Final Results

RNS Number : 3632V

TR Property Investment Trust PLC

28 May 2008

 



This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.

TR PROPERTY INVESTMENT TRUST PLC

Unaudited preliminary results for the year ended 31 March 2008

27 May 2008

ORDINARY SHARES Financial Highlights and Performance	Year ended 31 March 2008	Year ended 31 March 2007	% Change
Revenue
Revenue earnings per Ordinary share	5.79p	4.09p	+41.6
Net dividend per Ordinary share	5.60p	4.10p	+36.6
	At 31 March 2008	At    31 March 2007
Balance Sheet
Net asset value per share	219.61p	290.78p	-24.5
Share price	188.25p	256.50p	-26.6
Gearing	0%	9%
Shareholders' funds (£'000)	567,899	972,944	-41.6
Shares in issue at end of period (m)	258.6	334.6	-22.7
Note: At 24 July 2007 19.0% of the Ordinary share capital (and corresponding assets and liabilities) converted to Sigma shares.
Performance	Year ended	Year ended
	31 March	31 March
	2008	2007
Benchmark performance (total return)	-23.0%	+27.5%
NAV total return	-22.9%	+31.8%
Share price total return	-24.8%	+24.4%

SIGMA SHARES Financial Highlights and Performance	Period ended 31 March 2008
Revenue
Revenue earnings per Sigma share	0.85p
Net dividend per Sigma share	0.85p
Net Special dividend per Sigma share	1.10p
	At 31 March 2008	At inception 24 July 2007 (Unaudited)	% Change
Balance Sheet
Net asset value per share	108.64p	122.85p	-11.6
Share price	92.00p	106.25p	-13.4
Gearing	0%	3%
Shareholders' funds (£'000)	138,710	161,914	-14.3
Shares in issue at end of period (m)	127.7	131.8	-3.1
Note:  24 July share price at close.
Performance	Period ended 31 March 2008
Benchmark performance (total return)	-10.1%
NAV total return	-10.5%
Share price total return	-12.2%

Chairman's Statement

Introduction 

It was a brute of a year for property shares. The gory details are amplified in the managers' statements, and the absolute and relative performances are noted below. Since January share values have been more stable and both share classes saw modest increases in asset value in the final quarter of our financial year. Our managers are maintaining a cautious attitude and, for the first time in twenty years, the Trust is holding modest levels of net cash. In contrast to the capital value declines, revenue has been at record levels allowing the Board to recommend a substantial increase in the full year dividend for the Trust as a whole. 

Before diving into the detail, I think it is worth recording that the recent fall in the share prices and asset values of the two share classes come after a long period of exceptional growth. In the seven years to March 2007 the simple appreciation in the Ordinary share price was 5.7 times and even after the decline of the last twelve months the Ordinary shares have still risen 4.1 times since March 2000. 

Markets aside, the major event for the Trust was the creation of the Sigma share class last July. When we set out the proposals last April we little envisaged the trauma that would occur last autumn due to the credit crisis. Sigma was effectively born in a storm. Marcus Phayre-Mudge, the Sigma manager had originally expected to switch the inherited portfolio entirely into small cap shares in four months. Market conditions and particularly the pricing differentials between large and small stocks has resulted in the rotation of assets being slower than anticipated. 

NAV and Share Price Performance

Ordinary Shares 

Over the year to 31 March 2008, NAV declined by 24.5% from 290.78p to 219.61p while the share price declined by 26.6% from 256.50p to 188.25p: over the same period the benchmark, the FTSE/EPRA/NAREIT European Property Share Index, declined by 25.4%. Total returns were minus 22.9% for the NAV, minus 24.8% for the share price and minus 23.0% for the benchmark. This is the tenth successive year that the annual NAV total return has exceeded the benchmark total return - albeit, this year, by a hair's breadth. As a postscript I should add that the benchmark used until March 2007, the S&P Citigroup European Property Index showed a price return of minus 27.4% and a total return of minus 25.2%, so that, in relative performance terms, the managers would have preferred to have stuck to their old last.

Sigma Shares

Over the eight month period from their introduction in July 2007 to the end of March 2008, the NAV declined by 11.6% from 122.85p to 108.64p while the share price fell by 13.4% from 106.25p to 92p. Over the same period the benchmark index (which is the same as that for the Ordinary shares) declined by 11.5%. Total returns were minus 10.5% for the NAV, minus 12.2% for the share price and minus 10.1% for the benchmark. 

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Revenue Results

The year saw an excellent increase in the Trust's revenue. The two share classes' combined total income topped £32m, a 22.6% increase over the previous year. We benefited from some exceptional dividend increases from our largest UK share investments as these companies joined the UK REIT regime and our net rental income rose by over 35% as we let vacant space. Meanwhile repayment of all our bank debt during the year resulted in borrowing costs dropping 34% in addition the two share classes together had interest receivable of over £1m. The £34m spent on share repurchases meant that the larger pool of net revenue was divided by fewer shares in both classes. 

Ordinary Shares

The net revenue per ordinary share was 5.79p, an increase of 41.6% over the 4.09p reported in the previous year. This was after some £2.2m of post tax revenue was passed to the Sigma share class on its creation last July. 

Sigma Shares

The net revenue per ordinary share was 0.85p for the period from 24 July 2007 to the 31 March 2008. This is a good deal higher than our managers' forecast at the interim stage because the switching of the portfolio from large companies was delayed by market events resulting in greater dividend income.  

Revenue Outlook

Our managers are advising the Board that, subject to unforeseen circumstances, they expect that revenue per share for the Ordinary share class will increase by 5% to 10% in the current financial year. The Sigma share class has a portfolio reorganisation in progress and the manager's more tentative view is for revenue earnings of 1.2p in the current year. These views assume an average Euro/Sterling rate of 75p to the Euro and in the absence of any unexpected and widespread dividend reductions or omissions amongst our investee companies.  

Dividends

Ordinary Shares

The Board is recommending to Ordinary shareholders a final dividend of 3.3p for the year ending 31 March 2008, an increase of 37.5% over the final dividend of 2.40p paid last year. This, together with the interim dividend of 2.3p already paid, will take the total payment for the year to 5.6p, a 36.6% increase over the total of 4.1p paid last year. 

Sigma Shares

The Board is recommending to Sigma shareholders a final dividend of 0.65p for the eight month period ending 31 March 2008. Sigma paid a special dividend of 1.1p last October from the revenue it inherited at the time of its creation, and then a modest interim dividend of 0.2p at the turn of the year covering income in the two month period to the end of September. 

Net Debt, Gearing and Currencies

Net borrowing was eliminated during the year in both share classes. At 31 March 2007 the Trust had net debt of £91m - £40m in Debentures repayable in 2008 and 2016 and £51m of short term bank borrowings. Net gearing was 9%. In July 2007, when the two share classes were formed, Sigma inherited £8m of the Debentures and £3m of bank debt. By the end of September the short term bank debt had been fully repaid in both share classes and there were cash holdings of £11m in the Ordinary share class and £20m in the Sigma share class. 

In the second half of the financial year cash has increased in the Ordinary share class to £37m, some £5m greater than the £32m of Debentures attributable to the share class so the net gearing level was minus 1%. In the Sigma share class cash holdings declined to £14.6m in the second half leaving the net gearing level at minus 5%. The larger debenture of £25m at 8.125% is due for repayment this coming November. The other £15m is not repayable until 2016.

As in previous years the portfolios' exposure to foreign currencies was not hedged either at the asset or income level. Over the financial year, and particularly since last December, Sterling has weakened by around 13% against the Euro and other European currencies giving rise to a welcome increase in the value of our overseas assets and dividend income. Since December a portion of the cash balances of both share classes have been held in Euros. 

Discount and Share Repurchases

The Ordinary Share discount to net asset value rose over the year from 11.8% at March 2007 to 14.3% at March 2008. In considerable part this rise reflected the general widening of all UK property share and property investment company discounts during the period. Over the year 14.1m Ordinary shares were repurchased and cancelled for £30.58m - an average total cost of 216.6p per share. Sales of assets were made to cover these repurchases which were made at an average discount of just under 13%. The surplus generated to the shareholders' funds was £4.55m, equivalent to 1.75p per share on the outstanding Ordinary share capital at the year end. 

