Interim Results

TR Property Investment Trust PLC 22 November 2006 21 November 2006 TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Highlights * Revenue earnings per share increase of 6.8% * Net asset value increase of 6.8% * Dividend per share increase of 13.3% Dividend An interim dividend of 1.70p (2005: 1.50p) per ordinary share has been declared payable on 8 January 2007 to shareholders on the register on 8 December 2006. The shares will be quoted ex-dividend on 6 December 2006. - MORE - - 2 - TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Financial Highlights Half year ended Half year ended 30 September 30 September 2006 (Unaudited) 2005 % Revenue (Unaudited) Change Total revenue income (£'000) 16,536 15,036 +10.0 Income from operations before tax (£'000) 11,611 10,872 +6.8 Revenue earnings per ordinary share 2.84p 2.66p +6.8 Net dividend per share 1.70p 1.50p +13.3 IFRS Earnings per ordinary share# 17.12p 32.92p -48.0 # Under IFRS capital returns are included in 'Earnings' At At 30 September 31 March 2006 2006 % Balance Sheet (Unaudited) (Audited) Change Investments held at fair value (£'000) 905,218 881,943 +2.6 Shareholders' funds (£'000) 822,921 770,593 +6.8 Shares in issue at end of period (m) 343.9 343.9 - Gearing 9% 12% Net asset value per share 239.33p 224.11p +6.8 Performance Half year ended Half year ended 30 September 30 September Assets and Benchmark 2006 2005 Benchmark performance (price only) +4.7% +17.3% NAV change +6.8% +21.5% Benchmark performance (total return) +6.6% +20.2% NAV total return +7.8% +22.7% IPD Monthly Index total return* +9.0% +9.1% Total return from direct property +10.7% +8.2% Performance Half year ended Year ended 30 September 31 March % Share Price 2006 2006 Change Share price 212.0p 209.5p +1.2 Share price total return +2.2% +66.3% Market capitalisation £729m £720m +1.2 Sources: Thames River Capital/*IPD monthly, six months cumulative - MORE - - 3 - TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Chairman's Statement Introduction In the six months to the end of September 2006 physical property markets in the UK and Europe have continued to see rising values reflecting sustained and strong investment demand. Rental growth has made a contribution to value growth in certain favoured locations, but the primary driver for higher pricing remains the compression in the yields which investors are prepared to accept on their investments. By contrast, equity markets passed through a nervous period of heightened volatility caused by global concerns about inflation and growth. In May, in particular, property share prices across Europe fell by around 10% within a brief three week period. However since June, and despite further base rate increases, equity markets have recovered their poise, and property shares have regained and then exceeded their previous high price levels. UK property shares outperformed Continental stocks in Sterling terms over the period, aiding the Trust's out-performance, and for the first six month period since 2002, the return from our directly held property was higher than the return from our shareholdings. Revenue per share has risen more slowly than in recent reporting periods, but the increase is still a healthy one and your Board is able to raise the interim dividend once again by more than 10%. Asset and Share Price Performance Over the six month period the net asset value (NAV) per share calculated under IFRS rose by 6.8% from 224.1p to 239.3p while the share price rose by 1.2% to 212.0p. In the same period, the benchmark index rose by 4.7%. The shortfall in the performance of the share price relative to the asset value per share reflects the change in the discount to NAV at which the shares traded and this rose from 6.5% to 11.4% over the period. Revenue Results and Interim Dividend I commented in my annual statement that the growth in the current year's revenue per share was expected to be at a lower percentage level than the exceptional increase of 20.7% seen in the year to March 2006. In the event, the revenue earnings in the six month period now reported were 2.84p per share compared with 2.66p in the first six months of last year: a percentage increase of 6.8%. This reflects the general trend in the underlying dividend increases from our equity investments as well as a temporary decline in our rental income while we let space in our office property at Slough. The Board has pleasure in raising the interim dividend by 13.3% from 1.50p per share to 1.70p per share. The dividend will be paid on 8 January 2007 to shareholders on the register on 8 December 2006. Total Returns Taking into account the value of the final dividend paid in July 2006, the total returns in the period were 7.8% for the NAV and 2.2% for the share price. In the same period, the benchmark gave a total return of 6.6%. Portfolio Distribution The distribution of the portfolio shows only modest change since the end of March. Our UK equities increased by 1.7% to 55.7% of