Final Results

TR Property Investment Trust PLC 1 June 2001 HENDERSON GLOBAL INVESTORS TR PROPERTY INVESTMENT TRUST PLC EMBARGOED FOR RELEASE AT 7.00 AM FRIDAY 1 JUNE 2001 TR PROPERTY INVESTMENT TRUST PLC UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 Highlights * The NAV total return of 35.9% compares with 28.8% from the FTSE Real Estate Index * Gross assets now exceed £400m and net assets exceed £ 300m * The share price total return has beaten the All-Share Index by 25% over three years and 40% over five years * Benchmark to be broadened to a Pan European basis 2001 2000 % As at 31 March £'000 £'000 Change Gross revenue 13,307 12,693 +4.8 Revenue pre-tax 8,204 7,488 +9.6 Shareholders' funds 342,556 265,168 +29.2 pence per pence per share share Revenue return - basic 1.58 1.41 +12.1 - fully diluted 1.54 n/a n/a Capital return - basic 19.03 4.89 n/a - fully diluted 18.52 n/a n/a Total return - basic 20.61 6.30 n/a - fully diluted 20.06 n/a n/a Dividends (net) 1.40 1.32 +6.1 Net asset value - basic 78.03 58.36 +33.7 - fully diluted 73.18 56.52 +29.5 Market capitalisation at 31 March £255.7m £205.6m +24.4 Share price at 31 March 58.25p 45.25p +28.7 FTSE Real Estate Index at 31 March 2,245.09 1,789.47 +25.5 % % NAV total return+ +35.9 +12.6 Share price total return+ +31.9 +7.6 Total return from quoted securities£ +35.0 +7.9 FTSE Real Estate Index total return* +28.8 -3.7 Total return from direct property£ +21.3 +22.5 IPD Monthly Index total return +9.1 +15.3 Source: +AITC/*Datastream/£WM Company - MORE - - 2 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 EXTRACTS FROM CHAIRMAN'S STATEMENT I am pleased to report that in the year to the end of March 2001 the total returns from the NAV and the share price were 35.9% and 31.9% respectively. These figures compare with a 28.8% total return from our benchmark, the FTSE Real Estate Index, and a 9.1% total return recorded by the UK direct property market. It was also a very good year for the Trust relative to the general UK market where the All-Share Index recorded a total return of minus 10.8% over the same period. As a sector specialist fund the Trust's performance is not formally measured against the All-Share Index, but it is satisfying to be able to report that the decision to invest in the Trust has borne fruit against the wider market. The share price beat the All-Share Index last year handsomely thanks to the renaissance in property shares and to the debacle in technology stocks in which we had no investments. It is more pleasing still to record that the share price has outperformed the FTSE All-Share Index by 25% over the last three years and 40% over the last five years. This was the first financial year in which the new fee arrangements were in place. The base management fee was reduced and a performance related element introduced. I am pleased to report that strong investment performance led to a performance fee of £2,527,000, representing some 0.74% of year end net assets becoming payable. UK Property Markets UK property shares not only had an excellent year in absolute terms and against the general market, but also easily outperformed the direct property market where the total return for the twelve months to end March was 9.1%. There were two principal reasons for this. The first was the dramatic switch in stock market sentiment away from technology related businesses and back to hard assets and real earnings. The second was the very high level of corporate activity within the property share sector. Takeovers, capital repayments and share repurchases resulted in the disappearance of over £5.25 billion of equity from the sector. The Trust was well placed in having large holdings in many of the bid targets (from which we derived some significant gains), but all this activity shrank the sector by nearly 25% and thus reduced the pool of UK quoted companies from which we can derive future investment opportunities. Expanding the Benchmark into Europe Looking to the future, the board has been examining ways in which the Trust can take fuller advantage of its size and management skills against the background of the internationalisation in capital markets and reduction in the size of the UK property share sector. Though the Trust has had an international exposure since 1982, the benchmark for performance measurement has been a purely domestic one. The board now believes that the benchmark should be widened to a Pan European basis. It sees Continental Europe as offering substantial medium and long term