TR Property Investment Trust plc

London Stock Exchange Announcement

Unaudited results for the six months ended 30 September 2024

Legal Entity Identifier: 549300BPGCCN3ETPQD32

Information disclosed in accordance with Disclosure Guidance and Transparency Rule 4.2.2

Kate Bolsover, Chairman:

" The rapid rise in interest rates over the last three years led a number of our companies to pause dividend payments but these are starting to pick up again. Falling interest rates are helping to reduce borrowing costs, which in turn supports real estate values and boosts income. We needed patience for the peak in interest rates and the focus has now shifted to further rate cuts, with attention on their timing and scale. This progress reinforces our confidence in the future." 

Marcus Phayre-Mudge, Fund Manager:

"We are seeing an encouraging, albeit bumpy, recovery in listed real estate. Demand for top-quality properties is outstripping supply in nearly all sectors. Over this period, there has been a positive shift in sentiment, marked by a renewed wave of offensive capital raising alongside continued merger and acquisition activity. However, we remain in a divided market: the best buildings in prime locations are attracting strong tenant demand, while others are struggling. This bifurcated environment supports TR Property's investment approach and appeal given our underlying asset exposure."

Financial highlights and performance

1       Net debt is the total value of loan notes, loans (including notional exposure to contracts for differences ('CFDs')) less cash as a proportion of net asset value ('NAV').

2      The net asset value total return 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 2024 is based on forecast expenses and charges for the year ending 31 March 2025.

5         Considered to be an Alternative Performance Measure.

Chairman's statement

Market backdrop

My concluding remarks in the Annual Report in June focused on our hope and expectation that we were much closer to the peak in the interest rate cycle. This turned out to be the case. The various false dawns which had punctured investor optimism in the previous year are now behind us. The focus is now on 'how many cuts and when' following the initial moves by the US Federal Reserve, the Bank of England and the European Central Bank.

This step change in central bank behaviour, whilst largely anticipated, did extend the boost to real estate equity prices which, even after the springtime recovery, were still heavily discounted and unloved. This ongoing price recovery helped the Company's net asset value total return reach +10.9% for the six months, with the share price total return of +13.0% exceeding that figure. Over the same period, the total return from the benchmark index was +9.3%.

The period under review saw not only short-term base rates begin to fall but also growing stability in the longer end of the yield curve (3-5 years+) which is where most property companies seek to maintain the majority of their finance. This improvement has also led to further margin reductions as more lenders re-enter the market. The cost of capital therefore fell in the period and this encouraged not only capital raising by a wide range of listed companies but also merger and acquisition ('M&A') activity. Such interest from both public and private equity in a range of undervalued listed companies provides a valuable pricing underpin. Much more detail is provided in the Manager's Report, covering our participation in capital calls as well our positioning in the M&A activity.

Our physical property exposure remained at an historic low over the period. Whilst I have already reported that this reduced level would be temporary, the timing of the rotation of capital from our largest ever property sale (£33.5m in March) into equities proved beneficial.

Revenue Results, Outlook and Dividend

Earnings at 8.16p per share are around 12% ahead of the level reported for the half year to 30 September 2023 but still significantly below September 2022 levels.

We are seeing a recovery in earnings. However, as anticipated, some of the companies which suspended dividends in 2023 have returned to distributing at lower levels than previously and a few have yet to resume. Encouragingly, we are seeing growth in some areas. Our rental income from the direct property portfolio has significantly reduced following the sale of The Colonnades and due to the development activity at Wandsworth but we expect this to be temporary as we are seeking to add to the portfolio and as the refurbished units at Wandsworth come on stream.

Against that backdrop the Board has maintained the interim dividend at the prior year level of 5.65p. Although we expect the improving trend to continue through the second half of the financial year, we do anticipate that it will take some time to build earnings back to previous levels and that the full year distribution will not be covered by our earnings.

Net Debt and Currencies

Gearing increased over the period as the interest rate outlook and sentiment towards the sector improved.

Sterling strengthened by around 3% over the half year creating a headwind in income terms for non-sterling denominated income (around 65% of income is usually received in the first half). Although the currency exposure of our portfolio is hedged in line with the benchmark, income is unhedged and subject to exchange rate variations.

Discount and Share Repurchases

The Company's shares have traded at an average discount of just over 7% over the period, moving from 7.5% at the end of March to 6.1% at the end of September. This is slightly wider than the five year average of 6.2%.

The Company did not repurchase any shares during the period.

Awards

I am pleased to report that the Company has won two awards this year, the Active Property category at the AJ Bell Investment Awards and the Citywire 'Best Specialist Equities' Investment Trust. The Citywire award is particularly pleasing as the shortlist is a broad range of Investment Trusts and it is the fourth time we have won this award in the last five years.

