Final Results

RNS Number : 1721I

TR Property Investment Trust PLC

28 May 2014

 



This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.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 2014

28 May 2014

Financial Highlights and Performance	At 31 March 2014	At 31 March 2013	% Change
Balance Sheet
Net asset value per share	254.94p	215.25p	+18.4%
Shareholders' funds (£'000)	809,438	684,219	+18.3%
Shares in issue at the end of the period (m)	317.5	317.9	-0.1%
Net debt1	14.0%	9.6%
Share Price
Share price	247.50p	186.30p	+32.9%
Market capitalisation	£786m	£592m	+32.8%
Discount to NAV	-2.9%	-13.4%
	At 31 March 2014	At 31 March 2013	% Change
Revenue
Net revenue profit after tax (£'000)	25,680	18,497	+38.8%
Revenue earnings per share	8.09p	6.74p	+20.0%
Net dividend per share2	7.45p	7.00p	+6.4%
Total Return Asset and Benchmark
Benchmark performance (total return)	+14.9%	+17.8%
Net asset value total return	+22.4%	+21.5%
Share price total return	+37.7%	+25.8%
IPD Monthly index total return3	+14.0%	+2.5%
Total return from direct property	+37.5%	+7.4%
Ongoing Charges4
Excluding performance fee	0.80%	0.93%
Including performance fee	2.08%	1.41%
Excluding performance fee and direct property costs	0.75%	0.86%

1.    Net debt is the total value of loans (including notional exposure on CFDs) and debentures less cash as a proportion of net asset value.

2.    Net dividends per share are the dividends in respect of the financial year ended 31 March 2014. An interim dividend of 2.85p was paid in January 2014 and a final dividend of 4.60p will be paid in August 2014.

3.    IPD monthly, one year cumulative.

4.    Ongoing charges calculated in accordance with the AIC methodology.

Chairman's Statement

Introduction

Property and property equities continue to attract investor attention offering a recurring income stream greater than the majority of fixed income products but with the advantage of the potential for underlying growth ahead of inflation. My closing remarks at the half year touched on the lack of new commercial property development begun over the last five years and this lack of supply remains a cornerstone of our manager's optimism as tenant demand steadily returns to a growing list of markets across Europe. His report will explore in more detail where this is translating into both rental and capital growth.

The attractions of the sector continue to be felt in the demand for the Trust's shares. Over the first 6 months of the financial year the discount to the with income NAV averaged -7.1% having started the year in April 2013 at -13.4%. Over the second half it averaged -3.8% and finished the year at -2.9%. As I mentioned in the Interim Report we have seen a modest, but evidently growing, self-directed investor group responding to the new found transparency in advisory fees. The fund remains the only Investment Trust with a mandate to invest in pan European property companies and this together with our size and liquidity continues to prove attractive to private investors.

Investors will no doubt notice not only the substantial increase in earnings this year but also the fact that the dividend has not grown by the same proportion. Although the underlying income has continued to grow on a like-for-like basis there were a number of timing differences of income receipts, compared to the previous year, which explain the greater than expected revenue result. Full details are contained later in the report. Notwithstanding these timing differences the Board are pleased to announce the dividend increase which brings the Trust's record of annual increases to 20 out of the last 21 years (the dividend was held level in 2010).

I would also like to bring the performance of our physical assets this year to your attention, in particular two of our London holdings, The Colonnades in Bayswater and Park Place in Vauxhall which between them increased in value (after taking account of all costs) by a remarkable 56%. The IPD monthly index returned 14.0% in the same period. In both cases detailed asset management plans have come to fruition delivering strong valuation growth with the expectation of more to come. Again further detail is given in the Manager's report below.

NAV and Share Price Performance

I am pleased to report that the NAV total return for the year was 22.4% whilst the benchmark total return was 14.9%. The share price total return was even greater at 37.7% reflecting both the growth in NAV and the narrowing of the discount. More detail and commentary on performance is set out in the Manager's Report.

Revenue Results

The year on year revenue growth is encouraging albeit that the 2014 result is affected by a number of one-offs and timing differences that will reverse or not be repeated in 2015. A more detailed analysis is given in the Manager's Report below.

Dividend

The Board is proposing a final dividend of 4.6p, 5.7% ahead of the final dividend for the prior year and bringing the total dividend for the year to 7.45p, an increase of 6.4% over the 7.00p paid last year.

Revenue Outlook

Some of the timing changes that have led to an increase in the earnings for the year to March 2014, will not be repeated in the 2015 financial year. In addition, development activity at the Colonnades will lead to lower income from the property portfolio for a short while. Therefore, we expect lower earnings for the year to March 2015.

The fall in rental income is expected to be temporary, so although earnings may fall in the short term, providing the Board is able to see earnings support in the longer term, we will be prepared to utilise some of the reserves the Company has, therefore we anticipate being able to maintain a small progression in the dividend.

Net Debt and Gearing

Gearing increased over the period, beginning the year at 9.6% and ending at 14.0%. Our revolving facility with RBS was renewed in January and as previously reported the ING facility was renewed for a further two years in May. We are looking at other potential providers with the repayment of the debenture loan coming into view in 2016. In the current low interest environment, gearing through the CFD portfolio remains an attractive option.

Currencies

In last year's Annual Report my predecessor commented on European currency volatility throughout 2012. I am pleased to report that we have not experienced the same levels of volatility this year. Over the last 12 months Sterling strengthened against the Euro by approximately 2%. As in previous years the fund has not hedged the income account but has continued to hedge the capital currency exposure in line with the benchmark.

Discount and Share Repurchases

I have already commented on the discount in my opening remarks. Whilst the gap between the NAV and the share price has narrowed over the year our manager was still able to buy back (and cancel) a small number of shares (375,000) at an average discount of 15% from April to June 2013.

Our manager continues to be tasked with investor communication and our dedicated website (www.trproperty.com) provides current and extensive background data on the Trust.

We have increased the number of ways of investing in our shares. The Trust is offered as part of the F&C savings plans and our Registrars, Computershare, offer dealing options for certificated holders and a Dividend Reinvestment Plan (DRIP) option for the reinvestment of dividends for holders on the main register.

Board Changes

Hugh Seaborn became the Senior Independent Director in July 2013 following my appointment as Chairman. John Glen joined the Board in February 2014.

Broker Appointment

In April 2013 the Trust announced the appointment of Oriel Securities as joint broker alongside Cenkos Securities plc.

Alternative Investment Fund Managers Directive (AIFMD)

With AIFMD due to come into force in July, the Board is preparing for the legislative changes. The company has agreed in principle to appoint F&C Asset Management as the Alternative Investment Fund Manager, with the Investment Management function sub-delegated to the existing Manager, Thames River Capital LLP. BNP Paribas is expected to be appointed as the Depository. These appointments are subject to final documentation and Board Approval but the formalities are expected to be completed very shortly.

Awards

At the annual Investment Week Awards 2013, the Trust won Property Investment Trust of the Year. The judging panel commented on both the performance and the successful remerger of the two share classes as contributing factors.

Outlook

The economic fundamentals across Europe are now more favourable for real estate than at any time in the last six years. The return to growth experienced in the UK, Scandinavia and Germany is now feeding into tenant demand and rental growth. Real wage inflation and rising house prices are key drivers of renewed consumer demand, a fundamental building block of growth. Sources of debt finance, both traditional banking and non traditional (private equity, insurance companies and private placements), have broadened and become increasingly competitive, to the benefit of companies we invest in. Simultaneously many listed property companies have been able to take advantage of the capital markets (both debt and equity) to further reduce their cost of finance. Elsewhere in Europe, even though rental values have not begun to increase, property investment markets are thawing fast as capital seeks to buy into these perceived recovery plays, particularly in the peripheral nations.

