Final Results
TR Property Investment Trust PLC
23 May 2007
This announcement and the information contained herein is not for publication,
distribution or release in, or into, directly or indirectly, the United States,
Canada, Australia or Japan
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
22 May 2007
HIGHLIGHTS
* Share price total return of 24.4%
* NAV total return of 31.8%
* Full year dividend per share increase of 20.6%
* Outperformed Benchmark for 9th consecutive year
Financial Highlights
31 March 31 March
2007 2006 Change
Revenue
Total income (£'000) 26,226 23,143 +13.3%
Income from operations before tax (£'000) 16,067 13,874 +15.8%
Earnings per ordinary share * 69.25p 81.29p -14.8%
Revenue earnings per ordinary share 4.09p 3.44p +18.9%
Net dividend per ordinary share 4.10p 3.40p +20.6%
*The IFRS definition of Earnings per ordinary share
includes Capital Return
Balance Sheet
Investments held at fair value (£'000) 1,082,398 881,943 +22.7%
Shareholders' funds (£'000) 972,944 770,593 +26.3%
Shares in issue at end of period (m) 334.6 343.9 -2.7%
Gearing 9% 12%
Net asset value per share 290.78p 224.11p +29.7%
Performance Year ended Year ended
31 March 31 March
Assets and Benchmark 2007 2006
Benchmark performance (price only) +24.5% +43.3%
NAV change +29.7% +53.8%
Benchmark performance (total return) +27.5% +48.0%
NAV total return +31.8% +56.5%
IPD Monthly Index total return** +15.6% +20.9%
Total return from direct property +23.3% +21.5%
31 March 31 March
Performance
Share Price 2007 2006 Change
Share price 256.5p 209.5p +22.4%
Share price total return +24.4% +66.3%
Market capitalisation £858m £720m +19.2%
The Benchmark is the S&P/Citigroup European Property Index in Sterling.
Sources: Thames River Capital/** IPD monthly to March 2007
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Chairman's Statement
Introduction
The Trust has had another good year against the background of continued growth
in real estate values. The net asset value per share increased by almost 30%
and outpaced the return on our Benchmark index for the ninth successive year.
The share price growth, at 22%, underperformed the NAV, reflecting a widening of
the discount to net asset value at which the Trust's shares trade, but this has
allowed the Trust to resume share buybacks. Our revenue has grown faster that we
anticipated and the Board is able to recommend a 20.6% increase in the full year
dividend.
Just after the year end we announced that the Board and its advisors are
considering proposals, which, if approved by shareholders and implemented, would
result in the creation of a new class of shares in the Trust, concentrated on
investment in smaller quoted property companies throughout Europe. The
proposals envisage that shareholders will be offered an opportunity to switch a
portion of their existing shareholdings into the new class, but that if they
wish to take no action, their existing shareholdings and their interest in the
Trust's present asset base will remain effectively unchanged. It is expected
that the investigations into these proposals will be completed by June 2007, at
which point the Board will report further to shareholders explaining what is
proposed in detail.
Market Background
European property markets have continued to see very high levels of investor
demand over the past twelve months. As a result of this buying pressure initial
yields fell again and underlying commercial property values generally rose by an
average of 10% to 15%, with rental value growth again making only a very small
contribution to capital returns. Property shares did even better thanks to
corporate gearing and showed average appreciation of just under 25%. On the
Continent property shares continue to trade at significant premiums to asset
value, while in the UK premiums have fallen and, despite the arrival of the UK
REIT regime, the share prices of several of the largest property companies have
recently moved to 10%+ discounts to break-up asset value.
Performance and Benchmark
Over the twelve months ended on 31 March 2007, the Trust's net asset value per
share rose by 29.7% to 290.78p and the share price increased by 22.4% to
256.50p. These increases compare with a rise of 24.5% 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 31.8% for the net asset value, 24.4%
for the share price and 27.5% for the Benchmark. Property equities outperformed
general equity markets
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Chairman's Statement cont'd
over the year, in which the total return on the FTSE All-Share Index was 11.4%
and the total return from the DJ STOXX 600 (in Euros) was 15.1%. The extent of
the out performance has resulted in our managers earning a performance fee of
0.6% of adjusted shareholders' funds.
Change in Benchmark Supplier
The Board decided and announced in March that, from the start of April 2007, the
fund manager's performance will be measured against FTSE EPRA/NAREIT Europe
Property Index in Sterling in place of the S&P Citigroup European Property Index
in Sterling. The two Benchmarks are almost identical in content and long term
performance, but the EPRA Index is much more widely used in our specialist area,
is calculated in real time, offers high quality statistical information and is
available on the main financial information service providers. Shareholders can
find more information on the EPRA website.
Revenue
The revenue earnings per share for the year are 4.09p per share, an increase of
18.9% over the 3.44p per share reported last year. This growth is markedly
higher than our managers' forecast at the interim stage as a result of higher
than anticipated dividend receipts in the last quarter of our financial year.
Our total income, including the service charges we made to our tenants,
increased by 13.3% to £26.2m while expenses, including interest, property
outgoings and management fees, rose by 9.6%. That left pre-tax revenue 15.8%
higher at £16.1m. The tax charge was lower, in percentage terms, than last year,
and revenue earnings also benefited from share repurchases.
