Final Results

Caledonian Trust PLC
21 December 2004

For immediate release                    21 December 2004



Caledonian Trust PLC

Results for the year ended 30 June 2004



Caledonian Trust PLC, the Edinburgh based property investment holding and
development company, announces its audited results for the year to 30 June 2004.





CHAIRMAN'S STATEMENT

YEAR ENDED 30 JUNE 2004



Introduction


The Group made a profit of £434,662 in the year to 30 June 2004 compared to
£507,967 last year.  NAV per share rose by 3.3p to 173.9p.



Income from rent and service charges was £614,735, less than the £962,587
received last year which included £426,000 income from St Margaret's House,
Edinburgh before the lease determined in November 2002. The margin from trading
property sales was £408,943, almost wholly from our Weir Court residential
development, compared to £199,670 last year and this year there was an
investment property sale, Clark Street, Paisley, yielding a profit of £584,291.
Administrative expenses rose by £459,993, due primarily to an increase of almost
£305,000 in property costs of which £228,000 relates to the vacancy of St
Margaret's, and increased insurance and professional fees of which St Margaret's
accounted for £80,000.



Net interest payable rose by £35,500 due to the temporary  reduction in cash
balances to fund investment and trading but sales have resulted in a cash
balance of £6,312,760 on 30 June 2004 compared to £5,233,211 last year. The
weighted average base rate was 3.83%, marginally lower than the 3.90% for the
year to 30 June 2003.



On 30 June 2004 the Group's portfolio comprised by value 49.3% office investment
property (of which 68.4 % is open plan) 22.9 % retail property, 3.1% industrial
property, 19.2% development property and 5.5 % trading property.



Review of Activities



The Group's current property activities, which are primarily directed towards
niche opportunistic investments with medium-term development prospects, continue
to be varied and the result of our shift in strategy over the last few years is
becoming evident.



There have been no significant changes to our Edinburgh New Town investment
portfolio. The La Tasca restaurant in South Charlotte Street appears to continue
to trade well and is highly reversionary and the first review of the 25 year
lease is in 2006. In 61 North Castle Street work started in October 2003 on a
complex structural overhaul and the redevelopment of the upper two floors and
the attic into two large flats entering off the original staircase at 59 North
Castle Street. The lower flat sold soon after completion in July 2004 for
£295,500 and the upper flat is currently under offer. Plans are being considered
for the remaining two floors in 61 North Castle Street which await
refurbishment.




Our largest investment property in Edinburgh, St Margaret's House, a 92,845ft2
open plan office was let to the Scottish Ministers until November 2002. Plans
for refurbishment to varying office specifications have been prepared together
with proposals to remodel the facade. We have been advised that the property
could most advantageously be marketed in smaller units into which the building
could be easily sub-divided, as each floor of about 11,000ft2 is virtually
self-contained and could be divided into two wings of 4,500ft2 and 6,500ft2,
both capable of further sub-division. The building's specification is similar to
that of St Magnus, Aberdeen, where we previously carried out a full
refurbishment including air handling, suspended ceilings, and raised floors to
create the British Council of Offices award winning 'best office fit out' in
2001. Total occupation costs, rents, rates and services are budgeted to be
significantly below the current new Grade 'A' Edinburgh prices. As St Margaret's
is located near the new Parliament and the city centre, has a prominent frontage
to the A1 and a very generous parking ratio of one space per 550ft2, the
refurbished building should be attractive to a wide range of occupiers.



Unfortunately progress at St Margaret's has been delayed by the outstanding
dilapidations claim for over £4m. We served a draft final dilapidations schedule
on the Scottish Ministers in December 2002 and raised an action in January 2003
for damages in the Commercial Court.



After various and protracted legal procedures Lord McKay set a proof for 18
January 2005 in the Commercial Court. We are now working with Colin Campbell QC,
formerly Dean of the Faculty of Advocates, Junior Counsel, our solicitors and a
wide range of expert witnesses to prepare for the proof. Our advice, and our
understanding of the contract and the established practical interpretation of
the meaning of 'full repairing and insuring leases' all favour our contention.
Legal precedents are however few, usually ancient and sometimes ambiguous.



Our investment property near Waterloo, London at Baylis Road/Murphy Street
offers similar refurbishment potential to St Margaret's. Plans had been made for
its refurbishment, but in view of the tenant's request for a further lease
extension until 2005 and the very weak office market in that part of London, we
have delayed work until market conditions improve. Like St Margaret's the
properties are suitable  for letting as a whole or in part and, as Murphy Street
is open plan with good access, it is suitable for either office or distribution
use.