our gross assets, while our UK direct property increased slightly to 7.5%, reflecting good performance. Under current circumstances, this distribution is unlikely to alter significantly in the remainder of the financial year. -MORE- - 4 - TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Chairman's Statement continued Gearing and Currencies The Trust's net debt fell from £98m to £75m over the period and the on-balance sheet gearing ratio from 12.0% to 9.2%. For most of the six months, net debt was slightly over £100m and the decline to £75m occurred close to the half year end as a result of substantial capital remittances from takeover bids and tender offers in Spain. Net debt has increased again since the start of October and the gearing level is expected to remain between 5% and 20% for the remainder of the financial year. Almost all of our debt continues to be denominated in Sterling and our portfolio exposure to foreign currency assets and income continues to be virtually unhedged. In the six month period, March to September, Sterling rose against the Euro by 2.9%. Discount and Share Repurchases The average discount over the period was 7.8% compared to 9.4% in the same period in 2005, and to 8.25% for the whole of the last financial year. We continue to watch for pricing opportunities to buy back shares but none were repurchased in the half year. Revenue Outlook At the revenue level our managers expect that, subject to unforeseen circumstances, gross revenue for the half year now reported will represent some 70% of our expected full year gross revenue, as against 71% last year. On this basis the Board expects earnings growth in the full year to be in the range of 5% to 10%. Nearly 50% of the Trust's gross assets are invested in UK companies that have declared an intention to become UK REITs. Those companies which fulfil their intention are generally expected to make substantial one-off dividend increases at some stage during 2007 or 2008, and though the timing and extent of these increases are yet to be revealed, the Trust is likely, if these investments are retained, to see a very positive increase in its own income over the next two years. Market Outlook Demand for real estate investment and for property securities continues to be extremely strong across Europe - irrationally so in the minds of many market professionals. Hunting for the catalyst that will reverse the strong capital flows and drive prices lower is, however, proving very frustrating for the pessimists, partly because the acceptable return expectations from all investment classes appear to have fallen. In the UK the consensus view amongst property professionals is that 2007 will see a soft landing in the commercial investment market. Property yields are expected to stabilise at around current levels and, as a fall in yields has been the main driver of higher values, this implies that next year's UK property average total return will be in the 7% to 8% range rather than the high teens percentage returns seen in the last three years. This expectation assumes that the current imbalance between buyers and sellers in the market will shortly vanish either because the abundance of liquidity chasing property will subside or large scale fresh supplies of property will come on offer. Perversely neither of these events appears about to occur. The Trust continues to be modestly geared and the portfolio remains overweight in the UK where share prices are still close to or below underlying asset values. The new REITs regime starts in January and if present pricing persists there is a chance that we will find that merger and acquisition activity will benefit our returns in 2007. We continue to be positive for the growth in value of real estate in Europe outside the UK, but many European property shares are trading at substantial premiums to asset value, and we find such ratings harder to justify. - MORE - - 5- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Manager's Report Introduction I apologise that this report reads like a reiteration of my last three reports. This is because property market movements, our investment strategies, the shape of the portfolio and our outlook have all remained fairly constant over the last two years. This summer there have been only a few minor changes to the portfolio, a slight reduction in gearing and modest outperformance of the benchmark. The UK overweight has been retained and the bias in stock selection has continued to be towards value - a bias which I hope will give us potential for further gains from corporate activity. There is also a liquidity bias which I see as possibly offering protection to the very substantial gains we have made in the last ten years. For sure, one day property values and property share prices will have become so overheated that the inevitable occurs. We had a short rehearsal for a future bear market during May. Against the background of uncertainty in the US bond market regarding the