From the date of their introduction to the end of the financial year Sigma shares traded at an average discount of 15.7%. During the eight month period 4.1m Sigma shares (3.1% of the outstanding capital) were repurchased from cash resources for £3.51m - an average price including costs of 85.2p. The surplus generated to the shareholders' funds was £0.73m, equivalent to 0.57p per share. 

VAT on Management Fees

As a result of the decisions on two court cases over the last year, management services supplied to investment trusts are now exempt from UK VAT and the Company is able to seek reimbursement of some of the VAT paid since 1990.  

The Company has claimed for the reimbursement of VAT paid from its current manager, Thames River Capital LLP and from its former manager, Henderson Global Investors. The managers have filed their respective claims with HMRC. 

The amount to be recovered has not been definitely agreed with the managers and HMRC has not issued specific guidance as to how the claims will be effected so there is no certainty as to the amount or timing of any recovery. Accordingly, no asset has been recognised in these accounts but we anticipate a possible recovery in excess of £6million.

Alastair Ross Goobey

As many of you may be aware, Alastair Ross-Goobey died earlier this year after a long illness. He was a non executive director of the Trust for ten years from 1994 and Chairman of the Board between 2002 and 2004. On behalf on the Board, the management team and the shareholders I should like to pay tribute to him and for all that he did for the Trust. He combined a first class brain with enormously wide experience of all financial affairs, an impish sense of humour and complete transparency. He was a great friend of the Trust, an excellent Chairman and colleague, and a very thoughtful advisor to the management team. 

 Awards and Personnel

During the year the Trust received the award for Best Specialist Property Investment Company of 2007 from Investment Week and won the accolade for the Best Report and Accounts in the Specialist Investment Trust category at the recent Association of Investment Companies accounts awards. The team at Thames River Capital who help manage the Trust has expanded again this year with the arrival of Christian Roos and Angelique Ello. Christian has joined to manage the Thames River Longstone Fund (a property hedge fund) and has wide experience of European and Scandinavian property shares. Angelique is assisting Nicola Williamson with investor relations and general administration. 

Outlook

The worst of the turmoil in credit markets may well have now passed, but the lasting implications of recent events have yet to be fully revealed. Recuperation in banking confidence could be lengthy and the implications for property and other asset pricing, which have already been considerable, are now being seen in the wider economy, especially in the UK and European housing markets. For an investment company dedicated to property and property shares we have to guard our capital and revenue as sensibly as possible, weighing the potential of future uncertainty against the prospect of future opportunities. For the present the balance sheets and portfolio selections of both share classes reflect a preference for solid cash flow and stocks with modest leverage. This conservative approach aims to reduce downside risk, but carries the risk of being slower to invest in upside opportunities. Much has changed in the commercial property market since the last bear market in the early 1990s and the lessons of the past may not be wholly applicable to the current scenario. 

On behalf of the board, I thank the Fund Management team for their hard work during a very volatile period. They have applied their combined experience, skill and judgement to good effect and we have every confidence that the Trust's assets are being managed by a first class team.

Peter Salsbury

Chairman

Market Background and Outlook 

March 2007 seems a world away. Writing in November, at the interim stage, it was not clear that the crisis in banking credit would deepen to the extent that it did and would impact on global economic growth in 2008. We said then that we felt as though we were threatened by a hurricane and that we had battened down the hatches, but we added that storms might veer off and that damage to well protected assets was often less than predicted. Well this hurricane did not veer off and the damage to asset pricing and economic activity is very considerable. Meanwhile, out at sea, yet another storm is brewing - inflation.  

Property Investment Markets

Across Europe property investment values are now generally declining due to rising yields. In the UK this trend started in mid summer 2007; on the Continent the values probably peaked last Christmas. The total capital value fall in the last nine months in the UK has been 14% taking average initial yields from 4.5% to 5.1%. By equity standards this is not technically even a bear market, but in the slower moving (and leveraged) world of real estate, this price movement is both rapid and considerable.  

UK

In the direct investment market in the UK there have been three phases of sentiment. In Phase 1, in early and mid 2007, investor demand cooled in response to rising long and short term interest rates, which in turn were responding to rising inflation expectations. At that stage there was talk of a soft landing and the expectation that the autumn would see a stable market with modest rental growth off-set by slightly higher yields. 

Phase 2 started in the summer holidays when it suddenly became clear that the little local US difficulty with sub-prime mortgage debt was neither little nor local. There was an immediate feeling of heightened nervousness in the property investment market. The majority of cash buyers withdrew to the sidelines, agreed deals fell through, and price chipping became commonplace. The CMBS market closed (and has not reopened), and lenders started to widen margins and reduce loan to value ratios. To add to the sense of unease, a number of open-ended property funds had to close for immediate redemptions and became, for a short period, perceived as forced sellers of assets. 

The New Year brought a modest turnaround in sentiment. Concerted action by Central Banks was welcomed, UK house prices were stable, UK unemployment numbers were still falling, retail sales had not crumbled, modest rental growth was still foreseen and base rates were expected to fall sharply during 2008. At lower price levels the property investment market saw a rise in turnover with both domestic and overseas buyers hunting bargains. Property fund managers saw, and continue to see, inflows into vulture and opportunist funds and the forced sellers found ready buyers for some of their stock. 

We think Phase 3 started this March as it became clear that the banking crisis has not been stamped out fast enough to prevent a heightened level of caution in the banking industry and a decline in economic activity. Unemployment claims are rising, retail sales are slowing, financial services are expected to see significant job cuts so rental values, are going to be under pressure.  Though debt is still available, lenders have tightened their terms again. Fortunately most of the existing commercial property debt is lent against income producing assets and, where loan to value ratios are breached, banks show little or no sign of pressurising borrowers, at least for the time being.

The UK IPD Annual Index derivative pricing, has, for the last four months, been pointing to an average decline in UK commercial property values of about 14% in 2008 of which 5.5% has actually been reported in the period to the end of April. If we use the derivative pricing as a guide then UK commercial property values are likely to fall another 9% or so by the end of 2008. Current pricing also indicates further, more modest, weakness in 2009 with values recovering only slowly in 2010 and 2011. So far the movement in values has been across the board in terms of quality, with prime assets appearing to decline as fast as secondary property, partly because the turnover evidence is biased towards prime and partly because concerns over reversions tends to impact on the valuation of higher growth property. We look for the values of secondary and empty property to weaken more than prime values in any further downturn.

Western Europe

European property investment markets generally enjoyed a strong year in 2007 and saw little or none of the weakness that we noted in the UK. Starting with slightly higher income yields than the UK and with lower interest rates, these markets saw significant turnover with leveraged buyers to the fore. Tenant demand was generally good with falling unemployment and buoyant retail sales. The credit crisis of the early autumn had less impact than in the UK and banks continued to lend freely throughout most of the year. There were hints in Q4 2007 that yields might be rising and a number of major deals were withdrawn or concluded at lower than expected pricing, but in general the feeling was that with index linked rents to aid cash flow, European yields were set for stability in 2008.

This spring the European investment property market is seeing some, if not all, of the UK market's current problems. House price growth is under pressure and there are reports of a general tightening in bank finance availability. European investors traditionally work with greater leverage than their UK counterparts and constrictions in the lending market could therefore have a marked impact on pricing. Economic weakness is expected to be most pronounced in Southern Europe, while the German economy is expected to show stronger than average resilience. The pricing in the nascent European property derivative markets is pointing to a 5.5% decline in German capital values in the next eighteen months and a 20% decline in French office values over the same period. 

Eastern Europe

Very strong demand for property investments in Eastern Europe was evident in the first half of 2007, and prime yields in the major cities have approached the level of those in Western Europe. From available information it seems that investor demand has tailed off since last summer and that overall values are currently stable with investors more cautious particularly in those locations where speculative development is at its highest. Some Eastern European economies are beginning to show signs of strain. 

Offices

Pan European prime office rental values are reported to have risen by an average around 9% in the last twelve months, but this average number masks a very wide variation city by city. The three top performers, all with over 30% rental growth, were Moscow, Warsaw and Oslo. Central London, Budapest and Copenhagen saw 10% to 20% prime rental growth, while Paris, Milan, Madrid and Stockholm were all in the 9% to 15% range. Under performers were the UK regional centres, the Dutch and German cities, Rome, Barcelona and Prague. In Brussels there are reports of a slight decline in prime office rents during the autumn. 

