Preliminary Announcement of Results
This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.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 results for the year ended 31 March 2012
23 May 2012
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ORDINARY SHARES
Financial Highlights and Performance
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Year ended 31 March 2012 |
Year ended 31 March 2011 |
% Change |
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Revenue |
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Revenue earnings per share |
7.07p |
6.94p |
+1.9 |
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Net dividend per share |
6.60p |
6.00p |
+10.0 |
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At 31 March 2012 |
At 31 March 2011 |
% Change |
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Balance Sheet |
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Net asset value per share |
183.62p |
207.08p |
-11.3 |
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Share price |
154.50p |
177.10p |
-12.8 |
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Net debt |
10% |
7% |
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Shareholders' funds (£'000) |
470,472 |
530,602 |
-11.3 |
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Shares in issue at end of period (m) |
256.2 |
256.2 |
- |
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Performance |
Year ended |
Year ended |
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31 March |
31 March |
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2012 |
2011 |
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Benchmark performance (total return) |
-8.9% |
+15.2% |
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NAV total return |
-8.5% |
+15.4% |
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Share price total return |
-9.5% |
+12.6% |
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SIGMA SHARES
Financial Highlights and Performance
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Year ended 31 March 2012 |
Year ended 31 March 2011 |
% Change |
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Revenue |
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Revenue earnings per share |
2.60p |
2.57p |
+1.2 |
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Net dividend per share |
2.60p |
2.15p |
+20.9 |
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At 31 March 2012 |
At 31 March 2011 |
% Change |
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Balance Sheet |
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Net asset value per share |
94.62p |
111.94p |
-15.5 |
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Share price |
70.70p |
83.45p |
-15.3 |
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Net debt |
5% |
8% |
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Shareholders' funds (£'000) |
117,773 |
139,841 |
-15.8 |
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Shares in issue at end of period (m) |
124.5 |
124.9 |
-0.3 |
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Performance |
Year ended 31 March 2012 |
Year ended 31 March 2011 |
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Benchmark performance (total return) |
-12.1% |
+16.9% |
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NAV total return |
-13.6% |
+16.5% |
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Share price total return |
-12.7% |
+19.7% |
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Chairman's Statement
Introduction
My opening comments reiterate two themes that dominate our investment world - the volatility of equity markets and the overarching impact of macro events. The sell off in European equity markets started at the end of June and continued, with intermittent rallies, into the late autumn. After a poorly coordinated response between central banks and member states it was a relief to note both the appointment of technocrat leaders in Greece and Italy as well as the increased scope of European Central Bank intervention with the introduction of 3 year Longer-term Refinancing Operations (LTROs). None of these actions are sufficient to solve the crisis but at least they provide us with some evidence of forward thinking amongst governments and central bankers. The response from the markets was positive with a 20% rally in European equity markets between mid December and mid March. Clearly the Eurozone's problems have not disappeared and at the time of writing markets are, once again, very nervous.
The year end total return figures are a considerable improvement on the Interim position, although disappointingly still negative. Both share classes experienced positive absolute performance in the second half. In addition relative outperformance of their respective benchmarks into this market recovery from mid December aided performance recovery.
Although property companies' share prices fell over the 12 months to March, their earnings did not and it is pleasing to announce both record revenue earnings and significant increases in the final dividends in both share classes.
The management fee has been re-negotiated giving a slight reduction over last year.
From 1 April 2012 the benchmarks for both share classes were moved to a net of tax basis. The fund is subject to UK corporation tax and withholding taxes on overseas dividends and the net of tax versions of the benchmarks are more appropriate measures of performance and give greater transparency to shareholders.
In addition, the board has reviewed the Performance Fee arrangements. The improvements bring increased transparency and simplification to the calculation whilst ensuring that there is sharp attention paid to cost control by your managers. The scheme should continue to encourage long term investment decisions whilst appropriately incentivising management.
NAV and Share Price Performance
The Ordinary share class showed an NAV total return of -8.46% versus a benchmark total return of -8.89%. However the share price total return was -9.51%.
For the Sigma share class, the NAV total return was -13.56% and the benchmark total return was -12.10%. The Sigma share price total return was
-12.74%.
More detail on the absolute and relative returns are set out at the start of each share class report and are commented on by the fund managers.
Revenue Results
Revenue in both share classes has exceeded our managers' half year expectations. Whilst this is primarily a consequence of higher dividend receipts, a lower tax charge also helped. For the Ordinary share class a number of the larger companies moved dividends back from early April to late March, shifting revenue from the 2012/13 financial year into the 2011/12 year. The timing of dividend receipts is outside our control. More detailed comment on revenue and taxation is included in the managers' reports. In summary, the Ordinary revenue earnings per share rose 1.9% to 7.07p per share and the Sigma revenue earnings rose 1.2% to 2.60p per share.
Ordinary Shares Dividend
The Board is proposing to shareholders an Ordinary share class final dividend of 4.20p which compares with the previous year final dividend of 3.70p. Taken together with the interim dividend of 2.40p already paid, this will bring the full year payout to 6.60p an increase of 10.0% over the 6.00p paid last year.
Sigma Share Class Dividend
The Board is proposing to shareholders a Sigma share class final dividend of 1.65p which compares with the previous final year dividend of 1.25p. Taken together with the interim dividend of 0.95p already paid, this will bring the full year payout to 2.60p an increase of 20.9% over the 2.15p paid last year. This is 100% of the Sigma share class earnings for the year and a payout ratio which the Managers would expect to set the tone for future dividend payments, subject of course to market conditions.
Revenue Outlook
Details of the revenue outlook are noted in each of the managers' reports. In summary, our managers' are advising the Board that, subject to unforeseen circumstances, they expect that the revenue for the Ordinary share class will be in the order of 6.60p per share, a decline of -6.6%. The expectation of a decline in the Ordinary share class revenue partially reflects the anticipation that the dates of some dividend receipts will move back to April from March. Underlying earnings in local currency from the companies we invest in are not expected to fall. Once again I must highlight that only circa 40% of our revenue is received in Sterling and the managers' outlook is based on current exchange rates.
The Managers expect revenue in the Sigma share class to increase by approximately +7.7% to 2.8p per share, reflecting continued growth in dividend receipts from the companies we invest in. Our medium term forecasts suggest that revenues will continue to grow beyond next year, albeit at a reduced rate.
Net Debt and Gearing
Both share classes had modest gearing throughout the year which fluctuated between 4% and 14%. The Ordinary share class started the year with net debt of £37m and finished the year with £45m. The comparable figures for Sigma are £11m and £6m. The debt facilities continue to be a mixture of short and medium term facilities. Alongside the £15m 2016 debenture loan, the Trust has a £50m one year variable rate multi-currency facility with The Royal Bank of Scotland and a two year £30m facility with ING. The Trust will continue to utilise Contracts for Difference (CFDs) when appropriate to obtain competitively priced gearing.
Currencies
As in previous years, the portfolios' exposure to foreign currencies was not hedged at the income level. Currency hedging continues to be applied at the asset level to ensure that the capital exposure to currencies is not materially different to that of the benchmarks.
Over the year, Sterling appreciated against the Euro by 6%; by 4.5% against the Swedish Krona, and 2.8% against the Norwegian Krone. The only European currency it weakened against was the Swiss Franc, by 1.8%. Sterling has continued to strengthen post the year end.
Discount and Share Repurchases
The Ordinary share price discount to net asset value started the year at 13.0% and ended the period at 14.3%. The average over the period was 8.5% as the discount tightened abruptly in the middle of the year. The Sigma share price discount to net asset value started the year at 24.4% and ended the period at 23.9%. The average over the period was 21.1%. A total of 0.45m (0.36% of issued) shares were repurchased for cancellation at an average price of 71.1p.
The Board pays close attention to the level of discount to net asset value across each share class and careful consideration has been given to the most appropriate means of optimising the situation for shareholders given the stated objectives of the Company and each share class. The Board seeks to balance a number of considerations in formulating its policy. These include the views of shareholders, the long term focus of each share class, the nature of each class's holdings and the need for liquidity. The Board consider that the long term objective of each share class remains entirely appropriate. Whilst it is cognisant of the short term benefits of share buybacks, it is mindful of the need to balance such buybacks with longer term objectives and the desire of the majority of shareholders to maintain exposure to the sector in a liquid form. It is the Board's view that it would be undesirable to shrink either share class to a level whereby liquidity would be constrained. This is particularly relevant in the case of Sigma, where the market cap has fluctuated around the £100 million level over the last few years.
