Final Results

RNS Number : 1968Z

TR Property Investment Trust PLC

25 May 2016

 

This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.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 2016

25 May 2016

Financial Highlights and Performance	Year ended 31 March 2016	Year ended 31 March 2015	% Change
Balance Sheet	335.56p	318.12p	+5.5%
Net asset value per share
Shareholders' funds (£'000)	1,065,419	1,010,045	+5.5%
Shares in issue at the end of the period (m)	317.5	317.5	+0.0%
Net debt1	11.9%	12.8%
Share Price
Share price	297.50p	310.50p	-4.2%
Market capitalisation	£945m	£986m	-4.2%

	Year ended 31 March 2016	Year ended 31 March 2015	% Change
Revenue	8.36p	8.89p	-6.0%
Revenue earnings per share
Dividends2
Net Interim dividend per share	3.15p	2.95p	6.8%
Net Final dividend per share	5.20p	4.75p	9.5%
Net Total dividend per share	8.35p	7.70p	8.4%
Total Return Assets and Benchmark
Total Return Assets and Benchmark
Benchmark performance (total return)	5.4%	+23.3%
Net asset value total return	8.2%	+28.3%
Share price total return	-1.6%	+29.5%
Ongoing Charges3
Excluding performance fee	0.72%	0.76%
Including performance fee	1.06%	1.64%
Excluding performance fee and direct property costs	0.67%	0.70%

1.    Net debt is the total value of loan notes, loans (including notional exposure to CFDs) 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 2016. An interim dividend of 3.15p was paid in January 2016. A final dividend of 5.20p (2015: 4.75p) will be paid on 2 August 2016 to shareholders on the register on 24 June 2016. The shares will be quoted ex-dividend on 23 June 2016.

3.    Ongoing charges calculated in accordance with the AIC methodology (using fair value NAV).

Chairman's Statement

Introduction

Pan-European property and property equities delivered a more modest return to investors in the Trust's financial year than they had experienced over the previous three years, but unlike broader European equity markets as measured by the FTSE ALL Share (-3.9%) and the Eurostoxx 600 measured in Euros (-12.8%) the return was positive.

The first half of the year saw the sector benefit from its domestic focus as investors became nervous about the impact of weaker commodity prices and a Chinese economic slowdown on world activity. In the second half of 2015 and into 2016 as central bank action drove bond yields ever lower, and in some cases into negative territory, the search for income across other asset classes continued to support property values and has allowed property investors, including the Trust, access to debt at very low rates.

Last year I commented on the impact on the Trust of the weakness of the Euro against Sterling. This year, in spite of offering higher interest rates, Sterling has fallen 11.5% against the Euro apparently because of investors positioning themselves against the perceived risk of Brexit. The Trust's European assets have therefore risen in value when measured in Sterling.

The Manager's strategy of concentrating investment in markets where rental growth is visible or can be expected (UK, Germany, Sweden) worked well in the first nine months of the financial year. A change in appetite for London high value residential was anticipated and, as highlighted in the interim report, the Manager had reduced exposure accordingly. However investor sentiment towards companies exposed to London property, both commercial and residential, turned negative towards the end of the year and even businesses with very limited exposure to London residential development suffered severe corrections which meant that performance in the final quarter was disappointing.

The directly-held properties, largely because of asset management initiatives at the Bayswater property and a significant increase in passing rents at Wandsworth, added to overall performance.

NAV and Share Price Performance

The NAV rose 8.2% which was well ahead of the benchmark rise of 5.4%. However the share price total return was -1.6%. At the start of the period the share price was trading close to the capital net asset value. In common with many other sector-specialist investment trusts a discount has reappeared, starting in this case in late September, though it has been more stable since January. This 10% discount is slightly higher than the average of 9% over the past ten years.

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

Revenue Results and Dividend

Earnings per share are 8.36p compared to 8.89p in the previous year. The prior year earnings were inflated by a number of one-off events, and lower earnings for the year ended March 2016 were flagged in last year's Annual Report and again at the interim stage.

Nevertheless, we have still continued to see underlying growth in our dividend income and the Directors have announced a final dividend of 5.20p per share, a 9.5% increase over the prior year final dividend. This brings the full year dividend to 8.35p, a 8.4% increase on the 2015 total of 7.70p.

Revenue Outlook

Whilst much of the benefit of debt refinancing has now been extracted by companies such that lowering costs of debt further are not likely to add much to earnings for the next year, we still expect to see modest growth in underlying earnings (and therefore dividends) driven by rental growth and accretive acquisitions. Indeed, the Trust's own development at The Colonnades in Bayswater is now complete and the benefit in income terms will be seen over the coming year.

The usual caveats apply, change in the timing of dividends received over the active period around our year end have an impact as can corporate activity. The main unknown though is FX rates and since around 60% of our income is not Sterling denominated, this can have a significant impact on the earnings for the year.

Net Debt

Gearing was 12.8% at the beginning of the year, (it did increase through the first half) to 11.9% at year end. These figures include the impact of the CFD exposure. Half of the gearing at the year end was achieved through CFD positions.

As set out in the interim statement, new long term loans of £15m and €50m were agreed through a private placement and these were drawn in February. The sterling amount was immediately used to repay the 11.5% existing debenture. Further details of the loan notes and other borrowing facilities are set out in the Manager's Statement, but the ongoing annual interest cost on the new term loans totalling c. £55m is lower than that on the £15m of retiring debt.

Currencies

As reported earlier currency movements have been significant over the period. We continue to use FX forward contracts to maintain the currency exposure of our Balance Sheet broadly in line with that of the benchmark.

Discount and Share Repurchases

As mentioned, the discount did widen over the year and at the year-end was above the long-term average. The Directors continue to monitor the discount and the Trust's share register closely and encourage the Manager's active investor relations programme. No share repurchase took place during the year.

The Trust is available on a broad range of investor platforms and I would remind investors of our dedicated website (www.trproperty.com) which provides current and background data on the Trust including a monthly factsheet.

Change of Auditor

For the reasons set out in the Report of the Audit Committee, Ernst & Young will not seek reappointment as external auditor at the Annual General Meeting. This is by mutual agreement between the Board and EY, who have provided excellent service to the Company for many years. Following an audit tender, shareholders will be asked to approve a resolution to appoint KPMG LLP as the Company's independent auditor with effect from the conclusion of the Annual General Meeting in July.

Outlook

Many of the themes highlighted in my outlook for the previous period are still important in the Manager's thinking. Generally, throughout Europe, value and occupier demand is supported by modest new supply coming onto the market with a continuing lack of speculative development finance. Investors both in property and elsewhere are more than ever inclined to pay up for security of income and unwilling to put current value on future growth. This has influenced the Manager's decision to reduce exposure to development-oriented shares, particularly in London. A Brexit decision to leave the EU would undoubtedly raise questions in investors' minds as to the long-term sustainability of employment in financial services in the UK capital.

