Final Results

TR Property Investment Trust PLC 24 May 2006 TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 24 May 2006 HIGHLIGHTS * Share price total return of 66.3% * NAV total return increased by 56.5% * Dividend per share increase of 19.3% * Outperformed Benchmark for 8th consecutive year Financial Highlights 31 March 31 March 2005 2006 (Restated) Change Revenue Total income (Â£'000) 23,143 19,741 +17.2% Income from operations before tax (Â£'000) 13,874 11,793 +17.6% Earnings per ordinary share 81.29p 34.02p +138.9% Revenue earnings per ordinary share 3.44p 2.85p +20.7% Net dividend per share 3.40p 2.85p +19.3% Balance Sheet Investments held at fair value (Â£'000) 881,943 598,395 +47.4% Shareholders' funds (Â£'000) 770,593 504,705 +52.7% Shares in issue at end of period (m) 343.9 346.4 -0.7% Gearing 12% 16% Net asset value per share 224.11p 145.71p +53.8% Year ended Year ended Performance 31 March 31 March Assets and Benchmark 2006 2005 Benchmark performance (price only) +43.3% +24.6% NAV change +53.8% +27.8% Benchmark performance (total return) +48.0% +29.1% NAV total return +56.5% +30.5% IPD Monthly Index total return** +20.9% +18.0% Total return from direct property +21.5% +13.4% Performance 31 March 31 March Share Price 2006 2005 Change Share price at 31 March 209.5p 128.5p +63.0% Share price total return +66.3% +38.5% Market capitalisation at 31 March Â£720m Â£445m +61.8% The Benchmark is the S&P/Citigroup European Property Index in Sterling. Sources: Thames River Capital/** IPD monthly to March 2006 -MORE- - 2 - TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE CHAIRMAN'S STATEMENT Introduction The Trust has had an exceptional year. As at 31 March 2006 the net asset value per share had grown by more than 50% and outpaced our Benchmark Index for the eighth successive year. Shareholders' funds exceeded Â£750m and gross assets approached Â£900m. The share price rose by over 60% as the discount to net asset value has narrowed. Revenue per share increased by 20% and this has allowed the Board to recommend another significant dividend increase. During the year we have reviewed the fund management agreement with Thames River Capital and agreed a fee percentage rebate up to 2009. Other features of the year included another increase in the proportion of the Trust's equity owned by private investors and, in the recent Budget, the announcement of the framework for the proposed introduction of UK REITs. International Accounting Standards (IFRS) These are the first full year accounts produced under the new International Financial Reporting Standards (IFRS), and there are various changes in the format and layout of the numbers. A detailed explanation of the changes can be found in the Finance Report (starting on page 19), and comparisons between the current and previous numbers are detailed in the notes to the financial statements. As I commented at the interim stage, we are conscious that these changes make the accounts longer and more difficult to follow than before. We have therefore made our explanatory notes as full as possible, and we welcome the efforts being made by the AITC to simplify and standardise the reporting requirements for investment trusts. Overall the impact of IFRS on the substance of the numbers is not significant. Market Background Commercial property markets across the world have continued to see extraordinary levels of investor demand over the past twelve months, demand which has far outpaced the supply of investment grade property. As a result, and despite generally fragile tenant demand, capital values have continued to rise and initial yields to fall across all our markets. Against this background property shares have performed remarkably well. -MORE- - 3 - TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE CHAIRMAN'S STATEMENT Cont'd UK REITs Full details of the proposed UK REIT structure were eventually announced in the recent Budget. In essence, fully quoted UK property companies are being offered the opportunity to enter into a special tax status where, subject to certain rules, they will be free of capital gains tax on their real estate portfolios and suffer no corporation tax on their net rental income. The cost of entry will be a 2% levy on their gross property assets. The rules to which they must adhere include gearing limits, income distribution limits and shareholder ownership limits. The proposals, which may yet be subject to alteration and amendment during the debate on the Finance Bill, appear to be commercially attractive, and we expect the majority of the larger UK property companies to enter the REIT structure when it commences at the start of 2007. A number of shareholders have raised the question of whether TR Property could or should become a REIT. The Board cannot see any benefit in such a move. To qualify as a REIT, a minimum of 75% of our assets would have to comprise directly held commercial property, and the Trust would therefore become a property company. By so doing we would lose our investment trust status, which already gives us freedom from capital gains tax. As an investment trust we do not have freedom from corporation tax, but cost of entry into REIT status, which would currently be Â£17m, compares with a current corporation tax bill of just of around Â£1m p.a. To maintain REIT status we should have to renounce investment in property securities, a field where our management team's talents have been rather well employed. Performance Over the twelve months ended on 31 March 2006, the Trust's asset value per share rose by 53.8% to 224.11p and the share price increased by 63% to 209.5p. These increases compare with a rise of 43.3% in our Benchmark Index over the same period. The annual total returns, which include the value of the net dividends paid during the period, were 56.5% for the net asset value, 66.3% for the share price and 48% for the Benchmark. Property equities outperformed general equity markets over the year, in which the total return on the FTSE All-Share Index was 28.1% and the total return from the DJ STOXX 600 (in Euros) was 31.4%. The extent of the outperformance has resulted in our managers earning the maximum performance fee of 1% of adjusted shareholders' funds. -MORE- -4 - TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE CHAIRMAN'S STATEMENT Cont'd Ten years ago, at the end of March 1996, the net asset value was 35.2p per share and the share price was 28.5p. The total compound annual price growth over the decade has been 20.3% p.a. for the asset value and 22.1% p.a. for the share price. The total return numbers, which assume reinvestment of the net dividends, are 25.3% p.a. for the share price and 23.4% p.a. for the net asset value. Over the same ten year period, the compound annual total returns from the Trust's Benchmark Index and from the FTSE All-Share Index have been 16.3% p.a. and 8.4% p.a., respectively. Revenue The revenue earnings for the year are 3.44p per share, an increase of 20.7% over the 2.85p per share reported last year. Our total income, including the service charges we made to our tenants, increased by 17.2% to Â£23.1m, while expenses, including interest, property outgoings and management fees, rose by 16.6%. That left pre-tax revenue 17.6% higher at Â£13.9m. The tax charge was lower, in percentage terms, than last year, and revenue earnings also benefited from share repurchases. Ten years ago, in the year ended March 1996, the revenue earnings per share were 1.35p and the full year dividend was 0.98p per share. The annual compound growth figures for revenue earnings and dividends per share over the decade have been 9.8% p.a. and 13.23% p.a., respectively. Comparable growth rates for our Benchmark are not available. The Retail Price Index has risen by an average of 2.5% p.a. over the period. The growth in revenue and in dividends, though excellent, has nowhere near matched the growth in the asset value. This is because the asset values of our investee companies and their share prices have risen far faster than their rental income receipts, their overall revenue and their dividend distributions. Revenue Outlook Our managers are advising the Board that, subject to unforeseen circumstances, they expect the Trust's revenue per share to increase modestly in the current financial year in line with the anticipated average dividend increases from the companies in which we hold shares. -MORE- -5- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE CHAIRMAN'S STATEMENT Cont'd With the imminent arrival of UK REITs, I should like to make some early comment on implications for our revenue in the financial year starting in April 2007. The proposed legislation will give REITs freedom from corporation tax on their net rental revenue and will require a 90% distribution of this revenue. With the objective of tax neutrality the Government has classed such distributions as property income rather than dividends, so that this income will be taxable at a higher rate. Nevertheless, despite this tax change, the average net payout to REIT shareholders is currently expected to rise significantly. At present the Trust has large amounts of capital invested in UK companies whom we expect