Final Results

TR Property Investment Trust PLC 24 May 2005 TR PROPERTY INVESTMENT TRUST PLC UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 Highlights * Outperformed benchmark for 7th consecutive year * Share price total return of 38.5% * NAV increased by 28.4% * Dividend per share increase of 14.0% Financial Highlights 31 March 31 March 2005 2004 Change Revenue Gross revenue (£'000) 17,499 16,247 +7.7% Revenue pre-tax (£'000) 11,793 11,328 +4.1% Revenue per share 2.85p 2.51p +13.5% Net dividend per share 2.85p 2.50p +14.0% Balance Sheet Gross assets (£'000) 597,348 486,266 +22.8% Shareholders' funds (£'000) 502,665 400,739 +25.4% Shares in issue at end of period (m) 346.4 354.4 -2.3% Gearing 16% 20% Net asset value per share 145.13p 113.07p +28.4% Performance Year ended Year ended Assets and Benchmark 31 March 31 March 2005 2004 Benchmark performance (price only) +24.6% +41.5% NAV price only return +28.4% +54.4% Benchmark performance (total return) +29.1% +47.4% NAV total return +31.1% +59.1% IPD Monthly Index total return** +18.0% +12.5% Total return from direct property +13.4% +12.5% Performance 31 March 31 March Share Price 2005 2004 Change Share price at 31 March 128.5p 95.0p +35.3% Share price total return +38.5% +66.2% Market capitalisation at 31 March £445m £337m +32.0% The Benchmark is the S&P/Citigroup European Property Index in sterling. Sources: Thames River Capital/** IPD annualised to March 2005 - MORE - - 2 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE CHAIRMAN'S STATEMENT Introduction Strong property equity markets throughout 2004 have helped the Trust produce another substantial increase in both the asset value per share and in the share price. Revenue per share has also continued to grow strongly and the Board is able to recommend another double digit dividend increase. In my interim statement I updated shareholders on the change of fund manager from Henderson to Thames River Capital. Six months further on, I can report that the Board is pleased with the new relationship and that our fund management team is finding the new environment both productive and stimulating. Performance In the year ended 31 March 2005, the Trust's asset value per share rose by 28.4% to 145.1p and the share price increased by 35.3% to 128.5p. These increases compare with a rise of 24.6% in our benchmark index over the same period. The annual total returns, which include the value of the dividends paid during the period, were 31.1% for the net asset value, 38.5% for the share price and 29.1% for the benchmark. Property equities outperformed general equity markets over the year in which the total return on the FTSE All Share Index was 15.6%. Included in our performance figures are the returns from our direct property holdings which produced an ungeared total return of 13.4% over the year. Holding direct property in the Trust gives our managers valuable insight into trends in the UK commercial property market, so aiding equity investment, and, though the direct portfolio retards overall performance in years when equity price growth is strong, the opposite has been true in years when equity markets offered neutral or negative returns. Five years ago, at the end of March 2000, the share price and the net asset value per share were 45.25p and 56.52p respectively. The growth in the intervening period has been 184% and 157%, equivalent to 23.2% and 20.8% compound growth per annum. In September 2001 the benchmark was changed to the current one from the FTSE Real Estate Index, and on a composite basis, the benchmark growth has been 104% or 15.3% pa compound over the five year period, while the benchmark we discarded has grown by only 83% (12.9% pa compound). Gluttons for numerical punishment may also wish to be reminded that the All Share Index has fallen by 21% in the same five years. Revenue The revenue earnings per share for the year are 2.85p per share, a rise of 13.5% over the 2.51p per share reported last year. Gross revenue rose by 7.7%. Interest costs rose due to greater average borrowings and higher base rates, and management fees rose as the shareholders' funds grew. Net revenue after tax was only 2.4% higher, but the weighted average number of shares used to calculate the per share revenue declined by 9.9%. - MORE - - 3 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE CHAIRMAN'S STATEMENT CONT'D Revenue earnings per share have risen by 102%, or 15.1% compound, from the 1.41p per share in the year to March 2000. Our managers have advised the Board that they anticipate the Trust's revenue per share will increase in the current year in the absence of unforeseen circumstances, and that the rate of growth in percentage terms is likely to be in the order of 10% to 15%. I should add the caveat that as over 80% of our income is derived from dividends paid on our shareholdings, such a forecast is made on assumptions about the timing and extent of dividend payments over which our managers have no control. Dividend The Board is recommending to shareholders a final dividend of 1.55p per share, an increase of 10.7% over the final dividend of 1.40p per share paid last year. Together with the interim dividend of 1.30p per share already paid this produces a total payment of 2.85p per share for the year, a 14.0% increase over the total of 2.50p per share paid last