Final Results

RNS Number : 2942O

TR Property Investment Trust PLC

27 May 2015

 



This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.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 2015

27 May 2015

Financial Highlights and Performance	Year ended 31 March 2015	Year ended 31 March 2014	% Change
Balance Sheet	318.12p	254.94p	+24.8%
Net asset value per share
Shareholders' funds (£'000)	1,010,045	809,438	+24.8%
Shares in issue at the end of the period (m)	317.5	317.5	+0.0%
Net debt(1)	12.8%	14.0%
Share Price
Share price	310.50p	247.50p	+25.5%
Market capitalisation	£986m	£786m	+25.4%

	Year ended 31 March 2015	Year ended 31 March 2014	% Change
Revenue	8.89p	8.09p	+9.9%
Revenue earnings per share
Net dividend per share(2)	7.70p	7.45p	+3.4%
Total Return Assets and Benchmark
Benchmark performance (total return)	+23.3%	+14.9%
Net asset value total return	+28.3%	+22.4%
Share price total return	+29.5%	+37.7%
Ongoing Charges(3)
Excluding performance fee	0.76%	0.80%
Including performance fee	1.64%	2.08%
Excluding performance fee and direct property costs	0.70%	0.75%

1.   Net debt is the total value of loans (including notional exposure to 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 2015.  An interim dividend of 2.95p was paid in January 2015 and a final dividend of 4.75p will be paid in August 2015.

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

Chairman's Statement

Introduction

Property and property equities had another year of strong performance. As the sector is pro-cyclical and the vast majority of property assets are leveraged, it performs best in an environment of improving economic fundamentals coupled with a low cost of borrowing. This year, as we anticipated, our portfolio's UK equities have benefited from rental growth spreading beyond London and across most property sectors. At the same time, our Continental European equities, particularly in the second half of the year benefited from an acceleration in the fall in the cost of borrowing, driven by the ECB's programme of quantitative easing finally actioned in January 2015. I commented in my outlook in the Interim Statement that the extent and focus of any asset purchase programme was difficult to predict and so it has proved to be. The central banks appear determined to persist with this approach and negative nominal rates on so many sovereign bonds place us in unchartered waters. What is clear is that in this type of interest rate environment well managed, high quality property companies with sustainable earnings and dividend yields across Europe are likely to maintain their attractiveness to investors. Indeed many investors appear happy to own even those companies with little prospect of genuine underlying rental growth as long as the current levels of earnings are sustainable.

Our management team, whilst maintaining their strategic focus on markets likely to experience rental growth, and hence a strong relative UK bias in the portfolio, have made material changes to the European portfolio in the light of such central bank intervention. Comprehensive detail follows in the Manager's Report.

Currency movements in the period have also been dramatic with EUR weakening by over 14% against GBP. Whilst this is good news for Eurozone exports it had a dampening effect on the performance of our GBP denominated portfolio. Eurozone property stocks returned an astonishing 40.7% in local currency which almost halved to 23.1% in GBP terms. However, if sustained, this currency devaluation further fuels the attractiveness of real assets in Europe for overseas investors.

The Trust's size, liquidity and position as the only Investment Trust with a mandate to invest in pan European property companies continued to prove attractive to investors. The share price total return was broadly in line with the underlying asset value return reflecting a very similar discount to the net asset value at both ends of the period of c. -3%. However the stock did trade at modest premiums to net asset value for part of the period with a range of +2.7% to -4.1%.

For the second year in a row I both report a substantial increase in earnings and also highlight that the dividend has not grown by the same proportion. We have experienced like-for-like underlying income growth but due to timing differences of income receipts this has been inflated for the period under review. 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 21 out of last 22 years.

In the Interim I commented that we intended to add further to our UK physical portfolio and I am pleased to report acquisitions in the year in Plymouth, Bristol and Wimbledon. The sale of Park Place, Vauxhall reported at the interim, fits with the strategy of reducing exposure to Central London residential markets for the time being, whilst the sale of the Milton Keynes office to the tenant was opportunistic at 30% ahead of book value.

NAV and Share Price Performance

I am pleased to report that the NAV total return for the year was 28.3% whilst the benchmark total return was 23.3%. The share price total return was even greater at 29.5% reflecting the narrowing of the discount mentioned in the Introduction.

More detail and commentary on performance is set out in the Manager's Report.

Revenue Results

At 8.89p (2014: 8.09p) the revenue return is almost 10% ahead of the revenue return for the previous year.

 As pointed out in the Interim Report, a number of events which had already occurred in the first half of the financial year, together with further one-off situations anticipated in the second half resulted in earnings which are ahead of the expectation at the outset of the year. Without these one-off items, earnings would have been 7.64p

Dividend

The Board is proposing a final dividend of 4.75p, 3.3% ahead of the final dividend for the prior year and bringing the total dividend for the year to 7.70p, an increase of 3.4% over the 7.45p paid last year.

Revenue Outlook

Once again we are highlighting that one-off events and changes have inflated the earnings in the current year. Underlying earnings are growing modestly but our development at the Colonnades is underway and this will result in a fall in income from our direct property assets for the remainder of the 2015/2016 financial year. In addition, the depreciation of the Euro reduces our earnings in Sterling.

We therefore continue to express caution and expect a fall in earnings for the 2015/16 financial year.

Reflecting the one off nature underlying the current year's increase in earnings, the payout ratio for the dividend is around 87%. Although we anticipate a fall in income for the forthcoming financial year, we still expect to grow the dividend. The Company has healthy revenue reserves, and providing the Board can see sustainability in the longer term, we will not hesitate to utilise the reserves to supplement a fall in revenue in the short term.

Net Debt and Gearing

Net debt throughout the year has remained broadly in the 14.0% to 15.0% range, ending the year marginally lower at 12.8%. These figures include the impact of the CFD exposure; around half of the gearing at the year-end was achieved through the CFD positions.

Currencies

Currency movements have been significant over the period. We have continued to use FX forward contracts to maintain the currency exposure of our Balance Sheet broadly in line with the benchmark. The resulting exposures are set out in Note 11 to the Financial Statements.

Discount and Share Repurchases

I have already commented on the discount in my opening remarks. There were no share repurchases in the period. Our Portfolio Manager continues to be tasked with investor communication and our dedicated website (www.trproperty.com) provides current and background data on the Trust, including a monthly commentary.

The Company is offered as part of the F&C savings plans and our Registrars, Computershare, offer dealing options for certified holders and a Dividend Reinvestment Plan (DRIP) option for those on the main register.

The Alternative Investment Fund Managers Directive

The Alternative Investment Fund Managers Directive (AIFMD) came into effect on 22 July 2014. This necessitated the appointment of an FCA regulated Alternative Investment Fund Manager (AIFM) as investment manager. F&C Investment Business Limited was appointed as Investment Manager with effect from 11 July 2014 with portfolio management delegated to the former Investment Manager, Thames River Capital LLP. There is no change in the way in which the Fund is managed, or of the management team.