Whilst this is good news for asset values our managers remain focused on the real estate fundamentals. This means that they remain positive towards those markets where rents are responding to tenant demand even though many share prices are standing at, or in excess of, historic asset values and they remain confident about the inherent growth in these well managed businesses. They remain positive on the economic outlook in the UK and alongside the activity in the existing UK physical portfolio they have been seeking to selectively increase the physical exposure focusing, as they have done in the past, on office and industrial property in the South of England. Shortly after the year end the Trust exchanged contracts to purchase an industrial unit in Plymouth let to Invensys for a further 8 years at a net initial yield of 8.6%. They are actively considering other opportunities.

Our concern rests with the exuberance of investors where underlying tenant demand remains fragile. With fixed income returns looking increasingly unappealing capital is seeking alternatives such as commercial property. However rapid asset value inflation may lead to poorer than expected returns in the medium term if the anticipated economic improvement does not translate into growth and jobs.

Caroline Burton

Chairman

Manager's Report

Performance

The net asset value total return of +22.4% was ahead of the benchmark total return of +14.9%. This is the second year in a row in which the NAV has risen more than 20%.  The benchmark slightly outperformed the broader European equity markets where the EuroStoxx 600 Net Index (in GBP) rose by 14.5% illustrating how property shares have kept up with the renewed demand for European equities in general. This broad demand for European equities has been an important backdrop for the company over the period under review. Unlike the previous three years (which started with the first Greek crisis in Spring 2010) European equities have outperformed Emerging Markets equities with European property shares outperforming both their US and Asian rivals. The UK stocks drove much of the superior returns but, as we will expand on later in the report. Continental European property stocks have experienced renewed strength since the beginning of 2014.

Looking back over previous bull markets, this year was unusual in that every quarterly period produced a positive performance figure. That brings the total number of consecutive quarterly positive figures to seven (the last negative period was March-June 2012). Whilst this confirms a steady underlying upward trend we continue to experience significant levels of volatility with intra-quarter spikes and pullbacks. We have been travelling through an environment where macro economic forces coupled with geo-political upheaval drove short term volatility but where the underlying property markets registered renewed demand from both tenants (in selected regions and cities) and investors (in the vast majority of markets).

The first quarter saw global equity markets worry about the impact of 'tapering' the popular euphemism for reductions in the pace of the bond buying programme currently being undertaken by the Federal Reserve. Property shares as a levered asset class clearly benefit from central bank driven monetary stimuli and suffer when markets believe such assistance may reduce or be removed. The 10% sell off from 21 May to the end of June provided an investment opportunity (and we wrote as much in the June monthly commentary - these notes are available on the Trust's website www.trproperty.com). The Summer saw a recovery in sentiment as the first half reporting season generally delivered individual company performance in line with the improving fundamental market conditions. The holiday period in August saw a dent in the rally as investors began to fret again not only about the US interest rate timetable but also the early actions of the new Governor of the Bank of England. The BoE reiterated that improving employment data might encourage them to bring forward the timing of short term rate hikes.

In fact the closing months of 2013 and into early 2014 saw markets receive a series of positive boosts with either overt or more subtle indications from central bankers that they collectively remain 'dovish' (i.e. leaning towards maintaining lower rates for longer). In the case of the ECB, President Mario Draghi has been clear that it is a priority to fight off deflationary forces - GDP growth remains weak at best with five Eurozone countries reporting negative growth in 2013. In the UK, Mark Carney quietly shelved his earlier suggestions that the unemployment rate was the key determinant as to when rates would rise.  In the US, the new Fed Chair Janet Yellen's comments have made it clear that she wants to see very clear justification for any rate rises. We are under no illusion, they will come initially in the US and UK and much later in the Eurozone but it is encouraging that the central banks want to see solid progress in their respective economies before increasing short term rates.

The sector's performance in the first half of the year was +5.0%, the majority of returns came through in the second half of the financial year. Not only were investors getting increasingly comfortable with the expected maintenance of the virtual zero interest rate environment but the demand for property assets was steadily accelerating and broadening.

As though we needed reminding, the crisis in the Ukraine which gathered pace in March is testimony of the geopolitical concerns which all risk assets suffer from. Whilst the fund has no exposure to Russian or Ukrainian property, a serious trade war with the resultant energy supply/price volatility would be clearly damaging to European economic growth and valuations.

Property Investment Markets

At every reporting point in the last 2 years I have commented on the amount of money trying to gain exposure to what we refer to as the major 'city states'. This is the well trodden path of global capital flows initially buying into the strongest, dominant commercial centres in the earlier stages of a recovery cycle. London has consistently topped the league table by some margin. At the interim stage I made the point that we had begun to see increasing domestic institutional investment into regional property. This has now accelerated significantly, competition has increased and prices have been driven upwards, drawing in yet more inflows particularly into mutual (retail) funds. The asset class is very much back in vogue. Buyers are not only looking further afield as international capital prices them out of the prime, CBD markets but broadening their requirements both geographically and in terms of asset quality (the ripple effect).  The UK remains the best example of this phenomena. Not only has it experienced the sharpest recovery but it also benefits from being the most  transparent investment market with numerous data points provided by the longstanding Investment Property Databank (IPD).

UK commercial property transactional volumes reached £44.9bn in 2013. This compares with £56.0bn in the record year of 2007. The IPD Monthly Index (the most recently available data for the period) has returned 14% on a total return basis in the year to March 2014. The equivalent yield for this index has dropped from 7.5% to 7.0%. The strong (unlevered) capital growth of 6.8% in the UK cannot be immediately transposed across Continental Europe for a number of reasons. The most obvious is the speed of the economic recovery. The UK is clearly ahead of the rest of Europe but there are other, more technical, property valuation specific issues. Valuation movements across Europe tend to be more muted. In the dark days of 2008 and 2009, the IPD Index (UK only) fell 44%, over the same period German commercial values remained broadly flat according to their valuation bodies. The difference was that the German valuers' approach is to 'mark to model' rather than 'mark to market', in effect they argued that the discount rate applied had not changed over the period as the drop in interest rates compensated for the increase in the premiums required.  This is greater detail than many readers require but I think helps explain some of our caution on capital value movements in parts of Continental Europe. It is also important to note that the rental cycle in the UK is also more volatile. With rents set by open market reviews on ever shortening leases (in 1999 the average lease was 9.6yrs and is now 5.8yrs) readjustment to market rents is faster than ever before. In Continental Europe rents are index-linked to various indices across sector and country.  With the spectre of disinflation, falling or at best stagnant rents are likely to remain a feature of the property landscape. Whilst this may paint a scene slightly at odds with the current euphoria towards the asset class it is important to bear in mind that the listed property companies invariably own better quality assets and have refurbishment and redevelopment agendas which will enable them to tap into the genuine demand for new space. Reigniting inflation is a priority of the ECB and this will feed into the indexation statistics. Whilst it is impossible to know if, when and how further stimulus will be invoked, it is important to note that large numbers of institutional and supra-national investment bodies across the globe continue to seek property assets in all sectors and within an increasing numbers of European cities. They are not restricting their search to London and Paris.

Offices

London does continue to dominate the rankings, not only for transaction levels but also tenant activity. Rental growth has accelerated in the last 12 months and has been strongest not in the core markets of the West End and City but in the emerging markets such as Southbank  and the 'Tech Belt'. The Tech Belt is the marketing term given to the broad swathe of property running from Kings Cross and Islington, round north of Midtown and down to Whitechapel and Hoxton to the east of the City with the Old Street roundabout as its self-styled epicentre. I have written on this subject before and it is now interesting to note how landlords are increasingly tailoring their product to this new breed of occupiers. The resurgence and reclamation of these inner city neighbourhoods is a trend we have heavily subscribed to with our exposure to Derwent London (12 month total return +27.8%) and Workspace (12 month total return +76.3%). The good news is that the Telecommunications, Media and Technology (TMT) companies are not the only tenants seeking new space. 20 Fenchurch Street (better known as the Walkie Talkie) is now 87% pre-let ahead of completion next month. It is a joint venture between Land Securities (our largest holding) and Canary Wharf Group. Situated in  the heart of the insurance district of EC3 it has been able to command record rents for the area. The key resource of all financial services companies are its personnel and the best working environment optimises productivity. With the benefit of new environmental and construction technology, tenants are able to comfortably increase the density of occupation which enables them to pay higher rents (per ft) whilst still managing their occupational overhead.

