TR Property Investment Trust PLC Replacement Half-year Report

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TR Property Investment Trust PLC Replacement Half-year Report

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RNS Number : 0684V

TR Property Investment Trust PLC

28 November 2019

The following amendment has been made to the "Half-year Report" announcement released on 28/11/2019 at 7:00am under RNS No 9066U.

The original RNS stated in the Chairman's Statement that the discount of the share price to the Net Asset Value reduced over the period from 5.3% to 4.8%. This has now been corrected to 5.9% to 4.8%.

The following sentence has also been removed from the Chairman's Statement: '*Share price discount to capital only NAV.'

All other details remain unchanged. The full amended announcement is set out below.

This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan.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 2019

28 November 2019

 
 Financial Highlights and Performance 
 
 
 
                                            At 30 September         At 31 March 
                                                                           2019 
                                                       2019           (Audited)          % 
                                                (Unaudited)                         Change 
 Balance Sheet 
 Net asset value per share                          445.12p             418.54p       +6.4 
 Shareholders' funds (GBP'000)                    1,412,577           1,328,254       +6.4 
 Shares in issue at the end 
  of the period (m)                                   317.4               317.4       +0.0 
 Net debt(1)                                          11.4%               10.0% 
 
 Share Price 
 Share price                                        423.50p             394.00p       +7.5 
 Market capitalisation                            GBP1,344m           GBP1,250m       +7.5 
 
                                                  Half year           Half year 
                                                      ended               ended 
                                               30 September        30 September 
                                           2019 (Unaudited)    2018 (Unaudited)          % 
                                                                                    Change 
 Revenue and dividends 
 Revenue earnings per share                          9.96 p               9.25p       +7.7 
 Interim dividend per share                           5.20p               4.90p       +6.1 
 
                                                  Half year 
                                                      ended 
                                               30 September          Year ended 
                                           2019 (Unaudited) 
                                                                       31 March 
                                                                           2019 
                                                                      (Audited) 
 Performance: Assets and Benchmark 
 Net Asset Value total return(2)                      +8.5%               +9.1% 
 Benchmark total return                               +6.7%               +5.6% 
 Share price total return(3)                          +9.7%               +6.2% 
 
 Ongoing Charges 
 Including performance fee                           +0.76%              +1.10% 
 Excluding performance fee                           +0.61%              +0.63% 
 Excluding performance fee 
  and direct property costs                          +0.59%              +0.61% 
 

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. The NAV Total Return for the year is calculated by reinvesting the dividends in the assets of the Company from the relevant ex-dividend date. Dividends are deemed to be reinvested on the ex-dividend date as this is the protocol used by the Company's benchmark and other indices.

3. The Share Price Total Return is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date.

4. Ongoing Charges are calculated in accordance with the AIC methodology. The ratio for 30 September 2019 is based on forecast expenses and charges for the year ending 31 March 2020. The performance fee included in the calculation above is the provision at 30 September 2019 referred to in note 2 rather than an estimate of the fee at the year end.

5. Considered to be an Alternative Performance Measure as defined in the full Interim Report.

Dividend

An interim dividend of 5.20p (2018: 4.90p) will be paid on 7 January 2020 to shareholders on the register on 6 December 2019. The shares will be quoted ex-dividend on 5 December 2019.

Chairman's Statement

Introduction

For the six months to 30th September, the Trust delivered a robust NAV total return of 8.5% which was ahead of the benchmark total return of 6.7%. The share price total return was larger at 9.7% as the Trust's shares traded close to, and occasionally at a premium to, the net asset value.

This performance was achieved against a backdrop of weakening confidence in the prospects for further growth in the current global economic cycle. Importantly, central banks around the world including the U.S. Federal Reserve, remain determined to offer support through further easing in monetary policy. At the end of October the Fed announced a further 25bp cut bringing the mid cycle rate reduction to 75bps. In Europe, the European Central Bank cut rates and announced a resumption of bond buying. Such activity continues to help reduce the cost of borrowing and this in turn supports asset values. In these circumstances real estate remains a firm beneficiary.

Investors have had to wrestle with gauging the impact of the political uncertainty in the UK and Europe. Capital expenditure and investment decisions by corporates alongside spending by consumers have all suffered from deferral. Unsurprisingly, demand for logistics and warehousing remains very strong. Businesses continue to stockpile and retail property continues to suffer from the adversities of this consumption slowdown, combined with the political uncertainty as well as the relentless move to online shopping. The surprise has been the robust demand for office space in London, although flexibility has become paramount. Meanwhile Continental Europe's dominant cities are also in good health with rental growth still evident.

Earnings from our companies have continued to show steady growth and outside of the retail sector, management teams remain confident of the return prospects for their businesses.

Revenue Results and Dividend

The half year earnings of 9.96p are 7.7% ahead of the earnings at the prior year first half reflecting the growth referred to above assisted marginally by currency and a lower tax charge.

The Board has announced an interim dividend of 5.20p just over 6% ahead of the prior year interim dividend of 4.90p.

Revenue Outlook

Although our manager is confident of the continued earnings prospects for the companies we invest in, the uncertainties ahead and in particular the potential impact on Sterling, make it difficult to predict the full year outcome. The interim earnings typically represent around 65% of our full year earnings, but it is quite possible that significant currency fluctuations and changes in the portfolio could still have a material impact on our revenue for the full year.

Net Debt and Currencies

The level of gearing closed the half year at 11.4%. The gearing increased from 10.0% reported at the March year end, to around 13.5% through July and August, and has been reduced again towards the end of September. This reflects the sale of a directly owned property close to the half year and also a tactical response to the strong rally in UK names over the summer. Currency exposure in respect of the capital account (as opposed to the income account referred to above) is maintained in line with the benchmark. Therefore, the valuation of a significant proportion of the portfolio which is denominated in currencies other than Sterling, will increase if Sterling weakens and vice versa if the currency strengthens.

Discount and Share Repurchases

The discount of the share price to the Net Asset Value reduced over the period from 5.9% to 4.8%. There were some fluctuations over the period with the shares standing at a small premium at times. There were no share repurchases in the half year period.

The website (www.trproperty.com) provides current and background data on the Trust including an informative monthly fact sheet prepared by the Manager alongside the Annual and Interim Reports.