In addition BNP Paribas Securities Services have been appointed to provide Depository services to the Fund (another AIFMD requirement) alongside the existing Custody arrangements. This is a new service and carries an annual fee which is tiered according to the assets under management. Based on the year end position this equates to a fee of 0.01% per annum.

Investment Management Fee Review

The base element of the Investment Management Fee is subject to an annual review. As part of that review at the end of March the following changes have been made with effect from 1st April 2015.

Historically, a number of third party costs have been included in the Investment Management fee. The Board decided that as most of these do not generally form part of the Investment Management Fee of other investment trusts, these should be charged directly to the Company by the providers of these services and separately disclosed to ensure that the arrangements are fully transparent.

The Base Investment Management Fee consists of a core fixed element and a smaller variable element. The fixed element of the base fee has not increased for the last 4 years. For the year to March 2016 an increase of £130,000 has been agreed. On a like for like basis after deducting the third party costs to be billed directly as outlined above, this is an increase of 4%. Since the last fixed fee increase four years ago Shareholders' Funds have increased by over 50%.

The final change is that the cap on the Performance Fee has been reduced from 2% to 1.5% of NAV.

Awards

The Board is pleased to report that the Company has been named Best Alternative Investment Trust in the "What Investment" Investment Trust Awards 2014.

Outlook

In last year's Outlook I stated that the building blocks for continuing performance from this sector were firmly in place in certain areas of our markets. The improving economic fundamentals in these regions have indeed translated into tenant demand and rental growth, in turn augmenting further investor appetite. This has been particularly the case in the UK together with core cities in Germany and Sweden.

With property returns increasingly being driven by property fundamentals, more investors in more markets are anticipating rental growth and treating acquisitions as growth assets. As I stated in my introduction property benefits from low interest rates and whilst we may well see the beginning of a rate tightening cycle in the UK in the next twelve months, rates in their historical context will still be low.

The stark differences between the UK's GDP forecasts and those of the Eurozone set out as recently as in last November's Interim Report look set to fade, potentially faster than anticipated, as currency depreciation and determined unorthodox monetary stimuli impact across Continental Europe. Our concerns focus on asset pricing as the capital flood into European property and property equities has resulted in substantial price appreciation. Our Portfolio Manager remains focused on property market fundamentals and whilst they have responded appropriately to this year's central bank intervention, such rapid price appreciation merely strengthens their conviction that it is only rental growth which will support pricing in the medium term, and gives them concern that some companies may find it difficult to support current valuations.

Whilst rental growth may take some time to appear more broadly across markets, investors should take real encouragement from two vitally important characteristics of this current environment - the source of capital being deployed and the lack of speculative development. The appreciation in asset prices this year has not been driven by rising levels of debt, but by equity investors seeking income and foreign investors buying Euro denominated assets. Listed property companies across Europe (with the exception of Sweden) are not increasing their debt levels even as asset values rise. We expect them to continue to refinance, taking full advantage of competitive pricing, but the majority have hopefully learnt some lessons from 2008.

Income producing assets have appreciated far more than development opportunities. Speculative finance is still a rare commodity. The lack of this type of finance naturally restricts development and reinforces our view that current asset pricing whilst sharply up from a year ago is sustainable. We expect this risk aversion towards non income producing assets to continue and for this development cycle to remain somewhat muted, and the Company will be positioned accordingly.

Further purchases of direct holdings of UK property will be made if the right investments are found. As usual, opportunities are being actively sought.

Caroline Burton

Chairman

Manager's Report

Performance

The Net Asset Value total return of +28.3% was ahead of the benchmark total return of +23.3%. This is the third year in a row in which the NAV has risen more than 20%, a single statistic illustrating the demand for and ongoing recovery of pan-European property equities and the underlying real estate markets. In the same vein as last year, the benchmark slightly outperformed the broader European equity markets where the EuroStoxx 600 Net Index (in EUR) rose +22.1%. Most of this performance was in the second half of the financial year and particularly in the last quarter (Q1 2015). At the interim stage, NAV growth was +4.5% and whilst that was a respectable half year performance, in excess of the 10 year average, it was put firmly in the shade by the tremendous growth in the second half, fuelled initially by speculation around the probability of an ECB 'quantitative easing' ("QE") programme and from January 2015 onwards, by the reality of it.

Whilst in danger of repeating comments made in last year's Report, levered asset classes such as property equities are clear beneficiaries of monetary stimuli. Although Draghi's announcement of the €60bn per month bond buying programme was increasingly well flagged, what was not necessarily expected by the market was the open-ended nature of it. Much like his May 2012 comment of '…doing whatever it takes..' in the depths of the previous Euro crisis, he has made it clear that this programme could run beyond September 2016 if deemed necessary.

The ECB has been aided in its quest to stimulate the Eurozone by the steady depreciation of its currency and a review of performance would be incomplete without highlighting what has been a dramatic period for currencies. Over the twelve months under review EUR weakened against GBP by 14.5% and against the USD by 22.1%. This has been very positive for European exports and for overseas investors buying fixed assets such as commercial property. The Eurozone component of our benchmark returned +23.1% when viewed in GBP, broadly in line with the non-Euro countries' performance over the year. However when viewed in EUR terms the total return was an astonishing +40.7%. To further illustrate the overwhelming impact of the macro monetary stimulus, the performance of the Eurozone property stocks (in local currency) from mid-October (about the time investors began to firmly price in the expectation of QE) to 31 March was +31.1%. Another side effect of the ECB's policy was the decision by the Swiss National Bank that they did not wish to defend the Euro/Swiss Franc peg if EUR was going to weaken substantially. On 15 January 2015, the SNB announced the removal of the peg and EUR fell against the Swiss Franc by 13% on the day. I will expand on how our portfolio positioning in Switzerland responded to this later in the report.

Bond yields continued to fall in response to the central bank's behaviour, the yield on the 10yr Bund tightened from 1.6% on 31 March 2014 down to 0.2% 12 months later. The risk free rate utilised in calculating the 'risk premia' applied in the valuation of risk assets continues to fall and this drives up prices. A consequence of such broad revaluation has been the lack of dispersion of returns amongst certain groups of stocks, this will be examined later in the Report.

In the Interim Report I stated that our focus remained on seeking out those businesses which were likely to be early beneficiaries of rental growth. However, the response of asset prices to the ECB's programme encouraged us to maintain exposure across the Eurozone even though rental growth remains anaemic in most markets. The portfolio remained overweight the UK, Germany and Sweden throughout the year. German property stocks were the strongest performing national group (+35.2% in GBP) combining the benefits of falling cost of debt leading to asset value appreciation with real rental growth as economic conditions improved.

Property Investment Markets

I reported last year that we were seeing significant evidence of increasing demand into regional property with buyers moving beyond the strongest, dominant commercial locations. At the half year we reported that the gap between prime and secondary yields in the UK was tightening faster than expected and the IPD measure of the ratio between the top and bottom yield quartile which began narrowing from its widest in April 2013 has accelerated over the last 12 months. CBRE report that outside of London and the South East, office investment activity reached £3.9bn in 2014, almost double the £2.2bn in 2013. Weight of money into the sector has driven this search for assets nationwide. Between July and December 2014, £1.5bn of investment flowed into open ended UK retail funds. CBRE estimate that 60% of all major city centre investment (ex-London) was domestic institutional buyers utilising modest or zero debt.

