Final Results

Caledonian Trust PLC
20 December 2001



COMPANY ANNOUNCEMENT


CALEDONIAN TRUST PLC - FINAL RESULTS TO 30 JUNE 2001


Caledonian Trust PLC, the Edinburgh based property investment company,
announces its audited Results for the year to 30 June 2001.



CHAIRMAN'S STATEMENT

YEAR ENDED 30 JUNE 2001


Introduction

The Group made a profit of £88,047 in the year to 30 June 2001 compared to £
1,138,806 last year.  No property sales are included in this year's results
whereas last year's profit included £511,962 profit from sales.  Rent and
service charges were a net £723,064 less this year compared to last year due
primarily to a reduction of £837,114  in income from St Magnus House,
Aberdeen, where the 55,352ft(2) now let to Enterprise Oil PLC was vacant until
24 November 2000 and then occupied rent free until 24 April 2001.



Property rental outgoings were £155,482 lower as expenditure at St Magnus fell
from £726,082 to £649,196 with the conclusion of the upgrading and
refurbishment for Enterprise.  Outgoings also fell £80,700 at Stoneywood
because the karting centre has been let for the whole year.  Administration
costs increased by £145,475 due mainly to the  higher fees incurred in the
redevelopment and subsequent letting at St Magnus.  Net interest costs were £
45,035 higher than last year as secured loans increased over the year by a net
£2.594m to £14.853m and the average base rate compared to last year rose 0.23%
points to 5.81%.  Base rate is currently at a 37 year low and will average
4.67% for the half year and, if there are no further changes, 4.33% for the
full year.



On 30 June 2001 the Group's portfolio comprised by value 68.32% office
investment property (of which 85.31% is open plan), 19.41% industrial
investment property, 1.71% retail investment property and 10.56% property held
for development.



Review of Activities

Aberdeen has been the main focus of our property activities both during the
financial year and subsequently.  In St Magnus House, our 80,173ft(2) modern
open plan office in the city centre, I reported last year on the £5.5 million
contract that commenced in early June 2000 and was completed in late November
2000, which comprised the replacement of the faulty curtain walling at a cost
of about £2.25 million of which a substantial amount is recoverable from the
tenants, and at the same time the upgrading and refurbishment of floors 2 - 5
including the provision of raised floors and comfort cooling together with the
upgrading of the main electricity supply.  This contract included the internal
fit-out of all Enterprise's floors to an exceptionally high standard and was
completed in time to enable Enterprise to take occupation and operate from St
Magnus from mid November 2000.  I commented last year that to complete such a
complex and varied programme on time, on budget and to such a high standard
was a remarkable achievement for the company and it's professional team.  In
view of this I am particularly glad to report that the fit out of the
Enterprise floors was judged by the British Council of Offices the best in the
United Kingdom in 2001.



Substantial works have also been undertaken on the public areas at St Magnus.
The gym was entirely refurbished and new equipment installed in the spring of
this year and the landscaping has been redesigned in more appropriate
materials and style.  The remaining public areas including the main staircase
will be refurbished in the spring.  Since the year end we have refurbished the
remaining vacant 4,834ft(2) area on the first floor to the same high standard
as the Enterprise offices and this was also let to Enterprise Oil on 5
November 2001 at £17.50/ft(2). The rent review on the 5,976ft(2) occupied by
Pierce Production Company Limited due in February 2001 has recently been
agreed at £16.50, even although this is one of two small suites without air
conditioning and raised floors.



We have achieved a remarkable turnaround at St Magnus.  It is now almost
wholly refurbished to the highest standards, is entirely let to outstanding
covenants on leases which largely run until 2015, and based on the recent
letting the building is highly reversionary.   The investment value is likely
to be further enhanced by the development by Stannifer Properties and
Railtrack plc of the 10 acre site immediately south of St Magnus, comprising
mainly redundant railway sheds, goods yards and bus and rail stations, who
have recently received detailed planning permission for a large retail and
leisure development which I understand will proceed shortly.



Our second interest in Aberdeen comprises the Stoneywood Business Centre, a
fifteen acre office and industrial property in Dyce, Aberdeen, comprising
fourteen separate premises, most of them let on short leases.  This time last
year we learned that BP, whose northern hemisphere headquarters is adjacent to
Stoneywood, were considering several sites including ours for a new 380,000ft
(2) headquarters.   Site assessment and capital project budgeting and planning
took many months but in August 2001 BP entered into detailed negotiations with
us and within 15 working days missives were signed for this very complex
transaction. The consideration of £9.05 million will be paid in two tranches,
£7 million in January 2002 and the balance in November 2002, the company
having the benefit of the lease income and continuing to manage the property
until then.