Outlook
Whilst my introductory comments focused on the positive sentiment exhibited in the first three months of 2012 (being the final quarter of our financial year), I also highlighted the persistent volatility in investor attitudes (and therefore share prices). Drafting these observations in mid May is a case in point, European equities have now fallen -10.2% from their mid March highs as investors whilst appreciating the hugely positive solvency impact of the LTROs, return to focusing again on the unsolved structural issues of Europe. Against this backdrop of instability, your managers intend to concentrate on businesses with sound balance sheets, invested in markets which have the greatest likelihood of employment and wage growth or where the quality real estate has supply constraints. They are taking a defensive stance. One consequence of the current turmoil is a greater divergence of returns across countries, sectors and inevitably at the company level. This led to an increasing concentration of exposure and the managers' reports will elaborate.
Unfashionable as it may be to offer an upbeat message I would like to draw your attention to the revenue results and outlook. Our earnings are dividends and in the Ordinary Share Class these are coupled with some direct property rental income. Quality property companies are continuing to benefit from high levels of tenant occupancy coupled with low short term debt rates and there is no sign of the ECB raising the reference interest rate. Our larger investee businesses also have access to a broad range of funding sources which continues to ensure lenders remain competitive. Borrowing margins are stable for the most secure companies. Whilst rental growth will continue to be hard to come by, most of our Continental European property companies' income is also invariably index linked. Tenant delinquencies also remain surprisingly low by historic standards. Therefore, whilst there remains enhanced volatility in equity prices, the revenue outlook currently appears much more stable.
Peter Salsbury
Chairman
Market Background and Outlook
Introduction
We began last year's Managers' Report by highlighting the extreme polarity of property markets, in which good property rose in value and poor property declined. The twelve months to the end of March 2012 has seen a continuation of this theme. Demand for prime office and retail properties in Central London (especially the West End) has rarely been stronger. Both anecdotal evidence and research produced by London's property consultants shows that London remains one of the most highly sought-after locations for domestic and international capital. Conversely, investor demand for Dutch or Belgian offices is scant and prices have been falling throughout the year.
This disparity between the best and worst is mirrored in the significant differences between sovereign, corporate and consumer environments both within Europe and beyond. We see no signs of this situation changing. It will remain a feature of our investment markets for the foreseeable future.
In spite of the obvious issues facing Europe, we remain broadly positive about our markets. Listed real estate companies enjoy favourable access to both debt and equity capital compared to their private counterparts and the year brought a regular flow of announcements concerning successful debt refinancings. The companies we invest in report that whilst negotiations with banks are tough and bank margins (the price of debt the bank charges over the base interest rate) remain elevated, they are able to secure the finance they need to manage their businesses profitably. New equity has been rare but even here there have been some encouraging trends. German companies have raised over €1 billion of fresh equity in the last twelve months and we anticipate further capital being raised for this market over the coming year.
Property company revenues have proven to be remarkably resilient over the last few years. Whilst UK GDP fell by over 7% peak to trough and the revenues of all listed companies in the UK fell similarly between 2008 and 2009, the revenues of the largest listed real estate companies remained broadly flat over this timeframe and outside the UK average revenues actually increased. Rental income dominates the returns that real estate investors receive over time and this relatively high, relatively secure income stream is what attracts many investors to the sector. We forecast that revenues and dividends from the companies we invest in will continue to show positive growth over the next few years, albeit the dispersion of returns will not be uniform. For this reason, we will remain selective in investing shareholders' capital, seeking greatest exposure to the most attractive markets.
Listed property markets offer superior liquidity compared to physical markets. As property equity managers we are able to rapidly alter exposure in response to changing prospects. A glance at the portfolio exposure statistics contained in this report demonstrates that both portfolios are currently heavily exposed to London offices and German residential companies. We firmly believe that over time this focused approach to the best real estate companies operating in Europe's most attractive markets will generate superior returns for investors.
Liquidity, however, comes with a price tag that has been particularly evident in the last few years: volatility. Whilst real estate shares do provide returns in line with the best physical real estate returns over time (and do so with the benefit of best in class management and leverage), in the short term prices can move around independently of underlying asset prices. This is the case against even the most benign economic backdrop so it is hardly surprising that at times of acute macro risk, such as during the last 5 years, share prices should prove especially volatile. This volatility is something that we as fund managers have learnt to live with, if not to appreciate. Unfortunately we see little prospect of macro risks subsiding in the short term. The situation in the Eurozone has improved in some respects but not enough for your managers to have full confidence in its short term prospects. There remain economic, political and structural issues to deal with that will take many years to set right.
Property Markets
Cross border investment continues to be intensely focused and as a consequence is fuelling capital value growth in the key 'city states' within our universe - London and to a lesser extent Paris. London has the necessary conditions for long term capital growth (or at least capital preservation for the more bearish) of relatively fixed physical supply combined with the deepest property investment market in Europe (£3.3bn of transactions in Q1 2012). Importantly it is outside the Euro. Whilst this theme has been running for several years it shows no signs of abating. In fact the geopolitical events of the last twelve months have merely strengthened it. Between 2007 and 2011 London experienced inward investment of cross border capital of £52bn, almost five times as much as Manhattan, New York and more than double the nearest rival Paris. This capital has been invested in both commercial and residential markets. Knight Frank estimate that prime residential values rose 11.2% in 2011 and 2.7% in Q1 2012. It is not just investors; occupiers are also increasingly aware of the scarcity of the best space. International luxury brands are paying record rents on Bond Street and the largest listed retail property landlord in Covent Garden, Carnaby and Soho (Shaftesbury) has vacancy of less than 1%. Grade A office space availability is 5.1% in West End and 7.1% in the City of London. In Paris, office rents rose in all submarkets (except the inner suburbs) last year. Vacancy across Greater Paris is 7% and supply is very tight with only 376,000 sq m (circa 1% of stock) being delivered in 2012 and 2013 and two-thirds of that is pre-let. These markets are not immune from the wider economy. However, the diversity of tenants is ensuring steady demand. In the City, it was the insurance and fund management sectors as opposed to traditional banking that dominated take up last year whilst in the West End, technology, telecoms and media dominated rather than the traditional private banking and hedge fund occupiers.
Property's defensive qualities remain its key attraction and that means investors are targeting above average income streams, strong covenants and sub-markets where new supply cannot overwhelm (fragile) demand. For international and domestic institutional investors alike, this has focused their interest into a relatively small number of cities and sub-markets beyond London and Paris. Secondary assets by virtue of lease length, age of building, location or tenant quality continue to underperform.
Offices
In last year's report we identified London, Paris, Stockholm, Oslo, Warsaw and Geneva as office markets experiencing a recovery in demand and a decline in vacancy. Whilst the list has not grown much we would add most of the major German cities, Vienna and Gothenburg. In certain cities, such as Helsinki and Frankfurt take up has been good but high vacancy persists. Scandanavia and Germany with their strong export markets have seen employment levels rise and this is reflected in office demand. However demand is very focused on high quality space. Advances in air handling, wireless technology and business practices have led to much more efficient use of office space. As occupation densities have risen, tenants can afford to pay for quality. Even in these top tier cities, take up is at best merely ensuring modest increases in rental levels. However with growth both anaemic and concentrated the outlook for the remainder is bleak. With double digit vacancy persisting, net rental values are still drifting lower in Amsterdam, Brussels, Dublin and Madrid. Central European cities, with the exception of Warsaw continue to suffer from oversupply with rental values falling.
London is a good example of just how focused office demand is. The M25 market surrounds Greater London and has an office stock of approximately 130 million sq ft with a long term average annual take up of 2.6 million sq ft. Over each of the last 3 years it has been 2.1 million sq ft and 2012 is showing no sign of improvement on 2011. All a very different story to Central London. However the lack of new development has seen vacancy fall from 8.7% to 8.3% and those markets showing signs of rental growth are both closest to London and tightly focused in the western quadrant; Uxbridge, Chiswick, Staines and further afield Guildford, Reading and Maidenhead. Indeed, offices were the only sector to show rental growth (+2.7%) in the IPD quarterly data for the twelve months to March 2012. The data highlights that Central London offices had rental growth of 5.4% hence rents continued to fall elsewhere in the country, including the South East (ex London).
Retail
As ever in retail it is about customer draw - the winners have been supra regional shopping centres, big box out of town with excellent communication infrastructure and luxury brand pitches. The lack of wage growth, spending cuts and rising cost of living (particularly food and petrol) has resulted in shrinking disposable income. Rapid evolution in e-tailing is changing the way we all shop. In the UK, the 17.6m internet enabled mobile phone users registered in 2011 was double the 2009 figure. Internet sales are now 10% of all retail sales (ex food) and year on year growth was 20%. Increasingly the retail offer is becoming a leisure experience with high quality food offerings amongst the complete retail mix. The consequence is that dominant centres continue to win market share. At the other end of the retail spectrum, convenience shopping is also critical and retail pitches in densely populated areas are also faring well. It is mid market products and sub regional centres which are being squeezed.