trends in inflation, global equity markets fell sharply and trading conditions became very volatile to the extent that the net asset value of the Trust moved by more than 4% a day, twice in a week. Overall, the Trust suffered only a superficial scratch which has now healed completely, but we were grateful that, had we wished to make major disposals, we were not too widely exposed to shares with low or nil marketability. European Commercial Property Market Background Direct markets have been blazing. Indeed 2006 is likely to see Pan European investment property turnover exceed €200 billion and so break all previous records. Average total returns across Europe are expected to be in low to mid teens, with the UK well up the field in the 17% to 19% range. While domestic investors have been busy, the major driving force has been cross border activity. Germany has been the focus for foreign capital, particularly from the US, due to its constant underperformance in recent years. Huge volumes of property have been available as German private and public bodies seek to restore their finances by rushing to sell real estate that had, until recently, been virtually unsaleable. In the frantic rush to spend, new markets and sectors have been opened up. Eastern European property yields have now fallen almost to Western European levels as buyers assume that the political and economic risk in these new economies has all but been eliminated. Property types previously considered as beyond the definition of acceptable institutional investments, such as hotels, hospitals, nursing homes and self storage centres, are now entering the mainstream market. Maybe we shall have REITs for golf courses, caravan parks and prisons before long. Office buildings remain the largest investment area by type of building. They have the highest availability, are relatively easy to manage, and there are positive signs of rental growth in the financial capitals in Europe due to rising service sector employment and a lack of fresh development. Retail property incites the greatest divergence of opinion due to concerns over consumer expenditure, but the very few high quality centres offered this summer have found ready buyers. Property Share Background Over the past few years, property shares have been behaving more like property and less like equities, so that the correlation between direct and indirect property investment has been improving consistently. Not so in the half year to the end of September, when, in contrast to direct markets, European property share markets had an anxious summer and produced a half year total return that was the lowest for any six month period since 2001. As noted above, May saw prices tumble by 7%, in line with the retreat by global equity markets generally. The weak performance relative to direct markets was partly a reaction to the exuberant outperformance in the first quarter of the year, partly a reflection of short selling by absolute return funds, and partly a reaction to the wave of new issues and rights issues thrown at investors during the spring. - MORE - - 6 - TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Property shares started to recover from the third week of May, slightly earlier than general equity markets, the nadir in the UK being marked by Land Securities moving to buy back shares. The recovery since has gained momentum aided by continued strong money flows into indirect funds, by a sharp slowdown in new and rights issues, by the imminent arrival of new REIT regimes in both the UK and Germany, by cash takeover bids in Spain, and lastly by good trading results from all quarters of Europe. Performance across the region was somewhat diverse. Our benchmark total return of 6.6% was bettered in only four countries - Spain up 22% thanks to takeover activity, France +11% thanks to improved rental growth potential in 2007, Germany +7.7% and the UK +7.5% both due to the potential for REITs. At the bottom of the table, Danish property shares (of which we held none) produced a total return of - 22%, Italy -8% on scares that stamp duty would be raised to 10% and Sweden -3% on concern about tax on property trading profits. Investment Activity and Distribution of Assets Our equity market turnover has again been at a low level and the distribution of the assets was little changed over the period. We continue to hold over half the assets in UK property shares. There are five basic reasons for this. The first is value - UK property shares are still trading at small discounts or modest premiums to their net asset values, while there is an average premium to asset value of around 30% on property shares in other European markets. This divergence is caused primarily by two factors - the higher income from continental stocks and the belief that continental yields still have further to compress than UK yields. Our second reason for the UK overweight is our belief that London is the region which will see the best rental growth