In Continental Europe the Manager expects the Trust's exposure to Germany to continue to deliver outperformance. A change of strategy towards Sweden may become appropriate as the Manager has some concern that the economy there could overheat. The situation is being closely monitored.

Whilst bond yields remain as low as they are, real estate will continue to offer an income advantage. Property is a pro-cyclical asset class and the strongest performing property markets have experienced a return to rental growth. Without a broadening of tenant demand across Europe we will see further valuation gains restricted but with earnings underpinned by the very low cost of debt.

Caroline Burton

Chairman

Manager's Report

Performance

The Net Asset Value total return of +8.2% was ahead of the benchmark total return of +5.4%. The share price total return (assuming dividend reinvestment) was a poorer -1.6% as a result of the share price moving to a 10% discount to the net asset value. A year ago the share price stood close to par with the asset value.

I commented in the Interim Report that the first half had been 'a game of two halves' with the market weakening in Q1 only to recover in Q2. This pattern was broadly repeated in the second half with the low point of June almost matching the low of February. At the time of writing (mid May) the market has experienced a sustained rally from that February low. The last 12 months have been dominated by concerns surrounding global growth and the impact of multi-decade lows in the price of oil. With renewed fears of deflationary pressures the focus has, once again, been on the behaviour of central banks. The recovery in markets over the last couple of months has been strongly assisted by the dovish behaviour of the Federal Reserve and, more locally for our investments, the promises made by the ECB. Mario Draghi announced, amongst other initiatives, a widening of the unorthodox monetary easing programmes to include the purchase of a broader range of financial assets. The cost of debt fell further for the companies we were invested in. With bonds, both sovereign and corporate, offering anaemic returns, well financed property companies, many yielding over 4% and offering the prospect of further cash flow growth, are attractive.

As a result Continental European companies outperformed the UK names in the second half of the year, a reverse of the pattern seen in the first half. This gulf in relative performance has been particularly acute in the last few months. The Europe ex UK (in EUR) component of our benchmark returned +3.6% in Q1 2016 whilst the UK names (in GBP) fell -7.1%. Not only have the Continental property companies benefited from this ECB driven tailwind, the UK has suffered its own headwind in the form of the upcoming referendum.

The impact of the uncertainty surrounding the June vote has fallen most heavily on the largest UK companies, (in part as a consequence of their greater liquidity) and the most London-centric. Whilst the fund does hold a large position in Land Securities, this was offset by a large underweight position in British Land. Performance suffered in the last quarter of the financial year from our large positions in high-quality London-centric businesses such as Derwent London, Great Portland Estates and CLS Holdings. The collective overweight to the UK (versus Continental Europe) was reduced to a five year low in the second half on anticipation of weakness in the high-end London residential market as supply increased and stamp duty changes significantly damaged transaction volumes.

The largest contributors to the relative outperformance were the large positions in German residential businesses and our physical property portfolio which saw strong returns from asset management initiatives in the London assets. The German residential markets continue to offer strong fundamentals with continuing demand (household growth and immigration), affordability (due to wage inflation) and lack of new supply (inner city planning and zoning constraints) all contributing factors. The listed German companies are now 18.5% of our benchmark, consolidation as well as the listing of new residential entities have been regular corporate actions over the last few years. This year saw the successful acquisition of Gagfah by Vovonia funded by a €2.2bn rights issue. However this was followed by a hiatus of corporate activity as the three largest companies then attempted (quite unnecessarily in our view) to take each other over. The end result was that the status quo of three separate businesses was maintained with shareholders correctly identifying that over payment for modest synergies and cost savings was bad business. The only consequence appears to have been large fees to advisers coupled with silence from the respective supervisory boards over the behaviour of some management teams.

Property Investment Markets

Real estate remained a popular asset class in 2015 with a record year of investment in the UK at £66.3bn. However the profile of investor type and sector focus has altered when compared to previous periods and we expect many of these themes to continue this year and beyond. In last year's Annual Report and in the Interims I commented on the renewed focus on regional assets, versus London and this has continued apace. South East offices saw a record transaction volume of £3.4bn, almost twice the ten year average, whilst Central London rose just 4% to £26.9bn. UK institutions were net sellers in the second half and we expect that to continue particularly as the large retail customer focused daily dealing vehicles continue to report modest net redemptions. They were joined by private property companies who were also net sellers (£6.5bn) but demand from overseas buyers rose accounting for 50% of total volume. Central London continues to receive the lion's share of transactions but the 50% share was down from 60% in the previous year. Overseas buyers are also looking further afield and are now a major owner of commercial property across the UK. According to the Investment Property Forum, overseas ownership is now over 25% of all UK commercial property, up from 14% in 2002.

We do not expect these volumes to be matched in 2016. A pause in decision making ahead of the Referendum is anecdotally evident and set to continue through Q2 2016. The importance of overseas buyers is also likely to continue as the UK's safe haven status for international capital remains undiminished. The weakness of Sterling is a real support for all exports and property is no exception.

The ability to buy commercial property at yields well in excess of the cost of the debt required to finance it remains a key attraction. With the cost of debt falling further over the last 12 months and rental growth (albeit mostly quite modest) in evidence across most markets, the strong +11.7% total return (IPD Monthly March 2016 Index) is not a surprise. Looking forward the return balance of 5.5% from income and 5.9% from capital is set to swing further towards income as yield compression becomes harder to envisage in a maturing capital cycle.

Across Europe, the impact of the ECB's actions continue to resonate with lower cost of borrowing for corporates. Banks still see real estate as an attractive asset and exposure continues to grow. Markets where there is tangible evidence of a supply/demand imbalance are experiencing rental growth and this is attracting investors and driving down yields. In Germany, prime office yields have reached all time lows in Munich (3.5%) and Berlin (4%) having tightened over 50bps in a year. Investment volumes in German offices had a like-for-like increase of 25% to €25bn (versus an average over the last 5 years of just €11.3bn) according to CBRE. Similar yield compression has been felt in their residential markets where the nationwide average rent increase has been 3%. In cities of over 500,000 people the growth rate has averaged 4.2%. Both listed and private property companies have been active and the residential market reached a record transaction volume of €22bn as measured by Savills.

Offices

Sentiment towards the London office focused companies has clearly weakened since the beginning of 2016 as investors fretted about a slowdown in rental growth driven by an increase in supply and the potential risks to demand. The potential 'demand shock' they argue is both short-term around Brexit driven delays to decision making and longer-term from the steep increase in the cost of space. The risk of a future demand shock is an unknown, whilst the supply of office space is much more measurable given lengthy construction periods. The reality of 2015 was a record breaking take up of 12.2m sq ft (11.3m sq ft in 2014) and the highest since the dot-com frenzy of 2000. This take up level was a staggering 23% ahead of the 10 year average and this market evidence sustained our overweight position to the London names.