Changes to our Edinburgh investment properties have been much less marked than
to those in Aberdeen.  Early in the financial year we completed the sale of 46
Albany Street for £637,000, which had been under missive at the year end.  We
have refurbished the offices at 57 North Castle Street where the lease
determined in December 2000 and we have it under offer to John Menzies for 10
years on full repairing and insuring terms.  After a long delay, caused
primarily by planning conditions, we recently completed the letting of 9 South
Charlotte Street, a traditional Georgian building on three floors, to La Tasca
Restaurants Ltd, a themed Tapas chain, on a full repairing lease for 25 years.
The lease on the 4 floors at 61 North Castle Street not occupied by the
company determined in October 2001 and we intend to refurbish the ground and
first floor for office use and convert the second and third floors into
residential use, subject to planning consent.



Our largest investment property in Edinburgh, St Margaret's House, a 92,845 ft
(2) open plan office let to the Secretary of State for the Environment until
November 2002 continues to be appraised for different uses.  The Scottish
Parliament now operates a dispersal programme whereby there is a presumption
against the location of offices for civil servants in Edinburgh when new
agencies or departments are formed, or where leases on existing properties
determine.  St Margaret's House has two occupiers and present indications are
that one of the occupiers will relocate to new premises in the Scottish
Borders while the second occupier, the Registers of Scotland, will transfer
all their staff into their other premises.   Thus there will be no lease
renewal.



We continue to consider the many other possible uses for the building and the
site and we have commissioned two separate architectural feasibility studies
including one incorporating the much larger triangular island site bounded by
the A1 London Road, the main line railway and Restalrig Road.  Such an overall
scheme, which has very considerable planning advantages would provide up to
400,000 ft(2) of offices or up to 500 residential units, possibly with
ancillary retail and leisure uses.  However such a scheme would entail a very
long planning period and, given the government ownership of most of the
adjacent property, there would be considerable administrative, financial and
political difficulties.  The St Margaret's site is probably unique in offering
the possibility of a large scale modern office development in the city centre
near to the Scottish Parliament and to the rapidly developing east centre of
the city.



Several other options for St Margaret's are available.  These include
differing degrees of refurbishment and recladding with or without extensions.
Alternatively, part of the site could be developed for residential, hotel or
office use while the main building was refurbished or converted.  The existing
frame permits the insertion of raised floors and air handling and leaves floor
to ceiling heights equivalent to those achieved in the award winning St
Magnus.  Surprisingly it closely resembles the structure that would be
designed today for a residential building of that type and size, although
considerable remodelling and insertion of staircases and lifts would be
required to give the necessary differentiation and fragmentation.  The size,
prominence and location of the site just east of the city centre on an
arterial route together with excellent retail and recreational facilities
nearby make it a very attractive residential site.  Currently we are
considering a number of proposals from established national housebuilders.



The sale of Stoneywood for the development of BP's office and the prospects
for development at St Margaret's have blurred the previous clear lines between
our development and our investment portfolios.  Within the existing
development portfolio there have been fewer changes.  In Baylis Road, near
Waterloo, SE1 we have renegotiated a three year lease on improved terms with
the existing tenants.  Recently there has been an amazing growth in both the
residential and the office market nearby and this has enhanced the prospects
for the future use of the existing property or of a redevelopment.  The
decision to delay any redevelopment for a further three to four years is
likely to enhance further the value of the site.  We continue to have a number
of enquiries for our development site in Belford Road, Edinburgh, where we
have a detailed office consent.  We have recently reconfigured the internal
layout and increased the net lettable area by 1,500ft(2) to 22,500ft(2)
altogether.



We own three small residential sites within commuting range of Edinburgh.  At
Eskbank, where we have planning permission for 5 houses, we have at last
obtained the necessary variation on the planning required to circumvent an
access problem and have demolished the existing building.  We intend to let
the building contract and to commence building in 2002.  Our second
residential site for 8 detached houses borders Musselburgh and is within 400
yards of the main line station at Wallyford.  A contiguous area is now likely
to be developed for a large number of private houses and this development
should radically alter the character of the existing settlement and greatly
enhance the value of our site.  We expect development to take place here in
two or three years.  Our third site, lying just east of Dunbar, should
accommodate 17 houses.  Dunbar lies on the A1 and funding has recently been
approved for the completion of the dual carriageway there from Edinburgh.
This together with the rapid expansion of Dunbar as a residential commuting
centre for Edinburgh and as an improving town with very considerable community
facilities provides excellent long term prospects for this development.  We
are currently negotiating to extend the area within our ownership in order to
minimise unit overhead costs.



Economic Prospects

There is one main topical issue: is there going to be a UK recession and, if
so, how deep and long is it going to be?  Unfortunately the accurate
prediction of recessions is very rare and the IMF have shown that of the 60
recessions around the world during the 1990s only 2 were predicted in advance
by private sector forecasters.  This years downturn was not generally
foreseen, as although in November 2000 the Economist's poll of forecasters
expected 2001 growth in GDP of 2.7% for Britain, 2.1% for Japan, 3% for the
Euro-11 and 3.3% for the USA, the current estimates for 2001 are 2.2%, -0.6%,
1.5% and 1% respectively.  Current 2002 forecasts show a further 0.8%
contraction in Japan but growth in all these other economies at about 0.5%
points less than now expected in 2001 : lower growth but at least no long term
recession, apart from Japan.