The weakest performers have clearly been those markets suffering the greatest austerity and Spain is a case in point. European property companies with retail assets in Spain reported like-for-like sales volume falls of between 5-15% in 2011. More positively, demand for Central London retail drove rental value growth of 5-10% as London continues to experience high levels of tourist as well as domestic demand. Once again it is the lack of supply which is a clear positive. In the UK, there was only 2.5 million sq ft of new shopping centres completed last year and nearly half of that was Westfield Stratford. This was 30% of the 2008 figure and less than 40% of the long term average. For 2012 the figure will be zero and in 2013 just 1.5 million sq ft (dominated by Lands Securities' Trinity Leeds scheme).
Distribution and Industrial
Take up in logistics was robust in core European markets particularly in the UK, Germany, France and Benelux. Speculative construction remains appropriately subdued and most development is tenant-led 'build to suit'. Much of the take-up has been third party logistics business associated with e-tailing. Once again all the growth has been in prime locations - airports, key city fringes (Paris saw a 48% like-for-like increase in take-up in 2011) and the best located motorway intersections. With average yields on prime logistics still over 7%, investment volumes were strong as investors were drawn to the high income yield. That sub-sector proved to be a stronger performer than the broader industrial market where generally rental values have not held up as well, reflecting the lack of GDP growth across Europe.
Debt and Credit Markets
The availability of debt for real estate investment remains at low levels compared to historic averages. Nonetheless, fears that high debt refinancing needs between 2012 and 2014 would lead to further sharp falls in property values have so far proven to be unfounded. On the whole, banks continue to take a pragmatic approach to their loan portfolios, reducing exposure as and when opportunities arise. Disposals of loan portfolios have increased over the last twelve months, as have the number of joint ventures between banks and investors. Many of these disposals are taking place at significant discounts to the original loan values. That is not to say that these discounts mark a further downturn in property pricing. What is apparent is that market pricing of property shifted to clearance levels some while ago whilst the banks have continued to hold assets at inflated levels. This is why we have often described the current overhang of debt refinancing as more of a problem for the banks than the real estate market.
The problem is particularly acute in Spain, where banks' exposure to commercial real estate totals approximately €340 billion or €400 billion including construction loans. Approximately half of the €340 billion may be problematic according to the Bank of Spain and it is by no means clear that Spain's smaller lenders have sufficient capital to meet losses.
Banks have been supported in their approach by continuing low interest rates and ongoing support from the Bank of England and ECB. Most recently, the 3-year Longer-term Refinancing Operations mounted by the ECB pumped a trillion Euros into the European banking system, boosting bank profit margins and helping to hold down sovereign and corporate bond yields. It looks likely that interest rates in the UK and Eurozone will remain low for at least another 24 months, although this will partly depend on what happens to inflation. Based on financial market pricing, expectations of inflation over the next 5 years are for 1.9% per annum in the Eurozone and 3% per annum in the UK. Of course, these are averages of a great many individual views, both higher and lower than the mid-point. It is therefore by no means certain that anybody actually believes in them. For now, therefore, inflation remains yet another medium term risk to our outlook.
This broad overview of debt markets obscures what is a relatively benign situation as far as listed real estate companies are concerned. As referred to in our introduction, listed real estate companies have proven time and again that they are able to refinance at attractive rates. It is not just bank debt that is available to the listed real estate companies. Corporate bond markets remain open and we are seeing increasing involvement from insurance companies. Most recently, Big Yellow, the self-storage operator, secured 15 year debt from Aviva at an average interest rate of 4.9% and Unite Group, a provider of student housing, secured 10 year debt from Legal & General at an average interest rate of 5.05%. Both these deals demonstrate that it is not just traditional assets that are attractive to lenders at the present time.
Property Shares
This was another year in which macro economic factors dominated shareholder returns. In summary, those stocks with greatest exposure to peripheral Eurozone nations such as Greece, Italy and Spain did worst and those with exposure to the strongest and safest economies such as Switzerland, London or Germany did best.
Markets were highly volatile. Usually, market participants are able to assign probabilities to possible outcomes and come up with a range of scenarios against which to value companies. At the current time, so many outcomes are possible and so few of them probable that markets are finding valuations difficult. Election results, comments from politicians, headline statistics and gauges of consumer and business sentiment have all caused huge swings in market direction. The EPRA Index moved through a range of 28.5% over the year. The average underlying discount to net asset value of the index constituent companies hit a low of 3.5% and a high of 24.5% over the period. As we have commented previously, this volatility in share prices was against a backdrop of not only overall stable asset values but also growing earnings and dividends.
At the country level, Switzerland was by far the strongest performer, with a total return of 6.9% in local currency. This was the only country to deliver positive performance over the period. France, the UK and Germany generated total returns in local currency of -3.7%, -3.9% and -5.3% respectively.
At the other end of the spectrum, Spain, Italy and Austria returned negative total returns of -81.6%, -80.5% and -32.2%. Whilst Austria is not in the same economic boat as Italy and Spain, its banks are heavily exposed to Central and Eastern Europe and its property companies tend to be amongst the most highly indebted in Europe.
Currency had a significant impact on returns. In Sterling the Swiss return was +8.6% due to the increasing value of the Swiss Franc whilst Eurozone returns were reduced by approximately 5% due to the falling value of the Euro.
Small cap property shares generally underperformed large caps as investors sought more liquid stocks irrespective of fundamentals. There were a number of exceptions to this. What we regard as the best manufacturers of property returns (those small, active, entrepreneurial property companies that we have always favoured) continued to hold their own. Amongst these, St Modwen Properties in the UK and Terreis in France stand out with total returns of +5.1% and +3.3% respectively.
With interest rates and bond yields so low, dividend yield was an important driver of performance, although often this was short-lived as stocks rose on the approach of the ex-dividend date, only to fall back again shortly after. The average dividend yield in our sector was 5% at the year end, covered 1.3 times by recurring earnings. Our own forecasts show continued earnings growth from the companies we invest in for each of the next three years, which should support dividend growth at least in line with current forecasts of inflation. In any sensible world we would expect this to lend support to share prices. However, we have grown to expect anything but a rational approach in the short term.
There has been little in the way of corporate action over the period. Beyond a handful of small placings, there are only two real themes of note. The first relates to Germany, where listed real estate companies (principally residential) issued over €1 billion in fresh equity. We anticipate further equity issuance and possible IPOs in the coming year. The second concerns a growing level of interest from international investors towards European companies and assets. Whilst the general body of equity investors still see Europe as toxic and best avoided, a handful of specialist investors have taken advantage of depressed share prices and a shakeout in share registers to build stakes. Most interestingly, Simon Property Group of the US has bought 28% of European shopping centre specialist Klepierre. Sovereign wealth funds including Norges Bank, have also built up numerous disclosable positions in companies from Great Portland Estates to British Land.
Outlook
The macro situation in Europe remains difficult. Few of us can remember such a prolonged period of negativity towards the region from those both within and without and most forecasters remain decidedly bearish. It doesn't help that the UK has slipped back into technical recession and that much of the Eurozone will almost certainly follow, nor that recent elections in Greece and France have changed the terms of the debate from a focus on austerity to strategies for growth, clouding the issues for governments. Nonetheless, the situation is better than it was twelve months ago, even if it does not always feel like it. The ECB has taken important steps to inject liquidity into the European banking market that have had a similar effect to quantitative easing in the UK and US, boosting asset prices and increasing the velocity of money. The main rescue funds within Europe (the European Financial Stability Facility and the European Stability Mechanism) have effectively been merged and made semi-permanent and the IMF has seen its balance sheet, and therefore firepower, strengthened. Bank regulation and oversight also continues to improve and bank balance sheets are slowly being cleansed of toxicity. Risk is concentrated in certain countries and institutions - one has only to consider the precarious condition of the Spanish regional banks to realise that major hurdles remain. However, the fact that we know where the risk resides and what form it takes is in itself a major step forward.
Beyond the macro issues, our main investment themes have not changed since the half year report to shareholders. As stated in our introduction, we are broadly positive about the overall trajectory of earnings, dividends and asset values. Similarly, we see that listed real estate companies generally benefit from sound balance sheets, favourable access to capital and long average lease terms.
Nonetheless, we expect significant dispersion of returns between the best and worst markets and the best and worst property companies. Plainly, companies with exposure to markets such as West End of London offices and shops or Berlin residential, where demand from both tenants and investors is strong and rents and capital values are therefore rising, will continue to outperform. Conversely, those companies with exposure to poorer markets such as Netherlands or Belgian offices will suffer. Some of these latter companies may be faced with the need to issue new equity.
Successful real estate investment is not a passive activity. The best property companies are led by entrepreneurial and creative business people who are able to manufacture returns from the raw material at their disposal. We remain of the view that the best management teams will be able to outperform over the long term and that seeking to identify these teams is therefore an essential aspect of our management of the Trust. We believe that the current portfolios contain numerous examples of such companies and that given time they will demonstrate their ability to generate strong returns.