Our managers are advising the Board that, subject to unforeseen circumstances,
they expect the Trust's revenue per share to increase by around 20% to 30% in
the current financial year. Most of our largest UK share holdings are in
companies that have elected for REIT status. As a result it is expected that
their earnings and dividend payout ratios will see sharp one-off increases to
the benefit of our revenue, assuming our portfolio remains in its current shape.
Actually pinning down the quantum and timing of these higher dividends is
proving difficult as some property company managements are still wrestling with
the complexity of the new REIT dividend taxation system and are unwilling to
give guidance on future dividend levels.
Dividend
The Board is recommending to shareholders a final dividend of 2.40p per share
for the financial year ended 31 March 2007, an increase of 26.3% over the final
dividend of 1.90p per share paid last year. Together with the interim dividend
of 1.70p per share already paid, this produces a total payment of 4.10p per
share for the year, a 20.6%
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Chairman's Statement cont'd
increase over the total of 3.40p per share paid last year. The dividend
marginally exceeds stated earnings per ordinary share, however, due to the
impact of the recent share buybacks the total dividend cost is covered.
Discount and Share Repurchases
The average discount to net asset value over the year was 8.84% - virtually the
same as the 8.82% figure for the year to end March 2006. Since December 2006,
however, the discount has widened markedly, mirroring the movement in discounts
for many of the largest UK property companies, so that the Trust's average
discount over the last three months of the financial year was 10.9% and the year
end discount of 11.5% compared with a figure of 6.1% at end March 2006. This has
had two impacts. Firstly the asset value growth in the financial year exceeded
the share price growth and, secondly, it has enabled the Trust to resume its
share buyback programme. In February and March 2007 a total of 9.25 million
shares, 2.7% of the outstanding capital, were bought back for cancellation at a
total cost of £23.07m and an average cost of 249.4p per share. Sales of assets
were made to cover these repurchases which garnered a surplus to the remaining
shareholders' funds of £3.2m or just under 1p per share. Buybacks also help to
control the size of the Trust and this should benefit future relative
performance. Our investment universe has grown during the year as a result of
flotations of new property companies, but it remains a relatively small and
often illiquid universe, and the Trust's total assets, which now exceed the £1
billion level, still represent roughly 1% of the capitalisation of the
Benchmark. Buybacks help modestly to make the Trust a little more manoeuvrable.
Debt, Gearing and Currencies
Our debt fell over the year from £98m to £91m and, as net assets rose from £771m
to £973m, balance sheet gearing declined from 12% to 9%. Given the current
level of uncertainty over the trend in UK inflation and interest rates, the
Trust's gearing on balance sheet level is expected to be less than 15% over the
coming six months.
The Board's long term policy has been not to hedge our foreign currency exposure
and this continues to apply to all our mainstream European exposures. A very
small number of our shareholdings are now denominated in non-European currencies
and these exposures are financed with borrowings in the relevant currency. Over
the year the Pound rose against the Euro by 2.7% decreasing the value of the
Trust's Continental assets by some £10m, equivalent to 3.0p per share.
Board Appointments and Remuneration
Jeremy Newsum has decided to retire from the Board at the AGM after five years,
in order to concentrate on other business commitments. On behalf of the
shareholders I would like to thank him for his contribution to the success of
the Trust.
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Chairman's Statement cont'd
We are pleased to announce the appointment of Hugh Seaborne FRICS to the Board
with effect from 24 July. Hugh is the CEO of the Portman Estate, Deputy
Chairman of the Westminster Property Owners Association and a member of the
Council and Audit Committee of the Duchy of Lancaster.
A review of Board remuneration was carried out by Stephenson and Co. alongside
the Board evaluation process. Its conclusion was that fees should be raised to
reflect the increased demands of the role of all directors, and the roles of the
Chairman and Audit Committee Chair in particular. In addition, the scale of the
Trust and external trends were taken into account. As a result, the following
fees will apply from 1 June 2007 (previous rates in parentheses):
Chairman £65,000 (£35,000)
Audit Committee Chair £30,000 (£25,000)
Directors £25,000 (£21,000)
Management Personnel
During the year we welcomed Karim Pabani to the management team. A qualified
surveyor, he is working on our property holdings and his arrival has given James
Wilkinson more time to cover our equity investments, particularly those in
Central and Eastern Europe. If the creation of the new share class is approved
and implemented we shall be seeking further appointments to assist in the
research and investment in the smaller companies' equity area. Meanwhile
Henderson Secretarial Services Limited retired as Company Secretary at the end
of March 2007, and Capita Company Secretarial Services Limited was appointed as
the Company Secretary on 1 April 2007 represented by Nicola Board. In January
2007, Cenkos Securities were appointed as brokers and investment advisors to the
Trust in place of UBS.
Awards
During the last twelve months the Trust has received awards from Investment
Trust magazine as the Best Large Trust of 2006 and Bloomberg Money as the Best
Specialist Trust of the year. It is of particular pleasure that the Trust also
won, for the third year in a row, the award as Most Consistent Investment Trust
of the Year from What Investment magazine. This award is based on five year
track records and recognises that consistency has been a major feature of our
management team's efforts over the last decade.