Board Changes

I am delighted to report the appointment of Kate Bolsover to the Board with effect from 1st October. Kate brings a wealth of experience, which has further strengthened the Board. She was managing director of the mutual fund business at JP Morgan Cazenove and more recently has held a range of board positions including both chair and senior independent director of several investment trusts.

Awards

The Trust recently won the Property category in the AJ Bell Fund & Investment Trust Awards 2019.

Outlook

The themes of weakening global growth leading to central bank's monetary stimulus are clear. It is somewhat less clear what the outcomes will be to major geo-political and economic events such as the US/China trade tensions, the recently announced UK General Election and presumed subsequent withdrawal from the European Union.

However, a decade of ultra low interest rates and a reluctance of governments and corporates to drive capital investment has resulted in strengthened balance sheets but left the world awash with both capital (savings) seeking investment and income. We therefore find ourselves in the peculiar situation with strong demand for high quality commercial property even at record low yields, but with banks remaining unwilling to finance speculative development. The result has been steady asset values (outside of retail) coupled with little evidence of over development.

Looking forward our managers remain ever vigilant about tenant quality and credit risk so that we focus on secure and stable earnings. Low (or even negative) interest rates will support asset prices but, as we are seeing every day in the retail sector, collapsing tenant demand, falling rents and corporate restructurings quickly equates to dramatic valuation falls.

Businesses and consumers across Continental Europe and the UK have endured three years of political uncertainty and referencing that fact has been a staple part of this outlook over that period. I offer no predictions of the political process or outcomes but I would remind investors that TR Property is truly pan-European in portfolio construction, currency exposure and its ability to seek out real estate opportunities.

Hugh Seaborn

Chairman

27 November 2019

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 2019 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 27 November 2019 and signed on its behalf by Hugh Seaborn, Chairman

Manager's Report

Performance

The Net Asset Value total return for the six months was 8.5%, ahead of the benchmark total return at 6.7%. Continental property companies returned 5.4% (in local currency terms) again outperforming their UK counterparts (+4.3%) but, unlike the last four half year reporting periods, this time the difference was much more marginal. However, when viewed in GBP, the Continental returns were once again more substantial at 8.3% due to further GBP weakness.

Whilst the overall property indices travelled in a tight band over the period, at the sector and country level there were large dispersions of returns. The slow 'car crash' of retail property values continued to be evidenced in the interim results of companies such as Hammerson, Intu and Capital & Regional. Share prices have disconnected from underlying asset values given how hard it is to assess value accurately. The twin evils of too much leverage and weakening earnings continue to keep investors away. The Trust has very modest exposure to UK retail (less than 3.5% of NAV) and importantly nearly half of that is through Supermarket Income REIT. This company was the only UK retail name to have positive performance in the period and this helped drive our relative outperformance in this sector. Post the half year the company successfully raised capital and now trades at a premium to its asset value.

German residential has been a mainstay of performance in the fund for many years. In the Annual Report, I highlighted the concerns around the risk of the State of Berlin seeking to impose (in contradiction of federal practice) rent freezes and aggressive restrictions on indexation. These new rules ('Mietendeckel') look likely to become law in November, although the devil is always in the detail. Investors also worry that there could be contagion of this type of legislation to other regions. We do not agree with that premise and have maintained our non-Berlin exposure. It is important to note that our German-wide (ex Berlin) exposure (through Vonovia and LEG) is far greater than our investment in that one city.

Our loosely termed 'alternatives' group which includes student accommodation, self-storage and healthcare, all performed well and each sub-sector contributed strongly to performance - both absolute and relative. I have highlighted in the past our index-linked, long income exposure which overlaps with this group, particularly in healthcare and we saw strong returns there as these businesses benefited from the drop in the cost of long term financing.

This theme of 'lower for longer' debt cost resonated strongly in Sweden. Swedish property companies, with just one exception, have greater than average gearing coupled with higher proportions of short term debt. The combination of a falling cost of debt environment, coupled with rental growth at the asset level has led to very strong performances from many of these companies.

Switzerland, a market where we see little organic growth, benefited from being a safe haven in these volatile times. Swiss investors also sought exposure to their domestic currency and property names yielding 3% to 4% look attractive regardless of the medium term fundamentals.

The industrial and logistics overweight remains a key theme in the portfolio. Not only did we experience strong organic growth from all our companies (particularly those with development opportunities) but we benefited from corporate activity as well. In May, Londonmetric announced the agreed takeover of A&J Mucklow, the specialist Midlands industrial owner and developer. The Trust owned 5% of Mucklow. We opted for shares (rather than cash) in Londonmetric as we are firm advocates of the management team and the opportunities afforded in the merged vehicle.

Office markets across Europe continue to see rental growth. Our overweight to Paris (Gecina, Covivio) and Stockholm (Fabege, Kungsladen) added to performance but our underweight to Madrid and Barcelona proved costly. Whilst we are very positive about the outlook for both Spanish cities we focused our exposure through Arima, the new vehicle of the Axiara management team. Axiara was sold to Colonial in 2018 and was a successful investment for the Trust. We are confident that they have invested the proceeds of the IPO well but it will take time for the returns to materialise.

Central London's solid performance remains a conundrum and is reviewed later in this report. Our overweight to decentralised South East offices versus our underweight to Central London proved a poor decision. However, I am confident that that has more to do with illiquidity in the smaller companies which provide us with that exposure, McKay Securities and CLS Holdings, than the health of the underlying markets. In fact their relative undervaluation provides an ongoing investment opportunity.

Offices

The resilience of the London office market in terms of both rents and capital value stability continues to surprise us. Demand remains broad based, particularly across tech and media industries. Companies are happy to pay for quality and the premium rents achieved on Grade A (new and refurbished) space have persisted. In fact, the drought of new space has driven pre-lets (advance commitments) to record levels. Investment appetite is driven by expectations of sustainable rents with future growth prospects. As a consequence investors remain active buyers. The difference between 2018 and 2019 has been the resurgence of domestic interest particularly in the City. However, the Brexit 'drag' has pulled investment volumes lower with Savills year to date estimates of GBP4.9bn in the City and GBP2.8bn in the West End both c50% below the five year average.

The rise of the flexible office provider remains a key topic, not least because of the travails of WeWork. Our view is that the flexible space market share (currently c5% of floorspace in Central London) will continue to grow. Tenants want the convenience and tenure flex and are prepared to pay for it. WeWork has led the space absorption charge, doubling its footprint each year since 2016. They are not alone and the difficulty for market observers is getting a handle on the underlying occupancy of these types of operators. WeWork et al will quickly cease acquiring space if they cannot fill or make money from their current estates. We remain cautious.