Planning and design work is nearly complete for our proposed development of 202
flats on our property at 100 West Street, Tradeston, Glasgow  which is currently
let to Western, a Saab franchise. Tradeston is a rapidly improving area adjacent
to the M8 and to its junction with the proposed extension of the M74 and less
than 600 yards from the Broomielaw development, Glasgow's 'square kilometre'
financial services zone. 100 West Street is adjacent to a very a successful
development by Barratt of 370 flats which is due for completion next year.



I reported in the Interim Statement in March that we had completed two purchases
in January 2004. In Paisley we acquired a 133,00ft2 warehouse on a 5.7 acre site
off the market. This site, across the M8 from Glasgow Airport, is highly visible
and easily accessible from the motorway. Shortly after marketing the property to
let we received an attractive proposal from a neighbouring airport-related user
to purchase the site and in April 2004 we completed a £2.0m sale of the
property, yielding a profit on the transaction of £584,291. The second purchase
from PPL Therapeutics PLC, was of St Clements Wells, a 200 acre East Lothian
farm bordering the A1 just east of the A1/City Bypass interchange. The farm has
two large modern sheds totaling 28,000ft and planning permission for an
additional 32,000ft2 .  While marketing the sheds to let during the summer we
received an unsolicited approach from a local livestock farmer to purchase the
farm for about £5,000 per acre, or 47% above the cost, to which we agreed and
the sale completed in July 2004.



Three further investment property purchases have been completed. In June, after
a two year negotiation, we purchased a small industrial investment in Dyce,
Aberdeen with a large frontage to the A947 on the roundabout between the
existing BP HQ and their previously proposed new HQ on our former Stoneywood
Business Park site. This site may become strategically important and currently
yields almost 9%. In July 2004 we purchased a vacant warehouse in Ashton Road,
Rutherglen for refurbishment and re-letting. The property is adjacent to the
line of the proposed M74 extension in South Glasgow to join the M8 at the
Kingston Bridge. Total costs are expected to be approximately £1m and the yield
10% on current values. In September 2004 we purchased for £295,500 a very small
industrial/retail investment yielding about 9% in an improving residential area
on the edge of Kirkcaldy adjacent to the A92 dual carriageway.



Our site in Wallyford, where we are seeking planning permission for eight
detached houses, borders Musselburgh and is within 400 yards of the main line
station with easy access to the A1 near the City Bypass. Planning permission
followed by a site start in a contiguous area for 280 houses is expected shortly
which should greatly enhance our site.



We expect to gain planning consent for a much larger development near Dunbar
next year. We own one site which should accommodate 17 houses and have under
option two other sites for 29 and 22 houses respectively. In common with many
other sites in Scotland water and sewerage services are inadequate and require
upgrading, which in order to expedite consent we have agreed to fund. The dual
carriageway section of the A1 from Edinburgh has recently been extended from
Haddington to Dunbar and a further small section is nearly complete. Plans have
been proposed for a superstore and a budget hotel adjacent to the A1 immediately
south of Dunbar which, if implemented, would be beneficial. Over the last few
years housing developments comprising several hundred houses have been completed
on the south side of Dunbar and the existing sites are largely 'built out'.



In Edinburgh at Belford Road, where we hold a consent for 22,500ft2 Grade A
office development, we continue to consider residential proposals for this
difficult site. The most recent proposal for about 18,000ft2 of residential
development plus car parking is almost within the existing planning envelope but
necessitates extensive structural site works to provide car parking.



Economic Prospects



The Economist reports that World GDP is growing at its fastest rate for almost
30 years and that for the first time since 1980 the fifty five economies
monitored are all growing. Growth rates in these different countries are much
more synchronised than previously with only +/- 1% point growth from the mean
covering 67% of economies compared with about +/- 4% points in the 1980s. Next
year even more synchrony is expected as the fast-growing American and Asian
economies slow and some European economies improve. The Economist Intelligence
Unit (EIU) expects world economic growth to be 4.9% in 2004 before slowing to
4.3% in 2005 and 4.0% in 2006.



The EIU report states that persistently high oil prices threaten economic
activity and their forecasts are based on average Brent Oil prices of $36 in
2004 and $32 and $28 in subsequent years. The oil price which was briefly below
$20 in late 2001, averaged $25.0 and $28.8 in 2002 and 2003 respectively, but in
2004 rose from about $30 to $52.20 in October 2004 before falling back to below
$40.62 recently. Recently some 'spot crude' was available at $32.



Early in 2004 most forecasts were that oil would average $22-28, significantly
below current estimates. The Bank of England suggests that higher recent and
future estimated oil prices are not based primarily on supply restrictions or
shorter term supply interruptions resulting from, for example, the Iraq war, but
on further increases in world oil demand which is now estimated to grow by 3.5%
this year as opposed to the earlier estimate of 1.5%. This increase in demand
cannot easily be met by non- OPEC producers, where because of higher costs and
taxes, up to 15% of producers require over $30 a barrel for an 8% return.
Futures currently reflect a long-term oil price of about $35, the price forecast
by Consensus Economics, up $15 from the average level in the 1990s.



