Half Yearly Report

RNS Number : 0152U

TR Property Investment Trust PLC

27 November 2013

 



This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.

27 November 2013

TR PROPERTY INVESTMENT TRUST PLC

                                                                                                                                                                                                                                                                                                                  

 Financial Report for the half year ended 30 September 2013

Group Financial Highlights	Half year ended 30 September 2013 (Unaudited)	Half year ended 30 September 2012 (Unaudited)	% Change
Revenue
Total revenue income (£'000)	23,895	23,527	+1.6
Net revenue profit after tax (£'000)	18,992	17,293	+9.8
Revenue earnings per Ordinary share	5.98p	5.54p	+7.9
Net interim dividend per Ordinary share	2.85p	2.65p	+7.5
Weighted average shares in issue during the period	317.6m	256.2m	+24.0
Revenue earnings per Sigma share#	-	2.50p	N/A
Net interim dividend per Sigma share#	-	1.05p	N/A
Weighted average number of Sigma shares in issue in the period#	-	124.2m	N/A
	As at 30 September 2013 (Unaudited)	As at    31 March 2013 (Audited)	% Change
Balance Sheet
Net asset value per Ordinary share	225.68p	215.25p	+4.8
Shareholders' funds (£'000)	716,543	684,219	+4.7
Shares in issue at end of period (m)	317.5	317.9	-0.1
Net debt	13.9%	10.8%
Performance	Half year ended	Year ended
	30 September	31 March
	2013	2013
Assets and Benchmark
Benchmark performance (total return)	+5.0%	+17.8%
NAV total return	+7.0%	+21.5%
IPD Monthly Index total return*	+4.8%	+2.5%
Total return from direct property	+6.6%	+7.4%
	Half year ended	Year ended
	30 September	31 March	%
	2013	2013	Change
Share Price
Share price	209.90p	186.30p	+12.7
Share price total return	+15.3%	+25.8%
Market capitalisation	£666m	£592m	+12.5

Sources: Thames River Capital/*IPD monthly six month cumulative

# The Sigma shares were redesignated as Ordinary shares on 14 December 2012 and the portfolios merged.

Dividend

An interim dividend of 2.85p (2012: 2.65p) per Ordinary share has been declared payable on 7 January 2014 to shareholders on the register on 6 December 2013. The shares will be quoted ex-dividend on 4 December 2013.

Chairman's Statement

Introduction

I would like to open my first Chairman's Statement by repeating my comments made at the last AGM thanking Peter Salsbury for his wise guidance of the Trust through the choppy economic waters of the last eight years. His final important initiative was to lead us through the remerger of the Ordinary and Sigma share classes in December 2012.

Over the last six months, the Trust has continued to enjoy not only a period of positive asset growth greater than that of the benchmark, but importantly an even greater increase in the share price so that the discount to net asset value at which the shares trade has narrowed markedly. While a number of factors have been at work here, we believe that the creation of a single share class has been significant in delivering this result.

The Retail Distribution Review has manifestly altered the behaviour of individual self-directed investors. We expect the impact to continue to be beneficial to Investment Trusts in the long term. In this new environment size and liquidity of investment funds is increasingly important. It is pleasing to note that the average daily volume in our shares has exceeded 750,000 in the period under review. We continue to be the only investment trust with a mandate to invest in pan-European property companies.

NAV and Share Price Performance

Property shares alongside broader equity markets enjoyed a healthy start to the period under review only to suffer renewed volatility over the summer months. The Manager's Statement goes into greater detail but I am pleased to report that the NAV total return for the six months to the end of September was +7.0% whilst the benchmark total return was +5.0%. Returning to my opening comments, the share price total return was considerably greater at +15.3%.

Revenue Results

At the half year stage the revenue results of 5.98p are slightly ahead of expectations. Please remember that the majority of our revenue from our equity portfolio is earned in the first six months of the year so the first half figures are not representative of the full year.

Ordinary Shares Dividend

The Board has announced an interim dividend of 2.85p per share an increase of 7.5% over last year's interim dividend in the Ordinary share class of 2.65p.

Revenue Outlook

The interim earnings are ahead of forecast and accordingly we expect the full year out-turn to be marginally ahead of the 7.50p full year earnings indicated in the annual report. Dividends from the companies in which we invest have generally shown earnings growth in the current financial year but there are also one-off factors which will influence the result, these are described in more detail in the Manager's Statement.

Net Debt and Currencies

The Trust slightly increased its net borrowings in the period but given the increase in asset value the gearing figure remained in the range of 12-14%, a modest increase on the 10%-12% range at the last year end in March. Our external debt facilities continue to be a mixture of short and medium arrangements with two providers, RBS and ING. We continue to invest through CFDs which offer opportunities for competitively-priced gearing.

Discount and Share Repurchases

The discount to net asset value (capital only) was 4.7% at the half year, having been just under 12.0% at the start of the period. The narrowing of the discount primarily occurred in the second quarter of the financial year and our manager took the opportunity to buy back a small number of shares (375,000) through the spring when the discount had drifted to over 15%.