The picture across the largest cities in Continental Europe has been similar but with particular strength in Paris, Amsterdam, Madrid and Barcelona. Paris has year to date capital growth of 15% in core CBD and even higher figures in some peripheral markets. Underlying this is year on year rental growth of 5% to 7% across all the Paris sub-markets. In Spain, CBRE reported the fastest take up in Q3 for over 12 years. Vacancy has fallen a full percent to 8.7% in a year and prime rents reached EUR35.5 per sq m/per month (+7.6% year on year). Rents have been stable in the big six German cities with Berlin again reporting best in class growth.

Investment volumes in Paris have been lower than last year (but that period was buoyed by the Terreis EUR1.4bn transaction). Germany, Spain and Scandinavia all continue to attract global capital however the Netherlands (-34%) and Ireland (-17%) both saw falls in investment volumes between H1 2018 and H1 2019 according to CBRE.

Retail

Retail property of all types (with the exception of well let supermarkets) across Europe continue to suffer value degradation to varying degrees. Matters remain most acute in the UK. The period saw a number of high profile CVAs (company voluntary arrangements) including the long anticipated Debenhams and Arcadia. The CVAs provided a 'stay of execution' for both retailers with store closures and large rent reductions but neither retailer's future is assured. The twin headwinds of the online challenge and high property taxes (rates) continue to batter the profitability of all but best in class retailers. Overall, vacancy in UK retail reached 13%, the correction towards sustainable rental levels remains work in progress. With concerns over the quality and depth of cashflow, investors have not returned. Shopping centre transaction volumes will be lower in 2019 than they were in 2018 which itself was a previous record. The largest transaction was the sale by Intu of its Derby centre. However, the buyer receives a priority income stream and, therefore, the vendor was left with significant capital risk if the rental income falls. A desperate transaction from the seller's point of view. We expect Intu will be forced to raise capital as its balance sheet deteriorates.

Whilst we have seen a number of retailer failures across Continental Europe, particularly in the Netherlands, compared to the UK numbers these have been modest. European retail rents are generally much closer to sustainable levels. Whilst we see weakness in headline rents, it is not on the scale of the UK. The market share of online purchases is currently far lower than the UK but investors expect the trend to online to accelerate as next day delivery becomes more standard. It is no surprise that retail investment has fallen 22% between H1 2018 and H1 2019 according to CBRE. Spain, which has seen strong employment and wage growth was the only country where investment volumes rose.

Distribution and Industrial

Occupier demand has remained robust in the UK even in the face of the supply chain uncertainty surrounding Brexit. The first nine months of 2019 saw take up reach 19.7m sq ft, just 10% down on last year. DTRE, predicts that full year lease up will match the five year average of 28m sq ft. Whilst this may only be matching the average, these are huge numbers and reflect the scale of growth in this key market. The supply response has been forthcoming and we predict little rental growth in certain regions such as the East Midlands where new supply is more than matching demand. Much hinges on the Brexit outcome for this type of real estate. We continue to favour the smaller, urban and suburban markets as opposed to the larger 'big boxes'. Yields have stopped falling for this latter group. However, the medium term outlook remains positive with the ONS reporting that online retail accounted for 18% of total retail sales in 2018. Forrester's (a research and consulting group) forecast that it will reach 25% by 2023.

Continental Europe is a different story with Western Europe averaging 10.2% but just 5% in Spain and Italy. With a relatively nascent big box market, yields have historically been much higher than the UK. We are confident that yield compression will remain an attractive feature of almost all these markets. CBRE estimate that EUR32bn of capital flowed into this subsector in the year to June 2019, a sum only just eclipsed by the same period a year earlier. This year will exceed the 10 year average and this figure excludes the largest single property transaction, Logicor, which alone accounts for EUR12.2bn of logistics assets across Europe. The money is following the rental growth. Spain saw prime logistics rents rise 4% in H1 2019. In Dublin, the figure was 5%. Vacancy stands at less than 5% in Germany, Sweden, Ireland and the Czech Republic.

Analysis by Savills assessed the attractiveness of 32 European countries across 23 different metrics. One of the conclusions identified was the tipping point for rapid growth in ecommerce logistics. Once online retail sales exceeded 11% of all sales, there was a step change in logistics demand.

Residential

The private rental sector continues to flourish with demand continuing to outstrip supply. The risk is not economic but political. As detailed earlier, Berlin is experiencing an extreme form of state intervention. Our view remains that the unique history of this city, coupled with the unusual political structure where the city and the state of Berlin are effectively one, makes the likelihood of contagion to other German residential markets low.

However, the speed of market driven rental growth and the social sensitivity of this particular sector means that we must have a constant eye on the risk of state intervention across Europe. We remain more attracted to markets where there are already state restrictions as this ensures that book values remain below rebuild cost. The key is to ensure that the rent restrictions allow for indexation and this makes these income streams very attractive. We continue to favour Germany (ex-Berlin), Ireland and Sweden, although the Swedish residential names have become expensive and we have recently reduced exposure to those.

Alternatives

As mentioned earlier this group is now a core part of the portfolio. Unite's purchase of Liberty Living was welcomed by the market (us included). In fact, the Trust had committed to being a cornerstone investor when the previous owners had considered floating the business in 2015. Given the investor demand for this asset class, we would expect more portfolios to seek a listing.

Healthcare remains popular, particularly where investors are comfortable with the underlying tenant risk, and we have seen strong performance from Assura and PHP with their direct relationships with state healthcare bodies in the UK and Ireland. The elderly care providers have seen more modest returns due to concerns over certain operators' financial strength but it was good to see Target Healthcare (a stock we hold) raise GBP80m in May.

Self-storage has also been a strong performer and we see an increase in the use of short-term storage by commercial users. The weakening in the London housing market has also enabled both Big Yellow and Safestore to acquire sites which might have previously been outbid by residential operators.

Debt and Equity Capital Markets

Refinancing and securing record low costs of debt remains a popular activity for CFOs across the listed property sector. EPRA recorded GBP12.6bn of debt raised in the period under review and GBP15.3bn in the calendar year to date. This is a slightly lower run rate than previous years but that is to be expected given how much debt has been refinanced at these very low levels over the last few years. We do continue to see record low costs of debt being secured. By way of example, in October, Unibail-Rodamco-Westfield priced a EUR750m 12-year bond at a fixed annual coupon of 0.875%.