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Chairman's Statement cont'd
Outlook
In the UK, since the start of 2007, rising base rates and bond yields have taken
the edge off investor demand, though good quality property is still attracting
multiple offers. However the pace of value growth for commercial property
appears to have reduced sharply from around 1% per month seen in 2005 and 2006
to a current level of about 0.2% to 0.4% per month - leaving average initial
property yields resting at around the 4.75% level. We may expect that for the
time being, capital growth will now be more closely linked to rental value
changes than it has been for some years - and this is not unhealthy. UK
commercial rental value growth itself is currently averaging about 3.8% per
annum, more in offices and less in retail. Meanwhile residential property values
show no sign of their anticipated retreat and rising housing land values are
increasingly underpinning commercial property pricing in London and the South
East.
UK property shares have had a disappointing start to 2007 and this has held back
the Trust's performance. The arrival of UK REITs was generally expected to
bolster the ratings of the major companies relative to their asset values - it
fact, so far, it has done the reverse. The more sober outlook for UK property
value growth is a reason but the new UK REITs appear to be making little effort
to adapt their businesses and strategies to make best use of their new tax
status. Global REIT investors give investment priority to companies that are
focused and which offer maximum dividend payout ratios. The largest UK companies
appear to offer neither; rather they give the appearance of guests who have
arrived at a black-tie dinner wearing lounge suits. Outside the UK, European
property shares are still seeing strong underlying asset value growth as yields
continue to fall, but this is generally well reflected in the share price
ratings which are at average premiums of close to 30%. European base rates are
rising and the point where rising borrowing costs meet falling yields is drawing
closer.
Right across Europe vacancy rates are falling and, as yet, there is relatively
little speculative development activity of the type that has induced most
previous property bear markets of the last fifty years. Therefore, in the sense
of tenant demand and supply, this property cycle may still be in its early days.
Yield compression, which has dominated value growth over the past four years, is
a one-off event and we must adjust our ambitions to more modest levels of
capital growth in years to come. Under these circumstances we feel the main
balance of the portfolio is weighted appropriately.
Meanwhile I hope to be able to circulate to shareholders more details about the
proposed new share class in June when we post the Annual Report. The plan is to
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Chairman's Statement cont'd
hold an EGM to approve any proposals alongside the AGM on 24 July, an event to
which all shareholders are, as usual, most welcome.
Peter Salsbury
Chairman
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Manager's Report
Introduction
It is hard to know where to begin - to give you the good news that I don't think
we have seen the end to rising commercial property values, or the bad news that
from here on it's going to be much harder work for property companies, and for
the Trust to make 15%+ per annum returns, and probably impossible to repeat the
30% pa total returns we have been able to deliver to you over the last five
years.
Those returns have been driven by the fall in the initial yield of all types of
property in most countries in the world - what is now termed 'yield
compression'. Effectively global property has been revalued as an asset class,
relative to bonds and equities. I think that this is probably a semi-permanent
re-rating, but - permanent or not - this re-rating is a one-off event. Here in
the UK and in the USA that re-rating is now coming to an end. It started later
in Europe and is still in full swing there, but it is logical to expect the
European markets to follow their US and UK counterparts in due course.
In the meantime we have to worry about inflation and its impact on global base
rates and borrowing costs - not forgetting that the surge in investor demand for
property these past four years has been occasioned by a desire to invest for
income in an asset class that offers better inflation protection than bonds.
Performance
Over the year the net asset value total return was 31.8% and this figure
compares with a total return from the Benchmark of 27.5%. Performance was strong
in the July to December period, but we had two short periods in the first and
last quarters of the financial year when our gearing and our large shareholdings
in the large UK property companies worked against us. The Benchmark total
returns were 23.9% for the UK and 30.9% for Europe ex UK, so as a consequence,
our UK overweight hurt our performance. I thought that the arrival of REITs in
the UK would stimulate share prices in the first thee months of 2007. It has
actually had the opposite effect - to date.
We benefited from overweight positions in France, Finland and Greece, and from
underweights in Germany, Belgium and Switzerland. Our massive underweight in
Austrian property shares (1% of our portfolio and 10% of the Benchmark) worked
slightly against us, but we will continue with this position. Stock selection
was again a positive contributor to performance. Noteworthy amongst stock
movements was again Big Yellow, whose shares rose 80%. Our only stocks to double
in the year were both new issues last summer - Icade in France and Riofisa in
Spain, the latter holding being sold before the year end. Our duds were
mercifully few and were small holdings. The worst was Queens Walk, a highly
leveraged investor in sub prime grade UK and European house mortgages where we
lost half our £1.2m investment over the year. New investments in the year were
concentrated in internally managed companies mainly with a focus on office
property and with share prices in touch with the underlying asset value. Sales
were mainly from holdings where bids were made or
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Manager's Report cont'd
where we judged that the premium to the asset value was unjustified by the
outlook for asset growth.
Property Investment Market Background
In the last three years I have reported little else under this heading other
than continued relentless investor demand for commercial property investments
both in the UK, Europe and Worldwide. This spring, at least in the UK,
relentless is no longer the appropriate adjective - calm and selective are
better descriptors. Good quality property is still selling well and rising in
price, notably in the Greater London area or where there is some residential
potential in the building, but boring secondary investments in the industrial
and retail sectors are now struggling to achieve pricing in line with last
valuations. Average UK capital growth, which has been running at around 12% pa
for the last three years, is now back to around 3% to 4% per annum.