UK commercial property transactional volumes reached £59.6bn in 2014, up from £44.9bn in 2013 and compares to the record year of 2006 at £61.7bn. The equivalent yield on the IPD All Property Index has dropped from 7.5% to 6.4% in 2 years, fuelling capital growth of 19.3%.

Last year I commented that this huge valuation shift and increase in transactional volumes had been UK focused in 2013. This was no longer the case in 2014, transactional volumes have leaped in all sectors and in all European countries with the exception of Poland and Russia. Taking the retail sector as just one example, pan European volumes reached EUR 52bn, a rise of 24% on 2013. The UK was predictably busy (+25%) but France (+72%) and Spain (+96%) reflected the renewed liquidity and demand for property. Spain was clearly coming off a low base but it reflects investors' desire to participate in the nascent recovery in that market.

With bond yields tumbling everywhere, peripheral European investment markets have become very popular with investors hoping to capture the 'yield compression' as increasing investment demand drives up prices, thus compressing yields, even if the underlying rental markets are still some way from equilibrium. The Spanish 10yr sovereign bond yield dropped from 3.2% in March 2014 to 1.2%, twelve months later. This dramatic lowering of the risk free rate has impacted pricing particularly in prime office assets in Madrid and Barcelona as well as amongst dominant retail centres. The best performing peripheral market was Dublin, a physically small investment market which is seeing strong underlying rental recovery - a combination of features which has driven prime yields down 200bps in 18 months amidst predictions of new record rents of €60 per sq. ft in 2016.

Offices

London continues to exhibit the triumvirate of rental growth drivers - lack of new supply, accelerating take-up (particularly pre-lets) and alternative use demand for existing space. I have written extensively over the last three years on the positive supply/demand dynamics in both London's office and retail markets. Not only have we witnessed these strengthening market conditions but we have had the vehicles through which to access the market. Alongside the UK's two largest property companies (which each hold 50%+ of their assets and the bulk of their development pipeline in the capital) we are fortunate to have a further half dozen smaller, more nimble, manufacturers of return and it is one of those CEOs who recently described the office leasing market 'as the best I've seen in 30 years'. City of London take up at over 8 million sq ft was a record year, whilst the West End at over 4 million sq ft was second only to 2007. Vacancy at 7.6% and 3.4% respectively still masks a severe shortage of Grade A space, particularly in the West End. Record rents are being set in many of the emerging locations north and east of the City and areas such as Kings Cross and SE1 are reinvigorated and vibrant. However yields are at record lows and rental growth will need to be sustained in order to maintain this level of investor appetite. The supply response will inevitably arrive but our forecasts predict that this will still be below the long term average in the core markets in which our preferred stocks are focused. Employment growth is the driver and the increasing population brings particular social, housing and infrastructure issues which could prove restrictive. We remain overweight Great Portland Estates, Derwent London, Shaftesbury and CLS whilst retaining a market weight in Workspace.

Paris remains the Company's second largest geographical investment and we continue to focus our exposure on the city centre rather than the wider Ile de France (Greater Paris) region. The vacancy figures explain our reluctance to increase exposure. Vacancy across Greater Paris at the end of 2014 stood at 7.4%, a total of 5 million sq m, the same as 2013, whilst take up rose 13% to 2.1 million sq m, which was matched by growth in new supply. The 10 year average is 2.3 million sq m per annum. Vacancy rates range from 16% in the Peri-Defense area (west of La Defense) to 5% in Paris Inner City. Our largest Paris investment is Terreis which owns assets in the core CBD. Looking forward, the situation is at best described as stable with speculative supply at a 10 year low and French service sector employment surprisingly resilient, with a small net increase in 2014. In fact take up in La Defense was more than double 2013 on the back of 13 large (over 10,000 sq.m.) deals in this financial district.

Sweden's economy continues to improve with GDP growth expectations greater than Continental Europe, aided by a depreciating currency (The Swedish Krone was down 18.6% against GBP in the last 12 months) and a strong banking sector lending to both business and consumer. Population growth and stable employment has driven rental values in both Stockholm and Gothenburg up 5% this year. Not on a par with London but significantly ahead of most European cities.

Whilst Germany has been the greatest beneficiary of the weakening EUR, the fortunes of the office markets of its 6 largest cities have been more mixed. Frankfurt, the largest, continues to suffer from oversupply whilst Berlin, Hamburg and in particular Munich showing renewed equilibrium between landlord and tenant. We have increased our exposure to Alstria, the largest pure German office play. VIB Vermoegen remains a key holding providing a pure play on Bavaria, the strongest performing region in Germany.

Amongst the peripheral markets I have already touched on Dublin (our exposure has been through Green Reit +36.8% over the year) and rents in central Madrid, Barcelona and Milan are showing signs of stabilising amidst early indications of occupancy growth.

Outside of these dominant cities, the only regional office markets which are experiencing renewed take up and a positive impact on rents are in the UK. Overall M25 office vacancy has dropped from 16% to 13% with take up of over 4m sq ft in 2014, ahead of the long run average. Again within that broad region-wide statistic there are many hot spots of much lower vacancy and we maintain our exposure to the Thames Valley through McKay Securities. Further away from London, the largest region cities are also experiencing real rental growth for the first time since 2007. Office rents for the 9 biggest cities outside London grew by 5.8% in 2014 and the shortage of space is only set to continue this trend.

Retail

Last year I highlighted the ongoing 'structural seismic shifts' at work in this market as retailers and landlords continue to grapple with omni-channel retailing and seek to right size their physical presence. The UK remains the most advanced in this evolution with the combination of high per capita spend, population density and digital penetration providing retailers and (some) landlords with critical data analytics on the rapidly changing customer habits. Several themes which I have highlighted in recent years have evolved further. Supermarket operators remain in the forefront of investor concerns, the disruptive technology of online shopping and home delivery coupled with a good old fashioned price war from ever strengthening discounters has resulted in shrinking portfolios and falling rents. Not a sector we want exposure to. The opposite applies to city centre convenience stores where we see larger operators capturing market share and responding to our changing food shopping habits - fresher food and smaller basket sizes but bought more often. This is a hard sub-sector to get access to but we have significant exposure through our redevelopment (and near doubling in size) of our Waitrose store in Bayswater.

Two other themes continue to resonate. With consumers making fewer but longer trips and demanding a wide cross-section of comparison shopping we have maintained our exposure to the largest centres where we expect rents to recover first. Given the Eurozone's woes, it may appear counterintuitive when I state that our focus has been on Continental retail businesses such as Unibail and Klepierre rather than the UK names. This is primarily a function of rent sustainability and affordability. Wage inflation and spending power is definitely improving faster in the UK than on the Continent (ex Germany) and whilst we expect this to feed through into retailers' figures we remain pessimistic about UK landlords being able to share in this improving situation. With the 5 yearly upward-only rent review cycle many retail landlords continue to have over rented units in their malls. Intu's like for like rental income fell -3.2% for the year to December 2014.