year. Share Repurchases Our managers, acting on the Board's instructions, bought back a total of 8.05 million shares for cancellation during the year, reducing the outstanding equity by 2.3%. The total cost of these shares including fees and stamp duty was £9.01m - an average price of 111.9p per share. These transactions added some £1.16m or 0.33p per share to the Trust's total return for the year. We first took powers to buy back shares for cancellation in 1999. Since then our managers have bought back for cancellation a total of just under 25% of the outstanding capital. These repurchases have improved the Trust's returns per share and have helped to manage the discount. They also served to reduce the size of the Trust in a period when we have seen depletion of our investment universe. This is illustrated by the fact that, of our forty top equity investments at March 2000, eighteen have since been taken private or been acquired by other businesses. The potential for excellent investment performance is made more difficult if the Trust grows unchecked in a period when suitable investment opportunities are becoming scarcer. With this in mind the managers have continuing instructions to repurchase shares for cancellation at an appropriate discount to asset value. Net Debt, Gearing and Currencies The year started and finished with net debt of £81m, though throughout most of the period the net debt figure was lower. In percentage terms gearing declined from 20% to 16% of net assets due to the growth in shareholders' funds over the year. In the current, less certain economic outlook, the Trust's gearing level is expected to be between 10% and 25% over the coming six months. In accordance with the Board's long term policy, all our debt continues to be denominated in Sterling and the Trust's exposure to foreign currency movements is therefore unhedged. Over the financial year the Euro rose against the Pound by 2.6%, increasing the value of the Trust's overseas assets by some £5.2m, equivalent to 1.50p per share. - MORE - - 4 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE CHAIRMAN'S STATEMENT CONT'D Board I am pleased to report the appointment of Peter Wolton who joined the Board as a non-executive director in January 2005. Peter has been involved in the fund management industry for many years, latterly as CEO of Baring Asset Management Limited. Management Personnel and Awards At the interim stage I reported that Chris Turner, Marcus Phayre-Mudge and James Wilkinson had joined the staff of our new investment managers, Thames River Capital, at the start of October 2004. Joanne Elliott, our finance manager from 1996 until last September, rejoined the team in January 2005. In April, Nicola Williamson was recruited to assist with investor relations. Shareholders, including Share Plan, PEP and ISA holders, can contact Nicola directly or via the website. During the last six months the Trust has received awards from Investment Week for Best Specialist Investment Trust of 2004 and from Observer Money for Best Large Trust of the Year 2005. Share Plan, PEP and ISA Schemes In my interim statement I commented that Henderson had agreed to continue as plan managers up to the end of the 2004/2005 tax year, and that a selection process for a new manager was in hand. In February we appointed BNP Paribas Fund Services UK Limited to replace Henderson as plan managers. PEP, ISA and Share Plan holders have all been given the opportunity of remaining with Henderson and switching to other funds, or moving their holdings to the new schemes. I should like to apologise to those shareholders involved in the transition for the amount of paperwork involved. The tiresome transition process has now been successfully completed, and I am delighted to report that the vast majority (over 3,000) of holders have transferred to the new schemes. Outlook The length and strength of the bull market in commercial property investment has been very impressive, and even now the upward path in values continues. It is tempting to believe that investors in real estate are so impervious to economic conditions that the investment market could continue to rise even in a vacuum. Tempting but wrong. The outlook for the global economy has grown more uncertain since the start of 2005. Global interest rate expectations are caught between concern for rising inflation and weakening consumer confidence. This is sure to have an effect on future tenant demand. Some property company share prices, particularly those in the UK, have reacted to this recent uncertainty and discounts to asset value have emerged again. Your managers have reduced gearing recently and are looking to lower their exposure to other stocks, particularly those on the Continent, where significant premiums to asset value still apply. Over the last three years we have deliberately reduced the size of our direct property portfolio to enjoy the higher beta offered by real estate securities. Our managers will now be looking to reinvest in this area of the portfolio if suitable opportunities arise. - MORE - - 5 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE MANAGER'S REPORT Introduction It has been a remarkable year in global property capital markets. Investment demand for buildings and for property securities has been dominated by investors with an