Final Results

24 March 2014

Public Service Properties Investments Limited

("PSPI", "the Company" or "the Group")

Final Results for the year ended 31 December 2013

PSPI (AIM: PSPI), the specialist European real estate investment and financing company, announces audited results for the year ended 31 December 2013.

Highlights

A. Refocused portfolio of core assets

· Total cash rental income, business licence fees and finance lease income of £8.1 million, including a 3.3% increase on income from the UK portfolio effective from 19 February 2013.

· Net loss of £6.4 million (2012 - loss of £54.2 million) after revaluation losses on investment property of £12.8 million (2012 - £39.4 million).

· Investment property assets independently valued at £72.1 million at 31 December 2013 (£84.0 million at 31 December 2012).

· Two refinancings totalling £17.5 million, secured against the UK properties and income from a UK domiciliary care business, completed in 2013 both with a maturity date of 12 April 2016.

· Total debt of £31.7 million secured on the Group's assets at 31 December 2013 (£32.9 million at 31 December 2012), net of amortised debt issue expenses.

· Consolidated Loan to Value ratio¹ of retained assets of 38.9% at 31 December 2013 (35.3% at 31 December 2012).

· Net Asset Value per share² of 49.2p per share (54.9p per share at 31 December 2012).

· Adjusted Net Asset Value per share, excluding deferred taxation liabilities, of 51.2p per share (58.9p per share at 31 December 2012).

· Adjusted earnings per share³ of 4.36p per share (2012 - 8.14p).

B. Group Strategy

· The Company continues to test the market for the Group's remaining assets.

· The Board does not recommend a dividend for the year ended 31 December 2013 and will keep the dividend policy under review.

Patrick Hall, the Chairman of PSPI, reports that:

"The Company was focused on completing the refinancing of debt facilities as they fell due during 2013 and has been successful in extending maturities and reducing amortisation profiles. These measures have enabled the Board, assisted by its advisers, to protect the equity in the Group's retained assets whilst continuing to cautiously test the market for those assets in what remain very challenging markets debt and healthcare markets."

¹ Total short and long term borrowing expressed as a percentage of total non-current assets, excluding goodwill, loans and receivables, net of amortised debt issue costs.

²Total equity divided by the number of ordinary shares in issue at 31 December 2013 and 31 December 2012.

³Earnings adjusted to exclude the impact of non-cash and one-off items as disclosed in note 7 to the unaudited financial statements.

For further information please visit www.pspiltd.com or call:

CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2013

I am pleased to report the Group's audited consolidated financial results for the year ended 31 December 2013.

Update on strategic review

Following the significant progress made in disposing of non-core assets and those that were either trading or likely to trade with negative cash flows or where the outlook for revenue and capital values was increasingly negative in 2012, the Company was focused on completing the refinancing of debt facilities as they fell due during 2013 and has been successful in extending maturities and reducing amortisation profiles. These measures have enabled the Board, assisted by its advisers, to protect the equity in the Group's retained assets whilst continuing to cautiously test the market for those assets in what remain very challenging debt and healthcare markets.

The debt maturity profile of the Group has been addressed with the announcement in December 2012 of the refinancing of €17.5 million of borrowings in Germany for a seven year term maturing on 31 March 2020 secured against six properties leased to subsidiaries of Marseille Kliniken AG. The Group also completed two refinancings in the UK in April and December 2013, which reduced the UK debt outstanding at the end of 2013 to £17.2 million with a combined maturity date on 12 April 2016. These debt facilities are secured against ten properties leased to subsidiaries of the European Care Group.

Following the Company's recent Board meeting, Richard Barnes and I have resigned our positions as directors of companies in the European Care Group with effect from the close of business on 21 March 2014.

Current operations

The Group owns portfolios of properties in the UK and Germany which generated gross rental income of £7.0 million¹ and finance lease income of £0.9 million in the year ended 31 December 2013. The retained investment properties have been independently valued at 31 December 2013 at an aggregate value of £72.1 million², excluding the finance lease asset, with debt, net of amortised financing costs, totalling £31.7 million, following the refinancings in the UK. The Group's weighted average interest rate is currently 4.9% per annum, and the debt will be amortised at the rate of £1.4 million per annum. The Asset Manager's Review below describes the financial position in more detail.

