Final Results

TR Property Investment Trust PLC 04 June 2004 TR PROPERTY INVESTMENT TRUST PLC UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 Highlights * NAV total return 59.1% versus benchmark 47.4% * Share Price total return 66.2% * Net dividend for year raised by 22% to 2.50p per share Financial Highlights 31 March 31 March 2004 2003 Change Revenue Gross revenue (Â£'000) 16,247 16,676 -2.6% Revenue pre-tax (Â£'000) 11,328 11,971 -5.4% Revenue per share 2.51p 2.30p +9.1% Net dividend per share 2.50p 2.05p +22.0% Balance Sheet Gross assets (Â£'000) 486,266 359,145 +35.4% Shareholders' funds (Â£'000) 400,739 304,127 +31.8% Shares in issue at end of period (m) 354.4 416.5 -14.9% Gearing 20% 15% Net asset value per share 113.07p 73.02p +54.8% Performance 31 March 31 March Assets and Benchmark 2004 2003 Benchmark performance (price only)* +41.5% -9.3% NAV price only return +54.4% -6.4% Benchmark performance (total return)* +47.4% -5.5% NAV total return* +59.1% -4.2% IPD Annual Index total return** +12.5% +10.6% Total return from direct property +12.5% +8.0% Performance 31 March 31 March Share Price 2004 2003 Change Share price at 31 March 95p 59p +61.0% Share price total return+ +66.2% -6.2% Market capitalisation at 31 March Â£337m Â£246m +37.0% The Benchmark is the S&P/Citigroup European Property Index in sterling. Sources: Henderson Global Investors/+AITC/*Datastream/**Extrapolated to March 2004 - MORE - - 2 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 CHAIRMAN'S STATEMENT Introduction Since this Report marks the end of my Chairmanship of your Board of Directors, I hope shareholders will forgive me if I indulge in a retrospective of the ten years during which I have served on the Board. My involvement in our Company began when PosTel, as it then was, now Hermes, swapped some of the smaller properties in its clients' portfolios for shares and warrants in TR Property. The shares were issued effectively at a premium to net asset value, and Hermes clients became owners of over 20% of the share capital of the Company. I was invited to join the Board as a representative of that shareholding. Consequently, while I was Chief Executive of Hermes, I was not an independent director. Only when I retired from Hermes, and the investment of Hermes clients in the Company had fallen below 10%, could I agree to succeed Grant Cochrane as your Chairman. The decision taken back in 1994 has proved to be one of the more rewarding, in personal satisfaction, that I have taken in my career. The quality of the Board, and, particularly, of the investment managers, has enabled TR Property to create an extraordinary record of success over the period. The 'B' share issue with warrants made in 1994 was at a price equivalent to 40p a share. After a couple of difficult years in the share market when the net asset value fell, there has been a striking rise in both the assets and share price of our Company. At this year end, the net asset value per share had reached 113.1p, and the share price was hovering just under the 100p mark. The dividend per share has risen over the same period from 0.90p per share to the recommended 2.50p for the year just ended. There are very few companies of any sort that can match this record, and TR Property has outperformed almost all other investment trusts over the period. Management Shareholders will have been disturbed to read that, at the end of April, the Board gave notice on the investment management contract with Henderson Global Investors. This followed on the resignation from Henderson of Chris Turner and Marcus Phayre-Mudge, the Trust's fund manager and his deputy. As you will be aware, the Trust contracts with Henderson for its investment management, not with our individual managers, who are employees of the incumbent management house. Your Board has no locus in discussions between our appointed manager and its employees, but we have taken the opportunity given by this unwelcome development to give notice on the investment management contract to expire at the end of September, with no compensation payable to Henderson. We have invited proposals for the management of your Company, and are currently engaged, with help from our advisers, in sifting through the many applicants for this role. We have asked Henderson to make a proposal. An appointment will be made in good time before the current contract expires. Meanwhile the fund managers remain at their desks at Henderson until their notice period expires and continue to run the Trust. I am pleased to say that everyone involved in this development has behaved in a mature and sensible fashion, always keeping the interests of our shareholders uppermost in their minds. It is possible that a decision on a new management contract will have been made in time for the Annual General Meeting at the end of July, but, at least, we will be able to give you an update on the position then. The Past Year In last year's Annual Report, I expressed the view that 'direct property has probably reached the zenith of its relative performance in the current cycle'. The sharp recovery in equity markets has indeed reversed the performance order over the past twelve months. However property shares have outperformed even the rise in the general equity market, both in the UK and in many of our favoured European markets. The common factor has been the move towards enabling more of the rental income from property to flow through to the equity investor untaxed. During the year we saw the introduction of the