insatiable desire for high initial income. Money flows have been extraordinary and reports suggest that a significant quantity of allocated funds exist which their owners have been unable to invest. The parlous state of occupational demand seems to have been entirely ignored. Only empty buildings have been unloved, and even they have often found ready buyers for residential conversion. Initial yields have fallen everywhere for both commercial property and property shares, and, as in the bond market, yield spreads have narrowed so that junk has outperformed prime. I cannot recall any previous period when time spent on analysis of the longer term risk and reward was apparently so wasted. We succeeded in beating our benchmark last year. We were overweight UK shares throughout the year believing that the UK direct property market returns would be stronger than European returns (correct) and that this, combined with the hopes for a UK REIT, would lead to UK stocks outperforming (wrong). We held overweight positions in the leading retail property owning companies thinking that, however poor consumer confidence became, it could not be worse than office tenant demand (correct) and that this would lead to these stocks outperforming (wrong). We tended to sell shares standing at premiums to what we judged to be the net asset value, and to reinvest in stocks where discounts to asset value were still apparent - thinking that value investment was still an important criterion for all investors. This was also wrong; generally across Europe the higher the initial yield offered by a share, the higher the premium to asset value that the share rose to. Our portfolio turnover was again modest. We had no truly outstanding share gains and, of our major holdings, the Big Yellow Group was the best performer with a 52% gain. Equally we had no disasters, and over 99% of the portfolio showed share price gains on the year. Shareholders' funds rose by more than 25% even after share repurchases and totalled more than £500m for the first time, while gross assets approached £600m. While size has its advantages - greater liquidity in the shares, more resources etc. - it also has its disadvantages. TR Property is now one of the top twenty UK investment trusts by size, but its mandate is to invest in only a very small specialist sector of Pan-European stock markets. Many of our best long term investment opportunities have been in smaller companies and illiquid stocks. The bigger the fund the harder it becomes to make such investments on a scale that makes a difference. Our size would not be a problem if our investment universe had grown at the same pace as the portfolio. Unfortunately the opposite has happened. Over the last five years a constant flow of quoted real estate companies have been taken off UK and European stock markets via takeovers. While our performance has benefited from these takeovers, each one only served to narrow the choice for reinvestment. As the Chairman has noted, we think the best way to avoid investment obesity is to actively buy back shares when appropriate. That way we can capture the discount to our asset value that the weakest seller of the moment is prepared to accept, and share the gain created amongst the remaining owners of the Trust. - MORE - - 6 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE MANAGER'S REPORT CONT'D Physical Property Market Background Very strong investor demand for income producing commercial property investments has persisted throughout the last twelve months right across Europe. Buying interest has come from a multitude of sources - institutions, pension funds, private investors, venture capital funds etc. - and from all corners of the globe. The UK was the best performing country with a total return for calendar 2004 of 18.3% of which 12% was capital growth. March to March total returns have slackened slightly to 18% pa, but initial yields, which have fallen over the period from 6.4% to 5.7%, continue to decline and there is still a significant weight of capital awaiting investment both here and on the Continent. Meanwhile UK rental growth is still very muted with current year on year figures of +3.9% for retail, +1% for industrials and +0.3% for offices. We suspect that the momentum of yield shift is beginning to flag, particularly for second rate assets, and we are forecasting a total return from UK property assets of 12% in the current year, implying a much lower rate of capital growth in the second half of 2005. On the Continent, property market total returns in 2004 were markedly below the UK result with only Ireland (+11.5%) and France (+10.1%) getting into double figures, and the other countries (where statistics are available) all showed returns in the 5% to 10% range. The primary drivers for this huge investor demand are the search for yield with potential inflation protection (which bonds do not provide), the desire for portfolio diversification away from equities and, dare I say it, the desire to follow an investment fashion. As the Chairman has noted, we need to consider the downside potential for this investor demand. In the short term the UK and Eurozone economic outlook suggest that interest rates will be stable or decline over the summer, but if thereafter interest rates increase due to a rise in inflationary expectations, the