Board Changes

Following my appointment as Chairman upon Peter's resignation at the AGM in July, Hugh Seaborn was appointed as the Senior Independent Director.

Broker Appointment

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

Outlook

The outlook for investment in pan-European property appears positive as signs of a return to growth re-appear in many economies. However, many of the structural issues surrounding further European financial integration remain unresolved and high unemployment, especially among the young, remains a blight. Your manager will remain focused on owning businesses which are positioned to benefit where recovery appears sustainable. It has been encouraging to see property companies, particularly listed ones, finding it easier than has been the case for a number of years to refinance from traditional sources and also to identify new sources of funds. Key to our optimism has been the very low level of new commercial development over the last four years, this has led to a genuine shortage of good quality business space in a number of the markets in which we invest. With many property companies standing close to, or at, a premium to net asset value we are considering the attractions of an increase in the directly held property, but will be extremely selective in identifying suitable purchases.

Caroline Burton

Chairman

27 November 2013

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 2013 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 IAS 34 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 and Transparency Rules ("DTR") 4.2.4R;

(b) the Chairman's Statement together with the following Manager's Statement 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.

On behalf of the Board*

Caroline Burton

Chairman

27 November 2013

*As at the date of this Responsibility Statement, the Board comprised: Caroline Burton, Simon Marrison, Suzie Procter, Hugh Seaborn and David Watson.

Manager's Statement

Performance

The Net Asset Value total return for the six months was +7.0%, ahead of the benchmark total return of +5.0%. Whilst these figures are encouragingly positive they reflect a snapshot of return between two dates (end of March and end of September) and within this particular period the sector experienced some dramatic swings in both sentiment and pricing.

In previous reports I have separated Market Background and Outlook from the report on the Trust's Investment Activity. This year I have amalgamated the commentary on the market with the activity of the Trust. I hope that this provides a more succinct synopsis of our strategy and stock positioning in the period.

The beginning of the financial year coincided with the announcement by the Bank of Japan of the introduction of new reflationary monetary tools (their version of QE). This was to be the centrepiece of Prime Minister Abe's war on deflationary pressures in Japan. This followed on from the Fed's announcement back in September 2012 of 'QE infinity' and closer to home, President Draghi's comments in July 2012 offering central bank support for distressed member states through unlimited intervention in those sovereign nations' short dated paper. Whilst these announcements feel quite historic, they are the cornerstone of the huge global liquidity conditions which prevail today. It is the anticipation of alterations to these central banks' attitudes (towards this unconventional support) which has proved to be the key macro driver in the period under review.

By the latter part of May the Trust's benchmark had risen 13.7% in less than 7 weeks. In fact in the preceding twelve months the sector posted only one negative monthly figure (March 2013). This has been an astonishing recovery from the dark days of the second half of 2011 when European property shares fell over 20%, only to recover 50% from the beginning of 2012 through to May 2013. Property shares as a levered asset class clearly benefited from all the central bank driven monetary stimuli and liquidity. Somewhat predictably they were destined to suffer when markets became gripped by the fear of the consequences of these stimuli being reduced. Over the summer the market mood oscillated in response to the likelihood or otherwise of the Federal Reserve's potential to reduce their monthly bond buying programme.

Whilst the macro considerations have had an overriding effect on the general market direction, we remain focused on the underlying economic conditions and localised property markets within the cities, regions and countries in which we invest. The good news is that over the last six months we have become increasingly positive about the real estate fundamentals in a large number of markets. We have continued to focus on those companies exposed to sub-markets experiencing demand and rental growth. We are not afraid to buy low yielding businesses where we are confident that experienced management can utilise that cash flow effectively.

Property Investment Markets

In the Annual Report I emphasised two particular investment themes we were experiencing - increasing cross border capital flows and investor concentration on prime assets in capital cities, particularly London. Both themes remain intact. In the last quarter, overseas buyers accounted for £4.2bn of the £11.6bn of total transactions in the UK. London also continued to dominate, accounting for £7bn in the quarter. This brings the total transactions year to date in the capital to £14.4bn; a truly deep and liquid property market. However, we have detected a new trend, that of increasing domestic institutional investment into regional property across the UK, France, Germany and Sweden. In the UK, investment into the regions in the first nine months of 2013 has surpassed the full year 2012 figure. Investors are also increasingly moving up the risk curve buying shorter income streams as well as buildings requiring near term capital expenditure. IPD Monthly data is also beginning to reflect this improvement in demand with capital values of regional property turning positive in the last 6 months. Importantly, capital growth is accelerating, albeit from a modest start, with 1.2% growth in the last 3 months.

