounting
Standards and Standing Interpretations Committee interpretations approved by
the International Accounting Standards Committee (`IASC') that remain in
effect, and were subsequently endorsed by the European Union.
The financial statements have been prepared on a basis other than that of a
going concern. Where presentational guidance set out in the Statement of
Recommended Practice (`SORP') for investment trusts issued by the Association
of Investment Companies (`AIC') in January 2009 is consistent with the
requirements of IFRS, the Directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the SORP.
The preparation of the financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making judgements about the carrying value of assets and liabilities that are
not readily apparent from other sources.
Actual results may differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision
only affects that period, or in the period of the revision and future periods
if the revision affects both current and future periods.
In applying the Group's accounting policies, the Directors make key judgements
and assumptions; the key sources of estimation and uncertainty are in the
following areas:
Property valuations
In determining the fair value of investment properties under IAS 40 at fair
value, there is a degree of uncertainty and judgement involved. The Group uses
external professional valuers to determine the relevant amounts. The valuers'
opinion is that, with market conditions which currently prevail, there is
likely to be a greater than usual degree of uncertainty in respect of
valuations. Until the number and consistency of comparable transactions
increase, this situation is likely to remain.
The Directors and the company's external valuers have also given consideration
to the valuations in light of the basis of preparation of the financial
statements and the realisable values of individual assets at the reporting
date.
Classification of leases
In determining whether leases and related properties represent operating or
finance leases, consideration is given to whether the tenant or landlord bears
the risks and rewards of ownership.
Non-current assets held for sale
A non-current asset is transferred to assets held for sale when it is expected
that the carrying amount will be recovered principally through sale rather than
continuing use. For this to be the case, the asset or disposal group must be
available for immediate sale in its present condition subject only to terms
that are usual and customary to sales of such property and its sale must be
highly probable. The following criteria must be met for a highly probable sale:
• Available for immediate sale in its present condition;
• Management committed to a plan to sell;
• Active program to locate the buyer and complete the plan must be initiated;
• The property must be actively marketed for sale at a price that is reasonable
in relation to its current fair value;
• The sale should be expected to qualify for recognition as a completed; and
• Sale within one year from the date of classification.
Non-current assets and disposal groups classified as held for sale are measured
at fair value in accordance with the relevant IFRS.
The properties classified as held for sale are those that were being marketed
for sale at the period end. The Directors assessed the sale of these properties
as highly probable as at the reporting date. As the result the properties were
classified as assets held for sale and valued at fair value or net realisable
value or net realisable value, being the expected selling price, as per offers
received.
Valuation of derivatives
All derivatives are measured at fair value. Fair values of the Group's
derivatives are determined by reference to observable market prices and so
valued using quoted prices obtained from financial institutions. The pricing
methodology does not entail material subjectivity because the methodologies
utilised do not include significant judgement and unobservable inputs but
actively quoted prices. The ultimate realisable value and fair value at any
period end date will fluctuate depending upon market movements principally in
interest rates and foreign exchange rates. The ultimate realisable value at the
value date of the derivative contracts may materially differ from the fair
value at the period end.
Details of the fair value estimation for derivatives have been provided in
notes 1(i) and 23 to these financial statements.
(c) Principal Activity
The principal activity of the Company and its subsidiaries (together the
`Group') was investment in investment properties and is now the realisation of
the investments held.
(d) Basis of Consolidation
The consolidated financial statements include the financial statements of the
Company and its subsidiary undertakings made up to Statement of Financial
Position (SoFP) date.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and cease to be consolidated from the date on which control is
transferred out of the Group.
(e) Segmental Reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that is
subject to risks and returns which are different from those segments operating
in other economic environments.
2. Interest receivable and other income
YEAR YEAR
ENDED ENDED
31 MARCH 31 MARCH
2014 2013
£'000 £'000
Interest receivable 3 5
Other income 13 702
16 707
3. Profit/(loss) before finance costs and tax
Profit/(loss) before finance costs and tax is stated after charging:
YEAR ENDED YEAR ENDED
31 MARCH 2014 31 MARCH 2013
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Directors' fees 123 - 123 125 - 125
Fees payable to the Company's 92 - 92 92 - 92
Auditor for the audit of the
financial statements - Current
period
Fees payable to the Company's 116 - 116 111 - 111
Auditor for the audit of the
Company's subsidiaries
pursuant to legislation -
Current period
Total audit fees - Current 208 - 208 203 - 203
period
Other fees payable to the
Company's Auditor:
Tax services 80 - 80 67 - 67
Corporate finance services - - - 18 - 18
Total non-audit fees 80 - 80 85 - 85
4. Stated capital
2014 2013
£'000 £'000
Authorised:
153,000,000 ordinary shares of no par value - -
Allotted, called-up and fully paid:
153,000,000 ordinary shares of no par value 101,368 101,368
5. Net asset value per ordinary share
(a) The net asset value per ordinary share and the net asset values
attributable at the year end calculated in accordance with the Articles of
Association were as follows:
2014 2013
NET ASSET NET ASSETS NET ASSET NET ASSETS
VALUE ATTRIBUTABLE VALUE ATTRIBUTABLE
£'000 £'000
Ordinary shares (24.6)p (37,674) (22.9)p (34,988)
Net asset value per ordinary share is based on net assets at the year end and
153,000,000 ordinary shares, being the number of ordinary shares in issue at
the year end.