Average initial yields are stable and rental growth, running at around 3.8% pa
is the main source of capital growth. The immediate cause of this change in
sentiment has been the increase in base rates and fixed interest yields
occasioned by the recent surge in UK inflation. This has deterred some buyers
and increased the potential for sales by highly leveraged investors whose loan
renewal terms are not to their liking. In addition there are elements of both
investor fatigue in the UK and of investors selling to switch into Continental
Europe.
In Europe, where yield compression started later than in the UK, the market is
still very buoyant. However in the most desirable locations, especially Paris
and Madrid, initial yields are down below 4% and therefore below Euro borrowing
costs, and those chasing high yields are having to go to less attractive
locations, such as East Germany or Southern Italy to find reasonably stable 7%
plus income returns.
Tenant Demand
Tenant demand has slowly improved in many European locations, though there
remain weak spots. In the UK, average rental growth is running at 3.8% compared
with 2.7% pa last year, but almost all this improvement is in the office sector,
and in the London area. The best market has been Central London offices where
the increased demand I noted last year has strengthened further, particularly in
the West End. Here vacancy levels are down to 4%, there is little new
development and office owners are still looking to switch the use of suitable
buildings to residential - a sector where values seem to know no limit. In the
City, vacancy has also dropped and rents are rising, but that sub-market has a
much more permissive planning regime than any other UK location, cranes have
arrived and most of the new development is speculative. Therefore we are
cautious about rental growth there beyond 2008. Office demand outside London is
still very patchy and beyond the South East there is little evidence of white
collar employment growth. Retail and industrial property in London
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Manager's Report cont'd
appears to be seeing some rental growth, but elsewhere in the UK rents are still
close to static with the toughest markets being weaker secondary locations and
bulky goods retail warehousing.
On the Continent, offices are again the sector seeing the best rental growth.
While no centre looks as strong as London's West End, the Paris, Madrid and
Barcelona markets continue to quicken and there is a shortage of top quality
stock in all three centres. There have been improvements in most other leading
European financial capitals including Amsterdam, Stockholm, Zurich and even
Frankfurt. In other less financially orientated markets, such as Brussels or
Berlin, rents still remain becalmed often as a result of mid-teens percentage
levels of vacancy.
Many European leases have rents tied to a local inflation index. In France
rental indexation is based on the cost of construction index. French building
costs rose by over 5% last year, allowing commercial landlords to increase rents
by the same amount. This does often mean, however, that at the end of the lease
the rent may have to be reduced to bring it back in line with commercial
comparables.
Housing Markets
Having been too bearish on house price growth in past reports, I am reluctant to
make any predictions now. The housing market in the UK is far larger than the
commercial property market and though their value movements are not the same,
the two markets are not wholly independent of one another. For the record, since
the start of 1998, UK house prices have risen by an average of about 175% and UK
commercial property has grown in value by some 72%. House price growth,
particularly in the South East is, in my view, principally driven by a lack of
supply. Planning consents have become harder and harder to obtain, particularly
on green field sites. The Government gives priority to brownfield development,
and 'brownfield' generally means former commercial property sites. Though no
statistics appear to be available to support my view, I believe that residential
redevelopment site values now underpin the capital values of a significant
amount of secondary commercial property in the South East and possibly over much
of the UK. As a result I disagree with those pundits who predict a fall in UK
commercial property prices without also predicting a similar or greater fall in
house prices.
Across Europe house prices are generally rising but the picture is patchy. In
Spain the danger is oversupply with over 600,000 new homes a year being built
for a population of 40 million (while in the UK we build 200,000 homes a year
for a population of 60 million). Though prices are still rising, except on the
coast, the rate of growth is slowing. French housing has been doing well as has
Swedish. The Danish market is flat after huge gains in the past three years, and
German house prices remain unmoved despite the surge in enthusiasm for
investment let housing there. The Trust's exposure to the shares of
housebuilding companies is now limited to Eastern Europe where
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Manager's Report cont'd
there is little modern housing, tremendous demand and low, but improving,
affordability.
Property Share Background
It was another good year for European property shares and the Benchmark rose by
24.4% in Sterling. Companies within the Benchmark produced revaluations implying
average underlying portfolio growth of around 13%, and sector average gearing,
which fell to around 80%, boosted the average net asset value (NAV) growth to
about 23%. The remainder of the capital movement came mainly from a slight
increase in average premiums to NAV which stood at around 19% at the year end.
Breaking this down, the average Continental premium was 30% and the average UK
premium was 4%. As in the year to March 2006, the UK average was dragged down by
the five largest UK property companies - three of which were standing at 10%
plus discounts at our year end.
New issues and rights issues added to the size of our investment universe over
the year. We tried to meet the managements of every newly floated company last
year, and nearly succeeded, but we bought shares in only a very few. The UK AIM
market has become the chosen location for a large number of new property
businesses active outside the UK. Many of these are newly formed, externally
managed investment companies and have strategies which, with very high gearing
(200% +), seek to offer very high dividend yields on the back of the gap between
Continental property yields and the cost of Euro borrowing. Management fees will
usually be based on gross assets, not net assets, and have significant
performance fee rights when total returns exceed 10% or 12% pa. When property
values are rising these companies do well, but when borrowing costs rise and
property values decline, they have precious little margin for error. What ought
to worry the owners of these shares, many of whom appear to be retail investors,
is that their high income is coming with high risk and yet the manager's
remuneration is not slanted to give them an incentive to degear ahead of any
problems. Generally we avoid these stocks and will only buy shares in an
externally managed property company if it offers us an entree into a market
which we cannot access any other way, or if we regard the management as
exceptional.
