Fears are growing that more UK property funds will undergo fire sales after Invesco Property Income Trust said it was forced to put £100m of assets on the market this week.
The closed-ended fund made the shock announcement after posting a 14.2% fall in net asset value per share for the six months to 30 September.
The trust said it was on the verge of breaking its banker’s agreed loan-to-value covenant of 65%. At present, it has drawndown debt facilities of £293.2m, which totals 63% of the company’s gross assets.
Invesco said it was in negotiations with its bank to change the covenant, and seek more headroom.
However, it also said it was in the process of negotiating the sale of £100m of assets, so it could pay down some of the outstanding debt.
The news has reignited fears that overstretched property funds are going to be forced to sell assets into a non-existent market.
Nan Rogers, analyst at Arbuthnot, said: “There is significant fear that funds are going to be forced to liquidate property. The feeling is that many of these funds are in danger of breaching their banking covenants.
“There is an awareness that the excess of redemptions compared with inflows has meant that funds have been selling, but most have a significant proportion (around 20%), which is liquid in property shares.”
“However, if shares keep falling, and inflows fail to meet redemptions, it increases the risk that funds will have to sell properties, or just close.”
Invesco Property Income Trust owns a diverse portfolio of assets throughout the UK and Europe, including 11 Old Jewry, London EC2.