Reflecting on affordability, we have increased our exposure to a particular segment of the 'squeezed middle' of the retail built environment. This euphemism refers to all sub regional centres which have (and may well continue to) suffer from the challenges of omnichannel retailing. Rents and rental values have fallen precipitously over the last 7 years and this sector has been shunned by investors, resulting in appropriate valuation levels. However in many cases they are dominant part of the local infrastructure and retailers are happy to trade from these centres if the rent is affordable and the management of the centres competent. We have increased our exposure to three specialists in this market, NewRiver Retail and Capital & Regional in the UK and Mercialys in France. All three are developing sustainable earnings and dividend yields over 5%.

The final theme within retail has been the growth in rents in prime European city centres. In 2013 the CBRE European Prime High Street Rent Index rose 6.2%, but softened in 2014 to a still healthy 2.4%. Dominant city centres, particularly those with high tourist footfall continue to see buoyant demand and rental growth. Capital and Counties, the major landowner in Covent Garden has generated a 32% increase in rental values over the last 3 years.

Distribution and Industrial

According to IPD, this sector has the second highest total return in 2014 beaten only by Central London offices. Traditionally this is the asset class where rents respond fastest to economic growth but where the supply response is also the quickest. The IPD Industrial subsector initial yield tightened by 71bps from March 2014 to March 2015 resulting in a total return of 22.7%. The distribution sector has been a huge beneficiary of the supply chain evolution experienced by their retailer customer base. Forrester, a retail consultancy, estimate that pan European online retailing will double between 2014 and 2018 from €81bn to €190bn. All of these goods pass through a distribution chain direct to the consumer rather than the traditional destination of either the shopping centre or high street retail unit. The logistics network is undergoing the same seismic shifts as the retailing environment and investors are keen to own the sector. In the UK, logistics investment turnover rose +54% to £4.2bn whilst on the Continent it rose +29% to €30bn.

Industrial rents have begun to see growth particularly in the South East of the UK with Segro reporting 3.2% ERV growth for 2014 whilst their Northern European assets reported -0.8% reflecting the spare capacity in core European markets and the lack of demand pressure to drive rents. Hansteen's assets in the Low Countries and Germany saw vacancy reduce from 16.2% to 14.8% over 2014. However, this year-end figure does also reflect the acquisition of a large Dutch portfolio with lower vacancy. Adjusting for this the reduction in vacancy over the year was modest.

CBRE's EMEA Industrial Rent Index rose just 0.8% in 2014 but with the strongest gains in the UK, Germany and Ireland.

Residential

This sector has continued to grow in importance within the portfolio. The combination of structural undersupply, ultralow interest rates and renewed wage growth in our preferred markets has led to increased exposure in the UK, Germany and Sweden. In both Germany and Sweden our focus remains on the private rented sector as opposed to the development driven businesses in the UK. Stockholm apartment values rose +15% in 2014 and were up 9.3% in Q1 2015 an astonishing acceleration reflecting both the undersupply in a city whose population is growing fast but also the availability and cost of mortgages. Our exposure is primarily through Wallenstam, Balder and DCarnegie. This last company raised just SEK 600m (£50m) in April 2014 and has risen 48% since then. It joins a long list of smaller businesses that we believe occupy particular niche markets. In Germany, where rents are ultimately controlled through the Meitspeigel 'rent table', we have continued to see upward pressure as demand continues to outstrip supply. The companies we invest in have virtually no vacancy. Once again, rental growth varies hugely across the country with Deutsche Wohnen's Berlin apartments (70% of its assets) recording average growth of 2.5%. 2014 was another year of consolidation with Deutsche Annington acquiring Gagfah. The combined entity has 230,000 apartments and a market cap of €11bn. The private rental sector is big business in Germany and economies of scale are critical in growing earnings.

The UK market has not been such a one way street. The Bank of England's mortgage lending review has certainly impacted larger mortgages and higher loan-to-values as well as slowing the pace of transactions as mortgagors become increasingly rigorous in their assessment of borrowers' ability to afford repayments. This resulted in slower nationwide house price growth than 2013, but the successful use of these macro tools to manage price growth whilst keeping short term rates very low will, I believe, come to be viewed most positively. The house builders have not been deterred, they appreciate the strong fundamentals and continue to buy land and bring forward their planning pipeline. Our overall exposure to the sector in the UK did not materially change in the period, but our focus shifted towards the regions and away from London. Alongside St Modwen (a longstanding favourite stock) we hold Urban & Civic which owns two large development sites at Alconbury (south of Cambridge) and Rugby, whilst we reduced exposure to the London focused businesses, Quintain and Capital & Counties. I was not calling the top of the London residential market, merely suggesting that these businesses could 'mark time' as capital growth paused in the face of various pressures ranging from affordability (particularly domestic sterling buyers) through to fears at the time of a 'mansion tax'. In the year to March 2015, both stocks underperformed the benchmark over the year, Quintain fell -8.2% and Capital & Counties rose +15%.

Debt and Equity Capital Markets

Seven years on from the start of the global financial crisis, commercial real estate lending to both public and private companies accelerated strongly in 2014. Whilst the overall amount of debt only increased modestly by €23bn (CBRE estimate a total pool of €978bn) the interesting statistic is that this includes €49bn of debt sold in loan portfolio sales which is roughly 5% of the aggregate commercial real estate debt on all European banks balance sheets. This is crucial evidence of banks successfully deleveraging from their nonperforming legacy loan books. 80% of these sales were to US private equity buyers who continue to focus on Europe as a recovery play. Sales of non-performing loans enables banks to clear the provisions on their balance sheets and begin a new vintage of loans. In fact, adjusting for these loan sales, CBRE estimate new lending was up 47% on the equivalent 2013 figure. This figure is still less than half the amount let in the peak year of 2007.

Listed companies have enjoyed not only this renewed lending from traditional banking sources but also the deep demand from the public debt markets. The search for income continued to drive bond yields down and property companies raised £9.5bn in the year to March 2015, compared to £5.6bn in the previous 12 months. In last year's report I highlighted Unibail's €700m 10 year bond issued in June 2013 at an all in coupon of 2.5% commenting on the attractiveness of such cheap, long term debt. Little did I expect to report that in October  2014, they issued a €750m 7 year bond at 1.375%, a neat comparable illustrating how far debt costs have come down.

It is important to note that whilst the amount of debt raised has clearly increased we have also seen a steep increase in the amount of existing debt being renegotiated. With investors seeking out businesses with higher earnings and payout ratios, many companies have sought to reduce their cost of debt by paying banks to cancel expensive swaps in return for newer cheaper debt. This is clearly a case of 'robbing Peter to pay Paul' but the market's positive response to the resulting higher earnings reflects the appetite for income.