Offices

Once again London tops the rental growth chart with CBRE reporting year-on-year growth of 8.1% in the West End. As I commented in the full year report and accounts, other emerging sub-markets stretching from Kings Cross through Islington, Clerkenwell, Whitechapel and down to the Southbank have all experienced rapid increases in rents. This broad swathe of property has been loosely branded the 'Tech Belt' due to the predominance of TMT as opposed to traditional financial services companies, with its epicentre at the Old Street roundabout, just north of the City of London. The Trust remains heavily exposed to the Central London office market through Derwent London, Great Portland Estates, Workspace and CLS. All these businesses offer not only the particular sub-market exposure we seek but critically the managerial expertise to extract value through asset repositioning and delivering development gains from their supply of opportunities in their respective portfolios. Elsewhere in Europe only a handful of cities currently offer rental growth, even central Paris (our second largest sub-market) has weakened on lack of demand. Around the peripheral markets of the Western Crescent, La Defense and beyond, net effective rents are declining. Oslo, Hamburg, Munich and Dusseldorf have all recorded growth and our positions in Alstria, VIB and Prime Office reflects our aim of seeking exposure to cities beyond Frankfurt which remains the largest, yet weakest, office market.

A trend in the last six months, whilst still muted, has been a decrease in the number of regional cities across Europe where values and rents have lain dormant since 2008. Occupiers' businesses continue to evolve and property suffers physical and technological depreciation. If one stops all new supply (which has been the case in so many regional cities) then modest take-up can quickly lead to a lack of good quality, fit for purpose, city centre office space. The CBRE European office report identifies modest improvements in prime rents in regional cities in both the UK and France. The biggest surprise has been Dublin CBD where prime rents have bounced 9% from their trough last year. The Trust participated in Ireland's first property IPO since the crisis began. Green REIT raised €250m to invest in the Dublin office market. Run by the highly experienced Stephen Vernon and Pat Gunne, the stock went straight to a 20% premium to its cash shell value such was the market's expectation of the potential acquisition of distressed assets in that city.

We remain wary of the Southern European cities and rents continue to fall in Milan, Rome and Madrid. The Low Countries also suffer from a lack of demand and those seeking office accommodation have plenty of choice.

Distribution and Industrial

Much like the office markets we have continued to see a larger number of sub-markets begin to experience increased take up and vacancy levels are dropping to the point at which upward pressure on rents is beginning to be a factor. Industrial rents have a very high correlation to GDP growth (lagged 12 months) and this presents a genuine investment opportunity. Logistics property on the main pan-European arterial routes continue to see good demand, however this is often satisfied through 'build to suit' rather than taking up existing vacant space. The Dutch sub-markets of Rotterdam, the Hague and Utrecht have all experienced rental growth. A well run Belgian listed company, Warehouses de Pauw is one of the few pure ways to access this type of property and the share price stands at a 20% premium to its asset value. We have sought exposure through Hansteen (principally UK and Germany), SEGRO (Southern UK and Western Europe) and VIB (Bavaria). The last is an interesting small cap stock. It has a longstanding management team with a CEO who has never sold a share, a proven business model and is invested in industrial/warehousing in the heart of Germany's automotive industry. It meets our numerous investment criteria.

Retail

In the annual report I focused on the impact of smartphones as a disruptive technology affecting retailers' traditional business models. The future is clearly multichannel sales platforms. This is impacting on every aspect of retailing from supply chain management, inventory, store size and location to marketing and the power of branding. For property landlords the key issue remains affordability; is the retailer prepared (or able) to pay for the space offered. Are property companies satisfying retailers' rapidly evolving requirements. In fact this may well be more revolution than evolution. With retailers tied into long leases the effects can look glacial in pace but as time passes and demands change, more and more retail space becomes suboptimal and will suffer from over renting.

Polarisation is occurring. Prime retail has been the best performing sector over the last year with CBRE's EMEA prime retail rent index rising 4.7%. London, Paris, Berlin, Hamburg and Stockholm have all reported double digit growth. Unibail which owns a €20bn portfolio of prime shopping centres across Europe recorded like-for-like growth of 4.7% in its last financial year. It is the Trust's largest individual holding (10.5% of net assets) and we remain drawn to its strategy of owning the best assets whilst focusing on retailer evolving needs. It boils down to affordability and if the retailer can maintain margin and sales in a particular environment then they can afford to pay higher rents. This applies equally to the convenience and local shopping environment which is addressing every day consumer needs. We participated in NewRiver Retail's £67m capital raising in July and the following month acquired £5m of their 2015 Convertible Unsecured Loan Stock. NRR owns 24 shopping centres with an average rent of just £11 per sq ft. The occupancy cost ratio (a ratio of rental costs to turnover) is 5 to 8%, well below the average. Its model of affordable retailing space is reflected in falling vacancy rates. Businesses such as Unibail and NewRiver are operating at opposite ends of the retail spectrum but both offer retailers what they require at prices they can afford to pay. We seek to avoid the 'squeezed' middle ground where retailers are trapped in over rented, sub regional shopping centres.

