Half-year Report

RNS Number : 9989P

TR Property Investment Trust PLC

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This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.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

Financial Report for the half year ended 30 September 2016

24 November 2016

Financial Highlights and Performance	At 30 September 2016 (Unaudited)	At 31 March 2016 (Audited)	% Change
Balance Sheet
Net asset value per share	365.78p	335.56p	+9.0
Shareholders' funds (£'000)	1,161,346	1,065,419	+9.0
Shares in issue at the end of the period (m)	317.5	317.5	+0.0
Net debt1	12.2%	11.9%
Share Price
Share price	313.00p	297.50p	+5.2
Market capitalisation	£994m	£945m	+5.2
	Half year ended 30 September 2016 (Unaudited)	Half year ended 30 September 2015 (Unaudited)	% Change
Revenue
Revenue earnings per share	7.14p	5.51p	+29.6
Net interim dividend per share	4.10p	3.15p	+30.2
	Half year ended 30 September 2016 (Unaudited)	Year ended 31 March 2016 (Audited)
Total Return Assets and Benchmark
Benchmark performance (total return)	9.7%	+5.4%
Net asset value total return	10.7%	+8.2%
Share price total return	7.0%	-1.6%
Ongoing Charges2
Excluding performance fee	N/A	+0.72%
Excluding performance fee and direct property costs	N/A	+1.06%
Including performance fee	N/A	+0.67%

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

2. Ongoing Charges is an annual calculation therefore does not apply to the half- year.

Dividend

An interim dividend of 4.10p (2015: 3.15p) will be paid on 3 January 2017 to shareholders on the register on 2 December 2016. The shares will be quoted ex-dividend on 1 December 2016.

Chairman's Statement

Introduction

The first six months of this financial year was, as expected, dominated by the UK Referendum. One of the initial consequences of the outcome was the weakening of Sterling and the asset value of your company was a significant beneficiary given the appreciation of our European assets when measured in Sterling. The Trust's asset value rose 10.7%, ahead of the benchmark which recorded 9.7%.

Whilst UK property shares fell -3.8% over the period, our UK physical portfolio held up relatively well with a modest valuation movement of -1.5% reflecting the fact that one third of the physical portfolio's income is the new 20 year lease to Waitrose subject to 3% per annum rent uplifts at our Bayswater property.

Income remains the dominant requirement from investors seeking exposure to this asset class. In fact over the last six months and in response to the heightened political and economic risks, it is clear that the quality and depth of this income is also critical. In essence, those businesses combining higher income of longer duration with lower leverage, have been in greatest demand whilst those more focused on the development cycle or reliant on capturing rental growth have fared poorly.

The Manager had been reducing exposure to Central London since late 2015 and this was accelerated ahead of the UK Referendum. As discussed in the Annual Report, we have virtually no exposure to high end London residential, and negative sentiment towards that sub-market has swamped some stocks disproportionately. The asset rotation has been towards the more secure income streams both in the UK and Europe. The fact that our gearing has remained constant over the period points to our confidence that the sector continues to offer an attractive investment proposition.

NAV and Share Price Performance

The share price total return (assuming dividend reinvestment) was 7.0%. This is less than the growth in the Net Asset Value which rose 10.7% due to a modest further widening of the discount between the share price and the asset value.

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

Revenue Results and Dividend

Earnings per share at 7.14p are almost 30% ahead of the prior year at this interim stage (5.51p). The impact of the UK referendum vote and the subsequent weakness in Sterling has been a significant factor. Over half of our annual income is derived from investments outside the UK and therefore the income from these investments has increased in Sterling terms. Another factor has been the repositioning of the portfolio ahead of and since the referendum vote, the European stocks tend to be higher yielding than in the UK and the shift of the portfolio away from the UK has had an impact.

This has enabled the Board to announce an interim dividend on 4.10p, an increase of 30.2% over the prior year interim dividend of 3.15p.

Although we expect the result for the full year to be ahead of the prior year, around 75% of our overseas income is collected in the first half, therefore the fx impact which has increased the earnings has had a disproportionate benefit in the first half.

The Board are also minded to rebalance the interim and final dividends. For these reasons the Board do not expect the growth rate in the final dividend to be of the same magnitude.

Revenue Outlook

As stated above, we currently expect the full year figures to be comfortably ahead of the prior year, although with so much political uncertainty globally having an impact on all markets, changes in the portfolio composition as a result of further developments may alter the income position to some extent.

Net Debt and Currencies

Gearing at 12.2% has remained very close to the level at the year end in March of 11.9%. These figures include the impact of the Contracts for Difference (CFD) exposure. As at 30 September approximately 68% of our debt was through the CFD positions.

As reported earlier, currency movements in the period were significant. We continue to use foreign exchange (FX) forward contracts to maintain the currency exposure of our Balance Sheet broadly in line with that of the benchmark.

Discount and Share Repurchases

The discount between the net asset value and the share price widened from 11.4% in March to 14.9% in September. In October this year, the Trust repurchased 150,000 shares at an average price of 304p, a discount of over 15% to the prevailing asset value (with accrued income). The Board's strategy as regards buybacks and the discount is set out in the Annual Report. The Directors are conscious that whilst investment performance is expected to be a key driver of the share price discount (or premium) to the net asset value over the longer term, there are periods of volatility when the discount can widen on weakening sentiment towards the underlying asset class.

The Board continues to encourage an active investor relations programme. 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 Valuer

Following a Board review, Knight Frank LLP were appointed as Independent Valuer for the physical portfolio. They succeeded Deloitte LLP who having undertaken a strategic review had disposed of their transaction related property businesses. Knight Frank undertook the September valuation.

Awards

The Board are pleased to announce that the Trust has again been awarded a place in the IC Top 100 Investment Trusts. The Trust has also been shortlisted for the Property category in the Investment Week Investment Company of the Year award.

Outlook

As I have referred to in my opening statement, currency movements dominated our asset value growth in the first half. Sterling's devaluation has been even greater than during the period post the departure from the ERM in 1992. Whilst commentators look back wistfully at the period of growth which followed that decision, we find ourselves in very different waters. The behaviour of the central banks has dominated market behaviour since the global financial crisis. We are now entering an era where there is less clarity on their strategy, coupled with a greater level of international political uncertainty. Our management team remain vigilant not only to the risks surrounding the impact of rising bond yields but also to the opportunities which may present themselves to the companies we invest in, given how well funded so many of these businesses are today.