French equivalent of a Real Estate Investment Trust, and, in the UK, the Chancellor is consulting on the introduction of a similar regime. - MORE - - 3 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 CHAIRMAN'S STATEMENT CONT'D The consultation will determine the details of any British version. This, together with a constant flow of quoted companies being taken private at nearer their quoted net asset values, produced a total return of 62% in the year to March 2004. European property shares, in sterling, gave a total return of 34.5% over the same period. Our benchmark Index showed a total return of 47.4%, and I am pleased to report that the Trust's net asset value rose by 54.8%, from 73.0p to 113.1p and that our net asset value total return was 59.1%. This is the sixth year in succession that the net asset value total return has beaten the benchmark total return. The share price rose from 59p to 95p, a 61.0% increase and showed a total return of 66.2%. The ungeared total return from our direct property portfolio was 12.5%, well below that achieved in property securities. Your managers had reduced the exposure to direct property to take advantage of the anticipated recovery in equity share markets. This ability to arbitrage between the direct and indirect property markets is unique to TR Property among the larger investment trusts, and your managers have been singularly adept at making such switches of emphasis over the years. Revenue and Dividends Reported revenue earnings per share for the year are 2.51p per share, a rise of 9.1% over that reported for last year. In a lower inflation environment, we cannot expect underlying rental growth, from which dividends ultimately derive, to maintain the 14.7% compound growth in the Trust's revenue we have achieved over the past five years. Earnings per share are also affected by the timing of dividend receipts, often changing in successive years from March to April or vice versa; the effects of the repurchase of our own shares, and the occupation levels of our direct property holdings. Two of our largest direct property holdings are in receipt of planning permission for redevelopment, and occupation levels have been reduced deliberately to facilitate these redevelopments. Our managers are currently advising that the Trust's revenue per share will increase further in the current year, subject to unforeseen circumstances. In the medium term, the Trust may be the beneficiary of a greater flow-through of rents from property shares following the introduction of a tax transparent vehicle in the UK property market. The Board is recommending a final dividend of 1.40p per share to shareholders, a 21.7% increase over last year's figure of 1.15p. Together with the interim dividend of 1.10p already paid, this produces a total dividend for the year of 2.50p, a 22.0% increase over the 2.05p paid last year. The proposed dividend is only just covered by reported earnings per share, yet the cost of it is clearly lower than the after tax earnings of the Trust. This anomaly occurs because the Trust repurchased a large number of its own shares last October. Stated earnings are calculated on the weighted average number of shares outstanding in the year (388.8 million), whereas the cost of the dividend is based on the actual number of shares ranking for this final dividend payment (354.4 million). The Board has taken the view that there is no reason to increase our revenue reserves further, and that it will, in principle, try to distribute its after tax earnings more fully, on a sustainable basis. I would point out however that, in common with almost all investment trusts, part of the costs of running the Trust are charged to the capital account. Consequently, in cash flow terms, payment of a high percentage of reported earnings actually requires the sale of capital assets to meet the management costs charged to that account. Share Repurchases Your Board has taken active steps to ensure that the discount of the share price to underlying asset value is not simply left to chance. Where we have identified the possibility of buying back shares in the market that would enhance the net assets for remaining shareholders and help keep the absolute size of the Trust's portfolio to a level appropriate to its investment universe, we have acted. Our managers, working to the Board's instructions, bought back a total of 62.08 million shares at a total cost of Â£48.02m - an average price of 77.4p per share including costs, adding around 2.1p per share to the total return of all the - MORE - - 4 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 CHAIRMAN'S STATEMENT CONT'D remaining shares. Some 53.8 million (almost 90%) of these shares were bought back in a single transaction at the end of October 2003, details of which I included in my interim report. The purchases almost exhausted our buy-back powers granted at the last Annual General Meeting, but these powers were renewed at an Extraordinary General Meeting held in January. In the event, no further repurchases have been made since then. Gearing and Currency Exposure The Trust has maintained gearing in the 15% to 33% range this year. Net debt rose by 72% from Â£47m at the start of the year to Â£81m at the close. Part of the increase was in order to finance the share buy-back mentioned above. In accordance with the Board's policy, the foreign currency assets and revenue income were unhedged throughout the year. Sterling rose by 3.2% against the Euro over the year. This modestly benefited