Manager's Report
Ordinary share class
Performance
The Ordinary share class total return at -8.5% was slightly ahead of the benchmark total return of -8.9%. Whilst the total return is disappointingly negative for the year, the figures are a considerable improvement on those reported at the half year when the NAV total return for the first six months of the financial year was -16.2%. Performance of pan European real estate shares over the twelve months to March have been, figuratively speaking, on a rollercoaster. Strong performance in the first quarter, followed by the dramatic sell-off in the summer which deepened into a malaise in the autumn and then an abrupt U-turn in mid December as markets responded to both the ECB's largest ever LTROs as well as the change of political leadership in both Greece and Italy. NAV growth in the fourth quarter was 12%, 220bps ahead of the benchmark as investors bought back into European equities across the board. Our Outlook comments made at the half year remain valid, namely maintaining our focus on good quality, well financed property companies exposed to, where possible, selected sub-markets across Europe with the best demand/ supply fundamentals. This approach has served us well over the long term but in periods where the macro backdrop dominates investor sentiment, volatility and correlation between stocks rises. In the same vain, investors sought perceived safe havens between July and December. This resulted in Swiss property companies outperforming hugely in that period, even though the occupational real estate markets, particularly in Zurich, are in no better shape than many other Western European major cities with vacancy close to 10%.
Distribution of Assets
Continental European equities exposure decreased from 58.3% to 55.1% whilst UK equities exposure increased slightly from 33.8% to 34.6%. UK physical property increased from 7.7% to 10.3% following the purchase of Park Place, Vauxhall. This change in the distribution of assets reflects both performance and our market outlook. Whilst the Swiss stocks were the top performing companies, collectively the UK was next, recording -3.9% total return in the period. Our UK physical assets were the outstanding performer recording +12% total return.
Investment Activity
Over the period, turnover (purchases and sales divided by two) totalled 29% of the average total assets over the year. Whilst this is higher than in previous years it reflects both the increased volatility in individual stock prices and the need to react to the dramatic swings in sentiment towards European equities and the property sector. Reviewing the quantum of activity through the year, I was a net investor in the first half, particularly early on throughout April and again in September following the rapid falls in stock prices in the summer months. The second half of the year saw net sales, particularly towards the end of the financial year following the steep price improvements in February and March. However, the overall exposure and gearing within the fund did increase modestly due to the purchase of an office building, Park Place in Vauxhall. Of greater importance to our relative performance were the adjustments to the country focus and individual company exposure. The most significant of these has been the doubling of our exposure to Germany (from 3.2% to 7.3% of the equity portfolio). As mentioned in the Interims, we participated in the IPOs of GSW and Prime Office, as well as the capital increase in Alstria and a rights issue in DIC Asset. In October, the final 25% of GSW owned by its private equity backers was sold and we added significantly to our holding. Whilst we are optimistic about German residential per se, we remain particularly focused on Berlin and the major cities in the west and southern parts of the country. Much of the old East Germany continues to suffer depopulation and is not experiencing the rental growth we are seeing in the remainder of the country. GSW is the 9th largest holding.
The wide dispersion of returns across sub-markets, even within one country, has been a dominant investment theme and this has fed through to the portfolio's construction. For example, in the UK, whilst overall exposure has increased from 33.8% to 34.6% of the equity assets, the exposure to London has increased more dramatically and within Greater London, our focus has been on City and West End markets at the expense of Docklands. Our increased investment in Derwent London, Workspace and CLS Holdings alongside Great Portland Estates and the purchase of the office building in Vauxhall all reflect our belief that business space in Greater London (not just the core) will generate greater returns than the rest of the UK. With little prospect for rental growth in traditional office and retail sectors outside the conurbation, our remaining UK focus has been on specific submarkets: self storage (Big Yellow and Safestore), student housing (Unite) and residential land bank manufacturers (St Modwen). With so much weakness in secondary asset values we increased our holdings in businesses with the firepower and agility to take advantage of pricing distress. Management track record is key and both London & Stamford and Max Property are run by seasoned professionals.
Scandinavia proved to be another good example of stock and city specific performance. Finland's largest two listed companies are both heavily exposed to the Helsinki office, industrial and retail markets. The city has suffered from an oversupply of commercial property generally for many years and these weak fundamentals coupled with inappropriate capital structures (too much debt) resulted in poor performance for both these companies. We are not expecting short term improvements and sold out of both. In Norway, fundamentals are sound in both Oslo and Stavanger but Norwegian Properties are struggling to capture this growth. Our holding did not increase in the year. The Swedish exposure did alter over the year, becoming increasingly defensive, favouring the less geared businesses such as Hufvudstaden, whilst maintaining exposure to the principal cities Stockholm, Gothenburg and Malmo. This led to an increased holding in Wihlborgs.
Unibail remains our largest holding. It was the best performing French stock over the year, returning +1.6% in local currency terms. Such strong relative performance resulted in the stock, at times, standing at a considerable premium to its asset value and I took the opportunity to top slice on occasion. The relative overweight position has subsequently been rebuilt as markets sold off in April and May this year. The other large noteworthy investment in France has been Mercialys. Spun out from its parent company Casino, the business owns neighbourhood shopping centres adjacent to Casino hypermarkets. Uniquely in European property stocks it had, until recently, no gearing. In such volatile times this lack of gearing proved very attractive and the stock's total return for the period at -1.05% was a strong outperformance of the benchmark. In March, the company announced that it would take on debt and return approximately 50% of the equity to shareholders, principally Casino.
The volatility of share prices last year was best illustrated by our two Italian positions, Beni Stabili and IGD. Beni, our more substantial holding, receives over 58% of its gross income from Telecom Italia and over 45% of its assets are in prime property in Milan, Rome and Turin. This valuation underpinning did not prevent the stock falling 28% in November alone as investors in Italian debt fled and yields on 10 yr Italian sovereign bonds touched 7%. We have added to our holding during the year accepting short term volatility alongside the opportunity to buy exposure to good quality assets at large discounts.
Gearing, Debt and Debentures
The overall debt position in the share class rose over the year from £37m to £45m. Borrowings peaked at the half year (£52m) which reflected the acquisition of Park Place, Vauxhall in late July. Whilst the increase in the amount of net debt is modest, the fall in asset prices resulted in the gearing ratio rising from 7% to 10%. We also analyse the 'see through' gearing of the portfolio, where we add the assets and the debt of the companies in which we invest to the on-balance sheet assets and debt of the share class. The 'see-through' gearing was 48.2%, whilst the benchmark figure was 48.4%. Although the share class has on balance sheet debt, the unlevered physical property assets which comprise 10% of assets broadly offset this.
Revenue
Revenue earnings per share increased by 1.9% from 6.94p in the year to March 2011 to 7.07p in the year to March 2012.
At the beginning of the financial year we were anticipating a fall in revenue. The main reasons were the expectation that the timing of some dividend receipts (which had moved from April to March in 2011) were likely to revert to payment in April in 2012, effectively skipping our financial year 2011/12. We were also anticipating an increase in the tax charge. Other uncertainties were fluctuations in the exchange rates of European currencies versus sterling and the possibility of increasing interest rates on our floating rate debt.
In fact, Investment Income actually rose by 5.8% over the year from £24.9m to £26.3m. The majority of the increase over our expected earnings was due to the timing of dividends. Three significant payments which had moved from April to March in 2011, were once again paid in March in 2012 and did not, as was feared, move back to April. Income was further bolstered by another company bringing forward a dividend 'ex date' previously anticipated for late April 2012 to March. A considerable number of companies from which we receive significant dividends go ex between the end of March/beginning of April period and the exact timing of these will continue to be uncertain.
As predicted the tax charge increased from 6.4% in 2011 to 10.1%. The tax charge in 2011 was exceptionally low as a significant number of companies distributed earnings from capital accounts and therefore were not obliged to withhold tax on the payments even though these were, in fact, regular distributions of the companies' earnings. We correctly anticipated that this would not reoccur to the same extent in 2012, and that the tax rate would increase markedly. Whilst we continued to receive a small number of dividend receipts from capital reserves, and therefore free of withholding tax in 2012, we do not expect this to be much of a feature in the forthcoming financial year. At the interim stage the tax charge was 9.4%, the further increase was due to a change in the mix of earnings, mainly UK franked and Property Income Distribution income, in the second half.
Exchange rates have been volatile over the period. The Euro was at its strongest at the end of June and then fell, albeit with some rallies, to the financial year end. The peak dividend receipt period is April to June and therefore the average exchange rate for our Euro denominated receipts was not markedly different to the average in the prior year. Our fears of the impact of a weakening Euro were therefore not an issue for the period under report.