real estate opportunities. Real estate and property share markets there have underperformed the UK over the last seven years and have, in the past, lacked depth and sophistication compared with the UK. With the arrival of the Euro the notion of Pan European real estate business is becoming a reality. In size terms the UK and Continental quoted property share markets are roughly equal so that the UK will still form approximately 55% of the new benchmark. - MORE - - 3 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 The manager, Henderson Global Investors, has expertise in this area and is already running a number of funds with investments in Continental real estate and Continental property shares. We have agreed that the change in the benchmark will be made with effect from 30 September 2001, at the end of the first half of the current financial year. As the average yield on continental property shares is higher than the average yield on UK property shares, the change in the benchmark is likely to result in an increase in the Trust's investment income over the coming two to three years. Revenue Earnings and Dividends Turning back to the year ending March 2001, I can report that revenue earnings per share rose 12% to 1.58p per share (2000: 1.41p per share). The board now proposes a final dividend of 0.85p, which, added to the interim dividend of 0.55p already paid, produces a total payment of 1.40p per share, a 6.1% increase over the 1.32p paid last year. Share Buy-Backs The board is seeking renewal of powers at the AGM to buy back ordinary shares and warrants. During the last financial year a total of 15.65 million shares and 9.75 million warrants were purchased at a total cost of £9.6m generating a net enhancement in shareholders' funds of some £2.5m, equivalent to just over half a penny per share diluted. We have continued to use our buy-back powers judiciously subject to market conditions in the current year. Prospects UK commercial property markets are quiet and values are stable. A slower economy is likely to impact on tenant demand but vacancy rates are low and there is little speculative new supply in the pipeline. Declining base rates will also help to support capital values. UK property companies are in excellent financial shape and share prices are still modest enough to encourage corporate activity. Last year proved what an excellent diversifier real estate securities can be in equity portfolios. If we are now entering a period of slower growth with low inflation, real estate and property equities should be able to offer returns that can compete well with all other asset classes. Board The directors were pleased to welcome Mr Richard Stone to the board during the year. He has recently retired as a senior partner of PricewaterhouseCoopers and we will greatly benefit from his corporate experience. My own re-election to the board is proposed at the forthcoming AGM, but I intend to retire next year. - MORE - - 4 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 MANAGER'S REPORT It has been a great year for property shares all around the world. No more so than in the UK where the total return of 28.8% from the FTSE Real Estate Index beat the returns reported from property share sectors in all other major world markets and also outperformed the total return from the FTSE All-Share Index by 44%. The reversal of stock market sentiment towards value industries has been very strong, and two specific factors also greatly helped the UK property sector. The first was the very wide discount to NAV at which the sector was trading twelve months ago, and which has now reverted to more normal levels. The second and even more powerful driver of performance has been the substantial number of successful cash take-over bids over the last twelve months. Adding share buy-backs and capital repayments to the value of these bids, almost 25% of the sector vanished during the year. We said at the interim stage that some of the Trust's longer term investment policies had been partly laid aside to try to ensure that the portfolio was positioned to benefit from more than its fair share of the proceeds from bid activity. This we have succeeded in doing, but the pleasure of performance has been tinged with the knowledge that as each company went private, our investment universe was shrinking. Expansion into Europe The board has decided that TR Property should adopt a Pan European benchmark later this year. The new benchmark is to be the Schroder Salomon Smith Barney (SSSB) European