Outlook

These results cover the six months to the end of September, a period of growing optimism for our sector. However, October has been a reminder of how quickly macro influences can once again weigh on sentiment, particularly towards a leveraged asset class such as real estate. In the UK (broadly one third of our portfolio) the new Government's tax and spend strategy will see an average additional borrowing of £28bn per year. This has unsettled markets and the yield on ten year Government bonds has climbed back to where it was at the beginning of March. At the same time both the Bank of England and the Riksbank have continued to reduce base rates which is supportive for short term debt costs.

Germany, Europe's largest economy and largest exporter has seen a slowdown in demand particularly from Asia and our expectation is that the ECB may well prove to be more dovish with larger cuts to their base rate as recessionary forces grow. The US election result has also contributed to investor concerns about the new administration's attitude towards tariffs and the impact on EU exports. Additional geo-political tensions around the outcome for Ukraine and the likely increase in defence spending by the European members of NATO adds to an air of collective concern across Europe.

This leads us to focus even more on those businesses with healthy, affordable income streams and strong balance sheets. Our Investment Manager remains optimistic that there is ongoing demand/supply disequilibrium across key sub-sectors and the recent pull-back in real estate equity prices is an opportunity given the downward trajectory in the cost of capital.

As the listed sector has performed better and physical property once gain offers better value, we have been actively seeking out direct property assets. Following the end of the half year, the Company has acquired two industrial assets, a single let unit in Northampton and an estate in Bicester for a combined cost of £19.3m. On a proforma basis, physical property is now 5.3% of our net assets.

Kate Bolsover

Chairman

29 November 2024

Manager's report

Performance

The net asset value ('NAV') total return for the six months was a healthy +10.9%, whilst the share price total return was slightly better at +13.0%. The benchmark, the FTSE EPRA/NAREIT Developed Europe Capped Net Total Return Index (in sterling) returned +9.3% in the period. After a long period of decline from 2021 to late 2023, real estate equities have broadly been on a path of recovery since then.

As always, the path of equity market price recovery is never a straight line. The opening period of this half year was a rollercoaster of initial market weakness in April, followed by a strong May and then a significant pullback in June. This resulted in the first quarter of the financial year actually delivering a negative total return. Investors continued to be skittish about whether inflation was under control and whether central banks were back in control of the monetary policy narrative. The answer to that question, since mid summer, has been a resounding yes. We passed peak interest rates with the first US cut in September, albeit widely anticipated by markets given the signals from the US Federal Reserve. European central banks followed suit and the inflation data, whilst mixed in parts (particularly service sector wage inflation), is trending down below the key 2% rate.

Real estate is a leveraged asset class. In the early stages of a valuation recovery, the price of debt is the critical driver. The dramatic improvement in swap rates (lending on physical assets generally has a duration of three to five years rather than the short end of the yield curve) has been coupled with a return of banks and other lenders to the market. For our larger companies, those with a rating, the bond markets have reopened and this has re‑energised a competitive lending environment for those with the right assets and sustainable cashflows.

I wrote in the Annual Report that our focus had returned to market fundamentals after several years of concentrating on balance sheet liabilities and risks to cashflows from the rising cost of debt. Positive market fundamentals are the next phase of price recovery and our focus is now on portfolio quality where there is positive disequilibrium (increasing demand facing a lack of supply).

Alongside share price recovery, there has been a raft of offensive (as opposed to defensive) capital raises taking advantage of market opportunities. Encouragingly, this has been across a broad range of sectors and geographies. The Company invested over £30m (2.7% of NAV) in eight separate transactions in the period. More detail is given in the Investment Activity segment.

M&A activity continues to remind investors that undervalued listed companies will attract private capital. We believe that consolidation which leads to a smaller number of larger, more liquid companies with improved operating efficiencies is a large part of the solution for the sector. We supported the part cash/part paper bid by New River Retail (market cap £300m) for another retail minnow Capital & Regional (market cap £151m). This also required a capital raise by New River in September.

Benchmark Performance Over Three Years

The board of Tritax Eurobox, an externally managed portfolio of logistics and industrial assets geographically spread from Spain to Sweden, initially accepted an all paper offer by Segro. This was trumped by a cash bid from the private equity giant, Brookfield. Leveraged private equity buyers have also been active in the UK, where Starwood acquired Balanced Commercial Property Trust ('BCPT') for cash following the completion of a strategic review. Whilst the price of 96p is 9% below the last published NAV, shareholders voted for it. The loss of BCPT leaves LondonMetric as the remaining large, diversified REIT with a sector agnostic strategy.