positive yield gap between real estate and bonds will be diminished or expunged unless property yields also rise. Rising yields will lower capital values unless the market can foresee an early and sustained burst of rental growth. Unfortunately such rental growth demands a level of economic and workforce expansion not currently to be seen or forecast even in the UK. Offices We saw the first tentative signs of improved demand for offices last autumn. Since then leasing activity has continued to improve very gradually and gross turnover numbers have risen in most locations. However the market is still patchy and far from robust. In a few selected locations - the West End of London and Central Madrid - rising demand has reduced vacancy rates to a level where landlord incentives have diminished and asking rents have risen slowly. Elsewhere the improvement in demand has, as yet, only served to stabilise vacancy rates and curb reductions in asking rents. Looking ahead we expect the improvement in specific markets to be closely tied to economic activity and to job creation. In the City of London and M25 markets, vacancy rates are stable and turnover has risen, but as yet there is no sign that rents are improving. We think the M25 market is the more likely of the two to recover first. On the Continent we expect German and Dutch markets, some of which have vacancy rates close to 20%, to be very slow to improve. Paris should be an early gainer, as it has one of the lowest office vacancy rates at just over 6%, but job creation there is still weak and there are signs that rental values may have started to slide again this spring. Across Europe development activity remains muted, though some speculative schemes have recently been started. - MORE - - 7 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE MANAGER'S REPORT CONT'D Retail Property Weak consumer demand is now prevalent in almost all European economies and retail property demand, which has been reasonably buoyant over the past four years, now faces a tougher environment. The room for 'headline' gloom is considerable, but we think that good quality shopping centres should remain resilient. They have continued to attract more shoppers and seen faster like for like turnover growth than high streets, and we think it is the latter locations where rents may come under pressure. We expect retail warehouse rental growth, which has been the strongest of all sectors in the market over the last five years, to plateau. Storage and Industrial Property Industrial and storage rents generally remained stable in Western Europe in 2004 despite the low level of economic growth. Structural change in the pattern of logistics demand is benefiting industrial demand, but the recent downturn in consumer spending, combined with a ready availability of developable sites, leads us to anticipate that rents will remain flat at best in the coming year. Residential Property As shareholders will be well aware, the UK residential market has turned from a state of euphoric buoyancy last summer to one of fragile uncertainty today. At the interim stage I commented that a short sharp price re-adjustment seemed more likely than a long slow price decline. This has not proved to be correct so far, and our current thinking is that the market is now set for an extended period of subdued activity with prices shading lower quarter by quarter. The portfolio exposure to UK residential property is very modest. We hold no housebuilding shares, and we completed the sale of our residential development site in Battersea for £7m last January. In the Eurozone west of the Rhine and in Sweden, very low interest rates combined with changes to mortgage lending rules, continue to fuel double digit house price growth. In Germany, where home ownership is still below 50%, prices are no more than static. A large quantity of German let housing has recently changed hands with US venture capitalists buying portfolios in the hope that Germans will eventually catch the passion for burdening themselves with debt. I remain sceptical. Property Share Background UK property shares had a good year with a total return of 25%, but nevertheless slightly underperformed our benchmark which returned 29% in Sterling terms. This was surprising given that the actual underlying UK property market produced a much higher total return than its Continental counterparts. We were overweight UK shares throughout the year and performance suffered as a result. The delay and hesitation over the introduction of UK REITs had some impact in holding back stocks, but what we really misread was the degree to which investors would chase the higher yielding tax transparent Continental stocks oblivious of the fact that many of these shares stand at significant (15%+) premiums to asset value. - MORE - - 8 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE MANAGER'S REPORT CONT'D Corporate activity was again a significant feature of property share markets over the year. In the UK, Canary Wharf and Chelsfield finally departed last May, and NHP went at Christmas. Currently there are agreed cash bids for Ashtenne and Tops Estates (the Trust has overweight holdings in both). In France two large tax free companies, Fonciere Lyonnaise and Gecina, which together had gross assets of over €10 billion, have fallen to