Supply remains limited in a historical context across all submarkets. Docklands, traditionally viewed as the market with the greatest availability and a finance focused tenant base had an overall vacancy level of 4.9%. There are no new buildings scheduled for completion until 2018. The vacancy situation in the City and further West into Midtown and the core West End is even tighter. The West End has vacancy of 2.6% but unusually it is this market which currently has the greatest supply response with 2.3m sq ft, a record, due to complete in 2016. However the devil is always in the detail and 50% of this space is accounted for in 3 buildings in Victoria and 2 in Hammersmith. The latter is really only classed as 'West End' in the eye of an optimistic estate agent.

None of this supply data is worrying, if anything quite the contrary, but corrections in rental values are generally driven by demand shock which may or may not then be compounded by oversupply. We note that active demand fell in Q4 2015 and we expect that to continue into the 2016 data. According to Jones Lang LaSalle, West End active demand at 5.3m sq ft is now in line with the long-term average of 5.2m sq ft. TMT accounts for 33% of current requirements and this demand is much more determined by global growth than local factors. It is this industry sector's growth which drives our ongoing positive view on the newest sub-markets, north of Oxford St and further east to the Tech Belt, north of the City.

The concern, as voiced in the Interim, remains those areas most dependent on financial services and larger occupiers. Again, the risk is not supply, which will only reach the 10 year average in 2018, but demand. In the City, Docklands and the Southbank demand is driven by financial services and primarily banking and a vote to leave the European Union would have a significant impact for many years.

Last year I commented that office markets around the M25 and the larger regional centres were all experiencing real rental growth, many for the first time since 2007. This broad improvement has not only continued but has accelerated in new build and Grade A refurbished stock as tenants compete for better quality space. Availability in the entire M25 market (as measured by Knight Frank) is at a level last seen in 2001. Although take up was only slightly ahead of the 10 year average (at 2.7m sq ft) the cumulative effect of steady demand growth and lack of new supply has eroded vacancy rates to historic lows in the M3 and M4 markets. Availability is 26% below the 10 year average. There is some supply (3.5m sq ft) to be delivered in the next 2 years but not enough to return availability to long-term averages. The fund continues to add to its position in Mckay Securities, the only REIT focused entirely on office and industrial in the South East.

Paris focused property companies have seen the opposite response from investors when compared with their London cousins. Here, where the recovery in rents is, at best nascent and patchy, share prices have been driven upwards as investors rotate from the 4 year old growth story in London to the potential up cycle in Paris. Once again, the devil is in the detail. We have been fans of the recovery in central Paris for the last two years, through our investment in Terreis, a small cap stock focused only on the CBD. The net asset value of this business has grown 35% in the last two years as rents rose and yields have fallen. This prime sub market has seen a surge in take up with CBRE reporting that 2015 was the best performance since 2006. This take up was driven primarily by a 15 year record in the number of transactions of less than 50,000 sq ft; whilst larger transactions (those above 50,000 sq ft) were the second lowest in a decade. Vacancy across the broad Paris region continues to be as polarised. Paris Centre West has a vacancy rate of 4.7% and an enduring shortage of modern space. La Defense, the Western Crescent and beyond to the Inner Rim vacancy still stands at 10% as demand continues to be matched by supply. The good news is that possible future supply (available schemes not commenced) has slowed and more markets have reached rental stabilisation (as opposed to decline) over the last year with vacancy edging down towards the 10 year average.

Germany continues to be a mixed bag of performance with Frankfurt again the laggard and the only office market not to experience vacancy reduction. The two largest markets Berlin and Munich saw vacancy levels fall to 6.4% and 4.9% respectively with the commensurate upwards pressure on rents. The merger of Alstria and Deutsche Office last year resulted in a business with a market cap of €1.9bn and offers us exposure to most of the major markets but not quite enough of the preferred ones.

The performance of the Swedish economy and its central bank continue to confound the sceptics. GDP growth in Q4 2015 reached an annualised rate of 4% meanwhile the central bank maintain negative interest rates. One consequence is an ongoing surge in both residential and commercial property values with market evidence continuing to point to yield compression in virtually all portfolios of the listed companies. With rents so closely tied to GDP growth it is no surprise that rents are rising particularly in Stockholm (16% in 2015) and Gothenburg (8% in 2015).

Retail

The retail sector continues to be the underperformer. The exception remains Central London and more of that later in the report. The IPD Monthly Index retail rental growth for the last twelve months was 0.9% versus the All Property equivalent figure of 4.1%. However there has been a marked improvement recently when you compare this figure with the equivalent three year data where the average annualised growth rate was just 0.1%. The fund's underweight position to UK retail has been a consistent theme for many years driven by the structural seismic shifts in the retail landscape. There are tentative signs of headline rental growth in certain dominant centres as retailers compete for the right sized space in the omnichannel retailing environment. However, the fundamental problem for landlords remains the capital expenditure required to bring their centres up to a standard whereby customers will want to spend time (and money) rather than just spending their money online.

The retail environment is getting better and record levels of employment result in more overall spend even if much of the growth in jobs has been low skilled/low pay. In 2015, retail sales grew 1.1% (ONS data) but sales through physical stores fell -0.3% year on year. Effectively all the additional growth was captured by online sales which grew its overall share of sales from 12.4% to 13.5%. Acknowledging this overall sales volume improvement but unable to ignore the ongoing difficulties for physical stores, particularly centres with very high rents, has resulted in us focusing on market segments where we are more confident of retailer affordability even in the face of online competition. The fund's UK retail exposure is therefore through Capital & Regional and New River Retail who returned 16.4% and 13.7% over the financial year. This compared to the larger retail REITs, Hammerson and Intu, who own more dominant centres but where tenant affordability is more stretched. We have also become increasingly concerned about the yields applied to these larger malls given anaemic growth and high levels of capital expenditure required. These two companies returned -9.6% and -6.1% respectively in the period.

Our approach to Continental retail is different and hasn't dramatically altered over the last year. We are overweight the group as a whole favouring the largest companies who own dominant centres. Online sales growth remains slower than in the UK but is a growing trend. The key differential remains tenant affordability and we have maintained exposure not only to Unibail and Klépierre but also Mercialys. However the weakness in sub-regional high streets is ongoing as customers continue to make fewer but longer trips and we have reduced exposure to the Dutch businesses Vastned Retail and Wereldhave.

Shopping is a leisure activity and increasingly combined with dining. The fastest growing sector of any mall is in F&B (food and beverage) and the traditional food court tacked on or tucked away on the upper level is being reinvented. A range of food offers extends dwell time but landlords are discovering that significant investment needs to be made in re-engineering their malls to accommodate this very different retailer mix. Prime city centres with a range of unit sizes and natural side streets linking prime retail pitches offer the best chance of creating that mix of retail, restaurant, bar and café. It is no surprise that Capital & Counties' Covent Garden assets and Shaftesbury's retail portfolio recorded respective rental growth of 12% and 4% in 2015.