There were no IPOs in the period, however, we saw GBP3.7bn of follow on capital raisings. These were dominated by businesses raising capital to make corporate acquisitions. These included Vonovia raising EUR744m to aid its acquisition of Victoria Park in Sweden and Unite (GBP290m) to aid the purchase of Liberty Living. Aedifica, the healthcare operator raised EUR600m to acquire a UK portfolio (GBP450m) and aid expansion.

Aroundtown, the aggressively expanding German commercial and residential investor, was the most prolific issuer of debt, raising a total of EUR3.0bn in a mix of straight bonds, senior unsecured and perpetual subordinated notes.

Property Shares

Property equity markets moved broadly sideways until late July when the background (rumbling) noise of the Brexit debacle once again rose in volume and pitch, driving investors away from UK domestic stocks. Property companies are a disproportionately large component of UK domestic 'baskets' due to their high level of GBP earnings. UK property names which had been weakening over the summer fell by 7.5% in the first two weeks of August. What was almost more surprising was the subsequent rally which ran from 15th August to 30th September adding 12.4% as investors changed their views entirely with the incoming Prime Minister appearing to be more determined than ever to drive matters to a conclusion, albeit an unknown one. Broader markets also saw a strong style rotation from 'growth' to 'value' and property names - seen as value plays - were a beneficiary.

Once again the central banks have played a leading role in investor behaviour. ECB President Draghi delivered his parting shot, another rate cut and a renewed bond buying programme. More QE saw the 10-year Bund yield fall to -0.6% at the end of September. Property values with their long duration income profiles benefit from these further falls in the cost of long-term financing.

Against this benign backdrop of positive macro policies, there was a broad dispersion of fundamental real estate factors driving performance at the sector and company level. The issues surrounding retail property require no introduction. I have highlighted in previous reports the differential in characteristics between UK retail property and its Continental counterparts. These differences particularly around greater affordability across Europe continue to dominate. The essence is that the UK has a triple whammy of higher rents, much higher property taxes (rates) and greater online penetration. This continued to be reflected in the performance of the respective retail landlords. The worst performing Continental business, Vastned Retail, returned -15.6% versus -58.4% for Intu and -19.6% for Capital & Regional. Klepierre returned +3.5% whilst Hammerson returned -11.3%. The pattern of performance is clear.

As mentioned in the summary, German residential has been a stalwart sector for many years, growing in importance through capital increases and M&A driven by excellent returns. The Berlin political situation - which remains unresolved - rocked investor confidence. There are three listed companies with high exposure to the Berlin residential market, the largest Deutsche Wohnen returned -20.6% and the smallest, Phoenix Spree -16.6%. We are exposed to both these businesses but not ADO Properties which returned -23.9%. These figures are all very disappointing but it is worth reminding investors that the vast bulk of our German residential exposure is through LEG (-0.9%) and Vonovia (+3.8%). The weak returns from these stalwarts, who own thousands of apartments across the whole of Germany, points to investors' concerns. Nevertheless, their relative outperformance of the Berlin names illustrates how investors see little chance of contagion from the Berlin political process.

Scandinavia and Sweden in particular were strong performers in the period. Almost all Nordic property companies operate with higher leverage and shorter duration debt structures than the average pan European property company. The consequence of the dovish response by the Riksbank (mirroring the ECB) was to supercharge earnings expectations and total returns with the Swedish element of the benchmark returning 20.2% in the six months. Residential names performed particularly well with Balder +25.1% and Kojamo of Finland returning a hugely impressive 40%. Not only have the underlying residential letting markets remained strong but corporate activity provided reinforcing datapoints. Vovonia acquired 61% of Hembla in a EUR1.1bn transaction adding to this giant residential investor's expansion outside of Germany.

The industrial/logistics markets across Europe remain top of investors shopping lists with all of our companies in this preferred sector beating the benchmark. Standout performances came from Catena (+28.4%) and WDP (+22.0%). In the UK, we saw strong performances on the back of corporate activity with Londonmetric acquiring A&J Mucklow in a part paper/part cash GBP415m deal. The Trust owned 5% of Mucklow and enjoyed a tremendous return of 27.5% in the period with the transaction completing at the end of June. Londonmetric has been a key holding for many years and we welcome the increased scale together with the opportunities offered by Mucklow's West Midlands assets.

Swiss property stocks draw investors in volatile times. The uncertainty surrounding the global outlook as well as the ongoing local issues in Europe resulted in the Swiss property companies collectively returning +15% (in CHF) in the six months to September.

Investment Activity

Turnover (purchases and sales divided by two) totalled GBP157.8m equating to 12.0% of the average net assets over the period. This compares to GBP122.7m in the same period last year and GBP138.8m for the previous year. The increase compared to previous periods reflects, in part, the block disposals following the privatisations of Telford Homes (acquired in July by Trammel Crow part of the CBRE group) and Green REIT (acquired in September by US private equity Henderson Park).

Corporate activity has been a strong feature of the period as noted earlier. Much more commercial property is owned privately than publicly and, if public markets are going to insist on valuing companies significantly below asset value, then private capital will step in. Green REIT is a case in point, where the stock traded between EUR1.30 and EUR1.60 per share for 4 years prior to the Board announcing their intention to sell the business. The eventual sale price was EUR1.94 per share.

In the logistics space, I reduced exposure to the UK names particularly those with the greatest 'big box' exposure as share prices moved to premiums to net asset values. I remain positive about the prospects for the sector, particularly those with development programmes in densely populated markets. I increased our Continental European positions (Argan, Catena, VIB, Montea, WDP) where all our positions have significant landbanks and where we anticipate further yield tightening (capital values rising) just as we have experienced in the UK.

As noted earlier, the vast majority of our German residential exposure is outside of Berlin and this will remain the case as we continue to absorb the impact of this historic state intervention freezing rents for five years. I have, though, increased our exposure to German commercial property through adding to VIB Vermoegen (industrial), Sirius and CLS (offices) and Aroundtown (all sectors). The latter has just agreed non-binding terms to acquire a smaller competitor, TLG. The twist in this particularly opaque saga is that TLG had already bought / committed to acquire, for cash, up to 15% of Aroundtown owned by the founder, Yakir Gabay. This represents 2/3 of his holding and TLG paid a hefty premium to the share price. Minority shareholders will need to be able to rely on a strong supervisory board going forward. Not as easy as it sounds.