cash bids from Spanish property investment companies. The two best performing property share markets were Sweden and Spain where total returns were 57% and 53%. In neither country do property shares have tax transparency and the cause of the performance in both locations was corporate activity. We were overweight French property shares throughout the year and they returned 44%, thanks both to corporate activity and to investors demand for income. German property shares rose 35% spurred by hopes that German REIT legislation will be enacted in 2006. We have long been underweight in this area, and cannot raise any enthusiasm to buy, believing that German real estate has a poor outlook whether tax free or taxed. The two worst performing property share markets were Austria and Belgium. UK REITs The potential introduction of a UK REIT structure for UK property companies was first mooted by the Government in late 2003. Since then the Treasury has produced a consultation paper (May 2004), held widespread talks across the industry and now written a discussion paper (March 2005). Progress has been slow and UK property share investors, while remaining optimistic and enthusiastic, still have little feel for the likely outcome. Investment Activity and Distribution of Assets After making few changes to the equity portfolio in the first half of the year, we were a little more active in the second half and turnover (purchases plus sales divided by two) in the year totalled £94m, equivalent to just under 20% of the mean between the opening and closing equity holdings in the portfolio - the same percentage as in the year to March 2004. The distribution of assets also remained very similar. The proportion of the fund held in direct property declined from 14% to 9% and this reflected our top down view of potential value changes last year. Largest Equity Investments The list remains very similar to last year. I said then that by inclination I prefer small and medium sized property companies, and then admitted that the current top seven of our equity investments are the seven largest property companies in the UK and Europe. The position is not quite as extreme this year, but the top seven are still represented in our top ten. There are several reasons for this. Major shopping centres, which am I keen to hold on a see-through basis, tend, because of their size, only to be owned by large investment companies. Meanwhile smaller property companies tend to thrive best in development and trading, neither of which are activities which make much economic sense at the current time. Lastly, if tax transparent UK REITs are successfully introduced in the UK, I believe the large companies will be the first to transfer into the new regime and I hope that this will benefit their share prices. - MORE - - 9 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE MANAGER'S REPORT CONT'D Revenue The revenue earnings per share rose by 13.5% on a post tax revenue increase of only 2.4%. The substantial difference in these figures is explained by the effect of share repurchases - slightly higher income is shared by 10% fewer shares. Looking at the detail, our UK franked dividend income increased by an abnormal 25% to £6.4m. The explanation behind this exceptional jump is that the previous year's UK dividend income number was depressed by £0.7m when the ex-dividend dates of two large payments moved from March 2004 to April 2004. Adjusting for this, UK dividend income still rose by a healthy 10.7%. Our overseas, unfranked income was 9.4% higher and this increase would also have been over 10% but for another substantial dividend payment (from Wereldhave) moving from March to April. In line with our expectations, rental income fell by 15% to £2.9m reflecting the sales of our directly held property in both 2003 and 2004. Management fees rose due to the growth in shareholders' funds which has occurred over the last two years, however, when management fees (ex-performance fees) and administration expenses are taken together as the cost of operating the Trust, the overall cost has reduced from 0.85% of average funds under management in 2004 to 0.78% in 2005. The effective tax rate increased from 13.8% in 2004 to 15.2% in 2005. In 2004 we benefited from the opportunity to utilise some brought forward losses which could not be repeated in 2005. Next year the interim and final accounts will be prepared under the new International Financial Reporting Standards. These are still under discussion with the standard setting bodies but there are likely to be significant changes to the presentation and content of the accounts. Gearing and Debenture Debt Borrowing costs increased by 15.6% in 2005 due to higher absolute levels of debt through the year compared to 2004, as well as higher interest rates. The year started and finished with net debt of around £81m, though throughout most of the period the net debt figure was lower. In percentage terms gearing declined from 20% to 16% due to the growth in the shareholders' funds over the year. In the current, less certain economic outlook, the Trust's gearing level is expected to be between 5% and 20% over the coming six months. As in previous years I would ask shareholders to note that some £40m of our present debt is in the form of two debentures with coupons of 8.125% and 