Elsewhere in Europe the broad picture is one of further improvement in core CBDs as outlined in the Interims six months ago. However decentralised and peripheral submarkets continue to suffer from higher levels of vacancy.  According to BNP Paribas, whilst the inner core of Paris has rents stabilising, in La Defense vacancy has increased from 5.9% to 11.3% in the last 12 months. It is interesting to note that in second tier cities where there has been very limited development over the last 5 years rents have begun to move. CBRE's European Cities Report notes rents in Lyon are up 5% and in Lille by 10% in the last year. In Germany, whilst rents were flat in Frankfurt, Dusseldorf saw 5.8% increase and Munich 3.2%. At the half year I reported our investment in the first IPO of an Irish REIT, Green REIT. It has now successfully deployed the majority of the capital raised primarily buying offices in central and suburban Dublin. Rents in Dublin have responded strongly to the improvement in business confidence and according to CBRE have increased 27% year on year. Such was the enthusiasm for Irish assets that Green have recently raised a further €100m in addition to the €300m IPO proceeds.

Headline rents continue to fall in Madrid, Barcelona, Milan and the capital cities of Central Europe. However investor sentiment has certainly begun to change. The huge improvement in the pricing of sovereign debt of Spain, Portugal and Italy has begun to feed through into demand for high quality CBD office investments, the first port of call for global investors as explained earlier. We would expect demand to ripple outwards over the next 12 to 18 months as asset prices respond to the sustained improvement in bond yields.

Distribution and Industrial

This sector according to the IPD Monthly data returned +18.2% in the last 12 months, virtually as much as the office sector (which itself has been dominated by London's sustained multi-year double digit returns). UK multi-let industrial estates are once again trading at yields below 7%, a statistic last encountered in 2008. With so much structural evolution underway in the retail sector, the industrial market has become the sector of choice particularly for domestic institutional investors. Industrial investment volumes increased by 150% in 2013 compared to 2012. Particular hot spots include the aeroscape and automotive industries with Jaguar Land Rover, Airbus and Nissan adding jobs throughout the supply chain across the West Midlands and the North East.  Our largest industrial holding is St Modwen which returned 57.1% in the year. It is important to note that St Modwen's business is split between its industrial assets and commercial development and residential land banking.

The logistics markets across Europe continue to undergo dramatic evolution as retailers wrestle with optimising their distribution networks in the new world of omni-channel retailing (see retail section below). Markets such as Amsterdam, Utrecht and the Hague, which all suffer from a long running oversupply of office space, are actually experiencing a shortage of logistics and industrial space with rents rising. However for many other markets, rents remain at best stable and in the periphery are still falling. A theme running through this report is neatly illustrated here. With rental growth limited to a handful of submarkets it is interesting to note that there has been some yield compression (ie rising prices) in the majority of markets covered by CBRE's European Industrial Indices. This poses the question - are investors banking on rental growth which may turn out to be further away than they think? This is the unanswerable question but we have made sure that our exposure is to those businesses which are capable of capturing that growth and are able to add development as appropriate into this improving rent cycle. It is interesting to note that Segro, Europe's largest listed industrial owner stated in its first quarter 2014 Interim Management Statement that it is seeing increasing demand for new build in the UK whilst vacancy has risen amongst their older European logistics portfolio.

Retail

Retailing continues to undergo such structural seismic shifts that I make no apology for once again reinforcing comments made in previous reports. Quite simply we believe that the majority of retailers continue to grapple with the speed of change within the evolving multichannel sales environment. How best to capture market share and extract margin with the right sized physical portfolio and a fit for purpose distribution network remains work in progress for most of them. For retail landlords predicting what retailers want as they try to balance their online and physical presence is very difficult and a significant risk to their basic business model. The UK, alongside Scandinavia, has the highest level of internet penetration. Online sales were 11.8% higher in December 2013 when compared with December 2012 according to the Office of National Statistics data.

We remain thoroughly convinced that polarisation between the very best centres and the convenience of the very local will shape the retail landscape. In as short a time frame as the last 12 months, the UK supermarket sector has proved to be a case in point with the largest players announcing reduced or cancelled large store development programmes, a turf war for convenience store sites and a tie up between a major retailer (struggling with no online presence) and an independent internet-based food distributor.

CBRE's European prime shopping centre rental index rose 4.8% in 2013 and its city centre high street index was up 6.2%, dominated by growth in London, Paris, the major German cities, Milan and Rome.  Premium international retailers are expanding even where the average consumer is under pressure. In the case of all these cities, international visitors help sustain retail. We remain convinced that the shopping of tomorrow will focus on several key characteristics found in both these city centres and the largest out-of-town centres. The retail offer is comprehensive, the food and entertainment content is broad and transport links are excellent. Effectively the best are going to win market share as customers travel further, dwell for longer but make fewer trips. Hammerson's newest centre Terrasse du Port in Marseille will open in May and is over 97% let bringing a large number of new retailers to France's second largest conurbation.  Building the right product for an undersupplied market is rewarding even in these difficult times.

Prime and super prime shopping centres remain in demand. Gecina (a French REIT which we own) sold Beaugrenelle, a new shopping centre outside Paris for €700m, an initial yield rumoured to be sharper than 4.5%. Unibail acquired CentrO in Oberhausen for €480m, also at an initial yield of 4.4%. We are pleased to see Unibail consolidate its foothold in Germany where we are confident that real wage inflation is positive for consumer behaviour.

In the interim report I discussed our investment in New River Retail (NRR) which focuses on very local shopping in the UK - the other end of the spectrum from the super prime centres of Terrasse du Port or CentrO. In November, NRR announced that they had acquired 202 pubs from Marstons for £90m. Marstons will rent the pubs for a minimum of four years paying £12.2m per year, a yield of 12.8%. Within 4 months, NRR had agreed to lease 54 of these locations to the Co-op Group for new convenience stores. Amazingly, some 60% of these stores will be built on the car parks adjacent to the pubs leaving the existing building for other uses. We expect not only further conversions to convenience but also changes to other uses such as residential. It is this type of deal where management has vision and execution capability which we are constantly searching for. NRR's 12 month total return was +55.9% and we participated in their most recent capital raise (£85m) in February 2014.

Residential

This area has continued to be a growing part of our portfolio exposure and now accounts for over 6% of our equity portfolio whilst the Vauxhall office building (1.5% of NAV) is a residential proxy following our planning consent to convert it to flats. Within the equity portfolio our investment in relevant stocks is focused on Germany, Sweden and the UK. Our view remains the same as it did 12 months ago with one marked exception, prime Central London. In Germany we remain confident that the book values of the underlying apartments are below rebuild cost in the majority of sub-markets. Germany has been experiencing rising wage inflation. Whilst residential rental growth at 1.6% average across the country would appear modest, that includes regions which are suffering depopulation. Meanwhile in Berlin open market rents rose 9.6% in the most sought after districts.

The Swedish market remains robust and in the largest cities there are structural shortages of housing. The Riksbank, as with other central banks, continue to fight deflation and they have more room than others. We think the repo rate could fall from 0.75% to 0.5% in the summer months. I last commented on Balder as our newest small cap acquisition in the Swedish residential space. Since then, and shortly after the year end, we participated in the IPO of D. Carnegie a small Stockholm focused residential refurbishment specialist. The stock has risen 20% since its IPO in April such was the demand in this SEK 600m (£58m) raising.