In Spain, Arima (market cap €240m) was the subject of a cash bid from a private property fund (backed by a large Brazilian bank). The deal was announced in May and completed in November. The Company was the second largest shareholder (8.1% of issued equity). Whilst the bid was at a 39% premium to the undisturbed share price, it was still a 20% discount to the net asset value of this portfolio of high quality, central business district ('CBD') offices in Madrid.

Reviewing our performance attribution, these M&A situations did contribute but not on the scale of the previous period (where we benefited from large ownerships in Industrials REIT, Ediston and CT Property Trust). The premium bid for Arima generated 37bps, the fifth largest single stock contributor in the period. The largest single contributing factor was the decision to not only increase the gearing but also to move to a record high equity exposure at over 96% of assets. The Company has the ability to own physical property in the UK alongside its pan-European equity exposure. Typically, this has been in the range of 7-10% of assets. Following the sale of the Colonnades (£33.5m) in February this year, the physical property exposure dropped temporarily to 3% of the portfolio, the lowest level since the Company began specialising in property in 1984.

At the sector level, it was European Shopping Centres and UK Diversifieds which were the real drivers of alpha generation. In the former it was all about Klepierre and the latter, it was Picton. Klepierre enjoyed a strong six months with a total return of +27.1%, driven by improved earnings outlook, a credit upgrade and two large acquisitions all taken positively by the market. For Picton, the sale of its largest office asset, for conversion to residential, was a game changer. In one transaction they dramatically reduced the perceived office 'overhang', selling ahead of book value and enabling further debt reduction.

German Residential, the largest sub-sector enjoyed strong performance and we were able to 'hold our own' in performance terms with our small cap exposure, Phoenix Spree Deutschland (market cap £165m) returning +16.5% coupled with TAG (+30.1%) as our large overweights offsetting the +23.4% return from the sector behemoth Vonovia, where we hold an underweight position.

The weakest performing sector was Industrial/Logistics where the large number of highly rated names suffered a change in sentiment as market indicators pointed to a slowdown in the pace of rental growth. Whilst we are not overweight to the sector as a whole, our French small cap Argan returned -12.2% in the period. The portfolio remains fully let with a pipeline of pre-let developments and steady earnings growth baked in. We have added to our position on share price weakness given the difficulties in delivering projects through the convoluted French planning and regulatory bureaucracy.

In London offices, we hold only Workspace, the flexible office and light industrial specialist and not the development focused companies, Derwent London, Great Portland and Helical. This was the correct call with Workspace returning +31.0%, double the next best performer Derwent London at +15%. However, all these companies, including Helical at +9.0%, beat the wider UK element of the benchmark (which returned just +6.1%). Given the weakness in sentiment towards offices and the clear lack of valuation improvement at the asset level, these statistics are a reminder of equity markets ability to swing between being overly pessimistic and overly optimistic. In the case of office names, they had become too cheap in the prior period and experienced strong share price recovery even though fundamentals show little sign of improving.

Offices

The bifurcation between the best and the rest continues at pace. The structural shift in how and where businesses want to use office space is compounded by the overarching need to improve the energy efficiency of all buildings. Its lack of popularity is selectively generating opportunities. Here in London, the latest wave of West End pre-lets is at record-breaking rents of £120 -130 per ft and these levels are no longer the preserve of small suites deals for price insensitive tenants. Meanwhile in Docklands, you can have as much space as you want at record low rents. New developments in the City of London have given occupiers options which did not exist 15 years ago. Why be in Docklands when you can be close to a major rail terminus such as Liverpool or Cannon Street stations. Multi-nodal transport has driven the growth of new offices in Paddington (British Land) and Victoria (Landsec).

We see the same across Europe with Gecina's Paris CBD assets massively outstripping La Defence or other peripheral markets in terms of tenant demand and rental growth. Paris continues to have the lowest vacancy of the 24 European markets covered by Savills European Cities Report. We continue to remain overweight to Paris through Gecina.

Building quality is also paramount and this is neatly exhibited by data provided by Derwent London the largest listed specialist London office owner/developer. In the first half of 2024, their assets valued at over £1,500 per ft fell in value on average by 0.8%. For those assets valued at less than £1,000 per ft, the fall was 3.5%. These may seem small numbers but they are just for the last six months and continue a trend already evident in previous data series.

The good news is that demand for the best space continues to grow. Savills report that office take up across Europe reached 1.6m sq metres in Q2 2024, a 9% increase on the same period last year. The first half of 2024 saw a 5% improvement ahead of the same period in 2023. These figures are lower than the 5 year average, reflecting the structural shifts but nonetheless encouraging for owners of the best space.