Hugh Seaborn

Chairman

24 November 2016

Directors' Responsibility Statement

The Directors acknowledge responsibility for the interim results and approve this Half-Yearly Financial Report. The principal risks facing the Company are substantially unchanged since the date of the Annual Report for the year ended 31 March 2016 and continue to be as set out in that report.

The Directors of TR Property Investment Trust plc confirm that to the best of their knowledge:

(a)       the Half-Yearly Financial Statements have been prepared in accordance with IAS34 as adopted by the European Union and give a true and fair view of the assets, liabilities, financial position and profit for the period of the Group as required by the Disclosure Guidance and Transparency Rules ('DTR') 4.2.4R;

(b)       the Chairman's Statement together with the following Manager's Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c)       the report includes a fair review of the information required by DTR 4.2.8R.

Approved by the Board on 24 November 2016 and signed on its behalf by Hugh Seaborn, Chairman

Manager's Report

Performance

The Net Asset Value total return for the six months was 10.7%, modestly ahead of the benchmark total return of 9.7%. The share price total return (assuming dividend reinvestment) was 7.0%, less than the growth in the NAV as a result of a modest widening of the discount. This results period has been dominated by the UK Referendum on 24 June. Given the uncertainty which has been triggered as a consequence of the outcome, the asset value and share price return over the period seems, on first glance, surprisingly robust. The reason lies in the impact of currency combined with the fund's reduced exposure to the UK. Between 24 June and the end of September, GBP weakened against EUR by 12.8% and against CHF by 11.6%. Over those few weeks, the Continental European component of our benchmark (70% of assets) when viewed in EUR rose 6.2% but when measured in GBP terms, the result was a staggering 16.3%. I would remind investors that the currency exposure is maintained constantly in line with that of the benchmark regardless of where our underlying investment exposure is focused.

Alongside the devaluation of GBP, another immediate consequence of the increased uncertainty has been a rise in volatility as both the economic and political outlook across Europe becomes more clouded, particularly given the large number of national elections in 2017. With growth prospects remaining subdued across the Eurozone, the European Central Bank launched its latest unorthodox monetary stimulus in July, the Corporate Sector Purchase Programme. The ECB effectively added a large number of corporate bonds to its approved list and this fuelled further falls in yields. According to Merrill Lynch data there was, at the end of June, an estimated €445bn of negative yielding euro investment grade corporate bonds. Investors were thus scrambling for yield wherever it could be found and the relatively high and secure income streams offered by property companies was very attractive and this drove values higher. By early September, Continental European property equities were at prices last seen in June 2007. These price levels were also reflecting an expectation of further yield compression (and thus higher property valuations) as institutional demand for the assets increased, particularly in markets experiencing rental growth.

In the UK, this demand for income also remained an important tailwind and the Bank of England's decision to cut the base rate to 0.25% (from 0.5%) was helpful. However, the uncertainty created by the UK Referendum has resulted in property equity prices by September trading broadly 10% below pre-Brexit figures. At the time of writing (mid October) the impact on tenant demand and business decision making appears muted but in our view it is too early to tell. What is interesting to note is that the underlying commercial property investment market has not seized up (as some predicted) and post Brexit price discovery and transaction levels are providing evidence for both valuers and market participants. The debacle of the 'gating' (forced temporary suspension to redemptions) by several open-ended, daily dealing property funds which occurred in the immediate aftermath of the result has now passed with most of these funds reopening. We do, however, expect these funds to be ongoing net sellers, particularly given the renewed focus by investors on the inherent weakness of those fund structures.

The currency impact has clearly been a major contributor towards the growth in the Trust's GBP denominated asset value. The lower GBP results in exports becoming cheaper for overseas buyers but imports become more expensive. The UK and particularly London has been a popular market for foreign owners of both commercial and residential property for many years. One estimate puts overseas ownership of the City of London's real estate at 65%. For USD buyers UK products and assets are 15% cheaper in the middle of October than they were in mid June. There have, of course, been downward price corrections in London commercial property values since the summer but these falls are markedly smaller than some analysts expected and it is clear that the currency weakness has acted as a major shock absorber.

Property Investment Markets

In the last Annual Report, I wrote that we anticipated a slowdown in transaction volumes in the UK commercial property market from the record year of 2015. The pause in investment ahead of the UK Referendum was well flagged but UK institutional investors had, in fact, already been net sellers in the second half of 2015 and into 2016.  A slowdown in demand, particularly from retail investors subscribing for units in daily dealing funds, had started ahead of June and the well documented suspension of redemptions in the aftermath of the result was an acceleration of this trend. The subsequent re-opening of the majority of these vehicles in Q3 2016 is an encouraging sign that a balance of supply and demand is emerging and that these funds (at the forefront of pricing) are confident that redemption requests can be met. IPD's All Property capital growth for the six months to the end of September was a modest fall of -3.7% whilst the previous six months saw 1.5% capital return.

We have been encouraged by the level of transaction evidence post the UK Referendum. Some of this is anecdotal given that the market was very quiet (as usual) during August and therefore we are reviewing only two months of market activity. Overseas buyers have taken advantage of the weakness of GBP particularly in London. Price adjustments post June have ranged from 5-15% which coupled with 15% currency adjustment (for USD buyers) makes for a healthy markdown. The most recent De Montfort Commercial Property Lending Report states that average margins for senior debt on prime assets actually fell from 222 bps to 191 bps in H1. There was, however, a general widening of margins on debt for non-prime assets. I think some comfort can be drawn from another data point in the De Montfort report which points out that average loan to values on debt issued by UK banks has fallen from 65% to 59% in the last 6 months. The banks have not allowed themselves to lend more against rising asset values, a common mistake made in previous cycles and this is very encouraging.

Across Europe, particularly Sweden, Germany and France, we have seen further yield compression as demand from institutions seeking income competed with debt funded buyers taking advantage of record low debt costs. With rents now rising in Central Paris, Stockholm, Gothenburg and several of the larger German cities the combination of rental and capital growth remains attractive even given the increased volatility in bond yields over the last month.