In the UK we have continued with our strategy of targeting capital value growth particularly through owners of landbanks (St Modwen and Quintain) or regional housing (Grainger). Our most recent investment in this area occurred after the year end. We have backed Urban & Civic's (U&C) takeover of the Terrace Hill Group. U&C own two large landbanks at RAF Alconbury outside Huntingdon and a 50% interest in a 1,170 acre site outside Rugby. Combined they have the consent to build 11,200 new homes over the next 20 years with an average current land plot value of c. £15k. Our increased exposure has been regional rather than London. According to Knight Frank research, Central London prices rose 7.5% in the year. Whilst this is strong growth, the annualised rate has slowed from a peak of 11.3% in March 2012. Back in November I commented on the supply side response with JLL recording 20% increases in the number of units under construction. Our largest underweight position remains Capital & Counties the owner of the 70 acre Earls Court redevelopment site. Previously our bear case was based entirely on the land value expectations implied by the share price as we were positive on the underlying market fundamentals. Over the last few months we have become increasingly concerned not only about the increase in supply, but also potential short term international demand headwinds notably the strengthening of GBP versus USD and the increasing likelihood of further property taxation (at thresholds which will mainly affect London property) under the next government. Given our view it is interesting to note the recent statements from two large London landlords, Land Securities and the Grosvenor Estate, postponing certain high value residential developments within their portfolios.

Debt and Equity Capital Markets

Capital markets continue to be open, indeed welcoming, to listed property companies across Europe. The ability to tap public debt markets for funding is a huge advantage for listed property companies in helping them to minimise their cost of capital. In the last 12 months 25 companies have issued £5.6bn in a variety of bond instruments (senior, convertible and even mandatory convertible which locks in cash from shareholders at a fixed date and  price in the future). Highlights in this area must include Unibail's €700m 10 year bond issued in June 2013 at an all in coupon of 2.5%. However, almost more important than that was the €350m raised by Beni Stabili in February 2014 due to its indication of the return of positive sentiment towards Southern Europe. It is Italy's largest property company with most of its assets in either the key northern cities or Rome but its shares still trade at a discount of over 30% to its December 2013 asset value. Bond investors did not seem disturbed in the slightest by equity investors apparent concerns and the company raised €350m of senior unsecured bonds at 4.125%, a perfect illustration of the recovery in corporate bond markets in peripheral European countries. Closer to home, St Modwen (one of our largest investments) raised £100m of unsecured bonds at 2.87% which was an excellent result for this company given its business model of combining office/industrial development and residential land bank repositioning.

Traditional bank lending to property companies is under margin pressure not only from the corporate bond market but also from other sources of debt finance including insurance companies, private placements and private equity groups. The latter have been very active in buying up existing residual debt books from banks keen to shed their legacy loan books. All of this activity is adding to the depth of liquidity in property debt markets.

The era of ultra low short term interest rates is now in its fifth year and property companies across Europe continue to steadily reduce their cost of capital through the expiry of longer dated fixed or swapped loans as they come up for maturity. The competition amongst lenders is ensuring that alongside lower rates, the additional cost ('margin') is also reducing.

With so many companies' share prices standing at a premium to their last published net asset values it is no surprise that we have seen a steady stream of both IPOs (mostly in the UK and Sweden) and secondary issuance. In Germany we have also seen a large amount of secondary placings in residential companies. These companies which together form 9.0% of our benchmark were listed by the private equity groups who at the time retained controlling stakes in the newly listed companies. Over the past year, four of these companies have placed stakes totalling €2.3bn which has significantly increased the liquidity in these large companies. Over the past 3 years the total placed was €4.9bn which illustrates how much of this was completed in the last 12 months.

In the UK there was a total of £2.5bn raised through four IPOs and 12 secondary issuances. The Swedish property companies enjoyed a strong period of performance last year handsomely outperforming the remainder of Continental Europe. The demand for Swedish property companies encouraged several IPOs (Platzar, Hemfosa and just after the year end, D. Carnegie) with more expected imminently.

I comment in more detail under Investment Activity where we were active in these names.

Property shares

At the interim I commented that the outstanding statistic over the first half was the outperformance of the UK (+9.4%) when compared with the rest of Europe (+3.9%). This gulf in returns persisted in the second half even as share prices rose in all markets. Over the 12 month period, Europe ex UK rose 6.4% in GBP and 8.8% in EUR whilst the UK stocks rose 28.0% over the year. When we dissect Continental Europe the performance differentials are quite startling. The core northern Eurozone nations of Germany, France, Belgium and the Netherlands (which account for 43.4% of the benchmark) all failed at the national level to exceed the Europe ex UK return of +8.8%. The astonishing returns (outside of Sweden) were in the Southern European nations, Italy (+44.9%), Greece (+88.1%) and Austria (+24.4%) whose property companies have a heavy exposure to Central Europe. Given the huge improvement in sovereign bond spreads (versus German bunds) particularly in Italy, Spain, Greece and Portugal it is no surprise that property stocks should feel some of that warmth. For us though, this burst of enthusiasm and reduction in the price of 'risk' does not alter the fact that all of these markets continue to suffer from over rented commercial property markets, high unemployment, consumer indebtness and anaemic domestic growth (if any). Whilst the percentage returns of these stocks is quite eye-watering collectively they remain a modest part of our universe (less than 2%). The majority are illiquid and therefore any significant increase in exposure would need to be backed with conviction of a sustained recovery in property and company specific fundamentals. With the improvement in investor attitude towards the Eurozone and risks within Europe (regardless of the lack of underlying tenant demand) we increased, our underweight to the traditional insurance policy - Switzerland. Swiss companies and in particular Swiss property companies embodied the safe haven status through the Eurozone crisis. There is an oversupply of office space in Zurich and retailing in both Zurich and Geneva is almost entirely without tourist demand due to the strength of the currency. Shopping centres in easy reach of any border suffer leakage to their Euro denominated competitors. The property companies are undermanaged and some over capitalised. Their total return in the period was -4.0% in Sterling and -1.7% in Swiss Francs. Geographically it remains our largest underweight and our exposure is effectively limited to one company, PSP Swiss which we consider to be the best in the group.

Within Scandinavia, Sweden was the top performer returning +25.7% in SEK and +14.8% in GBP significantly ahead of the rest of the Eurozone. Finland and Norway were very lacklustre. Norway is not a fair comparison as it only has one listed property company in our benchmark (although we are hopeful that Entra, a currently government controlled office owner and developer will float later this year). In our view the Oslo market is stable but the company's development programme has had severe cost overruns and its exposure to Stavanger is a weakness due to weak planning restrictions for new construction. We have an overweight position in Sweden and it was those businesses with the highest gearing which performed strongly in the year. As a consequence our longstanding holding in Hufvudstaden, which is the least leveraged but owns the highest quality city centre assets returned 'just' 15% (in SEK). The stand out performance came from Balder. It is a relatively new small cap holding which I mentioned in the Interim Report, and it returned a staggering 71% driven by acquisitions and more investors seeking exposure to the Swedish residential markets. This company is increasingly focused on its residential portfolio and has a strong entrepreneurial management team where the CEO still owns 39% of the company.

Distribution of assets

The largest contributor to performance was our overweight to the UK where the equity portfolio averaged an overweight of 8% versus the benchmark. The physical property portfolio increased the UK exposure by a further 7%. The UK equity exposure was 43.3% by the end of March 2014 (41.5% at the half year) whilst the Continental exposure reduced slightly to 49.0%. This compares to 58.3% in March 2011. Given the expectation of further monetary easing in the Eurozone I expect the Continental exposure to increase from this point.

The physical property portfolio was 6.8% of exposure at the interim stage but ended the year at 7.7% as the performance of the property portfolio exceeded the growth of the equity portfolio, even as equity values ploughed on upwards in H2. This was due to us reaching some significant milestones in the asset management of the physical portfolio.