Distribution and Industrial

The growth in online retailing continues to drive a re-engineering of the distribution landscape. Last year 35% of all deals involved the retail and food sectors according to data from Colliers International. Particularly with business to consumer deliveries, the competition requires next day delivery and, increasingly in numerous urban environments, same day delivery. There has been a land grab across key distribution hubs all over Northern Europe resulting in rising rents. UK distribution property rental growth averaged 5% in 2015. The largest distribution units are getting larger with a huge amount of sophisticated goods handling automation. This investment by the tenant, encourages them to take long leases (to write down the costs) and this adds to the value of the investment. Amazon's 1m sq ft hub in the West Midlands has been sold to a Korean investor for a reported initial yield of 4.5% and a capital value of £126m. Big shed, big numbers.

The sector is in rude health with take-up reaching 96.4 million sq ft in 2015, up 7% on 2014. Overall supply shrank by 26% and by more than that in the South East. However, with the shortest build time, the sector is always the fastest to respond and 2015 recorded the first annual increase in Grade A availability since 2009. It is interesting to note that the greatest imbalance between supply and demand is in the sub 50,000ft market as opposed to the logistics driven +250,000 sq ft. This broader spread of demand is comforting and we expect rental growth to continue into 2016. We maintained our large holding in St Modwen which has the largest regional industrial exposure of any listed company. London Metric and Tritax BigBox offer purer logistics exposure but we are concerned that yields are now implying rental growth which will be harder to achieve as the supply/demand imbalance evaporates for the larger units.

Residential

I have already commented on the strength of the German residential market but it was by no means unique. Both Sweden and the UK continue to enjoy capital appreciation given the combination of record low mortgage costs and long running undersupply, particularly in the larger cities. The Swedish government is examining further macroprudential tools in an effort to control house price inflation whilst the Riksbank's negative base rate stance does increase mortgage affordability. However the market does not appear to have heeded the threat of these affordability controls and Swedish house prices rose an astonishing 32% in 2015. Our largest residential overweight was to Balder which rose 41% in the year. The only other residential business in the index, Wallenstam we did not hold and it fell -1.4%.

In the UK, the Conservative government has endeavoured to promote new build first time buyers with the 'Help to Buy' scheme whilst trying to reduce the tax benefits for 'buy-to-let' investors. The intention is to level the playing field between owner-occupiers and investors, where the latter was able to offset all mortgage costs, which has been particularly attractive to the higher rate tax payer. Our view is that these tax changes will have an impact, particularly on the amateur landlord. Within the listed sector, Grainger has announced a strategic drive into the private rented sector as its regulated tenancy portfolios continue to run down.

The one area of the UK residential market which has weakened is Central London. I wrote about our reservations in the Interim and the sale of our holding in Capital & Counties. The impact of the changes to stamp duty, the supply of new build apartments (not houses) and the economic slowdown in Asia have all had an effect. Investors have taken fright, particularly since the beginning of 2016. Capital & Counties, where c.50% of its balance sheet is the Earls Court development site fell -25% in the last quarter of the financial year. St Modwen, a large holding, has just 13% of its balance sheet exposed to the Nine Elms (Vauxhall) regeneration area where it is rebuilding the New Covent Garden Flower Market which will then release 10 acres for residential development. The stock fell 27% in Q1 2016 such was the investor reaction to the expected decline in residual land values. We agree that apartment prices are correcting, particularly in this one sub-market, but the share price now barely reflects any positive value on a site which is adjacent to a Zone 1 underground station, train and bus interchange. Our London exposure was also reduced last October when Lonestar agreed a bid for Quintain, the owner of much of the land bank surrounding Wembley Stadium at a 20% premium to the undisturbed price.

Our overall view on London residential remains the same as six months ago, whilst an overdue pricing correction is underway the longer term disequilibrium of undersupply and population growth remains.

Meanwhile across the rest of the UK house price growth has continued to be robust but the underlying bare land values have not grown as quickly. We put this down to two factors, firstly national housebuilders have learnt their lesson from the crisis, and have no desire to maintain large land banks on their balance sheets. They now prefer to buy land which is ready for construction rather than taking it through the often convoluted planning process. The other impact has been the significant reduction in the number of medium and smaller sized regional developers. The lack of development finance and the difficulties in rehiring labour lost in the downturn has resulted in the land market being dominated by fewer players. During the year we sold out of our only pure land play, Urban & Civic which has two excellent strategic sites in Rugby and Huntingdon. We continue to have exposure through St Modwen, which as highlighted earlier, is trading at a significant discount to its asset value.

Debt and Equity Capital Markets

Four European central banks are now experimenting with negative rates. The era of unorthodox stimulus continues. Against this backdrop Pan European property companies continue to tap corporate bond markets, raising €13.7bn in the year to March 2016. This compares to €9.5bn raised in the previous year and just €5.6bn in 2013. Much of this has been utilised in refinancing more expensive debt and not merely to increase leverage further. In fact the weighted average loan-to-value ratio at 37.9% compares favourably with 40.9% in March 2015.

At the half year I commented on Unibail's €500m 10 year bond issued in April 2015 at 1.0% and how this compared with their €700m 10 year issued in June 2013 at 2.5%. Again, Europe's largest property company has been active in the bond markets with €500m 10 year issued at 1.375% in March 2016. Whilst not quite as low as the April 2015 issue it proves ongoing appetite at very attractive financing rates for a business owning many of Europe's best shopping centres yielding over 4%. Post the year-end Unibail announced a €500m 20 year bond with a coupon of 2%. This is a very long dated bond and reflects the QE driven environment as much as investors' satisfaction with this company's credit rating. The margin over the relevant swap rate was just 98bps. It is also worthy of note that Hammerson, whilst a UK listed company, does have a €1.9bn French shopping centre portfolio and raised €500m at 1.75%.

Equity capital markets were again busy but in the same vein as last year the focus was primary issuance from existing companies rather than IPOs. In fact there were only two IPOs in the entire year, ADO Properties a Berlin residential investor and Pandox, a hotel owner/operator. The Trust participated in both but sold out of the Pandox position in the Autumn. We continue to hold the position in ADO.

Merlin Properties, one of several of the new breed of aggressive acquiring externally managed Spanish companies, raised €613m in April 2015 and then a further €1.0bn in July to purchase the Testa portfolio.

In the UK, raisings have been modest by comparison. Investors were happy to back businesses with secure income streams and we saw Assura, Target Healthcare, and, post the year end, Primary Health Properties raise £600m between them. The serial raiser of capital Tritax Bigbox came back to the market twice in the period raising £325m, having raised £240m in March 2015. Such is the demand for large distribution units let on long leases. The company has a covered dividend yield of 5.5% and trades at a premium to asset value enabling the raisings to be non-dilutive. Demand for income proved to be the primary motivation for owning real estate particularly in the second half and we saw raisings from the high yielding stocks Picton, Regional Reit and Schroders Property Income Trust.