to elect for UK REIT status in 2007, and, on an unchanged portfolio, we would expect a very healthy, but as yet unquantifiable, increase in our income. The Trust has a total return objective. It is free of taxation on capital gains on its assets but bears corporation tax on its revenue; thus a pound of capital gain has more net worth to shareholders than a pound of income. Our large investments in potential UK REITs have been made with this total return objective in mind and not primarily as a future source of stable high income. Evidence from overseas markets suggests that UK companies that become REITs may see their shares rise to trade at a premium to asset value while, at the same time, they may alter their business strategies to concentrate more on income stability than on future capital growth. There is no certainty, under these circumstances, that the Trust will continue to wish to hold large investments in UK REITs, and therefore shareholders are advised not to assume that the Trust will be bound to receive an abnormal increase in its revenue beyond April 2007. Dividend The Board is recommending to shareholders a final dividend of 1.9p per share, an increase of 22.6% over the final dividend of 1.55p per share paid last year. Together with the interim dividend of 1.5p per share already paid, this produces a total payment of 3.4p per share for the year, a 19.3% increase over the total of 2.85p per share paid last year. -MORE- -6- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE CHAIRMAN'S STATEMENT Cont'd Discount The gap between the share price and the asset value has been narrowing over the last three years and in the last twelve months the discount has fallen from 11.5% to a year end level of around 7%. As a result, the share price has grown faster than the net asset value per share. This narrowing has been in line with the discount movement across the whole of the UK Investment Trust sector, something which reflects good performance and therefore the increased demand for investment trust shares generally. Share Repurchases The narrowing of the discount has meant that opportunities for worthwhile share repurchases were scarce or non-existent. I reported at the interim stage that we had bought back 2.516m shares at an average of 132.75p in the first half of the year. No repurchases were made in the second half. Last year I commented on the shrinkage of our investment universe and how repurchases were helping to control the size of the Trust in such an environment. This year, for the first time in a decade, we have seen a marked expansion in property share issuance notably on the Continent and on AIM. Our Benchmark has expanded from 84 to 96 companies during the year and is likely to show a similar rate of expansion in the coming year. Net Debt, Gearing and Currencies We increased our borrowings over the year from Â£81m to Â£98m, but the pace of the increase was less than the rate of growth in our net assets, so our gearing (borrowings as a percentage of net assets) declined from 16% at the start of the year to 12% at the year end. The Trust's gearing level is expected to be between 5% and 20% over the coming six months. In accordance with the Board's long term policy, all our debt continues to be denominated in Sterling and the Trust's exposure to foreign currency movements is therefore unhedged. Over the year, the Euro rose against the Pound increasing the value of the Trust's overseas assets by some Â£4.5m in Sterling terms, equivalent to 1.3p per share. -MORE- -7- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE CHAIRMAN'S STATEMENT Cont'd Shareholders and the Shareplan The Board believes that investment trusts are an excellent vehicle for the long term savings of retail investors and has ensured that our managers handle the Trust's affairs with this in mind. In this context I am pleased that we have seen a steady increase in the numbers of retail investors over several years. At the end of March 2006, personal shareholdings together with the shareholdings of private client stockbrokers and the investments in our Shareplan, PEP and ISA schemes accounted for over 60% of the capital. This percentage compares with 50% in September 2004. Shareholders using the Trust's Shareplan, PEP and ISA schemes will be aware that the administration of these schemes was moved to BNP Paribas in April 2005. The level of service received by some holders has not been satisfactory and I apologise to those affected. We have taken action to try and ensure the administrator's service is improved henceforth. Management Agreement, Personnel and Awards The fund management agreement with Thames River Capital was reviewed during the year. The Board has agreed a fee percentage rebate for a three-year period to March 2009. Shareholders' funds of up to Â£450m will continue to attract a fee of 0.7% p.a., but the rate will be reduced to 0.4% p.a. on shareholders' funds in excess of Â£450m. This rebate has been retrospectively applied to the financial year just ended. During the year George Gay joined the management team to assist with direct property holdings, giving James Wilkinson more time to cover our equity investments, particularly those in Central and Eastern Europe. During the last twelve months the Trust has received awards as the best Specialist Investment Trust of the Year from both Investment Week and Moneywise magazines. -MORE- -8- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE CHAIRMAN' STATEMENT Cont'd Outlook Last year, and at the interim stage, I commented that the outstanding capital growth seen by property markets must make us wary and vigilant. The scale of the increase in values and the length of this cycle obviously raise questions as to the length of its sustainability. Global trends can blur traditional reference points of valuation and timing, and lead both to poor capital allocation and to exaggerated expectations of future price movements. The market's immediate concerns centre on the interest rate cycle. Capital growth has been fed by low global interest rates and abundant liquidity, though demographics and changes in savings behaviour have also been powerfully at work. For the moment the Trust remains geared, though at a lower level than normal. Our portfolio is weighted towards stocks whose share prices are still in touch with their underlying asset value and the imminent arrival of the UK REIT regime is gratifying. We are diversifying some of our capital into property related businesses with ratings that may not be wholly dependent on the continued growth of property values. Nevertheless, when the property cycle eventually turns, shareholders should bear in mind that the Trust is a dedicated investor in real estate and real estate securities and that we will continue to adhere to this core strategy. Peter Salsbury Chairman -MORE- -9- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd It has been another remarkable year in global property capital markets. Investment demand for commercial real estate has continued to be enormous. In many locations and particularly in the UK and Europe, initial income yields have fallen into uncharted low territory. Whether this territory is unsustainable or whether current yields herald a new order in property's status in the investment world, is the riddle. Last year I commented that investor demand for high initial income was the primary driving force behind the surge in capital trying to find a home in real estate. Over the year we have seen property initial yields fall across all markets. In the UK the average is down from 5.8% to 5.1% and in some other markets the yield compression has been even greater. At the same time across the world the trend has been for base rates and bond yields to rise. As property yields have fallen and as fixed income yields have risen, so the healthy yield advantage that property and REITs offered over fixed interest has shrunk rapidly. Logically this should have translated into a reduction in demand for real estate as investors switched capital back into bonds. Furthermore a reduction in demand ought, by now, to be doubly obvious as leveraged investors are forced out of the market as income yields from property assets are now, on average, lower than the cost of borrowed money. As yet this has not occurred and we have seen no let up whatsoever in investor demand. Performance Performance was strong over the year, and the Benchmark return was exceeded by a wider than usual margin. Shareholders' funds rose by more than 50% even after share repurchases and exceeded Â£750m for the first time, while gross assets approached Â£900m. We were overweight UK shares throughout the year believing that the UK direct property market returns would be stronger than European returns (correct) and that this, combined with the hopes for a UK REIT, would lead to UK stocks outperforming (correct, but not by much). We reduced our weightings in the shares of UK retail property owners on concerns over lower sales growth in the UK and we increased the portfolio weightings in office property owners on signs that financial services employment was rising. Share sales were mainly from holdings where the shares were