Investment Activity

Over the period, turnover (purchases and sales divided by two) totalled £207.4m and equates to 27.8% of the average net assets over the period. This level of activity reflects two particular features of the market over the period, the swings in macro driven market sentiment and the increased amount of capital issuance (both primary and secondary) particularly in the second half of the year. Given our positive conviction regarding the underlying market and investors renewed enthusiasm for property we viewed the market sell offs in May/June and again in August as opportunities. Turnover therefore increased as did gearing. Whilst we didn't participate in all the capital raisings in the period, there was plenty of noteworthy activity. In the Interim Report I discussed our investment in the IPO of Green REIT (Ireland's first REIT) as well as secondary raisings by Unite (student housing provider), NewRiver Retail (discussed earlier in detail) and St Modwen (principally residential land and industrial property). Ireland has continued to be a focus for investors, particularly from the US and Green REIT has been followed by IPOs from Hibernia (e306m) and Kennedy Wilson Europe (e910m). These are both so called 'cashboxes' meaning that they start life with no assets and just the cash from the IPO. They then promise investors that they will invest the capital raised as quickly as they can in appropriate properties or other suitable investments listed in their respective prospectuses. In the case of Kennedy Wilson Europe they are targeting Ireland, the UK and Spain. We did not participate in either of these vehicles. We did however invest in one 'cashbox' IPO focused on Spanish property. Hispania Activos benefits from a highly experienced management team who are not only significant shareholders in the company but who have also answered our key concerns regarding alignment with investors. The management team is only rewarded following the cash exit from all investments made. This is a strict prerequisite when investing in Spain, one of several countries where we have little faith in the independency of third party valuations. The business plan is to take advantage of the needs of a large number of property companies, banks and other financial institutions who are seeking to dispose of legacy assets acquired or lent against in the heady days pre 2008. Whilst Northern European banks have broadly cleaned up their balance sheets there is a view that their Southern European equivalents are behind in the process.

Our largest single investment event was the participation in the capital raising by McKay Securities. The company effectively doubled its equity base raising £86.7m at 189p per share. We were already modest investors in this business which has a longstanding CEO with an excellent track record of investing in South East UK office and industrial property, a market which we believe is ripe for rental growth as renewed business confidence meets a lack of new space for occupiers. The Trust now owns 6.5% of the company and the share price total return has been 54.7 % over 12 months and 10% since the capital raising at the end of January. This share price performance reflects the market view that by raising this capital the business not only provides itself with the resources to complete its development programme but also goes someway to resolving a longstanding issue around its debt (which is fixed for a long period at a very high interest rate). Safestore, one of the two self storage businesses we own also took the opportunity to raise capital to resolve investors' concerns around its balance sheet following the successful change of CEO and CFO. Aided not only by the capital raise but also the sale of a major asset (for conversion to residential) as well as improving fundamentals in the sector (as housing transactions increase) the 12 month share price total return was a tremendous 105%. Investors love a turnaround story.

Under the Residential section I commented on the number of secondary placings (as opposed to issuance of new shares) in the large German residential businesses whereby the original cornerstone investors, invariably large private equity firms, were selling down their controlling stakes. We participated in the largest of these, the e500m placing in Deutsche Annington as well as smaller ones in LEG and Gagfah. This group of companies did not perform that well last year with an average return slightly below the Eurozone average. Given that these are businesses are well financed, with predictable and growing earnings streams these returns should surprise investors. We are confident that this was lack of performance was technical rather than fundamental and there was a simple explanation. It was well telegraphed that the private equity owners in these businesses were likely to want to sell down and this created a stock overhang as investors just waited for the placings rather than buying shares in the market. We have already increased our exposure to this group of companies following the removal of most of this overhang.

Unibail remains our largest single investment with a holding valued at £74.73m which is 8.5% of the portfolio. I wrote in last year's annual report that it had been the top performing French listed stock over 1, 3, 5, 10 and 20 years. In this financial year, it was the second poorest performer with a total return of 8.4%. I reduced our overweight position selling 11% of the holding back in April 2013 as the share price reflected a 30% premium to its net asset value. It is still the best run large property company in Europe and exceeds its retail landlord peer group on all important metrics. However the global sell off in property stocks in May and June hit this highly liquid, highly rated company hard with the stock dropping 20% in the four weeks from 21 May. It recovered quickly but was range bound over the remainder of the year providing us with the opportunity to rebuild our market weight position. We remain confident that it will once again produce rental growth, earnings and dividends in excess of its peer group.

Revenue

The revenue earnings at 8.09p were significantly ahead of the prior year reported earnings.

As explained in the last annual report, due to the reorganisation of the Sigma share class at the end of 2012, the earnings reported for the year to March 2013 were distorted. The full year dividend paid of 7.00p was really a more accurate reflection of the income earned, so the increase in earnings at a group level was actually closer to 15%, rather than the 20% reported.

A significant increase was expected. When looking forward and estimating earnings for the year ended 31 March 2014 of 7.50p (indicated in the 2013 annual report) we took account of the impact of the change in timing of some dividends which had occurred over the 2013 year end and anticipated some growth in the underlying earnings from the companies in which we invest. The change in the allocation of expenses between revenue and capital would also lead to an increase in earnings as a one off change, although the lower revenue expense charge would be partly offset by a higher revenue tax charge (no overall impact on the tax payable).

All of this came to pass, plus other events which increased the earnings even further. Earnings growth reported across the sector was a little higher than anticipated and, once again, there were changes in expected dividend ex-dates over our year end with some dividends being brought forward into 2014. Corporate restructurings resulted in special income (and capital) dividends being paid. The revenue tax charge was also a little lower than anticipated as some dividends were received free of withholding tax. These all amounted to an increase in the reported earnings to 8.09p.

Revenue Outlook

As the Chairman stated, we do anticipate lower earnings for the year to March 2015 as the one-off items described above will not be repeated. In addition, the development activity on The Colonnades will supress our rental income for a while. The sale of the property at Vauxhall will also have an impact, although we are actively seeking to add to the direct property portfolio.

Gearing, Debt and Debentures

As set out in the Chairman's Statement gearing increased throughout the year. We were pleased to renew loans with both our providers on improved terms. We continue to explore other sources of debt, particularly as the £15m debenture will be repaid in February 2016. Although this is a small loan, at an interest rate of 11.5% it accounts for over half our interest expense.

Direct Property Portfolio

The physical property portfolio had a strong year with two large asset management initiatives coming to fruition at Park Place, Vauxhall and The Colonnades, Bayswater. The portfolio produced a total return for the year of 37.5% comprising a capital return of 32.1% and an income return of 5.4%. This compares to a return from the IPD Monthly Index of 14.0% made up of a capital return of 6.8% and an income return of 6.7%.

The Colonnades produced a 12 month total return of 50%. The vast majority of this was capital growth (47.4%), a consequence of the granting of planning permission for an extended supermarket and revitalised retail space. This is the culmination of a detailed business plan for this significant asset.

Park Place, Vauxhall is an asset that the Trust acquired in June 2011. Originally a Victorian laundry the property was converted to offices in the 1980s. The Trust acquired the building for £8.25m (£330 per sq. ft.). The original business plan was to upgrade the office space and grow the rental level. In May 2013 the government introduced permitted development for the conversion of offices into residential. We saw this as an opportunity as residential space in the vicinity was achieving in excess of £850 per sq. ft. However our opportunity to extract value was constrained by the length of time permitted development was allowed which expires in May 2016. In October 2013 we received confirmation from Lambeth Borough Council that the building qualified for permitted development. The property was marketed for sale in March 2014 and bidding was extremely competitive. We exchanged contracts in late April post the year end at a sum ahead of the March 2014 independent valuation. The 12 month total return to the year end was 74% for this asset. It remains our intention to add to the physical portfolio but when an opportunity arises such as this we will move to extract maximum value for shareholders.

We continue to pursue other asset management initiatives across the portfolio with potential to add value at Wandsworth through redevelopment and at Milton Keynes with the extension of the DHL lease which expires in January 2015.

Outlook

The difference in the broad economic outlook between the UK and much of the Eurozone has never been so stark. The UK is experiencing one of the fastest economic recoveries amongst the world's advanced economies and growth of 3% is predicted for 2014. We remain  confident that the increase in business activity and consumer confidence will translate into more demand for commercial property from tenants and investors. It remains our largest geographical overweight although the concentration towards Central London is less than it was 12 months ago, and in particular our residential exposure where we see the strength of Sterling and political intervention (through greater taxation) as headwinds for overseas investors. All investors are aware that it is more than highly likely that the UK will be the first European country to raise rates. The key for us is to continue to position the portfolio to take advantage of rental growth - the fruit of the increase in economic activity which may lead to the rate tightening cycle (whenever it begins). We expect to position the UK component of the portfolio towards the development cycle, this will mean more operationally geared businesses but the corollary is that these businesses generally have less financial gearing. This is a natural outturn of well run businesses in a vibrant economic environment but one anticipating rising interest rates.