Revenue and Revenue Outlook

Earnings for the first half of the year increased by 7.7% over the prior year first half to 9.96p per share. This reflected the underlying earnings growth we have seen from our portfolio with a little help from weakening sterling and a lower tax charge. Some modest successes in reclaiming withholding tax together with beneficial withholding tax rates on some of the dividends received in the first half maintained the effective tax rate to around 10.5%, in line with the prior year. The prior year tax charge had benefitted from some more significant withholding tax reclaims and we anticipate a slightly higher effective tax rate in the second half.

The fortunes of sterling remain a significant unknown with the potential for change in either direction. Although 68% of our projected non-sterling income has already been collected, foreign exchange movements could still have a significant impact on the revenue account. Another material factor will be the positioning of the portfolio through the second half as we take into account political events. This may also lead to a change in the gearing levels which will have an impact upon the revenue account.

Gearing and Debt

Gearing at the end of September was modestly higher than at the year-end, although this disguises activity in-between. Corporate transactions delivered cash just ahead of the year end and, as I wrote the Annual Report in May, this had not been re-invested given the uncertain political outlook. Net investment increased over the early part of summer with gearing moving from 10.0% to around 13.5% but then was pulled back again towards the end of the period in response to the dramatic rally in UK names from mid-August. Essentially, I have been taking profits in the UK larger cap names and reduced London exposure as share prices return to pre-Referendum levels and the gearing level has ended the period at just over 11%.

At the time of writing, we have just entered into a new loan agreement with ICBC for a facility of GBP20m. This addition diversifies our borrowing relationships, which we are always keen to do, and gives us the capacity to effect gearing towards the upper limit of our guidelines if deemed advantageous.

Direct Physical Portfolio

The physical property portfolio produced a total return of 1.2% for the 6 months comprising a capital return of -0.5% and an income return of 1.7%.

At the end of the period, Field House, Harlow was sold for GBP10.5m, 3% ahead of book cost after all fees and rental top ups. The price reflected a net initial yield of 7.7% and a capital value of GBP170 per sq. ft and comes at the end of an intensive period of asset management. We successfully completed the rent review of Teva (the principal tenant) together with the letting of the vacant 1st floor suite at a new record rent for the building.

Over the summer at The Colonnades in Bayswater, we completed the separation and refurbishment/extension for the old public house and flat above. We have created a modern, fully furnished 3 bed, 3 bath flat with its own direct access. Previously, redundant space has been incorporated to provide a cinema room. The property is on the market to sell with a new long lease and early interest has been positive. These works also included the external recladding of the pub and we hope to find a new operator shortly.

The planning application for the redevelopment of our industrial estate in Wandsworth remains with the Council for determination but we are informed that it will go to the planning committee before the Christmas break. The length of time it has taken to reach this point in the planning application process (over a year) reflects not only the scheme's size and complexity, but also how stretched local authority planning teams are.

Outlook

The ongoing Brexit saga continues to dominate the outlook. However, the country does appear to be inching towards an outcome after three years of negotiation and Parliamentary stalemate. Clarity will result in the release of pent up investment decisions. This will aid property values as both tenants and investors commit to transactions. Beyond that potential short term bounce, we remain focused on the longer-term sector-focused dynamics which are broadly the same as they were six months or a year ago. Retail property (particularly in the UK) remains of deep concern. The flipside of that coin - logistics - the reverse. However, equity markets are now up with events with deep discounts applied to retail names and premiums for logistics businesses. The largest city office markets across Europe are set fair with few exhibiting over supply. The private residential sector is also robust with wage growth ensuring affordability, although the pace of rental growth is a growing concern and (further) direct intervention (as seen in Berlin), whilst unlikely, cannot be ruled out. The reality of the situation is the acute shortage of accommodation as these key cities grow and more rural areas

depopulate.

Underpinning all this commentary at the sector level is the response of the central banks. Inflation expectations in the Eurozone, a metric closely watched by the ECB's governing council, fell to an all-time low in early October. The 'five-year, five year inflation forward' which measures how much annual inflation markets are pricing in starting in five years' time sank below 1.1%. With this low level of inflation expectation, interest rates will remain lower for longer and the hunt for income and yield is set to continue. Real assets remain a good source of that income. The key is in the assessment of that income quality.

Marcus Phayre-Mudge

Fund Manager

27 November 2019

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the half year ended 30 September 2019