Offices

We do not expect the 2016 Central London take-up to match the record breaking 2015 figure of 12.2m sq ft but nor has there been a sharp reduction across all submarkets. The reality has been a marked variance across the capital's sub-markets. The City, with take up of 3.4m sq ft, is 34% down on the previous year but still 4% ahead of the long term average, according to Savills data. The West End, on the other hand, with take up of 2.53m sq ft is just 8% below last year but still 8% ahead of the ten year average. Vacancy in the West End has crept up from 2.6% in March to 3.2%. The largest industry occupier is Tech & Media with a 5 year average market share of 35%. This share fell to 23% of total take-up year to date and such a slowdown should not be ignored. It is interesting to note that 48% of all the 2017 new office delivery is pre-let and that 1.9m sq ft is the lowest amount of development since 2012. It is demand not supply which concerns us.

Elsewhere in the UK the long running drought of supply of new Grade A office space continues to push rents forward. UK regional cities recorded take-up in H1 2016 only 6% below the record of H1 2015. Beyond the core areas rental growth has paused as occupiers pause to decide on their post - Referendum requirements. However, supply is not a major concern with the next 3 years supply equating to just 2 years of annual take-up. Importantly, on average 35% of this supply is pre-let with Manchester's pre-let level at over 50%. So far this year demand has remained robust.

In the Annual Report, I commented on our positive view of the Western corridor (M3/M4/West M25) office markets, through our holding in McKay Securities. Savills estimate that the current supply offers just 2.1 years of average take up of Grade A space. Given this low supply, any resurgence in demand will quickly translate into renewed rental growth.

Paris, the dominant Continental European office market, has enjoyed robust take-up in H1 2016 with BNP Paribas reporting a 20% like for like increase over H1 2015 in the Ile-de-France region at 1.14 million sq mtrs. Our focus on prime Central Paris (through Terreis in particular) has been rewarded with vacancy at 4% leading to rental growth. La Defense had a strong take-up but with 8% vacancy this has not yet resulted in meaningful rental growth although we now expect that following a string of large lettings in that sub-market. However, an increasing supply response with completions in 2017/18 will dampen rental growth particularly in the more peripheral locations. We remain focused on the core markets.

Stockholm CBD has experienced strong rental growth with CBRE reporting 15% growth year-on-year with supply of new offices at a record low of 2%, including all refurbished stock the vacancy is less than 7%. In Gothenburg vacancy is even less at 4.3% and the growth forecasts remain double digit for 2017.

Retail

Barclays research team carry out detailed analysis of Barclaycard (credit and debit cards) spending across 34 retailer categories. Barclaycard users account for approximately 20% of all UK card transactions. Since 2011, the annual growth rate of online sales has averaged over 13%, with the last 12 months at 14%. The physical in-store equivalent growth rate is 1.1% in line with the 5 year average. The complete re-engineering of the way we shop is accelerating and the UK is in the vanguard. Retailers' margins are under pressure. They are battling with the balance of online and physical presence, the commensurate logistical challenge of both delivery (and returns) whilst many compete with the behemoth Amazon as it broadens its offer even further.

Our stock positioning in this sub-market has not changed markedly over the last six months. Prime centres with high passing rents in the UK are struggling to generate rental growth after adjusting for incentives and capital expenditure. Our binary approach remains one of concentrating, in the UK, on companies which own local, convenience focused higher yielding centres whilst in Europe maintaining a focus on prime, dominant centres. According to Forrester Research, non-food online sales as a percentage of retail sales is only 2% in Italy, 8% in Sweden and 9% in France whilst in the UK it is close to 15% and far higher in many retail categories. Quite simply the online market share in Continental Europe is still many years behind the UK and owners of the best centres, such as Unibail and Klepierre, continue to deliver (and forecast) more earnings growth.

Central London with its mix of tourism, entertainment, full range of food offerings, world class department stores and accessibility continues to buck the trend with steady growth. It has been hugely boosted by the weakness of GBP with overseas visitor numbers up. US visitors are up 7% in the 3 months since June compared to a year earlier and London receives the vast majority of them.

With consumer confidence so closely allied to employment prospects, wage growth and broad economic growth it is no surprise to record rental growth in Stockholm, Dublin, Madrid, Vienna and Berlin.

Distribution and Industrial

These sectors have been the most robust over the last six months. IPD's South East industrial recorded a fall of just -0.7% in capital values in the six months under review whilst UK Shopping Centres collectively recorded a fall of -6% in the same period. We believe the sector will continue to outperform. The trend to online retailing is set to continue and the evolution in the distribution infrastructure has seen a surge in demand for smaller buildings (less than 100,000 sq ft) in urban areas to enable faster 'last mile' delivery. Our unit let to Yodel in Bristol, is a typical example. Larger units (+250,000 sq ft) have generally been pre-let or design/build and hence there is little speculative supply available to absorb new demand. Colliers report in their H1 2016 Snapshot that in the entire Midlands market, pre-let accounts for over 50% of take-up in the first half of 2016. Amazon continue to have a voracious appetite for space and rising rents for prime distribution have been observed in Greater London, West Midlands, Leeds and Manchester.

Many European markets are beginning to see the impact of a lack of supply with rents rising. Madrid and Barcelona are good examples of acute supply shortages where the limited speculative supply response is not enough to rebalance the market. In Sweden, one third of all new developments are let to pure e-tailers or multi-channel logistics providers. Colliers research points to rental growth in 18 out of 21 European markets they cover, the three negative performers were Katowice, Poznan and Gdansk. We continue to have virtually no exposure to Central and Eastern Europe.

However, there are large regional variations, Munich and Stuttgart recorded strong growth with Munich's vacancy at less than 1% whilst the Rhine-Main area around Frankfurt has more supply. We continue to have a healthy exposure to Bavarian industrial and distribution through VIB Vermogen.

Residential

The weakness in the prime Central London residential market which I commented on in the Annual Report, has intensified. The combination of uncertainty around the UK's vote to leave coupled with the stamp duty adjustments for high value and second homes has impacted values. Savills estimate a one year fall of -6.3% for Prime Central but just -1.3% for Prime South West. The highest value markets have therefore been hit hardest. For transactions over £10m prices are down 13.5% since the peak. Volumes have also been hit with 36% fewer sales (on +£1m properties) in the first 9 months of 2016 compared with the same previous period. We continue to have virtually no exposure to these markets. Conversely, London properties of less than £1 million have seen growth, albeit modest, over that period with the positive effect of lower stamp duty. Telford Homes remains our key exposure to these lower value markets with their average apartment price of less than £550,000 and a focus on East and South East London.