Scandinavia, and in particular Sweden remains of great interest. The outperformance of the Swedish property companies over the last 12 months confirms that we are not alone in this view. It benefits from a better economic outlook than much of the Eurozone and the Riksbank have been determined in their efforts to keep the currency from strengthening too much. The housing market is steady (if a little hot in key cities) but real wages are rising. The commercial property market is liquid and valuation is transparent. We expect to remain overweight.

Eurozone CPI (a measure of inflation) has been below 1% year on year in each of the last six months, averaging just 0.7% since October 2013, even with Germany as the positive outlier. The consensus is for some form of unorthodox monetary stimulation by the ECB during H2 2014 following the reduction of the base rate to zero. It is this expectation of major policy adjustment which is driving both equity markets upwards (even as many European corporates fail to meet earnings expectations) and bond yields further down. The short term result is that a number of Continental European property companies which have a weak outlook for earnings growth are enjoying unexpected, and in our view unwarranted, share price appreciation. However the message is clear; 'don't fight the ECB'. Peripheral European bonds have also benefited from this stimulus expectation and this will continue to feed into local asset prices. It's always an uncomfortable position for fundamentally driven investors like ourselves when such extraordinary credit liquidity coupled with the elimination of sovereign tail risk (through central bank promises - Draghi's key July 2012 comment'…we will do whatever it takes….') drives down both yields and bond spreads as investors use the policymakers backstop as an open ended insurance policy.

This discomfort doesn't stop us from understanding the market's appreciation for property assets and we continue to position ourselves accordingly but as always we remain focused on those businesses and markets likely to enjoy a genuine supply/demand disequilibrium. I would remind shareholders it is the serious lack of new construction over the last five years which really emboldens our medium term positive prognosis.

Marcus Phayre-Mudge

Fund Manager - Ordinary Share Class

Overview of strategy, performance measurement and risk management

Investment Objective and Policy

The Company's Objective is to maximise shareholders' total returns by investing in the shares and securities of property companies and property related businesses internationally and also in investment property located in the UK.

Benchmark

The benchmark is the FTSE EPRA/NAREIT Developed Europe Capped Net Total Return Index in Sterling. The index, calculated by FTSE, is free-float based and currently has 87 constituent companies. The index limits exposure to any one company to 10% and reweights the other constituents pro-rata. The benchmark website www.epra.com contains further details about the index and performance.

Policy

The investment selection process seeks to identify well managed companies of all sizes. The Manager generally regards future growth and capital appreciation potential more highly than immediate yield or discount to asset value.

Although the investment objective allows for investment on an international basis, the benchmark is a Pan-European Index and the majority of the investments will be located in that geographical area. Direct property investments are located in the UK only.

As a dedicated investor in the property sector the Company cannot offer diversification outside that sector, however, within the portfolio there are limitations, as set out below, on the size of individual investments held to ensure diversification within the portfolio.

Asset allocation guidelines

The maximum holding in the stock of any one issuer or of a single asset is limited to 15% of the portfolio at the point of acquisition. In addition, any holdings in excess of 5% of the portfolio must not in aggregate exceed 40% of the portfolio.

The Manager currently applies the following guidelines for asset allocation;

UK listed equities 25 - 50%

Continental European listed equities 45 - 75%

Direct Property - UK 5 - 20%

Other listed equities 0 - 5 %

Listed bonds 0 - 5 %

Unquoted investments 0 - 5 %

Gearing

The company may employ levels of gearing from time to time with the aim of enhancing returns, subject to an overall maximum of 25% of the portfolio value.

In certain market conditions the Manager may consider it prudent not to employ gearing on the balance sheet at all, and to hold part of the portfolio in cash.

The current guideline is 10% net cash to 25% net gearing (as a percentage of portfolio value).

Property Valuation

Investment properties are valued every 6 months by an external independent valuer. If a material event occurs in the intervening period, then an interim valuation will be instructed on the property in question. Valuations of all the Group's properties as at 31 March 2014 have been carried out on a "Red Book" basis and these valuations have been adopted in the accounts.

Allocation of costs between Revenue & Capital

On the basis of the Board's expected long term split of returns in the form of capital gains and income, the Group charges 75% of annual base management fees and finance costs to capital. All performance fees are charged to capital.

Performance and Key Performance Indicators

The Board appraises the performance of the Company and the Manager as a key supplier of services to the company against Key Performance Indicators (KPIs). The objectives comprise both specific financial and shareholder related measures. These are listed below together with a brief description of how the Board monitors the KPIs and the outcome.

Net Asset Value Total Return relative to the Benchmark Total Return

The Directors regard the Company's net asset value total return performance in comparison with the benchmark as being the overall measure of value delivered to shareholders' over the long term.

The Board reviews the performance in detail at each meeting and discusses the results and outlook with the Manager.

For the year to 31 March 2014 the Company delivered a total return of 22.4% compared with a benchmark return of 14.9%, an outperformance of 7.5%. This continues a long term track record where over a ten year period the NAV total return has outperformed the benchmark by 75.2%.

Delivering a reliable dividend which is growing over the long term

The principal objective of the company is a total return objective, however, the Manager aims to deliver a reliable dividend with growth over the longer term.

The Board reviews statements on income received to date and income forecasts at each meeting.

The full year dividend declared for the year to 31 March 2014 is 7.45p, an increase of 6.4% over the prior year dividend. The dividend has grown by 300% in 10 years, equivalent to 11.5% per annum compounded. The dividend has increased in each of 9 of the last 10 years, with just one year where the dividend was flat (2010).

The discount or premium at which the Company's shares trade compared with Net Asset Value

Whilst investment performance is expected to be a key driver of the share price discount or premium to the net asset value of an investment trust over the longer term, there are periods of volatility when the discount can widen. The Board is aware of the vulnerability of a sector specialist trust to the change of investor sentiment towards that sector.

The Board takes powers at each AGM to buy-back and issue shares. When considering the merits of share buy-backs or issuance, the Board looks at a number of factors in addition to the short and longer-term discount or premium to NAV to assess whether action would be beneficial to the shareholders overall. Particular attention is paid to the impact of activity on the liquidity of the shares and the possible impact on ongoing charges in the longer term.

During the year under review, 375,000 shares were repurchased at an average discount of 15% to NAV.

The discount to NAV started the year at 13.4% and ended at just under 3%. It is impossible to attribute a single cause for this, a major factor has undoubtedly been the favour of the sector with investors, however, the Directors believe this has been aided by strong relative performance and an active PR programme by the Managers who have worked hard to increase the profile for the Company.

Level of Ongoing Charges

The Board is conscious of expenses and aims to deliver a balance between strong service and costs.

The AIC definition of Ongoing Charges includes any direct property costs in addition to the management fees and all the other expenses incurred in running a publicly listed company. As no other Investment Trusts hold part of their portfolio in direct property, they either hold their portfolios as 100% listed (and unlisted) securities or 100% direct property, we show this statistic with and without the direct property costs to allow a comparison with other funds investing in securities.

Expenses are budgeted for each financial year and the board reviews regular reports on actual and forecast expenses throughout the year.

For the year to March 2014, the ongoing charges (without direct property costs) decreased from 0.86% to 0.75%. One factor in this is the construction of the base management fee, which is largely a fixed sum, so in a rising market the increase in management fee is modest.

Investment Trust Status

The Company must continue to operate in order to meet the requirements for Section 1158 and 1159 of the Corporation Tax Act 2010.

The Board reviews financial information and forecasts at each meeting which set out each of the tests set out in Sections 1158 and 1159.