the Trust's performance against its benchmark, since the exposure to European property shares was below that of the Index level. Board As previously announced, I will retire as Chairman and as a director of the Trust at the conclusion of the Annual General Meeting. The Board has elected Peter Salsbury, who joined the Board in 1997, as my successor. Peter is taking a leading role in the process of selecting an investment manager to run the Trust on the expiry of the current contract. The Board is also actively considering the recruitment of a new non-executive director. I am delighted to leave the Company in the hands of a Board which is blessed with such able and experienced people. Outlook Whereas a year ago the stock market was over-fearful of the future, there is a danger that an equally erroneous complacency has entered into investors' minds. In the UK, interest rates are on an upward path, and this is not a perfect background for property investment. Some of the larger property companies have been making more encouraging noises about tenant demand. This reflects the recovery in financial activity in London particularly, to which the demand for space is highly sensitive. The asset bases of the UK property shares in which we invest are dominated by value by City and West End offices and large retail investments. Retail demand has been sustained by a continuing rise in house prices and growth in remortgaging. Whether these factors will remain supportive is more questionable, in an environment of rising mortgage rates and can only be guessed. One hopes that the residential price bubble can be deflated, rather than burst, but precedent is not encouraging. Your portfolio is very lightly exposed to the housing market. In Continental Europe the economies are still recovering more slowly, and tenant demand remains generally weak. Property investment has become an area of choice for many institutions that ignored the asset class, or actively sold it, in the 1990s. It is a source of amazement to me that people are doing now what they should have done four years ago, at the height of the dot.com boom. Then, you will recall, investors wanted 'clicks' not 'bricks'. There are estimates of unfilled demand for property investments of over Â£10 billion in the UK alone. Investors have also been attracted by the relatively high income yields available in some of the Continental European markets that have tax-transparent investment vehicles. - MORE - - 5 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 CHAIRMAN'S STATEMENT CONT'D Investment property should remain part of a well-diversified portfolio. It has income and capital characteristics not available in other asset classes, and is not closely correlated with them. Property shares, while more closely correlated with equity markets, also reflect the underlying trends in the direct property world. For most of us, with little opportunity of building up a direct commercial property portfolio of our own, and certainly not on an international basis, TR Property represents an excellent way in which to attain that exposure at a low cost, with highly professional and successful management. I shall certainly be keeping my own investment in the Company after my retirement. Although I regret that I am standing down from the Board at a moment when the future management arrangements are not settled, I am confident that a solution which will benefit our shareholders will be found. While, as the manager suggests, it is unrealistic to expect a growth rate over the next ten years as strong as over the last, the Trust is uniquely placed to take advantage of developments in real estate markets, both direct and indirect. The Board may have had a little influence on the Trust's success over the past decade, but the prime credit must be given to the fund manager and his colleagues. They have worked indefatigably on your behalf, with self-evident results. I am grateful to them, and to my Board colleagues over the years, who have made this such a pleasurable experience. - MORE - - 6 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 MANAGER'S REPORT Introduction Hindsight is a wonderful thing. We performed well last year, but in retrospect I am annoyed that I underestimated the continued strength of the market. Though we were geared, I missed a great chance to improve performance still further with additional debt. Nevertheless, we have no reason to be unhappy with our predictions. Country selection was good. The portfolio was consistently long of UK assets throughout the year and, in total return terms, UK property shares (+62%) outperformed every other global property share market, save for Japan (+99%) and Sweden (+63%). The portfolio was also consistently uninvested or underweight in the most poorly performing markets: Austria (+5%), Switzerland (+7%), Belgium (+16%) and Germany (+17%). The portfolio was also weighted towards retail property throughout the year and again this worked out well as shops have continued to show higher returns than offices or industrial property, both in the UK and elsewhere. We held heavily overweight positions in the three best performing Pan European property shares over the period: Benchmark (+144%), St Modwen (+110%) and Grainger Trust (+104%). The Big Yellow, in which the Trust has a 12% holding, rose 93%. I misjudged several situations. I did not expect house prices to be so buoyant and, as a result, the portfolio held no UK housebuilding shares. I put the chances of a workable REIT sector