across Europe in the next two years. On a see-through basis, and retail assets aside, the portfolios of our UK property shares are heavily biased towards property inside the M25. Thirdly, UK companies have more conservative balance sheets and greater future income visibility than European companies. Fourthly, REITs are to be introduced to the UK at the start of 2007, increasing dividend yields and removing inherent capital gains tax liabilities. If discount pricing persists after companies have entered REIT status then we believe that there will be more room for corporate activity in the UK sector than elsewhere in Europe. Finally, we have a UK bias because we are based here. In a period when, as now, markets are being driven primarily by momentum, we think it wise to keep the majority of the Trust's assets fairly close to a market we can best feel and see, due to the fact that we have a direct property element in our portfolio. New issues have been a feature of the market throughout 2006. We have stood back from most of the offerings, particularly the many externally managed companies. Those we have bought have performed well: our two largest IPO investments, Icade in France and Riofisa in Spain have risen in value by 41% and 58% respectively since their launches in May and July this year. Largest Equity Investments The list of our top forty investments is shown on page 16. The top ten are the same group as at the year end, though the order has changed slightly and their aggregate value at £477m was 53% of total investments. There were only three departures from the top forty - Immobiliaria Colonial and BAA were taken over for cash, and PSP Swiss Property slipped from 38th to 42nd place. The three new entries are Shaftesbury, a UK investment company specialist in London's Soho and Covent Garden, Silic, the Paris office and warehouse owner and developer and Kardan, a Dutch listed conglomerate active in Eastern European real estate, financial services, water treatment and with a house building arm in China. Aside from the bids mentioned above, we sold down a significant part of our Metrovacesa holding in Spain into a cash tender offer and our holding dropped in value accordingly. Several of the top forty shares are currently involved in merger or takeover talks. Fonciere des Regions (11th) is merging with Bail Investissement (18th) and the resulting group will enter the top ten in the second half. Grainger Trust (14th) has received an approach that may lead to a bid, London Merchant Securities (35th) has agreed to a share offer from Derwent Valley (17th), and a cash bid has been tabled for Urbis (33rd). -MORE- - 7- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 The best performance amongst the top ten holdings came from Big Yellow with a 33% total return, far outpacing the second best performer, Unibail, with a 12% return. The other top ten stocks also all showed positive total returns. Within the rest of the top forty the best performances came in Spain with 36% and 34% returns from Metrovacesa and Urbis. The best top forty return in the UK (after Big Yellow) was Great Portland with 25%. On the negative side we had only one top forty share with a total return worse than minus 10% - Pirelli Real Estate in Italy, the shares of which were badly affected by the changes in Italian transfer taxes. Gearing We started the half year with net debt of £98m and through most of the period net debt was in the £100m to £110m range and gearing at between 12% and 14%. The period ended with net debt of £75m and gearing of 9.2% because, at the end of September, we received the £28m proceeds from the takeover bid for Colonial and the tender offer for Metrovacesa. Since the end of September these funds have been reinvested and net debt has returned to over £100m. Direct Property Portfolio We failed to buy any more property over the summer despite making offers on a number of buildings. The revaluation at September showed a gain of just under 9% and with the income, the total return was 10.7% for the half year, which compares with the Investment Property Databank total return for the same period of 9%. Activity in the portfolio was focused on letting the vacant space at Thames Central, our grade A office building in central Slough. Shareholders will recall that we bought this property entirely vacant in May 2005. At March 2006 vacancy stood at 43,000 sq ft (69% of total space), since when we have let a further 21,000 sq ft and put 2,000 sq ft under offer. The property is now 65% let and following completion of rent free periods the space let to date generates annual rent of £700,000 per annum. Elsewhere, we have re-geared 6 of the 15 leases at the industrial property in Wandsworth, increasing the total rent by over 10% to just over £500,000 per annum. Unquoted Investments The Trust currently has no unquoted equity investments. Looking Ahead to 2007 We have a positive view for real estate securities in 2007, albeit the need for