Final Results

RNS Number : 8475S

TR Property Investment Trust PLC

27 May 2009

 



This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.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 2009

27 May 2009

ORDINARY SHARES Financial Highlights and Performance	Year ended 31 March 2009	Year ended 31 March 2008	% Change
Revenue
Revenue earnings per Ordinary share	6.49p	5.79p	+12.1
Net dividend per Ordinary share	5.75p	5.60p	+2.7
	At 31 March 2009	At 31 March 2008	% Change
Balance Sheet
Net asset value per share	126.07p	219.61p	-42.6
Share price	106.00p	188.25p	-43.7
Net cash/(debt)	15%	1%
Shareholders' funds (£'000)	323,666	567,899	-43.0
Shares in issue at end of period (m)	256.7	258.6	-0.7
Performance	Year ended	Year ended
	31 March	31 March
	2009	2008
Benchmark performance (total return)	-48.6%	-23.0%
NAV total return	-40.5%	-22.9%
Share price total return	-41.2%	-24.8%

SIGMA SHARES Financial Highlights and Performance	Year ended 31 March 2009	Period ended 31 March 2008	% Change
Revenue
Revenue earnings per Sigma share	2.91p	0.85p	+242.4
Net dividend per Sigma share	2.00p	0.85p	+135.3
Net Special dividend per Sigma share	-	1.10p	N/A
Total dividends per Sigma share	2.00p	1.95p	+2.6
	At 31 March 2009	At 31 March 2008	% Change
Balance Sheet
Net asset value per share	61.34p	108.64p	-43.5
Share price	39.00p	92.00p	-57.6
Net cash/(debt)	17%	5%
Shareholders' funds (£'000)	76,623	138,710	-44.8
Shares in issue at end of period (m)	124.9	127.7	-2.2
Performance	Year ended 31 March 2009	Period ended 31 March 2008
Benchmark performance (total return)	-48.6%	-10.1%
NAV total return	-42.3%	-10.5%
Share price total return	-56.2%	-12.2%

Chairman's Statement

Introduction 

This time last year I opened my introduction by saying that it was 'a brute of a year for property shares'. This year it seems appropriate to start with 'ditto'. Indeed it has been the most nerve-wracking period in financial markets that most of us can ever recall. Given the horrendous background, I am pleased to report that both share classes have survived the ordeal with their portfolios in decent shape. Both NAVs have outperformed the benchmark by considerable margins and both have record levels of earnings per share. This is enabling the Board to recommend a dividend increase for both share classes at a time when many shareholders will be suffering income declines from cash holdings. 

Our managers expect a decline in net revenue per share for both share classes in the current year. However the Trust has built up substantial revenue reserves over previous years, and the Board has agreed that, subject to unforeseen circumstances, it will use some of these reserves to recommend to shareholders that the dividend in the year to end March 2010 will not be less than the dividend now recommended for the year to end March 2009.

I would draw shareholders' attention to the new management fee arrangements set out later in my statement. I believe these are innovative and will be of long term benefit to shareholders. Sigma shareholders should also note that the Board approved a change of benchmark for that share class as from the start of the current financial year. 

NAV and Share Price Performance

The details of the absolute and relative net asset value returns are set out in the performance highlights. Both share classes had the same benchmark last year and this produced a negative total return of -48.6%, its poorest ever recorded performance. Both asset values outperformed thanks chiefly to the substantial cash holdings built up during 2008 from the sale of shares in more heavily leveraged companies. The Ordinary share class share price performed in line with the NAV, but the Sigma share price discount widened significantly during the year. I will comment on this further under the discount heading.  

Revenue Results

The revenue outcome in both share classes was higher than earlier guidance. This was largely due to the exceptional receipt, in March 2009, of a large and welcome refund of VAT that had been incorrectly charged in previous years. The majority of this refund must be allocated to the capital accounts of each share class, but the remainder, together with backdated interest, is treated as revenue. Further details of the revenue in each share class appear in the respective Managers' Reports. In summary the results were as follows: 

Ordinary Shares

The net revenue per ordinary share was 6.49p, an increase of 12.1% over the 5.79p reported in the year to end March 2008. The post tax benefit of the VAT repayment and backdated interest thereon was some 0.56p per share. 

Sigma Shares

The net revenue per Sigma share was 2.91p for the full year. Given that the share class was launched in July 2007, a like for like comparison with the previous year is not possible. However, the net revenue was greater than your managers had anticipated, even after allowing for the element of VAT recovery and reflects not only absolute growth in earnings but also the slower exit from large cap stocks together with the accretive impact of share repurchases made last year. 

Revenue Outlook 2009/10

Ordinary Shares

Our managers are advising the Board that, subject to unforeseen circumstances, they expect that revenue per share for the Ordinary share class will be in the order of 4.7p per share - a decline of around 28% relative to revenue in the year to March 2009. UK dividends are being cut, the VAT repayment will not recur and cash is earning virtually nothing. However, we will receive some underwriting income. 

Sigma Shares

The Sigma share class revenue estimate for the coming year is harder to judge not only because of market conditions (unquestionably leading to lower dividend income) but also because of the continued portfolio rotation. Our managers expect that, subject to unforeseen circumstances, net revenue per share will be in the order of 1.80p per share. 

Dividends

Ordinary Shares

The Board is recommending to Ordinary shareholders a final dividend of 3.45p for the year ending 31 March 2009, an increase of 4.5% over the final dividend of 3.30p paid last year. This, together with the interim dividend of 2.30p already paid, will take the total payment for the year to 5.75p, a 2.7% increase over the total of 5.60p paid last year.

Sigma Shares

The Board is recommending to Sigma shareholders a final dividend of 1.10p per share for the year ending 31 March 2009. This together with the interim dividend of 0.90p already paid will take the total payment for the year to 2.00p per share. This is a 2.6% increase over the total paid last year of 1.95p per share. 

Cash, Net Debt, Gearing and Currencies

The gross cash holdings in both share classes increased over the year from £51.9m to £77.6m, having peaked at over £110m last December. Net cash has risen by a greater amount from £11.9m to £62.6m as the Trust repaid the £25m 8.125% debenture loan at par at the end of November 2008, leaving, as outstanding debt, only the £15m 11.5% 2016 debenture. The current £50m one year bank loan facility was not utilised in the year.  

As in previous years the portfolios' exposure to foreign currencies was not hedged either at the asset or income level. Over the year Sterling declined against the Euro by 16.3%. As the majority of the assets and cash in the Trust are currently held in Euros, there was a significant foreign exchange gain to shareholders over the year.  

Discount and Share Repurchases

The Ordinary share discount to net asset value averaged 17.4% over the year with a range of 10.5% to 24.5%. Over the year 1.875m Ordinary shares were repurchased and cancelled for £2.992m - an average total cost of 159.6p per share. Sales of assets were made to cover these repurchases which were made at an average discount of just over 18%. The surplus generated to shareholders' funds was £0.7m, equivalent to 0.26p per share on the outstanding Ordinary share capital at the year end.

The Sigma share discount to net asset value was volatile over the year. It rose from 14.8% at 31 March 2008 to 34.2% at 31 March 2009, peaking at over 40% in January. This dramatic increase reflects not only the general widening of property share and investment trust discounts to asset value but also investors' lack of appetite for small cap stocks. At the point of writing the discount has narrowed to less than 25%. Over the year 2.76m Sigma shares were repurchased and cancelled for £1.45m - an average cost of 52.5p. These shares were repurchased at an average discount of over 30% and investments were sold to cover these purchases. The surplus generated to shareholders' funds was £0.55m, equivalent to 0.44p per share on the outstanding Sigma share capital at the year end. 

Management Fee

The management and performance fees were due for renegotiation with the investment manager, Thames River Capital, for the period beginning 1 April 2009 and the Board is pleased to announce that a new fee structure has been agreed. The Board's objectives, on behalf of shareholders, were to ensure that our investment in a high quality fund management team would be maintained throughout volatile market conditions, and that their variable rewards would be concentrated on their ability to significantly outperform the benchmark.

The Board concluded that the industry practice of charging a management fee based wholly on a percentage of net asset value was not the best way to achieve these objectives. We have therefore decided to take a fresh approach. We have negotiated a charging structure for the management fee consisting largely of a fixed fee with a small ad valorem element.

The result of this is that as the net asset value of the share class rises, the fee only increases by a small amount, therefore increases in net asset value do not result in proportionate increases in management fees. The fund manager gets the real 'reward' through outperformance of the benchmark and attainment of performance fees. We believe this structure better aligns the interests of the fund manager with that of the shareholders and further enhances our team's competitive advantage. In terms of percentage of net asset value, the fee becomes variable rather than a fixed percentage, with the fee percentage to net asset value increasing if the net asset value falls and decreasing as the net asset value rises.  

Following the JP Morgan Claverhouse decision, VAT is no longer chargeable on the management fees, a saving for shareholders of around 16% on all management fees since the majority of VAT incurred is irrecoverable. However, this has meant that the fund manager is not able to recover VAT incurred on any of the costs of managing the fund thereby increasing the manager's costs. The management fees set out below also cover administration for the fund, ISA and shareplans, company secretarial and custody services which are all provided by third parties.