being introduced in the UK at five to one against in my statement last year. Subsequent events have proved this to be far too pessimistic. Currently the industry sentiment is probably closer to even money. Our direct property portfolio performed in line with a direct property benchmark but, with a 12.5% total return, was a drag anchor on the Trust's overall performance, and in hindsight we should have sold more property in the summer of 2003 and re-invested the proceeds in shares. There are two other matters, commented on in the investment activity paragraphs, which I would like to highlight. The first one is the low level of purchases and sales in the year. Some fund managers, particularly those who run hedge funds (which I do not) add value by frenetic dealing activity. I rarely seem able to do this; my investment habits are much more sluggish. If I have found what I believe is a good investment I tend to give it a chance to prove me right or wrong. We now publish a monthly fact sheet which shareholders can access on our website. Amongst other things, it lists our top ten equity shareholdings. I sometimes worry that shareholders who view this list must think the fund manager is asleep as the list changes so infrequently. The second issue is this. By inclination I prefer, where possible, to invest in smaller and medium sized property companies rather than in larger ones. Yet I must confess that, virtually throughout the year, the Trust's top seven equity investments have been the seven largest property companies in our benchmark. I comment further on these matters later in my report. Property Market Background A bird's-eye view of European property markets today shows very strong investor demand for commercial property investments virtually everywhere. Housing markets are strong west of the Rhine and on the Mediterranean coast, but slack in Germany and in some other northern European areas. Property investment yields are falling slowly and capital values rising, gently in most locations, though in the UK the pace of capital value growth has quickened this spring, despite the increase in borrowing costs. Private investors are active, making up an estimated 10% of buyers in the UK in 2003 compared with 2% in 2000. Here and across Europe property companies and institutions, who were net sellers of direct property in 2003, have turned to be net buyers. Good quality investments are in short supply, particularly as the development pipeline is producing only a trickle of fresh stock. Despite the threat of further increases in borrowing costs this year, I do not foresee any early end to this surge of property investment demand. - MORE - - 7 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 MANAGER'S REPORT CONT'D Offices Offices are still the dullest sector due to high vacancy rates and a lack of net tenant demand. In the London market, where market trends often start, vacancy rates in the City have risen to around 15% from 10% last March, but in the West End the rate has fallen slightly to around 8% over the year. Underlying rents are not yet rising there but the incentives offered by landlords to lease space are diminishing and asking rents are being edged upwards. On the Continent most office markets are virtually moribund after seeing another increase in vacancy rates last year. Paris has the lowest level of empty space (at around 6.5%) but lettings are very hard work even there. These markets may now be past their nadir in terms of the fall in rental values and rise in vacancy levels, but I believe the recovery in rents will take longer than many commentators currently estimate, given the impact that social legislation has on the pace of Continental employment growth. Retail Property Consumer demand continues to defy the pessimists and tenant demand, though patchy, appears to remain sturdy in the larger inner city and out of town shopping centres. In the UK, sales volumes have grown by 6.3% in the year to end April 2004, while consumer spending has risen by 3.8%. The idea is widespread that consumption growth has been fuelled mainly by higher borrowing, often against housing, but this may not be the whole story, as rising household incomes and improved employment security are also present. On the Continent consumer growth patterns are much slacker and broadly reflect the state of the local economies. Aside from the state of tenant demand, retail property continues to offer greater opportunities for income improvement through active management and centre extension, and, being generally subject to much tighter planning controls than offices or warehousing, offers more defence against future development. Residential Property I am concerned that the current rate of increase in house prices will lead to a painful price reversal at some date in the not too distant future. But, if I am wrong, I still prefer to keep the Trust's assets as modestly invested in the residential market as possible, as commercial property looks so much better value on a price per square foot basis. Going back twenty years, trends in commercial and residential property values used to be very similar. Since 1998 this trend has been completely broken: UK commercial property values have risen by 25% while house prices have more than doubled. Across the country commercial property and potential commercial development sites are being siphoned off for brown-field residential development, reducing the actual and potential commercial stock and turning many commercial property investments