The inaccuracy in forecasting recessions generally and the error in the
estimate of GDP growth in 2001 does not invalidate these predictions for 2002,
although it makes acceptance of them subject to more rigorous analysis.
Recessions are rare, albeit sometimes very severe, as in Japan at present, and
over long periods Western Economies have grown at compound rates of 2 - 3%p.a.
usually recovering from any recession with more rapid compensatory growth.
Recessions usually follow a severe economic disjuncture caused by war, abrupt
technological change, economic reform or inflationary booms and, as the
probability of accurately predicting the occurrence and timing of such unusual
future events is very low, the probability of predicting recessions is also
very low.  At present some of the usual pre conditions for a recession have
already been met.  In particular there has been a spectacular collapse in the
growth of sales and the expected future market for a wide range of high tech
goods, notably telecoms and computers, together with the realisation that
installed or planned production capacity is well in excess even of the
previously expected market.  The result has been an implosion in that sector,
of which the most obvious UK example has been the collapse and severe
financial problems of Marconi. An investment bubble, similar to the South Sea
bubble or the tulip mania or the Mississippi development, has burst, of which
the worst effects are to be found in the USA.  The terrorist attacks in and
the threats to the USA and the resulting war in Afghanistan together with the
reflex-like freezing of activity and decision-making, which have severely
undermined confidence, provide a second possible trigger for recession.



The short-term effects in the USA have been dramatic.  Following slow growth
at an annual rate of only 0.3% in the second quarter of 2001, GDP contracted
at a rate of 0.4% in the third quarter, the largest fall since the trough of
the 1990-91 recession and  Goldman Sachs expect the last quarter decline to be
3.5% with a further 1% contraction in the first quarter of 2002.  A major
factor in the US recession is the fall for 13 consecutive months in industrial
output, now the longest since the Great Depression of the 1930s resulting in
6.5% less output, fortunately less than the 50%  drop from 1927 to 1932, but
still resulting in a capacity utilisation of 25.2% below potential.



The US recession is full blown.  The impact on the world economy and on the UK
in particular depends whether it is a sharp V shaped recession before the
normal recovery or a slower U shaped one or, much more seriously, an L shaped
depression, such as may develop in a post bubble economy.  Recent US
recessions have lasted for an average of only 11 months but the post bubble
crash in 1929 lasted 3 years while the Japanese correction which started in
1989 has persisted over a decade so far.



Fortunately there are several factors that indicate that there will not be
deflation and that a long-term recession is unlikely.  The non-economic
factors already seem much more favourable then even a few months ago.  The war
against the al Queda and their Taliban hosts has been brilliantly conducted by
the USA and so far successful beyond any prognosis.  The relatively muted US
reactions to the Anthrax scares and to the recent air crash over New York
indicate that confidence is not eroding further and may even be returning.



Economic management and economic events are also likely to contain the US
recession.  Unlike almost all recent UK recessions that have been accompanied
by high inflation and have required high interest rates to choke demand the
USA is entering the recession with an inflation rate of only 2.6% and interest
rates of 1.75%, the lowest for 40 years.  As the maximum impact of changes in
monetary policy occurs after about 9 months the eleven recent interest rate
reductions should provide a timely stimulus.  The anti-terrorist proposals
will add up to $40 billion to central expenditure and this, together with
possible tax cuts and aid, could add as much as 1.5% to GDP next year.



Fortunately, the US enters the recession with the lowest overall commodity
prices for the last 15 years.  In particular the oil price which was over $30
in November 2000 is now under $20, a reduction sufficient to increase world
GDP by about 0.5% after a 1 - 2 year lag and in the US the effect is
particularly beneficial as lower crude oil prices translate into immediate
relatively large retail price reductions.  The beneficial effect of low
commodity prices is reinforced by low output prices as the world economy has
the highest excess global capacity since the 1930's.



Other factors suggest an early recovery.  The US economy slipped into
recession in March 2001 and by February 2002 will already have run for two
thirds the average time of all recessions since 1854 and the average time of
all recessions since World War II.  Leading indicators of a recovery include a
sales rise by 7.1% in October as more cars were bought than in any previous
month, a rise in interest rate futures presaging a tightening of policy in
summer 2002 and rising equity prices since the September low, traditionally a
leading indicator for economic conditions six months hence.  The balance of
evidence is that the forecasters who proved so fallible in not forecasting the
recession will be proved correct in forecasting an upturn in the US economy in
2002.



A probable recovery of the US economy in 2002 will assist in limiting the
reduction in growth in the UK economy where the Economist consensus poll
predicts growth dropping from 2.2% this year to 1.7% in 2002 with some
forecasts as low as 1%.   The Bank of England assesses that on unchanged
interest rates there is only a 20% chance of growth in 2002 dropping below 1%
and its central projection is for 2% growth rising to 2.5% in 2003.  The
chance of a recession is estimated at 1 in 10.