Other matters

Recurring management fees will be reduced in line with the reduction of reported net asset value and non-recurring professional fees are expected to be lower in 2014 than in 2013.

Pending the outcome of the matters referred to above, the Board will continue to keep its dividend policy under review.

Patrick Hall

Chairman

21 March 2014

¹ Figures in Euros for current income are reflected at an exchange rate of €1.19 :£1

² Figures in Euros at 31 December 2013 are reflected at an exchange rate of €1.1979:£1

ASSET MANAGER'S REVIEW

Business Outlook

The Company owned property portfolios located in the UK and Germany during 2013. All of the assets in the UK are leased and licensed to the European Care Group ("EC") which is owned by Esquire Group ("Esquire") . Approximately 75% of the rental income from assets in Germany is derived from properties leased to Marseille Kliniken AG ("MK"), a listed operator of healthcare assets in Germany.

The Company has focused on refinancing its debt obligations to reduce overall levels of debt and to extend maturities. In December 2012 the Group refinanced €17.5 million of debt, secured against the assets leased to MK, from Coreal Bank AG, the existing lender, with a final maturity date in March 2020. In April 2013 the Group completed an £8.5 million three-year refinancing of a part of the UK assets and businesses with the Bank of London and The Middle East PLC ("BLME") with a final maturity in April 2016. In December 2013, the Company also refinanced £9.0 million of debt through BLME, secured against the rest of the UK assets, also with a final maturity date in April 2016. The Group's only other debt of €1.1 million matures in May 2014. The Company intends to repay this debt from existing cash resources.

The difficulties facing UK Government finances is expected to continue to provide challenging market conditions for operators in the care home sector with occupancy and fee rate increases under continued pressure. The German care home market has generally been more stable; however there are regulatory changes being planned in parts of Germany which may make conditions more difficult for some operating units in the years ahead.

UK

The Group owns nine cares homes for 432 residents, a school and resource centre catering for 30 children and 70 adults with learning difficulties and a domiciliary care business providing care to individuals in their own residence. Rental income for the UK portfolio is adjusted annually at the rate of increases in the Retail Price Index ("RPI"), subject to a cap of 5% per annum. The Group's cash income from these assets and businesses increased by 3.3% from 19 February 2013 to £4.9 million per annum, including £0.9 million per annum in respect of finance lease income due in respect of the domiciliary care business. There is a further increase in income from the UK assets by 2.8% per annum from 19 February 2014 when total income has increased to £5.1 million per annum.

Following the restructuring of Esquire in 2012, the management of the European Care business intended to focus on improving operational performance across its many services over the medium term, including operation of the Company's remaining leased assets and licenced businesses in the UK, which represented 11% of EC's Older People business and 19% of EC's Specialist business by number of beds. However, EC reported that the operating results before rent, on assets owned by the Company, had declined by 25% for the year ended 31 December 2013 compared to the equivalent period in 2012. This decline in operating performance contributed to a 20% reduction in the independent valuations of the Company's UK assets as described in more detail below.

Germany

The care home property market in Germany remains comparatively more stable than in the UK, although access to debt financing is also challenging in current market conditions. The Group owns six properties catering for 563 residents in care homes and 154 assisted living flats. The Group uses three different operators in Germany with current gross rental income of €3.6 million. The rents for the German portfolio increase every three or four years by a proportion of the increase in the German Consumer Price Index.

Rental income from the MK group totals €2.7 million or approximately 75% of the German rental income. MK reported on its consolidated results for the year ended 31 December 2013 as follows:

· Revenue for the year ended 30 June 2013 of €200.1 million (2012 - €195.1 million).

· EBITDAR for 2013 of €55.2 million (2012 - €56.4 million)

· Net income for 2013 of €6.7 million (2012 - €7.8 million)

· The number of employees at 30 June 2013 was 4,850 (2012 - 4,718)

· Occupancy rates at 30 June 3013 of 90.1% (2012 - 88.9%)

Source: Marseille Kliniken AG

Financial Review

The Group's income statement from continuing operations for the year ended 31 December 2013 includes the results from the UK and German assets owned throughout the period. In the prior year the income statement from continuing operations also included the results of part of the UK and German portfolios which were disposed of during 2012. The table below removes the impact of these disposals in order to show the like for like performance of the assets retained for the whole of 2013.