Equity capital markets have also had a busy year but it has been dominated by primary issuance from existing companies rather than IPOs. Rights issues and raisings (often just accelerated book builds of 10% of existing equity) raised £7.2bn of equity in the period. Last year I wrote about the huge growth in the number and size of the German listed residential businesses as their predominantly private equity owners sold down their controlling stakes. This process continued in 2014 with large placings in both Deutsche Annington and Gagfah. Spain continued to see a flurry of 'cash box' IPOs in the first half of 2014 with Hispania (raising €336m) and Merlin (raising €1.2bn). These companies start life with the cash proceeds from the IPO and then aim to invest this capital (together with debt) in suitable acquisitions. In the case of Merlin it had acquired a nationwide portfolio of banking premises let to BBVA in anticipation of the flotation.

In Norway we saw the long awaited sale of 50% of the state owned Norwegian office property business valuing the business at Norwegian Kroner 12bn (£1.1bn). It has been a steady performer rising 28% despite the concerns over the lack of employment growth in oil related businesses. Neighbouring Sweden also saw the return of an industry veteran, Jens Engwall floating his highly leveraged company Hemfosa in March 2014.

With such buoyant capital markets and demand for commercial property it is no surprise that we have seen two delistings in the year, Max Property in the UK and CFI in France. The latter was more of a trade sale as UGC, the tenant of all 12 cinemas had the option to buy the portfolio. The history of Max Property was covered in detail in the Interim Report in November. Whilst the investment was a successful one for the Company (a total return of 84.2%) the key point is that the entire portfolio was bought by Blackstone very shortly after the company announced its 2 year winding up programme. It would not be a great surprise if we saw more large private equity businesses acquiring listed assets. The highly regarded management team behind Max quickly resurfaced in the public domain with the UK's only 2014 IPO, the listing of Secure Income Reit in May. This vehicle raised a very modest £15m of fresh capital, of which the Company invested £2m. It owns a mixed leisure and healthcare portfolio of very long leased properties with high leverage. The stock rose 73% over the period and we expect more equity issuance as more acquisitions are undertaken.

Property shares

In my introduction I highlighted the impact of vigorous ongoing monetary easing on the performance of a leveraged asset class such as real estate equities. The UK benefited through both 2012 and 2013 with significant outperformance by domestic property companies compared with their European cousins. However through 2014 and in particular Q1 2015 it was the turn of Continental real estate shares to benefit from the largesse of the central bank. To illustrate the point, Continental stocks outperformed UK stocks, all in local currency, by 10.3% in the fourth quarter alone with the ECB announcing their bond buying programme on 15 January.

The performance of the Eurozone companies, when viewed in local currency, was very dramatic returning +40.7% over the year. At the country level, the spread in performance was not as broad as we have seen in previous years. The asset inflation assisted by further falls in both bond yields and the cost of capital was felt across the entire region.

Germany was the top Eurozone performer with a total return of 54.4%. The combination of strong domestic growth coupled with Bund yields driving inexorably down to close to zero was a very attractive backdrop for the asset class. Global demand for the large, liquid residential businesses which dominate the German listed property index was strong. International investors saw these companies as a perfect way to combine pure domestic German exposure with an attractive leveraged asset class.

Sweden was once again a very strong performer when viewed in local currency with the group of stocks returning 42.9% in SEK but only 20.7% in GBP. Swedish property companies do not benefit from the tax transparent 'Reit' structures and therefore they maintain higher levels of debt, partly as a tax shield. With asset prices rising and the Riksbank cutting the base rate (twice) in the year, net asset values quickly appreciated as did earnings estimates (as interest bills fell). In addition,  these rate reductions helped maintain the steady depreciation of the currency. Local banks have been enthusiastic lenders to the property sector and competition has reduced debt margins further. Sweden suffers from a shortage of housing, particularly in its larger cities and with the economy forecast to grow by 2.3% in 2014 and 3% in 2015 (UBS Economics forecast) the rapid growth in house prices was reflected in the performance of Balder, our preferred residential name, which rose 86% in the year. The sharp eyed will have noticed that I highlighted this same stock in last year's annual report after it rose 71% in the year to March 2014. The founder and CEO continues to own 39% of the company.

The other standout performer in the year was also Swedish, Hemfosa whose IPO was mentioned earlier. The stock returned 97% since coming to the market in March 2014. The company rapidly invested the equity raised and took its LTV to 62% as at December 2014. It has since raised more capital through preference shares, which carry an annual coupon and are therefore debt (as far as we are concerned) and the current loan to value is a stretched 68%. I admit that we sold our holding too early but I don't hold businesses with that level of leverage unless it is heavily discounted, which in this case it isn't.

Swiss property stocks have been a longstanding underweight in this portfolio. Asset values have been stagnant for many years with low levels of turnover, the underlying rental markets either suffer from oversupply (Zurich offices) or at best offer pedestrian growth whilst the companies lack dynamic management. The sector has had an annualised return of 6.5% over the last 3 years versus the pan European benchmark return of 18.4%.

However, as mentioned in the introduction, the dramatic intervention by the Swiss National Bank in not only removing the CHF/EUR cap but also moving to negative overnight rates was a catalyst for the sleepy world of listed Swiss property companies. The two large companies, PSP Swiss and Swiss Prime Site both rose nearly 20% between 16th January and the end of February as domestic investors quickly bought into their steady dividend yields (3.7-4.0%) rather than leaving their money in the bank who now charged 0.75% for the pleasure of looking after it. We reacted quickly, increasing our exposure from 1.7% to 4.5% of net assets. This was a good example of an environment in which we needed to adjust our long standing view of the underlying weak property market fundamentals which were being overruled by exogenous central bank policy decisions.

The UK stocks collectively rose 25.1% and therefore outperformed the rest of Europe when viewed in GBP as highlighted earlier. Again there was less dispersion of returns than in previous years with a handful of notable exceptions. Within the London specialists, Workspace returned 46.1% as it benefited from a rerating of its portfolio and a surge in investor interest in its SME focused, shorter term lease model. The other outstanding performance was from Unite, the specialist student accommodation provider which rose 36.3%. Strong demand from institutional investors and private equity has driven yields down sharply in this sector. Unite, as the largest manager in the country, benefits from economies of scale and a marketing reach well beyond its competitors particularly for the growing overseas student market.

At the half year I wrote that our residential exposure was focused increasingly outside of London and indeed those businesses with the greatest Central London residential exposure (with the exception of Workspace) were amongst the poorest performers, Capital & Counties and Quintain. New build residential remains the one market which is showing signs of near term oversupply. We also completed the sale of the Vauxhall property following receipt of the permitted development right for conversion to residential further reducing our London residential exposure. In the longer run we remain confident of the strength of the London residential market as a store of wealth and that key infrastructure such as Crossrail will enable this capital city to cope with the forecasted population growth rate.

Distribution of Assets

UK equity exposure at 42.8% was lower than in March 2014 (43.3%) and due in part to the significant return of capital (2.4% of NAV) from the delisting and sale of Max Property in August. Continental European exposure increased to 50.6% from 49.0%. Investors might have expected this percentage to have grown more but the movement in the currency had a dramatic effect on the relative size of the non-GBP denominated asset base.