Many of these considerations flow into retail warehousing as well as shopping centres. Our greater optimism towards retail warehousing is based on affordability, particularly for fashion retailers (compared to legacy smaller high street units), the ease of parking and accessibility (customer returns, multichannel strategies) and the wide range of retailers related to the housing market (DIY, furnishings, home improvements) found in out of town larger formats. Amongst the UK large caps, Hammerson has the highest proportional weighting to retail warehousing and remains one of our largest overweight positions.

We have sought to avoid any retail markets in regions where house prices are falling as the knock on to retailing of weaker consumer behaviour is well documented. Whilst this obviously includes Spain, where house prices have fallen 36% in the last 5 years, we also include the Netherlands where prices are down 20% and remain at 7 year lows. According to the CBRE Prime Retail rental index, in the four largest Dutch cities, Amsterdam, Rotterdam, The Hague and Utretcht rents have fallen between 5% and 14% over the last 12 months.

Residential

This asset class has become an increasingly important part of our investment universe focused on three key countries, Germany, the UK and Sweden. Given the earlier comments we have no exposure to the Spanish or Dutch housing markets. In March 2009 German residential stocks accounted for just 1.2% of the index, by mid 2013 this had grown to 6.4% and we have the choice of six residential focused companies. The sector offers high occupancy, rising rents, attractive debt financing (local banks have been aggressive lenders to the sector) and economies of scale. We have chosen to focus on those property companies exposed to either the fastest growing markets (eg. Berlin, Bavaria) or those who are able to grow. The low cost and competitive availability of debt makes acquisitions highly accretive. Behind all of this is our tenant affordability test. Germany is experiencing rising wage inflation and therefore the annual rental increases of 2-3% are not leading to increases in bad debts. With a broadly homogenised product, economies of scale dominate; the result is eventually sector consolidation. GSW, our largest active position in the sector is focused entirely on the Berlin market and has been approached in an all paper merger bid by Deutsche Wohnen. If approved by shareholders, the merged company will have a market cap of €4bn.

Our UK residential exposure is very different. Here we are backing our expectation of growth in capital values as opposed to the steady, lower risk rental growth dominated returns of the German businesses. The coalition government's various housing stimulus packages have been well documented and their merits debated in the wider press. Setting to one side the merit or otherwise, we focus on the impact and maintain our exposure to those stocks with either significant land banks (St Modwen, Quintain) or regional housing portfolios (Grainger). Central London continues to power ahead and gaining exposure to this sub-market is effectively limited to one stock, Capital & Counties, the owner of the 70 acre Earls Court redevelopment site. We remain positive towards the fundamentals of the disequilibrium between supply and demand, particularly overseas demand in Central London. However, for the time being, we feel that this share price adequately reflects the market's expectations of future growth given that the development profits from this huge site are some years away. The supply side response is underway in London with Jones Lang LaSalle reporting a 20% like-for-like increase in units under construction. Greenstreet Advisors estimate that UK listed property companies have approximately £3bn of residential development underway or imminent. This equates to about 25% of their collectively identified five year development pipeline. It has become an important sub-market for us all.

The investment in Swedish residential is a mixture of our UK and German strategies in that we have exposure to both traditional stable rental investments as well as the opportunity to participate in rising house prices and land values. We are more confident about the broad Swedish residential market than their commercial property markets where we expect CPI (which drives rents) to be flat over the next 12 months. Our newest investment is Balder which has increased its residential assets to 50% of the portfolio.

Debt and Credit Markets

We have seen a continuation in the trends outlined in the Annual Report, namely increased non-bank lending and further diversification of funding sources coupled with more public market debt issuance (secured, unsecured and convertible). In the last six months 18 property companies have issued €4.1bn in a variety of bond instruments. Unibail's €700m 10 year bond issuance in June at an all in coupon of 2.5% was heavily oversubscribed and provided useful evidence of the depth of demand for high quality property backed paper. Convertibles have also proved very popular with investors. Great Portland Estates, one of our largest overweight positions, currently holds the title of the lowest coupon issuer with its £150m 1% 2018 convertible with a strike price 35% ahead of the market price which was itself already a significant premium to the last reported asset value. What has surprised us in the period has been the return of traditional lenders to the sector. In the UK, the Funding for Lending programme, whilst not designed for property businesses has resulted in a pick up in real estate lending. Competition amongst lenders has driven down margins for debt on good quality property where loan to values are not aggressive. This last point is crucial. While the majority of European property investment markets are experiencing more normalised transaction volumes, some still remain effectively frozen. Spain, Italy and Portugal remain in this group, however Ireland has seen over €1bn of investment sales in the year to June 2013 (versus €200m for the previous period) and sentiment is changing towards the remainder. Without transactional evidence banks remain reluctant to engage in lending in these markets and it remains a vicious circle until those lenders with the bad property loan books adjust their expectations to a clearing price and markets normalise with increased volumes. This is clearly occurring in Ireland and our optimism is reflected in our investment in Green REIT.