priced at above average premiums to what we judged to be the net asset value, and most additions to the portfolio were made either on value grounds or to give exposure to new markets, particularly those in Eastern Europe. -MORE- -10- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd Besides the UK exposure, the portfolio was modestly overweight in France, the Netherlands and Sweden over the year and seriously underweight in Austria, Switzerland, Belgium and Germany. The German underweight was our biggest error as property share prices there rose by 81% over the twelve months. This was in anticipation of the introduction of a German REIT and on the hopes that the German economy will recover and so bring to an end the long period of stagnant tenant demand. We had only one stock that more than doubled in price over the year (Risanamento in Italy) but equally we had positive returns from every single equity holding in the portfolio. Last year I commented that our investment universe of quoted property shares had been shrinking for a number of years due to public property companies going private. In the last twelve months the situation has reversed and we have seen significant issues of new shares both by companies listing for the first time and by existing companies raising fresh equity capital. Some Â£8.5bn was added to the total capitalisation of our Benchmark over the year as a result of issuance, and the number of companies in the Index rose from 84 to 96. A further large increase is expected in the current year when the Index is expected to include many of the companies recently floated on AIM. Property Investment Market Background As the Chairman has already noted, the very strong investor demand for income producing commercial property investments has continued unabated throughout the year. Buying interest is global by source and from all types of investors. European markets generally saw record levels of investment turnover and pricing during the year. Within the UK, overseas investors have tended to dominate the London market. Investment Property Databank now calculate the calendar total returns of all the main European property markets. The best returns in calendar 2005 came from Ireland where the All Property total return was 24.3% p.a. The UK was again the best performing major European market with a total return of 19.1% made up of income at 5.6% and capital growth at 13.5%. Denmark, Spain and France all had total returns in the 15% to 18% range with Sweden and the Netherlands between 10% and 13%. The German property market was the worst performer with a 0.5% total return. -MORE- -11- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd Tenant Demand Across all the European countries, yield compression accounted for the vast majority of the capital growth in 2005. The best average rental growth number came from the UK at 2.8% - a modest figure but still above the rate of UK inflation, and growth here was positive in all three use classes. Elsewhere in Europe, where figures are available, retail rental growth was positive and French retail property recorded an unexpected 8% rental growth in 2005. Office rental values were static or slightly lower in most locations save the UK. Here demand continues to improve slowly in the provinces. In London the improvement in financial services employment has led to a good increase in take up, a sharp decline in vacancy rates and a real firming of rental levels, notably in the West End. We expect the London office market to continue to strengthen through 2006. Retail demand is better in Europe than in the UK, where vacancy rates have risen. So far this has had less impact on rental value growth than might have been expected and the top centres in the UK continue to take market share from older High Streets. Industrial and storage demand has seen little improvement, where rental values are stable in the UK, but have declined slightly in some Continental markets. Housing Markets House price movements continue to be less homogenous than commercial value movements. Across much of Europe house prices have again seen 7%+ growth over the past year and in France, Spain and Denmark the growth has been well over 10%. The major exceptions to this strong growth pattern have been the UK and Germany. In the UK the market has shown greater resilience than we expected and there has been a return to price growth this spring especially in the London area. We anticipate that UK house prices will see only modest (3% - 6%) growth in the next twelve months. Germany is the odd market out. Home ownership, at below 50%, is the lowest in Western Europe, and the value of a German home is, on average, lower than it was ten years ago. As a result most Germans do not see housing as a very secure personal investment. Foreign investors have different ideas however. Over the past year there has been a huge flow of capital, mainly from the USA, into German let residential property in the anticipation that Germans can be persuaded that buying their homes is a wise course of action. Meanwhile, Euro base rates are rising and we expect the pace of house price growth to moderate in France and Spain in the current year. -MORE- -12- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd Property Share Background It was a great year for European property shares. The benchmark rose by 43.3% in Sterling. Revaluations produced average underlying portfolio growth of around 13%. Sector gearing was close to 100% and this drove average net asset value (NAV) growth to about 25% over the year. The remainder of the capital growth came mainly from an increase in premiums to NAV which stood at an average of around 18% at the year end. Breaking this down, the average Continental premium was 30% and the average in the UK was 3%. The UK average is dragged down because the five leading property companies (which are all in our top ten investments) still stand at discounts to NAV. As the year progressed and share price premiums increased we saw a substantial increase in the number of new issues and rights issues, and a decline in takeover activity. The Benchmark Index returns by country show a large divergence in performance, which surprised us, given the background of relative similarity of the economic and property market backgrounds. The explanation for the best and worst numbers is generally linked either to corporate activity or the proposed introduction of REITs. Investment Activity and Distribution of Assets It was another relatively inactive year. Our equity market turnover (purchases plus sales divided by two) in the year was some Â£106m or 16% of the average equity assets owned in the year. We saw gains on every one of our equity holdings but we failed to hold a number of the best performing smaller companies on the Continent. We stayed loyal to our overweight equity position in UK property shares. Though they outperformed marginally, I am disappointed that they did not do better in price terms, given that their economic returns were better than the market forecasts anticipated and that UK REITs are now close to a reality. -MORE- -13- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd Reflecting the low level of investment activity, the distribution of assets also remained very similar. We intended to increase the proportion of the fund held in direct property during 2005. In the event we made one major purchase in Slough at the start of the year and then found ourselves repeatedly outbid for other potential stock. We eventually concluded that it was currently a more effective use of shareholders' funds (and our time) to add to our UK property shareholdings at discounts to NAV rather than to chase prices in the direct market. Meanwhile the high level of prices allowed us to make a number of sales of property at prices well ahead of valuation. Largest Equity Investments The top ten companies are identical to last year, though the order has changed slightly reflecting performance and transactions. These top ten were valued at Â£459m at the year end and represented 52.0% of the Group's total investments. The comparable figures at March 2005 were Â£310m and 51.8% (Ten years ago our top ten investments represented 21%). These ten investments are therefore the engine room of the portfolio. All but two of the stocks (St Modwen and Big Yellow) now have freefloat market capitalisations of over Â£1bn. Four of the UK stocks (Land Securities, British Land, Hammerson and Liberty) are in the FTSE 100 Index, and Slough Estates is close to entry. Unibail and Rodamco are the largest French and Dutch property companies by freefloat capitalisation. The Trust's largest investment at the year end was 5.75 million shares in Land Securities, which has a current average daily volume of over 3 million shares. The best performer was again Big Yellow with a total return of +86% and the only two shares in our top ten to underperform the Benchmark were Liberty and Slough with total returns of 26% and 41%, respectively. Revenue The reported revenue earnings per share increased by 20.7%. Our UK dividend income saw a very healthy 32.7% increase to Â£8.46m. A number of our larger UK holdings, especially Land