Retail

The situation across retail markets remains encouraging, particularly in Continental Europe where consumer spend has been resilient and shopping centre occupancy is higher than in the UK. Cushman & Wakefield ('C&W') track 107 shopping centre sub-markets and just 2% of locations reported falls in rental values. This is in stark contrast to the same period a year ago when the figure was 18%. In the 214 high street markets they cover, 42% reported increased rental growth and 53% reported steady. Back in 2022, the combined figure was just 22%. The conclusion, and we see it in the reported data from our listed companies, is that rents have reached their low points and in many markets are climbing again.

In the UK, the strongest sector remains retail warehousing and tourist focused towns and cities. MSCI reported a +8.8% total return for the first nine months of 2024 from this sector. We have been strong advocates for this sub‑sector for several years (through our ownership of Ediston Property where we owned 16% of the company before it was acquired by Realty Income) and now through LondonMetric.

We continue to see a dispersion in performance between the UK and Continental European retail markets. The data from C&W highlights this. The malaise in UK shopping centres has been documented in this report over many years. However, there is some renewed optimism towards this sector driven by the broadening consensus that major retailers have right-sized their occupational requirements. In some instances they are seeking larger stores in the dominant centres to provide an even fuller offer to consumers.

Industrial and Logistics

For the first time in several years, the message from this sector is not one of universal unbridled optimism. There are hints of caution in various markets. In the UK, rents have grown rapidly and whilst they continue to grow, the rate of growth is slowing. JLL reported an increase of 1.7% in headline rents in the second quarter of 2024 across the 32 UK logistics markets that they track. The figure for the last 12 months was a very healthy 5.0% but that was a slowdown from 9.5% in the previous 12 months. Take up mirrors this slowing data with 2023 only matching the 10 year average and 2024 looking likely to undershoot given that the first half was only 79% of the decade average.

However, any pessimism must be tempered by the fact that supply of 39.4m sq ft represents just 18 months' take up. Nationwide availability for grade A logistics is back to 9%, a figure last seen pre-pandemic. We expect the 5% rental growth (12 months to June) will slow further in the second half and the figure for 2024 will definitely fall below the 10 year average (2014-2023) of 6.6% per annum. It is interesting to note that investors continue to buy the sector (in preference to any others) with volumes of £2.7bn in the first half of 2024 close to matching the £2.8bn seen in the same half in 2023.

The situation in Continental Europe is similar but slightly more attractive for several reasons. Structural growth across the region continues with more onshoring/ nearshoring, particularly in the cheaper eastern markets. The Czech Republic continues to have the lowest vacancy (3.1%). Bifurcation is evident, with logistics platforms constantly seeking to optimise locations and building efficiencies. Urban markets continue to see the most rapid rental growth due to lack of availability. Vacancy levels remain at record lows in Dublin (1.7%) but Barcelona has risen from 2.3% to 4.6% in a year and in Madrid the figures are much poorer with vacancy now at 12.2%. Average vacancy is now 6% across the whole region and rental growth, whilst positive (2.2% annualised), has slowed from 5.8% a year earlier. For our portfolio, the attraction in the Continental European markets remains the exposure to development opportunities where we still see excellent returns and good demand for new build. Our developer names include Argan (France), Catena (Sweden), Montea (Belgium) and CTP (Eastern Europe).

Residential

The structural undersupply persists across virtually all markets. Regulated (or partially controlled) rents across Germany, Sweden, Ireland, France and Scotland stifle development and ensure only modest rental growth. Exposure to Germany dominates the listed space and we have maintained a broadly neutral position, owning more of the smaller companies (such as TAG) and less of the largest name (Vonovia). Building permits have been in steady decline, leading to historically low completion numbers.

Berlin remains a market where the gap between regulated and open market rent remains widest and we continue to see an opportunity through Phoenix Spree Deutschland which has moved to a steady wind-down phase. It continues to rank as one of the cheapest cities to rent in, as a % of post-tax disposable income (that is, if you can find an apartment). New apartments can be let at open market value, at least initially and that figure is, according to JLL, 17.6% ahead of a year earlier. A quite staggering impact of undersupply.

Open market regimes such as the UK have continued to see strong rental growth, given wage growth and employment levels. Finland, where Helsinki dominates, has been the one urban market where rents have fallen due to oversupply. Kojamo's share price is down 21% year to date. We do not own the company and our UK exposure has been through PRS Reit, the single family housing rental specialist. The company has recently been the subject of shareholder activism resulting in the share price rallying 30% since June. The newly invigorated board has announced its determination to close the gap between the share price and asset value.

Alternatives

As a loose collective of all sectors which are not office, retail, residential or industrial/logistic, this group continues to grow in importance. Purpose-built student accommodation ('PBSA') remains an important part of our investment universe. We would very much like to have more exposure to Continental European PBSA where we see consistent demand, affordability and, crucially, better university funding models than the UK. Research by JLL notes that no UK city is in the 10 most undersupplied cities, yet the UK boasts 6 out of the 10 cities with the strongest demand. The conclusion is that the UK is a much more mature market but nonetheless capable of sustained rental growth. Many European cities are experiencing strong demand but it is patchy, with the most affordable and those with the strongest international draw seeing the most growth.