Property shares

A key feature of the period was the huge dispersion in returns between the UK and Continental Europe. In the first half the UK outperformed Continental Europe with the UK (in GBP) returning 3.4% and CE (in EUR) returning -7.0%. As I mentioned in the Interim the strategy of focusing on markets with the greatest likelihood of rental growth proved sound in the first half with the German companies falling just -1% and the Swedish stocks rising +3.8% (in SEK).

The second half of the year was the reverse but more extreme with the UK names falling -13.4% in GBP and Continental Europe rising +9.3% in EUR. As explained earlier in the Performance summary the UK-centric headwinds, particularly investor concerns around the June referendum, manifested themselves in January and February with the UK names collectively falling -7.1% in Q1 2016.

Within the European names the German stocks dominated by residential business performed strongly through both halves resulting in a total return of 10.3% over the year. The Riksbank also entered the era of negative interest rates and further dovish comments from their central bank in October saw the Swedish names rise over 10% in that month alone. This helped drive the Swedish companies to a total return for the year of 6.6% and second place in the country rankings.

These country performance figures are quoted in local currency but when viewed from a GBP denominated fund the weakening of GBP had a dramatic effect. In EUR, Continental Europe returned just 1.4% over the year whilst in GBP the figure was 11.1%. I would remind investors that the Company's position on currencies is to run the non GBP exposure in line with the benchmark's currency exposure.

Distribution of Assets

UK equity exposure dropped over the period to 31.7% (42.8% in March 2015) but UK physical property exposure increased to 8.2% (from 6.6%) as a consequence of capital value increases, the purchase of the industrial property in Gloucester and the remaining development expenditure at the Colonnades. Continental European exposure rose from 50.6% to 60.1%. This reflected the performance of the region, the strengthening of the Euro and the additional equity issuance by companies in Germany and Spain in the first half.

Investment Activity

Turnover (purchases and sales divided by two) totalled £309.4m and equates to 29.8% of the average net assets over the period. This was slight ahead of last year's equivalent figure of 27.4% and reflects the volatility of the market and the rotation of the portfolio particularly in the second half.

A key theme of the asset rotation was the further reduction in our exposure to UK large cap retail, particularly our long term holding in Hammerson which was reduced by £26m (to less than £10m) and the sale of almost all of the briefly held Intu position, towards the end of the year. The Intu holding was mostly acquired in January 2016 post the aggressive early New Year sell off. We continue to hold our New River Retail and Capital & Regional which own smaller, less dominant shopping centres but where there is a greater capacity for a large number of asset management initiatives to make a material difference. Long term holders will be aware of our views that in the longer-term it is our expectation that the outperforming centres will be either the very dominant or the very local with mid sized centres squeezed the most. The current underweight to the owners of larger centres reflects our expectation that whilst they will outperform in the longer-term we are entering a period where these assets are over valued relative to their growth expectations and that higher yielding smaller centres will produce greater total return dominated by their higher income return. The overall underweight to UK retail was a positive contributor to performance.

The large overweight to Central London offices was also reduced over the year through a combination of reducing exposure to the London specialists, Great Portland and Derwent London but also, importantly, a sizeable reduction in British Land which has 43% of its exposure to both London offices and (some) high end residential. The sales in the London specialists was mainly in late 2015 when they were trading at large premiums to asset value. However our ongoing, albeit reduced, overweight was still a negative contributor to performance. The price correction in early 2016 has brought them back onto our radar on valuation grounds but we consider them 'high impact' in relation to the Referendum and we are unlikely to add before June.

I commented back in November that we did have some modest ongoing exposure to the Vauxhall/Nine Elms regeneration area through our ownership of CLS Holdings and St Modwen and the investment rationale around St Modwen has been covered earlier. Our surprise at the market response to St Modwen also extended to CLS where the current book value of its Vauxhall development site is just 9% of their balance sheet. It is therefore disappointing to report that in the last quarter of the financial year and including the reporting of record breaking FY15 results the share price fell -16% with investors' seeming to ignore all the good news and focus merely on their modest London residential exposure. We continue to hold these positions confident that the expected performance of the remainder of their portfolios will materialise.

The regional housing market (ex London) remains in good health and our stalwarts in the self-storage space continued to perform well with Big Yellow (+23.2%) and Safestore (+18.6%) adding to relative performance. Occupancy and rates continue to climb steadily.

The other alternative asset classes of hotels (owners not managers) and student accommodation proved a mixed bag of performance. I wrote about the IPO of Pandox, a business we invested in back in 2000 before it was taken private in 2004. We participated in the IPO but took profits too early as the stock rose 47% between June and December.  However, our concerns around the volatility of the sector were well founded with the stock correcting 20% by mid-February, only to partially recover since then. Our student accommodation exposure continues to be through the dominant listed player, Unite Group and whilst the company returned 11.5% in the period, it has suffered greater volatility as investors fret about the sector maturing and the risk of oversupply in some cities. We remain vigilant but also comforted by management's response and positioning of the portfolio.

The German residential exposure increased significantly over the year and as commented on earlier we participated in the IPO of ADO Properties in July and have followed on with a further participation in their most recent capital raise post the year-end. The stock has returned 44% since listing and reflects investor sentiment towards the hugely popular Berlin market. Our largest overweight relative to the benchmark was LEG, which had a total return of 12.2% in the year, also ahead of the overall benchmark.

When viewed in local currency Sweden was the top performing region. Swedish property companies (with just one exception) continue to be amongst the most leveraged listed real estate businesses in Europe. The Riksbank's dovish approach has, as discussed earlier, driven yields downwards and all asset pricing upwards and in particular residential. Our key overweight, as mentioned in the Interim, remained Balder. The strong rental growth seen in Stockholm and Gothenburg explained the good performance from Fabege, another overweight position. However we were underweight the least leveraged company, Hufvudstaden which returned over 11% despite a loan-to-value of just 17% which is considered ultra conservative when compared with the wider Swedish peer group (who average over 50% each).

The one consistently poor investment decision, which produced a negative contribution in both halves of the year was the underweight to Swiss property companies. From an occupational perspective, the commercial property market for both offices and retail in the two major cities remain poor with little sign of rental growth except in super prime locations. Shopping centres, particularly those close to the border, have suffered from customers crossing into France to buy cheaper Euro priced goods. However the investment market and demand for income remains robust. This also translates into the listed stocks where investors view the solid income from both PSP and Swiss Prime Site and the offer of 4%+ dividend yields as very attractive when base rates are negative. Our focus on market fundamentals meant we didn't see 'the wood for the trees'. Switzerland continues to be perceived as a safe haven and the broad weakening of sentiment in the beginning of 2016 resulted in these stocks being the top performing names in Q1 2016.