11.5%, repayable in 2008 and 2016 respectively. The market value of this debenture debt was £48.5m at the year end representing a negative value of some 2.6p per share which is not incorporated in the stated asset value. During the year the Trust was offered an opportunity to repurchase the £15m 11.5% Debenture 2016 for a premium of about £8m. After consultation it was decided not to take up this opportunity principally because we could see no reasonably short or medium chance to use the capital loss created by the buy-back. The portfolio's see-through gearing, which takes account of our own debt and adds in the proportionate debt of all our equity investments, was 99% at March 2005 - virtually unchanged from the 100% figure at March 2004. - MORE - - 10 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE MANAGER'S REPORT CONT'D Direct Property Portfolio As already noted our direct property portfolio reduced from 14% to 9% of total assets over the year and is now a smaller proportion of the overall portfolio than it has been for some years. This reduction has been in line with planned strategy but has also been a consequence of the rapid increase in the value of our equities portfolio, which has significantly outstripped the rise in the value of the direct market. The portfolio generated a total return of 13.4%, made up of an income return of 4.9% and capital growth of 8.5%. This compares with the Investment Property Databank Monthly Index return (for the year to the end of March 2005) of 18%, split between 6.5% income return and 11.5% capital growth. Once again, retail was the top performer in terms of IPD sectors, generating a total return of 20.0% against industrial at 16.9% and offices at 14.1%. The Trust's performance was held back by three factors: the lack of substantial directly held retail exposure (which we take through equities), a reduction in income at the development properties at Piccadilly and Battersea, both of which were cleared of tenants in the run up to their sale in the first half of the year, and thirdly, by the usual costs in acquiring properties at Lloyd's Avenue in the City of London and Liphook, Hampshire. The sales of Piccadilly and Battersea were in line with the Trust's strategy not to expose itself to development risk. However, in each case, the Trust has the right to participate in future development profits through an overage agreement negotiated with both purchasers. The Trust's current portfolio is predominantly comprised of office and industrial property. We remain of the view that we can target those areas of the retail market that we favour more effectively through the shares of listed retail investors than by owning retail property directly. Furthermore, the best retail performance has come from out of town retail and shopping centres, which tend to be too large and specialist to be appropriate investments for the Trust. The valuation of the Trust's own portfolio reflected conditions in the wider market. The yields applied to long let properties generating strong income flows, such as at Woking and Cambridge, have fallen. Conversely, we have experienced first hand the difficult office leasing market; at Bayswater we have 8,000 sq ft of available office accommodation converted from surplus storage space. On a more positive note, in December we completed a new lease of the Trust's warehouse in Swindon, only 6 months after the expiry of the bank guarantee provided by the original tenant, who went into receivership in 2002. At Lloyd's Avenue, we have managed a steady flow of leasing deals by keeping asking rents low and acknowledging the weight of supply rather than holding out for rental growth which may be slow in coming. The Trust acquired two properties during the year. We reported the purchase of 6 Lloyd's Avenue, a multi-let office building in the insurance quarter of the City of London, in our interim report to shareholders. In February this year we completed the purchase of a small office property in Liphook, Hampshire for just over £1m. The property was 60% let to a single tenant, with the remaining space vacant. Since purchase, we have refurbished the vacant space and secured a letting of half of it. Capital returns at both these properties have more than made up for the costs of acquisition. - MORE - - 11 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 EXTRACTS FROM THE MANAGER'S REPORT CONT'D Since the year end we have made a significant purchase of a 64,000 sq ft office building in the centre of Slough for £11.1m. The building was completed in 2002 but has been vacant since then. We believe that the Slough office market is now at, or close to, the bottom of the cycle and that the investment offers excellent potential returns for the Trust. The unifying strand running through these three purchases is the cost per square foot. In each case, we have paid less than the reinstatement cost of the building, which is equivalent to saying that we have bought these buildings at less than cost and received the freehold land they sit on for no consideration. We have 82,000 sq ft of vacant office space to let at The Colonnades, Lloyd's Avenue, Liphook and now at Slough, all of which we have created or bought rather than had put back to us. Leasing this will be our number one priority this year. The prices we have paid for this