into deferred housing sites. The reduction in the commercial stock will only serve to increase the future pace of rental growth as the economy grows. Property Share Background UK property shares had an outstanding year. Asset values rose, contrary to analysts' earlier forecasts, as yields fell in the property investment market. Two major takeover bids - for Canary Wharf and Chelsfield - ran through most of the year and acted as a reminder that some investors, unable to satisfy their demand for property in the direct property market, were prepared to make cash offers for companies standing at a discount to asset value on the stock market. Equally important was the progress made towards the introduction of Real Estate Investment Trusts (REITs) in the UK, which I comment on below. All these factors served to produce a dramatic drop in the average discount to net asset value of the sector from around 40% at March 2003 to 18% at March 2004. On the Continent property shares did well, but the total returns were lower partly because the discounts to asset value were narrower at the start of the year. - MORE - - 8 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 MANAGER'S REPORT CONT'D UK REITs In my interim statement I commented at length on the background to UK REITs and the potentially beneficial effects this might have on the UK property share market. In March the Government issued a consultation document entitled 'Promoting more flexible investment in property', through the creation of a new investment vehicle dubbed a 'Property Investment Fund' or 'PIF' for short. The paper does not set out the Government's preferred options, but rather raises a host of questions to which the property industry is invited to comment by mid July. The present expectation is that these responses will be considered through the autumn and that the Government will publish its findings, and the framework of any proposals, with the Chancellor's November statement. Any proposed legislation is expected to be announced in the 2005 Budget. Investment Activity and Distribution of Assets Changes made to the portfolio last year were fewer than usual. Leaving aside share repurchases, investment turnover (purchases plus sales divided by two) totalled only Â£70m in the year or less than 20% of the average capital under management. The comparable figure for the previous year was 35%. The portfolio's total appreciation was Â£148m. We used approximately Â£48m of the Â£148m to buy-back shares, spent Â£4m on capitalising part of our interest and management fees and in paying the performance fee. The remaining Â£96m was added to shareholders' funds. Reflecting the low investment turnover, the distribution of assets also showed only a modest change over the year. The biggest change, in percentage terms, was the direct property section which dropped from 20.5% to 14.1% as a result of sales and relative performance. My general target distribution for the portfolio remains at 35% to 55% in UK equities, 35% to 55% in Continental equities and 10% to 30% in UK direct property. Comparing these targets with the current actual numbers shows that I am unusually underweight in the Continent and close to breaching the top target level in the UK equity market. This reflects my belief that UK property stocks are likely to continue to outperform Continental stocks. Better economic growth here will provide UK property companies with more opportunities for profitable investment. A successful introduction of tax transparent property vehicles in the UK, if this happens, should boost prices; and if this does not happen then corporate activity could well re-emerge to support the sector not far below current price levels. One objective of my investment activity through 2003 was to decrease the see-through weighting in offices and increase the weighting in retail. Though many commentators now believe offices to have greater growth potential than retail through the next two years, I am not convinced that this is correct and am content to remain with our current weightings for the present. Largest Equity Investments Shareholders should know that by inclination I prefer small and medium sized property companies to large ones when making investments. Unlike their counterparts in most other industries, large property companies have little economic advantage compared to their smaller brethren, and what they gain from marginally cheaper borrowing costs is, in my view, more than lost in bureaucracy and in their inability to find sufficient large scale investment opportunities to create high returns on capital. There are a few notable exceptions, but generally I find that the best managements in the industry are likely to be found running and, very often, owning significant shareholdings, in smaller companies. - MORE - - 9 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 MANAGER'S REPORT CONT'D Having said this I must now admit that the current top seven of our equity investments are the seven largest property companies in the UK and Europe. There are several reasons for this. Major shopping centres, which I am keen to hold on a see-through basis, tend, because of their size, only to be owned by large investment companies. At the start of an economic upturn, which is where I hope we are, the development opportunities, on which smaller companies thrive, are few and far between as there is too much empty space in standing property to give a fair risk and reward for new construction in the office and industrial