Revenue

Earnings at 8.36p were lower than the prior year, as had been anticipated. Prior year earnings had been inflated by a number of one-off items, without these the underlying earnings for 2014/15 were around 7.64p. Therefore, although the headline earnings figure shows a decline of 6.0%, the underlying recurring earnings have shown healthy growth.

The purchase of Gloucester and the completion of the Colonnades development during the year added to rental income, with some tenants still to take occupation at the Colonnades, further details of this project are set out below.

Operating expenses were slightly higher in absolute terms than in the prior year, however ongoing charges (excluding performance fee and direct property costs) have reduced from 0.70% to 0.67% of NAV.

The revenue tax rate was marginally above that in the previous year, driven by the income mix and the fact that fewer overseas dividends were paid from capital accounts and so attracted irrecoverable withholding tax.

Revenue Outlook

We anticipate modest growth in our underlying earnings over the forthcoming year. However, one of the biggest unknowns is the impact of exchange rates on our income account. Recent months have seen weakness in Sterling and uncertainty is set to continue until the outcome of the referendum in June is known. The result and where Sterling settles could have a significant impact on our earnings.

Gearing, Debt and Debentures

Gearing started the year at 12.8%, increasing to 13.6% at the half year stage with a reduction in the last quarter to end the year at 11.9%.

We reported a loan note placing in the Interim Report. The £15m 15 year loan and the €50m 10 year loan were drawn in mid-February and the Sterling amount was utilised to repay the existing debenture a few days later. The revolving multi-currency credit facility with RBS was renewed in January on improved pricing and the facility with ING has also just been agreed for a further year. Although largely undrawn at the moment, the loans, together with CFD financing give the capacity to increase the gearing when this is deemed to be beneficial.

Direct Physical Property

The physical property portfolio was the strongest performing component of the portfolio, well ahead of equities with a total return of 19.7%. This was primarily capital growth (16.5%) and a modest income return of 3.2% reflecting the leasing phase of our largest asset. The IPD Monthly Index total return for the 12 months was 11.7%. During the year the Trust purchased one industrial property in Gloucester at a total acquisition cost of £6.6m and the purchase details were reported at the Interim. On a like for like basis the property portfolio's total return was higher at 21.3% as it excludes the negative effect of the purchase costs (£0.4m) at Gloucester.

Over the year we continued the programme of intensive asset management and this was the primary driver behind the significant capital growth.

The extension and refurbishment works at the Colonnades were completed during the year. The new 40,000 sq ft Waitrose supermarket opened early, in September 2015. The remaining 5 retail units were completed in December 2015 with the only outstanding item being the public realm works which requires Westminster City Council approval. Prior to the year-end we had secured tenants on 3 of the 5 units. A ten year lease to Graham and Green, the furniture and soft furnishing retailer, for a new showroom was agreed prior to the year-end and completed shortly after. Two other units are under contract to Babaji which is a new Turkish 'pida' restaurant concept run by Alan Yau, the renowned restauranteur behind both the Wagamama and Hakkasan chains. The letting to Babaji is conditional on receipt of alcohol and outside seating licences from the local authority. We have strong interest in the remaining two units.

The programme of residential lease extensions also continued with a further 9 leases being extended for a total premium of just over £1m. Just over 50% of leases on the 242 flats at the Colonnades have now been extended.

At the industrial property in Ferrier Street, Wandsworth our potential redevelopment plans continue to evolve in conjunction with Wandsworth Borough Council. The Council are currently carrying out a borough-wide employment land use review which will take at least 12 months to complete. Any planning application will need to be made following the conclusion of this process. All leases on the estate expire in September 2016 and we are now in the midst of agreeing three year lease extensions with tenants at rents which reflect the rapid rental growth experienced over the past three years.

Outlook

A year ago this outlook focused on our expectation that central banks, and in particular the ECB, would maintain and indeed broaden the scope of monetary stimulus. Globally, base rates were destined to remain very low although there was an increasing expectation of rate rises in the US and possibly even in the UK. Fast forward to today and both the landscape and investor expectations are quite different. The Fed have lifted rates just once and the US economy grew at its slowest pace in two years in the first three months of 2016, once again questioning the strength of one of the world's two most critical economies. The woes of the other one are well documented. Global growth remains elusive and volatility has heightened. Almost two-thirds of all government bonds now yield less than 1%. Negative base rates have become a part of several central banks' toolkits. However, there is scepticism over the success of this strategy given the difficulties banks have in passing on negative deposit rates to consumers.

Against this backdrop, property continues to offer a stable and predictable earnings stream which as highlighted in the Revenue Outlook also has the capacity to grow. Broadly, the supply of new commercial space remains a benign factor given the lack of development over the last seven years. In markets where there is the potential for delivery to be higher than the 10 year average, only a material drop in demand would lead to a serious rental correction. The risk is therefore one of demand rather than supply. The deferral of business decision making and investment within the UK economy, ahead of the Referendum, is clearly visible and a vote to leave the EU would, through the ensuing uncertainty, deliver exactly that type of demand shock, particularly to the London economy. A vote to remain in the EU would, we judge, see this global city's fundamental attractions reassert themselves. However, we would continue to be concerned about London's high end residential market where there is a visible supply surge exacerbated by increases in transaction taxes and disclosure requirements making residential investment less attractive for overseas investors.

The three years of double digit growth in the Trust's asset value (FY2012 - FY2015) were driven in large part by the asset inflationary consequences of unorthodox monetary easing. This was followed, in the year under review, by a more modest yet still positive return. This decline in the rate of capital growth reflects an increasing uncertainty surrounding the future effectiveness of current ultra loose central bank monetary policies. However, and echoing the Chairman's closing remarks, the predictability of earnings from real estate, given the ongoing expectation of historically low cost of debt, will remain a key attraction of the sector relative to other asset classes particularly given the risks of earnings downgrades from many corporates in such a low growth environment.

Marcus Phayre-Mudge

Fund Manager

Overview of strategy, performance measurement and risk management

Investment Objective and Benchmark

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. 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 98 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.

Business Model

The Company's business model follows that of an externally managed investment trust.

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.

The Board has appointed F&C Investment Business Limited as the Alternative Investment Fund Manager with portfolio management delegated to 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.

Further information in relation to the Board and the arrangements under the Investment Management Agreement can be found in the Report of the Directors below. 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.

The specific terms of the investment management agreement are set out in the Directors' Report.

Strategy and Investment Policies

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 property in question. Valuations of all the Group's properties as at 31 March 2016 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.

