Chairman's statement

Chairman's statement

Extract of Chairman’s Statement from the interim report

Ordinary and Sigma Share proposal announced on 26 September 2012

The most important point of my Chairman’s Statement is to ask you to take the time to consider and vote on the proposal, being sent to shareholders later today, to convert the Sigma shares into Ordinary shares and merge the two portfolios.

The Board strongly recommends that shareholders vote in favour of the resolution. Our proposals have been carefully developed so as to add value for both shareholder classes and the Company as a whole.

Complete details, including the benefits to holders of each share class, are given in the Shareholder Circular, but in addition I have set out a short summary below of what the Board is proposing and why we believe it is in the interests of the holders of both share classes to support this proposal.

The Proposal

On 26 September 2012 the Board announced that, following a strategic review, they were proposing a conversion of the entire share capital of the Sigma shares into Ordinary shares and a merger of the two portfolios. The proposed conversion will result in a single, larger Ordinary share class which will retain the objective of maximising shareholders’ total returns by investing in property shares and investment property on an international basis. The benchmark for the enlarged Ordinary share class will remain the FTSE EPRA/NAREIT Developed Europe Net Total Return Index in Sterling. The physical property investments will continue to be located in the UK only.

Strategic Review

The Board of TR Property Investment Trust plc, who are responsible for the interests of both the Ordinary and the Sigma Shareholders, commissioned a strategic review of the share structure over the summer. The brief was to take account of shareholder interests in the light of external trends and investor views as well as management performance.

The analysis showed that the Sigma Net Asset Value Total Return had outperformed the Ordinary share class Net Asset Value Total Return in the period since its establishment and most notably in the period since March 2009. This is consistent with the rationale for the creation of a share class focused on smaller property companies as set out in the original prospectus in 2007.

The Ordinary share class has also continued to add value to shareholders relative to its benchmark over this period.

So why merge the Ordinary and Sigma share classes?

The investment world has changed hugely since Sigma was launched in July 2007.

The consultation with major shareholders and other external experts confirmed that increasingly, large investors are demanding holdings with larger scale, greater liquidity and higher income. Their risk appetite is also lower than it has been in the past. Prospective investors are less – or not at all – interested in smaller funds focused on small companies with limited liquidity. We believe that these trends are not likely to reverse in the near future.

Despite good management performance and a sharply increased dividend, the Sigma shares have now traded at a significant discount to asset value for a prolonged period.

Through the review, the Board found that although there is recognition that smaller property companies do add to performance, investment vehicles of a limited size simply lack broad investor appeal. The Board concluded that investors would be better served by combining the two portfolios and providing access to these stocks, albeit in a less concentrated form, in a larger vehicle.

The EGM is due to take place on 14 December 2012 and I urge you to vote in favour of the proposal. Your votes can be registered using the proxy forms and pre-paid envelopes which will be mailed with the Shareholder Circular.

Moving on to the period under review in these Financial Statements:

NAV and Share Price Performance

Property shares fared well compared with European equities (including the UK). The benchmark return in the six months was more than double that of the FTSE 100 (+2%). The Euro Stoxx 600 (in Sterling) was up just 0.1% in the period. Volatility in the sector has also continued to fall throughout the year but dispersion of performance amongst the stocks in our universe has remained close to the long-run average. Your Managers have therefore been able to use their stock picking capabilities to generate outperformance in the period.

The revenue results are in line with expectations and the interim dividend in both share classes has been increased. This is despite the reduction in the value of our Eurozone dividend receipts when converted into Sterling. More detail is included in the revenue section.

The details of the absolute and relative returns are set out at the start of each share class report and commented on by the Managers. In summary the Ordinary share class showed NAV total return of +4.7% against the benchmark total return of +3.4%. The share price total return was +5.8%. For the Sigma share class, the NAV total return was +5.7% and the benchmark total return was +3.5%. The share price total return was +13.3% due to a significant tightening in the discount to NAV at which the shares traded following the announcement on 26 September 2012.

