13th Apr 2006 07:01
Medical Property Investment Fd Ltd13 April 2006 The Medical Property Investment Fund Limited Annual Report and Consolidated Financial Statements For the year from 1 January 2005 to 31 December 2005 Highlights The Medical Property Investment Fund Limited is listed on the London StockExchange and invests in primary health care property, pharmacy and relatedoperating businesses. These results are in respect of the year ended 31 December 2005. • Excellent progress with 82 sites now acquired (and a further 23 sites in solicitors' hands)1 • Over £340m of capital committed1 • Estimated average net initial yield on capital committed circa 6.5% • Net profit after Investment Result £4.0m (£2.2m last year) • Proposed Final dividend2 of 3.34p (making 5p in total) up 25% • Company's strategy well placed to meet Government objectives in recently announced White Paper • Substantial pipeline of new acquisitions and developments • Healthcare Pharmacies Limited opened its first integrated pharmacy in February 2006 and plans to open a further 20 by the end of 2007 • Four Assura pilot projects to commence operations in 2006 with a further roll-out now being planned 1 As at 31 March 2006 2 Subject to Special Resolution and Royal Court of Guernsey approval.Ex-dividend date 3 May 2006, Record date 5 May 2006. Payment anticipated June2006. Chairman's Statement For the year ended 31 December 2005 This Report is published in respect of the year ended 31 December 2005. I am pleased to report another very satisfactory year for the Company withexcellent progress being made to generate future income streams out of property,pharmacy and related operating businesses. As at 31 March 2006, the Company had acquired or exchanged contracts on 82 sitesand has a further 23 sites in solicitors' hands. On completion, the aggregatecapital value of these investments will be approximately £340m. On all capitalcommitted to date, the average net initial yield on completion is estimated tobe circa 6.5%. The Company has pursued the property investment strategy outlined at the time offlotation. Whilst the commercial property market has continued to be verycompetitive the Company has been able to acquire existing primary health careproperties and forward fund new developments at average yields generallyconsistent with its original forecasts. The Company's property assets were independently valued by Savills and as at 31December 2005; the net valuation yield on all purchased property stood at 6.0%.During the year, the Company benefited from a surplus on revaluation of itsproperty portfolio of £2.2m (2004: a deficit of £0.5m). This figure is after thepayment of all property acquisition costs which arose in the period including arevaluation deficit and transaction costs, amounting to £5.6m which arose onacquisition of the Apollo portfolio (as advised to shareholders in the Circulardated 15 June 2005). The revaluation surplus on the underlying portfolio wastherefore strong. The Company has made excellent progress during the year with the formation ofits own pharmacy operating business, Healthcare Pharmacies Limited. The firstintegrated pharmacy opened in Bonnyrigg, Scotland, in February 2006 and goodprogress is being made to obtain further licenses across its portfolio ofproperties and developments. The Company is intending to open a further 20integrated pharmacies by the end of 2007. Acquisitions of pharmacies close toexisting sites is an important part of the Company's long term pharmacy strategywhich is to provide integrated pharmacy services in all of its major facilities. It is anticipated that Practice Based Commissioning, which gives generalpractitioners the responsibility for managing budgets for their patients' care,will become universally applied by December 2006. This introduces a competitiveand contestable market for health care which will demand new, high qualitypremises that deliver a much wider range of services than before and is able toaccommodate the shift in services from secondary to primary care. In response to this and in advance of the publication of the Government's WhitePaper, which was published in January 2006, the Company and its investmentmanager invested considerable time and resources into developing a suitablebusiness model to respond to these changes. Under its new Assura brand, theCompany intends to pursue innovative and sustainable ways to work with larger GPpractices and locality groups as well as accommodating other service providersboth locally and through its national network. A number of pilot projects arein progress and should these prove to be successful, the Company expects toimplement a national roll out of Assura commencing towards the end of 2006. Acquisition, Placing and Open Offer In order to maximize opportunities for the Company in the rapidly evolving UKprimary care market and given that a number of opportunities extend beyond pureproperty investment into the development and operation of healthcare facilitiesand pharmacy activities, the Company is proposing to undertake a Placing andOpen Offer and to acquire the Company's investment manager, Berrington FundManagement and related parties. Full details of these proposed transactions willbe provided in a separate prospectus. 