Property Index in sterling, and will replace our current benchmark, the FTSE Real Estate Index, at the beginning of October. The SSSB Index has 94 constituent companies all domiciled within Europe and is based on free float weightings. The market capitalisation is some £37 billion (compared to the £23 billion total for the FTSE Index). The UK represents 55% by weighting and all of the 31 companies in our current benchmark are in the SSSB Index. The re-weighting of the portfolio has already begun and is expected to be handled gradually over the next twelve months when the timing of sales and purchases seem most appropriate. The average gross yield on the SSSB Index is 3.9% compared to 3.0% for the current benchmark. We are excited by this opportunity. Henderson is already managing third party funds specialising in Continental European property shares and the market is well known to the TRPIT management team. UK property shares have outperformed European property shares (ex UK) over the past five years, though over ten years the performance is more equal. We think that the benefits of this move will be considerable. Continental quoted real estate markets are expanding as structural changes transform the financial sector and pension provision grows. The advent of the Euro is pushing the Continental real estate industry away from fragmented national markets and towards a Pan European outlook. The taxation base, particularly in Holland and Belgium, is more favourable than in the UK. Discounts to asset values are, on average, slightly higher. Above all, the expansion of the benchmark will offer greater investment choice and more opportunites for arbitrage between equity markets. - MORE - - 5 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 The timing for the move is appropriate. In the UK the property cycle appears relatively mature after six years of good asset value growth. In general the Continent is well behind and property values are lower. Several cities, such as Berlin and Milan, have only recently seen the return of value growth after ten years of inactivity, whereas others, such as Dublin and Amsterdam, appear as mature as the UK. Continental planning controls vary but in most cities are as tough as those in the UK. Although leases are shorter, they are now much more comparable with the UK where lease lengths have shortened markedly over the last decade. All told, we see Continental real estate as better positioned for future growth than the UK market. The target range for our portfolio distribution will change with the new Index. The new targets will be 35% to 55% in UK equities, 35% to 55% in Continental equities, 0% to 5% non Pan European shares and 10% to 30% UK direct property. We will not be seeking to hold any direct property in Continental Europe. As noted, the average gross yield on the new benchmark is about 30% higher than the average yield on the UK property sector. An increase in our Continental equity holdings is expected to produce a useful uplift in our dividend income over the next two to three years. We now turn back to the report on the year just completed Distribution of Investments The spread of the assets has changed only modestly over the year. We brought back almost all our capital to the UK in late 1999 and early 2000, believing then that the UK offered excellent value and at the start of the year we held only 1.4% outside the UK. In the autumn we moved a modest amount of capital overseas, first to the US and lately out of the US again and into Europe, and ended the year with 5.8% overseas. Our direct UK property content remained below 20% until this spring when we increased the holdings slightly, ending the year at 22.5% of total assets. Unquoted dropped from 3.3% to 0.5% after the flotation of The Big Yellow Group. UK Quoted Shares Our UK property share holdings produced a total return of 35.0%, which compares with the 28.8% total return from our benchmark. Historically, the Trust avoided having significant holdings in the largest UK property companies, but in the spring of 2000 we greatly increased our weightings towards these 'majors' and these weightings were maintained throughout the last year. There has been a slight increase in the concentration of the portfolio over the year with the top 40 equity investments representing 74% of the gross assets and 90% of the net assets, compared with 72% and 88% at March 2000. Largest Holdings Changes in our largest quoted shareholdings have been modest. In our top ten holdings