(b) Reconciliation of consolidated NAV per share to adjusted NAV:
2014 2013
PENCE PENCE
PER SHARE £'000 PER SHARE £'000
Consolidated NAV per accounts (24.6) (37,674) (22.9) (34,988)
Adjustments:
Deferred tax liability 4.2 6,409 8.3 12,761
Interest Rate Swaps 0.9 1,474 3.1 4,670
Adjusted NAV (19.5)p (29,791) (11.5)p (17,557)
The adjusted NAV is per the European Public Real Estate Association (`EPRA')
measure, published in August 2011. The EPRA NAV per share excludes the fair
value adjustments for debt and interest rate derivatives, deferred taxation on
revaluations, capital allowances and goodwill.
6. Related party transactions
No director has an interest in any transactions which are or were unusual in
their nature or significant to the nature of the Group. The Directors of the
Group received fees for their services. Further details are provided in the
Report of the Directors.
On 31 March 2008, the Company entered into an agreement with Invesco Limited
(`Invesco'), the parent company of the Investment Manager, under which Invesco
agreed to provide a credit facility of up to £10 million at 8% per annum. The
facility agreement was amended on 31 March 2011, extending the termination date
to 28 September 2014. No further interest will accrue on amounts outstanding
and no further draw downs are available. At the year end £2 million had been
drawn down and £0.3 million of interest was accrued (2013: £2 million drawn
down and £0.3 million accrued).
On 17 June 2013 the Company's Luxembourg subsidiaries entered into agreements
with IREM, an Invesco group company, for the provision of administration and
company secretarial services. Fees payable to IREM amounted in aggregate to up
to £165,326 (plus VAT if applicable) to be adjusted annually by reference to
inflation.
As disclosed in the Report of the Directors, Mr. Angus Spencer-Nairn retired on
31 December 2009 as the Senior Partner of Rawlinson & Hunter Jersey, which owns
R&H Fund Services (Jersey) Limited (`R&H'), the Company Secretary and
Administrator appointed on 30 March 2007. Mr. Spencer-Nairn retired as a
director of R&H on 1 January 2010. R&H were paid fees of £65,000 (2013: £
60,000) and out of pocket expenses.
7. Subsequent Events
Three of the assets classified as held for sale were sold post financial year
end providing net proceeds of £13.9 million which was applied to debt
reduction, and a further asset, Le Verdun has exchanged contracts to complete
in December 2014 for q5.0 million. The Company also repaid £7.5 million and £12
million of bank borrowings from proceeds of sales completed prior to the
reporting date.
The cross currency swaps have been settled subsequent to the year end. The
liability of £7.761 million owed on closing has been transferred, with the
agreement of the lending bank, to the loan balance. In addition the remaining
sterling interest rate swaps expired in September 2014.
On 14 October 2014 the lending bank granted a three-month extension to the
facility beyond 28 September 2014, and has agreed with the Company proposals
for: (a) the sale of the remaining property assets by 31 December 2014; (b) a
creditor standstill during the sales process; (c) provision to be made for
trade and other unsecured liabilities, actual and expected, to be met; and (d)
loan amounts outstanding following such provision and the repayment of the net
sales proceeds to be treated as no longer owed by the Group. This would allow
the Company and its subsidiaries to wind up solvently.
.
The audited Annual Financial Report will be posted to shareholders shortly.
Copies may be obtained during normal business hours from the Company's
Registered Office, Ordnance House, 31 Pier Road, St Helier, Jersey, JE4 8PW and
will be available shortly from Invesco Perpetual on the following website:
www.invescoperpetual.co.uk/investmenttrusts
The Annual General Meeting will be held on 24 February 2015 at 12 noon at
Ordnance House, 31 Pier Road, St Helier, Jersey, JE4 8PW.
By Order of the Board
R&H Fund Services (Jersey) Limited
Company Secretary
18 July 2013
Enquiries to:
Invesco Asset Management Limited
Angus Pottinger
020 3753 1000
Rory Morrison,
020 7543 3581