Revenue Results

At the half year stage the revenue results are broadly in line with expectations on the Ordinary share class and ahead of expectations on the Sigma share class. The Ordinary share class earnings at 5.54p per share are slightly lower at the half year stage than in the previous year (5.63p). Sigma earnings are significantly ahead at 2.50p (1.89p). The majority of our revenue 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 2.65p per share, an increase of 10.4% on last year’s interim dividend of 2.40p.

Sigma Shares Dividend

The Board has announced an interim dividend of 1.05p per share, an increase of 10.5% over last year’s interim dividend of 0.95p.

The shares of both classes will go ex-dividend on 5 December ahead of the EGM on 14 December 2012. The dividend will be paid on 8 January 2013 to shareholders on the register as at 7 December 2012.

Revenue Outlook

Revenue earnings for the full year of 6.60p for the Ordinary share class and 2.80p for the Sigma share class were indicated in the year end report. At the half year stage our Manager’s expectation is that the earnings of the two portfolios will be marginally ahead of these figures.

Historically, earnings and dividend ratios have been lower for the Sigma share class than for the Ordinary share class. However, Sigma earnings and dividends have increased significantly over the last year and in the Annual Report we commented that we expected that revenues would continue to grow for this share class in the medium term. This has been the case and, as a result, there would not be a notable dilution of earnings for the Ordinary share class should the two portfolios merge as proposed.

On the basis of these figures, the Board expects to be able to maintain a progressive dividend policy for the Ordinary share class for the full year.

Net Debt and Currencies

The Ordinary share class decreased its net borrowings from £45m to £36m whilst Sigma’s reduced from £6m to close to zero towards the end of the period. The debt facilities continue to be a mixture of short and medium term facilities as detailed in the Annual Report. The higher gearing of 7.4% in the Ordinary share class reflects the 10.4% investment in direct property assets. The property assets also rose in value in the half year period.

As in previous years, the portfolios’ exposure to foreign currencies were not hedged at the income level.

Discount and Share Repurchases

The Ordinary share price discount to net asset value was 15.6% at the half year, having been 14.3% at the start of the period. The Sigma share price discount to net asset value was 19.9% at the half year, having been 23.9% at the start of the period. The discount had widened to 25.9% at the end of August prior to the announcement of the Conversion Proposal by the Board on 26 September. A total of 500,000 Sigma shares were repurchased in the period at an average price of 67.7p. There were no repurchases after the date of the announcement of the proposal to convert the share capital of the Sigma shares into Ordinary shares.

Board Changes

We announced on 23 October that Paul Spencer CBE was resigning from the Company at the end of December. His role as Chairman of the Audit Committee will be taken by David Watson. On behalf of the Board, I thank Paul for his considerable contribution to the Company and wish him well for the future.


Performance of European equity markets remains dominated by the issues within the Eurozone. Whilst there is no single solution it is heartening to see some recent evidence of coordinated thought between the politicians and the central banks. The markets’ broad upwards trajectory, which commenced in mid June, has continued into the second half of the financial year. Pan European property share prices have risen 5.5% in October, again outperforming broader European equity markets. This rise has been fuelled by announcements of intended actions to improve the cost of sovereign debt and improve the solvency and lending capability of European banks. This is a painfully slow process compared with other regions, notably the U.S.A., and will have a limited impact on market confidence.

Our view is that the market’s current optimism towards property equities is grounded in the sector’s ability to offer stable earnings underpinned by quality Real Estate rather than great expectations of rental growth or capital gains. Most of our Continental companies’ income is index-linked and this, coupled with steady declines in the marginal cost of debt, gives us confidence that underlying earnings will continue to grow in those businesses which can continue to attract both competitive financing and tenants. The caveat clearly surrounds the latter. A return to economic growth is not obviously imminent. The risk that austerity measures being applied in all European countries will make recession more likely than growth is an obvious danger. We expect our Managers’ ability to outperform by superior stock and market selection will be demonstrated in the full in the months ahead.

Peter Salsbury
22 November 2012

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