The new management fee for the Ordinary share class is a fixed fee of £2.65million plus an ad valorem fee of 0.20% on net asset value, and for the Sigma share class a fixed fee of £0.65m plus an ad valorem fee of 0.30% of net assets. The cap on the maximum performance fee payable for the Ordinary share class has been increased from 1% to 2% of adjusted net assets, although this is restricted to 1% if the net asset value is lower at the end of the period than at the beginning of the period. The performance fee arrangements for the Sigma share class are unchanged. 

The tables below illustrate the new fee arrangements and the result in absolute and percentage of NAV terms at various (higher and lower) NAV levels for each share class. The central case is the estimated NAV as at 26 May 2009.

Ordinary Share Class

Net Asset Value £'m	Increase/ Decrease in NAV	New Annual Fee £'000	New Fee as % of NAV	Fee at 0.70% £'000
244.3	- 30%	3,139	1.28%	1,710
279.2	- 20%	3,208	1.15%	1,954
314.1	-10%	3,278	1.04%	2,199
349.0	0%	3,348	0.96%	2,443
383.9	+ 10%	3,418	0.89%	2,687
418.8	+ 20%	3,488	0.83%	2,932
453.7	+30%	3,557	0.78%	3,176

Sigma Share Class

Net Asset Value £'m	Increase/ Decrease in NAV	New Annual Fee £'000	New Fee as % of NAV	Fee at 1.10% £'000
60.6	-30%	832	1.37%	666
69.2	-20%	858	1.24%	761
77.9	-10%	884	1.13%	856
86.5	0%	910	1.05%	952
95.2	+10%	935	0.98%	1,047
103.8	+20%	961	0.93%	1,142
112.5	+30%	987	0.88%	1,237

The Board will review these arrangements after one year. 

Sigma Share Class Benchmark

The Sigma share class was launched on 24th July 2007. Its objective is to invest in smaller property companies across Europe. Since launch it has used (and outperformed) the same benchmark as the Ordinary share class. The Board now considers that, going forward, the relative performance of the share class will be more appropriately judged by using a benchmark which is more aligned to its objective. 

The Board announced on 31 March, that with effect from 1 April 2009, the Sigma share class benchmark will be the FTSE EPRA/NAREIT Europe Index in Sterling, adjusted to exclude those stocks with a market capitalisation exceeding £1bn. The benchmark will be provided by FTSE, who produce the existing benchmark and the constituents will be adjusted quarterly to reflect capitalisation movements. 

Outlook

Between mid March and mid May global bond and equity markets have rallied sharply, particularly for higher risk assets. This surge in optimism, which has included an element of panic buying, centres on hopes that the massive assistance now available from Governments is very likely to ensure a return to economic growth over the next twelve months. Certainly the speed of decline in activity has slowed markedly.

Nevertheless, as the Governor of the Bank of England has noted these are extraordinary and uncertain times. The economic patient is being treated with untested drugs and we simply cannot know what the state of the economy will be in twelve months time. We do know that unemployment is a lagging indicator, and that occupational demand for commercial property lags well behind unemployment. We know that the banks have very substantial books of commercial property debt which they will need to sort out over the next few years. 

The Trust is in a sound financial condition. Since the year end we have reduced, but not eliminated, the net cash position. If the surge in share prices continues over the summer, this stance will lead to short term relative underperformance. I am happy for the managers to take a cautious stance. 

Peter Salsbury

Chairman

Market Background and Outlook 

We have tried to make this section rather stronger on outlook than history. In doing so we assume that shareholders will be pretty familiar with the chain of events that has brought the world economy and stock markets to their current state, and, in any case, tackling the section this way also allows us to avoid too much use of tedious negative superlatives. Nevertheless we do need to sketch a picture of where we have been in order to provide a context for expressing our views on the potential trend in events over 2009 and 2010.

The first core unknown is the extent and depth of the current international recession. Since early March global equity markets generally have made a strong recovery, led by financial stocks including property shares. Current thinking among buyers suggests that recovery is close at hand, though recessions accompanied by financial crises generally last twice as long as normal recessions. There have been so many twists and turns in 2008 that we can only be sure that it is impossible to predict with any certainty what lies ahead. The current extreme volatility in global share prices only reflects extreme swings in investor sentiment. 

For commercial property the second core unknown is the speed and impact of the de-gearing exercise that is required across Europe. The debt mountain is the industry's 'elephant in the room'. It is impossible to ignore but nobody talks about it because nobody knows what to do about it.  

Property Investment Markets

Pan-European commercial property investment markets saw a sharp fall in both values and turnover over the past twelve months. The twin problems have been the onset of the recession and the scarcity of credit. On the basis of published indices UK values fell very rapidly - an average decline, March to March of some 30%, a more rapid and more severe decline than that recorded in other European real estate markets. In part this reflected the greater speed of decline of the UK economy relative to the rest of the Europe, the higher levels of leverage in the UK and the widespread application of index linked rents on the Continent. Valuation techniques have also had an impact. In the absence of transaction evidence, UK valuers have been urged to use their judgement and to take into account evidence of what property is not selling at a given price. Continental valuers are generally happier to stay with the last transaction evidence even when this may be somewhat historic. We need to be careful in placing too much emphasis on monthly value movements in making any long term judgement about the relative performance of various markets in such a volatile period.  

Certainly across both the UK and Europe there has been no really safe place to hide. Everywhere the best relative performance has come from properties with bond like characteristics, let on ground leases or to Governments or blue chip companies on long unbreakable leases. Conversely, empty buildings or properties let on short leases to small businesses are suffering the most severe value declines. 

In the UK, investment turnover has dropped very sharply, but the market has not ground to a halt and recently there has been a growing queue of cash buyers, seeking longer term bond like income from investment grade tenants - the new definition of a prime property. Bank finance is still quite scarce, with a modest maximum per property and per bank. Loan rates and terms will be tough relative to the recent past. The sellers of high quality income streams have generally been exactly those who, a year ago, might have been predicted to be today's buyers - open ended funds facing redemptions, life insurance companies, and major property companies. Well let prime buildings comprise maybe 10% of total stock. Buildings not let to investment grade tenants or let on leases with less than five years to run, that is to say, the bulk of UK commercial property, are still hard to sell at yields below 10%, and, where the passing rent is above rental value, yields can be into the teens. Empty buildings and development sites are rarely offered for lack of any potential buyers. In short, a supermarket let to Tesco for another 25 years will bring in multiple offers, probably at above asking price, while a nearby row of part empty sheds will attract no interest whatever. 

Very little debt distressed real estate has so far been brought to the block. If, when and how this property finds its way back into circulation is the big unknown for UK and European property markets over the next three years. With cash earning virtually no income it is of no surprise that the prime market has reactivated. Will those who don't buy today have missed the boat? We think not, in the sense that this is a huge boat which is stuck fast in the mud. It will require a sustained return to economic growth combined with huge amounts of capital to get the entire commercial property market moving again. The big gains should lie further ahead, when empty or half empty buildings can be bought from distressed owners for well below construction costs, filled with occupiers and turned into investments again. 

So what might be the trend in average UK commercial property values over the next two years? We noted in our last interim comments that pricing in the IPD Index derivative market was proving a more reliable guide to events than agents' research. Current pricing offers two important signposts. Firstly that average capital values will fall by 24% in calendar 2009, by a further 6% over 2010. Secondly, and more controversially, pricing implies that the recovery in values in 2011-2013 will be just 1% to 3% pa, that is to say, very anaemic, suggesting, possibly that values will be pinned down while mess in the debt market is mopped up. Interestingly Halifax House Price Index derivative pricing also points to a nadir in 2010, then prices in a quite rapid rebound in values in the subsequent three years. Maybe a house will be a better investment over the next five years than a commercial property. 

Debt

The quantum of bank, corporate and mortgage debt outstanding against commercial property appears to have changed very little since last November. At that time, in the interim report, we noted that it was estimated that around €1,000 billion was then owed across Europe of which close to £300 billion is in the UK. UK banks alone account for about £225 billion of this amount. To put this into context, the same figure was £41 billion ten years ago and in those ten years UK average commercial property values have actually fallen by 5% according to the IPD Monthly Index. For the long term health of the banking industry those numbers ought to be halved over the coming years. What has changed since we commented last November, is the value of the real estate against which this debt is secured. In both the UK and Europe, values will have fallen by 10% or more and may have another 10% to 15% to fall from April 2009. As a result, loan to value ratios are being squeezed. To put this into context, the total value of the UK commercial property market was estimated at £750-£850 billion at its peak in mid 2007. The 40% decline seen since will have reduced this figure to £450 - £510 billion, and another 10% to 15% decline from here implies a nadir value of £400m-£450 billion, against which to set the £300 billion of debt. Hopefully these figures exaggerate the problem, but they lend some weight to those who believe that many leveraged investors or unquoted funds may now be in or close to negative equity and have little immediate chance of refinancing without very substantial fresh equity capital.

Few banks yet appear to have taken any significant write-downs on their commercial property exposure. Almost every bank is taking steps to avoid foreclosures where interest continues to be paid, and is using LTV breaches as an opportunity to widen spreads and change loan terms subject, usually, to substantial upfront fees. Loan extensions and the provision of some short term flexibility to distressed owners is currently the order of the day. As a result the pipeline of distressed commercial property being offered into investment markets remains very modest. In truth, the banks have little incentive to act differently given the mayhem that assertive action might cause both to their own precarious balance sheets and to the market in distressed assets.