Self storage continues to be of interest as share prices of all three listed operators have recovered from concerns around slowing growth as markets normalised in a post pandemic environment. Data from the Self Storage Association does show falling occupancy nationwide (from 79.5% to 77.5% for mature stores) but, as we have maintained for many years, the larger listed names have much more market presence and digital reach than the vast array of small operators. Shurgard continue to drive forward with consolidation - we think the Lok n'Store deal was expensive but with a founder selling out that was always likely to be the case.

Operators of healthcare and senior living businesses have seen pressure on margins from wage inflation, whilst top line growth remains subdued. In the UK, primary healthcare providers Assura and PHP are stuck with the state regulator (the Valuation Office) restricting rent increases which prevents the funding of new facilities. Frustrating for all involved. Our focus is on the primarily privately funded (76% of fees paid) nursing home business at Target Healthcare.

Debt and Equity Markets

Capital raised in the first nine months of 2024 has reached €20.4bn, almost double the amount raised in 2023 (€10.4bn) and back to the 2020 figure (€20.5bn). EPRA reports that the weighted average coupon rate which peaked in 2023 at 5.1% has dropped to 4.2% so far this year and will fall further in the final quarter of 2024. It is also encouraging to note that only 8.8% (down from 10% six months ago) of all listed debt is due to mature in the next 12 months.

It should be noted that these figures relate to new issuance. Some of which will be required to replace existing/expiring lines of credit. There continues to be a large amount of restructuring, extending and renegotiation given the ongoing maturity of low interest vintage loans across our universe. However, these published statistics are a useful indicator of the improving capital environment for debt markets.

Equity issuance has been stronger than in the same period last year. In the industrial space it was Argan, Sirius and Catena all using proceeds to make further investments. In the UK office sector, the Regional REIT and Great Portland ('GPE') capital raises were driven by very different requirements. For the former, this was a hugely dilutive raise at 10p (previous share price 40p) as it sought to restructure its impaired balance sheet. For GPE, the raise was more front footed; it did need the capital but it does have a clear strategy for the use of proceeds in its development pipeline. With the shares trading at a large discount to its NAV, the dilution was 8%. Merlin will deploy into its capital hungry data centre development programme, whilst Unite has identified a large project in joint venture with Newcastle University for the redevelopment of their central accommodation campus.

Investment Activity - property shares

Portfolio turnover (purchases and sales divided by two) totalled £248m. Given average net assets of £1.13bn, this equated to turnover of 22%. The equivalent last year was 18.6%. The large amount of capital raising in the period, coupled with the M&A activity (higher capital rotation) and the increase in the level of gearing all contributed to higher turnover.

There were only modest adjustments in our largest overweight and underweight positions (versus their respective positions in the benchmark), i.e. our greatest convictions. UK Commercial Property Trust was acquired by Tritax Bigbox in an all paper transaction. I liquidated the position not wishing to increase my net exposure to Tritax Bigbox. Balder, our preferred Swedish residential play, just missed out on remaining in the highest conviction group as I took profits post the huge summer rally in this highly leveraged name.

The exposure to Industrial & Logistics was reduced over the period. I liquidated our position in Eurobox once the Segro paper bid emerged (in hindsight I should have held on for the small additional gain from the Brookfield cash counter bid). On the other hand, I remain more optimistic about the prospects for the smaller Continental European logistics owners who have substantial development pipelines and a solid path to earnings growth. Both Argan (France) and Catena (Sweden) remain in the highest conviction group.

Within the UK Diversified space, I continue to favour LondonMetric as the large cap play and Picton as the small cap exposure. The diversified sector continues to shrink with the privatisation of both BCPT and more recently the sale to a private consortium of Aberdeen Property Income. I have recently acquired a holding in Schroders Real Estate Investment Trust (market cap £242m), one of the last micro caps in this sector. This externally managed vehicle will shortly need to name its new lead manager following the internal promotion of the incumbent who becomes global head of Schroders' real estate business.

I remain a believer in the high earnings generating model of the European shopping centre companies, particularly Klepierre and Eurocommercial. I also closed most of the underweight position in Unibail as I became increasingly comfortable with the US exposure. However, the announcement of huge cost overruns (+€500m) on the Hamburg project has stopped me from doing anything more than neutralising the situation versus the benchmark weighting.