The Directors believe that the conditions and ongoing requirements have been met in respect of the year to 31 March 2014 and that the Company will continue to meet the requirements.

Principal Risks and Uncertainties

In delivering long-term returns to shareholders, the Board must also identify and monitor the risk that has been taken in order to achieve that return.

The first group of risks relate primarily to the risks of investing in worldwide stock markets in general and then the geographical and sector focus of the portfolio and the construction of the portfolio in particular;

o The Company's assets comprise mainly listed equities so a principal risk is the performance of equity markets and exchange rates. Both share prices and exchange rates may move rapidly and adversely impact the value of the Company's portfolio.

o Although the portfolio is diversified across a number of geographical regions, the investment mandate is focused on a single sector and therefore the portfolio will be sensitive not only to general sentiments towards global equity markets but also sentiment towards the property sector.

o Property companies are subject to many factors which can adversely affect their performance, these include the general economic and financial environment in which the their tenants operate, interest rates, availability of investment and development finance and regulations issued by governments and authorities.

o The Company's portfolio is actively managed. In addition to investment securities the Company also invests in commercial property and accordingly, the portfolio may not follow the return of the benchmark.

o The shares of the Company are listed on the London Stock Exchange and the share price is determined by supply and demand. The shares may trade at a discount or at a premium to the Company's underlying NAV and this discount or premium may fluctuate over time.

The Board mitigates these risks through the regular monitoring of investment performance and analytical data provided by the Manager at board meetings. The composition of the portfolio, analysis in comparison with the benchmark, details of sales and purchases, foreign currency exposures, tracking error data and the views of the Manager are discussed in detail.

The second group of risks relate to the financial, accounting, operational, taxation, legal and regulatory requirements of the Company itself;

o The financial risks that the Company is exposed to include market price risk, credit risk, liquidity, exchange rate and interest rate risks. Details of how those risks are managed are set out in the full Annual Report.

o The accounting and operational risks that the Company is exposed to include disruption to or failure of the systems and processes provided by the third party service providers and the risk that these service providers provide a substandard service.

o The taxation risks are that the Company may fail to obtain qualification as an investment trust and the Company may fail to recover withholding taxes levied on overseas investment income.

o Legal and regulatory risks include failure to comply with the London Stock Exchange listing rules and Transparency and Disclosure rules; meeting the provisions of the Companies Act 2006 and other UK, European and overseas

legislation affecting UK companies and compliance with accounting standards.

o Gearing, either through the use of bank debt or the use of derivatives may be utilised from time to time according to the Board and the Manager's assessment of risk and reward. Whilst the use of gearing is intended to enhance the NAV total return, it will have the opposite effect when the return of the Company's investment portfolio is negative.

Other risks are monitored by reports to the Board on the control environments and business continuation provisions by the Manager on both the Manager's own processes and those of third party service providers. The Board also receives regular regulatory updates from the Manager, Company Secretary, legal advisers and the Auditors. The Board considers these reports and recommendations and takes action accordingly.

Management Arrangements and business model

Throughout the period investment management services have been provided by Thames River Capital LLP. Accounting, custodial and administrative services have been provided by BNP Paribas Securities Services and company secretarial services by Capita Company Secretarial Services.

Corporate Responsibility

Exercise of voting power

The Board has approved a corporate governance voting policy which, in its opinion, accords with current best practice whilst maintaining a primary focus on financial returns.

The exercise of voting rights attached to the Company's portfolio has been delegated to the Manager who take a global approach to engagement with issuers and their management in all of the jurisdictions in which it invests. The Manager is required to include disclosure about the nature of their commitment to the Financial Reporting Committee's Stewardship Code and details may be found at www.fandc.com

Environmental policy & Socially Responsible Investment

The Company considers that good corporate governance extends to policies on the environment, employment, human rights and community relationships. Corporates are playing an increasingly important role in global economic activity and the adoption of good corporate governance enhances a company's economic prospects by reducing the risk of government and regulatory intervention and any ensuing damage to its business or reputation.

The Company has adopted an environmental policy in respect of its investments in both physical property and listed property companies. Within the context of the overall aim of the Company to maximise shareholders' returns the directors will seek to limit the Company's and its investee companies' impact on the environment and will comply with all relevant legislation relating to its operations and activities.

The environmental policies and behaviour of all the companies in which the Company invests are taken into account in decision-making. Good environmental management can play a role in overall risk management and also have a financial impact in terms of savings through energy and water efficiency. Where appropriate the Manager will engage with investee companies to raise concerns about environmental matters.

So far as direct property investments are concerned, the Company conducts environmental audits prior to purchase to identify contamination or materials considered environmentally harmful. The Company will take remedial action or enforce tenant obligations to do so wherever appropriate. The Company's advisers assess the environmental impact of its properties on an ongoing basis and will take all necessary action to comply with environmental responsibilities.

Diversity, Gender Reporting and Human Rights Policy

The Board recognises the requirement under Section 414 of the Companies Act 2006 to detail information about employee and human rights; including information about any policies it has in relation to these matters and effectiveness of these policies.

As the Trust has no employees, this requirement does not apply.

The Board currently comprises 4 male and 2 female directors. The Board's diversity policy is outlined in more detail in the Corporate Governance Report. The Manager has an equal opportunity policy which is set out on its website www.fandc.com.

By order of the Board

Caroline Burton

Chairman

Statement of directors' responsibilities in relation to the Group financial statements

The directors are responsible for preparing the Report and Accounts in accordance with applicable United Kingdom law and those International Financial Reporting Standards as adopted by the European Union.

Under Company Law the directors must not approve the Group and Company financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group and Company for that period. In preparing the Group financial statements the directors are required to:

o select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

o present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

o provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Company's financial position and financial performance;

o state that the Group and Company has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements; and

o make judgements and estimates that are reasonable and prudent.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Group and Company financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Group Consolidated Statement of Comprehensive Income

For the year ended 31 March 2014

	Year ended 31 March 2014			Year ended 31 March 2013
	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment income
Investment income (note 2)	27,791	-	27,791	27,332	-	27,332
Other operating income	7	-	7	186	-	186
Gross rental income	3,384	-	3,384	3,505	-	3,505
Service charge income	1,448	-	1,448	1,759	-	1,759
Gains on investments held at fair value	-	129,120	129,120	-	98,734	98,734
Net movement on foreign exchange	-	353	353	-	372	372
Net returns on contracts for difference	1,303	6,150	7,453	206	1,851	2,057
	_________	_________	_________	_________	_________	_________
Total income	33,933	135,623	169,556	32,988	100,957	133,945
	_________	_________	_________	_________	_________	_________
Expenses
Management and performance fees	(1,181)	(13,207)	(14,388)	(3,127)	(4,686)	(7,813)
Direct property expenses, rent payable  and service charge costs	(1,850)	-	(1,850)	(2,191)	-	(2,191)
Other administrative expenses	(890)	-	(890)	(1,094)	(513)	(1,607)
	_________	_________	_________	_________	_________	_________
Total operating expenses	(3,921)	(13,207)	(17,128)	(6,412)	(5,199)	(11,611)
	_________	_________	_________	_________	_________	_________
Operating profit	30,012	122,416	152,428	26,576	95,758	122,334
Finance costs	(792)	(2,376)	(3,168)	(1,517)	(1,517)	(3,034)
	_________	_________	_________	_________	_________	_________
Profit from operations before tax	29,220	120,040	149,260	25,059	94,241	119,300
Taxation	(3,540)	3,095	(445)	(2,707)	625	(2,082)
	_________	_________	_________	_________	_________	_________
Total comprehensive income	25,680	123,135	148,815	22,352	94,866	117,218
	_________	_________	_________	_________	_________	_________
Earnings per Ordinary share (note 3)	8.09p	38.78p	46.87p	6.74p	31.10p	37.84p
Earnings per Sigma share	n/a	n/a	n/a	3.11p	7.72p	10.83p

The Total column of this statement represents the Group's Statement of Comprehensive Income, 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 Statement of Changes in Equity