Our physical property asset exposure fluctuated with the sales and purchases ending the period at 6.6%.

Investment Activity

Over the period, turnover (purchases and sales divided by two) totalled £249.4m and equates to 27.4% of the average net assets over the period. This percentage is a very similar level to last year (27.8%) but the last two years have been higher than the long term average. The reasons given in last year's annual report apply equally to this year, namely higher levels of equity issuance (both primary and secondary) coupled with the response required to changes in macro driven sentiment. In addition the two de-listings (Max Property and CFI) also meaningfully increased the turnover figures.

As noted under Distribution of Assets, the ratio of UK and Continental European exposure hardly altered over the year. In the interim report I commented that, given the expectation of further monetary easing in the Eurozone I would expect Continental exposure to increase from this point. Indeed, as detailed below, our exposure to Eurozone companies did increase, only for the currency depreciation to impact the ratios. The focus remains on businesses exposed to sound underlying property markets rather than the greatest short term beneficiaries of central bank largesse. Given this approach, the most significant increase in exposure was in German residential. The fund not only participated in secondary placings in Deutsche Annington and Gagfah but also bought into Buwog, the residential arm of Immofinanz (an Austrian listed property company) which was spun out in October. We also added to all other existing residential names over the period. With Deutsche Annington acquiring Gagfah in March the combined entity together with Deutsche Wohnen are now ranked #4 and #7 largest companies in our pan European benchmark.

The other major sector consolidation in the year was the merger of Klepierre and Corio. This was effectively a takeover by Klepierre, masterminded by the 23% controlling shareholder Simon Property (the largest US retail REIT). Announced in late July, Corio's stock leapt 11% on the day as investors welcomed a fresh management approach.

Following further IPOs, the Spanish exposure in the benchmark has increased modestly to 1.4%. Our exposure remains lower than the index. Whilst we participated in both Hispania and Merlin Properties we have traded most of these positions and bought back only when the stocks were on hefty discounts to asset value last summer. The Spanish economy is indeed improving fast but we remain sceptical that a return to rental growth is imminent. What is plainly apparent is the wave of capital driving up asset prices and weakening the 'cash box' business model as potential purchases have become more expensive.

In the UK we participated in a number of corporate situations. Capital & Counties, Hammerson and New River Retail all carried out 10% overnight placings at single digit discounts to the previous price. In each case the proceeds had a clearly defined purpose and such placings enable a large fund such as this one to participate on an appropriate scale. I explained earlier the decision to invest in certain businesses focused on sub-regional shopping and we participated in the Capital & Regional £160m capital raise to acquire the remainder of the Mall partnership from Aviva. The company now owns outright 7 UK shopping centres (plus interests in a further 2) and has sold virtually all its non-core activities. These centres' rents have been reset down to new, post-crisis, levels and tenant affordability will enable these centres to generate very acceptable returns even as they continue to deal with the structural changes in retailing. This company will also be able to drive down its overheads as its business model simplifies and we hope it will act as a platform for further consolidation in this fragmented sub-market.

Revenue

As highlighted in both the Interim Report and in the Manager's Statement, the current year earnings of 8.89p include a number of one-off events. The two with the most significant impact were an unexpected dividend from Max Properties, which paid out its accumulated earnings prior to a takeover by a private equity group, and our largest investment, Unibail moving from paying a single annual dividend to semi-annual distributions. The Company received the last annual dividend from Unibail in May 2014 and the first interim dividend in March 2015, so effectively received one and a half times the usual dividend from this holding in the financial year. Other corporate actions also led companies to pay out earnings earlier than anticipated. The cumulative effect of all these was 1.25 pence per share.

Without the items highlighted above, the anticipated fall in earnings from the prior year, (which had also included a number of one off items) would have materialised. Underlying growth in the dividends has come through, albeit not at the rate that the 10% growth in earnings set out in the Financial Highlights might suggest. Without the one-off items mentioned above, the earnings would have been around 7.64p per share. The full year dividend at 7.70p, some 3.4% ahead of the prior year, takes this into account.

Revenue Outlook

At the risk of being repetitive, I must caution again that a fall in earnings is anticipated in the 2015/16 financial year. This is due in part to the fact that we are seeing a fall in income from our direct property portfolio as the redevelopment at the Colonnades is underway. This is temporary and will benefit the income account in the longer term. In addition, the acquisition of Corio by Klepierre benefitted the income account in the year under review by bringing income forward, however, it will result in a fall in income from this holding in the next financial year, although normal business is expected to be resumed thereafter.

Importantly, we expect the rate of growth in income from the underlying portfolio to slow but remain positive. In the last two years, companies have benefitted from refinancing at lower rates than the retiring debt which has provided a significant boost to income accounts. However, much of this refinancing activity is now complete and further income growth will be determined by underlying rental growth which we expect to be modest.

As usual, we cannot foresee more one-off events which will impact the revenue account in a positive or negative way. Timing of dividends close to our year ends, the impact of currency movements on our non-sterling income, and the way in which companies pay the dividends which in turn can affect the way in which they are taxed are all factors that we are unable to control.

As the Chairman highlighted in her Statement, the Board will not be afraid of utilising the revenue reserves to maintain and even grow the dividend, providing they are confident that the shortfalls will not be long term and there is evidence of underlying income growth in the portfolio.

Gearing, Debt and Debentures

Gearing levels have not changed markedly during the period, although the end of the period saw a modest fall in the levels of debt drawn.

Our facility with RBS was renewed in January and the financing terms improved. We have just completed the renewal of the ING facility, also on lower margins. The CFD portfolio was a source of cheaper funding during the year and around half of the gearing was achieved in this way.

We are also in discussion with other potential lenders as our GBP15m debenture is finally due for repayment in February 2016. This is a small liability for this size of Investment Trust, but at a fixed interest rate of 11.5% we will be happy to repay.

Direct Property Portfolio

It was another busy year for the physical property portfolio which produced a total return of 15.0% over the 12 months made up of a capital return of 11.2% and an income return of 3.7%. The IPD Monthly Index total return was 18.3% (a capital return of 11.6% and an income return of 6.0%). During the year 5 separate property transactions were concluded totalling £30.8 million.

There were three purchases over the year. In the Interim Report we wrote about the acquisitions of a logistics unit in Bristol for £4.575m reflecting a net initial yield of 6.9% and an industrial building in Plymouth where we paid £3.25m reflecting a net initial yield of 8%. Since the Interim report we acquired Beacon House in Wimbledon for £3.5m which reflects a net initial yield of 4.5% and a capital value of £300 per sq. ft. The property is a 12,500 sq ft office located close to the train station in this affluent London suburb. The upper floors are let on short leases expiring in March 2016 and the ground floor is let to the British Red Cross on a long lease at a nominal rent. The purchase rationale centres on the refurbishment and reletting of the building to provide good quality office accommodation in a London suburb where prime rents are £45 per sq ft and there is a distinct lack of available stock. Excluding the Red Cross income the average rent in the building is £18 per sq ft.