So can the policy of doing nothing succeed in making the problem go away? It is possible, but it seems unlikely. We would need a scenario in which an early and sustained recovery in economic growth might, if combined with renewed fears of significant future inflation, result in a sudden positive step change in both tenant and investor demand for commercial real estate. The result could be an early renewal of value growth which could restore LTV covenants or allow the banks to foreclose on assets knowing there was a ready market for them assisted by a renewed desire from the banking industry to offer new commercial loans. 

We have no special insight into the speed of the economic recovery, but the events of the past year make it unlikely that most businesses will start to hire staff and lease floorspace until a recovery is very well in trend. Inflation worries must be considered more likely. The concept of printing money through 'quantitative easing' causes many people unease. While the velocity of money remains so weak and there is so much slack in the economy, inflation may not be a danger, but the defence mechanisms of many investors are tuned into the thought that hard assets might not be so undesirable at some time in the not too distant future. 

If playing for time is not the answer, then the commercial property market does face a long drawn out and hard refinancing road lasting perhaps five to seven years. We think that €1,000 billion probably needs to be halved over time. Many European banks will be under pressure to prioritise fresh lending to the business and residential sectors. All banks will be keen to avoid lending more than 70% loan to value, so, unless values leap from just their current levels, the banks will have to get their capital back from fresh equity lured into the property market by bargains. If we cannot find this equity then distressed asset sales accompanied by substantial and permanent write-downs for the banks, will be the order of the day. In the UK a substantial number of commercial property loans may now be covered by the Government's asset protection scheme, and here, and in Eire, it may well be unhappy tax payers who finally pick up the tab for this mess.  

Rental Values and Tenant Demand

Rental values are now in decline for almost all types of commercial property both here and on the Continent. Through 2008 they showed remarkably little change. In the UK the IPD benchmark recorded falls of only 1% over the year in headline rental values. Most locations have started the recession with lower vacancy rates than seen in the early 1990s, thanks to the absence of a general development boom in the period 2004-2007. 

Into 2009 the situation has markedly worsened with average declines of over 1% per month now being recorded. On the Continent rents payable are generally indexed annually to prices so that they actually rose in 2008, though rental values did not. The unemployment numbers are, and will be, the key statistic to watch. Redundancies go hand in hand with lower requirements for workspace, and lower disposable income. UK industry forecasts have recently been aggressively downgraded to suggest that a much sharper rate of rental value decline is in prospect over the remainder of 2009 and through 2010. Projected falls over this period now range between 10% and 30% depending on the type of property and the existing vacancy rate in the locality. The average UK vacancy rate is now 12% with industrial and storage space showing an average of 16%. 

In recent recessions average headline rental values have never fallen very far in statistical terms. Landlords generally prefer to maintain their headline asking rents to avoid affecting the value of their neighbouring property and to lease on terms that offer rent free periods and other incentives to mask the true underlying or effective rent level. What is different now is both the speed and severity of this recession and the presence of extra factors at work in the market. The first factor is the level of leverage across the industry. Almost all loans have income cover covenants. This means that indebted owners are less able to afford the luxury, in time and income loss, of holding out for their required rent, but rather need to replace as much of their lost income as they can with as great a speed as possible. The second factor, applicable in the UK, is the sharp increase in the empty rates charges introduced recently by the Government. Empty rates are now a severe tax on vacant space, and thus add further to the desire of owners to take whatever rent they can for space as quickly as possible. 

How far can rental values fall? And will a sharp fall in rental values of itself increase the demand for space? Property is a very inelastic commodity, you can't build it without considerable bureaucracy, you can't move it about like oil or gold and pulling it down is a last and rather extreme resort. The City of London office market is an interesting example. Here a wave of new construction completions are coinciding with the banking crisis. The vacancy rate has doubled from 6% to 12% in 12 months and headline rental values for Class A space have probably dropped by 25% from £60 to £45 per square foot in the same period. Rent free periods are now around 1 year for every 5 on the lease, so underlying rents are commensurately lower. With 5% by total volume still under speculative construction and City net employment growth unlikely to re-occur for some while, the outlook is not good. If rents continue to tumble new occupiers can be attracted in by price, but only at the cost of demand and increasing supply elsewhere in London. Aside from retailers, business tenants have no normal incentive to take more space than they need merely on cost grounds.  

We are assured by the Government that we don't have enough houses in the UK, but do we have enough commercial real estate? With full employment and strong net immigration during 2005-2007, real rental growth was still limited to a few choice locations. Now, with rising unemployment and net emigration, the property industry may need to adjust to the idea that there is no permanent shortage of space and rental values can move both up and down, and that some tenants will have to be accommodated on shorter leases with break clauses and that not all rent reviews must be upwards only. The implications of these adjustments may affect investors' attitude to the yield structure of the market over the next decade. 

Property Share Background

Pan-European property shares fell by 51.2% in Sterling in the year to end March 2009. This was by far the worst annual performance in the Sector's recorded history. Share price movements were dominated by capital structures. As a rule of thumb, the more leveraged the business the greater the share price decline. High dividend yield was no defence. Indeed once a dividend yield had passed into double figures, investors merely assumed that a substantial dividend cut must be coming soon.  

With property values in rapid decline, all net asset value (NAV) results became too historic to be of immediate value. Investors and brokers moved quickly to calculate future, or bottom of the cycle, NAVs, using indications of future value movements from derivative pricing and other sources. When the resulting future shareholders' funds were stress tested into the current balance sheets the result was often alarming in terms of potential breaches of loan covenants. The precipitous decline of many property share prices across Europe to stand on apparently enormous discounts to asset value, was based on far more logic than was apparent to many outsider commentators or indeed to the managements of many of the companies themselves.  

Debt profiles and loan covenants and headroom became more important than asset profiles. There has been a scramble for greater disclosure of the terms and covenants involved in property company debt. Over the year, it became apparent that many companies had faced (and will face) serious refinancing issues in the comparatively near future. Those companies whose debt is entirely from banks have the advantage that their lenders may be anxious to avoid confrontation. Those with quoted bonds are not so fortunate as the bond holders are likely to push for repayment if the loan terms are breached. Almost all the recent rights and other equity issues have come from companies with quoted bonds.  

Liquidity remained reasonable in the larger stocks, but for smaller companies, particularly those on AIM, the marketability has often become non-existent for weeks on end with the eventual effect that large scale transactions in these stocks were either impossible or had to take place at prices way below the official spread. 

With few honourable exceptions, the managements of the more geared UK and European property companies remained far too optimistic for far too long. As a result those with leverage, which in 2007 would have been classed as no more than modest, have found themselves forced to be sellers of their most defensive assets or issuers of fresh equity at distressed price levels. A long term lesson from the present events is that the mere having and holding of leveraged real estate on a long term basis is not a perfect self contained business plan. There is an urgent need in some property company board rooms for more strategic thinking and worldly wisdom than evidenced in 2008.  

Earnings were broadly in line with expectations and without the adjustments for value movements, showed little of the stress that affected balance sheets. The outlook for earnings has deteriorated. Over the next three years rising vacancy rates will hurt top line income as will lease renewals at lower rents. Meanwhile the savings from lower interest costs will chiefly benefit Continental property companies, while most of their UK counterparts have fixed the bulk of their debt costs for some years ahead. Those companies now selling assets on 8%+ yields to repay debt costing less than 6% may be saving their balance sheets, but they will be hurting their earnings. 

Until Q1 2009, dividend cuts or omissions were barely on the agenda. In the UK they are commonplace just four months later. Heavily leveraged companies have cut from expediency, the lighter leveraged to preserve cash. In Europe the heavily leveraged have also cut or omitted, but the lighter leveraged companies have maintained or even slightly increased their 2009 payouts often with share alternatives priced to encourage shareholders to take the stock to boost the equity capital. Sadly, despite representations, the UK Government has not, so far, allowed UK REITs to offer scrip alternatives to property income distributions. 

In the seven weeks from the second week of March, UK property shares rose as much as 65% while European stocks gained as much as 40% in Sterling terms since when pricing has retreated somewhat. The fastest risers have been the most endangered companies, whose share prices often represented option money ahead of perceived bankruptcy or which were seen as unable to refinance save on terms that would leave the existing shareholders with little of the equity. These are the sector's zombies, and the list unfortunately includes some well known names whose boards might have been more alert when times were good. The surge in their share prices represents a re-pricing of the risk of total wipe-out, and the increased belief that some, at least, of these businesses will find enough external capital to restore their balance sheets. 

Outlook

We are in uncharted territory. The past recessions within living memory offer only partial clues as to what may happen next. The range of potential outcomes, for both the local and global economies, is extremely wide in terms of the timing, strength and speed of the recovery. Powerful swings in sentiment will continue to produce substantial volatility in stock pricing. The speed of the decline in economic activity has now slowed markedly. The innate desire to be optimistic has fashioned a very sharp and very welcome rally in equity markets on the basis that less bad is a certain harbinger of good. Cash has also been burning a hole in some investors' pockets. The bulls have chewed their finger nails for 2 years, now it is the turn of the bears. Certain economic forecasts (and particularly those linked to Governments) are predicting a speedy revival of economic growth. If this is correct we may have passed the nadir in equity pricing even if we have not passed the nadir of the recession. However there are those wiser than ourselves who warn that any recovery will take much longer to occur and will be slow, bumpy and unstable.