 
                                 (Unaudited)                   (Unaudited)                      (Audited) 
                               Half year ended                Half year ended                   Year ended 
                              30 September 2019              30 September 2018                31 March 2019 
                         Revenue   Capital             Revenue   Capital              Revenue    Capital 
                          Return    Return     Total    Return    Return      Total    Return     Return      Total 
                         GBP'000   GBP'000   GBP'000   GBP'000   GBP'000    GBP'000   GBP'000    GBP'000    GBP'000 
 Income 
 Investment 
  income                  31,141         -    31,141    30,130         -     30,130    44,771          -     44,771 
 Other operating 
  income                      13         -        13        11         -         11       674          -        674 
 Gross rental 
  income                   1,763         -     1,763     1,789         -      1,789     3,659          -      3,659 
 Service charge 
  income                   1,039         -     1,039       928         -        928     1,608          -      1,608 
 Gains on 
  investments 
  held at fair 
  value                        -    79,313    79,313         -    66,774     66,774         -     96,594     96,594 
 Net movement 
  on foreign 
  exchange; 
  investments 
  and loan 
  notes                        -     6,881     6,881         -     1,491      1,491         -    (1,463)    (1,463) 
 Net movement 
  on foreign 
  exchange; 
  cash and 
  cash equivalents             -      (41)      (41)         -     1,320      1,320         -      (508)      (508) 
 Net returns 
  on contracts 
  for difference           4,365   (2,174)     2,191     3,038   (2,812)        226     6,469   (18,380)   (11,911) 
                           _____     _____     _____     _____     _____      _____     _____      _____      _____ 
 Total income             38,321    83,979   122,300    35,896    66,773    102,669    57,181     76,243    133,424 
                           _____     _____     _____     _____     _____      _____     _____      _____      _____ 
 Expenses 
 Management 
  and performance 
  fees (note 
  2)                       (769)   (4,390)   (5,159)     (760)   (4,650)    (5,410)   (1,514)   (10,653)   (12,167) 
 Direct property 
  expenses, 
  rent payable 
  and service 
  charge costs           (1,168)         -   (1,168)   (1,007)         -   (1, 007)   (1,940)          -    (1,940) 
 Other administrative 
  expenses                 (625)     (302)     (927)     (604)     (275)      (879)   (1,271)      (564)    (1,835) 
                           _____     _____     _____     _____     _____      _____     _____      _____      _____ 
 Total operating 
  expenses               (2,562)   (4,692)   (7,254)   (2,371)   (4,925)    (7,296)   (4,725)   (11,217)   (15,942) 
                           _____     _____     _____     _____     _____      _____     _____      _____      _____ 
 Operating 
  profit                  35,759    79,287   115,046    33,525    61,848     95,373    52,456     65,026    117,482 
 Finance costs             (412)   (1,236)   (1,648)     (405)   (1,215)   (1, 620)     (851)    (2,554)    (3,405) 
                           _____     _____     _____     _____     _____      _____     _____      _____      _____ 
 Profit from 
  operations 
  before tax              35,347    78,051   113,398    33,120    60,633     93,753    51,605     62,472    114,077 
 Taxation                (3,737)     1,954   (1,783)   (3,783)     1,962    (1,821)   (5,351)      3,479    (1,872) 
                           _____     _____     _____     _____     _____      _____     _____      _____      _____ 
 Total comprehensive 
  income                  31,610    80,005   111,615    29,337    62,595     91,932    46,254     65,951    112,205 
                           _____     _____     _____     _____     _____      _____     _____      _____      _____ 
 Earnings 
  per Ordinary 
  share 
  (note 3)                 9.96p    25.21p    35.17p     9.25p    19.72p     28.97p    14.58p      20.78     35.36p 
 

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.

The Group does not have any other income or expense that is not included in the above statement, therefore 'Total Comprehensive Income' is also the profit for the period.

All income is attributable to the shareholders of the parent company.

The final Ordinary dividend of 8.60p (2018: 7.55p) in respect of the year ended 31 March 2019 was declared on 30 May 2019 (2018: 31 May 2018) and was paid on 30 July 2019 (2018: 31 July 2018). This can be found in the Group Statement of Changes in Equity for the half year ended 30 September 2019.

The interim Ordinary dividend of 5.20p (2019: 4.90p) in respect of the year ended 31 March 2020 was declared on 28 November 2019 (2019: 22 November 2018) and will be paid on 7 January 2020 (2019: 2 January 2019).

GROUP AND COMPANY STATEMENT OF CHANGES IN EQUITY

 
 
                                       Share      Share       Capital    Retained 
                                     Capital    Premium    Redemption    Earnings 
 For the half year ended            Ordinary    Account       Reserve    Ordinary       Total 
  30 September 2019 (Unaudited)      GBP'000    GBP'000       GBP'000     GBP'000     GBP'000 
 At 31 March 2019                     79,338     43,162        43,971   1,161,783   1,328,254 
 Net profit for the half 
  year                                     -          -             -     111,615     111,615 
 Dividends paid                            -          -             -    (27,292)    (27,292) 
                                      _ _ __     _ _ __        _ _ __      _ _ __      _ _ __ 
 At 30 September 2019                 79,338     43,162        43,971   1,246,106   1,412,577 
                                      _ _ __     _ _ __        _ _ __      _ _ __      _ _ __ 
 
 
                                       Share      Share       Capital    Retained 
                                     Capital    Premium    Redemption    Earnings 
 For the half year ended            Ordinary    Account       Reserve    Ordinary       Total 
  30 September 2018 (Unaudited)      GBP'000    GBP'000       GBP'000     GBP'000     GBP'000 
 At 31 March 2018                     79,338     43,162        43,971   1,089,088   1,255,559 
 Net profit for the half 
  year                                     -          -             -      91,932      91,932 
 Dividends paid                            -          -             -    (23,960)    (23,960) 
                                      _ _ __     _ _ __        _ _ __      _ _ __      _ _ __ 
 At 30 September 2018                 79,338     43,162        43,971   1,157,060   1,323,531 
                                      _ _ __     _ _ __        _ _ __      _ _ __      _ _ __ 
 
 
                                       Share      Share       Capital    Retained 
                                     Capital    Premium    Redemption    Earnings 
 For the year ended 31 March        Ordinary    Account       Reserve    Ordinary       Total 
  2019 (Audited)                     GBP'000    GBP'000       GBP'000     GBP'000     GBP'000 
 At 31 March 2018                     79,338     43,162        43,971   1,089,088   1,255,559 
 Net profit for the year                   -          -             -     112,205     112,205 
 Dividends paid                            -          -             -    (39,510)    (39,510) 
                                      _ _ __     _ _ __        _ _ __      _ _ __      _ _ __ 
 At 31 March 2019                     79,338     43,162        43,971   1,161,783   1,328,254 
                                      _ _ __     _ _ __        _ _ __      _ _ __      _ _ __ 
 

GROUP BALANCE SHEET

as at 30 September 2019

 
                              30 September   30 September     31 March 
                                      2019           2018         2019 
                               (Unaudited)    (Unaudited)    (Audited) 
                                   GBP'000        GBP'000      GBP'000 
 
 Non-current assets 
 Investments held 
  at fair value                  1,423,356      1,339,652    1,291,442 
 Deferred taxation 
  asset                                 74            243          243 
                                 _________      _________    _________ 
                                 1,423,430      1,339,895    1,291,685 
 
 Current assets 
 Debtors                            70,503         41,874       54,892 
 Cash and cash equivalents          40,503          9,637       52,282 
                                 _________      _________    _________ 
                                   111,006         51,511      107,174 
 
 Current liabilities              (62,625)        (8,340)     (12,520) 
                                 _________      _________    _________ 
 Net current assets                 48,381         43,171       94,654 
 
 Total assets less 
  current liabilities            1,471,811      1,383,066    1,386,339 
 
 Non-current liabilities          (59,234)       (59,535)     (58,085) 
                                 _________      _________    _________ 
 Net assets                      1,412,577      1,323,531    1,328,254 
                                 _________      _________    _________ 
 