Retained assets Disposed of assets

The increase in the Group's revenues from continuing operations was largely attributable to RPI increases of 3.3% for the UK portfolio effective from February 2013 and the full year impact of the rental increases for six properties leased to MK of 3.4% per annum in July 2012. Rental income and business licence fees will increase from 19 February 2014 by 2.8% in line with the annual increase in RPI for the current year.

The level of administration costs were £2.3 million for the year ended 31 December 2013 compared to £2.9 million for the same period in 2012. The main contributing factor for this decrease was management fees payable which reduced in line with the reduction in net assets in the prior year and will reduce further in 2014 in accordance with the revised asset management agreement effective as of February 2014. Based on the net asset position at 31 December 2013, and assuming no change in the net asset position, this would equate to annual savings of £0.3 million in 2014 compared to 2013,. Professional fees connected with the on-going strategic review, not directly attributable to the specific disposals will continue in 2014 at the rate of approximately £0.3 million. The level of other general professional fees and administrative costs will vary dependent on the timing of transactional activity.

Independent valuations of the PSPI Group's investment property assets at 31 December 2013 were undertaken by Colliers International for the UK and Germany. Between 31 December 2012 and 31 December 2013, the aggregate capital value of the investment properties decreased by 14.2%. The UK portfolio, which represented 52.3% of the Group's total investment property portfolio as at 31 December 2013, decreased by £9.6 million or 20.3%. This reflected an increase in the average Capitalisation Rate² from 8.27% at 31 December 2012 to 10.63% at 31 December 2013. Individual capitalisation rates varied between 7.0% and 22.5%.

The Group's UK tenant, European Care Group ("ECG") saw average occupancy of the Group's UK investment properties decline from 89.8% of available beds at 31 December 2012 to 82.5% at 31 December 2013. As a result, ECG reported a decline of approximately 25% in the operating profit, before rent, across the Group's portfolio for the year compared to the preceding year. Colliers has indicated that further declines in valuation may be necessary if improvements in ECG's operational performance of the Group's UK investment properties are not evidenced during the first six months of 2014. Part of the decline in valuation related to properties where the tenant is in the process of resolving operational issues and ECG has stated that it is optimistic that overall performance of these properties will improve. ECG has informed the Company that regulatory issues have been resolved at two properties since the start of 2014 and it expects that the remaining regulatory issues at two other properties will be resolved in the near future. These developments should allow ECG to start improving occupancy at these four homes in the months ahead.

The decline in the value of the German investment portfolio reflected an increase in the average Capitalisation Rate² from 7.8% at 31 December 2012 to 8.5% at 31 December 2013. Individual capitalisation rates varied between 7.3% and 12.2% at 31 December 2013. Average occupancy across the portfolio was stable at approximately 83% of available beds up to the end of the third quarter of 2013 and is expected to have been maintained in the last quarter. Colliers reduced the valuation on one home that has experienced operational difficulties and three further homes located in North Rhine Westphalia ("NRW") where regulatory changes due to be introduced in 2018 would, as currently drafted, result in a reduction of permitted dual occupancy rooms, leading to a reduction in available beds without further investment to re-configure or extend the properties. PSPI's local adviser in Germany believes that the planned provisions are likely to be amended, in favour of care home operators, due to the overall impact of the changes in NRW.

The table below reflects the key movements in investment properties from retained assets since 31 December 2012 and at 31 December 2013 by jurisdiction.

The Group's short and long term borrowings from continuing operations, net of amortised finance costs, at 31 December 2013 were £2.3 million and £29.4 million, respectively, compared to £12.3 million and £20.6 million at 31 December 2012. The overall decrease was as a result of repayment of debt at the time of the refinancings concluded in 2013 and normal amortisation.

In December 2012, the Group signed a refinancing agreement with an existing lender in relation to loans totalling £14.1 million (€17.2 million) secured on six properties in Germany that were formerly due to be repaid in March 2013. The refinancing comprised two new loans each maturing on 31 March 2020 for an aggregate of £14.3 million (€17.5 million). An additional facility of €1.1 million is due for repayment in May 2014. The Company intends to repay this facility from existing available cash.