In the UK the factors likely to preclude recession are essentially the same as
those mitigating the US recession, including successive cuts in interest rates
to the present 4%, the lowest for 37 years, a 7.8% fall in the Economists' all
commodity price index this year and a drop of about 30% in oil prices.  Fiscal
relaxation will also assist in maintaining growth.  Government receipts are
below Treasury forecasts, and expenditure is greater due to Foot and Mouth
Disease, the war and increasing unemployment, and further increases are
planned for public services.  Goldman Sachs forecast that the budget will
scarcely balance this year and will be £7.7 billion in deficit next year,
unless taxes rise.  The economy is currently supported by a 6% growth in
consumption.



Property Prospects

The CB Hillier All Property Yield Index rose 0.6% points to 7.3% in the year
to August 2001.  The principal components of this rise were a 0.8% points rise
in shop yields, which at 7.0% are now 1.2% points higher than in early 2000,
and a 0.5% rise in office yields.  Over the same period the yield on 10 year
Gilts dropped 0.4% points resulting in an increase of 1.0% points in the '
Yield Gap' between Gilts and All Property, which has now risen consistently
since early 1998 to 2.4% points, the largest since the index was first
compiled in 1971.  A Yield Gap had occurred only once previously, and then for
only a brief period following Sterling's ejection from the ERM in September
1992 when it exceeded 1% point for a few months at the bottom of the then
property slump.



Traditionally the lower property yield reflected its perception as in part an
'equity' stock where growth in rents would more than compensate for the lower
initial yield.  However apart from the last two years property has compared
poorly with other asset classes and this has contributed to the rise in
property yields.  For instance over the ten years to December 2000 property
returned 9.2%, Equities 15.0%, Gilts 12.5% and cash 7.2%.  Since property
returns were negative in the early 1990s, capital values falling 30.9%, the
current and prospective 10 year averages are flattered as the early negative
years fall out of the computation of the average.  However in 2000, due to the
long overdue fall in equity prices, Property was the best performing asset
class at 10.4% narrowly exceeding Gilts at 9.2% while Equities lost 5.9%.  In
the 6 months to 30 September 2001 Property returned 3.3%, again exceeding
Gilts at 1.9%, while Equities lost 12.5%, although these results are heavily
influenced by the consequences of the September terrorist attacks.



The All Property five year average rental growth is 8.2% p.a., the most recent
12 months have shown only 5.9% and the last 3 months to August 2001 only 0.5%,
the  slowdown being most marked in Offices, 0.1% growth and Shops 0.4%.  These
changes are due mainly to lower economic growth and a prospective further
slowdown.  In these periods Shop rental growth has been the poorest due
primarily to the growing influence of other distribution channels, especially
retail warehouses.  The slowing rental growth is not indicative of high real
rents as the All Property rental index adjusted for inflation is still 10%
below the peak reached in May 2000.  Thus property has high current yields and
rents below previous real peaks, investment features which combined with
present low short and long term interest rates compares favourably with
competing investment areas.



Earlier analysis concluded that UK growth would dip in 2002 but return to the
long-term trend, say 2.5%, in 2003.  Recent experience and the yield gap
between index linked and 'normal' Gilts shows expected future inflation to be
around the 2.5% target and therefore the current Gilt yield, say 5%, is likely
to continue unchanged.  The premium return earned on UK equities over Gilts
from 1900 - 2000 was 4.6%  and if this persists, and if the prospective Gilt
yield is 5% then an equity return of 9.6% is implied.  The equity return is
considered to be the dividend yield, currently 2.9%, plus dividend growth
rate, an implied 6.7% in this case.  Real growth in the economy is unlikely to
exceed the historic 2.25% - 2.5% and if inflation averages 2.5% then money GDP
will probably grow by up to 5%.  Thus, unless growth is higher, either the
equity premium return is overstated or equities are overvalued.  Per contra
property appears conservatively valued yielding on average 7.3% and, even if
rents only grow with inflation, returns almost 10%.



The rental growth figures discussed relate to a period ended before the
September terrorist attacks which will have further depressed overall economic
activity, and will have reinforced the developing USA recession.  Certainly
the immediate effects in the travel, tourism, airline and leisure industries
and their suppliers seem significant.  Surveys conducted by the Estates
Gazette post 11 September show significant changes in forecasts for 2002 with
the average forecast for rental growth being reduced from 2.8% to 1.3%.  No
rental growth is now forecast for offices and business parks whereas
previously it was 3% or more and only 1% growth is now expected for most other
categories, less than half the previous forecast.  However the forecast for
retail warehouses is broadly unchanged at over 2.5%.  For 2003 a much smaller
adjustment has been made with rental growth expected to recover to 2.4%, only
0.5% points less than the pre 11 September survey.  This implies that the long
term economic effect of such a one-off disaster will probably be very small,
especially if, as now seems likely, the threat of similar atrocities is
minimised.  Post 11 September forecasts for total returns are 6.8% in 2001,
7.8% in 2002 and 9.8% in 2003, which compare favourably with those likely to
be available from Gilts and Equities.