Key Performance Indicators

The Board assesses the performance of the Manager in meeting the Trust’s objective against the following Key Performance Indicators (“KPIs”):

KPI	Board monitoring and outcome
Net Asset Value Total Return Relative to the benchmark. The Directors regard the Company's net asset value total return performance in comparison with the benchmark as being an overall measure of value delivered to the shareholders' over the longer term	·      The Board reviews the performance in detail at each meeting and discusses the results and outlook with the Manager 1 year 5 years NAV Total Return 8.2 % 88.8 % Benchmark Total Return 5.4 % 60.3 %
Delivering a reliable dividend which is growing over the longer 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. 1 year 5 years Compound Dividend Growth 8.4 % 39.2 % RPI 1.6 % 12.3 %
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 a 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-back 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 if the shares and on ongoing charges over the longer term. 1 year 5 years Average discount 3.3% 6.2% Number of shares repurchased Nil 375,000
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 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 100% of their portfolio as 100% securities or 100% direct property),  this statistic is also shown without direct property costs to allow a clearer comparison of overall administration 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. Ongoing Charges: 1 year 3 years* Excluding Performance Fees and Property Costs 0.67% 0.71        % *Ongoing Charges calculation introduced in 2013 therefore this statistic has only been produced for 3 years.
Investment Trust Status The Company must continue to operate in order to meet the requirements for Section 1158 of the Corporation Tax Act 2010.	·      The Board reviews financial information and forecasts at each meeting which set out the requirements. ·      The Directors believe that the conditions and ongoing requirements have been met in respect of the year to 31 March 2016 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 Board has included below details of the principal risks and uncertainties facing the Company and the appropriate measures taken in order to mitigate these risks as far as practicable.

Risk Identified	Board monitoring and mitigation
Poor Investment performance of the portfolio relative to the benchmark. 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 or outperform the return of the benchmark	·      The Manager's objective is to outperform the benchmark. The Board regularly reviews the Company's long term strategy and investment guidelines and the manager's relative positions against these ·      The Management Engagement Committee reviews the Managers performance annually. The Board has the powers to change the Manager if deemed appropriate.
Market Risk Both share prices and exchange rates may move rapidly and adversely impact the value of the Company's portfolio 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 towards the property sector, as well as global equity markets more generally Property companies are subject to many factors which can adversely affect their investment performance, these include the general economic and financial environment in which their tenants operate, interest rates, availability of investment and development finance and regulations issued by governments and authorities	·      The Board receives and considers a regular report from the manager detailing asset allocation, investment decisions, currency exposures, gearing levels and rationale in relation to the prevailing market conditions
Share Price performs poorly in comparison to the underlying NAV 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 premium to the Company's underlying NAV and this discount or premium may fluctuate over time	·      The Board monitors the level of discount or premium at which the shares are trading over the short and longer term. ·      The Board encourages engagement with the shareholders. The board receives reports at each meeting on the activity of the company's brokers, PR agent and meetings and events attended by the Fund Manager. ·      The Company's shares are available through the F&C share schemes and the Company participates in the active marketing of these schemes. The shares are also widely available on open architecture platforms and can be held directly through the Company's registrar. ·      The Board takes the powers to buy back and issue shares at each AGM.
The Company is unable to maintain its progressive policy on dividends Low earnings in the underlying portfolio, through adverse changes in tax treatment of dividends or other income received by the company, changes in the timing of receipt of dividends or the weakening of fx rates leading to a fall in the Sterling value of income receipts from overseas holdings may reduce the level of earnings of the Company and therefore put pressure on its ability to maintain a progressive dividend.	·      The Board receives and considers regular income forecasts ·      Income forecast sensitivity to changes in fx rates is also monitored ·      The Company has  revenue reserves which can be drawn upon when required.
Accounting and Operational risks Disruption or failure of systems and processes underpinning the services provided by third parties and the risk that these suppliers provide a sub-standard service.	·      Third party service providers produce periodic reports to the Board on their control environments and business continuation provisions on a regular basis. ·      The Management Engagement Committee considers the performance of each of the service providers on a regular basis and considers their ongoing appointment. ·      The Custodian and Depository are responsible for the safeguarding of assets. In the event of a loss of assets the Depository must return assets of an identical type or corresponding amount unless able to demonstrate that the loss was the result of an event beyond their reasonable control.
Financial Risks The Company's investment activities expose it to a variety of financial risk which include, counterparty credit risk, liquidity risk and the valuation of financial instruments.	·      Details of these risks together with the policies for managing these risks are found in the Notes to the Financial Statements.
Loss of Investment Trust Status The Company has been accepted by HM Revenue & Customs as an investment trust, subject to continuing to meet the relevant eligibility conditions. As such the Company is exempt from capital gains tax on the profits realised from the sale of investments. Any breach of the relevant eligibility conditions could lead to the Company losing investment trust status and being subject to corporation tax on capital gains realised within the company's portfolio.	·      The Investment Manager monitors the investment portfolio, income and proposed dividend levels to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached. The results are reported to the Board at each meeting. ·      The income forecasts are reviewed by the Company's tax advisor through the year who also reports to the Board on the year-end tax position and reports on CTA 2010 compliance.
Legal, regulatory and reporting risks Failure to comply with the London Stock Exchange Listing Rules and Transparency and Disclosure rules; failing to meet the requirements under the Alternative Investment Funds Directive, the provisions of the Companies Act 2006 and other UK, European and overseas legislation affecting UK companies. Failure to meet the required accounting standards or make appropriate disclosures in the Interim and Annual Reports.	·      The Board receives regular regulatory updates from the Manager, Company Secretary, legal advisors and Auditors. The Board considers these reports and recommendations and takes action accordingly. ·      The Board receives an annual report and update from the Depository. ·      Internal checklists and review procedures are in place at service providers. ·      External auditors review Interim & Annual Reports and audit year end Financial Statements.
Inappropriate use of gearing Gearing, either through the use of bank debt or through the use of derivatives may be utilised from time to time. 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.	·      The Board receives regular reports from the Manager on the levels of gearing in the portfolio. These are considered against the gearing limits set in the Investment Guidelines and also in the context of current market conditions and sentiment.
Personnel changes at Investment Manager Loss of portfolio manager of other key staff.	·      The Chairman conducts regular meetings with the Fund Management team. ·      The fee basis protects the core infrastructure and depth and quality resources. The fee structure incentivises good performance and is fundamental in the ability to retain staff.