In terms of UK and European economies there are a number of major hurdles still to be jumped. A credible plan to 'fix' the banks remains elusive particularly in relation to their lending on commercial property. If deflation continues then the banks' loan problems may worsen. Paltry deposit and bond rates may not be maintainable if inflation returns. Any rise in consumer confidence risks being choked off by both higher interest rates and higher taxation. From several angles the return of inflation now looks not only inevitable, but also the only way that the enormous pile of government and personal debt can be belittled back to relative normality. 

Indeed the first argument in favour of commercial property investment today rests on the need for investors to position their portfolios away from fixed interest and into hard assets to better withstand the return of sustained inflation. It may well be wiser to borrow long term at current interest rates than to lend, especially before bond markets are to be swamped with Government debt. The problem for property investors is little debt is available, the margins required are historically extreme and banks remain unwilling to lend against short or low quality income streams.

Is commercial property cheap today? Well it is when compared to prices two or three years ago, but those prices were set in a debt fuelled boom. The rapid fall in UK property values and the decline of Sterling have made London real estate a popular destination for overseas capital. This has helped stabilise pricing for good quality assets in both the residential and commercial markets, but risk premiums and yields are likely to remain very high by historic standards until we have worked our way back to increasing employment and rising tenant demand.

For most equity sectors the return of economic growth is expected to herald a sharp improvement in earnings per share. However for the quoted property sector the earnings growth outlook over the next five years is not good. The impact of rising vacancy and falling rental values will hit top line income slowly but steadily for several years to come. Cost lines will receive relatively little benefit from lower interest rates. Current average debt costs for the quoted sector are around 5.5% in the UK and 4.3% in the Continent - slightly below the current marginal cost of debt for good quality borrowers, so refinancing brings no earnings benefit. Meanwhile sales of property at 7% and 8% yields to repay debt costing less will repair a balance sheet but reduce earnings. 

In short we have no clear conviction yet. We are very aware that our principal task is to take great care of your capital and, so far as possible, maintain your income. We have made modest investments over the last two months which have reduced our exposure to cash in both share classes. We have stuck with high quality balance sheets and companies with positive cash flow and avoided buying back into zombie stocks. This has been at the cost of some short term relative performance, and reflects the fact that we view the risk and reward rationale behind the rerating of some stocks as questionable.

Manager's Report

Ordinary Share Class

Performance

In the year ended March 2009 the Ordinary share class IFRS NAV fell by 42.6%. This sad regression compares with an even larger decline of 51.2% in the benchmark index. In total return terms the figures are -40.6% for the NAV and -48.6% for the benchmark. On a simple difference basis the total return outperformance was therefore 8.1%. The main contributor to outperformance was the substantial net cash holdings which were maintained in the share class throughout the year, mainly in Euros. Stock selection, which emphasised companies with below average leverage, also assisted as did the relative outperformance of our direct property portfolio. Errors of judgement were multiple. At the country level, I kept too much money in UK stocks, which fell by 62.5% and remained underweight in the outperforming Belgian and Swiss markets. We did, however avoid Norway altogether and were very substantially underweight in Austria, the two worst performers at the country level. 

At the stock level, the range of performance was as wide as I can recall in any year and hinged almost entirely on gearing. Those companies that entered the downturn with modest leverage, or took early action to sell assets and repay debt, all outperformed. The many businesses which did neither saw their share prices decimated. Our largest investment, Unibail, fell into the former camp, our second and third largest, Land Securities and British Land fell eventually into the latter. Our currency positions were close to neutral in terms of relative performance and strongly positive in terms of absolute returns. Our direct property portfolio contributed outperformance showing a negative return of -14.9%.

Distribution of Assets

UK equities fell from 46% of gross assets to 32% as a result of sales and their underperformance relative to European equities. European equities rose to 50.9%, while the direct properties rose to 17.4% of the invested assets despite the disposal of buildings over the year. For reference the benchmark weighting at the end of March 2009 was 33.9% UK equities, 66.1% European equities.  

Outside the UK, the portfolio is dominated by holdings of equities listed in France, indeed these totalled more than the value of our UK equities at the year end. This is not quite the burst of blatant francophilia it might appear. The holding in Unibail represents over 60% of our French equities exposure, and the company owns a portfolio of shopping centres spread right across the Continent. Aside from Unibail we now have substantial holdings in a number of the larger French companies, which we think offer a combination of stable cash flows, below average leverage and we hope, a capacity to maintain dividends. Our 33% exposure to France compares with the benchmark weighting of around 31%.

Investment Activity

The changes in our investments over the year presents a dismal picture of value loss. Looking back over my transaction sheets for any year makes me shudder at my lack of foresight. The sheets for the year ended March are particularly embarrassing in terms of opportunities lost. I got the general direction right but failed to realise just how dire the market would become. Investment turnover (sales and purchases divided by two), was just under £71m or roughly 17% of the average gross assets over the year of £421m.

In the UK, and share repurchases aside, our total equity purchases were just £3.3m in the nine months ended December and £14.4m in January to March 2009 quarter of which £11m was in March. UK sales were more evenly spread with just over 50% occurring before the end of September 2008. Looking back I certainly sold too slowly in that period. On the Continent the pattern was similar though less extreme. In the first half I sold for £27.7m and bought for £6.9m. In the second half the movements were reversed with purchases for £30.3m and sales raising £13.2m. 

Sales were concentrated in the stocks with above average leverage and/or poor liquidity. In the UK a number of our long standing mid-cap holdings were substantially reduced or sold entirely, as falling property values threatened to leave those companies in breach of their banking or bond covenants, or even wipe out their shareholder funds entirely. On the Continent the pattern followed the same line. On the buy side I felt that there was no safe place to hide save cash. Those purchases that were made in the first ten months of the financial year were concentrated in the opposite direction to sales; that is to say on larger companies with modest leverage, modest development exposure, good rental cash flow and decent and, I hope, sustainable, dividend yields. This led me to increase the portfolio exposure to stocks listed in France and the Netherlands such as Unibail, Icade, Silic, Corio and Wereldhave. 

Largest Equity Investments

The composition of our top ten investments changed more markedly than in the previous four years. Together they made up 45.6% of gross assets (49% last year), however, stripping out the cash, they were 55.6% of our invested assets.

Unibail dominates the list and represented 17% of gross assets and 20.7% of invested assets. Following the all equity take-over of Rodamco in 2007 Unibail entered the downturn with a lowly geared portfolio of very high quality shopping centres spread across Europe, with exclusion of the UK, Germany and Italy. It is also the largest company in the benchmark, with a weight of 20.06% at the end of March. Under the tax legislation which governs investment trusts, the limit for investment in any one issuer is 15% of gross assets, above which level further investment is not permitted. For the purposes of this legislation the entire Trust is one entity. Sigma still retains some Unibail shares and the combined share class investment in the stock was above the permitted ceiling at the end of March 2009. The most recent purchase of Unibail shares was made before this limit was reached. 

Land Securities and British Land remain in second and third places, but with much reduced holdings. These holdings were even smaller until March 2009 when we took up the new shares in their rights issues. We added to the Corio holding to raise the stock from 14th to 4th. Last autumn Corio sold a Dutch office and industrial portfolio for some €600m cash and this left its balance sheet in a much stronger state. I added substantially to the Icade holding influenced by its low leverage and by the French Government's indirect 60% shareholding. The additional investment in Icade, made at a 60% discount to NAV, was one of my very rare purchases made last autumn which still showed a surplus on cost at March 2009. Further down the top ten the stocks are closely bunched by value, indeed the 14th largest holding is only £1m smaller than the 8th largest holding. 

Stocks that have dropped out of the top twenty include Segro. After the excellent sale of their US business in 2007, the company went on an ill timed investment and development spree which has ended in a very dilutive rights issue. Since the year end we have taken up our rights and the shares are back in the top twenty. St Modwen, a long time favourite, has also left the top twenty as we sold virtually the entire holding, mainly last summer. The other absentees are IVG where the entire holding was sold last summer and Kungsleden where we reduced the holding on leverage concerns. The new entrants are Wereldhave, the lowly geared and high yielding Dutch based international investor, PSP Swiss which outperformed strongly in the year and Vastned Retail. 

Revenue

Revenue per Ordinary share rose 12.09% from 5.79p to 6.49p, a percentage gain well above the nil to 5% gain which I forecast at the interim stage. The principle reason for the discrepancy was the receipt, just before the end of the financial year, of all the sums due in our outstanding claim for overpaid VAT. The majority of these payments have been credited to the capital account, but the revenue account has benefited by some £1.9m. In the income statement the amount of the VAT repayment attributable to the revenue account of £1.386m is shown as a credit against expenses while the backdated accrued interest of £0.530m is included in other operating income. Together these exceptional receipts were equivalent to post tax revenue of 0.53p per share. The other abnormal feature of the Ordinary share class revenue account is that the pre-tax income has declined relative to the comparable numbers for the previous year. This reflects the creation of the Sigma share class in July 2007 at which point the Sigma shareholders took away their share of the accrued income. The adjustment is shown on the second to last line of the income statement for the year ended March 2008.  