Property Shares

The outstanding statistic for the last six months has been the significant outperformance by UK stocks (a total return of +9.4%) when compared with the rest of Europe of just +3.9%. Within Continental Europe even the German companies have had a lacklustre period. Whilst the German election was pending, the significant (and unresolved) issues surrounding further Eurozone financial integration were pushed firmly to the back of investors' minds. Swiss stocks which have traditionally benefited (alongside the Swiss Franc) from their perceived safe haven status were underperformers in the period and returned -5.4% in the last six months. Our underweight position made a healthy contribution to performance and further share price declines have resulted in some of these stocks approaching fair value.

Distribution of Assets

UK equity exposure continued to rise and has now reached 41.5%. Continental European exposure reduced slightly from 55.1% to 51.7%. It was 58.2% in September 2011. Physical property exposure is marginally lower at 6.8% (7.2% at the year end) and reflects the modest gains in value at the half year stage.

Investment Activity

Over the period, turnover (purchases and sales divided by two) totalled £108.8m and equates to 15.2% of the average net assets over the period. This level of activity is slightly higher than the long run average for several reasons. The macro background resulted in significant swings in market sentiment and pricing. This led to several periods where we had high conviction on valuation grounds. By the end of September gearing had reached 13.9%, the increase primarily occurred in the second half of the period as we viewed the sell-off in May and early June as a buying opportunity.

Alongside the IPO in Green REIT, we participated in capital raisings in the UK, namely St Modwen (principally residential land and industrial property), Unite (student housing provider) and NewRiver Retail (discussed earlier). All of these companies were, quite rightly, taking advantage of the positive sentiment towards their particular sub-markets and raising equity for identified acquisitions or imminent development projects.

I mentioned earlier that the German residential names underperformed in the period. We are confident that this was partially due to various technical rather than fundamental concerns. Although listed, a number of these companies are still transitioning their share registers from their previous private equity owners to a broader institutional ownership. This can take a long time if the private equity group is in no hurry and wishes to extract value over time. Where investors believe they are keen to sell rather more quickly this leads to stock overhang. This has certainly been the case in the last few months. Terra Firma, a large private equity firm, floated 9.5% of Deutsche Annington in July. Their original intention was to sell a larger percentage and at a higher price, however investors (including ourselves) shied away from their required price. We are well aware that Terra Firma will wish to sell more of their majority stake once their lock up expires in January 2014. Both LEG and Gagfah also have legacy private equity shareholders who are expected to reduce or exit from their positions in due course.

We have had some notable success stories amongst our smaller companies, reinforcing our long held view that value extraction in real estate is dominated by the managerial strength within each business. Amongst our UK businesses, two stocks returned nearly 30% more than the benchmark in the period, CLS Holdings and Workspace Group. CLS owns a £1bn portfolio of primarily office properties across London, France (mainly Paris), Germany and Sweden. Its London portfolio includes Vauxhall Square, a mixed use development which will eventually provide 1.4m sq ft of commercial property. We are firm believers in the successful regeneration of this area given its central location and transport links. Workspace owns over 100 properties in London providing 5.2m sq ft of business space which is home to over 4,000 businesses. It specialises in providing space for SMEs particularly in the fastest growing telecom, media and technology industries. It also has a successful track record of converting space to residential. After the half year end it announced the sale of the Tower Bridge Business Complex in Bermondsey, SE16 where it had successfully gained planning permission for 800 new residential units on 7 acres.

The overweight to UK stocks, both large cap and smaller companies, has been a key driver of performance in the period accounting for 131bps of our relative performance. Alongside the London focused names we have benefited from our exposure to self storage, student housing and value retail. In Europe, the underweight to the Swiss companies contributed a positive 25bps. The poorest single stock decision was the underweight to Capital & Counties.

Revenue and Revenue Outlook

Revenue earnings in the first half were 5.98p per share compared to 5.54p in the same prior year period.

A 7.9% increase in earnings per share has been partly driven by the change in the basis of the allocation of management fees and finance costs between the income and capital accounts. As reported in the last Annual Report, during the previous financial year, the directors undertook a review of the basis of this allocation which is intended to reflect the directors' anticipation of the proportionate returns from the revenue and capital accounts. Over recent years the large part of the return has been generated from the capital account and this trend is expected to continue. The allocation of the management fees (excluding performance fees) and finance fees was adjusted accordingly with effect from 1 April 2013. Going forward these expenses will be allocated one quarter to the revenue account and three quarters to the capital account. In previous years two thirds of the annual management fees (excluding performance fees) and half the finance costs were allocated to the income account. Any performance fees remain wholly attributed to the capital account. This has produced a step change increase in the distributable revenue.

Adjusting for the impact of the cost reallocation above, the underlying growth in earnings has been around 2.5%.

Gearing, Debt and Debentures

The overall net debt position in the portfolio rose modestly to £59.0m in the period, this together with the effective gearing through the CFD portfolio translates into gearing of close to 14%. However we also consider the see-through gearing (which takes account of the underlying debt within the companies we invest in as well as our on balance sheet debt) to be a useful measure of our underlying portfolio gearing level. At the end of September the see-through gearing at 49.7% was only slightly ahead of the benchmark figure of 45.7%. Whilst the Trust does have on balance sheet debt, the unleveraged physical assets offset a substantial part of this.