Interest rates have not increased through the period, however our two year loan facility does bear a higher margin than the revolving one year facility. This is the price for certainty of debt availability for a longer period, and is reflected in the marginal increase in interest costs. We do believe that it is important in the current environment to diversify our source of debt and debt maturity profile, even though this may mean a marginal increase in cost. To mitigate this, the use of CFDs was introduced and this remains an effective method of gearing and acts as an additional source of competitively priced financing.
Net property rental income has increased marginally. At the gross level income has risen as a result of the purchase of the office building in Vauxhall and the direct operation of the car park at the Colonnades in Bayswater. However the successful lettings to Teva at Harlow were only possible following the surrender of the previous tenant's short remaining lease term. Costs incurred in the new leasing activities and the cost of operating the car park have increased direct property expenses.
In previous annual reports, we have commented on the prospect of challenging withholding taxes on dividends from European countries. Progress has recently been made in the European courts. Claims have been submitted for some periods and we will continue to make claims where appropriate. There is also the possibility of applying the current UK tax treatment of foreign dividends to earlier periods. Revised tax returns have been submitted for earlier periods on the basis of the test case currently being heard by the European courts. The outcome is still uncertain and accordingly no benefit has been recognised in the financial statements.
Revenue Outlook
We expect the underlying earnings (in local currency terms) from the companies in which we invest to continue to grow modestly this year.
However, all the uncertainties we outlined for the previous year remain. As we approach our peak dividend season for foreign income, the Euro is almost 10% weaker against Sterling than at this time last year with a real risk of further weakening. In addition, as highlighted in previous years, there are a number of factors, not within our control, which influence the tax charge. We anticipate a marginally higher tax charge as dividend payments by European companies from capital reserves will be fewer than in the past two years. Also the overall mix of income impacts the tax charge, particularly the proportion of UK income received as Property Income Distributions or franked dividends. The UK REITs do not provide forecasts on the likely split between these two forms of dividend. Once again, another key variable remains the timing of dividend ex dates falling either side of our March year end.
On a conservative basis, considering all the above factors, we expect earnings of around 6.60p for the year to March 2013.
Direct Physical Property
The physical property portfolio produced a positive total return for the 12 months of 12.0% made up of a capital return of 7.1% and an income return of 4.9%. This compares to a total return of the IPD Monthly Index of 6.6% made up of a capital return of -0.2% and an income return of 6.8%. On a like for like basis, excluding the purchase in the period, the total return was 13.5% comprising a capital return of 8.8% and an income return of 4.7%. The outperformance was driven primarily by asset management initiatives at Harlow and the Colonnades but also through yield compression across our London focused portfolio.
In July we purchased Park Place, Vauxhall for a total cost of £8.25 million which reflects a net initial yield of 6.75% and a gross capital value of £320 per sq ft. This 25,000sq ft office is 100% occupied and presents a number of opportunities to increase rents as the leases expire.
At the Colonnades in Bayswater, the Waitrose rent review was settled by third party determination. The rent increased by 14% (£67,000) to £534,000 per annum. Following the surrender of the car park lease with NCP, we installed our preferred operator. Vehicle crime has ceased and occupation is increasing. We also completed a further 20 residential lease extensions receiving in excess of £1.1 million in extension premiums. We have now extended 28% of the 242 residential leases and we are in negotiation with a further 22 residents (9% of the total) who are seeking to extend.
At Harlow, Teva have now leased the remainder of the building but on a phased basis. On completion of the leases to Teva the whole property portfolio's vacancy rate will fall to 0.5% (6.9% at March 2011).
Marcus Phayre-Mudge
Fund Manager
Ordinary share class
Manager's Report
Sigma Share Class
Performance
Over the year to 31 March 2012 the Sigma share NAV total return was -13.6%. The benchmark total return was -12.1%. This marks a significant improvement from the half year position but it is nevertheless disappointing to have to report a year of negative returns for shareholders. As we described in the Market Background section, the year saw further turmoil in stock markets in general and very high levels of volatility. In this period of heightened fear, smaller, less liquid companies suffered disproportionately and the Sigma share class underperformed the Ordinary share class by 5.1%. This is the first time since Sigma's launch in July 2007 that smaller companies have underperformed larger ones.
Such an outcome prompts us to examine the strategies we employ to achieve the Sigma class's objective and the portfolio we have put in place as a result. The Sigma class's objective is to maximise shareholders' returns by investing in the shares of smaller real estate companies. Our experience is that over time smaller real estate companies generate superior returns when compared to their larger peers. We see a number of reasons for this. Small companies tend to be focused businesses with a clear and easily defined strategy. They are often led by entrepreneurial individuals or small teams with significant personal financial exposure to the businesses they run. These leaders are able to make fast and effective decisions that are implemented without dilution by multiple management layers. Small businesses can also be more easily fine-tuned to the economic climate than large ones. Individual deals can make a significant difference to a small company's balance sheet and P&L.
In our view, real estate is not a business where economies of scale count for very much. The most notable exception is shopping centre investment and development, where the ability to offer scale and an international platform to retailers is clearly of great importance. On the whole, however, small real estate companies do not suffer from disproportionately high finance or administrative costs. Indeed, they are often financed and run more efficiently than larger companies. Of course, the impact that management decisions and individual deals can have cuts both ways. One of our chief tasks, therefore, is to identify management who will use the features of small companies to shareholders' advantage rather than cost.
We have assembled a portfolio that is heavily exposed to precisely these sorts of companies. Many of the companies we invest in are not only attractive from a bottom up perspective but are also operating in environments that we consider to be the most secure from a macro perspective. Of the top 10 positions, which account for 40.2% of total portfolio value, only one (Eurocommercial) is exposed to anything other than the UK, Germany or Sweden. On a see-through basis the Sigma portfolio was 63% exposed to the UK, Germany, Sweden and Switzerland at the year end.
Markets at the current time are not well suited to investors who take bottom up decisions for the long term. As the adage goes, the only thing that goes up in bear markets is correlation and Sigma's own share price has suffered irrespective of its exposure. Nevertheless, your managers are confident about the long term prospects for the core shareholdings within the Sigma portfolio. These companies represent our pick of the top real estate management teams in Europe and are true manufacturers of returns. Whilst volatility is likely to remain high for at least the next twelve months, we continue to believe that the long term prospects are good and that the fundamental characteristics of small cap real estate stocks will reassert themselves over time.
Investment Activity and Distribution of Assets
Over the period, turnover (purchases and sales divided by two) totalled £62.8m, which equates to 46% of average investments over the period. This compares to turnover of 41% for the year to the end of March 2011 and is a result of the large fluctuations in prices and relative values between different stocks over the year.
Sales exceeded purchases by £4.3m, reducing gearing over the year, from 8% to 5%. Our caution towards the Eurozone is largely reflected in the repositioning of our stocks rather than in the level of debt that we carry within the share class. Over the year we increased exposure to the UK and Germany by 10%. Germany now accounts for 25.2% of see-through exposure, only marginally behind the UK at 25.7%. The majority of this German exposure is to residential investment within companies such as GSW and Deutsche Wohnen, which own large portfolios of rental assets in key German cities. German residential is an area of the market that we expect to continue to show good levels of capital and revenue growth in the medium term, backed by highly granular and relatively low risk income streams.
Our French exposure totals 12.6%. This is largely made up of holdings in a group of small, highly specialised companies including logistics investor and developer Argan; Greater Paris operator Terreis, and retail and hotel investor ANF. These companies are prime examples of the manufacturers of returns that we ideally seek out as the core of the portfolio. Fonciere Paris France, another Ile-de-France focused investor and one of last year's top 20 positions, was acquired by a consortium of French life insurers during the year at a significant premium to its prevailing share price. We have held FPF within the Trust since its IPO in 2006, since when its total return has been 25%, compared to the EPRA total return of -37.3%.
Exposure to Sweden has fallen over the year, from 15.9% to 11.4%. This partly reflects our view that the Swedish market is relatively fully valued compared to other markets. However, we have also rotated out of Hufvudstaden, which over time has increased in size to the extent that it can no longer be considered a small cap stock.
We have less than 0.5% see-through exposure to Greece, Ireland or Spain. Italian exposure totals 7.7%. This reflects our holdings in Beni Stabili, IGD and Eurocommercial, which own high quality portfolios largely exposed to the wealthier areas of Northern Italy.
Debt, Gearing and Debenture
The overall debt position in the share class fell from £11.9m to £7.4m over the year. Net debt was £6m. Gearing reduced from 8% to 5%. We signed the two year multi-currency facility with ING in May last year and renewed the one year facility with RBS in December. Together with the debenture maturing in 2016 and the ability to use CFDs we consider that we have sufficient flexibility to meet likely financing needs over the coming period.
Revenue
Revenue earnings per share increased by 1.2% from 2.57p in the year to March 2011 to 2.60p in the year to March 2012.