markets. Lastly, if tax transparent companies are successfully introduced in the UK, I believe the large companies will be the first to transfer into the new regime and I hope that this will benefit their share prices as it has in France where discounts to asset value have virtually disappeared. Revenue The revenue earnings per share rose by only 9.1%, which was less than we expected, particularly after the increase of 24.5% in our revenue per share in the first half of the year. One major reason (and one that pinpoints how little control we have over some of our income) was that the ex-dividend dates for two of our largest final dividend payments, from St Modwen and Hammerson, moved from the end of March into early April, reducing the Trust's dividend income in the year by just over Â£700,000, equivalent to 0.20p per share. If these ex-dividend dates return to late March in 2005 then the Trust will receive two final dividends in the current financial year, but we are not budgeting for such an event. Another reason for the slower rate of earnings growth was the reduction in rental income from our Piccadilly and Battersea properties, which we have partially emptied in preparation for redevelopment. Battersea is now under offer for sale as a residential development site and at Piccadilly we have selected a funding partner to manage and finance the redevelopment. Next year the accounts will be prepared under the new International Financial Reporting Standards. These are still under discussion with the standard setting bodies but there are likely to be significant changes to the presentation and content of the accounts. We will report further at the interim stage by which time more details of the impact should be known. Gearing and Debenture Debt As the Chairman notes, the Trust's net debt rose by 72% from Â£47m to Â£81m over the year, but the increase in the gearing was only from 15% to 20% thanks to the substantial increase in the value of the Trust's assets. Shareholders should note that some Â£40m of our present debt is in the form of two debentures with coupons of 8.125% and 11.5% repayable in 2008 and 2016 respectively. The market value of this debenture debt was Â£48.6m at the year end. This additional Â£8.6m represents a negative value equivalent to 2.4p per share (same as last year), which is not currently taken into the balance sheet or the asset value calculation. Later this year the rules are likely to change and this negative sum will be included in our published numbers. The remainder of our debt is in the form of variable rate bank loans linked to LIBOR. Direct Property Portfolio The Trust's direct property portfolio is focused on office and industrial properties in Greater London and the South of England. We own no stand alone retail. This apparent contradiction with our view that retail property offers superior returns is easily explained. The best retail returns have been generated by retail parks and shopping centres. These are generally large assets which are not appropriate for the Trust given the size of its direct property portfolio. We continue to gain full retail exposure through our quoted investments. The portfolio is dominated by properties requiring active asset management. This year saw us progress plans for the redevelopment of Piccadilly and Battersea. A consequence of this is that a large proportion of our property income is secured on leases with short periods to expiry. - MORE - - 10 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 MANAGER'S REPORT CONT'D The Trust's direct property portfolio produced a total return of 12.5% over the year. The income return was 4.8% together with a 7.7% capital appreciation. This performance matched the IPD Annual Universe total return (extrapolated to March). Direct property's performance was significantly inferior to property equities and the Trust continued to reduce its exposure to direct property by completing four sales whilst making no purchases. All sales were at or above the previous year end's independent valuation. In the case of the office building at Southampton, the sale price (Â£5.165m) was 29% ahead of the March 2003 valuation and reflected the swift reletting of the ground floor (to a Government department) which was refurbished and returned to us as part of the lease regearing with the existing tenant, PricewaterhouseCoopers. The other sales were the small industrial units at Swanley and Addlestone and our business centre at Tavern Quay in Docklands. These sales totalled Â£5.42m, an average of 6.5% ahead of the previous year end's valuation. The sale of the business centre followed the successful disposal last year of the adjacent over-spill car park (which had permission for 12 residential units). At 198-202 Piccadilly, the outstanding conditions attached to the planning consent have been satisfied and we have been able to complete conditional negotiations with the freeholder, the Crown Estate, for a new ground-lease. The Trust does not take on development or construction risk and we have agreed, in principle, funding with a major UK institutional investor as a first step towards a sale. The new ground-lease with the Crown Estate is conditional on this funding. Following the same strategy as at Piccadilly, we are seeking to sell the business centre at Battersea having completed the protracted (but ultimately successful) planning application for a mixed use scheme. Following a comprehensive marketing campaign, terms were agreed with a residential developer in March and the