VAT and the Sigma adjustment aside, the Ordinary revenue for the year was roughly as anticipated. There were very few dividend increases of any substance but the bulk of our larger equity holdings paid in line with expectations save for Big Yellow and St Modwen, which passed their dividends. Last year the Continental income at £10.57m exceeded the UK equity income at £7.88m. Most of this (predominantly) Euro income is paid in April, May and June, so that the sharp fall in Sterling relative to the Euro over the autumn had only a modestly beneficial impact on the Sterling value of dividends received last year. Income from cash on deposit totalled some £2.2m and is included in other operating income. Despite the sale of the Woking property in October 2008, gross rental income rose reflecting the substantial rent review increase on the Waitrose unit at the Colonnades and the absence of vacancies in the remainder of the portfolio. The management fee declined in line with the reduction of the value of assets under management. Interest costs fell reflecting the absence of bank borrowings and the repayment of the 8.125% debenture in November 2008. The tax charge shown against revenue, at £5.715m is just over 25% compared with 18.9% last year. There are a number of reasons for this. Firstly we now receive most of our UK equity income as property income distributions from REITs. We receive these gross and treat them like rental income whereas in previous years this income came in the form of dividends taxed at source and not subject to further taxation in our accounts. Secondly as the cash balances have increased, so too has interest income, which again is subject to corporation tax in the Trust. To date we have had sufficient excess expenses brought forward to be able to shelter this income from tax so this has not led to an increase in the quantum of tax actually paid, however, accounting convention requires that as the brought forward expenses are utilised the full tax charge is applied to the income account, reflecting the level of taxation which would be applied if the relief was not available. The contra-entry is within the £4.90m tax credit in the capital account tax line.  In cash flow terms our actual tax paid is £812,000 which is effectively just withholding tax on our foreign income that we are unable to recover. 

Revenue Outlook

Our revenue in the year to March 2010 looks likely to decline. My current advice to the Board is that post tax revenue earnings will be in the order of 4.70p per Ordinary share. We will not have the exceptional benefit of the VAT repayments. Dividend income is under pressure. In the UK, Land Securities, Liberty and Segro have already announced or indicated sharp reductions in their payments for the current year. We expect other companies will follow this trend. Our returns from any cash we choose to hold will be minimal. Our direct property income should remain relatively stable but as the recession bites we are bound to lose some rental revenue. 

It is not all doom and gloom. On the Continent we have seen some modest dividend growth in the past two months, notably from our largest equity investment, Unibail. Our Euro, Krona and Swiss Franc dividend income, which is already greater than our UK equity income, should be worth about 12% more in Sterling terms at current exchange rates when compared with the equivalent receipts twelve months ago. Interest outgoings will fall again reflecting the extra benefit of the debenture repayment last year. We have already earned some underwriting fees and hope that more income will come from this source. Hopefully my best estimate can be improved upon, but shareholders should bear in mind that the Trust has a total return objective. We normally avoid buying any asset purely for the sake of its high initial income and some non income producing assets can offer high future total returns. 

Cash, Gearing and Debentures 

The Ordinary share class started the year with gross cash of £37.3m which reduced to net cash of just under £5m after taking account of the attributable debenture debt of £32.4m. At the end of September after sales of equities made throughout the summer, gross cash had risen to £78m and net cash was £46m. The 8.125% debenture was repaid at par at the end of November at a cost to the share class of £20.25m. With further sales before the year end, gross cash peaked at £81m at the end of December. In the first three months of 2009, particularly in March, we re-invested some £2om in stock, notably in the UK REIT rights issues and the year end gross cash was £61.8m. Deducting the remaining debenture debt of £12.2m, the cost of the final dividend of £8.9m and the outstanding rights issue commitments, cash available for reinvestment was some £36.2m or 11.2% of net assets. 

As already noted, the increase in cash holding was implemented chiefly from sales of equities with above average leverage. As a result the portfolio's see-through leverage (which adds the proportionate debt of all our equity investments to our on balance sheet net cash) fell from 46% to 33% over the year. In the same period the benchmark's see through leverage has risen from 42% to 47%, and would have been over 50% without the series of rights issues this spring.  

Currencies

There were no formal hedging arrangements in place. Through most of the year we kept the majority of the cash in Euros and the Sterling cash balance was often below £10m. Looking forward there are multiple reasons to dislike almost every currency. The Eurozone has well known monetary problems as does the UK. The current overall portfolio balance between Sterling and Non -Sterling assets is closely in line with the benchmark. 

Direct Property Portfolio

The direct property holdings strongly outperformed our equity portfolio. The total return was -14.9%, made up of 5.6% income and a 20.5% revaluation deficit. By comparison the IPD Monthly Index showed a total return of minus 25.5% over the year to end March 2009, made up of a 30.3% value decline and 6.6% income return. We started the year with £69.54m of property. We sold a small shop in Wandsworth in the summer for £0.54m and an office building in Woking for £7.5m in October 2008. We also received some £0.4m cash from residential ground lease extensions at the Colonnades in Bayswater. We bought nothing. On the valuation at March 2009 the initial yield on the property portfolio is 7.75% and net equivalent yield is 7.7%. The Colonnades complex in Bayswater, valued at some £22m in March, makes up 46.4% of the property portfolio and is the third largest asset of the Ordinary share class portfolio. The initial and equivalent yields for this property were 5.78% and 6.52% reflecting that this Central London freehold has Waitrose and NCP as the major tenants and also the potential in the residential ground rents. 

The strong relative performance from the properties is due in part at least to the success of the team in keeping the portfolio fully let throughout the year. 

We have no lease expiries due in the current financial year and only one tenant's option to break. Our vacant space is currently limited to two small industrial units at Wandsworth with asking rents equivalent to 1.8% of total rental income. One of those is currently under offer. 

Chris Turner

Fund Manager

Ordinary share class

Manager's Report

Sigma Share Class

Introduction

In the year to March 2009, smaller property companies underperformed larger ones. This is to be expected when one considers that in equity bear markets investors' aversion to illiquidity increases. The real estate sector has a long 'tail' of smaller companies, in fact as at the end of March 2009 there were 67 companies out of 80 in the FTSE EPRA/NAREIT Index with a market capitalisation of less than £1bn. However, they accounted for only 38.6% of the total index capitalisation. Another overriding feature of this bear market has been the increased levels of volatility and the activity within the fund reflects this. 

I highlighted in the Interim report that the process of transition from a portfolio dominated by large cap stocks (64% of the portfolio at its creation in July 2007) towards its intended portfolio of smaller companies, had been much slower than envisaged. Maintaining this slow pace of conversion proved to be the correct top down strategy as large cap stocks have outperformed their smaller brethren. That said, the pace of conversion did accelerate in the last quarter of the financial year and by March 2009 more than 75% of the portfolio comprised small cap stocks.

I adopted a defensive position throughout the year holding significant levels of net cash. Sigma's cash position started the financial year at 5% of net assets, rose to 16% at the half year and was 17.0% at 31 March. The maximum amount of net cash held at any point in the year was 21%. This strategy has been a critical part of the relative outperformance and reflects our concerns over the year. 

Performance

In the year to March 2009, the Sigma share class NAV fell by 43.5%. This compares with an even larger decline of 51.2% in the benchmark. In total return terms, the figures are

-42.5% for the NAV and -48.6% for the benchmark. At the interim stage in September the equivalent figures were -22.8% for the fund and -21.4% for the benchmark. Relative outperformance therefore occurred in the second half of the year, a period characterised by the acceleration of the deteriorating sentiment, asset values and share prices.

For the second year in a row, I have to report that holding a significant cash position was the right strategy. There were only short periods in the year when cash underperformed property share prices (broadly mid July, late October, and December) in quite aggressive yet brief, bear rallies. However, the financial year ended with the commencement of a more robust rally from mid March. Our own analysis shows that the small caps stocks within the benchmark underperformed large caps producing a price only return of -56% versus -51.2% for the large cap dominated full benchmark (price only return). The exception to this statement was the very weak performance of the UK's five largest companies in November and December. Quite correctly (in hindsight) investors were concerned that these companies would require fresh capital to reinforce their balance sheets. Four out of five did subsequently undertake 'rescue' rights issues in January and February resulting in significant dilution for those existing holders unable or unwilling to take up their rights. The fifth, Liberty International waited until the end of April and was able to take advantage of the improvement in investor sentiment from mid March.

The dramatic weakness of Sterling versus the Euro and the Swiss Franc had a significant bearing on the performance of the fund's NAV and its benchmark (both of which are denominated in Sterling). By way of illustration, the Eurozone constituents of the benchmark had a total return of -48.8% for the year when measured in Euros. The same stocks returned -40.5% in Sterling, such was the impact of the currency movement. We undertook a deliberate policy of retaining the majority of the increasing net cash in Euros. This was beneficial. 

Looking 'top down' from the country level, our overweight positions in France and the Netherlands, coupled with our underweight exposure to Austrian stocks, were beneficial. Whilst our exposure to Central and Eastern Europe (significant underperformers), albeit heavily reduced over the year and our lack of significant positions in Belgium and Switzerland (relative outperformers) were detrimental to relative performance. 

Investment Activity

Sales exceeded purchases over the year and activity was greater than in the previous year both in absolute terms and as a percentage of the portfolio.

Including share buybacks, the investment turnover (purchases and sales divided by two) was £54m equivalent to almost 50% of average shareholders' funds in the period. Once again, this level of investment activity reflects not only the continued rotation from large cap to smaller cap but also quite deliberate efforts, particularly in the second half of the year, to move away from businesses that I felt would struggle in the current credit starved conditions. The focus was on capital structures and cashflow. I needed to feel comfortable that the businesses we invested in were not inappropriately leveraged, that their debt structures gave them flexibility (to both dispose of property and take advantage of the drop in short term rates) and that their income streams were sustainable. 