These numbers are encouraging but the pace of rental growth has been slackening since the autumn with the weakening economic outlook. Though vacancy rates have fallen they are still over 10% in many German and Dutch cities due to overbuilding at the turn of the century, and probably 8% average across the Continent. Meanwhile the cost of building offices rose by around 6% last year hurting development margins. Despite this there is some 75 million square feet of space under construction (of which Moscow accounts for a third). Much of this space is speculative and vacancy rates are now rising in centres such as Barcelona, Dublin, Helsinki and Leeds.  

The City of London is a particular case in point; good rental growth in the 100 million square foot City market over the past two years has encouraged a rash of speculative development starts. Agents' vacancy figures tend to omit space from availability until six months before completion, so on that basis the City vacancy rate is still a modest 6% down from 7% a year ago. However there are nearly 7 million feet to be delivered by the end of 2009 of which only 1 million is pre-let. The City is now losing jobs and tenant demand is declining. It is not difficult to forecast that the City vacancy rate will rise to over 10% by end 2009 and that prime rental values, currently in the low £60s per foot will drop back to £50 per foot. Indeed City rents may drop sufficiently to attract occupiers from other London markets who wish to cut their rental costs. Floor space per worker in the City is very low by international standards, and all the new space would be quickly absorbed if City workers were to get 10% more working space each. 

London's 120 million square foot West End market is better placed than the City in terms of existing vacancy rates (under 4%) and potential speculative development completions to end 2009 (3.5 million feet, mostly on the fringes). It also benefits from a steady, but unquantified, removal of older stock for conversion (back) into residential use. Top rents in the Mayfair core are £125 per foot or double the level in the City, but average rents are far below this figure and the West End demand is far more broadly based than City demand. We think this market is better placed to avoid any sharp wholesale rental decline. 

Retail

Pan-European retail rental values saw another year of modest but steady rental growth which averaged about 5%, though there were significant regional variations. Some areas of Eastern Europe were particularly strong, notably Poland and Slovakia where growth of up to 20% was reported. Western Europe generally slightly lagged the average, with the UK showing only about 2% rental growth in shopping centres in the year to end March.

Everywhere there is uncertainty about the impact of the slower economies and residential price trends on consumer expenditure and therefore on the demand for retail property. Measuring the potential impact is not easy. In the UK mortgage debt is around £1.3 trillion while the housing stock is estimated to be worth £4 trillion, so national leverage is modest by corporate standards. Many consumers here and on the Continent have little or no mortgage debt, but the propensity to spend is linked to the presence or absence of a feeling of economic well-being and to concerns over jobs. Landlords' void rates in larger UK and European shopping centres are currently extremely low (no more than about 2.5% in the top Malls) but the number of units available for assignment may be double this level, lease incentives are now widening in the UK, and it seems illogical to expect rental values not to be affected by the squeeze on consumer credit. 

In the Eurozone underlying retail rental growth has been in the 2% to 5% range, so that the indexation of rents has broadly captured reversionary growth. In France rents have been linked to the cost of construction index rather than RPI leading to 5% to 7% rental income growth last year. Eurozone sales volume statistics have been volatile over the last six months but the most recent numbers have pointed to a marked weakness in consumer confidence and to a slight decline in sales. 

Warehousing

Across Europe the last twelve months have seen high levels of development activity and letting, but thanks to an equally high amount of speculative development, average rents rose only slightly and the vacancy rates have marginally increased to record levels. Occupier demand for new space has been driven by outsourcing and the expanding retail market, particularly in Eastern Europe. In a reversal of office market rental movements, it was the Dutch and Belgian markets which saw some of the strongest rental growth in 2007, though increases were still only in the 5% to 10% range. In the London area and around Paris average rental values did not change. The current year is likely to see lower levels of development as banks offer less financing, but equally business growth is expected to moderate. All in all the prospects for warehouse property are relatively stable and unexciting.  

Residential Markets

UK

In the UK the shortened supply of credit is now markedly impacting residential pricing. We have commented in past statements that residential prices have been rising far faster than commercial property values in the UK, due to high demand, a chronic shortage of supply and the easy availability of cheap credit. The long term demand for housing and the shortage of supply have not gone away, but for the next year or two we see UK average house price trends being set chiefly by the availability and cost of mortgage finance. The omens do not look propitious. Credit terms may have been tightened rapidly but they are unlikely to be slackened again with any speed.

Rest of Europe

Rather as in the commercial market, European residential markets seem to be following the UK market with a six to nine month time lag. Across the Continent confidence in continued house and apartment price growth appears to be ebbing away. Current price trends are varied and generally reflect the growth or lack of growth in pricing over the last decade. In Ireland prices have been falling since last spring. In Spain official statistics show stability but the market is fragile. Dutch and Italian house prices now appear to be declining. In France the rate of growth has slowed rapidly. German house prices appear to be stable, though, having been asleep for a decade, they are unlikely to wake now. In Central and Eastern Europe pricing appears stable after a year of significant price rises.

Property Share Background

It was a poor year for property share prices virtually everywhere and globally the Sector fell 21% in Sterling terms. UK stocks suffered an average 35% decline in the twelve months to end March 2008, while European stocks fell 30% in Euros, but only by 18% in Sterling terms thanks to the strength of the Euro. Elsewhere, in local currency terms, US REITs saw price declines of 22%, Australian property trusts fell 28% and Japanese real estate shares fell 43%. Hong Kong was alone amongst the leading markets to gain- rising 12%. 

The US and UK property share markets led the decline through the autumn as their economies appeared most exposed to the credit problems. Asia, Australia and Europe saw their major declines late in the autumn and early in 2008. The March and April period of 2008 has seen a sharp recovery by US REITs pricing, caused by their increased income attractions following the huge base rate cuts and by better than anticipated earnings results. 

UK

UK property shares fell 35% in the year to March 2007, and have now fallen 40% since the end of December 2006. At that date they stood on an average premium to NAV of about 6% based on asset values that continued to rise through the first half of 2007. Seventeen months later the average discount is now 28% to the estimated current NAVs, which have fallen by 18% on the back of a 12% decline in property values since last June - amplified at the NAV level by gearing. On their current rating property shares are assuming a further 16% to 20% fall in property values to the bottom of the market (maybe H2 2009) which, amplified by gearing, will take NAVs down to current share price levels. This 16% to 20% decline just about ties in with the value nadir in UK IPD derivative pricing noted earlier. This may be coincidence but probably indicates that investors are using derivative and property share pricing as reference points for cross checking in each market.  

Where and when the nadir in valuations comes is one question. Another is the relative rating that property shares will have to those base asset values. In past markets (1975 and 1992) before the world of mobile phones, Blackberries and instant everything, property share discounts to NAV tended to widen as values declined. We will be very surprised if this occurs in this cycle. The recovery in property shares is likely to precede the recovery in property markets by one or two quarters.

Continental Europe

European property shares fell by 30% in Euro terms in the year. At March 2007 their average premium to NAV was about 30%. NAVs grew by an average of 6% over the year and at the end of March 2008 the average premium was about 6%. French property performed very strongly, boosted by indexation to the fast rising cost of construction index. In Euros the Swiss market performed best, falling only 5%, thanks to the unchanging nature of Swiss yields and rents and to the attractions of the Swiss currency in disturbed markets. The Dutch stocks outperformed falling only 20% in Euros, buoyed by high dividend yields and the take-over of Rodamco during the year. French property shares fell by 26% and Swedish stocks by 27%. At the other end of the table, Spanish property shares had an awful year, Italian stocks fell 55%, Austrian stocks by 44% and German stocks by 45%.

Analysts' forecasts currently expect muted NAV growth in Europe in 2008, with stable or very slightly rising yields more than offset by increased rents through indexation. European company quarterly valuations are usually internal and therefore show little change, but two larger companies have already indicated a softening in the market in 2008, sufficient to reduce their NAVs modestly. Much will depend on the outlook for tenant demand over the summer. 