space assume lengthy void periods and that rent free periods will be offered to tenants. Our current revenue projections for the Trust do assume that none of this space produces any income in the current financial year. Fully let and income producing, this vacant space could produce £1.5m pa. Unquoted Investments I am pleased to report that the final disposal of our remaining unquoted investment, Controlrun, was completed shortly after the year end. We made no fresh investment in unquoted companies during the year but we continue to evaluate certain propositions. Outlook The excellent performance of property relative to other asset classes over the past five years has continued into 2005. The sheer weight of money awaiting investment in real estate across Europe will ensure that pricing remains keen for months to come. The interest rate environment, which threatened to become stormy earlier this year, has calmed down as economic growth forecasts have been trimmed. This is a happy turn of events for the property investment market. We must be constantly on guard to spot danger signals. The outlook for tenant demand must be crucial in assessing the long term merit of any real estate investment, and here the signal is only on amber and threatening to turn red again. As noted above, the Trust has been buying empty or part empty office property over the last year, and we have had success in lettings because we can offer good quality space at bargain prices and still achieve a good return on our investment. Many property buyers are failing to realise that buildings depreciate, and that renewing leases and reletting property is a hazardous and time consuming business. We enter the new financial year with the future looking harder to predict than usual. If bond yields continue to fall, the property investment market could have another excellent year ahead in absolute terms and relative to other equities. But I am in a sceptical frame of mind. We have lowered our balance sheet gearing since the start of the current financial year and our portfolio positions in larger companies gives us comfort that liquidity is decent. As a long only fund we do not pursue absolute returns, and must rely on our wits to outperform both rising and falling markets. - MORE - - 12 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 GROUP STATEMENT OF TOTAL RETURN (Incorporating the Revenue Account) for the year ended 31 March 2005 Year ended 31 March 2005 Year ended 31 March 2004 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Total capital gains from investments - 115,974 115,974 - 147,478 147,478 Investment income 14,527 - 14,527 12,608 - 12,608 Net rental income 2,859 - 2,859 3,353 - 3,353 ------- ------- ------- ------- ------- ------- 17,386 115,974 133,360 15,961 147,478 163,439 Interest receivable and similar income 113 - 113 286 - 286 ------- ------- ------- ------- ------- ------- Gross revenue and capital gains 17,499 115,974 133,473 16,247 147,478 163,725 Management and performance fees (2,343) (2,595) (4,938) (1,764) (2,149) (3,913) Other administrative expenses (459) - (459) (643) - (643) ------- ------- ------- ------- ------- ------- Net return on ordinary activities before interest payable and taxation 14,697 113,379 128,076 13,840 145,329 159,169 Interest payable and similar charges (2,904) (2,904) (5,808) (2,512) (2,512) (5,024) ------- ------- ------- ------- ------- ------- Net return on ordinary activities before taxation 11,793 110,475 122,268 11,328 142,817 154,145 Taxation on net return on ordinary activities (1,795) 346 (1,449) (1,564) 912 (652) ------- ------- ------- ------- ------- ------- Net return on ordinary activities after taxation 9,998 110,821 120,819 9,764 143,729 153,493 Ordinary dividends Interim of 1.30p (2004: 1.10p) (4,543) - (4,543) (3,899) - (3,899) Final of 1.55p (2004: 1.40p) (5,344) - (5,344) (4,961) - (4,961) ------- ------- ------- ------- ------- ------- (9,887) - (9,887) (8,860) - (8,860) ------- ------- ------- ------- ------- ------- Transfer to reserves 111 110,821 110,932 904 143,729 144,633 ==== ==== ==== ==== ==== ==== Return per ordinary share 2.85p 31.63p 34.48p 2.51p 36.96p 39.47p The revenue columns of this statement represent the revenue account of the Group. All revenue and capital items in the above statement derive from continuing operations. - MORE - - 13 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 GROUP AND COMPANY BALANCE SHEETS as at 31 March 2005 Group Group Company Company 2004 2005 2004 2005 £'000 £'000 £'000 £'000 Fixed asset investments 597,348 486,266 609,777 499,829 ---------- ---------- ---------- ---------- Current assets Debtors 2,182 5,982 1,743 5,626 Cash at bank 123 2,360 61 2,215 ---------- ---------- ---------- ---------- 2,305 8,342 1,804 7,841 Creditors - amounts falling due within one year Bank loans and overdrafts 41,631 43,323 41,500 43,101 Other creditors 15,405 10,345 67,416 63,580 ---------- ---------- ---------- ---------- 57,036 53,668 108,916 106,681 ---------- ---------- ---------- ---------- Net current liabilities (54,731) (45,326) (107,112) (98,840) ---------- ---------- ---------- ---------- Total assets less current liabilities 542,617 440,940 502,665 400,989 Creditors - amounts falling due after more than one year 39,952 40,201 - 250 ---------- ---------- ---------- ---------- Total