seven of the companies are the same as last year and the missing three - MEPC, Frogmore and Dencora - were all taken over for cash during the year. They have been replaced by Canary Wharf, Compco and Big Yellow - the latter as a result of the flotation in May 2000. - MORE - - 6 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 UK Direct Property Market Background The direct property market quietened as the year progressed with the pace of average capital growth slowing from an annualised 8% pa in spring 2000 to 1% pa in spring 2001. The IPD Monthly Index showed a total return March to March of 9.1%. Individual sectors showed greater than usual divergence. Offices and industrials produced total returns of 13.7% and 12.3% respectively over the twelve months but retail property (as we expected) continued its underperformance with a total return of only 4.8%. Direct Property Investments - Performance We achieved another very good result from our directly owned property investment portfolio. The ungeared total return was 21.3% - more than double the 9.1% annualised total return from the IPD Monthly Index over the same period, and the second year in a row that our total return has exceeded 20%. We bought and sold relatively little property but it was a very active year in terms of property management. Sales totalled only £6.8m and involved the disposal of two self storage units in Croydon and Richmond and our last remaining property in the north of England, an industrial property in Bolton. The self storage centres were sold back to the Big Yellow Self Storage Co. having shown the Trust annualised total returns exceeding 25%. The combined exit yield on these sales was 8.2%. We added four new properties to the portfolio at a cost of £17.1m. Last summer we spent £6.1m on two more London properties, an estate of small industrial units on the south side of Wandsworth Bridge and a car showroom on London Road, Staines, close to Heathrow. During February we spent £8.4m including costs on a 39,000 sq ft office building on the Cambridge Science Park yielding 7.1% and £2.6m on a new industrial unit at Swindon yielding over 9.5% on cost. Just before the year end we exchanged contracts to purchase, for £4.2m, the freehold interest in the Colonnades, our mixed use leasehold block in Bayswater, from Westminster City Council, and we completed that deal in April. Direct Property - Portfolio Focus The focus of our portfolio contributed to the performance. We held no standalone retail investments, the worst performing sector of the market. More importantly, our entire portfolio (following the sale of Bolton) was concentrated in the top rental growth markets of Central London and M25 business space. In particular we saw excellent rental and capital value growth from our holdings in and close to the West End of London. Direct Property - Portfolio Activity The year has been characterised by intensive asset management of the portfolio. Last summer we paid £1.6m to buy out Daks Simpson's occupational leases over the upper floors of 32/34 Jermyn Street, which forms the rear of our Piccadilly property. After a light refurbishment the 12,000 sq ft of offices were quickly relet on short term leases for over £0.5m pa. We continue our business plan of enhancing the planning and have succeeded in our first goal of delisting the Jermyn St facade. Close by in St James's Street we refurbished two first floor office suites and these were relet for £55 per sq ft. - MORE - - 7 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 At other London properties we are focussing on enhancing the planning environment. At Battersea Park Road, we have applied to demolish the two 1950's office buildings and replace them with a mixed residential, workspace and retail scheme whilst retaining the Victorian stabling and laundry blocks for conversion into further residential units. At Tavern Quay in Southwark, we have applied to build 12 residential units on an under utilised part of the car park. The purchase of the freehold at our mixed use development at the Colonnades in Bayswater will enable us to progress the conversion of disused ancillary retail space above the supermarket into quality office accommodation. Unquoted Investments The unquoted portfolio has shrunk from 3.3% of total assets at March 2000 to 0.5% at March 2001. Our major unquoted investment at March 2000 was the Big Yellow Group. They floated on the AIM market in May and therefore moved to our quoted portfolio. We also sold our remaining investment