vigilance increases constantly as yields decline and premiums to asset value grow. The money flows we mentioned in the last Annual Report show no sign of diminishing. New large global real estate funds are being announced almost daily across the globe and this capital has to find a home in markets where supply is extremely inelastic compared with equity or bond markets. Over-development, which has been a feature of the last two major European property share bear markets, is not yet worrying, save in a few locations in Eastern Europe. Indeed, in parts of London, Paris and Madrid, conversion of office space to residential use is draining property out of the commercial market nearly as fast as new development is adding floorspace, and residential value growth provides an important backstop to commercial values in many locations. January sees the arrival of the REIT regime in the UK, and most of the major UK property companies are expected to convert. Those managements who have pronounced on the subject have sought to play down investor expectations, and to stress that life will be much the same for their shareholders after conversion. We think they may be underestimating the potential desire for change. In particular, we foresee the diversified companies coming under pressure to split their businesses into smaller focused companies, which we would expect to enjoy higher share price ratings. If the UK property market stays in its current mood, and if discount pricing conditions continue in the UK property share market, then we would not be surprised to see some of the enormous capital tied up in global private equity funds unleashed to chase a number of quoted UK companies. - MORE - - 8- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Group Income Statement for the half year ended 30 September 2006 Half year ended 30 September Half year ended 30 September Year ended 31 March 2006 2005 2006 (Unaudited) (Unaudited and Restated#) (Audited) Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Investment income Investment income 14,313 - 14,313 12,688 - 12,688 18,249 - 18,249 Other operating income 40 - 40 48 - 48 104 - 104 Gross rental income 1,454 - 1,454 1,648 - 1,648 3,044 - 3,044 Service charge income 729 - 729 652 - 652 1,746 - 1,746 Gains on investments held at fair value - 50,925 50,925 - 107,406 107,406 - 280,820 280,820 ---------- --------- ---------- ----------- --------- ---------- ---------- --------- --------- Total income 16,536 50,925 67,461 15,036 107,406 122,442 23,143 280,820 303,963 ---------- --------- ---------- ----------- --------- ---------- ---------- --------- --------- - Expenses Management and performance fees 1,630 815 2,445 1,427 2,070 3,497 2,812 10,826 13,638 Direct property expenses, rent payable and service charge costs 1,147 - 1,147 861 - 861 2,685 - 2,685 Other expenses 356 - 356 320 - 320 580 - 580 Finance costs (note 2) 1,792 1,792 3,584 1,556 1,556 3,112 3,192 3,192 6,384 ---------- --------- ---------- ---------- --------- ---------- ---------- --------- --------- Total operating expenses 4,925 2,607 7,532 4,164 3,626 7,790 9,269 14,018 23,287 ---------- --------- ---------- ---------- --------- ---------- ---------- --------- --------- Income from operations before tax 11,611 48,318 59,929 10,872 103,780 114,652 13,874 266,802 280,676 Taxation (1,850) 782 (1,068) (1,712) 439 (1,273) (2,036) 1,075 (961) -------- --------- --------- --------- ---------- ---------- --------- ---------- --------- Net profit 9,761 49,100 58,861 9,160 104,219 113,379 11,838 267,877 279,715 ===== ===== ===== ===== ====== ====== ===== ====== ====== Earnings per ordinary share (note 3) 2.84p 14.28p 17.12p 2.66p 30.26p 32.92p 3.44p 77.85p 81.29p The total column of this statement represents the Group's 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. The final dividend of 1.90p in respect of the year ended 31 March 2006 was declared on 24 May 2006 and paid on 28 July 2006. This can be found in the Group Statement of Changes in Equity for the half year ended 30 September 2006. #See note 4 - MORE - - 9- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Group Statement of Changes in Equity Capital Share Redemption Retained For the half year ended 30 September 2006 Share Capital Premium Reserve Earnings Total (Unaudited) £'000 £'000 £'000 £'000 £'000 Net assets at 31 March 2006 85,962 37,063 36,343 611,225 770,593 Net gain for the period - - - 58,861 58,861 Ordinary dividends paid - - - (6,533) (6,533) ----------- --------- ---------- --------- ---------- Net assets at 30 September 2006 85,962 37,063 36,343 663,553 822,921 ====== ====== ====== ====== ====== Capital Share Redemption Retained For the half year ended 30 September 2005 Share Capital Premium Reserve Earnings Total (Unaudited) £'000 £'000 £'000 £'000 £'000 Net assets at 31 March 2005 86,591 37,063 35,714 348,282 507,650 Ordinary shares repurchased (629) - 629 (3,340) (3,340) Net gain for the period - - - 113,379 113,379 Ordinary dividends paid - - - (5,329) (5,329) ----------- --------- ---------- --------- ---------- Net assets at 30 September 2005 85,962 37,063 36,343 452,992 612,360 ====== ====== ====== ====== ====== For the year ended 31 March 2006 Capital Share Redemption Retained Share Capital Premium Reserve Earnings Total (Audited) £'000 £'000 £'000 £'000 £'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 ====== ====== ====== ====== ====== - MORE - - 10- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Group Balance Sheet as at 30 September 2006 Half year ended Half year ended Year ended 30 September 30 September 31 March 2006 2005 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Non-current assets Investments held at fair value 905,218 704,575 881,943 Current assets Debtors 3,524 2,648 1,431 Cash and cash equivalents 64 413 2,701 --------- --------- ---------- 3,588 3,061 4,132 Current liabilities 42,160 55,324 72,521 ---------- ---------- ---------- Net current liabilities 38,572 52,263 68,389 Total assets less current liabilities 866,646 652,312 813,554 Non-current liabilities 43,725 39,952 42,961 ---------- ---------- ---------- Net assets 822,921 612,360 770,593 ====== ====== ====== Capital and reserves Ordinary called up share capital 85,962 85,962 85,962 Share premium 37,063 37,063 37,063 Capital redemption reserve 36,343 36,343 36,343 Retained earnings 663,553 452,992 611,225 ---------- ----------- ----------- Equity shareholders' funds 822,921 612,360 770,593 ====== ====== ====== Net asset value per share 239.33p 178.09p 224.11p - MORE - - 11- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Group Cash Flow Statement As at 30 September 2006 Half year ended Half year ended Year ended 30 September 30 September 31 March 2006 2005 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Net cash (outflow)/inflow from operating (1,623) 6,553 5,415 activities Investing activities Purchase of investments (36,494) (60,529) (125,257) Sale of investments 62,925 55,631 120,156 ---------- ---------- ----------- Net cash inflow/(outflow) from investing 26,431 (4,898) (5,101) activities ---------- ---------- ----------- Net cash inflow before financing 24,808 1,655 314 ---------- ---------- ----------- Financing activities Purchase of own shares - (3,340) (3,340) Equity dividends paid (6,533) (5,329) (10,487) ----------- ----------- ----------- Net cash outflow from financing (6,533) (8,669) (13,827) ----------- ----------- ----------- Increase/(decrease) in cash 18,275 (7,014) (13,513) Effect of foreign exchange rate changes 97 (65) (119) ----------- ----------- ----------- Change in cash and cash equivalents 18,372 (7,079) (13,632) Net debt at start of period (95,092) (81,460) (81,460) ----------- ----------- ----------- Net debt at end of period (76,720) (88,539) (95,092) ======= ======= ======= Reconciliation of income from operations before tax to net cash inflow from operating activities Half year ended Half year ended Year ended 30 September 30 September 31 March 2006 2005 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Net income from operations before tax 59,929 114,652 280,676 Gains on investments including transaction costs (50,925) (107,406) (280,820) (Increase)/decrease in operating debtors (489) 819 325 (Decrease)/increase in operating creditors (423) 582 7,399 Net tax paid (281) (670) (741) Performance fees paid (9,434) (1,424) (1,424) ---------- ---------- ---------- Net cash (outflow)/inflow from operating (1,623) 6,553 5,415 activities ====== ====== ====== - MORE - - 12- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 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). The financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated. (a) Basis of consolidation The Group accounts consolidate the financial statements of the Company and its subsidiaries to 30 September 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 note 3. In arriving at this breakdown, expenses have been presented as revenue items except as follows: - 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 interest 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. - MORE - - 13- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 (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 subsidiaries 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. All the Group's investments are defined under IFRS as investments designated as fair value through profit and loss but are also described in these financial statements as investments held at fair value. All investments are designated upon initial recognition as held at fair value, and are measured at subsequent reporting dates at fair value, which, for quoted investments, is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. Unquoted investments 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. -MORE- - 14- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 (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. 