In April and December 2013, the Group completed a three-year refinancing of existing debt facilities due to be repaid in February 2014 and December 2013 respectively totalling £17.2 million, secured against a part of the UK portfolio.

The table below summarises the Group's debt by jurisdiction following the refinancing noted above.

The Company has guaranteed the debt secured against the UK assets and liabilities and has a contingent liability to fund up to €1.5 million should one of the properties in Germany require redevelopment. There are currently no plans to commence a redevelopment at this property.

Deferred taxation on fair value gains and business combinations decreased from £4.3 million at 31 December 2012 to £2.1 million at 31 December 2013, primarily as a result of the net fair value reduction in asset values during the period.

Total equity decreased from £57.8 million at 31 December 2012 to £51.8 million at 31 December 2013 reflecting the impact of fair value losses offset by other operating profits. The Net Asset Value per share³ ("NAV") is 49.2 pence per share and the Adjusted NAV, excluding deferred taxation liabilities, was 51.2 pence per share.

RP&C International

21 March 2014

Notes:

¹ The valuations are stated gross of certain costs of up to 7% that a purchaser may incur if the assets were sold.

² Capitalisation Rate is represented by the net rental income receivable divided by the market value of the properties from which the rental income is derived

³ Total equity divided by the number of ordinary shares in issue at 31 December 2013.

PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED

CONSOLIDATED INCOME STATEMENT

PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED

CONSOLIDATED BALANCE SHEET

The consolidated financial statements on pages 8 to 50 were approved by the board of directors on 21March 2014 and were signed on its behalf by:

Patrick Hall Neel Sahai

Director Director

21 March 2014 21 March 2014

PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED

CONSOLIDATED CASH FLOW STATEMENT

PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Attributable to equity holders of the Company

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Public Service Properties Investments Limited was incorporated in 2001 and is domiciled in the British Virgin Islands (registered office at Nerine Chambers, Road Town, Tortola, British Virgin Islands) and is the parent company of the PSPI Group. Public Service Properties Investments Limited and its subsidiaries (together "the Group" or "the Company"), is an investment property Group with a portfolio in the UK, Continental Europe and the USA. It is principally involved in leasing real estate where the rental income is primarily generated directly or indirectly from governmental sources.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with and comply with International Financial Reporting Standards (IFRS), published by the International Accounting Standards Board (IASB). The consolidated financial statements are reported in Pounds Sterling unless otherwise stated and are based on the annual accounts of the individual subsidiaries at 31 December 2013, which have been drawn up according to uniform Group accounting principles.

The consolidated financial statements are prepared under the historical cost convention as modified by the revaluation of investment properties, other financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results can differ from those estimates.

Comparative information in the consolidated income statement and consolidated statement of comprehensive income have been restated in order to be consistent with the presentation of certain items as discontinued operations in 2012 as detailed in Note 18.

The Group has adopted the following new standards, amendments to standards and interpretations for the financial year ended 31 December 2013.

Amendments to IAS 1 'Presentation of items of other comprehensive income', (effective for annual periods beginning on or after 1 July 2012, retrospective application). The amendment requires entities to separate items presented in other comprehensive income into two groups, based on whether or not they may be recycled to profit or loss in the future. Items that will not be recycled such as revaluation gains on PP&E or re-measurements of net pension assets or liabilities will be presented separately from items that may be recycled in the future, such as deferred gains and losses on cash flow hedges. Entities that choose to present OCI items before tax will be required to show the amount of tax related to the two groups separately. The amendment did not have a material impact on the financial statements, and the indication was made on the statement of OCI.

IFRS 10, 'Consolidated financial statements', (effective for annual periods beginning on or after 1 January 2013, retrospective application, earlier application permitted if together with IFRS 11, IFRS 12, IAS 27R and IAS 28R). IFRS 10 replaces all of the guidance on control and consolidation in IAS 27 and SIC-12. IAS 27 is renamed and continues to be a standard dealing solely with separate financial statements. The amendment did not have a material impact on the financial statements.

IFRS 11, 'Joint arrangements', (effective for annual periods beginning on or after 1 January 2013, earlier application permitted if together with IFRS 10, IFRS 12, IAS 27R and IAS 28R). The amendment did not have a material impact on the financial statements.