Outlook

If all the foregoing sounds rather foreboding, we have to remember that economies go through cycles and will recover, and that your funds are principally invested in companies owning prime, high quality, bricks and mortar without which governments and businesses cannot operate. So far the decline in values has unexpectedly punished prime property just about as hard as secondary. As we have noted, this trend is unlikely to last. 

We think the point of maximum pessimism is still ahead of us, but is getting closer. The spotlight of concern is shifting from the state of financial markets to the weakening economic environment across Europe.  

We also have to watch for the timing, type and speed of the eventual recovery. What falls fastest doesn't always recover fastest, but it is essential to consider how UK and European property shares might perform, and clearly UK stocks should have far more potential for recovery. Hunting for the triggers for a reversal of sentiment is not easy, (if it was, then the event would already have occurred). There has been talk of large scale overseas buying interest from sovereign funds and a considerable number of opportunity funds have been created with the objective of buying real estate from distressed sellers or loan books from unhappy banks. The problem at present is that there are few of these sellers around and the property these potential sellers own or have lent against is mostly second or third rate. Straight takeover bids of quoted companies look less likely while private equity debt is so hard to obtain. 

Meanwhile rising inflation doesn't help the economy, but doesn't altogether hinder the attractions of the property share sector. Inflation protection is one of the long term fundamental positives of real estate as an asset class. So for now we are trying to be patient and disciplined so as to preserve your capital, and also to be alert and watch for signals that will, one day, lead us out of net cash and back into gearing.

Manager's Report 

Ordinary Share Class

I was caught off guard by the severity of the downturn in the property share market in the summer and autumn of 2007. When I wrote my manager's report in last year's annual report the market was already cooling and I was expecting a relatively soft landing. This proved to be false optimism to which the banking crisis put paid. In my interim report my musings were far more pessimistic than those of the early summer, and, as it has turned out, a bit nearer the subsequent outcome. I reported then that I had virtually eliminated gearing in the Ordinary portfolio and sold down many of our higher leveraged stocks. Since November I have made more net sales to take the balance sheet into modest net cash at the year end. 

Performance

In total return terms the Ordinary share NAV beat the FTSE/EPRA/NAREIT European Property Index by a whisker, falling 22.9% versus the benchmark return of minus 23.0%. This very modest outperformance would not have occurred at all without the positive input of some £4.5m from share repurchases. My two biggest mistakes were of timing and portfolio distribution. I failed to spot the severity of the downturn early enough and was geared into the first series of share price falls. I stayed with the UK overweight on value grounds when I should have switched more capital onto the Continent, particularly into France, Netherlands and Switzerland, and so benefited from the perceived prospect of a milder economic downturn and from Sterling's recent weakness. Worse, the UK overweight is in effect a London overweight, and here the credit problems have had an especially depressing impact on the Central London property specialist companies.

To my aid came our excellent direct property portfolio performance, our underweight positions in Austria, Germany, Italy and Spain all of which performed worse than the UK, and our underweight positions in virtually every one of the 21 benchmark components companies whose shares fell by over 40% in the year, chiefly as a result of having high leverage. 

Distribution of Assets

UK equities fell from 55% of gross assets to 46%, European Securities rose from 38% to 41% and direct property jumped from 7% to 13%, due to relative outperformance, modest net investment and partly because the Sigma share class took equities only from the former combined portfolio, leaving all the direct property with the Ordinary share class. For reference, the UK component of the benchmark was 39% at the end of March 2008. 

London and the inner home counties account for almost 30% of the Ordinary share class assets and Paris and the Ile de France for another 15%. The benchmark's equivalent weightings are 19% and 13%. Looking beyond the immediate short term, I am pleased to hold these weightings in Europe's two most important international cities.

Investment Activity

During July 2007 £165m of equity investments was taken out of the Ordinary share class and into Sigma.  Aside from this transfer, purchases of new investments were modest and totalled only £64m over the year, of which £20m was on direct property and £26m on Continental stocks. A further £30.6m was spent on repurchasing shares for cancellation. I raised £192m from sales spread generally across the portfolio so that, including share buybacks, the investment turnover (sales and purchases divided by two), was just under £150m or roughly 22% of the average adjusted gross assets over the year.

My sales had a number of objectives beyond removing the Ordinary share class balance sheet borrowings. The first was to reduce our see-through gearing through sales of shares in more highly leveraged companies. The second was to eradicate as far as possible our see-through exposure to the UK residential market. The third was to lower our exposure to UK retail property, and the fourth was to sell, where possible and sensible, those shares with very limited marketability. All these objectives were at least partially achieved.  

As I have said, with hindsight I should probably have sold down more of our UK shareholdings earlier in the year and reinvested on the Continent. What made this hard to do at any time in the year were the substantial differences in the discount ratings. At March 2007, UK property shares were on a weighted average premium to NAV of around 4% and Continental property stocks on a 30% premium. By June 2007 these figures were minus 10% and plus 17%, by the end of September they were minus 22% and plus 6%, by December they were minus 31% and minus 9% and at the end of March 2008, minus 28% and minus 6%. So throughout the year switching from the UK onto the Continent lost the mover over 20% in terms of the discount to NAV or required the mover to believe that over the course of the current market cycle the more lowly geared UK companies would lose 20% more of their NAV than their more highly geared Continental counterparts. 

Judging the future performance movements between the UK and Continental Europe remains my constant dilemma. The UK economy is now undoubtedly into a downturn with a difficult period ahead in terms of tenant and investor demand. Opinion is very divided as to how long this period will last with the bulls looking to recovery in 2009 and the bears in 2011. Equally opinion is divided about the outlook for the Euro economy, but the symptoms of tighter credit and softening retail sales growth are already apparent and house prices are declining in Southern Europe. I commented earlier that European investment property values are now slipping. In the UK we have several monthly indices with which to monitor and berate the market. On the Continent short term movements in property capital and rental values are not monitored so publicly. Leases are shorter there, but are usually indexed to CPI, average leverage is higher and borrowed for shorter terms but interest rates are also lower. The past pattern of property value movements suggests that the UK and Europe follow similar paths with the UK always leading in and out of bull and bear markets. If this pattern is repeated the UK overweight should produce a performance kicker at some stage. 

Largest Equity Investments

The composition of our top ten investments changed only modestly, though the order has shifted. Together they made up 48.8% of gross assets compared with 48.1% for the top ten at March 2007. Their average dividend yield is 4.1% and their average gearing is 62.4%.

Unibail and Rodamco (the 5th and 7th largest investments in March 2007) merged in May 2007. I subsequently expanded the holding by 8% and with outperformance and sterling currency weakness the holding displaced Land Securities as our biggest investment. Unibail is a lowly leveraged owner and developer of major shopping centres across Europe, but holds no assets in the UK or Germany. I reduced the shareholdings in Hammerson and Liberty by between 33% and 40% partly due to the share price ratings at the time of sale and partly to reduce exposure to UK shopping mall investments. Shareholdings in Castellum, British Land, Slough and Fonciere des Regions were reduced by between 10% and 25% and St Modwen, a long-time favourite, was reduced on the worsening outlook for UK residential land values. Holdings in Land Securities, Big Yellow and Great Portland were little changed, adjusting for the departure of part of the shareholdings into the Sigma portfolio last July. 

The overall performance from the largest equity holdings was mixed. They all fell in price with the lowest declines being shown by Liberty, Castellum, Unibail and Land Securities. The worst performers were British Land, Hammerson and Big Yellow each down by 33% to 37%. 

Revenue

Revenue per Ordinary share showed more rapid growth than predicted. I warned at the interim stage that the exceptional 39% increase in revenue per share in the first half might not be maintained through the second half. In the event it was exceeded with the result that the full year growth was at the rate of 41.6%. Just for once everything that could improve did so. Timing differences worked for us, dividend growth was better than forecast, especially on the Continent, our buildings were full, while at the same time, management fees and finance charges both fell, and buybacks also boosted the per share result. The strength of the euro in the last quarter of the financial year made only a modest impact as the portfolio's non-UK income mainly arises in the April to July period. 