2. Finance costs Half year ended Half year ended Year ended 30 September 2006 30 September 2005 31 March 2006 (Unaudited) (Unaudited) (Audited) Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Bank loan and overdraft interest 828 828 1,656 607 607 1,214 1,288 1,288 2,576 Debenture interest 964 964 1,928 949 949 1,898 1,904 1,904 3,808 -------- -------- -------- -------- -------- -------- -------- -------- -------- 1,792 1,792 3,584 1,556 1,556 3,112 3,192 3,192 6,384 ==== ==== ==== ==== ==== ==== ==== ==== ==== -MORE- - 15- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 3. Earnings per ordinary share The earnings per ordinary share above can be analysed between revenue and capital, as below. Half year Half year Year ended ended ended 30 September 2006 30 September 2005 31 March 2006 (Unaudited) (Unaudited) (Audited) £'000 £'000 £'000 Net revenue profit 9,761 9,160 11,838 Net capital profit 49,100 104,219 267,877 ---------- ----------- ----------- Net total profit 58,861 113,379 279,715 ====== ====== ====== Weighted average number of ordinary shares in issue during the period 343,850,000 344,375,372 344,113,406 pence pence pence Revenue earnings per ordinary share 2.84 2.66 3.44 Capital earnings per ordinary share 14.28 30.26 77.85 --------- --------- --------- Earnings per ordinary share 17.12 32.92 81.29 ===== ===== ===== 4. Prior period restatements Gains on investments held Other Finance at fair value expenses costs £'000 £'000 £'000 As previously stated at 30 September 2005 108,168 759 1,559 Adjustments (762) (759) (3) ---------- -------- --------- Restated amount 107,406 - 1,556 ---------- -------- --------- In line with the treatments at 31 March 2006, £759,000 of transaction costs and a £3,000 increase in the present value of future lease payments on investment properties are now included in 'Gains on investments held at fair value'. - MORE - - 16- TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 5. Changes in share capital There were no changes made to the issued share capital during the period. As at 30 September 2006 there were 343,850,000 ordinary shares of 25p in issue. 6. Comparative information The financial information contained in this interim statement does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the half year ended 30 September 2005 and 30 September 2006 has not been audited. The figures and financial information for the year ended 31 March 2006 are an extract from the latest published accounts and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors, which was unqualified and did not contain a statement under either section 237(2) or 237(3) of the Companies Act 1985. Largest Quoted Investments as at 30 September 2006 Market Market Market Value Value Value £'000 £'000 £'000 Land Securities 115,128 Eurocommercial Properties Deutsche Wohnen British Land 73,656 (Netherlands) 11,797 (Germany) 6,321 Hammerson 51,824 Derwent Valley 10,512 Helical Bar 6,150 Big Yellow Group 43,210 Bail Investissement Gecina (France) 6,052 Rodamco Europe (France) 9,706 Urbis (Spain) 5,963 (Netherlands) 40,487 Quintain Estates & Wereldhave Slough Estates 39,734 Developments 9,625 (Netherlands) 5,839 Unibail (France) 34,231 Capital & Regional 8,776 London Merchant Liberty International 28,175 IVG Immobilien (Germany) 8,709 Securities 5,807 Castellum (Sweden) 26,136 Metrovacesa (Spain) 8,362 Shaftesbury 5,741 St Modwen Properties 24,960 Immoeast Immobilien Pirelli Real Estates Fonciere des Regions Anlagen (Austria) 8,259 (Italy) 5,574 (France) 20,090 Kungsleden (Sweden) 7,807 Silic (France) 5,254 Klepierre (France) 17,190 Brixton 7,723 Kardan (Netherlands) 4,667 Corio (Netherlands) 15,779 Rugby Estates 7,149 Risanamento (Italy) 4,472 Grainger Trust 14,287 Beni Stabili (Italy) 7,091 Vastned Retail Cofinimmo (Belgium) 7,083 (Netherlands) 12,724 Great Portland Estates 6,867 The above 40 largest quoted investments amount to £738,917,000 or 82% of total investments (convertibles and all classes of equities in any one company being treated as one investment). -MORE- - 17 - TR PROPERTY INVESTMENT TRUST PLC Unaudited interim results for the half year ended 30 September 2006 Principal Investment Properties as at 30 September 2006 Location Sector Tenure Size (sq ft) Value in excess of £10m The Colonnades, Bishops Bridge Road, London W2 Mixed Use Freehold 44,000 Thames Central, Hatfield Road, Slough Offices Freehold 62,645 Value in excess of £5m Elizabeth House, Duke Street, Woking, Surrey Offices Freehold 54,150 Cambridge Science Park, Cambridge Offices Leasehold 38,500 Ferrier Street Industrial Estate, Ferrier Street, Wandsworth, London SW18 Industrial Freehold 35,800 Value below £5m Exchange House, Liphook Offices Freehold 9,641 - ENDS - For further information, please contact: Chris Turner TR Property Investment Trust plc Telephone: 020 7360 1332 Marcus Phayre-Mudge TR Property Investment Trust plc Telephone 020 7360 1331 This information is provided by RNS The company news service from the London Stock Exchange

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