Securities and Big Yellow, surprised us with larger dividend increases than we were expecting. We also benefited from timing differences where dividends moved forward into the period. Outside the UK our dividend income rose a healthy 21.0% to Â£9.73m. -MORE- -14- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd By contrast, and as foreseen, our net rental income declined by 26% to Â£2.10m because we sold income-producing property and switched funds into UK shares and bought unlet buildings. The management fee charged to revenue rose by 19%, a significantly lower percentage than the increase in the shareholders' funds over the year. This was due in part to the fee rebate noted by the Chairman, and in part to the fact that the management fee is now based on funds under management at the beginning rather than the end of each quarter, which reduces the increases in rising markets. Interest costs rose by just under 10% reflecting higher borrowings. Corporation tax has been charged to revenue at a rate of 14.7% compared with 15.2% last year, the slightly lower rate reflecting better than expected withholding tax recovery. Our current forecasts for revenue growth this year suggest that the rate of increase will be far more modest. For many of our UK investee companies, the current year is likely to mark their transition from the corporation tax regime to REIT status, and this may impact on their dividend decisions. Meanwhile a number of our recent investments have been in newly floated companies whose dividend policy is not yet established. As a result we have less than normal visibility regarding some of our income at this stage of the year. Debt, Gearing and Debentures Net debt rose over the year by 17% from Â£81m to Â£95m, but this pace of growth was far below the percentage increase in the Trust's net assets. As a result gearing declined for the second year in succession from 16% to 12%. Some Â£40m of our present debt is in the form of two debentures with coupons of 8.125% and 11.5% repayable in 2008 and 2016, respectively. All of the additional debt drawn down during the year was from our short term floating rate bank facility. Though the facility is multi-currency, 99% of our debt is currently denominated in Sterling. -MORE- -15- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd As in previous years, I would draw shareholders' attention to the fact that our debenture debt had a market value higher than its nominal value. If we were to repay the debenture debt today the cost to the Trust would be in the order of Â£49m compared with the face value of Â£40m. The difference represents a negative value of some 2.7p per share, which is not deducted from the balance sheet asset value. This figure has changed only very slightly over the year but, thanks to the growth in the assets, now represents only 1.2% of the asset value per share. As the term of debenture debt shortens the negative value of this debt will logically decline. The portfolio's see-through gearing, which takes account of our own debt and adds in the proportionate debt of all our equity investments was 98% at March 2006. This figure compares with 88% for our Benchmark at March 2006, and a figure of 99% for our portfolio at March 2005. Direct Property Portfolio The direct property portfolio generated a total return of 21.5%, made up of an income return of 4.6% and capital growth of 16.9%. If properties that were either bought or sold during the year are excluded, the performance of the portfolio was 24.1%, 6% of which was income return and 18.1% capital growth. This compares with the Investment Property Databank Monthly Index return for the year of 20.9%, of which 5.8% came from income and 14.4% from capital growth. Our long term guidance to shareholders has been that the UK directly held property portfolio will form between 10% and 30% of gross assets. At March 2005 the figure was 9% and the Chairman indicated then that we would be looking to reinvest more funds in this section of the portfolio if suitable opportunities arose. In May 2005 we bought Thames Central, an empty 64,000 sq ft office building in Slough, for Â£11m which raised the percentage to just under 11%, but that proved to be the percentage high for the year which has ended with the property portfolio down at 7% of gross assets. -MORE- -16- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd As I commented earlier, the speed with which markets accelerated in the following months led us to conclude that the Trust's equity was better used buying the shares of geared property companies, often (in the case of UK companies) at a discount to net asset value, rather than endlessly chasing prices to outbid purchasers whose urgency to invest was greater than ours. Meanwhile the high level of prices allowed us to make a number of sales of property at prices well ahead of valuation. We reported the sales of the Trust's industrial property at Wootton Bassett (sale price Â£2.026m) and its City office building in Lloyd's Avenue, EC3 (sale price Â£10.25m) at the interim stage. In January we completed the sale of the Trust's portfolio of shared equity housing for just over Â£3m (previous valuation Â£2.24m) and just prior to the year end we exchanged contracts to sell its office property in Weybridge for Â£1.82m (previous valuation Â£1.3m). Completion occurred post the year end. Shareholders will recall that last year we sold properties in Battersea and Piccadilly and retained overage provisions. At Battersea, the purchasers have improved the planning permission and the Trust has received an overage payment of Â£800,000 as a result. The overage at Piccadilly is dependent on Standard Life (the purchaser) exceeding specific rental targets. The development will complete in December 2006. Aside from the transactions outlined above, activity was largely focussed on securing tenants for vacant space. We began the year with a total of 18,000 sq ft of vacant space. The purchase of Thames Central, Slough increased this to 82,000 sq ft. We ended the year with 47,000 sq ft vacant and since the year end have reduced this to 43,000 sq ft with a further 4,200 sq ft under offer. The bulk of the reduction in vacancy was achieved at The Colonnades, Bayswater, where we completed a letting of the 7,200 sq ft of offices converted from Budgen's surplus storage space and Slough, where we have completed lettings of 15,500 sq ft of space and agreed terms on a further 4,200 sq ft. Once rent free periods have expired these lettings will deliver additional annual rent of Â£570,000. -MORE- -17- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd Whilst there has been some improvement in occupational markets since this time last year, conditions remained difficult over the period, with a continuing surplus of supply over demand in all but a very few areas, such as the West End. We were therefore pleased with the lettings achieved and will continue to concentrate on reducing the vacancy rate further in the coming year. Unquoted Investments We made no fresh investment in unquoted companies during the year but we continue to evaluate certain propositions. Outlook I commented in my opening remarks that the fierce pace of investor demand for commercial property had shown no let up despite the recent rise in borrowing costs. From this I have to conclude that either the market is temporarily insane, or that there are other powerful factors at work leading buyers to continue to pour capital into real estate despite the absence of any yield advantage over bonds. The insanity argument is expounded by some investment strategists and by the media, and certainly the technology equity boom of the last decade is proof that markets are capable of bouts of madness. Maybe the answer to where the market is going can be best gauged by considering where the capital is coming from. As best we can judge, the majority of the capital flowing into real estate is arriving as a result of positive, relatively long term, decisions being taken by institutions and individual investors across the globe. Many of those investors are of an age to know two things. The first is that home ownership has made them greater wealth than any other asset they have ever owned, and the second is that inflation - the biggest enemy of fixed income savings - may be dormant but is unlikely to be dead. For those millions of investors, many of whom lived through the inflation of the 1970s putting, say, a tenth of their existing or future retirement savings into real estate may not seem insane. Property does not automatically become a silly or expensive investment at the moment when it offers a lower running yield than bonds. It has been calculated that if every saver and every pension fund in the world wanted to hold 10% of their assets in let real estate, then prices might have to double from their current level before such an event could occur. -MORE- -18- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 EXTRACTS FROM THE MANAGER'S REPORT Cont'd Over the last year, we have tried, as a team, to take opportunities to quiz financial advisors and investors on why they are continuing to allocate capital to real estate after values have risen so