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 2016

	Year ended 31 March 2016					Year ended 31 March 2015
	Revenue Return £'000	Capital Return £’000		Total £'000		Revenue Return £'000	Capital Return £'000	Total £'000
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 and loan notes              Net movement on foreign exchange;  cash and cash equivalents Net returns on contracts for difference	27,358 74 3,330 1,023 - - - 2,905		- - - - 64,087 1,768 709 (4,166)		27,358 74 3,330 1,023 64,087 1,768 709 (1,261)	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
Total Income	34,690		62,398		97,088	36,689	209,074	245,763
Expenses Management and performance fees  Direct property expenses, rent payable and service charge costs Other administrative expenses	(1,229) (1,533) (1,269)		(7,042) - (481)		(8,271) (1,533) (1,750)	(1,245) (1,920) (1,117)	(11,479) - (41)	(12,724) (1,920) (1,158)
Total operating expenses	(4,031)		(7,523)		(11,554)	(4,282)	(11,520)	(15,802)
Operating profit Finance costs	30,659 (894)		54,875 (2,682)		85,534 (3,576)	32,407 (1,013)	197,554 (3,039)	229,961 (4,052)
Profit from operations before tax	29,765		52,193		81,958	31,394	194,515	225,909
Taxation	(3,221)		1,720		(1,501)	(3,180)	1,849	(1,331)
Total comprehensive income	26,544		53,913		80,457	28,214	196,364	224,578
Earnings per Ordinary share	8.36p		16.98p		25.34p	8.89p	61.85p 8.89p	70.74p

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 2016	Share Capital Ordinary £'000	Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings Ordinary £'000	Total £'000
At 31 March 2015	79,375	43,162	43,934	843,574	1,010,045
Net profit for the period	-	-	-	80,457	80,457
Dividends paid	-	-	-	(25,083)	(25,083)
At 31 March 2016	79,375	43,162	43,934	898,948	1,065,419

For the year ended 31 March 2015	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	-	-	-	(23,971)	(23,971)
At 31 March 2015	79,375	43,162	43,934	843,574	1,010,045

Group and Company Balance Sheets

as at 31 March 2016

	Group 2016 £'000	Company 2016 £'000	Group 2015 £'000	Company 2015 £'000
Non-current assets	1,098,560	1,098,560	1,055,988	1,055,988
Investments held at fair value
Investments in subsidiaries	-	53,052	-	53,517
Deferred taxation asset	1,098,560	1,151,612	1,055,988	1,109,505
	243	243	237	237
	1,098,803	1,151,855	1,056,225	1,109,742
Current assets
Debtors	28,978	28,579	20,882	20,484
Cash and cash equivalents	22,754	22,741	21,427	21,411
	51,732	51,320	42,309	41,895
Current liabilities	(30,473)	(83,113)	(88,489)	(141,592)
Net current assets/(liabilities)	21,259	(31,793)	(46,180)	(99,697)
Total assets less current liabilities	1,120,062	1,120,062	1,010,045	1,010,045
Non-current liabilities	(54,643)	(54,643)	-	-
Net assets	1,065,419	1,065,419	1,010,045	1,010,045
Capital and reserves	79,375
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	898,948	898,948	843,574	843,574
Equity shareholders' funds	1,065,419	1,065,419	1,010,045	1,010,045
Net Asset Value per: Ordinary share	335.56p	335.56p	318.12p	318.12p

Group and Company Cash Flow Statements

as at 31 March 2016

	Group 2016 £'000	Company 2016 £'000	Group 2015 £'000	Company 2015 £'000
Reconciliation of operating revenue to net cash inflow from operating activities
Profit from operations before tax Financing costs	81,958 3,752	81,958 3,140	225,909 4,052	225,944 3,860
Gains on investments and derivatives held at fair value through profit or loss	(59,921)	(59,456)	(213,292)	(213,029)
Net movement on foreign exchange; cash and cash equivalents and loan notes	223	223	1,585	1,585
Decrease/(increase) in accrued income	645	646	(1,197)	(814)
Net sales of investments	28,848	28,848	31,737	31,262
Increase  in sales settlement debtor	(415)	(415)	(1,622)	(1,622)
Increase in purchase settlement creditor	523	523	5,448	5,448
Increase in other debtors	(18,631)	(18,631)	(242)	(247)
Decrease in other creditors	(5,634)	(21,097)	(566)	(1,227)
Scrip dividends included in investment income	(1,223)	(1,223)	(1,203)	(1,203)
Net cash inflow from operating activities before interest and taxation	30,125	14,516	50,609	49,957
Interest paid	(3,752)	(3,140)	(4,052)	(3,860)
Taxation paid	(1,383)	(1,383)	(1,314)	(729)
Net cash inflow from operating activities	24,990	9,993	45,243	45,368
Financing activities
Equity dividends paid	(25,083)	(25,083)	(23,971)	(23,971)
Repayment of loans	(38,000)	(38,000)	(8,000)	(8,000)
Repayment of debenture stock	(15,000)	-	-	-
Issue of loan notes	53,711	53,711	-	-
Net cash used in financing activities	(24,372)	(9,372)	(31,971)	(31,971)
Increase in cash	618	621	13,272	13,397
Cash and cash equivalents at start of year	21,427	21,411	9,740	9,599
Net movement in foreign exchange; cash and cash equivalents	709	709	(1,585)	(1,585)
Cash and cash equivalents at end of year	22,754	22,741	21,427	21,411
Note
Dividends received	30,199	30,199	29,919	29,919
Interest received	194	194	407	407

Notes to the Financial Statements

1	Accounting Policies
	The financial statements for the year ended 31 March 2016 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 financial statements have also been prepared in accordance with the Statement of Recommended Practice (SORP) , "Financial Statements of Investment Trust Companies and Venture Capital Trusts".
	The Group and Company financial statements are expressed in Sterling, which is their functional and presentational currency. Sterling is the functional currency because it is the currency of the primary economic environment in which the Group operates. Values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated.
2	Investment income
			2016	2015
			£'000	£'000
	Dividends from UK listed investments		2,025	1,550
	Dividends from overseas listed investments		18,063	20,646
	Scrip dividends from listed investments		1,223	1,203
	Interest from listed investments		109	369
	Property income distributions		5,938	5,547
			_________	_________
			27,358	29,315
			_________	_________
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 2016 £'000	Year ended 31 March 2015 £'000
	Net revenue profit		26,544	28,214
	Net capital profit		53,913	196,364
			_________	_________
	Net total profit		80,457	224,578
			_________	_________
	Weighted average number of Ordinary shares in issue during the year		317,500,980	317,500,980
			_________	_________
			pence	pence
	Revenue earnings per share		8.36	8.89
	Capital earnings per share		16.98	61.85
			_________	_________
	Earnings per Ordinary share		25.34	70.74
			_________	_________
4	Net asset value per Ordinary share
	Net asset value per Ordinary share is based on the net assets attributable to Ordinary shares of £1,065,419,000 (2015: £1,010,045,000) and on 317,500,980 (2015: 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 2016 or 2015. The statutory accounts for the year ended 31 March 2016 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 2016 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 An interim dividend of 3.15p was paid in January 2016. A final dividend of 5.20p (2015: 4.75p) will be paid on 2 August 2016 to shareholders on the register on 24 June 2016. The shares will be quoted ex-dividend on 23 June 2016.
8		Annual Report and AGM The Annual Report will be posted to shareholders in June 2016 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 26 July 2016 at 2pm.

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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