Direct Property Portfolio

The physical property portfolio produced a positive total return for the six month period of 6.6% made up of a capital return of 3.8% and an income return of 2.8%. This compares to a total return from the IPD Monthly Index of 4.8% comprised of a capital return of 1.4% and an income return of 3.4%.

Performance from the portfolio was primarily driven by capital receipts from residential lease extensions at the Colonnades in Bayswater. We completed a further 20 lease extensions receiving net proceeds of £1.5 million. We have now completed extensions on 40% of the 242 flats at the Colonnades. At Park Place in Vauxhall we applied to Lambeth Borough Council for a change of use from offices to residential use under the new permitted development legislation which came into force on 31 May 2013. Our first application was refused however post the period end we have received confirmation that our second application had been approved. We continue to make progress with further asset management initiatives not only at The Colonnades, but also at our industrial asset in Ferrier Street, Wandsworth and the office building adjacent to Harlow rail station.

Outlook

Looking towards 2014, the consensus expectation is for the UK to grow by 2.2% with some more bullish economists predicting over 3%. This would be following on from our expected growth rate of 1.4% in 2013. The equivalent figures for the Eurozone are an expectation of +0.8% (Citigroup estimate) following on from -0.3% in 2013. Our conviction remains that UK commercial property will continue to outperform the majority of Continental European sub- markets. Whilst last year capital growth was restricted to the Greater London region, we expect this to ripple out across the regions, as institutions seek to increase their property allocations.

Headline inflation in the Eurozone fell to 1.1% in September, the lowest since February 2010. These numbers reinforce our expectation that the ECB's monetary policy will remain accommodative. Broad rental indexation across Europe is expected to be in the range of 1-2% with Germany ahead of this figure.

The severe lack of new commercial development in the vast majority of our markets across Europe over the last four years is a supportive investment backdrop. As economic growth strengthens we anticipate rising headline rents, particularly for new or well refurbished properties, in a number of our more substantive markets.

On a more cautious note, whilst we have enjoyed a period of calm within the Euro area and the reduction in the spread between German Bunds and all other European sovereign bonds is testament to this, we note that many of the structural issues surrounding further European financial integration remain unresolved.

Marcus Phayre-Mudge

Fund Manager

Group Statement of Comprehensive Income

for the half year ended 30 September 2013

	(Unaudited) Half year ended 30 September 2013			(Unaudited) Half year ended 30 September 2012			(Audited) Year ended 31 March 2013
	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	20,638	-	20,638	20,461	-	20,461	27,332	-	27,332
Other operating income	3	-	3	165	-	165	186	-	186
Gross rental income	1,673	-	1,673	1,873	-	1,873	3,505	-	3,505
Service charge income	721	-	721	967	-	967	1,759	-	1,759
Gains on investments held at fair value	-	29,635	29,635	-	13,712	13,712	-	99,106	99,106
Net returns on contracts for difference	860	1,023	1,883	61	35	96	206	1,851	2,057
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Total income	23,895	30,658	54,553	23,527	13,747	37,274	32,988	100,957	133,945
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Expenses
Management fees (note 2)	(584)	(1,752)	(2,336)	(1,559)	(780)	(2,339)	(3,127)	(1,564)	(4,691)
Performance fee (note 2)	-	(1,278)	(1,278)	-	(468)	(468)	-	(3,122)	(3,122)
Direct property expenses, rent payable  and service charge costs	(991)	-	(991)	(1,220)	-	(1,220)	(2,191)	-	(2,191)
Other administrative expenses	(459)	-	(459)	(589)	-	(589)	(1,094)	(513)	(1,607)
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Total operating expenses	(2,034)	(3,030)	(5,064)	(3,368)	(1,248)	(4,616)	(6,412)	(5,199)	(11,611)
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Operating profit	21,861	27,628	49,489	20,159	12,499	32,658	26,576	95,758	122,334
Finance costs	(382)	(1,146)	(1,528)	(769)	(769)	(1,538)	(1,517)	(1,517)	(3,034)
Income from operations before tax	21,479	26,482	47,961	19,390	11,730	31,120	25,059	94,241	119,300
Taxation	(2,487)	1,397	(1,090)	(2,097)	715	(1,382)	(2,707)	625	(2,082)
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Net profit	18,992	27,879	46,871	17,293	12,445	29,738	22,352	94,866	117,218
	_____	_____	_____	_____	_____	_____	_____	_____	_____
Earnings per Ordinary share (note 3a)	5.98p	8.78p	14.76p	5.54p	3.53p	9.07p	6.74p	31.10p	37.84p
Earnings per Sigma share (note 3b)	-	-	-	2.50p	2.74p	5.24p	3.11p	7.72p	10.83p

The total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with IFRS.  The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

All income is attributable to the shareholders of the parent company. There are no minority interests.