far for so long. Few of the many and varied answers we receive suggest that the allocated capital is short term or speculative. Nevertheless, as the Chairman commented, we need to be wary. We think our investments in the leading UK property companies have above average upside potential due to the arrival of UK REITs and to the improved outlook for office rental growth in the UK. We also believe that these same investments have lower downside potential because the shares are still standing at discounts to asset value and therefore have no premium rating to lose in any sharp market downturn. Outside the Benchmark we are hunting for property related businesses with rating links to earnings multiples. The largest of these investments, in BAA, has proved a short term success as a result of the recent takeover bid. Chris Turner Fund Manager -MORE- -19- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 FINANCE REPORT IFRS As highlighted in the interim report, TR Property Investment Trust plc produces consolidated accounts and therefore is obliged to adopt international accounting standards ('International Financial Reporting Standards' or 'IFRS') for the financial year ended 31 March 2006. The interim numbers were prepared on the basis of the accounting policies expected to be adopted in these full year financial statements. It was noted at the time that changes to either the basis of accounting, or presentation, may be necessary due to changes in standards or the issuance of new guidance notes. There have also been changes in interpretation as accountants and auditors became more familiar with the use of the new standards. At the interim stage we explained the more important changes from the previous UK GAAP presentation. We have produced a similar explanation below as there have been some changes since the interim stage and also for the benefit of readers making a comparison to the prior year annual report. The financial statements and notes thereto are set out on pages 23 to 37. The accounting policies adopted are set out in full, together with reconciliations of restated opening balances detailing the differences between the figures as previously reported under UK GAAP and under IFRS. The description below is not intended to replace the notes in the accounts, but to assist with the understanding. Group Income Statement The Group Statement of Total Return has been replaced by the Group Income Statement. Under IFRS there is no differentiation between capital and revenue gains and losses. However, as an investment company, only the revenue earnings of TR Property Investment Trust plc may be distributed. The three-column presentation setting out revenue and capital items has therefore been retained by investment trust companies. The total column of the Group Income Statement represents the profit and loss account of the Group. -MORE- -20- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 FINANCE REPORT Cont'd Dividends The Group Income Statement shows the profit for the period before any distributions. Dividends are shown in a new statement: the Group Statement of Changes in Equity. Dividend distribution to the Company's shareholders is recognised as a liability in the financial statements for the period in which the dividends are approved. The dividends shown in these accounts for the year to 31 March 2006 are the final dividend in respect of the year ended 31 March 2005, declared on 24 May 2005 and the interim dividend declared on 23 November 2005. This differs from the previous treatment, where dividends were accrued against the earnings to which they related, even though they were not declared and paid until after the period end. The final dividend in respect of the year to 31 March 2006 announced today will be reflected in the 2007 accounts. Fair Value of Investments IFRS requires that quoted investments are valued at fair value which equates to 'bid' (selling) prices whereas previously they were shown at mid-market prices. On the Group Balance Sheet, they are now included as 'non-current assets' instead of 'fixed assets'. The impact of this change is shown in each of the Opening Balance Reconciliations in notes 6 and 7. Transactions Costs There has been a change from the presentation at the interim stage in respect of transaction costs. As in prior years, the transaction costs have been treated as part of the cost, or deducted from the proceeds, of the transaction as appropriate. They have not been included as an expense charged to capital and set out on the face of the Group Income Statement as they were at the interim stage. These costs are separately identified by way of a note to the accounts. We believe that treating the costs as an expense may result in them being included administrative and operating costs in the Trust's Total Expense Ratio (TER) calculation and that inclusion of transactions costs relating to investment activity would distort TER comparison between Funds. -MORE- -21- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 FINANCE REPORT Cont'd Leasehold Investment Properties In countries with a leasehold tradition, such as the UK, leasehold investment properties have not, in the past, been treated very differently from freeholds. The valuer makes allowances for the rent that the 'owner' of the leasehold must pay to the superior landlord, and for the fact that the property will ultimately revert to the superior landlord at the end of the lease. IAS 40 on investment properties and IAS 17 on leases allow leasehold investment properties to appear in the Balance Sheet as investment properties, but the accounting treatment of freehold and leasehold properties is very different. As under the previous accounting convention, freehold properties are carried in the accounts at fair value - i.e. valuation. Any leasehold property, however, must be treated as if it is held under a finance lease and the present value of the rental payments to be made to the superior landlord over the life of the lease must be shown as a liability in the Balance Sheet. The investment property is carried at fair value (i.e. valuation), with the present value of the rental payments made under the headlease added back (as these have been allowed for in the valuation). The net carrying value is therefore the same as under the previous convention. However, a balance sheet liability has been created where none was previously shown, thus introducing financial gearing where none existed before. One property in our portfolio has been accounted for in this way: our long leasehold at Cambridge. The liability for the future ground rent payments of Â£1.6m is included in the Group Balance Sheet Current Liabilities. Under IAS 40, any revaluation gains on investment properties must be taken directly to the Group Income Statement rather than the revaluation reserve. The presentation of this on the Group Income Statement does not differ from that shown previously on the Group Statement of Total Return. In the Group Balance Sheet, however, these gains form part of the retained earnings, rather than a revaluation reserve. -MORE- -22- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Finance Report Cont'd Gross Rental Income Rental income includes all service charges and other costs recovered from the tenants. The amounts paid to third parties for the provision of all services are then deducted as an expense in the Group Income Statement. Previously, only the net rental was brought into the rental income line. The overall impact on net profit is therefore nil; however, the revenue and expense lines have been inflated by these service charge costs. Valuations of Debt In accordance with the recommendation made by the AITC, TR Property Investment Trust plc has chosen not to fair value the debt shown in the financial accounts. Debt is shown at amortised cost. The fair value of the debt will continue to be disclosed in the notes to the financial statements in the full annual report. Deferred Tax Under IFRS, provision has to be made for any potential tax liability on revaluation surpluses. As an investment trust, the Company does not incur capital gains tax, so for all assets held by the Trust this is not an issue. However, some properties have been held in subsidiaries, either to ensure the investment trust status tests are not breached (there are strict rules on sources of qualifying income) or for commercial reasons. Provision for capital gains tax has therefore been made for the revaluation surpluses of property assets held by subsidiaries to the extent that the gain cannot be sheltered by brought forward capital losses or non trade debits. An adjustment has also been made in respect of the prior year figures. Reported Daily NAVs TR Property Investment Trust plc reports a daily NAV to the London Stock Exchange. It should be noted that a capital only NAV is reported in accordance with the AITC recommendations. It does not reflect retained earnings and is not on the same basis as the numbers reported in these financial statements. Two NAVs are released, one valuing the debt at amortised cost, as in the financial statements, and the debt to fair value. -MORE- - 23 - TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 