At the half year stage we were pointing to earnings of around 2.40p. The main reason for the difference between this and the year end result was a significant dividend due around the year end, which was anticipated to fall into April. In fact this dividend went ex on the last day of the financial year. In addition, the tax charge at the year end at 7.5% is slightly lower than at the interim stage due to lower than anticipated withholding taxes in the second half.
Although gearing has decreased over the period, finance costs are at the same level as the prior year. In May 2011 the Trust entered into a two year loan facility with ING. This was allocated between the two share classes in the same way as the one year revolving facility from RBS. The two year loan facility does bear a higher margin and non-utilisation fee than the revolving one year facility, the price for certainty of debt availability for a longer period. As stated for the Ordinary share class, we do believe that it is important in the current environment to diversify our source of debt and debt maturity profile, even though this may mean a marginal increase in cost. The use of CFDs is also available as an additional method of gearing which is competitively priced.
The dividend of 2.60p for the year is a full payout of the earnings. We indicated in the last annual report that we expected to be able to increase the ratio from the 84% seen in 2011 in the future. The Sigma share class has now been in existence for almost five years. The first three years saw a complete overhaul of the portfolio as the inherited Ordinary share class stocks were divested and reinvested in the target small cap stocks in order to meet the new share class objective. The dividend payouts in the first few years were cautious as we anticipated that dividend receipts from the smaller cap stocks would be more erratic and less progressive. In addition we were keen to leave ourselves with the ability to invest in fledgling companies that are focused on development opportunities and capable of delivering superior capital returns. However, having run an entirely small cap portfolio for a number of years we are now confident that we can maintain a higher level of dividend whilst also having the ability to pursue the lower yielding opportunities with the potential for significant capital out-performance. Shareholders can also be reassured that having built up a significant level of revenue reserves in the Sigma class, the Directors have the ability to maintain the dividend should earnings, for the short term, show some volatility.
There continues to be the prospect of legal challenges to withholding taxes on dividends from European countries. Progress has recently been made in the European courts. We have already submitted our own claims for some periods and will continue to make claims where appropriate.
There is also the possibility of applying the current UK tax treatment of foreign dividends to earlier periods. Revised tax returns have been submitted for earlier periods on the basis of the case currently being heard by the EU courts in relation to this. At this stage the outcome is still uncertain and accordingly no benefit has been recognised in the financial statements.
Revenue Outlook
We expect the underlying earnings from the companies in which we invest to continue to grow modestly. In addition a number of new companies have been added to the portfolio, which are expected to have a positive impact on revenue earnings.
However, a number of uncertainties remain. The Euro exchange rate is almost 10% weaker than at this time last year with real risk of further weakening. The timing of some significant dividends close to the year end, remains a factor. The tax charge is also difficult to accurately predict, particularly as the majority of the tax incurred is actually withholding tax on non-UK earnings. Withholding tax rates are subject to change and rates vary between territories so changes to the geographic focus of the portfolio will impact upon the tax charge.
Overall, we expect a modest increase in earnings for the year to March 2013 to around 2.8 p per share.
James Wilkinson
Fund Manager
Sigma share class
Ordinary Share Class Statement of Comprehensive Income (unaudited)
for the year ended 31 March 2012
|
|
Year ended 31 March 2012 |
Year ended 31 March 2011 |
||||
|
|
Revenue Return |
Capital Return |
Total |
Revenue Return |
Capital Return |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Investment income |
|
|
|
|
|
|
|
Investment income |
21,749 |
- |
21,749 |
20,581 |
- |
20,581 |
|
|
|
|
|
|
|
|
|
Other operating income |
32 |
- |
32 |
23 |
- |
23 |
|
Gross rental income |
3,257 |
- |
3,257 |
3,041 |
- |
3,041 |
|
|
|
|
|
|
|
|
|
Service charge income |
1,249 |
- |
1,249 |
1,222 |
- |
1,222 |
|
(Losses)/gains on investments held at fair value |
- |
(61,383) |
(61,383) |
- |
54,135 |
54,135 |
|
Net movement on foreign exchange |
- |
(22) |
(22) |
- |
340 |
340 |
|
Net returns on contracts for difference |
52 |
202 |
254 |
29 |
(22) |
7 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Total income/(loss) |
26,339 |
(61,203) |
(34,864) |
24,896 |
54,453 |
79,349 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Expenses |
|
|
|
|
|
|
|
Management and performance fees |
(2,493) |
(1,246) |
(3,739) |
(2,494) |
(1,247) |
(3,741) |
|
Repayment of prior years' VAT |
117 |
58 |
175 |
59 |
30 |
89 |
|
Direct property expenses, rent payable and service charge costs |
(1,795) |
- |
(1,795) |
(1,577) |
- |
(1,577) |
|
Other expenses |
(720) |
- |
(720) |
(689) |
- |
(689) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Total operating expenses |
(4,891) |
(1,188) |
(6,079) |
(4,701) |
(1,217) |
(5,918) |
|
|
______ |
______ |
______ |
_____ |
______ |
______ |
|
Operating profit/(loss) |
21,448 |
(62,391) |
(40,943) |
20,195 |
53,236 |
73,431 |
|
Finance costs |
(1,293) |
(1,293) |
(2,586) |
(1,179) |
(1,179) |
(2,358) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Profit/(loss) from operations before tax |
20,155 |
(63,684) |
(43,529) |
19,016 |
52,057 |
71,073 |
|
Taxation |
(2,041) |
1,070 |
(971) |
(1,223) |
828 |
(395) |
|
|
|
|
|
|
|
|
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Total comprehensive income/(loss) |
18,114 |
(62,614) |
(44,500) |
17,793 |
52,885 |
70,678 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Earnings/(loss) per Ordinary share |
7.07p |
(24.44)p |
(17.37)p |
6.94p |
20.61p |
27.55p |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
Ordinary Share Class Balance Sheet (unaudited)
as at 31 March 2012
|
|
|
|
|
|
|
|
|
|
2012 |
2011
|
|
|
£'000 |
£'000 |
|
Non-current assets |
|
|
|
Investments held at fair value |
516,241 |
571,264 |
|
|
______ |
______ |
|
|
516,241 |
571,264 |
|
Current assets |
|
|
|
Debtors |
6,414 |
5,707 |
|
Cash and cash equivalents |
2,944 |
3,012 |
|
|
______ |
______ |
|
|
9,358 |
8,719 |
|
|
|
|
|
|
|
|
|
Current liabilities |
(39,937) |
(33,840) |
|
|
______ |
______ |
|
Net current liabilities |
(30,579) |
(25,121) |
|
|
______ |
______ |
|
Total assets less current liabilities |
485,662 |
546,143 |
|
|
|
|
|
Non-current liabilities |
(15,190) |
(15,541) |
|
|
______ |
______ |
|
Net assets |