In Scotland the previously reported disparity between cities and sectors has
become less marked.   In Aberdeen the market is more sensitive to oil price
movements than to the overall economy.   In late 1998 the Brent crude oil
price dropped below $10  but rose to over $25 for most of 2000 and 2001 until
the recent rapid slide to below $20.   Higher prices normally result in higher
profits and investment lagging the price rise by one to two years and this is
evidenced by BP's huge current investment programme including the proposed £
110m headquarter building on our Stoneywood site.   Take up of offices in the
year to March 2001 was over 480,000ft(2), 40% higher than in the previous
year, and significantly higher than the 365, 000ft(2) average over the last
ten years.  Recently a record rent of £20 was achieved in the Hill of Rubislaw
and several new schemes are being built or are planned.  However take-up in
the six months to 30 September 2001 has fallen and supply has risen to a
record 1m ft(2), including a significant proportion of secondary and
unrefurbished space.  Nevertheless, rents have risen slightly for good quality
space while yields remain at c.8%.



In Edinburgh the success of the office market continues, albeit activity has
moderated and prices are below the previous peak.   The take-up in the year to
30 September 2001 was 750,000 ft(2), down from the 1m ft(2) of the last two
years, but equal to the ten-year average.   Supply is over 1m ft(2), the first
time supply has exceeded annual take-up since 1997, best rents are below the
previous highs of £29 in the City Exchange District and of £25.50 at Edinburgh
Park and Ryden report  investment yields have increased slightly to 6.5 -
6.75%.   The poorer recent performance of this market has been due to slower
growth in certain sectors of the economy notably Telecoms, IT and certain
financial services.



Until almost 10 years ago Edinburgh's offices were predominantly converted
townhouses supplemented by Government type office blocks, usually located in
the suburbs.  Subsequently Edinburgh has had the fastest rate of growth of
offices in the UK apart from London and the office stock is now approximately
20m ft(2) compared to 16.4m ft(2) in 1996 and 16.0m ft(2) in 1992.  Continued
expansion of the office sector seems likely and the City of Edinburgh Council
predict that over the next 15 years 20,000 new office jobs will be created
requiring over 500,000ft(2) of new space per year.  A recent independent study
predicted that Edinburgh would replace London as the fastest growing city
having 'successfully transformed itself into a flourishing service sector
economy.' Cambridge Econometrics forecast that in the years to 2005 most
European cities, except those with a large manufacturing base, will grow more
rapidly than their national economies and Edinburgh will have the highest
growth rate of any city in the UK.



Many factors contribute to this high growth rate.  The size, scale and
reputations of the existing businesses encourage other organisations to
establish in Edinburgh and it has been suggested that the city now has '
critical mass' and is at a size that permits some specialist institutions to
achieve external economies.  A major feature attracting inward investment is
the 'lifestyle'.  Over the last few years there has been a transformation in
the quality and variety of entertainments and cultural and leisure activities
servicing both the local population and the growing tourist trade for whom a
much enlarged and wider range of accommodation is available.  These
improvements supplement the existing elegance, diversity and history of the
New Town, the Old Town and increasingly of the Forth and Leith water fronts.
It is therefore not surprising that the EU Statistical Office found Edinburgh
the most attractive city in Europe.



Historically Edinburgh has had the lowest unemployment rate in Scotland.  The
growth in the local economy has increased employment and resulted in an
increasingly large number of employees commuting to Edinburgh, especially from
West Lothian and from North of the Forth where transport times are shortest.
In consequence rail traffic has increased by 8% per annum for several years,
and an additional effect has been that the East of Scotland has the highest
net immigration in the whole of the EU.



Demand for houses in the Edinburgh area has been rising for many years.  The
employment opportunities and the resultant immigration comprise large
components of increased demand.  Other components include increased student
numbers, the continuing projected reduction in household size and an
increasing number of second homes. The latest official estimate is that 52,000
additional units will be required in Edinburgh and Lothians by 2015.



Housing supply is relatively inelastic.  Rising residential values and much
lower rentals for 'townhouse offices' have seen a small increase in city
centre residential accommodation.  By 1998 Ryden estimated that 250,000ft(2)
of office space had returned to residential use, say 250 units.  However scope
for continuing reconversions is now limited to say 50 - 100 units per year and
planning controls will limit further development or redevelopment in the city
centre.  Outside the city centre substantial redevelopment continues to take
place with the few remaining longstanding gap sites being developed and
industrial and distribution premises being redeveloped.  However the planning
process is lengthy and the retention of central jobs is an important planning
consideration .  Thus this type of supply is limited and slow to be released.
In more peripheral areas development is taking place on former industrial or
quayside land in Leith and long-term plans for substantial development are
being progressed at the former gas works site and associated grounds at
Granton, on the Forth west of Leith.  An equally large proposal, the 'South
East Wedge', is  situated inside the City Bypass in South Edinburgh and North
Midlothian where 5800 houses are proposed.  Further afield substantial housing
estates are being added to existing settlements usually near good road or rail
links where equivalent houses sell at up to a 40% discount to more central
property.  The result of a restricted supply of and an increasing demand for
new houses has been a significant rise in price.  In the 1990's Edinburgh and
the Lothians average prices rose 5.25% p.a. while UK prices rose 2.2% p.a.
Over the last five years to mid 2001 house prices have risen 8.75% p.a. and,
not surprisingly, the highest rises have been in the city centre and the
lowest in East Lothian where transport links have been poor.  In the same
period new house prices have risen over 10% p.a.