IFRS 12, 'Disclosure of interests in other entities', (effective for annual periods beginning on or after 1 January 2013, earlier application permitted). The amendment did not have a material impact on the financial statements.

Amendments to IFRS 10, 12 and IAS 27 - 'Investment entities' (effective for annual periods beginning on or after 1 January 2013). The amendments did not have a material impact on the financial statements.

Amendments to IFRS 10, 11 and 12 (effective for annual periods beginning on or after 1 January 2013) - 'consolidated financial statements, Joint arrangements and Disclosure of interest in other entities: Transition Guidance'. The amendments did not have a material impact on the financial statements.

IFRS 13, 'Fair value measurement', (effective prospective for annual periods beginning on or after 1 January 2013, earlier application permitted). The amendment did not have a material impact on the financial statements.

IAS 28 (revised) 'Investments in associates and joint ventures', (effective for annual periods beginning on or after 1 January 2013). The amendment did not have a material impact on the financial statements.

The following new standards, amendments to standards and interpretations have been issued but are not effective for the financial year ended 31 December 2013 and have not been early adopted:

IFRS 9 'Financial Instruments' - classification and measurement (no effective date, available for application, retrospective application). IFRS 9 comprises two measurement categories for financial assets; amortised cost and fair value. All equity instruments are measured at fair value. However, management has an option to present in other comprehensive income unrealised and realised fair value gains and losses on equity investments that are not held for trading. A debt instrument is recognised at amortised cost only if it is the entity's business model to hold the financial asset to collect contractual cash flows and the cash flows solely represent principal and interest. It will otherwise need to be considered at fair value through profit or loss. The amendment is not expected to have a material impact on the financial statements.

Amendments to IFRS 9 'Financial instruments' (no effective date, available for application, restrospective application). The amendment includes guidance on financial liabilities and derecognition of financial instruments. The accounting and presentation for financial liabilities and for derecognizing financial instruments has been relocated from IAS 39 without change, except for financial liabilities that are designated at fair value through profit or loss. Entities with financial liabilities designated at FVTPL recognise changes in the fair value due to changes in the liability's credit risk directly in OCI. There is no subsequent recycling of the amounts in OCI to profit or loss, but accumulated gains or losses may be transferred within equity. The amendment is not expected to have a material impact on the financial statements.

Amendments to IFRS 9 'Financial instruments - Hedge Accounting (no effective date, available for application, prospective application). The new model represents a substantial overhaul of hedge accounting that will enable entities to better reflect their risk management activities in their financial statements. Under IAS 39 today, the hedge must both be expected to be highly effective (prospective test) and have been highly effective (retrospective test) with 'highly effective' defined as a 'bright line' quantitative test of 80-125%. The amendment replaces this with a requirement for the hedge to be designated, documented and in line with the entity's risk management objective. However, effectiveness of the hedging item must still be measured and arising ineffectiveness must be booked through profit or loss.

The risk components can now be designated for non-financial hedged items provided the risk component is separately identifiable and measurable. In addition, the amendment makes the hedging of groups of items more flexible. It also relaxes the rules on using purchased options and non-derivative financial instruments as hedging instruments. The Board decided to retain in IFRS 9 the current fair value hedge accounting mechanisms from IAS 39.

Companies may choose to continue hedge accounting under IAS 39 or change to the provisions of IFRS 9.

Additionally, the amendment allows to account for the own credit risk on financial liabilities through other comprehensive income. This accounting treatment can be adopted in isolation without adopting any other part of IFRS 9. The amendment is not expected to have a material impact on the financial statements.

2.2 Principles of consolidation

2.2.1 Subsidiaries

Subsidiaries are entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Group's voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies, etc. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Accounting for business combinations under IFRS 3 only applies if it is considered that a business has been acquired. The Group may invest in subsidiaries that hold properties but do not constitute a business. These transactions are therefore treated as asset acquisitions rather than business combinations.

For acquisitions meeting the definition of a business combination, the acquisition method of accounting is used. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred.

Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.

For acquisitions of subsidiaries not meeting the definition of a business, the Group allocates the cost between the individual identifiable assets and liabilities in the Group based on their relative fair values at the date of acquisition. Such transactions or events do not give rise to goodwill.

Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

All the Group companies have 31 December as their year-end. Consolidated financial statements are prepared using uniform accounting policies for like transactions. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

2.2.2 Changes in ownership interests in subsidiaries without change in control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

2.2.3 Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

2.2.4 Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. If the ownership interest in an associate or significant influence is lost, the associate is derecognised and recognised as an investments measured at fair value. Any difference between the carrying value at the date of derecognised and fair value is recorded in the income statement.

The Group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit/(loss) of associates' in the income statement.

Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Dilution gains and losses arising in investments in associates are recognised in the income statement.

2.3 Segmental Reporting 

Segmental reporting has been prepared in accordance with IFRS 8 (Segment Reporting).

The chief operating decision maker has been identified as the board of directors, who review the Group's internal reporting and management information in order to assess performance and allocate resources.

It has been determined that the board of directors reviews management information, considers the business and makes decisions from a geographic perspective. As such, the Group has been organised into the following segments:

· Activities in the United Kingdom

· Activities in Germany

· Activities in Switzerland (discontinued in 2012)

· Activities in the United States of America (discontinued in 2012)

A geographical segment is one that is engaged in providing products or services within a particular economic area which are subject to risks and returns that are different from those of segments operating in other economic areas. Revenues are wholly derived from operating leases and finance leases.

The board of directors assess the performance of the business using a number of measures; however particular emphasis is placed on "adjusted net earnings" (as shown in Note 9). This excludes the effects of any non-cash and exceptional one-off non-recurring income and expenses to give an indication of the Groups' underlying business performance.

Total segment assets and liabilities excludes certain assets and liabilities which are managed on a central basis, these form the reconciliation to total balance sheet assets.

2.4 Foreign currency transactions and translation

Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in Pounds Sterling, which is the Group's presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of each transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except where deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented net in the income statement within finance costs and finance income respectively, unless they are capitalised. All other foreign exchange gains and losses are presented net in the statement of comprehensive income.

Group Companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet are translated at the closing rate at the date of the balance sheet;

(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates in which case income and expenses are translated at the rates on those dates of the transactions); and

(iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to comprehensive income. When a foreign entity is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

On the disposal of a foreign operation (that is, a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation) all of the exchange differences accumulated in equity in respect of that operation attributable to the equity holders of the Group are reclassified to profit or loss.

The translation rates used are disclosed in Note 5 to the consolidated financial statements.

2.5 Investment property

Property not occupied by the Group but held for long-term rental yields, for capital appreciation or both is classified as investment property. Investment property also includes property that is being constructed or developed for future use as investment property.

Investment property comprises freehold land and buildings and is initially recognised at historic cost, including related transaction costs and borrowing costs. After initial recognition investment property is held at fair value which is based on active market prices, adjusted if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. These valuations are performed in accordance with guidance issued by the International Valuation Standard Committee and are prepared annually by independent external valuers.

The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects any cash outflows that could be expected in respect of the property.

Land held under operating leases is classified and accounted for by the Group as investment property when the definition of investment property would otherwise be met. The operating lease is accounted for as if it were a finance lease.

Subsequent expenditure is charged to the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. In accordance with IAS 40, these items are capitalised at cost as the fair value of the expenditure is not reasonably determinable. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred.

Changes in fair values are recorded in the income statement. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement where necessary.

2.6 Leases

Finance lease:

When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.

Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

The Group has leased out a business under a licence agreement. The business is in respect of the provision of domiciliary care to clients in their own properties which has been licensed to an independent third party for 35 years with annual increases in line with the Retail Price Index, subject to a maximum increase of 5%. The operator maintains the right to run the Business and receive any benefits/losses derived from running the business.

Operating lease:

The Group currently treats all of its investment property leases as operating leases, however this classification is considered by the directors for each property on acquisition. An operating lease is a lease in which substantially all the risks and rewards of the asset (investment property) remain with the lessor and as such these assets remain in the Group's balance sheet. Lease payments from the lessee are recognised as rental income and as such disclosed in the income statement on a straight-line basis over the period of the lease.

Lease classification:

The Group determines the classification of leases on each asset having regard to whether substantially all risks and rewards incidental to ownership of the asset are transferred to the lessee.