	Share Capital*			Retained Earnings*
	Ordinary	Share Premium Account	Capital Redemption Reserve		Ordinary	Total
for the year ended 31 March 2014	£'000	£'000	£'000		£'000	£'000
At 31 March 2013	79,469	43,162	43,840		517,748	684,219
Net profit for the period	-	-	-		148,815	148,815
Shares repurchased	(94)	-	94		(736)	(736)
Dividends paid	-	-	-		(22,860)	(22,860)
	________	________	________		________	________
At 31 March 2014	79,375	43,162	43,934		642,967	809,438
	________	________	_________		________	________
	Share Capital					Retained Earnings*
	Ordinary	Sigma	Share Premium Account		Capital Redemption Reserve	Ordinary	Sigma		Total
for the year ended 31 March 2013	£'000	£'000	£'000		£'000	£'000	£'000		£'000
At 31 March 2012	64,056	15,559	43,162		43,694	333,613	88,161		588,245
Net profit for the period	-	-	-		-	103,790	13,428		117,218
Shares repurchased	(83)	(63)	-		146	-	(341)		(341)
Dividends paid	-	-	-		-	(17,551)	(3,352)		(20,903)
Re-designation of Sigma shares (A)	15,496	(15,496)	-		-	97,896	(97,896)		-
	________	________	________		________	________	_______		________
At 31 March 2013	79,469	-	43,162		43,840	517,748	-		684,219
	________	________	________		________	________	_______		________

* The Ordinary/Sigma split is for information only and has not been audited.

(A) On 14 December 2012 the shareholders of both share classes voted to convert Sigma shares into Ordinary shares.

Group and Company Balance Sheets

as at 31 March 2014

	Group 2014 £'000	Company 2014 £'000	Group 2013 £'000	Company 2013 £'000
Non-current assets
Investments held at fair value	880,483	880,483	739,486	716,986
Investments in subsidiaries	-	53,305	-	49,916
	_________	_________	_________	_________
	880,483	933,788	739,486	766,902
Current assets
Deferred taxation asset	200	235	-	219
Debtors	11,405	11,385	6,673	6,618
Cash and cash equivalents	9,740	9,599	13,666	13,024
	_________	_________	_________	_________
	21,345	21,219	20,339	19,861
Current liabilities	(77,390)	(145,569)	(57,883)	(102,544)
	_________	_________	_________	_________
Net current liabilities	(56,045)	(124,350)	(37,544)	(82,683)
Total assets less current liabilities	824,438	809,438	701,942	684,219
Non-current liabilities	(15,000)	-	(17,723)	-
	_________	_________	_________	_________
Net assets	809,438	809,438	684,219	684,219
	_________	_________	_________	_________
Capital and reserves
Called up share capital	79,375	79,375	79,469	79,469
Share premium account	43,162	43,162	43,162	43,162
Capital redemption reserve	43,934	43,934	43,840	43,840
Retained earnings	642,967	642,967	517,748	517,748
	_________	_________	_________	_________
Equity shareholders' funds	809,438	809,438	684,219	684,219
	_________	_________	_________	_________
Net Asset Value per :
Ordinary share (note 4)	254.94p	254.94p	215.25p	215.25p

Group and Company Cash Flow Statements

as at 31 March 2014

	Group 2014	Company  2014	Group 2013	Company  2013
	£'000	£'000	£'000	£'000
Reconciliation of operating revenue to net cash inflow from operating activities
Profit from operations before tax	149,260	150,400	119,300	119,262
Financing activities	3,168	3,124	3,034	3,116
Gains on investments and derivatives held at fair value through profit or loss	(135,270)	(136,940)	(100,585)	(101,260)
Foreign exchange movements	(353)	(353)	(372)	(372)
Increase in accrued income	(284)	(323)	(715)	(752)
Net (purchases)/sales of investments	(6,163)	(30,381)	2,995	2,706
Decrease in sales settlement debtor	386	386	1,146	1,146
(Decrease)/increase in purchase settlement creditor	(6,749)	(6,749)	8,134	8,134
(Increase)/decrease in other debtors	(1,194)	(1,190)	280	290
Increase in other creditors	6,663	30,993	2,542	3,190
Scrip dividends included in investment income	(2,641)	(2,641)	(2,140)	(2,140)
	_________	_________	_________	_________
Net cash inflow from operating activities before interest and taxation	6,823	6,326	33,619	33,320
Interest paid	(3,168)	(3,124)	(3,034)	(3,116)
Taxation paid	(3,338)	(2,384)	(2,352)	(2,352)
	_________	_________	_________	_________
Net cash inflow from operating activities	317	818	28,233	27,852
Financing activities
Equity dividends paid	(22,860)	(22,860)	(20,903)	(20,903)
Repurchase of shares	(736)	(736)	(341)	(341)
Drawdown of loans	19,000	19,000	1,916	1,916
	_________	_________	_________	_________
Net cash used in financing activities	(4,596)	(4,596)	(19,328)	(19,328)
	_________	_________	_________	_________
(Decrease)/increase in cash	(4,279)	(3,778)	8,905	8,524
Cash and cash equivalents at start of the year	13,666	13,024	4,389	4,128
Foreign exchange movements	353	353	372	372
	_________	_________	_________	_________
Cash and cash equivalents at end of the year	9,740	9,599	13,666	13,024
	_________	_________	_________	_________

Notes to the Financial Statements

1	Accounting Policies
	The financial statements for the year ended 31 March 2014 have been prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee (IASC) that remain in effect, to the extent that they have been adopted by the European Union and as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
	The Group and Company financial statements are expressed in Sterling, which is the functional 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
				2014	2013
				£'000	£'000
	Dividends from UK listed investments			2,001	1,998
	Dividends from overseas listed investments			16,995	17,754
	Scrip dividends from overseas listed investments			2,641	2,140
	Interest from listed investments			236	67
	Property income distributions			5,918	5,373
				_________	_________
				27,791	27,332
				_________	_________
3	Earnings per Ordinary share
	The earnings per Ordinary share can be analysed between revenue and capital, as below.
				Year ended 31 March 2014 £'000	Year ended 31 March 2013 £'000
	Net revenue profit			25,680	18,497
	Net capital profit			123,135	85,293
				_________	_________
	Net total profit			148,815	103,790
				_________	_________
	Weighted average number of Ordinary shares in issue during the year			317,536,391	274,298,027
				_________	_________
				pence	pence
	Revenue earnings per share			8.09	6.74
	Capital earnings per share			38.78	31.10
				_________	_________
	Earnings per Ordinary share			46.87	37.84
				_________	_________
4	Net asset value per Ordinary share
	Net asset value per Ordinary share is based on net assets attributable to Ordinary shares of £809,438,000 (2013: £684,219,000) and on 317,500,980 (2013: 317,875,980) Ordinary shares in issue at the year end.
5		Share capital changes
		During the year, the Company made market purchases of 375,000 Ordinary shares for cancellation.
6		Status of preliminary announcement
		The financial information set out in this preliminary announcement does not constitute the Company's statutory accounts for the years ended 31 March 2014 or 2013. The statutory accounts for the year ended 31 March 2014 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 2014 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. The full Annual Report and Accounts will shortly be available on the Company's website (www.trproperty.com).
7		Dividends An interim dividend of 2.85p (2013:2.65p) per share was paid on 7 January 2014 to shareholders on the register on 16 December 2013. A final dividend of 4.60p (2013: 4.35p) will be paid on 5 August 2014 to shareholders on the register on 27 June 2014. The shares will be quoted ex-dividend on 25 June 2014.
8		Annual Report and AGM The Annual Report will be posted to shareholders in June 2014 and will be available thereafter from the Company Secretary at the Registered Office, 11 Hanover Street, London, W1S 1QY. The Annual General Meeting of the Company will be held at The Royal Automobile Club, 89/91 Pall Mall, London, SW1Y 5HS on 22 July 2014 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:

Marcus Phayre-Mudge

Fund Manager

TR Property Investment Trust plc

Telephone: [phone]

 

END

 

 

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