Property companies have a natural tendency to issue shares when they stand at a
premium to NAV. Thus, throughout the year, rights issues were scarce in the UK
and plentiful on the Continent. The externally managed Austrian companies were
foremost in their issuance raising together almost €7 billion over the year,
mostly for investment in Eastern Europe. We have stayed away from almost all
these companies. Takeover activity was greater than in the previous year. In
Spain there were cash bids for all the main property companies in which we were
invested. Paper offers were scarcer than I expected with the big merger of
Unibail and Rodamco coming after the year end.
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Manager's Report cont'd
Investment Activity
Including share buybacks, our investment turnover (purchases plus sales divided
by two) was £150m in the year, equivalent to 17% of average shareholders' funds
in the period. In the year to March 2006 the equivalent figures were £106m and
16%. I have read somewhere that the average global equity fund now has an
investment turnover of close to 100% per annum. Our turnover figure is therefore
comparatively very low, reflecting both my reticence towards short term trading
and my general philosophy that, what I hope are well judged investments should
be left alone to prove their worth. If nothing else, it saves us a lot of stamp
duty and broking commissions!
With regard to our investments over the year the most noteworthy change has been
in Spain where we had virtually exited that market by the year end and have
subsequently done so completely. Over the past five years we have profited
strongly from our investments in Spain, but the supply of real estate there is
relatively unconstrained by European standards and was at odds with the recent
euphoric state of that particular property share market.
Distribution of Assets
Reflecting the low level of turnover, the distribution of the assets changed
very modestly over the year. I continued to hold over half your gross assets in
UK Property shares with a concentration in the four largest companies - Land
Securities, British Land, Hammerson and Slough Estates. In my interim report
last November I outlined five reasons for staying with this position. Firstly,
the stocks were then, and are still, trading at discounts to NAV which compare
with average 30% premiums on the Continent. Secondly, they give us exposure to
London property and I see London as having the best tenant supply and demand
equation of any European city. Thirdly, they have strong balance sheets and are
not unduly exposed to short term changes in borrowing costs. Fourthly, I
expected the arrival of the UK REIT regime to lower or remove the discounts to
NAV at which these shares traded because, stripped of their inherent capital
gains tax, they would be takeover targets if they continued to trade at
discounts above 10%. I still think this may happen. Lastly I said that with our
direct property experience, we were closer to the UK market than any other and
could therefore monitor these major investments closely. All these comments
still apply.
Largest Equity Investments
At the year end the top ten equity investments had a total value of £537m and
represented 49.6% of the Group's total investments. The comparative figures at
March 2006 were £459m and 52.0%. Towards the end of the year we reduced our
investment in Hammerson selling over 1 million shares in a period of bid
speculation.
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Manager's Report cont'd
We also sold about 24% of our holding in Big Yellow at the 660p level. These are
both good companies in which we are happy to retain substantial investments. Big
Yellow in particular has been a remarkable success bearing in mind that we
bought most of our holding in the unquoted company as a start-up at 12p per
share in 1998. Departures from the top twenty have been the two Spanish stocks,
Metrovacesa and Colonial, both now all sold. Grainger Trust and Vastned Retail
are still retained, but with reduced holdings. Their places are taken by Great
Portland Estates and Derwent London - two specialist Central London office
investors and developers, and by Gecina and Capital & Regional Properties. Since
the year end two of our top ten, Unibail and Rodamco, have agreed a merger which
will create Europe's largest multi-country shopping centre owner.
Revenue
In the last Annual Report and in the November 2006 interim statement I provided
guidance to the Board that growth in the revenue earnings for the year to March
2007 would be much more modest than the 20.7% growth seen in the year to March
2006. In the event the actual outcome has been an 18.9% increase from 3.44p to
4.09p. Three unforeseen factors helped us. Firstly several dividends which, in
previous years, have been credited in April, arrived in March, so that for once,
timing differences worked in our favour. The second factor is a lower than
anticipated tax charge. The third was that a number of dividends we received in
the last quarter of the financial year were considerably larger than we
anticipated.
This financial year we will start to receive our first Property Income
Distributions (PIDs) which is the Treasury's name for a dividend paid by a UK
REIT. As a UK corporate body we will receive the PIDs gross of tax and they will
have a tax treatment, in our hands, as though the payments were rental income.
This should work well for the Trust as we expect to be able to utilise revenue
and capital management expenses to offset some of the taxation. What we do not
yet know is the timing and extent of the distributions from the new UK REITs. A
few companies have given excellent guidance, while others appear bewildered. Add
to this my poor forecasting of last year's revenue and you would be wise to put
no weight whatever on my current forecast that I expect our revenue per share to
increase by roughly 20% to 30% in the current year. As always I should further
add that the scale of our dividend income is ultimately outside our control.