From March 2008 I expect the rate of Ordinary share annual revenue growth to revert to single figure levels for the immediate future. The exceptional jump in the UK REIT dividends is behind us and the strains in the credit markets and concerns over the economy, both here and on the Continent, suggest that companies will rein in dividend growth to boost their reserves.  For instance Land Securities' dividend grew by 20.8% last year, and we forecast only a 3% increase this year. Currencies will give us a one-off boost this year with over 40% of the gross revenue sourced from Europe, but this currency trend might reverse in future years. As the accounting treatment for borrowing costs is to charge half to the capital account, a return to net leverage at some future date would be likely to boost revenue per share assuming the borrowings are used to buy income producing assets. My advice to the Board is that revenue per Ordinary share will grow this year by 5% to 10%. 

Dividend cuts or omissions have already occurred in the Sector and there will be more. So far as possible, I have sold those stocks which seem to be candidates for such future action, though doubtless I have not got rid of all the weeds. However the high quality of the cash flows in which the portfolio is generally invested does mean that I am not overly concerned for our dividend income this year or next, and I am still expecting modest dividend growth from most of our largest investments. 

Gearing, Debt and Debentures 

I reduced net debt from £90m to £21m in the first half of the financial year and eliminated it altogether by the third week of November. Since then the Ordinary share class has held a steady net cash position of between £5m and £10m, with attributable debt of £32m (being the Ordinary class's share of the two debentures) and net cash of between £37m and £42m. Roughly 35% of this cash is held in Euros and all of it is currently on overnight deposit. The larger of the two debentures is due for repayment in November at a cost to the Ordinary share class of some £20m. We have retained a bank lending facility for £64m for which we are paying a non-utilisation fee. 

The Ordinary share class's 'see-through loan to value' (which adds the proportionate debt of all our equity investments to our on balance sheet net debt or net cash) has also fallen sharply as I have sought to reduce our exposure to more highly leveraged balance sheets amongst the property equities. The figure at the end of March is 37% compared with 43% last year and compared with a current benchmark level of 42%.  

Direct Property Portfolio

The direct property portfolio produced a total return of minus 1.2% for the year, comprising an income return of 4.6% and a capital return of minus 5.8%. The portfolio comfortably outperformed the Investment Property Databank Monthly Index total return of minus 10.7%, which comprised an income return of 5.1% and a capital return of minus 15.8%. 

Purchase and sale activity was largely confined to the first half. We reported on the sale of Thames Central, Slough in the interim statement. We also reported on the purchase of two office buildings (Field House, Harlow and Solstice House, Milton Keynes) at the half-year point. Since then we have made no further purchases. We made one small sale post the year end, disposing of a retail unit adjoining our industrial estate in Wandsworth for £540,000 at auction, a gain of £10,000 on the September valuation.

In the absence of further transactions, we concentrated on asset management activity, looking to increase the security and longevity of income or pursue planning gain. At Milton Keynes we concluded lease renewal negotiations with the tenant, Exel Europe Ltd, increasing the rent from £420,000 per annum to £485,000 per annum. At Harlow we are participating in the local authority-led consultation process to determine the future regeneration of the town centre, which includes our site. We are hopeful that designation of our site as a residential and commercial expansion zone may allow for significantly increased density if the site were to be redeveloped. 

At the half-year point, we reported that the portfolio vacancy rate had fallen to only 1%. I am happy to say that post the year-end the vacancy rate has been reduced to nil. In past years we have deliberately bought vacant or part vacant buildings on which to practice our letting skills, but our recent policy has been to avoid such acquisitions, so this is the first year we have achieved 100% occupancy since I became the Fund Manager in 1995. In 2009 there are lease expiries or tenants' options to break over 11% of our rental income. We are taking early action to secure renewals and these are in solicitors hands for 40% of this income and have been agreed verbally on another 15%. We are proposing to take possession of one 7,ooo square foot suite of offices at the Colonnades for refurbishment when the lease at £140,000 per annum expires during 2009. 

At the year-end the direct property portfolio represented 12.5% of total investments, down from 14.8% at the interim stage. That the reduction in the proportionate size of the direct property portfolio was so small (in spite of the sale of Thames Central) was primarily a function of the defensive nature of the direct property portfolio over the period. Our long term guidance to shareholders continues to be that the Trust will hold direct property representing between 10% and 30% of gross assets. We continue to consider property opportunities, however, we have yet to see anything of sufficient merit to convince us to part with shareholders' funds.

Chris Turner

Fund Manager

Ordinary share class

Manager's Report

Sigma Share Class

Introduction

Sigma was created in July 2007. Its objective is to maximize long term returns from a portfolio focused on smaller sized property companies across Europe. Investors in the Ordinary shares were given the opportunity to convert Ordinary shares into Sigma shares at the ratio of 1 Sigma share for every 5 Ordinary shares. Take-up was high and in the event just under 19% of the equity elected to convert. An additional £9.96m (before costs) of cash was also raised in a Placing. 

At inception the portfolio mirrored that of the Ordinary share portfolio (the conversion excluded a share of the direct property portfolio) together with a pro rata share of the debt (both short term debt and the debentures). The initial portfolio therefore comprised 64% large capitalisation stocks (defined as those with a market cap of over £1bn) and 36% small caps. Taking account of the additional cash raised, the effective gearing at inception was 3.2%.

Performance

The first 8 months of the fund's existence has been dominated by the repositioning of the portfolio. The process of the sale and reinvestment into smaller caps has taken place against a backdrop of volatile and generally negative market conditions. The Sigma share NAV total return was minus 10.5% over the period, whilst the FTSE EPRA/NAREIT European Property Index return was minus 10.1%. The pace of reinvestment of the portfolio has reflected market conditions; the rotation of assets has been slower than I anticipated and the fund has held net cash since launch. The cash position partly reflected the process of stock repositioning (there rarely being an opportunity for the simultaneous matching of sales and purchases) but increasingly it became part of my strategy given the broad negative trajectory of real estate markets over the period. The cash holding peaked at 5.9% (at the beginning of December) and was 3.2% of NAV at the year end. 

My decision to eradicate gearing and hold cash was, in hindsight, the right one but I should have sold even more stocks in the immediate period following launch. At the time I judged that the large cap stocks had borne the brunt of the initial market correction due to their liquidity. I was nervous of selling what appeared to be relatively cheap large cap stocks in order to invest in small caps at precisely the point at which they caught up with the wider market downturn. In part I was right - small cap stocks did indeed catch a cold from their larger peers, but the market as a whole had further to fall.

The benchmark is dominated by the biggest 34 stocks (72% by market value at the year end). As we have moved out of large caps and into small caps, the portfolio has become increasingly concentrated in a reduced number of benchmark stocks as well as a growing number of stocks outside the benchmark. As a result, short-term performance against the benchmark has naturally become more volatile. My aim as Fund Manager is to pick companies that can out-perform in the long term. In spite of the short term under-performance of companies such as Big Yellow, Great Portland and St. Modwen, I am comfortable with our exposure. New investments which have already performed well include Hansteen, Local Shopping REIT, Fonciere des Murs and DIC. My judgement is that viewed over the long term, all these companies, and others in which we invest, will produce superior returns over their peers.

Investment Activity

Investment activity has been greater than investors in the Trust will have been used to. Including share buybacks, our investment turnover (purchases plus sales divided by two) was £54m, equivalent to 45% of average shareholders funds in the period. This is more than double the turnover in the Ordinary share portfolio. Given that on the day of conversion the portfolio was 64% large cap stocks, investors may well have expected turnover to have been even higher in this initial period of asset rotation. That it wasn't, is a reflection of the deliberate change in investment tempo as market conditions altered over the year. 

There have been three clear phases of investment - immediately post launch (July and August) when the turnover was high but sales (£19m) outnumbered purchases (£4.2m), a ratio of 5:1 as I quickly raised cash (and cut the debt) in the falling market. From September to December, sales declined as I remained reluctant to sell those large caps which I felt had experienced the greatest 'liquidity discount'. By December, the smaller caps had followed the larger names downwards enabling Sigma to start to acquire positions in stocks I had identified as attractive but not correctly priced. The rally in the sector from mid January to early March gave us the opportunity to again accelerate the rotation of assets with £51m of sales and purchases in the first quarter of 2008. By the end of March small cap stocks accounted for 54% of the portfolio. Given that prices have generally fallen over the period, it would be fair to have expected the number of stocks in our universe (all those companies with a market capitalization of less than £1bn) to have increased. However, one of our largest 'small' caps at launch, Eurocommercial (currently 1.7% of the fund) ended the year with a market capitalisation of £1.008bn and is thus excluded from this statistic. 