470,472 |
530,602 |
|
|
______ |
______ |
|
|
|
|
|
Net asset value per Ordinary share |
183.62p |
207.08p |
|
|
|
|
Sigma Share Class Statement of Comprehensive Income (unaudited)
for the year ended 31 March 2012
|
|
Year ended 31 March 2012 |
Year ended 31 March 2011 |
||||
|
|
Revenue Return |
Capital Return |
Total |
Revenue Return |
Capital Return |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Investment income |
|
|
|
|
|
|
|
Investment income |
4,615 |
- |
4,615 |
4,610 |
- |
4,610 |
|
Other operating income |
19 |
- |
19 |
14 |
- |
14 |
|
(Losses)/gains on investments held at fair value |
- |
(22,473) |
(22,473) |
- |
17,381 |
17,381 |
|
Net movement on foreign exchange |
- |
849 |
849 |
- |
(191) |
(191) |
|
Net returns on contracts for difference |
- |
28 |
28 |
- |
- |
- |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Total income/(loss) |
4,634 |
(21,596) |
(16,962) |
4,624 |
17,190 |
21,814 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Expenses |
|
|
|
|
|
|
|
Management and performance fees |
(704) |
(352) |
(1,056) |
(692) |
(346) |
(1,038) |
|
Repayment of prior years' VAT |
27 |
14 |
41 |
14 |
7 |
21 |
|
Other expenses |
(155) |
- |
(155) |
(161) |
- |
(161) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Total operating expenses |
(832) |
(338) |
(1,170) |
(839) |
(339) |
(1,178) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
Operating profit/(loss) |
3,802 |
(21,934) |
(18,132) |
3,785 |
16,851 |
20,636 |
|
Finance costs |
(299) |
(299) |
(598) |
(300) |
(300) |
(600) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Profit/(loss) from operations before tax |
3,503 |
(22,233) |
(18,730) |
3,485 |
16,551 |
20,036 |
|
|
|
|
|
|
|
|
|
Taxation |
(261) |
- |
(261) |
(274) |
- |
(274) |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
Total comprehensive income/(loss) |
3,242 |
(22,233) |
(18,991) |
3,211 |
16,551 |
19,762 |
|
|
______ |
______ |
______ |
______ |
______ |
______ |
|
|
|
|
|
|
|
|
|
Earnings/(loss) per Sigma share |
2.60p |
(17.83)p |
(15.23)p |
2.57p |
13.25p |
15.82p |
|
|
|
|
|
|
|
|
Sigma Share Class Balance Sheet (unaudited)
as at 31 March 2012
|
|
|
|
|
|
|
|
2012 |
2011 |
|
|
|
£'000 |
£'000 |
|
Non-current assets |
|
|
|
|
Investments held at fair value |
|
123,501 |
150,308 |
|
|
|
______ |
______ |
|
|
|
123,501 |
150,308 |
|
Current assets |
|
|
|
|
Debtors |
|
5,105 |
7,295 |
|
Cash and cash equivalents |
|
1,445 |
1,176 |
|
|
|
______ |
______ |
|
|
|
6,550 |
8,471 |
|
|
|
|
|
|
Current liabilities |
|
(9,429) |
(16,089) |
|
|
|
______ |
______ |
|
Net current liabilities |
|
(2,879) |
(7,618) |
|
|
|
______ |
______ |
|
Total assets less current liabilities |
|
120,622 |
142,690 |
|
|
|
|
|
|
Non-current liabilities |
|
(2,849) |
(2,849) |
|
|
|
______ |
______ |
|
Net assets |
|
117,773 |
139,841 |
|
|
|
______ |
______ |
|
|
|
|
|
|
Net asset value per Sigma share |
|
94.62p |
111.94p |
|
|
|
|
|
Group Statement of Comprehensive Income
For the year ended 31 March 2012
|
|
Year ended 31 March 2012 |
Year ended 31 March 2011 |
||||
|
|
Revenue Return |
Capital Return |
Total |
Revenue Return |
Capital Return |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
|
|
Investment income |
|
|
|
|
|
|
|
Investment income (note 2) |
26,364 |
- |
26,364 |
25,191 |
- |
25,191 |
|
Other operating income |
51 |
- |
51 |
37 |
- |
37 |
|
Gross rental income |
3,257 |
- |
3,257 |
3,041 |
- |
3,041 |
|
Service charge income |
1,249 |
- |
1,249 |
1,222 |
- |
1,222 |
|
|
|
|
|
|
|
|
|
(Losses)/gains on investments held at fair value |
- |
(83,856) |
(83,856) |
- |
71,516 |
71,516 |
|
Net movement on foreign exchange |
- |
827 |
827 |
- |
149 |
149 |
|
Net returns on contracts for difference |
52 |
230 |
282 |
29 |
(22) |
7 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total income/(loss) |
30,973 |
(82,799) |
(51,826) |
29,520 |
71,643 |
101,163 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
|
Expenses |
|
|
|
|
|
|
|
Management and performance fees |
(3,197) |
(1,598) |
(4,795) |
(3,186) |
(1,593) |
(4,779) |
|
Repayment of prior years' VAT |
144 |
72 |
216 |
73 |
37 |
110 |
|
Direct property expenses, rent payable and service charge costs |
(1,795) |
- |
(1,795) |
(1,577) |
- |
(1,577) |
|
Other administrative expenses |
(875) |
- |
(875) |
(850) |
- |
(850) |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total operating expenses |
(5,723) |
(1,526) |
(7,249) |
(5,540) |
(1,556) |
(7,096) |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
|
Operating profit/(loss) |
25,250 |
(84,325) |
(59,075) |
23,980 |
70,087 |
94,067 |
|
|
|
|
|
|
|
|
|
Finance costs |
(1,592) |
(1,592) |
(3,184) |
(1,479) |
(1,479) |
(2,958) |
|
|
|
|
|
|
|
|
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
|
Profit/(loss) from operations before tax |
23,658 |
(85,917) |
(62,259) |
22,501 |
68,608 |
91,109 |
|
|
|
|
|
|
|
|
|
Taxation |
(2,302) |
1,070 |
(1,232) |
(1,497) |
828 |
(669) |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
|
Total comprehensive income/(loss) |
21,356 |
(84,847) |
(63,491) |
21,004 |
69,436 |
90,440 |
|
|
_________ |
_________ |
_________ |
_________ |
_________ |
_________ |
|
|
|
|
|
|
|
|
|
Earnings/(loss) per Ordinary share (note 3a)
|
7.07p |
(24.44)p |
(17.37)p |
6.94p |
20.61p |
27.55p |
|
Earnings/(loss) per Sigma share (note 3b) |
2.60p |
(17.83)p |
(15.23)p |
2.57p |
13.25p |
15.82p |
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 shareholders of the parent company. There are no minority interests.
Group and Company Statement of Changes in Equity
|
|
Share Capital* |
|
Retained Earnings* |
|
|||
|
|
Ordinary |
Sigma |
Share Premium Account |
Capital Redemption Reserve |
Ordinary |
Sigma |
Total |
|
|
|
|
|
|
|
|
|
|
for the year ended 31 March 2012 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 31 March 2011
|
64,056 |
15,615 |
43,162 |
43,638 |
393,743 |
110,229 |
670,443 |
|
Net loss for the period
|
- |
- |
- |
- |
(44,500) |
(18,991) |
(63,491) |
|
Shares repurchased |
- |
(56) |
- |
56 |
- |
(333) |
(333) |
|
Dividends paid |
- |
- |
- |
- |
(15,630) |
(2,744) |
(18,374) |
|
|
________ |
________ |
________ |
________ |
________ |
_______ |
________ |
|
At 31 March 2012 |
64,056 |
15,559 |
43,162 |
43,694 |
333,613 |
88,161 |
588,245 |
|
|
________ |
________ |
________ |
_________ |
________ |
_______ |
________ |
|
|
Share Capital* |
|
Retained Earnings* |
|
|||
|
|
Ordinary |
Sigma |
Share Premium Account |
Capital Redemption Reserve |
Ordinary |
Sigma |
Total |
|
|
|
|
|
|
|
|
|
|
for the year ended 31 March 2011 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
At 31 March 2010 |
64,181 |
15,615 |
43,162 |
43,513 |
338,641 |
92,965 |
598,077 |
|
Net profit for the period |
- |
- |
- |
- |
70,678 |
19,762 |
90,440 |
|
Shares repurchased |
(125) |
- |
- |
125 |
(826) |
- |
(826) |
|
Dividends paid |
- |
- |
- |
- |
(14,750) |
(2,498) |
(17,248) |
|
|
________ |
________ |
________ |
________ |
________ |
_______ |
________ |
|
At 31 March 2011 |
64,056 |
15,615 |
43,162 |
43,638 |
393,743 |
110,229 |
670,443 |
|
|
________ |
________ |
________ |
_________ |
________ |
_______ |
________ |
|
|
|
|
|
|
|
|
|
* The Ordinary/Sigma split is for information only and has not been audited.