The private rented sector (PRS) continues to attract investors drawn to the systemic supply/demand imbalance and the growing number of individuals who wish to rent or can't afford to buy. Purpose built apartment blocks for renting is a fast growing market but unlike in Germany and Sweden it is embryonic in the UK. Grainger Trust is the only listed company with a meaningful pipeline but even that is a modest part of their overall portfolio. Our German and Swedish residential exposures have continued to perform well at the asset level with companies growing earnings in line with expectations. However their share price performance has been weaker, particularly post the half year point, as investors have viewed them as 'bond proxies' and as bond yields have risen, these share prices have fallen. German residential companies have seen a wave of consolidation over the last three years but investors now consider the likelihood of further benefits of merging the remaining players as meagre. Vonovia's ongoing offer to acquire Conwert in cash or shares has caused little excitement.

The bright spot remains the fundamental lack of supply in so many of these cities across Europe. Germany in particular benefits from a large number of liquid companies and our ability to access exposure to a range of regional markets remains attractive despite these businesses current high correlation to long dated Bunds.

Debt and Equity Capital Markets

Equity capital markets for property companies across Europe were quiet in the run up to the UK Referendum with only our preferred Berlin residential play, ADO Properties raising £100m in April. It wasn't until after the summer break and the recovery in sentiment during September that we saw more activity. Even then it was more about large investors placing secondary shares as opposed to fresh equity raises. The few exceptions are important to highlight as they very much reflect current investor focus. Segro, Europe's largest listed owner of industrial and distribution property raised £340m in an overnight 9.9% (of issued capital) placing with institutional investors. This was followed at the end of September with Tritax Bigbox announcing a £250m placing and open offer (which allowed all existing holders to participate). Due to overwhelming demand the offer was increased to £350m when it closed in mid October. Such is the demand for businesses owning logistic related real estate.

The last example is Secure Income Reit which raised £140m to buy a portfolio of Travelodge hotels. The business specialises in owning properties with long income streams which benefit from fixed increases in the rent contracts or where the income is index-linked. The issue was heavily oversubscribed reflecting investor concerns that inflation is set to return in the UK, even if this is caused by rising import prices (on the back of weaker GBP) rather than underlying economic growth.

Bond markets remained accommodating on the back of the ECB's bond buying programme. Klepierre, Europe's second largest owner of shopping centres issued in September a 15 year €600m senior unsecured bond at a coupon of 1.25%. This followed on from their December 2015 10 year €500m issue at 1.875%. Pricing strengthened over the period reflecting the central bank's intention of reducing the cost of corporate debt even further.

Property Shares

The timing of the UK Referendum cleaved the equity market return profile into two distinct periods of almost equal length. From the beginning of the financial year until 23 June, the UK had returned a healthy 6.5% with a particularly strong performance in early June as investors increasingly positioned themselves for a Remain outcome. Over the same period Continental Europe returned just 2.2% in EUR terms. From 23 June to the end of September, the UK stocks fell -8.2% whilst the Continental names rose 3.9% in EUR and an eye-watering 16.3% when viewed in GBP.

German property companies, dominated by the residential businesses rose a collective 17.8% in the half year. This very strong return reflected the ongoing drop in Bund yields through to mid August. The correlation in performance between these two asset classes has become high, too high and the rising volatility in Bund yields in September and October has resulted in an ongoing correction in pricing in these names. We have reduced our exposure back to a market weight and concentrated investment in fewer positions. The most notable performer in the period was Buwog, an Austrian listed residential company which has 44% of its assets in Germany. This stock rose 27.6% in the period as new management set out the revised strategy.

Sweden was another notable outperformer, particularly from May, collectively returning 13.7% as the Riksbank maintained negative short-term rates and occupational markets recorded rental growth particularly in Stockholm and Gothenburg. This drove yields down further and prices up. The Swedish property companies are amongst the most leveraged in the world and gearing has aided their asset growth. However our concerns about the leverage levels were reflected, after the half year, in the performance in October when stocks fell 6%.

In the context of the overall negative performance from the UK companies as a whole (-2.2% in the six months), the outperformance from the owners of logistics and distribution property is worthy of comment. Segro's total return was 11.9% and Tritax Bigbox at 6.3% reflect the levels of demand from investors for this type of real estate.

Distribution of Assets

UK equity exposure dropped over the period from 31.7% in March to 28.8% by September, this was strongly influenced by two factors, the further reduction in our Central London exposure in the run up to the UK Referendum and the fall in the value of GBP post the vote. The Continental equity exposure has increased significantly from 60.1% to 63.8% driven primarily by the appreciation of all European currencies against GBP. The physical portfolio's weighting fell slightly from 8.2% to 7.4%.

Investment Activity

Turnover (purchases and sales divided by two) totalled £149.3m equating to 13.4% of the average assets over the period. This compares to turnover of £145.0m in the same period last year. The level of turnover reflects the reorientation of the portfolio both ahead of the UK Referendum, with the reduction in the UK exposure as well as the response to the increased volatility in share prices in the month following the result. The latter part of the period, particularly August, experienced sharply reduced volatility and trading volumes.

Portfolio activity was, not unexpectedly, dominated by our positioning ahead of and then post the UK Referendum which fell close to the middle of the period under review and our activity (as measured by turnover) was split 45% pre Referendum, 55% post Referendum.

Ahead of the UK Referendum our UK additions were focused away from London and the large cap names which we felt would in the event of a Leave vote, suffer from having the greatest liquidity. Whilst we didn't add to these names in the first half, the modest ongoing overweights in the London-centric names into the UK Referendum resulted in weak relative performance in the immediate aftermath.

We added to our healthcare exposure, Primary Health Properties and Target Healthcare, both offering solid non cyclically driven earnings. Other significant additions were in London listed companies which had some European exposure and included Kennedy Wilson, Hansteen and Segro. Telford Homes is also worthy of explanation given our 2 year old bearish stance on high end London residential values. Telford Homes focuses on building midmarket apartments, primarily in East and South East London with an average price of less than £550,000. The long-standing management maintain a conservative strategy with forward sales of the majority of the current build programme.