net assets 502,665 400,739 502,665 400,739 _________ _________ _________ _________ Capital and reserves Called up share capital 86,591 88,604 86,591 88,604 Share premium 37,063 37,063 37,063 37,063 Other reserves 361,053 257,225 369,311 265,222 Revenue reserve 17,958 17,847 9,700 9,850 ---------- ---------- ---------- ---------- Equity shareholders' funds 502,665 400,739 502,665 400,739 _________ _________ _________ _________ Net asset value per share 145.13p 113.07p 145.13p 113.07p - MORE - - 14 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 GROUP CASH FLOW STATEMENT for the year ended 31 March 2005 2005 2005 2004 2004 £'000 £'000 £'000 £'000 Net cash inflow from operating activities 10,337 11,837 Returns on investments and servicing of finance Interest paid (5,754) (5,018) ---------- ---------- Net cash outflow from servicing of finance (5,754) (5,018) Taxation recovered 608 541 Capital expenditure and financial investment Purchase of investments (88,778) (62,833) Sale of investments 102,024 77,291 Loan stock redeemed (250) - Loans repaid by unquoteds - 967 ---------- ---------- Net cash inflow from financial investment 12,996 15,425 Equity dividends paid (9,504) (8,672) ---------- ---------- Net cash inflow before financing 8,683 14,113 Financing Purchase of own shares (9,006) (48,021) ---------- ---------- Net cash outflow from financing (9,006) (48,021) ---------- ---------- Decrease in cash (323) (33,908) ======= ======= Reconciliation of net cash flow to movement in net debt 2005 2004 £'000 £'000 (Decrease)/increase in cash (1,924) 718 Cash outflow/(inflow) from decrease/(increase) in loans 1,601 (34,626) ---------- ---------- Change in net debt resulting from cash flows (323) (33,908) Exchange differences 27 (148) Other - (7) ---------- ---------- Movement in net debt (296) (34,063) Net debt at 1 April (81,164) (47,101) ---------- ---------- Net debt at 31 March (81,460) (81,164) ======= ======= - MORE - - 15 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 NOTES: 1. Return per ordinary share Basic revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £9,998,000 (2004: £9,764,000) and on the weighted average number of ordinary shares in issue during the year, being 350,376,971 (2004: 388,831,553). Basic capital return per ordinary share is based on net capital gains of £110,821,000 (2004: £143,729,000) and on the same weighted average number of ordinary shares in issue. 2. Net asset value per ordinary share Basic net asset value per ordinary share is based on net assets attributable to ordinary shares of £502,665,000 (2004: £400,739,000) and on 346,366,286 (2004: 354,416,286) ordinary shares in issue at the year end. 3. Share capital changes During the year, the Company made market purchases for cancellation of 8,050,000 ordinary shares of 25p each representing 2.3% of the number of shares in issue at 31 March 2004. The aggregate consideration paid by the Company for the shares was £9,006,000. Shares are repurchased in order to enhance shareholder value. 4. Reconciliation of Group operating revenue to net cash inflow from operating activities 2005 2004 £'000 £'000 Net revenue before interest payable and taxation 14,697 13,840 Increase in operating debtors (571) (24) Increase in operating creditors 1,084 1,180 Overseas withholding tax suffered (1,011) (815) Performance fees paid (1,267) - Management and performance fees charged to capital (2,595) (2,149) Scrip dividends included in investment income - (195) ---------- ---------- Net cash inflow from operating activities 10,337 11,837 ======= ======= 5. Accounts for the year ended 31 March 2004 The figures and financial information for the year ended 31 March 2004 are extracted from the latest published accounts of the Group and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under either Section 237(2) or Section 237(3) of the Companies Act 1985. 6. Accounts for the year ended 31 March 2005 The preliminary figures for the year ended 31 March 2005 have been extracted from the latest Group accounts, which have been prepared on the same basis as set out in the previous year's annual accounts. They do not constitute the Group's statutory accounts. These accounts have not yet been delivered to the Registrar of Companies, nor have the auditors yet reported on them. 7. Dividend Subject to shareholders' approval at the AGM, a final dividend of 1.55p per share will be paid on 29 July 2005 to shareholders on the register on 1 July 2005. The shares will be quoted ex-dividend on 29 June 2005. - MORE - - 16 - UNAUDITED PRELIMINARY GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005 8. Annual Report and AGM The Annual Report will be posted to shareholders in June 2005 and will be available thereafter from the Secretary at the Registered Office, 4 Broadgate, London EC2M 2DA. The Annual General Meeting of the Company will be held at the Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS on Tuesday 19 July 2005 at 12 noon. For further information please contact: Chris Turner Fund Manager TR Property Investment Trust plc Telephone: 020 7360 1332 Marcus Phayre-Mudge Deputy Fund Manager TR Property Investment Trust plc Telephone: 020 7360 1331 - ENDS - This information is provided by RNS The company news service from the London Stock Exchange

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