Hammerson, with retail assets in the UK, France and Ireland completed the sale of its minority interests in a range of outlet malls (which included some exposure to the flagship Bicester Village). It has reduced its debt burden and promises both buybacks (of its shares) and potential buyouts of some of its co-owned UK malls. I still feel that owning a small number of assets in three geographies will not deliver superior, market beating returns and sold our position. If they are able to sell their two French assets then the UK/Irish assets may well attract a domestic buyer.

In the alternatives space I returned to buying Unite, participating in the placing in July and also adding subsequently to the holding. Their ability to extract strong returns from their development programme together with the relentless pruning of sub-scale exposures and weaker educational partners continues to drive returns. This is a classic case (much like Industrials REIT or the self-storage names) where the equity market is in danger of undervaluing the management platform which delivers not only economies of scale but would be hard to replicate as efficiently.

German residential remains the largest sector in our universe and all stocks have enjoyed significant price recovery. Given the very high correlation to bund pricing, the performance is not a surprise but the anaemic top line growth prospects deterred me from adding to our holdings. Our largest relative overweight remains Phoenix Spree Deutschland, the special situation and microcap. The message around the deep embedded value in central Berlin apartments is finally getting through to investors. Unique amongst the listed residential companies, this portfolio has the regulatory approval to convert (over time and depending on tenant move-out rates) 75% of its apartments to owner-occupation which has a much higher value than units occupied by regulated renters.

Our only meaningful office exposure outside of Paris CBD was to Madrid via Arima (1.4% of assets) which was taken private in November.

Our London holding remains Workspace who have a new CEO, Lawrence Hutchings. Recruited from Capital & Regional where he did an excellent job turning round a deeply overleveraged small shopping centre business, we are excited about the hire.

Physical Property Portfolio

The physical property portfolio produced a total return of +2.5%, made up of a capital return of +1.5% and an income return of +1.0%. At our industrial estate in Wandsworth, SW18 we completed the refurbishment of the first phase of 6,000 sq ft. The work included replacing roofs, installing PV panels and achieving an A+ EPC enabling occupation on a net zero 'in-use' basis. The double unit was pre-let to a global high end fashion brand and includes a photographic studio on a 10 year lease at a market leading rent. We are now on site with the next phase of rolling refurbishment (three units totalling 9,500 sq ft) with completion set for December 2024.

The only retail unit was let to Joe & the Juice following a competitive bidding process from a range of national coffee chains. They have taken a new 10 year lease at a 35% increase on the previous rent paid by Costa Coffee.

Revenue and Revenue Outlook

At 8.16p our interim earnings are almost 12% ahead of the prior year, but still significantly behind the levels seen in the few years before that. The impact of rising interest rates on our underlying companies' earnings was flagged in the last two annual reports, added to that has been the cost of increased interest and tax charges on our own revenue account over the last year and a half.

On the plus side, programmes to restructure balance sheets in some of our underlying companies has been largely completed and interest rates are beginning to ease. Most companies which had suspended dividends have returned to distributing, or at least announced their intention to do so. The timetables mean that this will have limited impact for the current financial year, but we expect an improvement for the year to March 2026.

We still expect it to take some time for earnings to return to previous levels, but we do see areas where there is the opportunity for revenue growth. We also see opportunities for capital activity and capturing some of those capital events for our shareholders may come at the expense of income. The prudent distribution policies adopted by our Board in the past, which has created significant revenue reserves, together with the advantages of our closed-ended structure, enables the Manager to remain focused on the Company's total return objective whilst the Board is still able to maintain distribution levels.

Gearing and Debt

At the beginning of the financial period our revolving credit facilities were undrawn. As sentiment towards the sector improved through the period the gearing was increased. By the end of September, the facilities were fully drawn and gearing had increased from 10.8% to 13.9%.

The facility with ING was not renewed on maturity in July 2024. We chose to enter into a new agreement with RBSI for a further one-year £30m multicurrency revolving credit facility in October. This is in addition to the existing £60m facility from RBSI (which matures in February 2025) together with our fixed rate loan notes as well as the ability to gear through the use of CFDs.

Outlook

In the Annual Report, I reviewed how the expectation of a peak in the interest rate cycle and the correction in the cost of debt had resulted in us turning our focus from the liability side of balance sheets back towards the asset side. After two years of focusing on the debilitating impact of ballooning debt, we returned to identifying which companies have returned to organic growth and who has the strongest financial position to take advantage of market opportunities. This shift from defensive to offensive thinking by the investment community has resulted in more M&A and more capital being raised. We expect more of this as the current cycle continues.

Investors want larger, stronger listed real estate companies. They want to capture economies of scale and they want accretive acquisitions. We have already witnessed (and benefited from) a considerable amount of corporate activity but there is more to go.