Largest Equity Investments

Back in July, 15 of the top 20 holdings were large cap stocks; by the end of March only 7 remain in the top 20. Although Unibail, Land Securities and British Land (Europe's three largest property companies) remain the fund's biggest individual holdings, their collective weight has reduced from over 30% of the portfolio to less than 20% and this figure continues to fall. 

The rotation has resulted in investment in 46 companies. As I mentioned in the interim report, acquisitions have been split between additions to existing 'inherited' holdings and new companies. In the former category are St.Modwen, Great Portland Estates, Big Yellow Self Storage, Kardan, Kungsleden and Castellum. The common theme is the strength and continuity of longstanding management where each company is focused on a geographic niche or particular property sub-market. The second group are companies which we had investigated, liked and where we had made initial modest investments within the Ordinary portfolio but had found it difficult to build significant positions, relative to the size of the portfolio. This group includes Local Shopping REIT, Shaftesbury and CLS, Fonciere lle de Paris France, Zueblin Immobiliere, Fonciere des Murs, DIC, Alstria, Plaza, Wallenstam, Hansteen, NR Nordic & Russia Properties, Nanette and Rose Group. All of these original positions have been significantly added to and 7 of them are now in the top 20 holdings. The third and final group are new companies not previously held by the Trust. Both Argan, a French family run logistics development business, and IFM, a German office redevelopment business are companies I commented on at the half year and I have continued to add to our holdings more recently. 

Distribution of Assets

The rotation of assets has resulted in a marked change to the distribution of the assets.  The most prominent feature has been the reduction in exposure to UK assets and a commensurate increase in a number of Continental European sub-markets. Land Securities and British Land are heavily exposed to retail and City offices (53% and 22% of their respective assets) and I am comfortable with the reduction in our exposure to these particular UK sub-markets at the moment.

Our search for high quality smaller cap real estate stocks across Europe is driven from a bottom up perspective and we do not have national, regional or sector allocation targets. However, the macro economic environments in which each of our holdings operate is clearly important and the asset distribution table does highlight particular areas of concentration. In Western Europe our investment activities are concentrated in France and Germany. Earnings growth has been particularly robust in France, where the annual indexation multiple (applied to all leases) is tied in part to the cost of construction (it rose 5.5% in 2007). In Germany, there are surprisingly few quoted property companies of merit given its status as Europe's largest economy. However, Germany's export led success coupled with the low level of home ownership will help that economy weather the consumer driven slowdown which we anticipate in many other Western European economies. In Scandanavia, our focus has been on Sweden. We have reduced exposure to Finland, where Helsinki has an oversupply of office space and Denmark, where falling house prices are contributing to an economic slowdown. 

Whilst the exposure to residential property has continued to decrease in Western Europe, the opposite has been the case in selected Emerging European markets where there continues to be both tremendous demand and stable domestic bank lending to owner occupiers (in contrast to many Western European markets). We remain concerned that weaker planning regimes will ultimately lead to oversupply in certain sub-markets and our focus has been on those companies with a develop-and-sell (both commercial and residential) rather than a develop-and-hold strategy. Our geographic focus has primarily been Russia, Poland, Hungary and Bulgaria.  

Revenue

Sigma paid a special dividend of 1.1p last October from the revenue it inherited at the time of its creation. This reflected the fact that the Trust receives approximately 40% of its income in the first quarter of the financial year.

Sigma's objective is to maximise returns from a portfolio focused on smaller property companies. Looking across Europe these smaller companies are generally focused more on total return than income and I highlighted in the prospectus that Sigma would expect to have a lower dividend yield than the Ordinary shares going forward. The interim dividend, paid in December, was a modest 0.2p reflecting the likelihood of lower income receipts from the new portfolio and the fact that it covered the short period since inception. In fact the one bright spot has been the sharp increase in our revenue per share as dividend growth has been better than expected. In addition, one of the side effects of the slower than expected rotation of assets has been greater income receipts as the portfolio still contains a number of higher yielding larger stocks. The final dividend of 0.65p recommended by the Board is equal to the total earnings in the period. As noted in the Chairman's statement, revenue per share is expected to increase by 5% to 10%. Sigma's revenue will be less predictable than the Ordinary share class as I continue to rotate the portfolio, both expanding existing holdings as well as identifying and investing in new businesses in the coming year.

Unquoted Investments

Sigma currently has no unquoted equity investments.

Gearing and Debentures

The initial strategy was to have no gearing, the inherited short term floating rate debt was quickly repaid and as explained earlier, I raised cash not only to hold against Sigma's share of the debentures (£7.59m) but also as part of the investment strategy. The (net of debentures) cash position peaked at £7.9m at the beginning of December (5.9% of NAV) and was £6.9m (5% of NAV) at the year end. The reduction in the last quarter reflected my view that more attractive pricing was beginning to appear in certain small cap stocks. 

I have also attempted, in the asset rotation process, to reduce exposure to higher leveraged companies where the debt is not secured against strong income streams. Although Sigma currently has no borrowings, (virtually) all the companies I invest in do have varying amounts of debt. The 'see-through loan to value' which adds the proportionate debt of all our equity holdings as a % of gross assets was 39%, the Benchmark was higher at 42%. I anticipate that this defensive position will persist in the short term. 

Marcus Phayre-Mudge

Fund Manager

Sigma share class

Ordinary Share Class Income Statement 

for the year ended 31 March 2008

	Year ended 31 March 2008			Year ended 31 March 2007
	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income
Investment income	22,941	-	22,941	21,264	-	21,264
Other operating income	886	-	886	66	-	66
Gross rental income	4,025	-	4,025	3,201	-	3,201
Service charge income	1,943	-	1,943	1,695	-	1,695
(Losses)/gains on investments held at fair value	-	(222,109)	(222,109)	-	236,669	236,669
	______	______	______	______	_____	_____
Total income	29,795	(222,109)	(192,314)	26,226	236,669	262,895
	______	______	______	______	_____	_____
Expenses
Management and performance
fees	(3,025)	(1,728)	(4,753)	(3,602)	(9,050)	(12,652)
Direct property expenses, rent
payable and service
charge costs	(2,450)	-	(2,450)	(2,327)	-	(2,327)
Other expenses	(593)	-	(593)	(561)	-	(561)
	______	______	______	______	_____	_____
Total operating expenses	(6,068)	(1,728)	(7,796)	(6,490)	(9,050)	(15,540)
	______	______	______	______	_____	_____
Operating profit/(loss)	23,727	(223,837)	(200,110)	19,736	227,619	247,355
Finance costs	(2,174)	(2,174)	(4,348)	(3,669)	(3,669)	(7,338)
	______	______	______	______	_____	_____
Net profit/(loss)	21,553	(226,011)	(204,458)	16,067	223,950	240,017
Taxation	(4,066)	2,750	(1,316)	(2,013)	(206)	(2,219)
	______	______	______	______	_____	_____
Net profit/(loss) before reorganisation costs	17,487	(223,261)	(205,774)	14,054	223,744	237,798
Transfer to Sigma shares	(2,203)	26,806	24,603	-	-	-
	______	______	______	______	_____	_____
Net profit/(loss)	15,284	(196,455)	(181,171)	14,054	223,744	237,798
	______	______	______	______	_____	_____
Earnings/(loss) per Ordinary share	5.79p	(74.41)p	(68.62)p	4.09p	65.16p	69.25p

The final dividend of 2.40p in respect of the year ended 31 March 2007 was declared on 22 May 2007 and paid on 31 July 2007. This can be found in the Group Statement of Changes in Equity for the year ended 31 March 2008.