In Europe, we added significantly to our German/Austrian residential exposure. Alongside the strong market demand fundamentals - which have been well rehearsed in previous reports - we had the opportunity to add to our preferred Berlin focused business, ADO Properties who raised €100m in April following their IPO in the previous July. In Austria, Buwog announced the appointment of a new CEO. Andreas Seagal is well known to us from his role as CFO of GSW (our top performing German residential company in 2014) which was acquired by Deutsche Wohnen in December 2014. We continued to build our position in Buwog throughout the period.

Sharp-eyed investors will note the increased exposure to Spain and this requires some explanation. Our expectation is for a gradual improvement in the underlying market dynamics in Madrid and Barcelona but not at a pace which excites us particularly. Our purchases in the period were Hispania and Colonial. Hispania is increasingly focused on hotels on Spain's southern coast and islands. Although UK tourist numbers are expected to fall in 2017, due to the Sterling weakness, the huge drop in European tourists visiting North Africa, Egypt and Turkey will be a benefit to Spain. Colonial's assets are split broadly equally between offices in Madrid/Barcelona and a prime portfolio in Paris. Given the strong revaluation in the Paris office companies we see Colonial as a cheaper way to gain exposure.

Post the UK Referendum, the investment focus returned to the UK as prices fell both dramatically and indiscriminately. We added to existing holdings in a broad range of businesses but concentrated on those with higher sustainable income. We anticipate some yield expansion across all sectors, which is widely priced in and we believe that income will continue to be at the forefront of investors' rationale for owning property companies.

Revenue and Revenue Outlook

We are pleased to report the interim earnings almost 30% ahead of the prior year. A significant contributor to this has been the impact of weakening Sterling, which has increased the value of the overseas income when measured in GBP. This together with changes to the portfolio composition with a greater weighting away from the UK has led to a step change in the income profile. As highlighted in the Chairman's report, the impact of this is greater in the first half than the second, so we do not expect this percentage increase to translate to the full year earnings, however we do expect them to be significantly ahead of the prior year.

In addition to currency rate changes and portfolio repositioning we have the usual uncertainties around timing of dividend income around our year end which may impact the final earnings result for the year.

Considering the income profile over the longer term, I would like to remind shareholders that the portfolio is managed on a total return basis. Although income is carefully considered and the Board has the aim of maintaining a progressive dividend, the overall performance is the prime objective when considering how to position the portfolio. It is difficult in this time of global political change to predict how it will play out in the currency markets over the longer term. This will have an impact on the income profile of the Company as will the positioning of the portfolio in response to events. We do still have some growth in rental income from the property portfolio as the new lettings come on stream at the Colonnades and we anticipate some dividend increases in the forthcoming year, however the step change referred to above may reverse to some extent in future years.

Gearing and Debt

Gearing has remained virtually the same as at the year end at 12.2% (from 11.9% in March). At the half year our gearing was through the loan notes and notional debt on the CFD portfolio, the two bank loans were undrawn.

Direct Physical Portfolio

The physical property portfolio produced a modestly positive total return of 0.2% for the six months to September 2016 as the income return of 1.7% was effectively cancelled out by the -1.5% fall in capital values. This is the first time that Knight Frank LLP have valued the physical property portfolio following their appointment as Independent Valuer in July 2016. As noted earlier it has been a tricky time for UK commercial property over the past 6 months and the IPD Monthly Index reflects this. It has produced a total return of -1.0% comprising a capital return of -3.7% and an income return of 2.7%.

As ever it has been a busy period of asset management across the portfolio. At our industrial estate in Wandsworth, we are in the midst of lease negotiations across the entire estate of 16 units. We have extended four leases for a further three years securing rental increases of 25%, moving the passing rent up to £20 per sq. ft. A further seven lease extensions are in solicitors' hands and three units are vacant. At the time of writing two of these vacant units are under offer at a similar rent. The increase in the rental tone lifted the capital value and the short term lease renewals maintain the flexibility for potential redevelopment. We continue to engage with Wandsworth Borough Council on the future potential for the site.

At the Colonnades, in Bayswater, we have completed the public realm works which was the final phase of the extension and redevelopment works started in September 2014. Below is a picture of the completed development following the opening of Waitrose in September 2015. We have now turned our attention to the letting of the 5 retail and restaurant units. One of the retail units has been let to Graham and Green, the soft furnishing retailer, two units are under offer to Babaji, a Mediterranean restaurant concept and we are progressing the letting of the remaining two.

In Gloucester we have let two of our industrial units to Infusion Ltd, an existing tenant on the estate. They have taken two new ten year leases at a 14% premium to the previous passing rent. The units were vacant for only two months and the rent achieved was 8% ahead of our estimated rental value on purchase in July 2015. There is a further lease event on the estate in May 2017 and this new letting will provide helpful evidence in moving rents forward.

Outlook

In the Annual Report in May, I referred to the growing concerns around the effectiveness of ultra loose monetary policies from central banks across Europe. As we move into the autumn of 2016, it is increasingly apparent that the strategies which have led to, amongst other things, an era of negative rates, are unlikely to persist. There is a realisation that the very low cost of money, designed to engineer growth through allowing businesses to borrow very cheaply hasn't worked. Whilst we do not expect base rates in Europe to move in the near term, the bond markets have anticipated a change in the type of stimulus that central banks may offer and the volatility we have seen recently is expected to continue.

Post the half year point, bond yields across the globe have risen and Europe has been no exception regardless of the slow pace of economic growth. This is partially explained by the anticipated commencement of reduced quantitative easing by central banks but also on the expectation of fiscal stimulus, initially in the US (post the Trump victory) but also in Europe.

For property such expectations of inflationary pressures and rising bond yields are a concern given the elevated correlation between asset classes. However, we are not overly downbeat about prospects. The companies we invest in have, in the vast majority of cases, used the ultra low interest environment as an opportunity to restructure their balance sheets, cheapen their debt costs and reinvigorate their portfolios. Management teams have recognised the risks of too much leverage and resisted the temptation to over extend in the rush to bolster earnings. With many companies fixing their debt for longer periods at lower prices, the risk to earnings from rising rates (when they eventually arrive) is diminished. The development cycle has been far more muted than in previous periods of asset inflation. Banks, the traditional lender of speculative finance, have been busy solving problems elsewhere. If inflation leads to rising construction costs, developers will require derisking through pre-lets or higher rents. The key issue remains demand and we are intently focused on as many forward looking indicators as are available. With so many jurisdictions and asset classes to choose from in a fully pan European universe we will continue to seek out economic growth, safe in the knowledge that the supply backdrop is benign and many of our companies are positioned to act on such opportunities.