Edinburgh house price rises compare very favourably with commercial property
rental growth, although the comparison varies significantly between the 10
year and 5 year performances, largely because 1990 represented the peak of
many of the commercial indices.  The 10 year Edinburgh house price rise of
66.5% exceeded the UK All Property rental index of 8.4%.  Over the 5 years to
2000 Edinburgh house prices have risen 42.1%, similar to the UK All Property
rental index, 46.4%, and to Scottish shops, 42.7%, but well above Scottish
offices, 15.1%, and Scottish industrials, 17.7%.  Retail warehouses had the
highest growth, up 71.7%.  Over the 12 months to 30 June 2001 Edinburgh house
prices have risen 6.1% but the Scottish Commercial Property rental index rose
only 1.7%.



The present and prospective Edinburgh housing market has many of the
characteristics previously attributed to good commercial markets : supply is
limited, the best locations are tightly defined and demand is increasing.
These qualities now apply less and less to office and retail property, but
have rarely applied to industrial property.  Until 1990 Edinburgh prime office
property existed only in an area tightly focused on Charlotte Square and St
Andrew Square and the price gradient was very steep.  Now, just over 10 years
later, after only a relatively small increase in stock, the area is much
wider, the gradient is less steep, and there is an additional focus at the
Gyle.     The rental difference between the Gyle in the West, the 1980's
traditional centre, the Exchange, Tollcross in the South and Leith Street in
the East is small and these sites encompass a very large area.  Similar growth
in competition has affected the previous exclusivity of the retail centre as
retail parks and out of town shopping centres have been exceptionally
successful.  In Edinburgh these trends will continue.  The Edinburgh
residential sector has always had several key fashionable areas.  The prices
of houses in these areas will continue to rise rapidly with nearby commercial
property benefiting as residential use becomes more valuable than existing
use.  However the tight planning controls will delay, restrict or prevent the
change in use.  The growing demand for and the restricted supply of houses
presents a significant commercial opportunity.



Future Progress

The Group should return to reasonable profitability in the current year, as
the refurbishment costs at St Magnus are greatly reduced and rental voids
there have been nominal.  The sale of Stoneywood for £9.05m to BP payable £7m
in January 2002 and the balance in November 2002 will provide a significant
addition to profits.  We are currently marketing St Magnus and if an
acceptable sale price is agreed this will provide a further but smaller
profit.  The full outcome for the financial year will depend on any change in
net valuation.



The sale or sales in Aberdeen represent the maturing of our investment policy
there after the creation of the full available development value.  This
occasion also defines the transition of the company from one primarily
investing in reversionary commercial property, held for a long period of time,
to new wider policies.  The sale of Stoneywood on which borrowing was modest
will provide the  cash backing to effect these changes.



A major thrust of the group will be the acquisition of and realisation of
development opportunities, particularly in Edinburgh residential property.
The development of our 22,500ft(2) office development in Belford Road has been
delayed while we negotiated with potential occupiers or purchasers and we now
intend to undertake work to resolve the remaining outstanding engineering
issues.  In Baylis Road we have extended the lease with the existing tenants
for three years in order to undertake the development in improved market
conditions.  We continue to investigate possible uses for our St Margaret's
Edinburgh site, including a very large comprehensive mixed development and
refurbishing to varying standards to produce a large multi-let high yielding
office investment.  However the most profitable use appears to be residential.
  If house values continue to increase then the gearing effect on our site,
which could hold up to 200 units, would be most attractive.  The group already
has three small residential sites, on one of which work has commenced.  We are
attempting to purchase other potential residential sites which could be
developed in the medium term.



Yields on most investment properties have risen recently while interest rates,
short and medium term, are at very low levels.  Where rental growth is
expected to be at or above inflation, returns to equity can be above 15%.  We
intend to build up a portfolio of such investments to create a high income
fund based on secondary properties that have either an excellent covenant or
more importantly an excellent location.  As an extension of this policy we are
discussing with other independent investors the creation of a joint fund of
this type on a much larger scale which would allow these individuals
diversified access to commercial property for long-term capital growth and
income.



Lastly we will seek to be opportunistic.  In the past our high gearing and
poor cash availability coupled with a limited track record prevented us from
benefiting from opportunities that we had identified, constraints that no
longer apply.



The mid market price is currently 98.5p, a considerable improvement over the
51.0p I reported last year and a discount of  26.4% to the NAV reported in the
interims.  Over the year we have bought in 211,726 shares and this contributed
to a higher NAV and a lower discount.  We propose to continue to buy in shares
as we believe that the recent and prospective growth in NAV warrants a
discount that is below the sector average.  The Board recommend the payout of
a 0.5p final dividend, unchanged from last year because of the smaller trading
profit, but we intend to increase the dividend at a pace consistent with
consideration for other opportunities.