As the cost of capital falls, the number of privatisations (as opposed to consolidation) also continues. Boards of all small listed property companies need to be proactive. Do not allow the sins of the past, such as non-alignment of management contracts leading to a lack of focus on shareholder returns, to dominate future behaviour. Atrato, the manager of Supermarket Income REIT, has announced that they will switch the basis of their management fee from net asset value to market capitalisation. We applaud this decision and encourage others to follow.

Whilst this heightened level of corporate activity is a useful valuation underpin, the focus remains on identifying growth opportunities for well financed property companies with high quality portfolios. We are in a bifurcated universe with the best buildings in the superior locations attracting good tenant demand, whilst the remainder struggle.

Marcus Phayre-Mudge

Fund Manager

29 November 2024

Investment portfolio by country

as at 30 September 2024

Notes

>         Companies shown by country of listing.

>         The above positions are the physical holdings included in the investments held at fair value in the Balance Sheet. The CFD positions is the net of the profit or loss on the CFD contracts (i.e. not the investment exposure) included in the Balance Sheet current assets and liabilities.

⁽¹⁾        Unlisted equities.

Group statement of comprehensive income

The Total column of this statement represents the Group's Statement of Comprehensive Income, prepared in accordance with UK-adopted international accounting standards. 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.

Group statement of changes in equity

Group balance sheet

Group cash flow statement

Notes to the financial statements

1 Basis of accounting

The accounting policies applied for these half year financial statements are consistent with those applied in the financial statements of the Company's most recent annual report. The statements have been prepared on a going concern basis, in accordance with UK-adopted international accounting standards and in conformity with the requirements of the Companies Act 2006. The financial statements have also been prepared in accordance with the Association of Investment Companies Statement of Recommended Practice, "Financial Statements of Investment Trust Companies and Venture Capital Trusts," ('SORP'), to the extent that it is consistent with UK‑adopted international accounting standards.

The financial statements are expressed in sterling, which is the Company's functional and presentational currency. Sterling is the functional currency as it is the currency of the primary economic environment in which the Group operates.

In assessing Going Concern the Board has made a detailed assessment of the ability of the Company and the Group to meet its liabilities as they fall due, including stress and liquidity tests which considered the effects of substantial falls in investment valuations, revenues received and market liquidity as the global economy continues to suffer from geopolitical and economic pressures.

In accordance with IFRS10 the Company has been designated as an investment entity on the basis that:

•     it obtains funds from investors and provides those investors with investment management services;

•     it commits to its investors that its business purpose is to invest funds 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.

The standards issued before the reporting date that become effective after 30 September 2024 are not expected to have a material effect on equity or profit for the subsequent period. The Group has not early-adopted any new UK-adopted international accounting standards or interpretations. Standards, amendments and interpretations issued but not yet effective up to the date of issuance of the Group's financial statements are listed below:

IFRS 18 Presentation and Disclosure in Financial Statements (effective date 1 January 2027): the amendments specify the requirements to provide investors with more transparent and comparable information about companies' financial performance. The amendments are not expected to have a material impact on the Group's financial statements.

2 Management and performance fees

A provision of £1,536,000 has been made for a performance fee at 30 September 2024 (30 September 2023 - £5,101,000, 31 March 2024 - £10,082,000). Any payment is not due until the full year performance fee is calculated at 31 March 2025.

A summary of the terms of the management and performance fee agreements is given in the Report of the Management Engagement Committee on pages 54 and 55 of the latest Annual Report.

3 Earnings per ordinary share

The earnings per ordinary share can be analysed between revenue and capital, as below.

The Group has no securities in issue that could dilute the earnings per ordinary share. Therefore the basic and diluted earnings per ordinary share are the same.

No ordinary shares have been purchased and cancelled during the half year ended 30 September 2024.

4 Dividends

The final dividend of 10.05p (2023: 9.85p) in respect of the year ended 31 March 2024 was declared on 10 June 2024 and paid on 1 August 2024. This can be found in the Group Statement of changes in equity for the half year ended 30 September 2024.

The interim dividend of 5.65p (2024: 5.65p) in respect of the year ending 31 March 2025 was declared on 2 December 2024 and will be paid on 10 January 2025 to all shareholders on the register on 13 December 2024. The shares will be quoted ex-dividend on 12 December 2024.

The interim dividend has not been included as a liability in these interim financial statements in accordance with IAS 10 "Events after the reporting period".

5 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 as 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, including investment properties to show the fair value level of the complete investment portfolio:

Financial assets/(liabilities) at fair value through profit or loss

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 - quoted (unadjusted) prices in active markets for identical assets or liabilities, including investments listed on recognised exchanges.

Level 2 - other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly, including forward foreign exchange trades, contracts for difference, and equity investments with no recent trading history.

Level 3 - techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data, including direct property and unlisted investments.