Group and Company Balance Sheets
as at 31 March 2012
|
|
Group 2012 £'000 |
Company 2012 £'000 |
Group 2011 £'000 |
Company 2011 £'000 |
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Investments held at fair value |
639,742 |
617,992 |
721,572 |
700,872 |
|
Investments in subsidiaries |
- |
48,202 |
- |
44,753 |
|
|
_________ |
_________ |
_________ |
_________ |
|
|
639,742 |
666,194 |
721,572 |
745,625 |
|
Current assets |
|
|
|
|
|
Debtors |
7,158 |
7,076 |
8,892 |
8,637 |
|
Cash and cash equivalents |
4,389 |
4,128 |
4,188 |
3,876 |
|
|
_________ |
_________ |
_________ |
_________ |
|
|
11,547 |
11,204 |
13,080 |
12,513 |
|
|
|
|
|
|
|
Current liabilities |
(45,005) |
(89,018) |
(45,819) |
(87,547) |
|
|
_________ |
_________ |
_________ |
_________ |
|
Net current liabilities |
(33,458) |
(77,814) |
(32,739) |
(75,034) |
|
|
|
|
|
|
|
Total assets less current liabilities |
606,284 |
588,380 |
688,833 |
670,591 |
|
|
|
|
|
|
|
Non-current liabilities |
(18,039) |
(135) |
(18,390) |
(148) |
|
|
_________ |
_________ |
_________ |
_________ |
|
Net assets |
588,245 |
588,245 |
670,443 |
670,443 |
|
|
_________ |
_________ |
_________ |
_________ |
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
Called up share capital |
79,615 |
79,615 |
79,671 |
79,671 |
|
Share premium account |
43,162 |
43,162 |
43,162 |
43,162 |
|
Capital redemption reserve |
43,694 |
43,694 |
43,638 |
43,638 |
|
Retained earnings |
421,774 |
421,774 |
503,972 |
503,972 |
|
|
_________ |
_________ |
_________ |
_________ |
|
Equity shareholders' funds |
588,245 |
588,245 |
670,443 |
670,443 |
|
|
_________ |
_________ |
_________ |
_________ |
|
|
|
|
|
|
|
Net asset value per : |
|
|
|
|
|
Ordinary share (Note 4(a)) |
183.62p |
183.62p |
207.08p |
207.08p |
|
Sigma share (Note 4(b)) |
94.62p |
94.62p |
111.94p |
111.94p |
Group and Company Cash Flow Statements
as at 31 March 2012
|
|
Group 2012 |
Company 2012 |
Group 2011 |
Company 2011 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Reconciliation of operating revenue to net cash inflow from operating activities |
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit from operations before tax |
(62,259) |
(61,901) |
91,109 |
90,908 |
|
Financing activities |
3,184 |
3,628 |
2,958 |
3,774 |
|
Losses/(gains) on investments held at fair value through profit or loss |
83,029 |
81,677 |
(71,665) |
(72,680) |
|
Decrease/(increase) in accrued income |
453 |
431 |
(349) |
(271) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net purchases of investments |
(2,106) |
(3,173) |
(4,259) |
(18,232) |
|
Decrease/(increase) in sales settlement debtor |
1,905 |
1,905 |
(2,071) |
(2,071) |
|
(Decrease)/increase in purchase settlement creditor |
(4,142) |
(4,142) |
4,268 |
4,268 |
|
(Increase)/decrease in other debtors |
(426) |
(577) |
4,056 |
3,552 |
|
(Decrease)/increase in creditors |
(66) |
2,219 |
224 |
15,570 |
|
Scrip dividends included in investment income |
- |
- |
(837) |
(837) |
|
|
_________ |
_________ |
_________ |
_________ |
|
Net cash inflow from operating activities before interest and taxation |
19,572 |
20,067 |
23,434 |
23,981 |
|
Interest paid |
(3,184) |
(3,628) |
(2,958) |
(3,774) |
|
Taxation paid |
(1,679) |
(1,679) |
(1,329) |
(1,329) |
|
|
_________ |
_________ |
_________ |
_________ |
|
Net cash inflow from operating activities |
14,709 |
14,760 |
19,147 |
18,878 |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
Equity dividends paid |
(18,374) |
(18,374) |
(17,248) |
(17,248) |
|
Repurchase of shares |
(333) |
(333) |
(826) |
(826) |
|
Drawdown/(repayment) of loans |
3,372 |
3,372 |
(8,538) |
(8,538) |
|
|
_________ |
_________ |
_________ |
_________ |
|
Net cash used in financing activities |
(15,335) |
(15,335) |
(26,612) |
(26,612) |
|
|
_________ |
_________ |
_________ |
_________ |
|
Decrease in cash |
(626) |
(575) |
(7,465) |
(7,734) |
|
|
|
|
|
|
|
Cash and cash equivalents at start of the year |
4,188 |
3,876 |
11,445 |
11,402 |
|
Foreign exchange movements |
827 |
827 |
208 |
208 |
|
|
_________ |
_________ |
_________ |
_________ |
|
Cash and cash equivalents at end of the year |
4,389 |
4,128 |
4,188 |
3,876 |
|
|
_________ |
_________ |
_________ |
_________ |
Notes to the Financial Statements
|
1 |
Accounting Policies |
|||
|
|
The financial statements for the year ended 31 March 2012 have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee (IASC) that remain in effect, to the extent that they have been adopted by the European Union and as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. |
|||
|
|
||||
|
The Group and Company financial statements are expressed 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 |
|||
|
|
|
2012 |
2011 |
|
|
|
|
£'000 |
£'000 |
|
|
|
Dividends from UK listed investments |
1,900 |
2,583 |
|
|
|
Dividends from overseas listed investments |
18,416 |
18,079 |
|
|
|
Scrip dividends from overseas listed investments |
- |
837 |
|
|
|
Interest from listed investments |
55 |
331 |
|
|
|
Property income distributions |
5,993 |
3,361 |
|
|
|
|
_________ |
_________ |
|
|
|
|
26,364 |
25,191 |
|
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
|
3 |
Earnings/(loss) per share |
|||
|
a |
Earnings per Ordinary share |
|||
|
|
The earnings per Ordinary share can be analysed between revenue and capital, as below. |
|||
|
|
|
Year ended 31 March 2012 £'000 |
Year ended 31 March 2011 £'000 |
|
|
|
Net revenue profit |
18,114 |
17,793 |
|
|
|
Net capital (loss)/profit |
(62,614) |
52,885 |
|
|
|
|
_________ |
_________ |
|
|
|
Net total (loss)/profit |
(44,500) |
70,678 |
|
|
|
|
_________ |
_________ |
|
|
|
Weighted average number of shares in issue during the year |
256,225,000 |
256,514,041 |
|
|
|
|
_________ |
_________ |
|
|
|
|
pence |
Pence |
|
|
|
Revenue earnings per share |
7.07 |
6.94 |
|
|
|
Capital (loss)/earnings per share |
(24.44) |
20.61 |
|
|
|
|
_________ |
_________ |
|
|
|
(Loss)/earnings per Ordinary share |
(17.37) |
27.55 |
|
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
|
b |
Earnings/(loss) per Sigma share |
|||
|
|
The earnings per Sigma share can be analysed between revenue and capital, as below. |
|||
|
|
|
Year ended |
Year ended |
|
|
|
|
31 March 2012 £'000 |
31 March 2011 £'000 |
|
|
|
Net revenue profit |
3,242 |
3,211 |
|
|
|
Net capital (loss)/profit |
(22,233) |
16,551 |
|
|
|
|
_________ |
_________ |
|
|
|
Net total (loss)/profit |
(18,991) |
19,762 |
|
|
|
|
_________ |
_________ |
|
|
|
Weighted average number of shares in issue during the year |
124,697,820 |
124,922,000 |
|
|
|
|
_________ |
_________ |
|
|
|
|
pence |
pence |
|
|
|
Revenue earnings per share |
2.60 |
2.57 |
|
|
|
Capital (loss)/earnings per share |
(17.83) |
13.25 |
|
|
|
|
_________ |
_________ |
|
|
|
(Loss)/earnings per Sigma share |
(15.23) |
15.82 |
|
|
|
|
_________ |
_________ |
|
|
|
|
|
|
|
|
4 |
Net asset value per share |
|||
|
|
|
|||
|
4a |
Net asset value per Ordinary share |
|||
|
|
Net asset value per Ordinary share is based on net assets attributable to Ordinary shares of £470,472,000 (2011: £530,602,000) and on 256,225,000 (2011: 256,225,000) Ordinary shares in issue at the year end. |
|||
|
b |
Net asset value per Sigma share |
|||
|
|
Net asset value per Sigma share is based on net assets attributable to Sigma shares of £117,773,000 (2011: £139,841,000) and on 124,472,000 (2011: 124,922,000) Sigma shares in issue at the year end. |
|||
|
5 |
Share capital changes |
|
|
Ordinary shares During the year, the Company made no market purchases of ordinary shares for cancellation.
Sigma shares During the year, the Company made market purchases of 450,000 Sigma shares for cancellation.
|
|
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 2012 or 2011. The statutory accounts for the year ended 31 March 2012 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 2012 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
8
|
Dividends Ordinary shares Subject to shareholders approval at the AGM, a final dividend of 4.20p per share will be paid on 1 August 2012 to shareholders on the register on 6 July 2012. The shares will be quoted ex-dividend from 4 July 2012.
An interim dividend of 2.40p per share was paid on 10 January 2012. The total dividend in respect of the year is therefore 6.60p per Ordinary share.
Sigma shares Subject to shareholders approval at the AGM, a final dividend of 1.65p per share will be paid on 1 August 2012 to shareholders on the register on 6 July 2012. The shares will be quoted ex-dividend from 4 July 2012.
An interim dividend of 0.95p per share was paid on 10 January 2012. The total dividend in respect of the year is therefore 2.60p per Sigma share.
Annual Report and AGM The Annual Report will be posted to shareholders in June 2012 and will be available thereafter from the secretary at the Registered Office, 51 Berkeley Square, London W1J 5BB. The Annual General Meeting of the Company will be held at The Royal Automobile Club, 89/91 Pall Mall, London, SW1Y 5HS on 24 July 2012 at 12 noon. |
|
|
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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 and will not be 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 unless they are registered under the Securities Act or pursuant to an available exemption therefrom. The Company 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 Company 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 Company's actual results and performance may differ materially from the impression created by the forward-looking statements. The Company undertakes 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:
Marcus Phayre-Mudge
Fund Manager - Ordinary share class
TR Property Investment Trust plc
Telephone: 020 7360 1331
James Wilkinson
Fund Manager - Sigma share class
TR Property Investment Trust plc
Telephone: 020 7360 1333
This information is provided by RNS
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