The current tax charge will be nil as at the beginning of this year we had
agreed tax losses of £1.5m and about £1m of unused capital allowances.  The
size and location of these losses and allowances will be insufficient to
offset all the large gains at Stoneywood after indexation and some tax will
almost certainly become payable shortly.  If the St Magnus sale proceeds the
tax charge, if any, will be small due to its high indexed figure and the
substantial capital allowances available.



Conclusion

World economic conditions will be poor with recessions in the USA, parts of
the Eurozone and Japan but the USA recession will not be extended.  In the UK
conditions will deteriorate and growth is likely to be slower than even recent
forecasts but an overall recession is unlikely given monetary expansion, low
commodity prices, low inflation and prospective increased Government
expenditure.  In Scotland conditions will be poorer than the UK average but
the service based Edinburgh economy, benefiting from the 'capital' and '
Parliament' effects, should at least equal UK performance.



Due to steady inflation returns from cash and fixed interest bonds are likely
to be poor.  The spectacular returns enjoyed by equities during the 1990's
were largely due to falling inflation and to exaggerated projections of future
growth, and similar future returns are most unlikely.  In contrast property,
still recovering from a long bear market, offers good returns in certain
sectors although the previous security provided by traditional location and
limited obsolescence no longer always applies.  The housing market in
Edinburgh offers a unique opportunity.



The group's investments are now maturing and providing excellent returns and a
previously unavailable flexibility for the group.  We intend to concentrate on
existing development opportunities, the Edinburgh housing market, high
yielding secondary investments and opportunistic investments including
corporate acquisitions.  These investments should earn high returns,
sufficient cash for reinvestment and dividend growth and an increasing NAV.




Consolidated profit and loss account
for the year ended 30 June 2001

                                                    2001          2000
                                                    (audited)     (audited)
                                                    £             £

Income - continuing operations
Rents and service charges                           2,668,877     3,346,150
Trading Property sales                              -             1,790,799
Other trading sales                                 397,999       136,871
                                                    _______       _______


                                                    3,066,876     5,273,820
Operating costs
Property rental outgoings                           (539,756)     (847,343)
Cost of trading properties sold                     -             (1,405,183)
Cost of other sales                                 (398,042)     (134,197)
Administrative expenses                             (863,896)     (718,421)
                                                    _______       _______


                                                    (1,801,694)   (3,105,144)
                                                    _______       _______


Operating profit                                    1,265,182     2,168,676

Profit on disposal of investment property           -             126,346
Gain on sale of investments                         24,116        -
Interest receivable                                 62,153        56,347
Interest payable                                    (1,263,404)   (1,212,563)
                                                    _______       _______

Profit on ordinary activities before taxation       88,047        1,138,806

Taxation                                            -             -
                                                    _______       _______

Profit for the financial year                       88,047        1,138,806

Dividends                                           60,089        61,147
                                                    _______       _______

Retained profit for the financial year              27,958        1,077,659


Earnings per ordinary share                         0.72p         9.27p



Diluted earnings per ordinary share                 1.79p         8.85p



Profit for the financial year is retained as
follows:

In holding company                                  686,512       862,321

In subsidiaries                                     (658,554)     215,338
                                                    _______       _______

                                                    27,958        1,077,659



All activities of the group are ongoing.



Statement of total recognised gains and losses
for the year ended 30 June 2001


                                                2001            2000
                                                (audited)       (audited)
                                                £               £

Profit for the financial year                   88,047          1,138,806

Unrealised surplus on revaluation of properties 525,454         4,192,202
                                                _______         _______

Total gains recognised since the last annual    613,501         5,331,008
report



Note of historical cost profits and losses
for the year ended 30 June 2001

                                                      2001         2000
                                                      (audited)    (audited)
                                                      £            £

Reported profit on ordinary activities before         88,047       1,138,806
taxation

Realised deficit on previously revalued property      -            (99,844)
                                                      ______       ______

Historical cost profit on ordinary activities before  88,047       1,138,962
taxation



Historical cost profit for the year retained after    27,958       1,077,659
taxation





Consolidated balance sheet
at 30 June 2001

                               2001                      2000
                                        (audited)                    (audited)
                                  £            £            £               £
Fixed assets
Tangible assets:
Investment properties                 32,274,454                   30,626,397
Other assets                             159,919                      192,777
                                      __________                   __________   
   
                                      32,434,373                   30,819,174   
Investments                                   20                       34,360
                                      __________                   __________
                                                              
                                      32,434,393                   30,853,534
Current assets
Debtors                    749,066                    907,960
Cash at bank and in hand 1,369,614                  2,037,563
                                                    _________                 
                         2,118,680                  2,945,523

Creditors: amounts falling
  due within one year  (15,377,944)               (10,368,681)

                                                    _________                 

Net current liabilities             (13,259,264)                   (7,423,158)
                                                                   __________   