 Capital and reserves 
 Called up share 
  capital                           79,338         79,338       79,338 
 Share premium account              43,162         43,162       43,162 
 Capital redemption 
  reserve                           43,971         43,971       43,971 
 Retained earnings 
  (note 7)                       1,246,106      1,157,060    1,161,783 
                                 _________      _________    _________ 
 Equity shareholders' 
  funds                          1,412,577      1,323,531    1,328,254 
                                 _________      _________    _________ 
 
 Net asset value 
  per: 
 Ordinary share                    445.12p        417.06p      418.54p 
 

GROUP CASH FLOW STATEMENT

For the half year ended 30 September 2019

 
                                Half year ended  Half year ended  Year ended 
                                   30 September     30 September    31 March 
                                           2019             2018        2019 
                                    (Unaudited)      (Unaudited)   (Audited) 
                                        GBP'000          GBP'000     GBP'000 
Reconciliation of profit 
 from operations before 
 tax to net cash inflow 
 from operating activities 
 
Profit from operations 
 before tax                             113,398           93,753     114,077 
Finance costs                             1,648            1,620       3,405 
Gains on investments 
 and derivatives held 
 at fair value through 
 profit or loss                        (77,139)         (63,962)    (78,214) 
Net movement on foreign 
 exchange; cash and cash 
 equivalents and loan 
 notes                                    1,191            (659)       (292) 
Decrease/(increase) in 
 accrued income                           1,745            1,079     (1,129) 
Increase in other debtors              (16,618)         (10,419)    (18,350) 
Decrease in other creditors             (2,628)          (5,116)     (3,711) 
Net (purchases)/sales 
 of investments                        (58,374)           51,124     115,685 
Decrease/(increase) in 
 sales settlement debtor                  3,583            (500)     (3,334) 
(Decrease)/ increase 
 in purchase settlement 
 creditor                               (1,474)              148       1,474 
Scrip dividends included 
 in investment income                   (3,310)          (7,748)     (8,226) 
Scrip dividends included 
 in net returns on contracts 
 for difference                           (439)            (779)       (936) 
                                      _________        _________   _________ 
Net cash (outflow)/inflow 
 from operating activities 
 before interest and taxation          (38,417)           58,541     120,449 
Interest paid                           (1,777)          (1,600)     (3,391) 
Taxation paid                           (1,252)          (1,778)     (1,872) 
                                      _________        _________   _________ 
Net cash (outflow)/inflow 
 from operating activities             (41,446)           55,163     115,186 
 
Financing activities 
 
Equity dividends paid                  (27,292)         (23,960)    (39,510) 
Drawdown/(repayment) 
 of loans                                57,000         (41,000)    (41,000) 
                                      _________        _________   _________ 
Net cash from/(used in) 
 financing activities                    29,708         (64,960)    (80,510) 
                                      _________        _________   _________ 
(Decrease) /increase 
 in cash                               (11,738)          (9,797)      34,676 
Cash and cash equivalents 
 at start of the period                  52,282           18,114      18,114 
Net movement on foreign 
 exchange; cash and cash 
 equivalents                               (41)            1,320       (508) 
                                      _________        _________   _________ 
Cash and cash equivalents 
 at end of the period                    40,503            9,637      52,282 
                                      _________        _________   _________ 
Note 
Dividends received                       38,185           34,176      46,249 
Interest received                            14                8         669 
 

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 have also been prepared in accordance with 
             the Statement of Recommended Practice (SORP), "Financial Statements 
             of Investment Trust Companies and Venture Capital Trusts," issued in 
             October 2019, to the extent that it is consistent with IFRS. 
 
             The financial statements are presented in Sterling and all values are 
             rounded to the nearest thousand pounds (GBP'000) except where otherwise 
             indicated. 
 
             In accordance with IFRS 10 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. 
 
   IFRS 16 - Leases, which was effective from 1 January 2019, has been 
   applied in the preparation of the interim financial statements. The 
   application of the standard has not had any material impact on the 
   interim financial statements and the Group's leases continue to be 
   classified as operating leases with the leased assets recognised in 
   the Balance Sheet. 
 
 2     Management fees 
 
                                                (Unaudited)                    (Unaudited)                      (Audited) 
                                              Half year ended                 Half year ended                   Year ended 
                                             30 September 2019               30 September 2018                 31 March 2019 
                                       Revenue   Capital               Revenue   Capital              Revenue   Capital 
                                        Return    Return       Total    Return    Return      Total    Return    Return        Total 
                                       GBP'000   GBP'000     GBP'000   GBP'000   GBP'000    GBP'000   GBP'000   GBP'000      GBP'000 
  Management 
   fee                                     769     2,306       3,075       760     2,281      3,041     1,514     4,543        6,057 
 
   Performance 
   fee                                       -     2,084       2,084         -     2,369      2,369         -     6,110        6,110 
                                         _____     _____       _____     _____     _____      _____     _____     _____        _____ 
                                           769     4,390       5,159       760     4,650      5,410     1,514    10,653       12,167 
                                         _____     _____       _____     _____     _____      _____     _____     _____        _____ 
 
       A provision has been made for a performance fee based on the net assets 
        at 30 September 2019. No payment is due until the full year performance 
        fee is calculated at 31 March 2020. 
 
 3     Earnings per share 
       The earnings per Ordinary share can be analysed between revenue and 
        capital, as below. 
                                                                         Half year ended            Half year             Year ended 
                                                                                                        ended 
                                                                            30 September         30 September               31 March 
                                                                                    2019 
                                                                             (Unaudited)                 2018                   2019 
                                                                                 GBP'000          (Unaudited)              (Audited) 
                                                                                                      GBP'000                GBP'000 
   Net revenue profit                                                             31,610               29,337                 46,254 
   Net capital profit                                                             80,005               62,595                 65,951 
                                                                                 _______              _______              _________ 
   Net total profit                                                              111,615               91,932                112,205 
                                                                                 _______              _______              _________ 
  Weighted average number of Ordinary 
   shares in issue during the period                                         317,350,980          317,350,980            317,350,980 
 
                                                                                   pence                pence                  pence 
   Revenue earnings per Ordinary 
    share                                                                           9.96                 9.25                  14.58 
   Capital earnings per Ordinary 
    share                                                                          25.21                19.72                  20.78 
                                                                                 _______              _______              _________ 
  Earnings per Ordinary share                                                      35.17                28.97                  35.36 
                                                                                 _______              _______              _________ 
 
 4      Changes in share capital 
        During the half year and since 30 September 2019, no Ordinary shares 
         have been purchased and cancelled. 
 