A note of caution stems from the, as yet, unknown consequences of the UK's vote to leave the European Union with the near term triggering of Article 50, currently set to be timed amidst national voting in Italy, the Netherlands, France and Germany. For the political establishments throughout Europe and the supranational legislative in Brussels, the recent outcomes both in the UK and US present challenges that have not been faced before.

Marcus Phayre-Mudge

Fund Manager

24 November 2016

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the half year ended 30 September 2016

	(Unaudited) Half year ended 30 September 2016			(Unaudited) Half year ended 30 September 2015			(Audited) Year ended 31 March 2016
	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total	Revenue Return	Capital Return	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Income
Investment income	22,561	-	22,561	18,012	-	18,012	27,358	-	27,358
Other operating income	6	-	6	65	-	65	74	-	74
Gross rental income	1,897	-	1,897	1,482	-	1,482	3,330	-	3,330
Service charge income	681	-	681	494	-	494	1,023	-	1,023
Gains/(losses) on investments held at fair value	-	86,104	86,104	-	(2,502)	(2,502)	-	64,087	64,087
Net movement on foreign exchange; investments and loan notes	-	(1,476)	(1,476)	-	420	420	-	1,768	1,768
Net movement on foreign exchange; cash and cash equivalents	-	4,386	4,386	-	(478)	(478)	-	709	709
Net returns on contracts for difference	2,835	2,373	5,208	1,914	(4,713)	(2,799)	2,905	(4,166)	(1,261)
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Total income	27,980	91,387	119,367	21,967	(7,273)	14,694	34,690	62,398	97,088
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Expenses
Management fees (note 2)	(651)	(1,952)	(2,603)	(688)	(2,064)	(2,752)	(1,229)	(3,688)	(4,917)
Performance fee (note 2)	-	-	-	-	(2,675)	(2,675)	-	(3,354)	(3,354)
Direct property expenses, rent payable  and service charge costs	(933)	-	(933)	(708)	-	(708)	(1,533)	-	(1,533)
Other administrative expenses	(594)	(257)	(851)	(564)	-	(564)	(1,269)	(481)	(1,750)
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Total operating expenses	(2,178)	(2,209)	(4,387)	(1,960)	(4,739)	(6,699)	(4,031)	(7,523)	(11,554)
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Operating profit	25,802	89,178	114,980	20,007	(12,012)	7,995	30,659	54,875	85,534
Finance costs	(313)	(941)	(1,254)	(450)	(1,351)	(1,801)	(894)	(2,682)	(3,576)
Profit from operations before tax	25,489	88,237	113,726	19,557	(13,363)	6,194	29,765	52,193	81,958
Taxation	(2,813)	1,524	(1,289)	(2,058)	1,172	(886)	(3,221)	1,720	(1,501)
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Total comprehensive income	22,676	89,761	112,437	17,499	(12,191)	5,308	26,544	53,913	80,457
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Earnings  per Ordinary share (note 3)	7.14p	28.27p	35.41p	5.51p	(3.84)p	1.67p	8.36p	16.98p	25.34p

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.

The final Ordinary dividend of 5.20p (2015: 4.75p) in respect of the year ended 31 March 2016 was declared on 25 May 2016 (2015: 27 May 2015) and was paid on 2 August 2016 (2015: 4 August 2015). This can be found in the Group Statement of Changes in Equity for the half year ended 30 September 2016.

The interim Ordinary dividend of  4.10p (2016: 3.15p) in respect of the year ended 31 March 2017 was declared on 24 November 2016 (2016: 25 November 2015) and will be paid on 3  January 2017 (2016: 5 January 2016).

GROUP AND COMPANY STATEMENT OF CHANGES IN EQUITY

	Share Capital Ordinary £'000	Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings Ordinary £'000	Total £'000
for the half year ended 30 September 2016 (Unaudited)
At 31 March 2016	79,375	43,162	43,934	898,948	1,065,419
Total comprehensive income:
Net profit for the half year	-	-	-	112,437	112,437
Dividends paid	-	-	-	(16,510)	(16,510)
	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __
At 30 September 2016	79,375	43,162	43,934	994,875	1,161,346
	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __
	Share Capital Ordinary £'000	Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings Ordinary £'000	Total £'000
for the half year ended 30 September 2015 (Unaudited)
At 31 March 2015	79,375	43,162	43,934	843,574	1,010,045
Total comprehensive income:
Net profit for the half year	-	-	-	5,308	5,308
Dividends paid	-	-	-	(15,081)	(15,081)
	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __
At 30 September 2015	79,375	43,162	43,934	833,801	1,000,272
	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __
	Share Capital Ordinary £'000	Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings Ordinary £'000	Total £'000
for the year ended 31 March 2016 (Audited)
At 31 March 2015	79,375	43,162	43,934	843,574	1,010,045
Total comprehensive income:
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
	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __

GROUP BALANCE SHEET

as at 30 September 2016

	30 September 2016 (Unaudited) £'000	30 September 2015 (Unaudited) £'000	31 March 2016 (Audited) £'000
Non-current assets
Investments held at fair value	1,176,261	1,049,994	1,098,560
Deferred taxation asset	243	237	243
	_________	_________	_________
	1,176,504	1,050,231	1,098,803
Current assets
Debtors	33,222	21,631	28,978
Cash and cash equivalents	16,519	11,166	22,754
	_________	_________	_________
	49,741	32,797	51,732
Current liabilities	(6,643)	(82,756)	(30,473)
	_________	_________	_________
Net current assets/(liabilities)	43,098	(49,959)	21,259
Total assets less current liabilities	1,219,602	1,000,272	1,120,062
Non-current liabilities	(58,256)	-	(54,643)
	_________	_________	_________
Net assets	1,161,346	1,000,272	1,065,419
	_________	_________	_________
Capital and reserves
Called up share capital	79,375	79,375	79,375
Share premium account	43,162	43,162	43,162
Capital redemption reserve	43,934	43,934	43,934
Retained earnings	994,875	833,801	898,948
	_________	_________	_________
Equity shareholders' funds	1,161,346	1,000,272	1,065,419
	_________	_________	_________
Net asset value per :
Ordinary share	365.78p	315.05p	335.56p