in the River Beauly Fishings last summer and during our second half we disposed of the Chaco business. Both investments were realised at close to their carrying value. Our only remaining unquoted investment of any significance is Controlrun, which owns a portfolio of petrol filling stations. These are gradually being sold on a satisfactory basis. - MORE - - 8 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 GROUP STATEMENT OF TOTAL RETURN (Incorporating the Revenue Account) for the year ended 31 March 2001 (Unaudited) (Audited) Year ended 31 March Year ended 31 March 2001 2000 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Total capital gains from - 91,408 91,408 - 25,682 25,682 investments Repurchase of warrants - (970) (970) - (48) (48) Investment income 7,713 - 7,713 6,725 - 6,725 Net rental income 5,139 - 5,139 5,108 - 5,108 ------- ------- ------- ------- ------- ------- 12,852 90,438 103,290 11,833 25,634 37,467 Interest receivable and similar 455 - 455 860 - 860 income ------- ------- ------- ------- ------- ------- Gross revenue and capital gains 13,307 90,438 103,745 12,693 25,634 38,327 Management and performance fees (1,546) (3,696) (5,242) (1,640) (805) (2,445) Other administrative expenses (949) - (949) (943) - (943) ------- ------- ------- ------- ------- ------- Net return on ordinary activities 10,812 86,742 97,554 10,110 24,829 34,939 before interest payable and taxation Interest payable and similar (2,608) (2,608) (5,216) (2,622)(2,622) (5,244) charges ------- ------- ------- ------- ------- ------- Net return on ordinary activities 8,204 84,134 92,338 7,488 22,207 29,695 before taxation Taxation on net return on (1,123) 782 (341) (855) 781 (74) ordinary activities ------- ------- ------- ------- ------- ------- Net return on ordinary activities 7,081 84,916 91,997 6,633 22,988 29,621 after taxation Equity minority interests (12) - (12) (42) (122) (164) ------- ------- ------- ------- ------- ------- Net return attributable to ordinary 7,069 84,916 91,985 6,591 22,866 29,457 Shares ------- ------- ------- ------- ------- ------ Ordinary dividends Interim of 0.55p (2000: 0.52p) (2,431) - (2,431) (2,440) - (2,440) Final of 0.85p (2000: 0.80p) (3,653) - (3,653) (3,635) - (3,635) ------- ------- ------- ------- ------- ------- (6,084) - (6,084) (6,075) - (6,075) ------- ------- ------- ------- ------- ------- Transfer to reserves 985 84,916 85,901 516 22,866 23,382 ==== ==== ==== ==== ==== ==== Return per ordinary share Basic 1.58p 19.03p 20.61p 1.41p 4.89p 6.30p Fully diluted 1.54p 18.52p 20.06p n/a n/a n/a The revenue columns of this statement represent the revenue accounts of the Group. - MORE - - 9 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 GROUP BALANCE SHEET (Unaudited) (Audited) 2001 2000 £'000 £'000 Fixed assets Tangible assets - 64 Investments 414,582 326,903 ---------- ---------- 414,582 326,967 ---------- ---------- Current assets Debtors 8,089 5,668 Cash at bank and short term deposits 1,351 2,284 ---------- ---------- 9,440 7,952 Creditors - amounts falling due within one year 41,285 29,112 ---------- ---------- Net current liabilities (31,845) (21,160) ---------- ---------- Total assets less current liabilities 382,737 305,807 Creditors - amounts falling due after more than one 40,181 40,207 year ---------- ---------- Total net assets 342,556 265,600 ====== ====== Capital and reserves Called up share capital 109,747 113,593 Share premium 28,538 27,938 Warrant reserve 4,469 5,009 Other non-distributable reserves 185,011 104,822 Revenue reserve 14,791 13,806 ---------- ---------- Equity shareholders' funds 342,556 265,168 Equity minority interests - 432 ---------- ---------- 342,556 265,600 ====== ====== Net asset value per share Basic 78.03p 58.36p Fully diluted 73.18p 56.52p - MORE - - 10 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 GROUP CASH FLOW STATEMENTS for the year ended 31 March 2001 (Unaudited) (Audited) 2001 2001 2000 2000 £'000 £'000 £'000 £'000 Net cash inflow from operating 8,983 13,046 activities Returns on investments and servicing of finance Interest paid (5,168) (5,421) ---------- ---------- Net cash outflow from servicing of (5,168) (5,421) finance Taxation recovered 162 190 Capital expenditure and financial investments Purchase of investments (129,510) (117,259) Sale of investments 136,578 112,165 ---------- ---------- Net cash inflow/(outflow) from financial 7,068 (5,094) investment Equity dividends paid (6,066) (8,420) Cash inflow/(outflow) before use of ---------- ---------- liquid 