         As at 30 September 2019 there were 317,350,980 Ordinary shares (30 
         September 2018: 317,350,980; 31 March 2019: 317,350,980 Ordinary shares) 
         of 25p in issue. 
 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/(liabilities) at fair value through profit and loss 
                                                             Level 1             Level 2              Level 3                  Total 
          At 30 September 2019                               GBP'000             GBP'000              GBP'000                GBP'000 
   Equity investments                                      1,332,042                   -                  377              1,332,419 
   Investment properties                                           -                   -               90,937                 90,937 
   Contracts for difference                                        -               4,139                    -                  4,139 
                                                             _______             _______              _______                _______ 
                                                           1,332,042               4,139               91,314              1,427,495 
                                                             _______             _______              _______                _______ 
 
                                                             Level 1             Level 2              Level 3                  Total 
          At 30 September 2018                               GBP'000             GBP'000              GBP'000                GBP'000 
        Equity investments                                 1,241,068                   -                  258              1,241,326 
        Investment properties                                      -                   -               98,326                 98,326 
        Contracts for difference                                   -             (1,743)                    -                (1,743) 
        Foreign exchange forward 
         contracts                                                 -               (781)                    -                  (781) 
                                                             _______             _______              _______                _______ 
                                                           1,241,068             (2,524)               98,584              1,337,128 
                                                             _______             _______              _______                _______ 
                                                             Level 1             Level 2              Level 3                  Total 
          At 31 March 2019                                   GBP'000             GBP'000              GBP'000                GBP'000 
        Equity investments                                 1,189,136                   -                  377              1,189,513 
        Investment properties                                      -                   -              101,929                101,929 
        Contracts for difference                                   -             (3,210)                    -                (3,210) 
        Foreign exchange forward 
         contracts                                                 -               1,969                    -                  1,969 
                                                             _______             _______              _______                _______ 
                                                           1,189,136             (1,241)              102,306              1,290,201 
                                                             _______             _______              _______                _______ 
        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 2019. 
 
         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 2019, 
         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 
                                                31 March                                        Appreciation/           30 September 
        At 30 September                             2019   Purchases               Sales       (Depreciation)                   2019 
         2019                                    GBP'000     GBP'000             GBP'000              GBP'000                GBP'000 
                                      ------------------  ----------  ------------------  -------------------  --------------------- 
        Unlisted equity 
         investments                                 377           -                   -                    -                    377 
                                                 _______     _______             _______              _______                _______ 
        Investment properties 
 
            *    Mixed use                        54,962         334               (749)                (867)                 53,680 
 
            *    Office & Industrial              46,967         232            (10,284)                  342                 37,257 
                                                 _______     _______             _______              _______                _______ 
                                                 101,929         566            (11,033)                (525)                 90,937 
                                                 _______     _______             _______              _______                _______ 
                                                 102,306         566            (11,033)                (525)                 91,314 
                                      ==================  ==========  ==================  ===================  ===================== 
 
                   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: GBP5 - GBP50 per sq ft 
 
 
                     *    Capitalisation rates: 3.20% - 6.50% 
 
 
 
                    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   Half year ended   Year ended 
                                              30 September      30 September     31 March 
                                                      2019 
                                               (Unaudited)              2018         2019 
                                                   GBP'000       (Unaudited)    (Audited) 
                                                                     GBP'000      GBP'000 
           Gains on sale of investments              6,300            37,253       79,858 
           Movement in investment 
            holding gains                           73,013            29,521       16,736 
                                                   _______           _______      _______ 
           Gains on investments held 
            at fair value                           79,313            66,774       96,594 
                                                   _______           _______      _______ 
 
          The Group received GBP92,995,000 (30 September 2018: GBP118,318,000) 
          and (31 March 2019: GBP246,467,000) from investments sold in the period. 
          The book cost of these investments when they were purchased was GBP86,695,000 
          (30 September 2018: GBP81,065,000) and (31 March 2019: GBP166,609,000). 
          These investments have been revalued over time and until they were 
          sold, any unrealised gains/losses were included in the fair value of 
          the investments. 
 
          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 at 30 September 2019 was 
          GBP44,429,000 (30 September 2018: GBP44,663,000) and (31 March 2019: 
          GBP43,255,000). 
 
          The fair value of the 3.59% GBP Loan Notes at 30 September 2019 was 
          GBP15,566,000 (30 September 2018: GBP15,154,000) and (31 March 2019: 
          GBP15,373,000). 
 
          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 
                GBP260,000,000. 
 
 
 
          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 GBP65,000,000 (30 September 2018: GBP65,000,000) 
          and (31 March 2019: GBP65,000,000). At 30 September 2019, GBP57,000,000 
          was drawn on these facilities (30 September 2018: GBPnil) and (31 March 
          2019: GBPnil). The fair value is considered to approximate the carrying 
          value and the interest is paid at a margin over LIBOR. 
 
          Subsequent to 30 September 2019 the Group has entered into a new loan 
          agreement for a facility of GBP20,000,000. 
 7      Retained Earnings 
                                       Half year ended   Half year ended   Year ended 
                                          30 September      30 September     31 March 
                                                  2019 
                                           (Unaudited)              2018         2019 
                                               GBP'000       (Unaudited)    (Audited) 
                                                                 GBP'000      GBP'000 
          Investment holding gains             479,787           432,057      402,635 
          Realised capital reserves            691,839           656,208      688,986 
                                               _______           _______      _______ 
                                             1,171,626         1,088,265    1,091,621 
          Revenue reserve                       74,480            68,795       70,162 
                                               _______           _______      _______ 
                                             1,246,106         1,157,060    1,161,783 
                                               _______           _______      _______ 
 
 8      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 Directors' Remuneration Report in the Annual 
         Financial Statements. 
 9      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 2019 and 30 September 2018 has not been 
         audited or reviewed by the Group auditors. The figures and financial 
         information for the year ended 31 March 2019 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: 020 7011 4711

Jo Elliott

Finance Manager and Investor Relations

TR Property Investment Trust plc

Telephone: 020 7011 4710

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

IR LLFEDLALTFIA

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November 28, 2019 13:10 ET (18:10 GMT)

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