2005 Results During the year, total income amounted to £8.7m (2004: £7.6m) producing a netprofit after investment result of £4.0m (2004: £2.2m). Due to the strong performance of the Company's share price over the last 12months, there is a requirement for the Company to make a provision of £13.0m inrespect of the performance fee due to the investment manager. In addition,there is a requirement to make a mark-to-market revaluation adjustment of £3.5min respect of an interest rate swap entered into by the Company whicheffectively fixes £100m of debt for a period of 20 years at 4.57%. In the event that the acquisition of the investment manager completes, theperformance fee and the interest rate swap liability provision would beeliminated in a subsequent accounting period. In the event that long terminterest rates rise above 4.57% the fair value of the interest rate swapliability would reverse. When the Company floated in November 2003 it committed to a progressive dividendpolicy. Shareholders were also advised that dividends would be paid out of grossrevenue. Although the Company suffered a loss for the year of £12.5m after theperformance fee provision of £13.0m and the interest rate swap adjustment of£3.5m, the Board, having given due regard to the underlying profitability of theCompany, has recommended a final dividend of 3.34p (2004: 2.67p) per OrdinaryShare making a total of 5p per Ordinary Share for the year (2004: 4p). The Companies (Guernsey) Law, 1994 permits dividends to be paid out of profitsavailable for the purpose and the Company's Articles of Association state thatsuch profits available for distribution do not include realised or unrealisedprofits on capital assets. A portion of the final 2004 dividend and the interim 2005 dividend paid duringthe year were in excess of these distributable profits as defined above. Inorder for these dividends to comply with The Companies (Guernsey) Law, 1994, theDirectors intend to convert a portion of the share premium reserve to adistributable reserve. This requires shareholders' approval at the Company's AGMon 12 May 2006 and application to the Royal Court of Guernsey immediatelythereafter. The Directors are confident of obtaining the requisite approvals andconsent of the Royal Court of Guernsey. Including the performance fee provision and swap adjustment totalling £16.5m anddividends paid to ordinary shareholders of £6.2m (2004: £1.9m), the loss for theyear amounted to some £18.7m (2004: profit £0.3m). This loss resulted in adecrease in the net asset value per share from 96.03p as at 31 December 2004 to82.81p as at 31 December 2005. Outlook The outlook for the Company is positive and there is significant earningspotential supported by the favourable reforms taking place within the NHS. TheCompany has a strong pipeline of deals and developments, it has established anintegrated pharmacy model and it intends to expand its Assura businesses acrossits portfolio of properties. Investment Manager At the beginning of 2006, the Board learned of the premature and untimely deathof Peter Dickson who was one of the investment advisers to Berrington FundManagement Limited. Peter had been actively involved in the set up andformation of the Company and will be sorely missed by all those who worked withhim. I would like to take this opportunity to express the Company's sincerecondolences to Peter's family at this very difficult time. Dr Mark Jackson Chairman 12 April 2006 Investment Manager's Report For the year ended 31 December 2005 The Company's investment objective is to achieve asset-backed earnings growthfrom property, pharmacy and other operating businesses through the acquisitionand development of a modern portfolio of primary health care premises. It has been a very difficult start to 2006 following the very sad and tragicdeath of my friend and colleague Peter Dickson, who died in a boating accidentwhilst on holiday in December. He was a very popular member of our team and waswell liked and respected within the primary care industry. Peter had a quietmodesty about him and a good sense of humour which we will all miss enormously.I would like to take this opportunity on behalf of his family to thank all thosebusiness and professional colleagues who have written to express theircondolences. Operating Review 2005 was another very satisfactory year for the Company and I am pleased toreport strong progress in acquiring and developing properties, the successfulstart up of the Company's pharmacy operating business and the strategic planningfor the new Assura business which has been formed to assist GP practices andrelated providers to meet many of the objectives of Practice Based Commissioningand to address the key elements set out in the Government's White Paper whichwas subsequently published in January 2006. The expansion of primary health care capacity envisaged by the White Paper willrequire a continual upgrade of premises infrastructure and capital investment.This will need to accommodate the shift of certain services previously based inhospitals, for example diagnostics and specialist consultants. In response tothis, the Company's development activities continue to be extended and this isreflected in the number of schemes under construction or at an advanced stage ofnegotiation. Assembling new developments is