 

GROUP CASH FLOW STATEMENT

For the half year ended 30 September 2016

	Half  year ended 30 September 2016 (Unaudited)	Half year ended 30 September 2015 (Unaudited)	Year ended 31 March 2016 (Audited)
	£'000	£'000	£'000
Reconciliation of profit from operations before tax to net cash inflow from operating activities
Profit from operations before tax	113,726	6,194	81,958
Finance costs	1,254	1,801	3,752
(Gains)/losses on investments and derivatives held at fair value through profit or loss	(88,477)	7,215	(59,921)
Net movement on foreign exchange; cash and cash equivalents and loan notes	(774)	478	223
Decrease/(increase ) in accrued income	433	(13,182)	645
(Increase)/decrease in other debtors	(3,257)	905	(18,631)
Decrease in other creditors	(3,467)	(6,250)	(5,634)
Net sales of investments	11,464	8,154	28,848
(Increase)/decrease in sales settlement debtor	(912)	2,551	(415)
(Decrease)/increase in purchase settlement creditor	(5,375)	(8,562)	523
Scrip dividends included in investment income	(626)	(336)	(1,223)
Scrip dividends included in net returns on contracts for difference	(330)	-	-
	_________	_________	_________
Net cash inflow/(outflow) from operating activities before interest and taxation	23,659	(1,032)	30,125
	(1,254)
Interest paid	(1,516)	(1,801)	(3,752)
Taxation paid		(869)	(1,383)
	_________	_________	_________
Net cash inflow/(outflow) from operating activities	20,889	(3,702)	24,990
Financing activities
Equity dividends paid	(16,510)	(15,081)	(25,083)
(Repayment)/ drawdown  of loans	(15,000)	9,000	(38,000)
Repayment of debenture stock	-	-	(15,000)
Issue of loan notes	-	-	53,711
	_________	_________	_________
Net cash used in financing activities	(31,510)	(6,081)	(24,372)
	_________	_________	_________
(Decrease)/increase in cash	(10,621)	(9,783)	618
Cash and cash equivalents at start of the period	22,754	21,427	21,427
Net movement on foreign exchange; cash and cash equivalents	4,386	(478)	709
	_________	_________	_________
Cash and cash equivalents at end of the period	16,519	11,166	22,754
	_________	_________	_________
Note
Dividends received	24,808	21,447	30,199
Interest received	40	153	194