Contracts for Difference are synthetic equities and are valued by reference to the investments' underlying market values. There were no transfers during the half year between any of the levels.

Investment properties are carried by the Group 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 2024. Determination of the fair value of investment properties has been prepared on the basis defined by the RICS Valuation - Global Standards (The Red Book Global Standards) as follows:

"The estimated amount for which a property should exchange on the date of valuation 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' profile, 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 2024, 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 for the half year ended 30 September 2024

The Group held two unlisted investments as at 30 September 2024 (31 March 2024: two). See the Investment Portfolio above for details.

All appreciation/(depreciation) as stated above relates to movements in fair value of unlisted equity investments and investment properties held at 30 September 2024.

Sensitivity information for investment property valuations

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy of investment properties are:

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 long-term vacancy rate in isolation would result in a significantly lower (higher) fair value measurement.

6 Borrowings

Loan notes

On the 10th 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 the 10th February 2026 and 10th February 2031 respectively.

At the Balance Sheet date the fair value of the 1.92% Euro Loan Notes was £42,067,000 (30 September 2023: £43,419,000; 31 March 2024: £42,806,000) and the 3.59% GBP Loan Notes was £ 14,320,000 (30 September 2023: £14,116,000; 31 March 2024: £14,292,000) and are deemed to be categorised within Level 2 of the IFRS 13 fair value hierarchy.

The loan notes agreement requires compliance with a set of financial covenants as shown in note 11.7 of the 2024 Annual Report. These covenants have all been complied with during the half year ended 30 September 2024.

7 Called-up share capital

As at 30 September 2024, 317,350,980 ordinary shares of 25p nominal value were in issue (30 September 2023: 317,350,980; 31 March 2024: 317,350,980).

During the half year ended and since 30 September 2024, no ordinary shares have been issued or purchased and cancelled.

8 Net Asset Value per ordinary share

9 Going concern

The Directors believe that it is appropriate to continue 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, they believe that the Company has adequate financial resources to meet its liabilities as and when they fall due and continue in operational existence for a period of at least 12 months from the date of approval of this Half Year Report.

10 Comparative Information

The financial information contained in this Half Year 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 2024 and 30 September 2023 has not been audited or reviewed by the Company's auditors. The figures and financial information for the year ended 31 March 2024 are an extract from the latest published financial statements and do not constitute statutory financial statements for that year. Those financial statements 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.

Directors' Responsibility Statement in respect of the Half Year Report

Principal and Emerging Risks and Uncertainties

The principal risks and uncertainties facing the Company have not changed since the date of the Annual Report 2024 and continue to be as set out in that report.

The principal risks and uncertainties facing the Company include, but are not limited to, poor share price performance in comparison to the underlying NAV; poor investment performance of the portfolio relative to the benchmark; market risk; the Company is unable to maintain dividend growth; accounting and operational risks; financial risks; loss of Investment Trust Status; legal, regulatory and reporting risks; inappropriate use of gearing and personnel changes at Investment Manager. An explanation of these risks and how they are managed are set out on pages 34 to 37 of the Annual Report for the year ended 31 March 2024 (which can be found on the Company's website www.trproperty.com).

Going Concern

As stated in note 10 to the financial statements, the directors are satisfied that the Group has sufficient resources to continue in operation for a period of at least 12 months from the date of this report. Accordingly, the going concern basis is adopted in preparing the condensed financial statements.

Directors' Responsibility Statement

In accordance with Chapter 4 of the Disclosure Guidance and Transparency Rules, the Directors confirm that to the best of their knowledge:

•     the condensed set of financial statements has been prepared in accordance with applicable UK Accounting Standards on a going concern basis and gives a true and fair view of the assets, liabilities, financial position and net return of the Company;

•     the half year report includes a fair review of the important events that have occurred during the first six months of the financial year and their impact on the financial statements;

•     the statement of Principal and Emerging Risks and Uncertainties shown opposite is a fair review of the principal and emerging risks and uncertainties for the remainder of the financial year; and

•     the half year report includes a fair review of the related party transactions that have taken place in the first six months of the financial year.

On behalf of the Board

Kate Bolsover

Chairman

29 November 2024

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

By order of the Board

Columbia Threadneedle Investment Business Limited

Company Secretary,

2 December 2024

ENDS

A copy of the Half Year Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism.

The Half Year Report will also be available shortly on the Company's website at www.trproperty.com where up to date information on the Company, including daily NAV and share prices, factsheets and portfolio information can also be found.

For further information please contact:

Marcus Phayre-Mudge

Fund Manager, TR Property Investment Trust plc

020 7011 4711

Mark Young

Stifel 

020 7710 7633

Tom Scrivens

Panmure Gordon (UK) Limited 

020 7886 2648