time consuming and, by partneringwith specialist, regionally-based developers, the Company has been able toincrease its reach in terms of the number of developments it is able to pursue.The Company is continuing to trial a fast track procurement process by adoptinga speculative approach in certain cases which may unlock some substantial andhigh quality schemes. As at 31 March 2006, the Company had acquired or exchanged contracts on 82sites. A further 23 sites were in solicitors' hands. The total capitalcommitted by the Company, including transactions in solicitors' hands, is now inexcess of £340m with an estimated average net initial yield on completion ofcirca 6.5%. Within its existing income producing portfolio, the Company has settled rentreviews on 27 properties during the year resulting in an aggregate increase of17.4% on the passing rent relating to those properties. As at 31 December 2005,the portfolio had an average rent of £147.43 per square metre on GMS space andan average weighted income un-expired term of 19.07 years. Industry Trends and the NHS White Paper The NHS White Paper that was published in January 2006 sets out the vision forthe future of health care in the United Kingdom for the next 5 years. 'OurHealth, Our Care, Our Say' sets out some far reaching changes that willdramatically alter the delivery of services both in the health and social caresectors. The key areas of change are centred on an increased delivery of service withinthe community-moving away from hospital to primary care. In addition, coresupport services such as diagnostics are to be relocated next to traditionalgeneral practices. The key outcomes are designed to be an increase in patientchoice close to home and the ability to provide all key services in one placeeventually progressing to 'the one-stop shop' for health. It is anticipated that Practice Based Commissioning, which gives generalpractitioners the responsibility for managing budgets for their patients' care,will become universally applied by December 2006. This will introduce acompetitive and contestable market for health care which will demand new highquality premises that deliver a much wider range of services than before. Thiswill need a new commercial business structure to enable GPs to compete against anewly evolving market for care to include larger organisations, corporations andFoundation Trusts. Alongside this, very specific initiatives to encourage fully integrated pharmacyservices (supported by the recently introduced New Contract for Pharmacy),encouragement for innovation in care delivery and specific measures to providefor care to be aligned between all the current providers. Of greater significance is the Government's intention to have 15% of GP servicesindependently provided by the private sector by 2008. Alongside this rests aprogramme to encourage a national network of 'hub' primary care centres thatsupport smaller 'spoke' surgeries, and the development of new community carecentres that will replace and strengthen the existing community hospitalnetwork. Strategy and Outlook The Company's strategy is fully supported by the White Paper and going forwardwe will aim to focus resources and generate income from three principalbusinesses: Property; Pharmacy; and Assura. Property The strategy for further property investment and development, outside of LIFTareas, will focus on expanding the Company's existing primary care facilitiesand/or relocating them, if applicable, to larger, newer premises developed bythe Company and its local developer partners. We will continue the strategy ofpurchasing existing premises from GP practices and working with GPs and otherhealth professionals to develop new, modern premises according to local need. The Company intends to develop and retain for long term investment: one-stopshop primary care resource centers or polyclinics; GP surgeries; and relatedcommunity care facilities. All of these types of development are entirely inline with government policy on the future of service delivery in primary care. To accelerate and facilitate this process, the Company is prepared to takecareful, measured development risk and build new premises where potentialtenants have yet to commit. On all of its larger developments, the Companyintends to develop integrated pharmacy facilities as well as build additionalspace to house its Assura activities. The Company has invested in three LIFT companies through BHE and has a furtherLIFT investment through its shareholding in Infracare (Midlands) Limited. As at31 March 2006, BHE Holdings Limited has been successful in reaching the finaltender stage (one of three bidders in each case) on a further four LIFT projectsand the outcome of those tenders should be known later in the year. It is theCompany's strategy to further support LIFT investment and to play an active rolein LIFT consolidation, where possible. Pharmacy The Company's vision of integrated pharmacies is in line with new governmentpolicy which envisages closer alignment of pharmacy and primary care tofacilitate improved clinical outcomes and enhance the patient journey. TheCompany also sees significant commercial advantages to this integrated modelthrough the development of enhanced services in the communities which thepharmacies serve making use of