The final Ordinary dividend of 4.35pin respect of the year ended 31 March 2013 was declared on 29 May 2013 and paid on 6 August 2013. This can be found in the Group Statement of Changes in Equity for the half year ended 30 September 2013.

Sigma shares were redesignated as Ordinary shares on 14 December 2012 and the portfolios merged from this date.

A supplementary Income Statement, where the prior year comparative figures are for the Ordinary share class only,  will be included as an appendix in the full Half Yearly Report.

Group and Company Statement of Changes in Equity

	Share Capital		Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings		Total £'000
for the half year ended 30 September 2013 (Unaudited)	Ordinary £'000				Ordinary £'000
At 31 March 2013	79,469		43,162	43,840	517,748-		684,219
Total comprehensive income:
Net profit for the half year	-		-	-	46,871-		46,871
Transactions with owners, recorded directly to equity:
Shares repurchased	(94)		-	94	(736)-		(736)
Dividends paid	-		-	-	(13,811)-		(13,811)
	_  _   __		_  _   __	_  _   __	_  _   __		_  _   __
At 30 September 2013	79,375		43,162	43,934	550,072		716,543
	_  _   __		_  _   __	_  _   __	_  _   __		_  _   __
	Share Capital		Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings		Total £'000
for the half year ended 30 September 2012 (Unaudited)	Ordinary £'000	Sigma £'000			Ordinary £'000	Sigma £'000
At 31 March 2012	64,056	15,559	43,162	43,694	333,613	88,161	588,245
Total comprehensive income:
Net profit for the half year	-	-	-	-	23,233	6,505	29,738
Transactions with owners, recorded directly to equity:
Shares repurchased	-	(62)	-	62	-	(341)	(341)
Dividends paid	-	-	-	-	(10,761)	(2,050)	(12,811)
	_  _   __	_  _   _	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __
At 30 September 2012	64,056	15,497	43,162	43,756	346,085	92,275	604,831
	_  _   __	_  _   _	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __
	Share Capital		Share Premium Account £'000	Capital Redemption Reserve £'000	Retained Earnings*		Total £'000
for the year ended 31 March 2013 (Audited)	Ordinary £'000	Sigma £'000			Ordinary £'000	Sigma £'000
At 31 March 2012	64,056	15,559	43,162	43,694	333,613	88,161	588,245
Net profit for the year	-	-	-	-	103,790	13,428	117,218
Transactions with owners, recorded directly to equity:
Shares repurchased	(83)	(63)	-	146	-	(341)	(341)
Dividends paid	-	-	-	-	(17,551)	(3,352)	(20,903)
Redesignation of Sigma shares (A)	15,496	(15,496)	-	-	97,896	(97,896)	-
	_  _   __	_  _   _	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __
At 31 March 2013	79,469	-	43,162	43,840	517,748	-	684,219
	_  _   __	_  _   _	_  _   __	_  _   __	_  _   __	_  _   __	_  _   __

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

Group Balance Sheet

as at 30 September 2013

	30 September 2013 (Unaudited) £'000	30 September 2012 (Unaudited) £'000	31 March 2013 (Audited) £'000
Non-current assets
Investments held at fair value	778,348	642,070	739,486
	_________	_________	_________
Current assets
Other receivables	7,008	6,416	6,673
Cash and cash equivalents	13,513	7,735	13,666
	_________	_________	_________
	20,521	14,151	20,339
Current liabilities	(64,901)	(33,492)	(57,883)
	_________	_________	_________
Net current liabilities	(44,380)	(19,341)	(37,544)
	_________	_________	_________
Total assets less current liabilities	733,968	622,729	701,942
Non-current liabilities	(17,425)	(17,898)	(17,723)
	_________	_________	_________
Net assets	716,543	604,831	684,219
	_________	_________	_________
Capital and reserves
Called up share capital	79,375	79,553	79,469
Share premium account	43,162	43,162	43,162
Capital redemption reserve	43,934	43,756	43,840
Retained earnings	550,072	438,360	517,748
	_________	_________	_________
Shareholders' funds	716,543	604,831	684,219
	_________	_________	_________
Net asset value per :
Ordinary share	225.68p	188.49p	215.25p
Sigma share	-	98.32p	0.00p

Sigma shares were redesignated as Ordinary shares on 14 December 2012 and the portfolios merged from this date.

A supplementary Balance Sheet, where the prior year comparative figures are for the Ordinary share class only, will be included as an appendix in the full Half Yearly Report.