Ordinary Share Class Balance Sheet

as at 31 March 2008

	31 March	31 March
	2008	2007
	£'000	£'000
Non-current assets
Investments held at fair value	564,798	1,082,398
	______	______
Current assets
Debtors	5,196	4,239
Cash and cash equivalents	37,329	535
	______	______
	42,525	4,774
Current liabilities	(23,578)	(70,156)
	______	______
Net current assets/(liabilities)	18,947	(65,382)
	______	______
Total assets less current liabilities	583,745	1,017,016
Non-current liabilities	(15,846)	(44,072)
	______	______
Net assets	567,899	972,944
	______	______
Net asset value per Ordinary share	219.61p	290.78p

Sigma Share Class Income Statement 

Period from inception to 31 March 2008

	Period from inception to 31 March 2008
	Revenue Return	Capital Return	Total
	£'000	£'000	£'000
Investment income
Investment income	1,894	-	1,894
Interest receivable and similar income	471	-	471
Losses on investments held at fair value	-	(18,501)	(18,501)
	______	______	______
Total income	2,365	(18,501)	(16,136)
	______	______	______
Expenses
Management and performance fees	(775)	(388)	(1,163)
Other expenses	(94)	-	(94)
	______	______	______
Total operating expenses	(869)	(388)	(1,257)
	______	______	______
Operating profit/(loss)	1,496	(18,889)	(17,393)
Finance costs	(265)	(265)	(530)
	______	______	______
Profit/ (loss) from operations before tax	1,231	(19,154)	(17,923)
Taxation	(126)	60	(66)
	______	______	______
Net profit/ (loss)	1,105	(19,094)	(17,989)
	______	______	______
Earnings/(loss) per Sigma share	0.85p	(14.73)p	(13.88)p

Sigma Share Class Balance Sheet

as at 31 March 2008

		At 31 March	At inception
		2008	24 July 2007
		£'000	£'000
Non-current assets
Investments held at fair value		132,952	165,809
		______	______
Current assets
Debtors		1,987	-
Cash and cash equivalents		14,552	7,127
		______	______
		16,539	7,127
Current liabilities		(7,932)	(3,428)
		______	______
Net current assets		8,607	3,699
		______	______
Total assets less current liabilities		141,559	169,508
Non-current liabilities		(2,849)	(7,594)
		______	______
Net assets		138,710	161,914
		______	______
Net asset value per Sigma share		108.64p	122.85p

GROUP INCOME STATEMENT 

            For the year ended 31 March 2008

	Year ended 31 March 2008			Year ended 31 March 2007
	Revenue Return	Capital Return	Total	Revenue Return	Capital  Rreturn	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income
Investment income (note 2)	24,835	-	24,835	21,264	-	21,264
Other operating income	1,357	-	1,357	66	-	66
Gross rental income	4,025	-	4,025	3,201	-	3,201
Service charge income	1,943	-	1,943	1,695	-	1,695
(Losses)/gains on investments held at fair value	-	(240,610)	(240,610)	-	236,669	236,669
	_________	_________	_________	_________	_________	_________
Total income	32,160	(240,610)	(208,450)	26,226	236,669	262,895
	_________	_________	_________	_________	_________	_________
Expenses
Management and performance fees	(3,800)	(2,116)	(5,916)	(3,602)	(9,050)	(12,652)
Direct property expenses, rent payable  and service charge costs	(2,450)	-	(2,450)	(2,327)	-	(2,327)
Other expenses	(687)	-	(687)	(561)	-	(561)
	_________	_________	_________	_________	_________	_________
Total operating expenses	(6,937)	(2,116)	(9,053)	(6,490)	(9,050)	(15,540)
	_________	_________	_________	_________	_________	_________
Operating profit/(loss)	25,223	(242,726)	(217,503)	19,736	227,619	247,355
Finance costs	(2,439)	(2,439)	(4,878)	(3,669)	(3,669)	(7,338)
Profit/(loss) from operations before tax	22,784	(245,165)	(222,381)	16,067	223,950	240,017
Taxation	(4,192)	2,810	(1,382)	(2,013)	(206)	(2,219)
	_________	_________	_________	_________	_________	_________
Net profit/(loss)	18,592	(242,355)	(223,763)	14,054	223,744	237,798
	_________	_________	_________	_________	_________	_________
Earnings/(loss) per Ordinary share  (note 3a)	5.79p	(74.41)p	(68.62)p	4.09p	65.16p	69.25p
Earnings/(loss) per Sigma share (note 3b)	0.85p	(14.73)p	(13.88)p	N/A	N/A	N/A

The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The Revenue Return and Capital Return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations. 

All income is attributable to the shareholders of the parent company. There are no minority interests. 

GROUP AND COMPANY STATEMENT OF CHANGES IN EQUITY

	Share Capital							Retained Earnings
	Ordinary Share Capital		Sigma Share Capital		Share Premium Account		Capital Redemption Reserve	Ordinary	Sigma		Total
for the year ended 31 March 2008	£'000		£'000		£'000		£'000	£'000	£'000		£'000
At 31 March 2007	83,650		-		37,063		38,655	813,576	-		972,944
Net loss for the period	-		-		-		-	(205,774)	(17,989)		(223,763)
Ordinary shares repurchased	(3,530)		-		-		3,530	(30,583)	-		(30,583)
Sigma shares repurchased	-		(514)		-		514	-	(3,507)		(3,507)
Ordinary shares converted to Sigma shares	(15,470)		15,470		-		-	(132,302)	132,302		-
Sigma shares issued (net of costs)	-		1,004		6,099		-	-	-		7,103
Ordinary and special dividends paid	-		-		-		-	(13,877)	(1,708)		(15,585)
	________		________		________		_________	________	_______		________
At 31 March 2008	64,650		15,960		43,162		42,699	431,040	109,098		706,609
	________		________		________		_________	________	_______		________
		Ordinary Share Capital				Share Premium Account	Capital Redemption Reserve	Retained  Earnings		Total
for the year ended 31 March 2007 Ordinary shares only		£'000				£'000	£'000	£'000		£'000
At 31 March 2006		85,962				37,063	36,343	611,225		770,593
Net profit for the year		-				-	-	237,798		237,798
Ordinary shares repurchased		(2,312)				-	2,312	(23,069)		(23,069)
Ordinary dividends paid		-				-	-	(12,378)		(12,378)
		_______				______	_________	________		_________
At 31 March 2007		83,650				37,063	38,655	813,576		972,944
		_______				______	_________	________		_________

GROUP AND COMPANY BALANCE SHEETS

as at 31 March 2008

	Group 2008 £'000	Company 2008 £'000	Group 2007 £'000	Company 2007 £'000
Non-current assets
Investments held at fair value	697,750	677,250	1,082,398	1,061,648
Investments in subsidiaries	-	55,872	-	54,545
	_________	_________	_________	_________
Current assets	697,750	733,122	1,082,398	1,116,193
Debtors	7,183	6,415	4,239	3,871
Cash and cash equivalents	51,881	51,767	535	267
	_________	_________	_________	_________
	59,064	58,182	4,774	4,138
Current liabilities	(31,510)	(84,695)	(70,156)	(147,387)
	_________	_________	_________	_________
Net current assets / (liabilities)	27,554	(26,513)	(65,382)	(143,249)
Total assets less current liabilities	725,304	706,609	1,017,016	972,944
Non-current liabilities	(18,695)	-	(44,072)	-
	_________	_________	_________	_________
Net assets	706,609	706,609	972,944	972,944
	_________	_________	_________	_________
Capital and reserves
Called up share capital	80,610	80,610	83,650	83,650
Share premium account	43,162	43,162	37,063	37,063
Capital redemption reserve	42,699	42,699	38,655	38,655
Retained earnings	540,138	540,138	813,576	813,576
	_________	_________	_________	_________
Equity shareholders' funds	706,609	706,609	972,944	972,944
	_________	_________	_________	_________
Net asset value per :
Ordinary share	219.61p	219.61p	290.78p	290.78p
Sigma share	108.64p	108.64p	N/A	N/A

These accounts were approved by the directors and authorised for issue on 27 May 2008.