2.7 Loans and receivables

Loans are classified as non-current assets unless management has the express intention of holding the loans for less than 12 months from the balance sheet date, in which case they are included in current assets. The directors determine the classification of the loans at initial recognition and re-evaluate the designation at every reporting date.

Purchases and sales of loans are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Loans are initially recognised at fair value plus transaction costs and are subsequently carried at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of loans is established when there is evidence that the Group will not be able to collect all amounts due according to the original terms of loans. In the case of loans, the financial position of the underlying companies and their ability to repay the preference share capital is considered in determining whether the loans are impaired.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. Loans are derecognised when the rights to receive cash flows from the loans have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. When investments are sold the resulting gains and losses are included in the income statement as gains and losses from loans.

2.8 Impairment of assets for non-financial assets

Assets that have an indefinite useful life - for example, goodwill - are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Impairment losses on goodwill are not reversed.

2.9 Accounting for derivative financial instruments and hedging activities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

Cash flow hedges:

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

Amounts accumulated in equity are recognised in the income statement in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, if the forecast transaction that is hedged results in the recognition of a non-financial asset or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the costs of the asset or liability.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

2.10 Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. In accordance with the Group's policy, a provision of 50% and 100% would be made against any trade receivables outstanding for more than six and twelve months, respectively. The provision is based on historical experience of the Group. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original term of the trade receivables. The amount of the provision is recognised in the income statement.

2.11 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand; deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings under current liabilities.

2.12 Share capital

Ordinary shares are classified as equity. Any transaction costs of an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. The costs of an equity transaction that is abandoned are recognised as an expense.

2.13 Trade payables and other payables

Trade payables and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.14 Dividends

Dividends are recorded as a liability in the Group's financial statements in the period in which they are approved by the Group's shareholders.

2.15 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

2.16 Compound financial instruments

Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.

2.17 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Group and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. Deferred income tax is determined using the tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Due to the tax jurisdictions of the Group companies no tax impact is anticipated.

2.18 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.19 Revenue recognition

Revenue consists of minimum lease rentals payable over the terms of the operating leases, recognised on a straight line basis, and incremental lease rentals payable under rent escalation clauses in the leases recognised as they arise. Every investment property is accounted for individually. Operating lease agreements are based on long-term leasing contracts of 35 years.

2.20 Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. The Group has chosen to capitalise borrowing costs on all qualifying assets irrespective of whether they are measured at fair value or not.

2.21 Finance income and expense

Interest income and expense are recognised within 'finance income' and 'finance costs' in profit or loss using the effective interest rate method, except for borrowing costs relating to qualifying assets, which are capitalised as part of the cost of that asset. 'Finance income' is presented before operating profit and 'Finance costs' are presented after operating profit.

2.22 Earnings per share

The Group has chosen to disclose an adjusted earnings per share figure. This provides an indication of the Group's underlying business performance and excludes significant "non cash" items such as fair value movements on investment properties, the recognition of accrued income, foreign exchange movements and movements in the value of derivative financial instruments charged to the income statement.

3. FINANCIAL AND OTHER RISK MANAGEMENT

3.1 Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including currency and price risk), cash flow and fair value interest rate risk, credit risk and liquidity rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out by the senior management of the asset manager under policies approved by the board of directors. Senior management identifies, evaluates and hedges financial risks. The board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar, Euros and the Swiss Franc. Limited foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. However, most operating entities have limited exposure to exchange risk outside their functional currencies.

The Group has investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group's foreign operations in the US and Continental Europe are managed primarily through borrowings denominated in the relevant foreign currencies, although the directors monitor and permit currency exposure in this regard as an element of its financing strategy.

Historically the Group has not entered into any hedging transactions in respect of the net assets of subsidiaries denominated in currencies other than Pounds Sterling. The Group will review this policy from time to time.

(ii) Cash flow and fair value interest rate risk

The Group's interest-rate risk mainly arises from long-term borrowings, derivative financial instruments and to a limited extent, from cash and cash equivalents. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed rates and derivative financial instruments expose the Group to fair value interest-rate risk. Group policy is to maintain a significant percentage of its borrowings in fixed rate instruments. The board of directors regularly meet to review levels of fixed and variable borrowings and takes appropriate action as required.