Fortunately any rise in oil prices should be much less damaging than the shocks
of 1973-74 and 1978-80 when prices quadrupled and then trebled, as even at the
recent peak, real oil prices were less than half previous levels. Oil is priced
in US $ and the fall in the $ since 31 December 2002 has reduced the Sterling
price by 22.3%. Moreover the economy is less reliant on oil as about a third
less is used per unit GDP than in the 1980s.  Oil prices in the mid-$30s are
above those used in the EIU forecast, but as Goldman Sachs estimate that a 10%
rise only reduces world GDP by 0.3% points lagged by a year, the expected change
in the oil market is consistent with the EIU's positive world growth forecast.



The other major risks to the world economy are both related to economic
conditions in the US. The US economy has enjoyed the biggest monetary and fiscal
stimulus in decades leading to a large rise in consumption supported by debt
whose servicing costs comprise a record 20% of disposable income. Recently
almost two thirds of GDP growth came from a fall in the savings rate to 0.4% of
disposable income.  However as this stimulus is withdrawn and interest rates and
taxes rise there is a risk that private savings will rise sharply provoking a
contraction in private consumption and delivering a major demand shock to the
world economy.  Fortunately a recent survey shows retail spending, housing sales
and confidence rising and industrial production was up 5.2% in October and
growth is forecast to fall slowly from 4.3% this year to 3.4% in 2005 as a slow
adjustment takes place.



A larger threat to the world economy is from a sharp adjustment of the US
current-account deficit linked to the massive monetary and fiscal stimulus which
has grown to nearly 6% of GDP and which  has coincided with  a recent fall in
the $ average exchange rate of about 17%. On  19 November 2004 Alan Greenspan
said 'given the size of the US current account deficit, a diminished appetite
for adding to dollar balances (i.e. foreign holdings of dollars) must occur at
some point' and he rejected a possible central bank alliance to support the $
saying 'such intervention does not have a large impact on exchange rates'. These
comments led many economists to predict further larger $ falls, say 15%, but at
differing rates between currencies. A quarter of the US $124 billion trade gap
is with China but the Renminbi is subject to Government exchange control and any
adjustment is likely to be small, possibly up to 3%. The largest fall is likely
to be against the Euro where the current rate of $1.30 per euro could rise to
$1.50 or even $1.70 with Sterling showing a lesser appreciation from $1.86 to
$2.00.



Reduction of the US current account deficit will require a shift in resources
from domestic consumption into exports which could only partly be achieved by
depressing consumption and GDP.  According to a recent study a 6% reduction in
demand, equal to the current account deficit, would only reduce the current
account deficit to 4.2%, but as it would also lower the demand for domestic
products not traded, i.e. not in the current account, it would reduce GDP by
4.2%. The reduction in demand required to eliminate the deficit by suppressing
demand is 17% which would result in an unthinkable 1930s type depression.



A US $ devaluation, possibly with some demand reduction, is a less dramatic
means of reducing the deficit. Some forecasters expect falls of 15% but
economists at UCLA suggest that a depreciation of up to 34% would be required if
the deficit were to be eliminated by exchange rate adjustment alone. The current
deficit is financed by the rest of the world's 'dollar balances'. Provided the
rest of the world accepts the deficit level or the speed of change, the
depreciation of the $ can be smaller or slower or both. The US economy has
adapted to large swings in the $ value frequently over the last 20 years
including a drop of 40% in the mid 1980s which had few ill effects. Thus,
provided a steep fall is avoided, precedence indicates the US economy should
adjust relatively easily.



The effects on other economies however may be more serious. For instance while
in the 1980s the effect of the $ fall on the US was relatively benign it had a
significant role in creating Japan's economic bubble as Japan lowered interest
rates to mitigate the deflationary effect of the rising Yen. In the current $
realignment the Euro seems likely to make the largest percentage rise against
the $ but unfortunately the Euro group contains Germany and France, the least
flexible of the developed economies with already the highest unemployment, where
even a slow rebalancing of the US economy will have unfavourable deflationary
consequences. Fortunately Sterling's rise against the dollar is likely to be
lower than the Euro's which, combined with the current greater flexibility of
the UK economy, will limit the damage.



Economic forecasts for the coming year discount a major economic shock, but a
not insignificant risk remains. It is salutary to note that the IMF has shown
that of the 60 recessions around the world in the 1990s only two were predicted
by private sector forecasts a year in advance.