The economic outlook changed dramatically in the period and likewise my views on what type of property business could survive and subsequently thrive. As a result, the expectation that most of our investment activity would comprise further rotation of large cap stocks into smaller companies was only partially correct. In fact over 60% of the sales in the year were of smaller companies. This reflects the volatility of prices with increased turnover of core holdings but also sales of smaller companies which I judged unlikely to perform. These companies fall broadly into three categories: those with too much debt, weaker business models (development focus or overly operationally leveraged) and those exposed to non-core European markets. 

I was acutely conscious of the deteriorating market conditions and varied both the cash position and the weightings to defensive stocks accordingly. The cash position (net of all outstanding settlements and accrued income to be distributed as dividends) increased significantly in the first five months of the year (through to the end of last summer) and was over 15% of net assets by the end of August. It is hard to imagine, given the dismal performance of the sector over the year, that pan European real estate equities actually trended sideways (albeit with enhanced volatility) for most of the second quarter from June to late September. The dramatic weakness in share prices in September and October offered us an opportunity to buy into a number of oversold stocks and by early November net cash had reduced to 11.5% of net assets. December's bear rally offered a renewed selling opportunity and by Christmas the cash position was back over 18% of net assets. The further deterioration in share prices in January and February again offered buying opportunities and at the year end net cash was down to 11.2%. As the financial year ended and as highlighted in our Outlook the market had begun a significant rally. 

At the year end the fund was 76.4% small cap stocks. Alongside selling the large cap stocks and buying small caps, two other factors have assisted in the transition process. Firstly the market correction has led to a number of companies' capitalisations falling below £1bn and thus entering our universe and secondly, the 'rescue' rights issues carried out by four of the five largest UK property companies. Sigma sold both the ordinary shares and the 'nil paid' rights attached to the holdings of Land Securities and British Land, which significantly reduced exposure to these large caps. 

Largest Equity Investments

Given the activity described above it is useful to compare these positions with the situation back in March 2008. Large cap stocks in the top 20 holdings now number just four: Unibail and Corio on the Continent, Land Securities and Hammerson in the UK. Together these holdings account for less than 20% of the assets. Post the year end, Segro successfully completed its rights issue and is now once again a large cap stock. 

At the half year I commented that our largest positions had to have strong defensive characteristics to cope with the economic environment we found ourselves in. Such characteristics include lower than average leverage, high quality portfolios focused on the core Western European markets and low development or commited capital investment requirements. Eurocommercial, which owns shopping centres in France, Italy and Sweden, and was just in the largest ten holdings at the half year, has now grown to become our second largest position. This company exhibits all of these characteristics. Our filtering process became even tighter as markets deteriorated and additions to my list of concerns included those businesses with high operational gearing as the downturn looked set to erode topline earnings. In addition I became concerned about a number of stocks which were becoming (temporarily we hope) just too small and risked being seen as 'beneath the radar' by many investors. This group will undoubtably prove a rich hunting ground of value in due course but in the latter part of 2008 they were unpopular and overlooked.

Exposure to Central and Eastern Europe was significantly reduced in the second half of the year, selling out of NR Nordic & Russia Properties, Plaza Centres, Orco, Mirland and Bulgarian Land Development. Not only were these businesses focused on the emerging eastern economies, but their core businesses were invariably development focused.  

Other companies which I had invested in over 2007 and had performed well on a relative basis but which I felt were unlikely to do so well in 2009 included Foncière des Murs (focused on investing in mid range hotels mostly operated by Accor in France), DIC Asset (a well run but leveraged office investor in Germany) and IFM (German office developer). A key common denominator for the core holdings is our belief in managements' capabilities and their ability to execute their chosen strategies. However last year the judgement I needed to make was whether these business plans could be met in the deteriorating economic conditions. St Modwen and Big Yellow Self Storage are two clear examples of this. Both businesses have sound management teams. The former I commented on at the half year stage and as effectively manufacturers of 'oven ready' housing land for residential developers, the demand backdrop has not improved and hence the holding was reduced by 90%. For any self storage business such as Big Yellow investors remain concerned that consumers will pull back from this type of discretionary spend. In the face of the slowdown, management have successfully renegotiated terms on their entire debt burden as well as placing their north of England properties in a joint venture (with a longstanding private equity partner). The position was reduced by a third but the stock remains in our top 20 holdings.

Comparing this year's holdings with last year's, investors will note five Continental stocks which have become important holdings, namely Wereldhave, Silic, Befimmo, Deutsche Euroshop and Vastned Retail. These businesses operate in a range of geographic and sectoral markets but they all share a number of characteristics, namely lower than average gearing, greater security of income, high levels of occupancy and little or no development expenditure. 

In the UK, Helical Bar successfully raised an additional 10% of equity in a placing in February this year. This highly entrepreneurial business does not 'buy and hold' but 'buys and sells', usually with a joint venture partner providing the majority of the equity. As a consequence I believe that these extraordinary market conditions are likely to reveal opportunities for businesses such as Helical. 

Although I continue to reduce our overall UK exposure, I have increased our holdings focused exclusively on London and more particularly the West End. Our positions in Great Portland, Derwent London and Shaftesbury reflect this. All three of these businesses have successfully managed the timing of their development exposure and have funded their limited capital commitments. Central London also remains the one market which has begun to attract international investors and is the first sub-market where we are beginning to see price stabilisation for high quality assets let on long leases. The weakness of Sterling is not only attracting investors but the majority of all tourist 'dollars' are spent in London.

The two small cap stocks in the top 20 which I have not yet mentioned are CFI and Argan. The latter was highlighted in last year's report as a new holding. This conservatively run logistics business has weathered the storm remarkably well. With 60% of the equity owned by management, they have been appropriately cautious, not undertaking speculative development, and have stuck rigidly to their geographic and market niche in France. CFI is our newest investment. It is a French SIIC which is controlled by a well regarded private equity house where the former Chief Executive of Unibail (Europe's largest listed property company) is a senior partner. The investment opportunity arose with the private placing of 40% of CFI. Under SIIC rules no single investor can hold more than 60% of the equity and the capital raised will be used to acquire assets opportunistically. The first purchase was a portfolio of cinemas in France. We expect this business to source further value opportunities in this part of the investment cycle.

Distribution of Assets

The most striking adjustment has been the reduction in the exposure to the UK. This reduction has been focused on offices outside Greater London and industrials. Central London office exposure has decreased only marginally over the year although the City of London sub-market remains less than 3% of total exposure. 

The increased geographical exposure has principally been to Belgium, France and the Netherlands. In all three countries the exposure to retail property has increased significantly, whilst I have gravitated to higher office exposure in Paris and Brussels. The latter in particular has proved appropriately defensive given its bias towards tenants involved in the European political apparatus. Continental retail property has the twin benefits of generally lower rents as a percentage of retailers' turnover and a less indebted customer base than the UK. 

As noted earlier, Central Europe is a far less important region than last year and our exposure is primarily limited to residential rather than commercial property. In central Moscow we have exposure to high-end developments and in Budapest a portfolio of apartments rented by international corporates. Whilst in Poland, we have maintained our investment in a mid-market housebuilder. Although our residential investment in the UK is very limited, we have maintained our position in high quality Paris apartments and more recently invested in Austrian residential. We continue to have virtually no commercial property exposure in Austria.

Revenue

It is not possible to make an exact like-for-like comparison with last year's revenue earnings because the previous period to March 2008 was less than 12 months (Sigma's launch was in July 2007). I also stated in the Interim that Sigma's revenue will be less predictable than the Ordinary share class as the portfolio composition continues to change. In reality a number of factors led to earnings being greater than expected for the period to March 2009. Firstly, the deceleration of the rotation away from larger stocks certainly helped as these larger companies all paid greater than average dividends which matched or exceeded our expectations (at least for the year to March 2009). Allied to this was the smaller than expected investment in non income producing companies such as developers who tend to recycle cash rather than pay dividends. The increase in the cash position also flattered the revenue account although the impact of this was largely in the first half, when overnight and short dated rates were considerably higher than in late 2008 and 2009 following interest rate cuts by the Bank of England and the European Central Bank. Set against these positive factors, two of our important small cap holdings, Big Yellow and St Modwen cut out their dividends. Although these two companies announced cuts early they have, subsequent to the year end, been joined by others.

One important but ad hoc revenue item merits a full explanation. As per the Ordinary share class, Sigma benefited from the receipt, shortly before the year end, of all the sums due in our outstanding claim for overpaid VAT. Whilst the majority of this, (£0.807m) has been credited to the capital account, the remaining receipt of £0.449m has been taken to revenue. This revenue item is shown on the income statement as split between £0.325m of write back of prior years' VAT and as £0.124m of accrued interest which is included in interest receivable and similar income. These exceptional receipts equate to post tax revenue of 0.42p per share.