Group Cash Flow Statement

For the half  year ended 30 September 2013

	Half  year ended 30 September 2013 (Unaudited)	Half year ended 30 September 2012 (Unaudited)	Year ended 31 March 2013 (Audited)
	£'000	£'000	£'000
Reconciliation of operating revenue to net cash flow from operating activities
Profit from operations before tax	47,961	31,120	119,300
Financing activities	1,528	1,538	3,034
Gains on investments held at fair value through profit or loss	(30,476)	(14,809)	(100,585)
Foreign exchange movements	(182)	1,097	(372)
(Increase)/decrease in accrued income	(681)	724	(715)
Decrease/(increase) in other debtors	824	(79)	280
(Decrease)/increase in creditors	(1,822)	44	2,542
Net(purchases)/ sales of investments	(6,895)	14,751	2,995
Decrease in sales settlement debtor	499	97	1,146
(Decrease)/increase in purchase settlement creditor	(6,214)	(235)	8,134
Scrip dividends included in investment income	(2,230)	(2,036)	(2,140)
	_________	_________	_________
Net cash inflow from operating activities before interest and taxation	2,312	32,212	33,619
Interest paid	(1,528)	(1,538)	(3,034)
Taxation paid	(2,072)	(1,995)	(2,352)
	_________	_________	_________
Net cash(outflow)/inflow from operating activities	(1,288)	28,679	28,233
Financing activities
Equity dividends paid	(13,811)	(12,811)	(20,903)
Repurchase of shares	(736)	(341)	(341)
Drawdown/(repayment) of loans	15,500	(11,084)	1,916
	_________	_________	_________
Net cash used in financing	953	(24,236)	(19,328)
	_________	_________	_________
(Decrease) /increase in cash	(335)	4,443	8,905
Cash and cash equivalents at start of the period	13,666	4,389	4,389
Exchange movements	182	(1,097)	372
	_________	_________	_________
Cash and cash equivalents at end of the period	13,513	7,735	13,666
	_________	_________	_________

Notes to the Financial Statements

1	Basis of accounting
	The financial statements have been prepared on the basis of the accounting policies shown in the annual financial statements for the year ended 31 March 2013 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.
2	Management fees
			(Unaudited) Half year ended 30 September 2013			(Unaudited) Half year ended 30 September 2012					(Audited) Year ended 31 March 2013
			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		584	1,752	2,336	1,559		780	2,339		3,127			1,564	4,691
	Performance fee		-	1,278	1,278	-		468	468		-			3,122	3,122
			_____	____	_   ___	_____		____	____		____			____	___
			584	3,030	3,614	1,559		1,248	2,807		3,127			4,686	7,813
			_____	_____	_____	_____		_____	____		_____			_____	____
	A provision has been made for a performance fee based on the net assets at 30 September 2013.
3	Earnings per share
a	Earnings per Ordinary share
	The earnings per Ordinary share can be analysed between revenue and capital, as below.
						Half year ended 30 September 2013 (Unaudited) £'000			Half year ended 30 September 2012 (Unaudited) £'000			Year ended 31 March 2013 (Audited) £'000
	Net revenue profit					18,992			14,192			18,497
	Net capital profit					27,879			9,041			85,293
						_______			_________			_________
	Net total profit					46,871			23,233			103,790
						_______			_________			_________
	Weighted average number of Ordinary shares in issue during the period					317,571,608			256,225,000			274,298,027
						pence			pence			pence
	Revenue earnings per Ordinary share					5.98			5.54			6.74
	Capital earnings per Ordinary share					8.78			3.53			31.10
						_______			_________			_________
	Earnings per Ordinary share					14.76			9.07			37.84
						_______			_________			_________
b		Earnings per Sigma share
		The earnings per Sigma share can be analysed between revenue and capital, as below.
							Half year ended 30 September 2013 (Unaudited) £'000			Half year ended 30 September 2012 (Unaudited) £'000			Year ended 31 March 2013 (Audited) £'000
		Net revenue profit					-			3,101			3,855
		Net capital profit					-			3,404			9,573
							_______			_______			_________
		Net total profit					-			6,505			13,428
							_______			_______			_________
		Weighted average number of Sigma shares in issue during the period					-			124,168,994			123,972,000
							pence			pence			pence
		Revenue earnings per Sigma share					-			2.50			3.11
		Capital earnings per Sigma share					-			2.74			7.72
							_______			_______			_________
		Earnings per Sigma share					-			5.24			10.83
							_______			_______			________
4		Changes in share capital
		During the half year 375,000 Ordinary shares have been purchased and cancelled for an aggregate consideration of £736,000. As at 30 September 2013 there were 317,500,980 Ordinary shares of 25p and nil Sigma shares in issue. On 14 December 2012 the shareholders of both classes voted in favour of resolutions to redesignate Sigma shares into Ordinary shares. As a result of this 61,650,980 new Ordinary shares were admitted to the listing on the Official List and to trading on the London Stock Exchange's main market from 8.00am on 17 December 2012.
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 continue in operational existence for the foreseeable future.
6		Related Party Transactions
		There are no material related party transactions.
7		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 2013 and 30 September 2012 has not been audited. The figures and financial information for the year ended 31 March 2013 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 Company currently conducts its affairs so that the shares issued by the Company can be recommended by IFAs to ordinary retail investors in accordance with the FCA's rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The shares are excluded from the FCA's restrictions which apply to non-mainstream investment products because the returns to investors are predominantly based on shares and/or debentures.

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]

 

END

 

 

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