The likely good outlook for the world economy provides a benign background for
the UK economy.  UK growth was estimated by independent economists to be 3.5% in
the first half of 2004 but was expected to slow gradually to 1.9% in the second
half of 2005. The main domestic risk to the economy comes from the household
sector, specifically from a possible collapse in house prices. In recent years
consumer spending has been supported by rising levels of debt and the ratio of
household debt to income exceeds levels reached in the late 1980s prior to the
last recession. Due to current lower interest rates debt servicing costs are
lower than in the 1980s but a significant drop in house prices caused by further
increases in interest rates, rising unemployment or, more likely, a change in
perception or sentiment on the future course of house prices could initiate a
consumer retrenchment



Credible predictions of imminent falls in house prices have been made for at
least a year when for example Capital Economics, who analysed UK prices as being
50% overvalued, forecast a 20% drop over three years, but most other forecasters
were guardedly optimistic.  Nationwide have suggested a gentle slow down,
Bradford & Bingley a 7% rise and Hometrack a 4% rise adding, colourfully: 'There
is more chance of finding Elvis on the moon than there is of a price crash next
year'.



Confusingly, the optimists appear to have been both right and wrong. In the year
to September 2004 Halifax reported a rise of 20.5%, Nationwide 17.8%
Academetrics 16.8%, Lloyds TSB Scotland 20.4% and Edinburgh Solicitors Property
Centre 11.2%. However, recent month to month comparisons from the Halifax and
the Nationwide surveys showed price falls in September 2004. Indeed, Hometrack,
which surveys house prices about 12 weeks prior to the stage used by the
Building Societies, has reported declining prices for the last 4 months. Almost
all economic analysis now suggests that the housing market is overvalued, but
there is no consensus as to how far house prices are from fair value, and large
declines of 10-15% have been forecast by Deutsche Bank, of 20% by Capital
Economics and of 30% by the National Institute of Economic and Social Research.



This time the pessimists seem likely to be proved correct as the factors
producing the current slow down will not be easily reversed. Interest rates as
measured by Sterling futures are unchanged until at least December 2007; and
projected economic growth falls in 2005 and 2006; Hometrack report 'reducing
consumer confidence in the future housing market suggesting more house price
falls over the coming months'.



In the RICS September survey 56% of surveyors reported price falls and only 3%
reported rises, the worst result since 1992, and, although until recently the
Bank of England predicted house price growth would slow to zero over the next
two years, in the November review the Governor cautioned that the downward
adjustment of house prices might continue for two-to-three years, a statement
viewed as further undermining confidence in the housing market.



A minority of commentators, including Capital Economics and HSBC view the
current housing market as an asset bubble, and the continued growth in bubbles
depends crucially on the expectation of future growth, which once removed tends
to prick the bubble: pricked bubbles do not 'plateau'. The housing market has
produced bubbles before as every previous sharp real rise since 1960 has been
followed by a burst. The monthly profile of real house price inflation up to and
including the first monthly drop in price in 1988-1990 is remarkably similar to
the profile up to the first drop in price in August 2004 in the current cycle
indicating the start of steeper falls.



House 'wealth' is by far the most important asset for the majority of the
population and it seems self evident that feeling 'poorer', usually
significantly so due to gearing, would have a direct affect on confidence and
consumption. The Bank of England, which describes the housing market as
'unsustainably high' has however recently demonstrated that, despite there being
a high correlation between annual real house price inflation and annual
consumption growth until as recently as 2001, there is now a low correlation.
Thus in the Inflation Report the Bank concludes 'spending growth is therefore
expected to ease only moderately despite a sharp slowing in house price
inflation'. The Bank has cogent arguments for the dramatic change in
correlation. However, the recent correlation has not been substantiated by a
downturn in the housing market and only appears quite suddenly from 2002!
Indeed the Bank's Chief Economist regards the change in correlation as
'untested'.  Falling house prices, lower consumer confidence, increased savings
and reduced Mortgage Equity Withdrawal will reduce consumption and this will
occur even when other economic conditions are relatively stable.



Capital Economics takes a contrary view to the Bank of England stating: 'as and
when the bubble bursts in the UK, the consequences will be .... serious' and
savings will rise and consumer spending growth will slow sharply from 3.0% now
to 1.0% next year and 1.5% in 2006 leading to a lower growth in GDP than the
consensus forecasts of 2.5%. The EIU also thinks it is likely that house prices
will fall in nominal terms and that consumers will retrench.



The analysis of the housing market and its effect on the UK economy yields a
remarkable consensus: whether the housing market is stable or falls rapidly the
overall immediate economic consequences are not overwhelming - an undesirable
movement of up to 1% point in GDP growth, but no recession. Bank of England
longer term growth forecasts are favourable, showing GDP growth rising for two
years after a dip in 2005, and the central case inflation rate to be about 2%
based on market interest rate expectations showing interest rates close to their
peak for this cycle.