P Salsbury - Director   GROUP AND COMPANY CASH FLOW STATEMENTS

as at 31 March 2008

	Group  2008	Company  2008	Group   2007	Company  2007
	£'000	£'000	£'000	£'000
Reconciliation of operating revenue to net cash inflow from operating activities
Net (loss)/profit before tax	(222,381)	(222,189)	240,017	239,483
Financing activities	4,878	6,557	7,330	8,309
Losses/(gains) on investments held at fair value through profit or loss	240,610	239,526	(236,669)	(236,097)
Increase in accrued income	(1,576)	(1,960)	(1,782)	(1,786)
(Increase)/decrease in other debtors	(363)	64	(248)	492
Decrease in creditors	(7,246)	(5,754)	(7,086)	(6,344)
Net sales of investments	141,653	141,161	36,021	34,307
Increase in sales settlement debtor	(1,548)	(1,548)	(579)	(579)
(Decrease)/increase in purchase settlement creditor	(5,072)	(5,072)	(5,925)	(5,925)
	_________	_________	_________	_________
Net cash inflow from operating activities before interest and taxation	148,955	150,785	42,929	43,710
Interest paid	(4,881)	(6,557)	(7,330)	(8,309)
Taxation on investment income	(1,571)	(1,571)	(1,104)	(1,104)
	_________	_________	_________	_________
Net cash inflow from operating activities	142,503	142,657	34,495	34,297
Financing activities
Equity dividends paid	(15,585)	(15,585)	(12,378)	(12,378)
Issue of Sigma shares	7,196	7,196	-	-
Purchase of Ordinary and Sigma shares	(34,090)	(34,090)	(17,350)	(17,350)
Repayment of loans	(50,860)	(50,860)	(6,966)	(6,966)
	_________	_________	_________	_________
Net cash used in financing	(93,339)	(93,339)	(36,694)	(36,694)
	_________	_________	_________	_________
Increase/(decrease) in cash	49,164	49,318	(2,199)	(2,397)
Cash and cash equivalents at start of year	535	267	2,712	2,642
Exchange movements	2,182	2,182	22	22
	_________	_________	_________	_________
Cash and cash equivalents at end of year	51,881	51,767	535	267
	_________	_________	_________	_________

  Notes to the Financial Statements 

1	Accounting Policies
	The financial statements for the year ended 31 March 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee (IASC) that remain in effect, to the extent that they have been adopted by the European Union.
	The Group and Company financial statements are expressed in Sterling, which is their functional and presentational currency. Sterling is the functional currency because it is the currency of the primary economic environment in which the Group operates. Values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.
2	Investment income
		2008	2007
		£'000	£'000
	Dividends from UK listed investments	8,294	9,677
		_________	_________
	Dividends from overseas listed investments	12,035	11,559
	Interest from listed investments	8	28
	Property income distributions	4,498	-
		_________	_________
		16,541	11,587
		_________	_________
		24,835	21,264
		_________	_________
3	Earnings /(loss) per share
a	Earnings/(loss) per Ordinary share
	The earnings/(loss) per Ordinary share can be analysed between revenue and capital, as below.
		Year  ended  31 March  2008  £'000	Year  ended  31 March  2007  £'000
	Net revenue profit	15,284	14,054
	Net capital (loss)/profit	(196,455)	223,744
		_________	_________
	Net total (loss)/profit	(181,171)	237,798
		_________	_________
	Weighted average number of Ordinary shares in issue during the period	264,026,681	343,385,123
		pence	pence
	Revenue earnings per Ordinary share	5.79	4.09
	Capital (loss) earnings per Ordinary share	(74.41)	65.16
		_________	_________
	(Loss)/earnings per Ordinary share	(68.62)	69.25
		_________	_________
b	Earnings/(loss) per Sigma Share
	The earnings/(loss) per Sigma share can be analysed between revenue and capital, as below.
			Period from inception to
			31 March 2008 £'000
	Net revenue profit		1,105
	Net capital loss		(19,094)
			_________
	Net total loss		(17,989)
			_________
	Weighted average number of Sigma shares in issue during the period		129,568,877
			pence
	Revenue earnings per Sigma share		0.85
	Capital loss per Sigma share		(14.73)
			_________
	Loss per Sigma share		(13.88)
			_________
4a	Net asset value per Ordinary share
	Net asset value per Ordinary share is based on net assets attributable to Ordinary shares of £567,899,000 (2007:£972,944,000) and on 258,600,000 (2007:334,600,000) Ordinary shares in issue at the year end.
b	Net asset value per Sigma share
	Net asset value per Sigma share is based on the net assets attributable to Sigma shares of £138,710,000 (2007:nil) and on 127,680,000 (2007:nil) Sigma shares in issue at the year end.

5	Share capital changes
	Ordinary shares During the year, the Company made market purchases for cancellation of 14,116,714 Ordinary shares of 25p each, representing 4.2% of the number of shares in issue at 31 March 2007. The aggregate consideration paid by the Company for the shares was £30,583,000. Shares are repurchased in order to enhance shareholder value. On 24 July 2007, 61,883,286 Ordinary shares were converted into Sigma shares representing approximately 19.0% of the Ordinary share capital in issue at that date, and 18.5% of the share capital in issue at 31 March 2007. Since 31 March 2008, a further 1,100,000 Ordinary shares have been purchased for cancellation for an aggregate consideration of £1,924,000. Sigma shares On 24 July 2007, 61,883,286 Ordinary shares were converted into 123,766,572 Sigma shares. Subscriptions for a further 8,029,175 Sigma shares were received under the Placing, generating net proceeds of approximately £7 million. During the year, the Company made market purchases for cancellation of 4,115,747 Sigma shares of 12.5p each, representing 3.1% of the number of shares in issue at 24 July 2007. The aggregate consideration paid by the Company for the shares was £3,507,000. Shares are repurchased in order to enhance shareholder value. Since 31 March 2008, a further 100,000 Sigma shares have been purchased for cancellation for an aggregate consideration of £86,000.
6	Status of preliminary announcement
	The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 March 2008 or 2007. The statutory accounts for the year ended 31 March 2008 have not been delivered to the Registrar of Companies, nor have the auditors yet reported on them. The statutory accounts for the year ended 31 March 2008 will be finalised on the basis of the information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

7 8

Dividends Ordinary shares Subject to shareholders' approval at the AGM, a final dividend of 3.30p per share will be paid on 5 August 2008 to Ordinary shareholders on the register on 4 July 2008. The shares will be quoted ex-dividend on 2 July 2008. An interim dividend of 2.30p per Ordinary share was paid on 9 January 2008. The total dividend in respect of the year is, therefore, 5.60p per share.   Sigma shares Subject to shareholders' approval at the AGM, a final dividend of 0.65p per share will be paid on 5 August 2008 to Sigma shareholders on the register on 4 July 2008. The shares will be quoted ex-dividend on 2 July 2008. A special dividend of 1.10p per share was paid on 12 October 2007 to shareholders on the register on 5 October 2007. An interim dividend of 0.2p per Sigma share was paid on 9 January 2008. The total dividend in respect of the year is, therefore, 1.95p per share. Annual Report and AGM The Annual Report will be posted to shareholders in June 2008 and will be available thereafter from the secretary at the Registered Office, 51 Berkeley Square, London W1J 5BB. The Annual General Meeting of the Company will be held at The Royal Automobile Club, 89/91 Pall Mall, London, SW1Y 5HS on Tuesday 29 July 2008 at 12 noon.

This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan and does not constitute, or form part of, an offer of securities for sale in or into the United States, Canada, Australia or Japan.

The securities referred to in this announcement have not been registered under the U.S. Securities Act of 1933, as amended (the 'Securities Act') and may not be offered or sold in the United States absent registration or an exemption from the registration requirements of the Securities Act. The Company does not intend to register any portion of securities in the United States or to conduct a public offering of the securities in the United States. The Company will not be registered under the U.S. Investment Company Act of 1940, as amended, and investors will not be entitled to the benefits of that Act.

This announcement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities referred to herein in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities law of any such jurisdiction. 

The contents of this announcement include statements that are, or may be deemed to be 'forward looking statements'. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes', 'estimates', 'anticipates', 'expects', 'intends', 'may', 'will' or 'should'. They include the statements regarding the target aggregate dividend. By their nature, forward looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. The  Company's actual results and performance may differ materially from the impression created by the forward-looking statements. The Company undertakes no obligation to publicly update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules). No statement in this announcement is intended to be a profit forecast.

For further information please contact:

Chris Turner

Fund Manager - Ordinary share class

TR Property Investment Trust plc

Telephone: [phone]

Marcus Phayre-Mudge

Fund Manager - Sigma share class

TR Property Investment Trust plc

Telephone: [phone]

 

END

 

 

FR EANSXAESPEFE