sale is progressing. At the Colonnades in Bayswater, the conversion of 3,600 ft of surplus storage space into air-conditioned offices with a new access was completed a month after the year end. Letting conditions are improving in this submarket and marketing has commenced. Aside from voids at Piccadilly and Battersea (due to steps we have taken to prepare the properties for redevelopment), the only significant void in the portfolio is the 36,000 ft warehouse at Swindon. We have been drawing rent against a bank guarantee since the original tenant, Optical Micro Devices, was put into administration in June 2002. This guarantee is due to expire in June this year. We have also settled our claim for loss of future rent and dilapidations with the Receiver at a figure of Â£187,000, which equates to a further 11 months' rent based on the current ERV. The property continues to be marketed for sale or for let. The direct property portfolio at the year end constituted 14.1% of the gross assets of the Trust. The current sales comprise approximately 40% of the direct property portfolio. Unquoted Investments We made no investments in unquoted companies during the year. Controlrun, a joint venture that owns petrol filling stations, remains our only investment in this area. Sales of all the assets owned by the business, planned last year, have now been completed at prices ahead of recent valuations, and we expect to exit the joint venture during the current year. - MORE - - 11 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 MANAGER'S REPORT CONT'D Outlook We enter the new financial year holding the portfolio positions that served us well last year - overweight UK and retail property and underweight mainland Europe, offices and residential. I can see no immediate reason to alter these positions. Despite the value gains of 2003, commercial property still offers an income return that is higher than other asset classes. If the pace of economic growth continues to improve the early signs of improved tenant demand should become more obvious, giving a further stimulus to asset values. Rising bond yields will make us more wary, but property markets can continue to perform well in a rising interest rate environment provided the economy does not falter. The possibility that a sensible REIT structure might emerge continues to add spice to share prices in the UK property sector. - MORE - - 12 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 GROUP STATEMENT OF TOTAL RETURN (Incorporating the Revenue Account) for the year ended 31 March 2004 Year ended 31 March 2003 Year ended 31 March 2004 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Total capital gains/(losses) from - 147,478 147,478 - (25,633) (25,633) investments Repurchase of warrants - - - - (8,885) (8,885) Investment income 12,608 - 12,608 11,529 - 11,529 Net rental income 3,353 - 3,353 4,938 - 4,938 ------- ------- ------- ------- ------- ------- 15,961 147,478 163,439 16,467 (34,518) (18,051) Interest receivable and similar income 286 - 286 209 - 209 ------- ------- ------- ------- ------- ------- Gross revenue and capital gains/(losses) 16,247 147,478 163,725 16,676 (34,518) (17,842) Management and performance fees (1,764) (2,149) (3,913) (1,702) (851) (2,553) Other administrative expenses (643) - (643) (570) - (570) ------- ------- ------- ------- ------- ------- Net return on ordinary activities 13,840 145,329 159,169 14,404 (35,369) (20,965) before interest payable and taxation Interest payable and similar charges (2,512) (2,512) (5,024) (2,433) (2,433) (4,866) ------- ------- ------- ------- ------- ------- Net return on ordinary activities 11,328 142,817 154,145 11,971 (37,802) (25,831) before taxation Taxation on net return on ordinary (1,564) 912 (652) (2,237) 696 (1,541) activities ------- ------- ------- ------- ------- ------- Net return on ordinary activities 9,764 143,729 153,493 9,734 (37,106) (27,372) after taxation Ordinary dividends Interim of 1.10p (2003: 0.90p) (3,899) - (3,899) (3,823) - (3,823) Final of 1.40p (2003: 1.15p) (4,961) - (4,961) (4,774) - (4,774) ------- ------- ------- ------- ------- ------- (8,860) - (8,860) (8,597) - (8,597) ------- ------- ------- ------- ------- ------- Transfer to/(from) reserves 904 143,729 144,633 1,137 (37,106) (35,969) ======= ======= ======= ======= ======= ======= Return per ordinary share 2.51p 36.96p 39.47p 2.30p (8.78)p (6.48)p The revenue columns of this statement represent the revenue account of the Group. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. - MORE - - 13 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 GROUP AND COMPANY BALANCE SHEETS Group Group Company Company 2003 2004 2003 2004 Â£'000 Â£'000 Â£'000 Â£'000 Fixed asset investments 486,266 358,178 499,829 357,646 ---------- ---------- ---------- ---------- Current assets Debtors 5,982 4,267 5,626 3,452 Cash at bank 2,360 1,790 2,215 1,641 ---------- ---------- ---------- ---------- 8,342 6,057 7,841 5,093 Creditors - amounts falling due within one year Bank loans and overdrafts 43,323 8,697 43,101 8,697 Other creditors 10,345 11,217 63,580 49,665 ---------- ---------- ---------- ---------- 53,668 19,914 106,681 58,362 ---------- ---------- ---------- ---------- Net current liabilities (45,326) (13,857) (98,840) (53,269) ---------- ---------- ---------- ---------- Total assets less current liabilities 440,940 344,321 400,989 304,377 Creditors - amounts falling due after more than one year 40,201 40,194 250 250 ---------- ---------- ---------- ---------- Total