UK economic conditions are favourable. Externally, prospective high oil prices
and a very rapid change in the structure of the American currency appear
unlikely and even if these conditions are realised they are likely to be of
limited damage to the UK. Internally, the prospective fall in house prices,
which is likely to be severe in some areas, will at worst lead to reduced growth
in GDP.



Property Prospects



In the year to September 2004 the CB Richard Ellis (CBRE) All Property Yield
Index fell 0.8% points to 6.4% as all component sectors of the index fell,
notably in shops by 1.1% points to 5.6%. The 10 year Gilts' yield was 4.8%
giving a narrower yield gap of 1.6% points compared to 2.6% points last year.
The rental index, which had fallen for six consecutive quarters until earlier
this year, has now risen 1.1%, the highest annual growth rate since 2002. The
five year compound growth rate is only 2.9%, barely above inflation. Since the
1990 market peak the All Property rental index has risen 16.0% but in real terms
has fallen by 20.4%. In real terms offices have fallen furthest, 37.8%, with
most central London areas half their previous peak except for Docklands where
real rental values have been maintained. Retail warehouses rentals have risen by
a very remarkable 64.1%.



The fall in yield to 6.4% together with a return to rental growth except for
offices, has produced excellent total returns. In the twelve months to October
2004 the IPD index showed total returns of 17.4%, retail 20.4%, office 11.9% and
industrial 16.6%.  These returns compare with 11.6% for equities and 7.0% for
gilts. In the last three, five and ten years total returns in property have been
higher than the other two categories, the difference from equities being most
marked over five years i.e. from 1999 before the Stock Market crash. The
difference from gilts has been most marked over the last twelve months as gilt
yields are broadly unchanged since September 2003 (4.63% - 4.79% Sep 2004). Over
all the above review periods retail returns have been the highest, with the
single exception of industrials over ten years (11.6.%), and office returns the
lowest.



The stock of investment property changes only very slowly, and an increase in
demand quickly affects prices. The high returns from property compared to
equities, especially following the Stock Exchange crash, have increased demand
for investment property. Before the recent rises in Bank Base Rate Knight Frank
reported that demand was largely fuelled by debt-driven investors arbitraging
between interest rates and yields. From 2001 until early 2004 UK institutional
investment in property was almost absent. However, this year institutional
investors have returned and UK institutional net investment which was £500bn in
late 2003 was £1,500bn in the most recent quarter.



Property returns comprise an income return (rent) combined with changes in
capital value, the capital value being the product of the yield and the ERV.
Rental growth is dependent on but lags economic growth which is forecast at 2%
to 3%. Cluttons expect only the retail sector to experience any rental growth, a
nominal 2%. CCRE expect 2.4% rental growth overall with the All Retail ERV up
3.9%.  Both forecasters expect no further drop in yields in 2005 producing
overall returns of 8.0% to 9.5%. Investment Property Forum surveys twenty-four
property advisors, fund managers and equity brokers whose average projected
total returns are 9.0.% for 2005 and 8.2% for 2006 resulting from 2.1% to 2.6%
rental growth and continuing small falls of 0.1% to 0.2% in yields.



All Property yields have stayed constant from year to year only once in the last
28 years - at 8% from 1982 to 1984. There was a golden age from the earliest
CBRE record in 1973 until Q4 1997 when, apart from a brief period following the
UK's expulsion from the ERM in 1992, property yields were below gilt yields.
However, with gilts yielding about 4.8% the 'golden age' is unlikely to recur
unless rental growth is spectacular and quite contrary to forecasts and seems
unlikely in a low inflationary environment with GDP growth already past its peak
for this cycle.



Indeed, factors which have limited the recovery of real rental growth since the
last 'peak' continue to operate and also impinge on yield. Obsolescence and
depreciation have become of increasing importance, significantly reducing
returns but, with costs hidden or long delayed, are often not priced into the
current market, particularly for offices. For instance the ERV of a newly built
UK office building falls 20% compared to new prices within five years and
reduces growth in ERV in a widely based portfolio by about 1.2% to 1.4%
annually.



Compared to the 1980s supply has often become less restricted. Planning consents
particularly for offices have been eased, increasing supply and in some cases
traditional/locational prejudices and preferences have weakened, increasing the
appeal of previously shunned areas. Free of localised restrictions, low cost
supply outside established areas reduces rents in established areas, as has
happened to the City Centre office markets in London and Edinburgh with the
development of Docklands and Edinburgh Park respectively. Supplies of retail
space have also increased out of town while shopping parades form an alternative
to the High Street and provide appropriate layouts and scale often unavailable
in the High Street. Such increased supply together with some obsolescence limits
High Street rental growth.