GROUP INCOME STATEMENT For the year ended 31 March 2006 Year ended 31 March 2006 Year ended 31 March 2005 (Restated see note 7) Revenue Capital Total Revenue Capital Total return return return return Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Investment income Investment income 18,249 - 18,249 14,527 - 14,527 Other operating income 104 - 104 113 - 113 Gross rental income 3,044 - 3,044 3,870 - 3,870 Service charge income 1,746 - 1,746 1,231 - 1,231 Gains on investments held at fair value 280,820 280,820 - 115,969 115,969 ---------- ----------- ----------- ----------- ---------- ----------- Total income 23,143 280,820 303,963 19,741 115,969 135,710 ---------- ----------- ----------- ----------- ---------- ----------- Expenses Management and performance fees 2,812 10,826 13,638 2,343 2,595 4,938 Direct property expenses, rent payable and service charge costs 2,685 - 2,685 2,242 - 2,242 Other expenses 580 - 580 459 - 459 Finance costs 3,192 3,192 6,384 2,904 2,904 5,808 --------- --------- --------- --------- --------- ----------- Total operating expenses 9,269 14,018 23,287 7,948 5,499 13,447 --------- --------- --------- --------- --------- ---------- Income from operations before tax 13,874 266,802 280,676 11,793 110,470 122,263 Taxation (2,036) 1,075 (961) (1,795) (1,252) (3,047) ---------- ---------- ---------- --------- --------- ---------- Net profit 11,838 267,877 279,715 9,998 109,218 119,216 ________ ________ ________ ________ ________ _______ Earnings per ordinary share 3.44p 77.85p 81.29p 2.85p 31.17p 34.02p The total column of this statement represents the Group Income Statement, prepared in accordance with IFRS. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Trust Companies. All items in the above statement derive from continuing operations. All income is attributable to the equity shareholders of the parent company. There are no minority interests. - MORE - - 24 - TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 GROUP AND COMPANY BALANCE SHEETS as at 31 March 2006 Group Company (Restated see (Restated see note 7) note 7) Group Company 2005 2005 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Non-current assets Investments held at fair value (note 1(f)) 881,943 598,395 862,573 559,299 Investments in subsidiaries - - 51,321 47,174 ----------- ------------ ----------- ------------ 881,943 598,395 913,894 606,473 Current assets Debtors 1,431 2,182 1,362 1,743 Cash and cash equivalents 2,701 123 2,642 61 ---------- ---------- ---------- ---------- 4,132 2,305 4,004 1,804 Current liabilities 72,521 53,098 147,305 103,572 ---------- ---------- ---------- ---------- Net current liabilities 68,389 50,793 143,301 101,768 Total assets less current liabilities 813,554 547,602 770,593 504,705 Non-current liabilities 42,961 42,897 - - ----------- ----------- ----------- ----------- Net assets 770,593 504,705 770,593 504,705 _________ _________ _________ _________ Capital and reserves Ordinary called up share capital 85,962 86,591 85,962 86,591 Share premium 37,063 37,063 37,063 37,063 Capital redemption reserves 36,343 35,714 36,343 35,714 Retained earnings 611,225 345,337 611,225 345,337 ----------- ----------- ----------- ----------- Net assets attributable to ordinary shareholders 770,593 504,705 770,593 504,705 _________ _________ _________ _________ Net asset value per share 224.11p 145.71p 224.11p 145.71p - MORE - -25- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 GROUP AND COMPANY STATEMENT OF CHANGES IN EQUITY Capital Redemption Share Share Reserve Retained Capital Premium Earnings Total for the year ended 31 March 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net assets at 31 March 2005 (as restated) 86,591 37,063 35,714 345,337 504,705 Ordinary shares repurchased (629) - 629 (3,340) (3,340) Net gain for the period - - - 279,715 279,715 Ordinary dividends paid - - - (10,487) (10,487) -------- ---------- ---------- ---------- --------- Net assets at 31 March 2006 85,962 37,063 36,343 611,225 770,593 _______ _________ _________ _________ _________ Capital Redemption Share Share Reserve Retained Capital Premium Earnings Total for the year ended 31 March 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Net assets at 31 March 2004 (as restated) 88,604 37,063 33,701 244,631 403,999 Ordinary shares repurchased (2,013) - 2,013 (9,006) (9,006) Net gain for the period - - - 119,216 119,216 Ordinary dividends paid - - - (9,504) (9,504) -------- ---------- --------- ------------ ----------- Net assets at 31 March 2005 (as restated) 86,591 37,063 35,714 345,337 504,705 _______ _______ _______ ________ ________ -MORE- - 26 - TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 GROUP AND COMPANY CASH FLOW STATEMENTS as at 31 March 2006 Group (Restated see note 7) Group Company Company 2005 2006 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Net cash inflow from operating activities before finance costs 11,883 10,945 15,768 10,913 Net cash outflow from finance costs (6,468) (5,754) (6,734) (6,392) ----------- ----------- ----------- ----------- Net cash inflow from operating activities 5,415 5,191 9,034 4,521 Investing activities Purchase of investments (125,257) (88,778) (125,053) (86,908) Sale of investments 120,156 102,024 116,220 100,567 Loan stock redeemed - (250) - (250) ----------- ---------- ---------- --------- Net cash (outflow)/inflow from investing (5,101) 12,996 (8,833) 13,409 activities ----------- ---------- ---------- ---------- Net cash inflow before financing activities 314 18,187 201 17,930 Financing activities Purchase of own shares (3,340) (9,006) (3,340) (9,006) Equity dividends paid (10,487) (9,504) (10,487) (9,504) ---------- ---------- ---------- ---------- Net cash outflow from financing activities (13,827) (18,510) (13,827) (18,510) Decrease in cash (13,513) (323) (13,626) (580) Effect of foreign exchange rate changes (119) 27 (119) 27 ---------- ----------- ----------- ----------- Change in cash and cash equivalents (13,632) (296) (13,745) (553) Net debt at start of period (81,460) (81,164) (41,439) (40,886) ---------- ----------- ----------- ----------- Net debt at end of period (95,092) (81,460) (55,184) (41,439) _________ _________ _________ _________ Reconciliation of income from operations before tax to net cash inflow from operating activities Group (Restated see note 7) Group Company Company 2005 2006 2006 2005 Â£'000 Â£'000 Â£'000 Â£'000 Net income from operations before tax 280,676 122,263 280,983 119,113 Gains on investments including transaction costs (280,820) (115,969) (282,895) (107,786) Decrease/(increase) in operating debtors 325 (571) 70 (219) Increase/(decrease) in operating creditors 7,399 1,138 13,041 (4,917) Net tax paid (741) (403) (741) (403) Performance fees paid (1,424) (1,267) (1,424) (1,267) ---------- ----------- ----------- ---------- Net cash inflow from operating activities 5,415 5,191 9,034 4,521 _________ _________ _________ _________ -MORE- -27- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements 1 Accounting Policies The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (IFRIC). These are the first financial statements prepared in accordance with IFRS. Previously the financial statements were prepared in accordance with UK Generally Accepted Accounting Principles (UK GAAP) including the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies'. UK GAAP differs in certain respects from IFRS. The Group and Company financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (Â£'000) except where otherwise indicated. Reconciliations of the Group and Company Balance Sheets, Group Statement of Total Return to the Group Income Statement and Group Cash Flow at the date of conversion (1 April 2005) are shown in notes 6 and 7. a Basis of consolidation The Group accounts consolidate the financial statements of the Company and its subsidiaries to 31 March 2006. Companies, other than subsidiaries, in which the Group has an investment representing 20% or more of the voting rights and over which it exerts significant influence, are treated as associates. The Group accounts include the appropriate share of the results and reserves of these companies based on the latest available accounts. Other companies, in which the Group has an investment representing 20% or more of the voting rights but where the directors consider that the Group does not exert significant influence, are not treated as associates and are accounted for as investments. b Income Dividends receivable on equity shares are treated as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the period end are treated as revenue for the period. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis and, if material, so as to reflect the effective yield on each such security. Interest receivable from cash and short term deposits is accrued to the end of the period. c Expenses All expenses and finance costs are accounted for on an accruals basis. An analysis of retained earnings broken down into revenue (distributable) and capital (non-distributable) items is given in the financial statements. In arriving at this breakdown, expenses have been presented as revenue items except as follows: -MORE- -28- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd c Expenses cont'd - expenses which are incidental to the acquisition or disposal of an investment; - expenses are presented as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment management fees and finance costs are allocated 50% to revenue and 50% to capital to reflect the Board's expectations of long term investment returns. One third of the management fees is deemed to relate to the administration of the Trust and charged to revenue. The remainder is split on the same basis as finance costs and 50% charged to capital. The overall result is that two thirds of management fees are charged to revenue and one third to capital. All performance fees are charged to capital. - the finance cost in respect of capital instruments other than equity shares is calculated so as to give a constant rate of return on the outstanding balance. d Taxation Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date. Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income tax is recognised in the Group Income Statement. The tax effect of different items of expenditure is allocated between capital and revenue using the Group's effective rate of tax for the year. The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred taxation is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset. The Company is an investment trust under s.842 Income and Corporation Taxes Act 1988 and, as such, is not liable for tax on capital gains. Capital gains arising in subsidiary companies are subject to capital gains tax. e Properties The purchase and sale of properties is recognised to be effected on the date unconditional contracts are exchanged. f Investments When a purchase or sale is made under contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date. -MORE- -29- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd f Investments cont'd All the Group's investments are defined under IFRS as investments designated as fair value through profit or loss but are also described in these financial statements as investments held at fair value. All investments are designated upon initial recognition as held as fair value, and are measured at subsequent reporting dates at fair value, which, for quoted investments, is either the bid price or the last trade price, depending on the convention of the exchange on which the investment is quoted. Unquoted investment or investments for which there is only an inactive market are held at fair value which is based on valuations made by the directors in accordance with IPEVCA guidelines and using current market prices, trading conditions and the general economic climate. In its financial statements the Company recognises its investments in subsidiaries at fair value. g Movements in fair value Changes in the fair value of all investments held at fair value are recognised in the Group Income Statement. On disposal, realised gains and losses are also recognised in the Group Income Statement. h Non-current liabilities All loans and debentures are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. The costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan i Foreign currency translation Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities are translated into Sterling at the rate ruling on the balance sheet date. Foreign exchange differences are recognised in the Group Income Statement. j Cash and cash equivalents Cash comprises cash in hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to insignificant risks of changes in value. New standards and interpretations not applied During the year, the IASB and IFRIC have issued additional standards and interpretations, which have not been applied to these financial statements as listed in the Report and Accounts. The Directors do not anticipate that the adoption of those standards and interpretations will have a material impact on the financial statements in the period of initial application. Upon adoption of IFRS 7, the Group will have to disclose additional information about its financial instruments, their significance and the nature and extent of risks that they give rise to. There will be no effect on reported income or net assets. -MORE- -30- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd 2 Investment income 2006 2005 Â£'000 Â£'000 Dividends from UK listed investments 8,464 6,376 --------- --------- Dividends from overseas listed investments 9,733 8,045 Interest from listed investments 52 106 --------- ---------- 9,785 8,151 --------- ---------- 18,249 14,527 --------- --------- 3 Earnings per ordinary share Total earnings per ordinary share are based on the net earnings on ordinary activities after taxation of Â£279,715,000 (2005: Â£119,216,000) and on the weighted average number of ordinary shares in issue during the year, being 344,113,406 (2005: 350,376,971). Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of Â£11,838,000 (2005: Â£9,998,000) and on the weighted average number of ordinary shares in issue during the year, being 344,113,406 (2005: 350,376,971). Capital return per ordinary share is based on net capital gains of Â£267,877,000 (2005: Â£109,218,000 as restated) and on the same weighted average number of ordinary shares in issue during the year. 4 Net asset value per ordinary share Net asset value per ordinary share is based on net assets attributable to ordinary shares of Â£770,593,000 (2005: Â£504,705,000 as restated) and on 343,850,000 (2005: 346,366,286) ordinary shares in issue at the year end. 5 Share capital changes During the year, the Company made market purchases for cancellation of 2,516,286 ordinary shares of 25p each representing 0.7% of the number of shares in issue at 31 March 2005. The aggregate consideration paid by the Company for the shares was Â£3,340,000. Shares are repurchased in order to enhance shareholder value. 6 Restatement of opening balances as at 31 March 2004 At 1 April 2005 the Group and the Company adopted International Financial Reporting Standards. In accordance with IFRS 1, First Time Adoption of Financial Reporting Standards, the following is a reconciliation of the figures at 31 March 2004 previously reported under the applicable UK Accounting Standards and with the Statement of Recommended Practice, to the restated IFRS results for the Group and the Company. -MORE- -31- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd (a) Group Previously reported Effect of Restated transition 31 March to IFRS 31 March 2004 2004 Notes Â£'000 Â£'000 Â£'000 Fixed asset investments 1 486,266 1,052 487,318 Current assets 8,342 - 8,342 Creditors: amounts falling due within one year 1,2 (53,668) 3,555 (50,113) ---------- --------- ---------- Total assets less current liabilities 440,940 4,607 445,547 Creditors: amounts falling due after more than one year 4 (40,201) (1,347) (41,548) ----------- --------- ---------- 400,739 3,260 403,999 _______ ______ ______ Capital and reserves Called up share capital 88,604 - 88,604 Share premium 37,063 - 37,063 Capital redemption reserve 33,701 - 33,701 Other reserves 3 223,524 (223,524) - Revenue reserve/retained earnings 1,2,3,4 17,847 226,784 244,631 ---------- ----------- ---------- 400,739 3,260 403,999 ______ _______ _______ Notes to the reconciliation 1. Investments are all classified as held at fair value under IFRS and quoted equities are carried at bid prices which equates to their fair value. They were carried at mid prices previously. The resultant difference of Â£354,000 is included in retained earnings. The present value of the future lease payments on long leases in the investment property portfolio has been included both in the valuation and as a creditor. This is valued at Â£1,406,000. 2. No provision has been made for the final dividend on ordinary shares for the year ended 31 March 2004 of Â£4,961,000 as this was not declared until after the balance sheet date. Under IFRS the dividend is not recognised until approved or paid. This is therefore added to retained earnings. 3. Under IFRS, there is no differentiation between capital and revenue gains/losses. The previous heading of Other reserves is now included under the heading Retained earnings. 4. Under IFRS, Â£1,347,000 of deferred taxation has been provided on potential capital gains on investment properties held in subsidiaries. -MORE- -32- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd (b) Company Previously reported Effect of Restated 31 transition to March 2004 31 March IFRS 2004 Notes Â£'000 Â£'000 Â£'000 Fixed asset investments 1,4 499,829 (1,701) 498,128 Current assets 7,841 - 7,841 Creditors: amounts falling due within one year 1,2 (106,681) 4,961 (101,720) ----------- ---------- ----------- Total assets less current liabilities 400,989 3,260 404,249 Creditors: amounts falling due after more than one year (250) - (250) ----------- ---------- ---------- 400,739 3,260 403,999 _______ _______ _______ Capital and reserves Called up share capital 88,604 - 88,604 Share premium 37,063 - 37,063 Other reserves 3 265,222 (265,222) - Revenue reserve/retained earnings 1,2,3,4 9,850 268,482 278,332 ---------- ----------- ---------- 400,739 3,260 403,999 _______ _______ _______ Notes to the reconciliation 1. Investments are all classified as held at fair value under IFRS and quoted equities are carried at bid prices which equates to their fair value. They were carried at mid prices previously. The resultant difference of Â£354,000 is included in retained earnings. 