The table below shows the sensitivity of profit and equity to movements in market interest rates. The impacts are disaggregated into the currencies in which the debt is held:

(b) Credit risk

Credit risk arises from cash, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to rental customers, including outstanding receivables.

The table below shows the credit rating and balance of the three major bank counterparties at the balance sheet date.

Bank A is Allied Irish Bank (UK) plc which is a wholly owned subsidiary of Allied Irish Banks plc ("AIB"). In October 2010, Standard and Poor's downgraded AIB. In December 2010, AIB was effectively nationalised by the Irish Government. Bank B is the Bank of London and the Middle East which is not rated.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Management monitors rolling forecasts of the Group's liquidity reserve on the basis of expected cash flow.

The table below analyses the Group's financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the continuing contractual undiscounted cash flows.

Borrowings in the table above include future interest payable.

Where an interest rate swap is in place, the fixed rate implicit in the agreement has been used to calculate future payments, consequently the position is shown after any cash flows arising from interest rate swaps.

During 2013, the refinancing of debt (see Note 22) has significantly altered the maturity profile of total borrowings such that £2.3m (approximately 7%) of the total borrowings are scheduled to be repaid during 2014. The Group anticipates that this can be funded through existing cash balances.

(d) Capital risk management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders (if free cash is available for dividend declaration), return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of the loan to value ratio. This ratio is calculated as total debt divided by total non-current assets less goodwill and loans. Debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the consolidated balance sheet).

The Group's intention is to maintain the loan to value ratio below 70%. The loan to value ratios at 31 December 2013 and 2012 were as follows:

3.2 Fair value estimation

The table below provides disclosure of fair value measurements as at 31 December by level of the following fair value measurement hierarchy:

· Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).

· Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).

· Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).

As detailed in Note 12, during 2013 the Group reclassified its ownership in certain investments from equity accounting under IAS 28 to fair value accounting under IAS 39.

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

· Quoted market prices or dealer quotes for similar instruments.

· The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves.

· The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting values discounted back to present value.

· Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

3.3 Other risk factors

The Group is exposed to property price and market rental risks. Wherever possible the Group builds into the terms of its leases indexation linked to consumer price indices, in order to manage its market rental risk.

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are continually evaluated and are based on historical experiences and other factors, including expectations of future events that are believed to be reasonable under the circumstance. The Group makes estimates and assumptions concerning the future. By definition, the resulting accounting estimates may not equal the related actual results. The estimates and assumptions that may have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are described below.

(a) Estimate of fair value of investment properties

The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable fair value estimates. In making this judgement, the Group considers information from a variety of sources including:

i) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;

ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of cash flows.

 (b) Principal assumptions for management's estimations of fair value

If information on current or recent prices or assumptions underlying the discounted cash flow approach investment properties is not available, the fair values of investment properties are determined using discounted cash flow valuation techniques. The Group uses assumptions that are mainly based on market conditions existing at each balance sheet date.

The principal assumptions underlying management's estimation of fair value are those related to: the receipt of contractual rentals; expected future market rentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data and actual transactions by the Group and those reported by the market.

The Group relies on valuations prepared by qualified independent valuation companies. Were the capitalisation rates used in preparing the independent valuation reports to differ by 5% to the rate used by the independent valuer, the net effect of the carrying amount of investment properties after deferred taxation would be an estimated £3.1 million higher (2012 - £4.2 million) or £2.8 million lower (2012 - £3.8 million).

The expected future market rentals are determined based on the specific terms of the rental contracts.

(c) Lease classification

The Group has determined that all of its leases are operating leases except for a business under licence agreement (see Note 2.6). The key factor in making the classification between finance leases and operating leases is the estimated life of the properties. The Group estimated the life of the buildings between 70 years and 75 years. The lease periods are 35 years, with approximately 25 years remaining.

(d) Impairment of investments and loans

In the process of its impairment assessment, the Group makes certain assumptions regarding the recoverable amount of investments. These assumptions include recoverability of the assets and liabilities not held at fair value, such as deferred tax. Based on the underlying net assets of the investment, the Group has determined the investment value is £1,000. In addition the subordinated secured loan note and preference shares referred to in Note 15 have been valued at £1,000 each.