Debt, Gearing and Debentures
Reflecting my more cautious attitude towards markets as well as the increased
cost of borrowing money, I lowered the Trust's debt from £98m to £91m over the
year.
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Manager's Report cont'd
As shareholders' funds rose by 26%, this translated into a decline in balance
sheet gearing from 12% to 9%. Some £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 borrowings are in the form of short term
floating rate bank facilities of which 96% are drawn in Sterling. 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 £47m
compared with the face value of £40m. The difference represents a negative value
of some 2.1p per share, which is not deducted from the balance sheet asset
value. This figure has fallen from 2.7p over the year and, thanks to the growth
in the net assets, now represents only 0.7% of the asset value per share
(1.2% at March 2006).
The amount of money borrowed by the Trust and invested in shares or property is
one measure of our gearing, the other is the extent of the debt owed by the
companies in which we hold shares. This figure - the Trust's 'see-through
gearing' which adds the proportionate debt of all our equity investments to our
on balance sheet debt - was 88% at the year end. This figure compares with 78%
for our Benchmark at March 2007, and a figure of 98% for our portfolio at March
2006.
Direct Property Portfolio
The direct property portfolio had an excellent year producing an un-geared total
return of 23.25%, comprising an income return of 3.5% and capital growth of
19.75%. This return handsomely beat the Investment Property Databank Monthly
Index return for the year of 15.6%, of which 5.0% came from income and 10.6%
from capital growth. The only sale in the year was of the little building in
Liphook, Hampshire for book value. We made offers for over a dozen properties
but bought only two small buildings, both in the Old York Road, Wandsworth and
which adjoin our existing industrial estate there.
The star performer in the portfolio was Thames Central, the 63,000 sq ft office
building in Slough which we bought empty in 2005. At March 2006 we had let 31%
of the space. At September 2006 this figure was 65%, and today the building is
97% let all at rents at or above budget. These results are more noteworthy
because the vacancy rate in the Slough office market has been over 20%
throughout the year and the letting market in the town is best described at
tough. Special congratulations are due to George, Karim and James for all their
hard work in finding tenants for this building.
Another strong performer has been the Ferrier Street Industrial Estate in
Wandsworth. Last summer we agreed terms to release the local authority from
their head tenancy and this has given us a chance to more actively manage the
property. The result has
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Extracts from the Manager's Report cont'd
been a 20% increase in rental income and a 27% increase in the capital value
over the year.
Our long term guidance to shareholders has been that the UK directly held
property portfolio will form between 10% and 30% of gross assets. Over the last
thirty months the property portfolio has been below 10% of gross assets. Last
year I remarked that buying conditions were so tough that I felt that our
capital was better employed in buying shares in geared UK property companies at
a discount to net asset value than in scrambling to buy property. However we
have not abandoned our long term guidance, and since the year end we have
announced the purchase of a 67,000 sq ft freehold office building in Harlow,
Essex for an all-in cost of £13.2m. The 20 year old building is fully let until
2012 at what we hope will prove to be a low rent of £12 per sq ft. Our initial
yield is 6.25%. We continue to search for further suitable investments,
concentrating on office and industrial property which will benefit from active
management and which is located no further than a 90 minute journey from our
offices.
Unquoted Investments
The Trust currently has no unquoted equity investments
Outlook
I hope it doesn't sound too unbusinesslike or eccentric to say that, for two
reasons, I am somewhat relieved to see the UK commercial property market
levelling off. Firstly because we may thus be saved from a savage and unpleasant
price correction and secondly because yield compression has tended to advantage
leverage rather than activity - the boldest rather than the wisest.
Long bull trends in stocks or markets often end in a crescendo of enthusiasm
followed by an unpleasant price correction. Less often do they level out onto a
new and potentially stable value plain. Last November, in my interim report, I
said 'for sure, one day property values and property share prices will have
become so overheated that the inevitable occurs.' When I wrote that I was
visualising that we would see a further climax of buying before this commercial
property market peaked - a climax strong enough, amongst other attributes, as to
carry the shares of the largest UK property companies onto the sort of premium
ratings enjoyed by their Continental counterparts. This has not happened and I
am grateful for not having to run the portfolio through the hostile market
conditions that might follow such a peak.
While yields are falling, high leverage is the key to high returns. When values
are relatively stable, the highest total returns usually come from property
companies with high levels of skill in buying, managing, developing and trading
property. These latter are the businesses whose shares we prefer to hold in your
portfolio.