When looking at the finance cost and taxation numbers, once again comparison cannot be made with the previous period. In fact, on an annualised basis, finance costs have fallen reflecting the complete absence of bank borrowings and the repayment of Sigma's share of the 8.125% debenture in November 2008. The tax charge on the other hand, has risen significantly from 10.2% to 23.2%. There are a number of reasons for this. Firstly we now receive most of our UK equity income as property income distributions from REITs. We receive these gross and treat them like rental income whereas in previous years this income came in the form of dividends taxed at source and not subject to further taxation in our accounts. Secondly as the cash balances have increased, so too has interest income, which again is subject to corporation tax in the Trust. To date we have had sufficient excess expenses brought forward to be able to shelter this income from tax so this has not led to an increase in the quantum of tax actually paid, however, accounting convention requires that as the brought forward expenses are utilised the full tax charge is applied to the income account, reflecting the level of taxation which would be applied if the relief was not available. The contra-entry is within the £0.77m tax credit in the capital account tax line. In reality the tax paid of £0.34m is largely the withholding tax on our foreign income which cannot be recovered. This is a relatively larger amount than the Ordinary share class due to the larger exposure to Continental stocks.

Revenue Outlook

The expectations for 2010 and beyond are tempered by several factors. A number of companies have now announced reduced or zero dividends as the risk to earnings and the need to retain cash within their businesses became increasingly apparent. In addition, although the cash holding has been beneficial in preserving capital we expect interest income to remain modest. The portfolio is now dominated by smaller companies and as already stated these have historically been lower dividend payers. 

At the same time, the rotation of the portfolio has led to increased exposure to Euro denominated stocks. In the year to March 2009, 66% of income was from Continental stocks whilst 34% was from UK companies and this is positive from a revenue perspective. The strength of the Euro in the first quarter of the new financial year has led to approximately a 15% increase in the Sterling value of Euro dividends received. In the near term, we expect any cash we hold to continue to yield very little, however, once this capital is reinvested it is almost certain to yield more than cash.  

Although the revenue outlook remains difficult to predict with any great certainty the timing of the receipt of dividends does give some assistance. Broadly 40% of all dividends are received in the first quarter. Our current expectation is in the region of 1.80p per share however we must be prepared for earnings disappointment from some quarters.

Cash, Gearing and Debentures

The changes in the cash position are well documented within Investment Activity such was its importance this year. Sigma had nil net debt throughout the year and the net cash position fluctuated with my outlook for the sector. At the start of the year it was £6.9m (5% of NAV) and peaked over the summer months at £24m (21% of NAV). By the year end the net cash was £8.6m (11.2% of NAV). These figures are adjusted for the debenture debt, the cost of the final dividend and any outstanding rights issue commitments. In November, the 8.125% debenture was repaid. Sigma's share was £4.74m. The remaining debenture is repayable in 2016 and Sigma's share is £2.85m.

The 'see-through' leverage (which adds the proportionate debt of all our equities to the on balance sheet cash - or debt as in previous years) fell steadily through the year. This was not only due to the increase in our own cash position but also reflects the increasingly defensive positioning of the portfolio over the course of the year. The 'see-through' figure fell from 38.4% to 34.6% whilst the benchmark's equivalent number rose from 42% to 47% as asset values declined. 

The Trust maintains a £50m credit facility, of which Sigma's share is £10m. This facility is currently unutilised. 

Marcus Phayre-Mudge

Fund Manager

Sigma share class

            Ordinary Share Class Income Statement 

for the year ended 31 March 2009

	Year ended 31 March 2009			Year ended 31 March 2008
	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income
Investment income	18,447	-	18,447	22,941	-	22,941
Other operating income	2,722	-	2,722	886	-	886
Gross rental income	4,240	-	4,240	4,025	-	4,025
Service charge income	299	-	299	1,943	-	1,943
Losses on investments held at fair value	-	(246,226)	(246,226)	-	(222,109)	(222,109)
	______	______	______	______	_____	_____
Total income	25,708	(246,226)	(220,518)	29,795	(222,109)	(192,314)
	______	______	______	______	______	_____
Expenses
Management and performance
fees	(2,095)	(4,288)	(6,383)	(3,025)	(1,728)	(4,753)
Repayment of prior years' VAT	1,386	3,439	4,825	-	-	-
Direct property expenses, rent payable and service charge costs	(549)	-	(549)	(2,450)	-	(2,450)
Other expenses	(664)	-	(664)	(593)	-	(593)
	______	______	______	______	______	_____
Total operating expenses	(1,922)	(849)	(2,771)	(6,068)	(1,728)	(7,796)
	______	______	______	______	______	_____
Operating profit/(loss)	23,786	(247,075)	(223,289)	23,727	(223,837)	(200,110)
Finance costs	(1,372)	(1,372)	(2,744)	(2,174)	(2,174)	(4,348)
	______	______	______	______	______	_____
Net profit/(loss) before tax	22,414	(248,447)	(226,033)	21,553	(226,011)	(204,458)
Taxation	(5,715)	4,903	(812)	(4,066)	2,750	(1,316)
	______	______	______	______	______	_____
Net profit/(loss) after tax	16,699	(243,544)	(226,845)	17,487	(223,261)	(205,774)
Transfer to Sigma shares	-	-	-	(2,203)	26,806	24,603
	______	______	______	______	______	_____
Net profit/(loss)	16,699	(243,544)	(226,845)	15,284	(196,455)	(181,171)
	______	______	______	______	______	_____
Earnings/(loss) per Ordinary share	6.49p	(94.71)p	(88.22)p	5.79p	(74.41)p	(68.62)p

Ordinary Share Class Balance Sheet

as at 31 March 2009

	2009	2008
	£'000	£'000
Non-current assets
Investments held at fair value	278,150	564,798
	______	______
Current assets
Debtors	3,940	5,196
Cash and cash equivalents	61,776	37,329
	______	______
	65,716	42,525
Current liabilities	(4,766)	(23,578)
	______	______
Net current assets	60,950	18,947
	______	______
Total assets less current liabilities	339,100	583,745
Non-current liabilities	(15,434)	(15,846)
	______	______
Net assets	323,666	567,899
	______	______
Net asset value per Ordinary share	126.07p	219.61p

Sigma Share Class Income Statement 

For the year ended 31 March 2009

	Year ended 31 March 2009			Period from inception to 31 March 2008
	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income
Investment income	4,902	-	4,902	1,894	-	1,894
Interest receivable and similar income	836	-	836	471	-	471
Losses on investments held at fair value	-	(62,769)	(62,769)	-	(18,501)	(18,501)
	______	______	______	______	______	______
Total income	5,738	(62,769)	(57,031)	2,365	(18,501)	(16,136)
	______	______	______	______	______	______
Expenses
Management and performance fees	(807)	(836)	(1,643)	(775)	(388)	(1,163)
Repayment of prior year's VAT	325	807	1,132	-	-	-
Other expenses	(139)	-	(139)	(94)	-	(94)
	______	______	______	______	______	______
Total operating expenses	(621)	(29)	(650)	(869)	(388)	(1,257)
	______	______	______	______	______	______
Operating profit/(loss)	5,117	(62,798)	(57,681)	1,496	(18,889)	(17,393)
Finance costs	(331)	(331)	(662)	(265)	(265)	(530)
	______	______	______	______	______	______
Profit/ (loss) from operations before tax	4,786	(63,129)	(58,343)	1,231	(19,154)	(17,923)
Taxation	(1,109)	768	(341)	(126)	60	(66)
	______	______	______	______	______	______
Net profit/ (loss)	3,677	(62,361)	(58,684)	1,105	(19,094)	(17,989)
	______	______	______	______	______	______
Earnings/(loss) per Sigma share	2.91p	(49.35)p	(46.44)p	0.85p	(14.73)p	(13.88)p

Sigma Share Class Balance Sheet

as at 31 March 2009

		2009	2008
		£'000	£'000
Non-current assets
Investments held at fair value		65,755	132,952
		______	______
Current assets
Debtors		5,964	1,987
Cash and cash equivalents		15,792	14,552
		______	______
		21,756	16,539
Current liabilities		(8,039)	(7,932)
		______	______
Net current assets		13,717	8,607
		______	______
Total assets less current liabilities		79,472	141,559
Non-current liabilities		(2,849)	(2,849)
		______	______
Net assets		76,623	138,710
		______	______
Net asset value per Sigma share		61.34p	108.64p

GROUP INCOME STATEMENT 

For the year ended 31 March 2009

	Year ended 31 March 2009			Year ended 31 March 2008
	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income
Investment income (note 2)	23,349	-	23,349	24,835	-	24,835
Other operating income	3,558	-	3,558	1,357	-	1,357
Gross rental income	4,240	-	4,240	4,025	-	4,025
Service charge income	299	-	299	1,943	-	1,943
Losses on investments held at fair value	-	(308,995)	(308,995)	-	(240,610)	(240,610)
	_________	_________	_________	_________	_________	_________
Total income	31,446	(308,995)	(277,549)	32,160	(240,610)	(208,450)
	_________	_________	_________	_________	_________	_________
Expenses
Management and performance fees	(2,902)	(5,124)	(8,026)	(3,800)	(2,116)	(5,916)
Repayment of prior years' VAT	1,711	4,246	5,957	-	-	-
Direct property expenses, rent payable  and service charge costs	(549)	-	(549)	(2,450)	-	(2,450)
Other expenses	(803)	-	(803)	(687)	-	(687)
	_________	_________	_________	_________	_________	_________
Total operating expenses	(2,543)	(878)	(3,421)	(6,937)	(2,116)	(9,053)
	_________	_________	_________	_________	_________	_________
Operating profit/(loss)	28,903	(309,873)	(280,970)	25,223	(242,726)	(217,503)
Finance costs	(1,703)	(1,703)	(3,406)	(2,439)	(2,439)	(4,878)
Profit/(loss) from operations before tax	27,200	(311,576)	(284,376)	22,784	(245,165)	(222,381)
Taxation	(6,824)	5,671	(1,153)	(4,192)	2,810	(1,382)
	_________	_________	_________	_________	_________	_________
Net profit/(loss)	20,376	(305,905)	(285,529)	18,592	(242,355)	(223,763)
	_________	_________	_________	_________	_________	_________
Earnings/(loss) per Ordinary share  (note 3a)	6.49p	(94.71)p	(88.22)p	5.79p	(74.41)p	(68.62)p
Earnings/(loss) per Sigma share (note 3b)	2.91p	(49.35)p	(46.44)p	0.85p	(14.73)p	(13.88)p

