UNITED STATES - Invesco Real Estate may cease issuing quarterly distributions to investors in its Invesco Core Real Estate Fund during the third quarter, in favour of building additional cash reserves for the fund.

Invesco executives believe the move is necessary to cover debt and other operating needs for the commingled fund during the real estate market downturn

According to the commingled fund's documents: "It will be the fund's objective to reinstate the quarterly distribution as soon as it is able to ensure reserves for debt and operating needs are met within the context of the current operating environment."

The asset manager had reduced the dividend it had paid out to investors over the last two quarters, as the total dividend was $14m (€9.6m)  in the first quarter, followed by just $10m in the second quarter, equating to a 2.4% yield on an annualised basis.

Sales of assets would be a traditional way for commingled fund managers to build a cash reserve however officials say this is not really an option for many commingled fund managers at present as the value of properties are still dropping, leaving property holders either with little interest from buyers or properties which have to be sold at a loss.

This is exactly the scenario Invesco faced earlier this year as it sold the 360-unit Seven Pines Apartments in Alpharetta, Georgia for $16.7m, yet the property had previously been valued at $20.9m, resulting in a 20.1% loss for the commingled fund and an unleveraged return on the asset since it was acquired in 2007 of -24.9%.

One change which Invesco has made concerning the operations of the commingled fund was to value all of the assets on a quarterly basis from the second quarter of 2009. It resulted in a write-down on the portfolio of $379m for the quarter and represented a 12.5% drop in value of the entire fund on a gross unleveraged basis.

Through the second quarter, Core Real Estate Fund had a gross value of $2.77bn and a net value of $1.89bn.

The commingled fund currently has 57 investors, one of which is the Ohio Police and Fire Pension Fund. It made a $200m investment into the commingled fund in January 2008 and the pension fund had valued this investment by July this year at $204.8m.

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