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
GROUP INCOME STATEMENT
For the year ended 31 March 2007
Year ended 31 March 2007 Year ended 31 March 2006
Revenue Capital Total Revenue Capital Total
return return return return
£'000 £'000 £'000 £'000 £'000 £'000
Investment income
Investment income (note 2) 21,264 - 21,264 18,249 - 18,249
Interest receivable & similar income 66 - 66 104 - 104
Gross rental income 3,201 - 3,201 3,044 - 3,044
Service charge income 1,695 - 1,695 1,746 - 1,746
Gains on investments held at fair value - 236,669 236,669 - 280,820 280,820
---------- ----------- ----------- ----------- ---------- -----------
Total income 26,226 236,669 262,895 23,143 280,820 303,963
---------- ----------- ----------- ----------- ---------- -----------
Expenses
Management and performance fees 3,602 9,050 12,652 2,812 10,826 13,638
Direct property expenses, rent payable
and service charge costs 2,327 - 2,327 2,685 - 2,685
Other administrative expenses 561 - 561 580 - 580
--------- --------- --------- --------- --------- -----------
Total operating expenses 6,490 9,050 15,540 6,077 10,826 16,903
--------- --------- --------- --------- --------- ----------
Operating profit 19,736 227,619 247,355 17,066 269,994 287,060
Finance costs 3,669 3,669 7,338 3,192 3,192 6,384
Income from operations before tax 16,067 223,950 240,017 13,874 266,802 280,676
Taxation (2,013) (206) (2,219) (2,036) 1,075 (961)
---------- ---------- ---------- --------- --------- ----------
Net profit 14,054 223,744 237,798 11,838 267,877 279,715
__________ __________ __________ _________ _________ __________
Earnings per ordinary share 4.09p 65.16p 69.25p 3.44p 77.85p 81.29p
(note 3)
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 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.
As permitted by Section 230 of the Companies Act 1985 the Company has not
presented its own revenue account. The net revenue earnings after taxation of
the company dealt with in the accounts of the Group was £14,355,000 (2006:
£11,877,000).
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
GROUP AND COMPANY STATEMENT OF CHANGES IN EQUITY
Ordinary
called up Share Capital
premium redemption
share reserve Retained
capital account earnings Total
for the year ended 31 March 2007 £'000 £'000 £'000 £'000 £'000
Net assets at 31 March 2006 85,962 37,063 36,343 611,225 770,593
Ordinary shares repurchased (2,312) - 2,312 (23,069) (23,069)
Net profit for the year - - - 237,798 237,798
Ordinary dividends paid - - - (12,378) (12,378)
-------- ---------- ---------- ---------- ---------
Net assets at 31 March 2007 83,650 37,063 38,655 813,576 972,944
_______ _________ _________ _________ _________
Ordinary
called up
Share Capital
share premium redemption
capital reserve Retained
account earnings
Total
for the year ended 31 March 2006 £'000 £'000 £'000 £'000 £'000
Net assets at 31 March 2005 86,591 37,063 35,714 345,337 504,705
Ordinary shares repurchased (629) - 629 (3,340) (3,340)
Net profit for the year - - - 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
_______ _______ _______ ________ ________
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
GROUP AND COMPANY BALANCE SHEETS
as at 31 March 2007
Group Group Company Company
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Non-current assets
Investments held at fair value 1,082,398 881,943 1,061,648 862,573
Investments in subsidiaries - - 54,545 51,321
----------- ------------ ----------- ------------
1,082,398 881,943 1,116,193 913,894
Current assets
Debtors 4,239 1,431 3,871 1,362
Cash and cash equivalents 535 2,701 267 2,642
---------- ---------- ---------- ----------
4,774 4,132 4,138 4,004
Current liabilities 70,156 72,521 147,387 147,305
---------- ---------- ---------- ----------
Net current liabilities 65,382 68,389 143,249 143,301
Total assets less current liabilities 1,017,016 813,554 972,944 770,593
Non-current liabilities 44,072 42,961 - -
----------- ----------- ----------- -----------
Net assets 972,944 770,593 972,944 770,593
_________ _________ _________ _________
Capital and reserves
Ordinary called up share capital 83,650 85,962 83,650 85,962
Share premium account 37,063 37,063 37,063 37,063
Capital redemption reserve 38,655 36,343 38,655 36,343
Retained earnings 813,576 611,225 813,576 611,225
----------- ----------- ----------- -----------
Net assets attributable to ordinary shareholders 972,944 770,593 972,944 770,593
_________ _________ _________ _________
Net asset value per ordinary share (note 4) 290.78p 224.11p 290.78p 224.11p
These accounts were approved by the directors and authorised for issue on 22 May
2007
P Salsbury - Director
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
GROUP AND COMPANY CASH FLOW STATEMENTS
as at 31 March 2007
Group Group Company Company
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Net cash inflow from operating activities
before finance costs 5,804 11,883 8,299 15,768
Net cash outflow from finance costs (7,330) (6,468) (8,309) (6,734)
----------- ----------- ----------- -----------
Net cash (outflow) / inflow from operating (1,526) 5,415 (10) 9,034
activities
Investing activities
Purchase of investments (123,269) (125,257) (123,089) (125,053)
Sale of investments 159,290 120,156 157,396 116,220
----------- ---------- ---------- ---------
Net cash inflow / (outflow) from investing 36,021 (5,101) 34,307 (8,833)
activities
----------- ---------- ---------- ----------
Net cash inflow before financing activities 34,495 314 34,297 201
Financing activities
Purchase of own shares (17,350) (3,340) (17,350) (3,340)
Equity dividends paid (12,378) (10,487) (12,378) (10,487)
---------- ---------- ---------- ----------
Net cash outflow from financing activities (29,728) (13,827) (29,728) (13,827)
Increase / (decrease) in cash 4,767 (13,513) 4,569 (13,626)
Effect of foreign exchange rate changes 22 (119) 22 (119)
---------- ----------- ----------- -----------
Change in cash and cash equivalents 4,789 (13,632) 4,591 (13,745)
Net debt at start of year (95,092) (81,460) (55,184) (41,439)
---------- ----------- ----------- -----------
Net debt at end of year (90,303) (95,092) (50,593) (55,184)
_________ _________ _________ _________
Reconciliation of income from operations before tax to net
cash inflow from operating activities
Group Group Company Company
2007 2006 2007 2006
£'000 £'000 £'000 £'000
Net income from operations before tax 240,017 280,676 239,483 280,983
Gains on investments including transaction (236,669) (280,820) (236,097) (282,895)
costs
(Increase) / decrease in operating debtors (2,609) 325 (1,873) 70
(Decrease) / increase in operating creditors (1,161) 5,975 (419) 11,617
Net tax paid (1,104) (741) (1,104) (741)
---------- ----------- ----------- ----------
Net cash (outflow) / inflow from operating (1,526) 5,415 (10) 9,034
activities
_________ _________ _________ _________
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
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) and in accordance with the policies
applied for the year ended 31 March 2006.