In spite of the likelihood of restricted rental growth some forecasters expect
property yields to drop marginally in 2005 and 2006 even without any substantial
fall in interest rates. However yields are likely to rise again shortly
thereafter. The current wave of investment is partially resulting from the
beneficial yield effect from the waves of previous investment, a momentum effect
which tends to reverse over time. There is considerable anecdotal evidence that
a larger than usual percentage of investment has taken place both by private
individuals and by institutions into properties where conventional analysis
would have required higher yields to achieve target returns.



The Scottish Office Investment market in the twelve months to August 2004 has
performed less well than other Scottish markets and returned 9.5%, as a result
of falling yields more than offsetting lower ERVs. Ryden's report indicates that
Edinburgh has been the best performing market and Glasgow the worst. Take up in
Edinburgh in the six months to September 2004 was 500,447ft2 above the
401,469ft2 of last year but still less than the 600,000ft2 averaged for 4 years
from 1997. Supply is down 564,554ft2 to 2,310,197ft2 or about two years uptake
at recent rates. City headline asking rents are unchanged at £27 but down 10%
from the recent peak and West Edinburgh shows a further weakening to £18 and
£19, thus reverting to the previous one third discount to the City Centre.
Actual rents after incentives are probably significantly less. The asking rent
of £27 is similar to the previous peak but only represents 73% of it in real
terms. Prospects for rental growth do not appear favourable, especially for
larger Grade A properties. Some traditional occupiers such as Royal Bank of
Scotland and Standard Life are more likely to release space than to take it up;
the Royal Bank of Scotland are completing their own large HQ at Gogar in West
Edinburgh, while Standard Life are in the process of reducing staff. Supply will
also be increased by buildings under construction in the City Centre and
increasingly by more building in areas peripheral to Edinburgh, but serving a
proportion of traditional Edinburgh occupiers, such as Livingston, Fife and
North Midlothian.



Glasgow rents are also broadly unchanged. However, take-up for the last six
months is the lowest in this period since September 1993 and the average twelve
months take-up for the last two years is the worst since the trough in the
office market in 1993 and not surprisingly, supply is at the highest level since
1993. Unlike Edinburgh the supply in Glasgow comprises a wider range of
qualities including refurbished second hand space priced at 20% to 30% discount.



In Aberdeen recent uptake of 180,992ft2 has been just above last year's uptake
while supply at 1,140,633ft2 is below last year's peak. The recent rise in oil
prices and the prospect of future prices of $30 and above will understandably
make currently marginal reserves worth extracting and increased economic
activity is likely. However, North Sea Oil and Gas output which peaked in 1999
at 4.5m bpd is expected to be 3.7m bpd this year and 2.5m bpd by 2010 indicating
long term decline



In contrast to the commercial property investment market, particularly the
office market, the residential market continues to offer long term attractions.
In the residential market supply in new locations is usually restricted,
primarily by planning restrictions and the slow administration of the planning
system. Government planning policy is ambivalent: on the one hand streamlining
and simplification is proposed; but on the other hand third party appeals are
proposed and wider consultation is required. Consumer groups are becoming
increasingly vocal and better organised, supporting environmental and green
policies, nimbys and mobilising specific ad hoc opposition.



The planning system is convoluted, often under-staffed and frequently without
direction, or with conflicting policies.   This all adds to the probability of
delay and to the length of any such delay.  A fundamental liberalisation of the
planning system appears unlikely and without such a change the supply of
residential property will continue to be restricted.



The long-term requirement for new houses is considerable although variable among
areas. In the Edinburgh area, for instance, households are expected to rise by
65,600 in the 15 years to 2015 or by 19.3%. A huge rise in households is
expected in the South East of England. In contrast, in a very few areas reduced
house numbers are required, usually in declining industrial cities.



A large long-term requirement for houses facing a restricted supply results in
rising prices, as indeed has been occurring. However, short-term considerations
such as high unemployment, rising or high interest rates, lower rents and lower
future price expectations reduce shorter term demand, leading to falling prices,
as is becoming evident.



Dresdner Kleinwort, who are expecting significant price falls, have undertaken
an analysis of house price 'overvaluation' based on traditional price/earning
ratios.   This analysis estimates that low earnings areas in England such as the
North East and the South West are over 50% overvalued and high earnings areas
such as London and the South East are 40% and 37% overvalued respectively. In
contrast Scotland's overvaluation is only 12%, so even if significant overall
falls do take place Scotland's downturn should be limited. The housing market
continues to offer good long-term prospects, especially in Scotland.



Future Progress



The Group expects the current year's results to be satisfactory but, as ever,
there is a wide range of possible outcomes. Rental income has stabilised while
development and trading profits are likely to be similar. Property costs, due to
the vacancy at St Margaret's, continue at high levels, and professional fees are
being incurred at a higher rate than last year. The full outcome for the current
financial year will be dependent upon any net change in valuation.