2. No provision has been made for the final dividend on ordinary shares for the year ended 31 March 2004 of Â£4,961,000 as this was not declared until after the balance sheet date. Under IFRS the dividend is not recognised until approved or paid. This is therefore added to retained earnings. 3. Under IFRS, there is no differentiation between capital and revenue gains/losses. The previous heading of Other reserves is now included under the heading Retained earnings. 4. Under IFRS, Â£1,347,000 of deferred taxation has been provided on potential capital gains on investment properties held in subsidiaries. The value of investments has been restated accordingly. -MORE- -33- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd 7 (a) Restatement of balances as at 31 March 2005 At 1 April 2005 the Group and the Company adopted International Financial Reporting Standards. In accordance with IFRS 1, First Time Adoption of Financial Reporting Standards, the following is a reconciliation of the figures at 31 March 2005 previously reported under the applicable UK Accounting Standards and in accordance with the Statement of Recommended Practice, to the restated IFRS results for the Group and the Company. (i) Group Previously Restated 31 reported March 2005 Effect of 31 March 2005 transition to IFRS Notes Â£'000 Â£'000 Â£'000 Fixed asset investments 1 597,348 1,047 598,395 Current assets 2,305 - 2,305 Creditors: amounts falling due within one year 1,2 (57,036) 3,938 (53,098) ----------- ----------- ---------- Total assets less current liabilities 542,617 4,985 547,602 Creditors: amounts falling due after more than one year 4 (39,952) (2,945) (42,897) ----------- ---------- --------- 502,665 2,040 504,705 _______ _______ _______ Capital and reserves Called up share capital 86,591 - 86,591 Share premium 37,063 - 37,063 Capital redemption reserve 35,714 - 35,714 Other reserves 3 325,339 (325,339) - Revenue reserve/retained earnings 1,2,3,4 17,958 327,379 345,337 ----------- ---------- ---------- 502,665 2,040 504,705 _______ ______ _______ Notes to the reconciliation 1. Investments are all classified as held as fair value under IFRS and quoted equities are carried at bid prices which equates to their fair value. They were carried at mid prices previously. The resultant difference of Â£359,000 is included in retained earnings. The present value of the future lease payments on long leases in the investment property portfolio has been included both in the valuation and as a creditor. This is valued at Â£1,406,000. 2. No provision has been made for the final dividend on ordinary shares for the year ended 31 March 2005 of Â£5,344,000 as this was not declared until after the balance sheet date. Under IFRS the dividend is not recognised until approved or paid. This is therefore added to retained earnings. -MORE- -34- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd 3. Under IFRS, there is no differentiation between capital and revenue gains/losses. The previous heading of Other reserves is now included under the heading Retained earnings. 4. Under IFRS, Â£2,945,000 of deferred taxation has been provided on potential capital gains on investment properties held in subsidiaries. (ii) Company Previously reported Effect of Restated 31 31 March 2005 transition to March 2005 IFRS Notes Â£'000 Â£'000 Â£'000 Fixed asset investments 1,4 609,777 (3,304) 606,473 Current assets 1,804 - 1,804 Creditors: amounts falling due within one year 2 (108,916) 5,344 (103,572) ----------- ----------- ---------- Total assets less current liabilities 502,665 2,040 504,705 ----------- ---------- --------- 502,665 2,040 504,705 _______ _______ _______ Capital and reserves Called up share capital 86,591 - 86,591 Share premium 37,063 - 37,063 Capital redemption reserve 35,714 - 35,714 Other reserves 3 333,597 (333,597) - Revenue reserve/retained earnings 1,2,3,4 9,700 335,637 345,337 ----------- ---------- ---------- 502,665 2,040 504,705 _______ ______ ______ Notes to the reconciliation 1. Investments are all classified as held as fair value under IFRS and quoted equities are carried at bid prices which equates to their fair value. They were carried at mid prices previously. The resultant difference of Â£359,000 is included in retained earnings. 2. No provision has been made for the final dividend on ordinary shares for the year ended 31 March 2005 of Â£5,344,000 as this was not declared until after the balance sheet date. Under IFRS the dividend is not recognised until approved or paid. This is therefore added to retained earnings. -MORE- -35- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd 3. Under IFRS, there is no differentiation between capital and revenue gains/losses. The previous heading of Other reserves is now included under the heading Retained earnings. 4. Under IFRS, Â£2,945,000 of deferred taxation has been provided on potential capital gains on investment properties held in subsidiaries. The value of investments has been restated accordingly. (b) Reconciliation of the Group Statement of Total Return to the Group Income Statement for the year ended 31 March 2005 Under IFRS the Group Income Statement is the equivalent of the Group Statement of Total Return as reported previously. Per share Notes Â£'000 p Total transfer to reserve per Group Statement of Total Return 110,932 31.66 Add back dividends paid and proposed on ordinary shares 1 9,887 2.82 Change from mid to bid basis at 31 March 2004 2 354 0.10 Change from mid to bid basis at 31 March 2005 2 (359) (0.10) Deferred tax provision 3 (1,598) (0.46) --------- ---------- Net profit per Group Income Statement 119,216 34.02 ______ _______ Notes to the reconciliation 1. All dividends authorised and paid during the period are dealt with through the Group and Company Statement of Changes in Equity. 2. The portfolio valuations at 31 March 2004 and 31 March 2005 are required to be at fair value under IFRS. These values differ from the previous valuations by Â£354,000 and Â£359,000 respectively. 3. Deferred tax has been provided on potential capital gains on investment properties held in subsidiaries. -MORE- - 36 - TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd (c) Reconciliation of the Group Cash Flow Statement for the year ended 31 March 2005 Previously Adjusted cash flows reported Effect of 2005 cash flows transition to IFRS 2005 Notes Â£'000 Â£'000 Â£'000 Net cash inflow from operating activities 1,2 10,337 (5,146) 5,191 Returns on investments and servicing of finance 1 (5,754) 5,754 - Taxation 2 608 (608) - Net cash inflow from financial investment 3 12,996 27 13,023 Equity dividends paid 4 (9,504) 9,504 - ---------- -------- --------- Net cash inflow before financing 8,683 9,531 18,214 Financing 4 (9,006) (9,504) (18,510) --------- ---------- ---------- Decrease in cash (323) 27 (296) --------- ---------- ---------- Transfer of foreign exchange movements to reconciliation of cash and cash equivalents - (27) (27) --------- --------- --------- Total (323) - (323) ________ ________ ________ Notes to the reconciliation 1. Bank and debenture interest paid are now shown under operating activities rather than servicing of finance. 2. Taxation recovered is now disclosed under operating activities. 3. Foreign exchange movements now appear at the foot of the Group Cash Flow Statement within Reconciliation of cash and cash equivalents. 4. Dividends paid are now disclosed under financing. 8 Status of preliminary announcement The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 March 2005 or 2006. The statutory accounts for the year ended 31 March 2006 have not been delivered to the Registrar of Companies, nor have the auditors yet reported on them. The statutory accounts for the year ended 31 March 2006 will be finalised on the basis of the information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. -MORE- - 37- TR PROPERTY INVESTMENT TRUST PLC Unaudited Preliminary Group Results for the year ended 31 March 2006 Notes to the Financial Statements Cont'd 9 Dividend Subject to shareholders' approval at the AGM, a final dividend of 1.90p per share will be paid on 31 July 2006 to shareholders on the register on 30 June 2006. The shares will be quoted ex-dividend on 28 June 2006. An interim dividend of 1.50p per share was paid on 6 January 2006. The total dividend in respect of the year is, therefore, 3.40p per share. 10 Annual Report and AGM The Annual Report will be posted to shareholders in June 2006 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 the Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS on Tuesday 18 July 2006 at 12 noon. For further information please contact: Chris Turner Fund Manager TR Property Investment Trust plc Telephone: 020 7360 1332 Marcus Phayre-Mudge Deputy Fund Manager TR Property Investment Trust plc Telephone: 020 7360 1331 - ENDS - This information is provided by RNS The company news service from the London Stock Exchange

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