The Group and Company financial statements are presented in Sterling, which is their
functional and presentational currency. Sterling is the functional currency because it
is the currency of the primary economic environment in which the Group operates.
Values are rounded to the nearest thousand pounds (£'000) except where otherwise
indicated.
2 Investment income
2007 2006
£'000 £'000
Dividends from UK listed investments 9,677 8,464
--------- ---------
Dividends from overseas listed investments 11,559 9,733
Interest from listed investments 28 52
--------- ----------
11,587 9,785
--------- ----------
21,264 18,249
--------- ---------
3 Earnings per ordinary share
Total earnings per ordinary share are based on the net profit on ordinary activities after taxation
of £237,798,000 (2006: £279,715,000) and on the weighted average number of ordinary shares in issue
during the year, being 343,385,123 (2006: 344,113,406).
Revenue earnings per ordinary share is based on the net profit on ordinary activities after taxation
of £14,054,000 (2006: £11,838,000) and on the weighted average number of ordinary shares in issue
during the year, being 343,385,123 (2006: 344,113,406).
Capital return per ordinary share is based on net capital gains of £223,744,000 (2006: £267,877,000)
and on the same weighted average number of ordinary shares in issue during the year.
TR PROPERTY INVESTMENT TRUST PLC
Unaudited Preliminary Group Results for the year ended 31 March 2007
Notes to the Financial Statements Cont'd
4 Net asset value per ordinary share
Net asset value per ordinary share is based on net assets attributable to ordinary shares of
£972,944,000 (2006: £770,593,000) and on 334,600,000 (2006: 343,850,000) ordinary shares in issue at the
year end.
5 Share capital changes
During the year, the Company made market purchases for cancellation of 9,250,000 ordinary shares of 25p
each representing 2.7% of the number of shares in issue at 31 March 2006. The aggregate consideration
paid by the Company for the shares was £23,069,000. Shares are repurchased in order to enhance
shareholder value.
6 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 2007 or 2006. The statutory accounts for the year ended
31 March 2007 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 2007 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.
7 Dividend
Subject to shareholders' approval at the AGM, a final dividend of 2.40p per share will be paid on 31
July 2007 to shareholders on the register on 29 June 2007. The shares will be quoted ex-dividend on 27
June 2007.
An interim dividend of 1.70p per share was paid on 8 January 2007. The total dividend in respect of the
year is, therefore, 4.10p per share.
Annual Report and AGM
The Annual Report will be posted to shareholders in June 2007 and will be available thereafter from the
8 secretary at the Registered Office, 51 Berkeley Square, London W1J 5BB. The Annual General Meeting of
the Company will be held at the Royal Institute of Chartered Surveyors, 12 Great George Street,
Parliament Square, London SW1P 3AD on Tuesday 24 July 2007 at 12 noon.
This announcement and the information contained herein is not for publication,
distribution or release in, or into, directly or indirectly, the United States,
Canada, Australia or Japan and does not constitute, or form part of, an offer of
securities for sale in or into the United States, Canada, Australia or Japan.
The securities referred to in this announcement have not been registered under
the U.S. Securities Act of 1933, as amended (the 'Securities Act') and may not
be offered or sold in the United States absent registration or an exemption from
the registration requirements of the Securities Act. The Trust does not intend
to register any portion of securities in the United States or to conduct a
public offering of the securities in the United States. The Trust will not be
registered under the U.S. Investment Company Act of 1940, as amended, and
investors will not be entitled to the benefits of that Act.
This announcement does not constitute an offer to sell or the solicitation of an
offer to buy, nor shall there be any sale of the securities referred to herein
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration, exemption from registration or qualification under the
securities law of any such jurisdiction.
The contents of this announcement include statements that are, or may be deemed
to be 'forward looking statements'. These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
'believes', 'estimates', 'anticipates', 'expects', 'intends', 'may', 'will' or
'should'. They include the statements regarding the target aggregate dividend.
By their nature, forward looking statements involve risks and uncertainties and
readers are cautioned that any such forward-looking statements are not
guarantees of future performance. The Trust's actual results and performance
may differ materially from the impression created by the forward-looking
statements. The Trust undertake no obligation to publicly update or revise
forward-looking statements, except as may be required by applicable law and
regulation (including the Listing Rules). No statement in this announcement is
intended to be a profit forecast.
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
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