4,979 (5,699) resources and financing Management of liquid resources Decrease in short term deposits - 1,599 ---------- ---------- Net cash inflow/(outflow) before 4,979 (4,100) financing Financing Issue of shares 126 28 Purchase of own shares (8,639) (7,181) Purchase of own warrants (970) (48) Purchase of minority interests (535) - Repayment of debentures - (530) Bank loans repaid (2,588) (23) ---------- ---------- Net cash outflow from financing (12,606) (7,754) ---------- ------- Decrease in cash (7,627) (11,854) ======= ======= - MORE - - 11 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 NOTES: 1. Return per Ordinary Share Basic revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation and minority interests of £ 7,069,000 (2000: £6,591,000) and on the weighted average number of ordinary shares in issue during the year, being 446,171,463 (2000: 467,752,883). Basic capital return per ordinary share is based on net capital gains of £84,916,000 (2000: £22,866,000 gain) and on the same weighted average number of ordinary shares in issue. The calculation of the fully diluted revenue and capital returns per ordinary share are carried out in accordance with Financial Reporting Standard 14, 'Earnings per Share'. For the purposes of calculating diluted revenue and capital returns per share, the number of shares is the weighted average used in the basic calculation plus the number of shares deemed to be issued for no consideration on exercise of all warrants, by reference to the average price of the ordinary shares during the year. 2. Net Asset Value per Ordinary Share Basic net asset value per ordinary share is based on net assets attributable to ordinary shares of £342,556,000 (2000: £265,168,000) and on 438,988,893 (2000: 454,373,222) ordinary shares in issue at the year-end. The fully diluted net asset value per ordinary share has been calculated on the assumption that the 82,887,721 warrants in issue at 31 March 2001 (2000: 92,903,392) were fully converted into ordinary shares at 47.5p per share. Warrants are assumed to have been exercised when dilution would occur (when the net asset value is greater than or equal to the warrant exercise price of 47.5p). 3. Share Capital Changes During the year to 31 March 2001, the Company made authorised market purchases for cancellation of 15,650,000 of its own issued ordinary shares of 25p and 9,750,000 of its warrants, for an aggregate consideration of £8,639,000 and £970,000 for the warrants. 4. Reconciliation of Group operating revenue to net cash inflow from operating activities 2001 2000 £'000 £'000 Net revenue before interest payable and taxation 10,812 10,110 (Increase)/decrease in operating debtors (347) 3,952 Decrease in operating creditors (505) (70) UK income tax deducted at source (38) (58) Overseas withholding tax suffered (135) (98) Scrip dividends included in investment income (63) - Depreciation of tangible fixed assets 22 15 Management fee charged to capital (763) (805) --------- --------- Net cash inflow from operating activities 8,983 13,046 ====== ====== 5. Accounts for the year ended 31 March 2000 The figures and financial information for the year ended 31 March 2000 are extracted from the latest published accounts of the Company and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either Section 237(2) or Section 237(3) of the Companies Act 1985. - MORE - - 12 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2001 6. Accounts for the year ended 31 March 2001 The preliminary figures for the year ended 31 March 2001 have been extracted from the latest group accounts. These accounts have not yet been delivered to the Registrar of Companies, nor have the auditors yet reported on them. 7. Dividend The final dividend, subject to shareholders' approval at the AGM, will be paid on 30 July 2001 to shareholders on the register at 29 June 2001. The shares will be quoted ex-dividend from 27 June 2001. 8. Annual Report & AGM The annual report will be posted to shareholders in June 2001 and will be available thereafter from the Secretary at the Registered Office, 4 Broadgate, London EC2M 2DA. The Annual General Meeting of the Company will be held at 4 Broadgate, London EC2M 2DA on Thursday 26 July 2001 at 12 noon. Enquiries TR PROPERTY INVESTMENT TRUST PLC Chris Turner, Manager (Tel: 020 7410 4348) HENDERSON GLOBAL INVESTORS Stephen Westwood, Head of Investment Trusts (Tel: 020 7477 5517) COLLEGE HILL Gareth David (Tel: 020 7457 2020) - ENDS

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