                                     19,175,129                    23,430,376

                                     (2,515,905)                   (7,178,720)
Creditors: amounts falling
  due after more than one year                                     __________   

                                     16,659,224                    16,251,656
Net assets                                                         __________


Capital and reserves                  2,403,554                     2,445,899
Called up share capital               2,530,753                     2,530,753
Share premium account                    54,345                        12,000
Capital redemption reserve            7,091,568                     6,566,114
Revaluation reserve                   4,579,004                     4,696,890
Profit and loss account                                            __________   
             
                                     16,659,224                    16,251,656
                                                                   __________
Shareholders' funds - equity

                                                                

Company balance sheet
at 30 June 2001

                                              2001                      2000
                                          (audited)                 (audited)
                                    £            £           £            £
Fixed assets
Tangible assets:
Investment properties                   3,650,000                3,650,000
Equipment and vehicles                      9,406                    17,872
                                        __________               __________

                                         3,659,406                3,667,872
Investments                             13,404,932               13,572,372
                                        __________               __________

                                        17,064,338               17,240,244

Current assets
Debtors                    10,801,030               11,026,747
Cash at bank and in hand    1,237,242                  600,951
                           _________                _________

                           12,038,272               11,627,698
Creditors: amounts falling
  due within one year     (10,700,886)             (10,164,728)
                           _________                _________

Net current assets/                     1,337,386                1,462,970
(liabilities)
                                        _________                _________

Total assets less current liabilities  18,401,724               18,703,214

Creditors: amounts falling
  due after more than one year         (1,742,500)              (2,451,558)

                                        _________                _________

Net assets                              16,659,224               16,251,656


Capital and reserves
Called up share capital                 2,403,554                2,445,899
Share premium account                   2,530,753                2,530,753
Capital redemption reserve              54,345                   12,000
Revaluation reserves
            Property                    467,290                  467,290
            Investments                 3,552,695                3,685,795
Profit and loss account                 7,650,587                7,109,919
                                        _________                _________

Shareholders' funds -                   16,659,224               16,251,656
equity




Consolidated cash flow statement
for the year ended 30 June 2001

                                                    2001              2000
                                                (audited)         (audited)
                                                       £                 £
Net cash (outflow)/inflow from operating        (535,720)         4,380,831
activities
Returns on investments and servicing of       (1,199,093)       (1,166,704)
finance
Corporation tax                                        -                 -
Capital expenditure and financial investment  (1,065,211)          868,882
Equity dividends paid                            (61,147)
                                              __________        __________

Cash (outflow)/inflow before management of
liquid resources and financing
                                              (2,861,171)        4,083,009

Financing                                      2,343,275        (1,763,420)
                                              __________        __________
(Decrease)/increase in cash in period           (517,896)        2,319,589



Reconciliation of net cash flow to movement
in net debt
                                                           £
(Decrease)/increase in cash in period           (517,896)        2,319,589

Cash outflow from decrease in debt            (2,489,119)        1,734,149
                                              __________         _________

Movement in net debt in the period            (3,007,015)        4,053,738
Net debt at the start of the period          (12,573,283)      (16,627,021)
                                              __________         _________
Net debt at the end of the period            (15,580,298)      (12,573,283)



These financial statements were approved by the Board of Directors on 19
December 2001 and were signed on its behalf by:


ID Lowe
Director


Notes:-


1.   The above financial information represents an extract taken from the 
     audited accounts for the year to 30 June 2001 and does not contain the full
     accounts within the meaning of Section 240 of the Companies Act 1985 (as 
     amended).  The full accounts for the year ended 30 June 2001 were reported 
     on by the auditors and received an unqualified report and contained no 
     statement under section 237 (2) of (3) of the Companies Act 1985 (as       
     amended).  Full accounts will be delivered to the Registrar of Companies. 


2.   All activities of the group are ongoing.  The board recommends the payment 
     of a 0.5p per share final dividend (2000 : 0.5p), which will be payable, 
     subject to shareholders approval, on 22 January 2002 to all shareholders on
     the register on 4 January 2002.


3.   Earnings per ordinary share



     The calculation of earnings per ordinary share is based on the reported 
     profit of £88,087 (2000 : £1,138,806) and on the weighted average number of
     ordinary shares in issue in the year, as detailed below.  The calculation 
     of diluted earnings per ordinary share is calculated adjusting profit for 
     the period in respect of interest on loan stock deemed to have been 
     converted.  The weighted average number of shares has been adjusted for 
     deemed conversion of loan stock and deemed exercise of share options 
     outstanding.


                                                                2001       2000
  Weighted average no. of ordinary shares in issue during  12,204,577 12,279,076
  year - undilute
  Weighted average of ordinary shares in issue during      14,776,194 14,850,694
  year - fully diluted


4.   Copies of the Annual Report and Accounts are being posted to shareholders 
     on 24 December 2001 and will be available free of charge for one month from
     the Company's head office, 61 North Castle Street, Edinburgh, EH2 3LJ.

END