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 2009	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 31 March 2008	64,650	15,960	43,162	42,699	431,040	109,098	706,609
Net loss for the period	-	-	-	-	(226,845)	(58,684)	(285,529)
Ordinary shares repurchased	(469)	-	-	469	(2,992)	-	(2,992)
Sigma shares repurchased	-	(345)	-	345	-	(1,450)	(1,450)
Ordinary and special dividends paid	-	-	-	-	(14,396)	(1,953)	(16,349)
	________	________	________	_________	________	_______	________
At 31 March 2009	64,181	15,615	43,162	43,513	186,807	47,011	400,289
	________	________	________	_________	________	_______	________
	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
	________	________	________	_________	________	_______	________

GROUP AND COMPANY BALANCE SHEETS

as at 31 March 2009

	Group 2009 £'000	Company 2009 £'000	Group 2008 £'000	Company 2008 £'000
Non-current assets
Investments held at fair value	343,905	324,930	697,750	677,250
Investments in subsidiaries	-	55,133	-	55,872
	_________	_________	_________	_________
	343,905	380,063	697,750	733,122
Current assets
Debtors	5,970	5,123	7,183	6,415
Cash and cash equivalents	77,568	77,517	51,881	51,767
	_________	_________	_________	_________
	83,538	82,640	59,064	58,182
Current liabilities	(8,871)	(62,414)	(31,510)	(84,695)
	_________	_________	_________	_________
Net current assets / (liabilities)	74,667	20,226	27,554	(26,513)
Total assets less current liabilities	418,572	400,289	725,304	706,609
Non-current liabilities	(18,283)	-	(18,695)	-
	_________	_________	_________	_________
Net assets	400,289	400,289	706,609	706,609
	_________	_________	_________	_________
Capital and reserves
Called up share capital	79,796	79,796	80,610	80,610
Share premium account	43,162	43,162	43,162	43,162
Capital redemption reserve	43,513	43,513	42,699	42,699
Retained earnings	233,818	233,818	540,138	540,138
	_________	_________	_________	_________
Equity shareholders' funds	400,289	400,289	706,609	706,609
	_________	_________	_________	_________
Net asset value per :
Ordinary share	126.07p	126.07p	219.61p	219.61p
Sigma share	61.34p	61.34p	108.64p	108.64p

These accounts were approved by the directors and authorised for issue on 27 May 2009.

P Salsbury - Director   GROUP AND COMPANY CASH FLOW STATEMENTS

as at 31 March 2009

	Group  2009	Company  2009	Group  2008	Company  2008
	£'000	£'000	£'000	£'000
Reconciliation of operating revenue to net cash inflow from operating activities
Net loss before tax	(284,376)	(283,740)	(222,381)	(222,189)
Financing activities	3,406	3,465	4,878	6,557
Losses on investments held at fair value through profit or loss	308,995	307,976	240,610	239,526
(Increase)/decrease in accrued income	(41)	194	(1,576)	(1,960)
Decrease /(increase) in other debtors	1,869	(11,788)	(363)	64
Increase/(decrease) in creditors	2,113	(9,278)	(7,246)	(5,754)
Net sales of investments	34,514	34,094	141,653	141,161
Decrease/(increase) in sales settlement debtor	607	607	(1,548)	(1,548)
Decrease in purchase settlement creditor	(173)	(173)	(5,072)	(5,072)
	_________	_________	_________	_________
Net cash inflow from operating activities before interest and taxation	66,914	41,357	148,955	150,785
Interest paid	(4,085)	(3,465)	(4,881)	(6,557)
Taxation paid	(1,691)	(1,691)	(1,571)	(1,571)
	_________	_________	_________	_________
Net cash inflow from operating activities	61,138	36,201	142,503	142,657
Financing activities
Equity dividends paid	(16,349)	(16,349)	(15,585)	(15,585)
Issue of Sigma shares	-	-	7,196	7,196
Purchase of Ordinary and Sigma shares	(4,442)	(4,442)	(34,090)	(34,090)
Repayment of debentures	(25,000)	-	-	-
Repayment of loans	-	-	(50,860)	(50,860)
	________	_________	_________	_________
Net cash used in financing	(45,791)	(20,791)	(93,339)	(93,339)
	_________	_________	_________	_________
Increase in cash	15,347	15,410	49,164	49,318
Cash and cash equivalents at start of the year	51,881	51,767	535	267
Exchange movements	10,340	10,340	2,182	2,182
	_________	_________	_________	_________
Cash and cash equivalents at end of the year	77,568	77,517	51,881	51,767
	_________	_________	_________	_________

Notes to the Financial Statements 

1	Accounting Policies
	The financial statements for the year ended 31 March 2009 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
		2009	2008
		£'000	£'000
	Dividends from UK listed investments	3,092	8,294
	Dividends from overseas listed investments	13,703	12,035
	Interest from listed investments	113	8
	Property income distributions	6,441	4,498
		_________	_________
		23,349	24,835
		_________	_________
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  2009 £'000	Year  ended  31 March  2008  £'000
	Net revenue profit	16,699	15,284
	Net capital loss	(243,544)	(196,455)
		_________	_________
	Net total loss	(226,845)	(181,171)
		_________	_________
	Weighted average number of Ordinary shares in issue during the year	257,124,930	264,026,681
		pence	pence
	Revenue earnings per Ordinary share	6.49	5.79
	Capital loss per Ordinary share	(94.71)	(74.41)
		_________	_________
	Loss per Ordinary share	(88.22)	(68.62)
		_________	_________
b	Earnings/(loss) per Sigma Share
	The earnings/(loss) per Sigma share can be analysed between revenue and capital, as below.
		Year ended	Period ended
		31 March 2009 £'000	31 March 2008 £'000
	Net revenue profit	3,677	1,105
	Net capital loss	(62,361)	(19,094)
		_________	_________
	Net total loss	(58,684)	(17,989)
		_________	_________
	Weighted average number of Sigma shares in issue during the period	126,373,055	129,568,877
		pence	pence
	Revenue earnings per Sigma share	2.91	0.85
	Capital loss per Sigma share	(49.35)	(14.73)
		_________	_________
	Loss per Sigma share	(46.44)	(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 £323,666,000 (2008:£567,899,000) and on 256,725,000 (2008:258,600,000) 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 £76,623,000 (2008:£138,710,000) and on 124,922,000 (2008:127,680,000) 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 1,875,000 Ordinary shares of 25p each, representing 0.7% of the number of shares in issue at 31 March 2008. The aggregate consideration paid by the Company for the shares was £2,992,000. Shares are repurchased in order to enhance shareholder value. Since 31 March 2009, and up to the date of this document, the Company has made no further market purchases for cancellation of Ordinary shares of 25 pence. Sigma shares During the year, the Company made market purchases for cancellation of 2,758,000 Sigma shares of 12.5p each, representing 2.2% of the number of shares in issue at 31 March 2008. The aggregate consideration paid by the Company for the shares was £1,450,000. Shares are repurchased in order to enhance shareholder value. Since 31 March 2009, and up to the date of this document, the Company has made no further market purchases for cancellation of Sigma shares of 12.5 pence.
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 2009 or 2008. The statutory accounts for the year ended 31 March 2009 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 2009 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 3.45p per share will be paid on 4 August 2009 to Ordinary shareholders on the register on 3 July 2009. The shares will be quoted ex-dividend on 1 July 2009. An interim dividend of 2.30p per Ordinary share was paid on 13 January 2009. The total dividend in respect of the year is, therefore, 5.75p per share.   Sigma shares Subject to shareholders' approval at the AGM, a final dividend of 1.10p per share will be paid on 4 August 2009 to Sigma shareholders on the register on 3 July 2009. The shares will be quoted ex-dividend on 1 July 2009. An interim dividend of 0.90p per Sigma share was paid on 13 January 2009. The total dividend in respect of the year is, therefore, 2.00p per share. Annual Report and AGM The Annual Report will be posted to shareholders in June 2009 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 28 July 2009 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 and will not be registered under the U.S. Securities Act of 1933, as amended (the 'Securities Act') and may not be offered or sold in the United States unless they are registered under the Securities Act or pursuant to an available exemption therefrom. The Company does not intend to register any portion of securities in the United States or to conduct a public offering of the securities in the United States. The Company will not be registered under the U.S. Investment Company Act of 1940, as amended, and investors will not be entitled to the benefits of that Act.

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

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

For further information please contact:

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]

 

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