NOTES TO THE FINANCIAL STATEMENTS

1	Basis of accounting
	The accounting policies applied in these interim financial statements are consistent with those applied in the Company's most recent annual financial statements. The financial statements have been prepared on a going concern basis and in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting'. The financial statements are presented in Sterling and all values are rounded to the nearest thousand pounds (£'000) except where otherwise indicated. In accordance with IFRS10 the Company has been designated as an investment entity on the basis that: ·      It obtains funds from investors and provides those investors with investment management services; ·      It commits to its investors that its business purpose is to invest solely for returns from capital appreciation and investment income; and ·      It measures and evaluates performance of substantially all of its investments on a fair value basis. Each of the subsidiaries of the company was established for the sole purpose of operating or supporting the investment operations of the company (including raising additional financing), and is not itself an investment entity. IFRS 10 sets out that in the case of controlled entities that support the investment activity of the investment entity, those entities should be consolidated rather than presented as investments at fair value. Accordingly the Company has consolidated the results and financial positions of those subsidiaries. Subsidiaries are consolidated from the date of their acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are based on consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising therefrom, are eliminated. This is consistent with the presentation in previous periods.
	All the subsidiaries of the Company have been consolidated in these financial statements.
2	Management fees
			(Unaudited) Half year ended 30 September 2016					(Unaudited) Half year ended 30 September 2015							(Audited) Year ended 31 March 2016
			Revenue Return £'000		Capital Return £'000	Total £'000		Revenue Return £'000			Capital Return £'000	Total £'000			Revenue Return £'000	Capital Return £'000		Total £'000
	Management fee		651		1,952	2,603		688			2,064	2,752			1,229	3,688		4,917
	Performance fee		-		-	-		-			2,675	2,675			-	3,354		3,354
			_____		____	___		_____			____	___			____	____		___
			651		1,952	2,603		688			4,739	5,427			1,229	7,042		8,271
			_____		____	___		_____			_____	_____			_____	_____		____
	No provision has been made for a performance fee based on the net assets at 30 September 2016. No payment is due until the full year performance fee is calculated at 31 March 2017.
3	Earnings per Ordinary share
	The earnings per Ordinary share can be analysed between revenue and capital, as below.
									Half year ended 30 September 2016 (Unaudited) £'000					Half year ended 30 September 2015 (Unaudited) £'000			Year ended 31 March 2016 (Audited) £'000
	Net revenue profit								22,676					17,499			26,544
	Net capital profit								89,761					(12,191)			53,913
									_______					_______			_________
	Net total profit								112,437					5,308			80,457
									_______					_______			_________
	Weighted average number of Ordinary shares in issue during the period								317,500,980					317,500,980			317,500,980
									pence					pence			pence
	Revenue earnings per Ordinary share								7.14					5.51			8.36
	Capital earnings per Ordinary share								28.27					(3.84)			16.98
									_______					_______			_________
	Earnings per Ordinary share								35.41					1.67			25.34
									_______					_______			_________
4		Changes in share capital
		During the half year no Ordinary shares have been purchased and cancelled. As at 30 September 2016 there were 317,500,980 Ordinary shares (30 September 2015 and 31 March 2016: 317,500,980 Ordinary shares) of 25p in issue. Since 30 September 2016, 150,000 Ordinary shares have been purchased for cancellation for an aggregate consideration of £459,000.
5		Going concern
		The directors believe that it is appropriate to adopt the going concern basis in preparing the financial statements. The assets of the Company consist mainly of securities that are readily realisable and, accordingly, the Company has adequate financial resources to meet its liabilities as and when they fall due and continue in operational existence for the foreseeable future.
6		Fair value of financial assets and financial liabilities
		Financial assets and financial liabilities are carried in the Balance Sheet either at their fair value (investments) or the balance sheet amount is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals and cash at bank). Fair value hierarchy disclosures The table below sets out fair value measurements using IFRS 13 fair value hierarchy
		Financial assets at fair value through profit and loss
		At 30 September 2016				Level 1 £'000				Level 2 £'000				Level 3 £'000			Total £'000
		Equity investments				1,079,603				-				2			1,079,605
		Investment Properties				-				-				96,656			96,656
		Contracts for difference				-				597				-			597
						_______				_______				_______			_______
						1,079,603				597				96,658			1,176,858
						_______				_______				_______			_______
		At 30 September the foreign exchange forward contracts were valued at a loss of £109,000 and have been categorised as Level 2.
		At 30 September 2015				Level 1 £'000				Level 2 £'000				Level 3 £'000			Total £'000
		Equity investments				957,810				-				2			957,812
		Investment Properties				-				-				91,298			91,298
		Fixed interest investments				884				-				-			884
		Contracts for difference				-				1,565				-			1,565
		Foreign exchange forward contracts				-				50				-			50
						_______				_______				_______			_______
						958,694				1,615				91,300			1,051,609
						_______				_______				_______			_______
		At 31 March 2016				Level 1 £'000				Level 2 £'000				Level 3 £'000			Total £'000
		Equity investments				999,843				-				2			999,845
		Investment Properties				-				-				97,764			97,764
		Fixed interest investments				951				-				-			951
		Contracts for difference				-				329				-			329
		Foreign exchange forward contracts				-				809							809
						_______				_______				_______			_______
						1,000,794				1,138				97,766			1,099,698
						_______				_______				_______			_______
		Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows: Level 1 - valued using quoted prices in an active market for identical assets. Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices within level 1. Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data. Contracts for Difference are synthetic equities and are valued by reference to the investments' underlying market values. Valuations of Investment Properties - Level 3 The Group carries its investment properties at fair value in accordance with IFRS 13, revalued twice a year, with changes in fair values being recognised in the Group Statement of Comprehensive Income. The Group engaged Knight Frank LLP as independent valuation specialists to determine fair value as at 30 September 2016. Determination of the fair value of investment properties has been prepared on the basis defined by the RICS Valuation Professional Standards, Global & UK Edition, January 2014 (The Red Book) as follows: "The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion." The valuation takes into account future cash flow from assets (such as lettings, tenants' profiles, future revenue streams, capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property) and discount rates applicable to those assets. These assumptions are based on local market conditions existing at the balance sheet date. In arriving at their estimates of fair values as at 30 September 2016, the valuers have used their market knowledge and professional judgement and have not only relied solely on historical transactional comparables. Reconciliation of movements in Financial assets categorised as level 3
		At 30 September 2016		31 March 2016 £'000			Purchases £'000			Sales £'000			Appreciation/ (Depreciation) £'000			30 September 2016 £'000
		Unlisted equity investments		2			-			-			-			2
		Investment Properties
		-     Mixed use		54,152			565			(232)			(681)			53,804
		-     Industrial		30,290			15			-			37			30,342
		-     Offices		13,322			10			-			(822)			12,510
				97,764			590			(232)			(1,466)			96,656
				97,766			590			(232)			(1,466)			96,658
		Transfers between hierarchy levels There were no transfers between any levels during the period. Sensitivity information The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of investment properties are: ·      Estimated rental value: £4 - £50 per sq ft ·      Capitalisation rates: 4% - 9% Significant increases (decreases) in estimated rental value and rent growth in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in Capitalisation rates in isolation would result in a significantly lower (higher) fair value measurement. Gains on investments held at fair value
		Half year ended 30 September 2016 (Unaudited) £'000 Half year ended 30 September 2015 (Unaudited) £'000 Year ended 31 March 2016 (Audited) £'000  Gains on sale of investments 44,510 40,472 83,271  Movement in investment holding gains 41,594 (42,974) (19,184) _______ _______ _________ Gains on investments held at fair value 86,104 (2,502) 64,087 _______ _______ _________
		Debenture loan The debenture loan of £15,000,000 of 11.5% 2016 stock was repaid in February 2016. The Company and Group have complied with the terms of the debenture agreement throughout the year. Loan Notes On 10 February 2016, the Company issued 1.92% Unsecured Euro 50,000,000 Loan Notes and 3.59% Unsecured GBP 15,000,000 Loan Notes which are due to be redeemed at par on 10 February 2026 and 10 February 2031 respectively. The fair value of the 1.92% Euro Loan Notes was £43,472,000 (31 March 2016: £39,797,000) and the 3.59% GBP Loan Notes was £15,806,000 (31 March 2016: £15,301,000) at 30 September 2016. Using the IFRS 13 fair value hierarchy the Loan Notes are deemed to be categorised within Level 2. The loan notes agreement requires compliance with a set of financial covenants, including: ·      Total Borrowings shall not exceed 33% of Adjusted Net Asset Value; ·      the Adjusted Total Assets shall at all times be equivalent to a minimum of 300% of Total Borrowings; and ·      the Adjusted NAV shall not be less than £260,000,000. The Company and Group complied with the terms of the loan notes agreement throughout the year. Multi-currency revolving loan facilities The Group also has unsecured, multi-currency, revolving short-term loan facilities totalling £80,000,000 (30 September 2015: £80,000,000) and (31 March 2016: £80,000,000). At 30 September 2016, nil was drawn on these facilities (30 September 2015: £62,000,000) and (31 March 2016: £15,000,000). The fair value is considered to approximate the carrying value and the interest is paid at a margin over LIBOR.
7		Related Party Transactions
		There have been no material related party transactions during the period and no changes to related parties. During the period Thames River Capital charged management fees as detailed in Note 2. The remuneration of the directors has been determined in accordance with rates outlined in the Director's Remuneration Report in the Annual Financial Statements.
8		Comparative information
		The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in section 435(1) of the Companies Act 2006. The financial information for the half year periods ended 30 September 2016 and 30 September 2015 has not been audited or reviewed by the Group auditors. The figures and financial information for the year ended 31 March 2016 are an extract from the latest published accounts and do not constitute statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and include the report of the auditors, which was unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014). Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.

Disclaimer

The loan notes have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Act") and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Act. This notice is for information only, does not constitute an offer to sell or the solicitation of an offer to buy any security and shall not constitute an offer, solicitation or sale of any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

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 Companies 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]

Jo Elliott

Finance Manager and Investor Relations

TR Property Investment Trust plc

Telephone: [phone]

 

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