We continue to pursue our claim for over £4m damages against the Scottish
Ministers. A proof is set in the Court of Session commencing on 18 January 2005
and the judgment can reasonably be expected next year. Our future interests are
concentrated on the acquisition or creation of more development opportunities,
realisable within a five-year period, and their subsequent development. We
continue to assess and negotiate for such opportunities and we expect to be able
to add to this development portfolio during the course of the year.



The mid-market price is currently 135p, a discount of 22.4% to the NAV of
173.9p. The Board recommends an increased final dividend of 1.25p, making a
total dividend of 2.25p for the year, and we intend to increase the dividend at
a rate consistent with profitability and with consideration for other
opportunities.



No tax is provided for in the current year. The Group currently has tax losses
and allowances carried forward of almost £977,000.



Conclusion



In spite of higher oil prices the UK economy should continue to grow next year
at a rate of over 2%, about trend level, but below this year's estimated 3.2%,
unless there is a unexpected major shock associated with the US economy or an
adverse response to the expected house price falls. In general investment
property seems highly priced and rental growth is likely to continue to be
limited. The longer-term market conditions for residential property are very
attractive, notwithstanding a prospective short-term downturn in price the
extent of which should be limited in Scotland.





I D Lowe

Chairman

21 December 2004


Consolidated profit and loss account

for the year ended 30 June 2004


                                                                       2004            2003
                                                                       £               £

Income - continuing operations
Rents and service charges                                              614,735         962,587
Trading property sales                                                 1,541,833       360,000
Other trading sales                                                    375,866         367,243
                                                                       _______         _______


                                                                       2,532,434       1,689,830
Operating costs
Cost of trading property sales                                         (1,132,890)     (160,330)
Cost of other sales                                                    (363,642)       (346,761)
Administrative expenses                                                (1,129,258)     (669,265)
                                                                       _______         _______


                                                                       (2,625,790)     (1,176,356)
                                                                       _______         _______


Operating profit                                                       (93,356)        513,474

Profit on disposal of investment property                              584,291         -
Profit on sale of other fixed assets                                   -               10,169
Interest receivable                                                    229,731         344,264
Interest payable                                                       (286,004)       (365,037)
                                                                       _______         _______

Profit on ordinary activities before taxation                          434,662         502,870

Taxation                                                               -               5,097
                                                                       _______         _______

Profit for the financial year                                          434,662         507,967

Dividends                                                              (263,434)       (241,716)
                                                                       _______         _______

Retained profit for the financial year                                 171,228         266,251


Earnings per ordinary share                                            3.78p           4.41p

Diluted earnings per ordinary share                                    3.63p           4.24p

Profit for the financial year is retained as follows:

In holding company                                                     367,287         221,669

In subsidiaries                                                        (196,059)       44,582
                                                                       _______         _______

                                                                       171,228         266,251





Consolidated balance sheet

at 30 June 2004


                                          £               £              £               £
Fixed assets
Tangible assets:
Investment properties                                     19,301,974                     18,607,844
Other assets                                              4,190                          8,575
                                                          __________                     __________

                                                          19,306,164                     18,616,419
Investments                                               90,898                         20
                                                          __________                     __________

                                                          19,397,062                     18,616,439
Current assets
Debtors                                   122,031                        306,648
Cash at bank and in hand                  6,312,760                      5,233,211
                                          _________                      _________

                                          6,434,791                      5,539,859
Creditors: amounts falling

  due within one year                     (3,726,095)                    (2,215,551)

                                          _________                      _________
Net current assets                                        2,708,696                      3,324,308
                                                          __________                     __________

Total assets less current liabilities                     22,105,758                     21,940,747

Creditors: amounts falling

  due after more than one year                            (2,252,500)                    (2,302,500)

                                                          __________                     __________

Net assets                                                19,853,258                     19,638,247



Capital and reserves
Called up share capital                                   2,282,584                      2,302,053
Share premium account                                     2,530,753                      2,530,753
Capital redemption reserve                                175,315                        155,846
Revaluation reserve                                       376,221                        563,460
Profit and loss account                                   14,488,385                     14,086,135
                                                          _________                      _________

Shareholders' funds - equity                              19,853,258                     19,638,247






These financial statements were approved by the Board of Directors on 21
December 2004 and were signed on its behalf by:





M J Baynham

Director




Consolidated cash flow statement

for the year ended 30 June 2004


                                                                  £                           £
Net cash inflow from operating activities                         71,312                      691,545
Returns on investments and servicing of finance                   (18,323)                    (62,658)
Corporation tax                                                   -                           (769,902)
Capital expenditure and financial investment                      368,875                     (1,387,610)
Equity dividends paid                                             (241,636)                   (230,206)
                                                                  __________                  __________