There were two sales, Vauxhall and Milton Keynes. The sale of Vauxhall completed at the beginning of the year 4.2% ahead of the March 2014 valuation, following confirmation from Lambeth Borough Council that the building could be converted to residential use. The sale was in line with the Company's strategy of reducing exposure to the central London residential market. In December we concluded the sale of the Milton Keynes office to the tenant for £5 million, a 30% premium to the September book value.

At the Colonnades, Bayswater, following receipt of planning permission and completion of the agreement for lease with Waitrose in March 2014, construction of the extended and refurbished commercial accommodation began in September. At the time of writing the project is on time and on budget with handover to Waitrose of their new supermarket set for August 2015. The construction investment for the year was £2.5m with a further £6m of capital expenditure remaining. Completion of the entire scheme is set for November 2015 and we have started to market the 5 ground floor retail units with good expression of interest received. Residential lease extensions also continued with another 11 completions in the year providing the Trust with net receipts of £0.9m. Close to 50% of 242 flats have now completed lease extensions.

Outlook

The ultra-low and indeed, in some instances, negative bond yield environment across the Eurozone fostered by the ECB's bond buying stimulus drives an unprecedented hunt for yield. It also reduces the cost of capital leading to asset value inflation in Continental Europe. Our view is that the ECB will ensure that the programme continues until they are very comfortable that the benefits are being felt in the wider real economy. However, as should be clear from the tone of this report we prefer companies that are close to, or experiencing real rental growth in their portfolios. Asset prices stimulated by central bank intervention need to eventually find an underpinning from occupier demand and we watch closely for appropriate data points. Importantly the lack of new construction and reluctance of banks to fund speculative development continues to reassure us that improving economic fundamentals which deliver tenant demand will translate into rental growth promptly.

At the time of going to print the Conservatives had, against almost universal expectation, won a slim majority at the UK General Election. Whilst this certainty is good news for business in general it does bring renewed focus on the possibility of an EU referendum in 2017. The ability of the single currency to deal with its immense structural issues will remain a central theme for investor sentiment and the immediacy of the Greek debt renegotiation reminds us of the complexities. We expect the European Central Bank's monetary policy to remain accommodating.

Meanwhile in the UK, the expectation of the commencement of an upward rate cycle may weigh on short term asset appreciation in the UK. However we think that quite quickly commercial property investors will adapt to the new environment where modest increases in the base rate will be the appropriate response of the central bank to an economy growing faster than its neighbours. Combined with so little new development over the last 7 years ongoing tenant demand will be good news for rental growth.

Marcus Phayre-Mudge

Fund Manager

Overview of strategy, performance measurement and risk management

Management Arrangements and business model

The Alternative Investment Managers Directive ("AIFMD") became effective during the financial year. The Board has appointed F&C Investment Business Limited as the Alternative Investment Fund Manager with portfolio management delegated to the former Investment Manager, Thames River Capital LLP.

Marcus Phayre-Mudge acts as Fund Manager to the Company on behalf of Thames River Capital LLP and Alban Lhonneur is deputy Fund Manager. George Gay is the Direct Property Manager and Joanne Elliott the Finance Manager. They are supported by a team of equity and portfolio analysts.

The Company has no employees. Its wholly non-executive Board of six Directors retains responsibility for corporate strategy; corporate governance; risk and control assessment; the overall investment and dividend policies; setting limits on gearing and asset allocation and monitoring investment performance.

In accordance with the AIFMD, BNP Paribas has been appointed as Depository to the Company. BNP Paribas also provide custodial and administration services to the Company. Company Secretarial Services are provided by Capita Company Secretarial Services.

Investment Objective and Policy

The Company's Objective is to maximise shareholders' total return 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 91 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 asset allocation 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 particular property in question. Valuations of all the Group's properties as at 31 March 2015 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 2015 the Company delivered a total return of 28.3% compared with a benchmark return of 23.3%, an outperformance of 5.0%. This continues a long term track record where over a ten year period the NAV total return of 187.9% has outperformed the benchmark total return of 110.3%.

Delivering a reliable dividend which is growing over the long term

The principal objective of the company is a total return objective, however, the Portfolio 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 2015 is 7.70p, an increase of 3.4% over the prior year dividend. The dividend has grown by 2.7 times in 10 years, equivalent to 10.5% 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 in 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 an investment trust discount or premium of the share price to net asset value 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 potential impact of any share buy-back activity on the liquidity of the shares and on ongoing charges in the longer term.

During the year under review, no shares were repurchased.

The discount to NAV (including income) started the year at 2.9% and ended at just under 2.4% and through the year traded between a discount of 4.1% and a premium of 2.7%.

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 publically 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 (they either hold their portfolios as 100% securities or 100% direct property), we show this statistic with and without the direct property costs to allow a clearer comparison of overall administrative costs 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 2015, the ongoing charges (without direct property costs) decreased from 0.75% to 0.70%. One factor in this is the construction of the base management fee, a large part of which is a fixed sum, so in a rising market the increase in management fee is modest.

Investment Trust Status

The Company must continue to be operated 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 2015 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 makeup of the benchmark. This may result in returns which are not in line with 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 Investment 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 the Company is exposed to include market price risk, credit risk, liquidity, exchange rate and interest rate risks.

o The accounting and operational risks 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 sub-standard 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 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

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 Act 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 of 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 Statement of Comprehensive Income

For the year ended 31 March 2015

	Notes	Year ended 31 March 2015					Year ended 31 March 2014
		Revenue Return £'000	Capital Return £'000		Total £'000		Revenue Return £'000	Capital Return £'000	Total £'000
Investment Income Investment income                         Other operating income                    Gross rental income                       Service charge income                     Gains on investments held at fair value                                        Net movement on foreign exchange; investments               Net movement on foreign exchange;  cash and cash equivalents Net returns on contracts for difference	2	29,315 348 3,065 1,413 - - - 2,548		- - - - 189,246 (2,633) (1,585) 24,046		29,315 348 3,065 1,413 189,246 (2,633) (1,585) 26,594	27,791 7 3,384 1,448 - - - 1,303	- - - - 129,120 746 (393) 6,150	27,791 7 3,384 1,448 129,120 746 (393) 7,453
Total Income		36,689		209,074		245,763	33,933	135,623	169,556
Expenses Management and performance fees  Direct property expenses, rent payable and service charge costs Other administrative expenses	8	(1,245) (1,920) (1,117)		(11,479) - (41)		(12,724) (1,920) (1,158)	(1,181) (1,850) (890)	(13,207) - -	(14,388) (1,850) (890)
Total operating expenses		(4,282)		(11,520)		(15,802)	(3,921)	(13,207)	(17,128)
Operating profit Finance costs		32,407 (1,013)		197,554 (3,039)		229,961 (4,052)	30,012 (792)	122,416 (2,376)	152,428 (3,168)
Profit from operations before tax		31,394		194,515		225,909	29,220	120,040	149,260
Taxation		(3,180)		1,849		(1,331)	(3,540)	3,095	(445)
Total comprehensive income		28,214		196,364		224,578	25,680	123,135	148,815
Earnings per Ordinary share	3	8.89p		61.85p		70.74p	8.09p	38.78p	46.87p