net assets 400,739 304,127 400,739 304,127 _________ _________ _________ _________ Capital and reserves Called up share capital 88,604 104,124 88,604 104,124 Share premium 37,063 37,063 37,063 37,063 Other reserves 257,225 145,997 265,222 153,355 Revenue reserve 17,847 16,943 9,850 9,585 ---------- ---------- ---------- ---------- Equity shareholders' funds 400,739 304,127 400,739 304,127 _________ _________ _________ _________ Net asset value per share 113.07p 73.02p 113.07p 73.02p - MORE - - 14 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 GROUP CASH FLOW STATEMENT for the year ended 31 March 2004 2004 2004 2003 2003 Â£'000 Â£'000 Â£'000 Â£'000 Net cash inflow from operating activities 11,837 12,483 Returns on investments and servicing of finance Interest paid (5,018) (4,806) ---------- ---------- Net cash outflow from servicing of finance (5,018) (4,806) Taxation recovered 541 442 Capital expenditure and financial investment Purchase of investments (62,833) (82,130) Sale of investments 77,291 128,490 Loans repaid by unquoteds 967 - ---------- ---------- Net cash inflow from financial investment 15,425 46,360 Equity dividends paid (8,672) (7,989) ---------- ---------- Net cash inflow before financing 14,113 46,490 Financing Issue of shares - 8,277 Purchase of own shares (48,021) (10,662) Purchase of own warrants - (8,885) ---------- ---------- Net cash outflow from financing (48,021) (11,270) ---------- ---------- (Decrease)/increase in cash (33,908) 35,220 ========== ========== Reconciliation of net cash flow to movement in net debt 2004 2003 Â£'000 Â£'000 Increase in cash 718 985 Cash (inflow)/outflow from (increase)/decrease in (34,626) 34,235 loans ---------- ---------- Change in net debt resulting from cash flows (33,908) 35,220 Exchange differences (148) (96) Other (7) (6) ---------- ---------- Movement in net debt (34,063) 35,118 Net debt at 1 April (47,101) (82,219) ---------- ---------- Net debt at 31 March (81,164) (47,101) ========== ========== - MORE - - 15 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 NOTES: 1. Return per ordinary share Basic revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of Â£9,764,000 (2003: Â£9,734,000) and on the weighted average number of ordinary shares in issue during the year, being 388,831,553 (2003: 422,633,986). Basic capital return per ordinary share is based on net capital gains of Â£143,729,000 (2003: Â£37,106,000 losses) and on the same weighted average number of ordinary shares in issue. 2. Net asset value per ordinary share Basic net asset value per ordinary share is based on net assets attributable to ordinary shares of Â£400,739,000 (2003: Â£304,127,000) and on 354,416,286 (2003: 416,494,500) ordinary shares in issue at the year end. 3. Share capital changes During the year, the Company made market purchases for cancellation of 62,078,214 ordinary shares of 25p each representing 14.9% of the number of shares in issue at 31 March 2003. The aggregate consideration paid by the Company for the shares was Â£48,021,000. Shares are repurchased in order to enhance shareholder value. 4. Reconciliation of Group operating revenue to net cash inflow from operating activities 2004 2003 Â£'000 Â£'000 Net revenue before interest payable and taxation 13,840 14,404 (Increase)/decrease in operating debtors (24) 1,244 Increase in operating creditors 1,180 3 Overseas withholding tax suffered (815) (1,007) Performance fees paid - (1,310) Management and performance fees charged to capital (2,149) (851) Scrip dividends included in investment income (195) - ---------- ---------- Net cash inflow from operating activities 11,837 12,483 ========== ========== 5. Accounts for the year ended 31 March 2003 The figures and financial information for the year ended 31 March 2003 are extracted from the latest published accounts of the Group and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either Section 237(2) or Section 237(3) of the Companies Act 1985. 6. Accounts for the year ended 31 March 2004 The preliminary figures for the year ended 31 March 2004 have been extracted from the latest Group accounts, which have been prepared on the same basis as set out in the previous year's annual accounts. They do not constitute the Group's statutory accounts. These accounts have not yet been delivered to the Registrar of Companies, nor have the auditors yet reported on them. 7. Dividend Subject to shareholders' approval at the AGM, a final dividend of 1.40p per share will be paid on 30 July 2004 to shareholders on the register at 2 July 2004. The shares will be quoted ex-dividend from 30 June 2004. - MORE - - 16 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2004 8. Annual Report and AGM The Annual Report will be posted to shareholders in June 2004 and will be available thereafter from the Secretary at the Registered Office, 4 Broadgate, London EC2M 2DA. The Annual General Meeting of the Company will be held at 4 Broadgate, London EC2M 2DA on Monday 26 July 2004 at 12 noon. For further information please contact: Chris Turner Stephen Westwood Fund Manager Head of Investment Trusts TR Property Investment Trust plc Henderson Global Investors Telephone: 020 7818 4348 Telephone: 020 7818 5517 Vicki Staveacre Stephen Phillips Press Office Associate Director Henderson Global Investors Henderson Global Investors Telephone: 020 7818 4222 Telephone: 020 7818 6417 - ENDS - This information is provided by RNS The company news service from the London Stock Exchange

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