Cash inflow/(outflow) before management of
liquid resources and financing                                    180,228                     (1,758,831)

 Financing                                                        909,321                     (1,760,193)
                                                                  
                                                                  __________                  __________
Increase /(decrease) in cash in period                            1,089,549                   (3,519,024)


Reconciliation of net cash flow to movement in net funds

                                                                  £                           £
Increase /(decrease) in cash in period                            1,089,549                   (3,519,024)

Cash (outflow)/inflow from decrease in debt                       (1,026,187)                 1,760,193
                                                                  _________                   _________

Movement in net funds in the period                               63,362                      (1,758,831)
Net funds at the start of the period                              1,753,228                   3,512,059
                                                                  _________                   _________
Net funds at the end of the period                                1,816,590                   1,753,228










Notes to the cash flow statement



(a)           Reconciliation of operating profit to net cash inflow from
operating activities


                                                2004                              2003


                                                £                                £

     Operating (loss)/profit                    (93,356)                         513,474
     Profit on disposal of                      (408,943)                        (200,000)
     trading property
     Depreciation charges                       4,385                            4,384
     Decrease  in debtors                       184,617                          174,500
     Increase in creditors                      384,609                          199,187
                                                _________                        _________


     Net cash inflow from operating             71,312                           691,545
     activities
                                                _________                        _________




Notes to the cash flow statement (ctd)



(b)           Analysis of cash flows


                                         2004          2004            2003             2003


                                         £             £               £               £
     Returns on investment and
     servicing of finance           

     Interest received                 229,731                         344,265
     Interest paid                     (248,054)                       (406,923)
                                        _________                      _________
                                                       (18,323)                        (62,658)

     Capital expenditure and
     financial investment
     Purchase of tangible              (3,081,201)                     (3,809,029)
     fixed assets
     Sale of investment                3,540,954                       2,411,250
     property
     Purchase of investments           (90,878)
     Sale of fixed assets               -                              10,169
                                       _________                        _________

                                                        368,875                        (1,387,610)
                                                       _________                        __________

     Financing
     Purchase of ordinary                                                       -
     share capital                     (116,866)
     Debt due within a year
     Increase/  (Decrease) in          1,076,187                        (998,635)
     short-term borrowings    .
     Debt due beyond a year
     (Decrease) in long-term           (50,000)                         (761,558)
     borrowings
                                      _________                           _________

                                                        909,321                         (1,760,193)








(c)           Analysis of net funds


                                At beginning of  Cash flow          Other non-cash     At end of year
                                year                                changes

                                £                £                  £                   £
      Cash at bank and          5,233,211        1,079,549           -                  6,312,760
      in hand
      Overdrafts                (99,729)         10,000              -                  (89,729)
                                                 __________
                                                 1,089,549

      Debt due after            (2,302,500)      -                   50,000             (2,252,500)
      one year
      Debt due within           (1,077,754)      (1,026,187)         (50,000)           (2,153,941)
      one year
                                                 __________          __________

                                                 (1,026,187)         -

                                   __________    __________          _________          __________

                Total            1,753,228        63,362             -                  1,816,590





Notes to the Audited Results for the Year Ended 30 June 2004

1. The above financial information represents an extract taken from the audited accounts for the year to 30 June 2004 
and does not constitute the statutory accounts within the meaning of section 240 of the Companies Act 1985 (as amended).
The statutory accounts for the year ended 30 June 2004 were reported on by the auditors and received an unqualified 
report and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 (as amended). The 
statutory accounts will be delivered to the Registrar of Companies.

2. All activities of the group are ongoing. The board recommends the payment of a 1.25p per share final dividend (2003: 
1.1p), which will be payable, subject to shareholder approval, on 25 January 2005 to all shareholders on the register on
31 December 2004.

3. Earnings per ordinary share


The calculation of earnings per ordinary share is based on the reported profit
of £434,662 (2003: £507,967) and on the weighted average number of ordinary
shares in issue in the year, as detailed below. The weighted average number of
shares has been adjusted for the deemed exercise of share options outstanding.

                                                                                 2004                  2003

Weighted average of ordinary shares in issue during year - undiluted         11,496,244            11,510,267

Weighted average of ordinary shares in issue during year - fully diluted     11,966,244            11,980,267


4. The Annual Report and Accounts will be posted to shareholders on or around 23 December 2004 and further copies will 
be available, free of charge, for a period of one month following posting to shareholders from the Company's head 
office, 61 North Castle Street, Edinburgh, EH2 3LJ

5. The Annual General Meeting of the Company will be held at 10 a.m. on 17 January 2005 at 61 North Castle Street, 
Edinburgh, EH2 3LJ.

END




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