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 and Company Statement of Changes in Equity

For the year ended 31 March 2015	Notes	Share Capital Ordinary £'000	Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings Ordinary £'000	Total £'000
At 31 March 2014		79,375	43,162	43,934	642,967	809,438
Net profit for the period		-	-	-	224,578	224,578
Dividends paid	7	-	-	-	(23,971)	(23,971)
At 31 March 2015		79,375	43,162	43,934	843,574	1,010,045

For the year ended 31 March 2014		Share Capital Ordinary £'000	Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings Ordinary £'000	Total £'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	7	(94)	-	94	(736)	(736)
Dividends paid		-	-	-	(22,860)	(22,860)
At 31 March 2014		79,375	43,162	43,934	642,967	809,438

Group and Company Balance Sheet as at 31 March 2015

	Group 2015 £'000	Company 2015 £'000	Group 2014 £'000	Company 2014 £'000
Non-current assets	1,055,988	1,055,988	880,483	880,483
Investments held at fair value
Investments in subsidiaries	-	53,517	-	53,305
	1,055,988	1,109,505	880,483	933,788
Deferred taxation asset	237	237	200	235
	1,056,225	1,109,742	880,683	934,023
Current assets
Debtors	20,882	20,484	11,405	11,385
Cash and cash equivalents	21,427	21,411	9,740	9,599
	42,309	41,895	21,145	20,984
Current liabilities	(88,489)	(141,592)	(77,390)	(145,569)
Net current liabilities	(46,180)	(99,697)	(56,245)	(124,585)
Total assets less current liabilities	1,010,045	1,010,045	824,438	809,438
Non-current liabilities	-	-	(15,000)	-
Net assets	1,010,045	1,010,045	809,438	809,438
Capital and reserves
Called up share capital	79,375	79,375	79,375	79,375
Share premium account	43,162	43,162	43,162	43,162
Capital redemption reserve	43,934	43,934	43,934	43,934
Retained earnings	843,574	843,574	642,967	642,967
Equity shareholders' funds	1,010,045	1,010,045	809,438	809,438
Net Asset Value per: Ordinary share	318.12p	318.12p	254.94p	254.94p

Group and Company Cash Flow Statements as at 31 March 2015

	Group 2015 £'000	Company 2015 £'000	Group 2014 £'000	Company 2014 £'000
Reconciliation of operating revenue to net cash inflow from operating activities
Profit from operations before tax Financing activities	225,909 4,052	225,944 3,860	149,260 3,168	150,400 3,124
Gains on investments and derivatives held at fair value through profit or loss	(213,292)	(213,029)	(135,270)	(136,940)
Foreign exchange movements	1,585	1,585	393	393
Increase in accrued income	(1,197)	(814)	(284)	(323)
Net sales/(purchases) of investments	31,737	31,262	(6,163)	(30,381)
(Increase)/decrease in sales settlement debtor	(1,622)	(1,622)	386	386
Increase/(decrease)  in purchase settlement creditor	5,448	5,448	(6,749)	(6,749)
Increase in other debtors	(242)	(247)	(1,194)	(1,190)
(Decrease)/increase in other creditors	(566)	(1,227)	6,663	30,993
Scrip dividends included in investment income	(1,203)	(1,203)	(2,641)	(2,641)
Net cash inflow from operating activities before interest and taxation	50,609	49,957	7,569	7,072
Interest paid	(4,052)	(3,860)	(3,168)	(3,124)
Taxation paid	(1,314)	(729)	(3,338)	(2,384)
Net cash inflow from operating activities	45,243	45,368	1,063	1,564
Financing activities
Equity dividends paid	(23,971)	(23,971)	(22,860)	(22,860)
Repurchase of shares	-	-	(736)	(736)
(Repayment)/drawdown of loans	(8,000)	(8,000)	19,000	19,000
Net cash used in financing activities	(31,971)	(31,971)	(4,596)	(4,596)
Increase/(decrease) in cash	13,272	13,397	(3,533)	(3,032)
Cash and cash equivalents at start of year	9,740	9,599	13,666	13,024
Foreign exchange movements	(1,585)	(1,585)	(393)	(393)
Cash and cash equivalents at end of year	21,427	21,411	9,740	9,599
Note
Dividends received	29,919	29,919	25,833	25,833
Interest received	407	407	132	132

Notes to the Financial Statements

1	Accounting Policies
	The financial statements for the year ended 31 March 2015 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
			2015	2014
			£'000	£'000
	Dividends from UK listed investments		1,550	2,001
	Dividends from overseas listed investments		20,646	16,995
	Scrip dividends from overseas listed investments		1,203	2,641
	Interest from listed investments		369	236
	Property income distributions		5,547	5,918
			_________	_________
			29,315	27,791
			_________	_________
3	Earnings per share
	Earnings per Ordinary share
	The earnings per Ordinary share can be analysed between revenue and capital, as below.
			Year ended 31 March 2015 £'000	Year ended 31 March 2014 £'000
	Net revenue profit		28,214	25,680
	Net capital profit		196,364	123,135
			_________	_________
	Net total profit		224,578	148,815
			_________	_________
	Weighted average number of Ordinary shares in issue during the year		317,500,980	317,536,391
			_________	_________
			pence	pence
	Revenue earnings per share		8.89	8.09
	Capital earnings per share		61.85	38.78
			_________	_________
	Earnings per Ordinary share		70.74	46.87
			_________	_________
4	Net asset value per Ordinary share
	Net asset value per Ordinary share is based on the net assets attributable to Ordinary shares of £1,010,045,000 (2014:£809,438,000) and on 317,500,980 (2014: 317,500,980) Ordinary shares in issue at the year end.
5		Share capital changes
		No Ordinary shares were repurchased or cancelled during the current year.
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 2015 or 2014. The statutory accounts for the year ended 31 March 2015 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 2015 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		Dividends Ordinary shares An interim dividend of 2.95p (2014: 2.85p) per share was paid on 6 January 2015 to shareholders on the register on 5 December 2014. A final dividend of 4.75p (2014: 4.60p) will be paid on 4 August 2015 to shareholders on the register on 26 June 2015. The shares will be quoted ex-dividend on 25 June 2015. Income growth: Over the past ten years the annual net dividend per share has grown by 2.7 times, equivalent to 10.5% per annum compounded.
8		Related party transactions disclosures Remuneration of key management personnel The total remuneration of the directors, who are the key management personnel of the Company was £230,000 (2014: £230,000). Investment Manager's fee During the year ended 31 March 2015 Thames river Capital charged management fees totalling £4,979,000 (2014: £4,719,000) to the Group in the normal course of business. The balance of management fees outstanding at 31 March 2015 was £186,000 (2014: £125,000). In addition a performance fee of £7,745,000 was outstanding at 31 March 2015 (2014: £9,669,000).
9		Annual Report and AGM The Annual Report will be posted to shareholders in June 2015 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 21 July 2015 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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