advances such as electronic transfer ofprescriptions as well as coordinated stock holding and seamless IT. The greatercooperation between health professionals and pharmacists should reduce theburden on GPs. This type of activity accords with the new pharmacy contract andthe government's vision for pharmacy in the new NHS. The Company opened its first pharmacy in February 2006 at Bonnyrigg in Scotlandand it intends to establish a further 20 pharmacies by the end of 2007. The pharmacy market and the granting of pharmacy licenses is well regulated andthe Company intends to finance the acquisition of additional external pharmacybusinesses and licenses where it can to achieve its objective of creatingintegrated pharmacies throughout its portfolio of properties. Additionally, theCompany believes that, should there be further deregulation of pharmacylicenses, there could be further opportunities for the Company to establishintegrated pharmacies more easily within its existing portfolio of primary careproperties. Assura In order to meet with the government's intention to relocate some services fromhospitals (secondary care) into primary care facilities, the Company hasestablished a serviced health platform business under the Assura brand todevelop and lease additional space within its existing premises and developmentsin order to provide related health provider organisations, diagnostic providersand health professionals with flexible space to be let on both a short term,including sessional, and longer term basis. The service proposition to be offered by Assura will break new ground and createa new style of primary care facility as never seen before in the United Kingdom.These buildings will include the provision of full and comprehensive businesssupport services including IT, facilities management, administration, meetingand greeting to enable health professionals working in these environments todeliver a new level of primary health care service. By working in partnership with existing GPs and health professionals, theCompany believes that it can provide a much wider range of facilities andservices closer to patients, taking full advantage of the opportunitiesidentified in the White Paper and made available from the recent introduction ofPractice Based Commissioning. The encouragement to move secondary care servicesto primary care creates many new opportunities and fully accords with theCompany's building designs that are fully flexible and engineered to support awide range of care provision and demand in a rapidly developing market that willinevitably continue to change and evolve over the coming years. The Company intends to establish four pilot projects during 2006, the first ofwhich will open in Liverpool shortly. The purpose of the pilots is to fullyrefine the service proposition and to assist the development of a nationalnetwork of relationships with all types of provider organisations who canpotentially deliver a much wider range of services to the local health economyalongside existing GPs. Looking to the future, the Company is well advanced in developing a wider remitfor Assura by working with GPs and locality groups to establish local jointventure limited liability partnerships to enable PCTs to commission entireservices through these newly established joint venture partnerships. The aim ofthese locally-run organisations is to provide a wide range of health care,diagnostic and related services to enable patients to be treated closer to homeand in a primary care setting. Conclusion The prime objective of delivering asset-backed income growth by building up theCompany's portfolio of properties and development projects is on course. Wecontinue to explore opportunities to grow other businesses and income streamsfrom the expanding portfolio of medical premises and we are pleased with theprogress of the Company to date. Richard Burrell Berrington Fund Management Limited 12 April 2006 Report of the Directors The Directors of The Medical Property Investment Fund Limited ("the Company")and its subsidiaries (together "the Group") are pleased to submit the AuditedConsolidated Financial Statements of the Group for the year ended 31 December2005. Investment Policy The Company's investment policy is to acquire the freehold and long leaseholdownership of fully let, modern primary health care premises with furtherdevelopment potential and existing GP surgeries where relocation of majorredevelopment is desirable. The Company also intends to purchase land andbuildings from third parties, which are capable of being developed or integratedwith existing facilities. It is intended that the Company's premises will becapable of accommodating enlarged GP practices and a range of complementarymedical and other services including pharmacy. Listing The Ordinary Shares of the Company were admitted to the Official List of theLondon Stock Exchange on 21 November 2003. Results The results for the year are shown in the Consolidated Statement of Operationson page 18. Dividend During the year the Company has declared and paid the following interim dividendand subsequently declared the following final dividend to its OrdinaryShareholders: Dividend Date Declared Rate Interim 9 September 2005 1.66pFinal 12 April 2006 3.34p The Companies (Guernsey) Law, 1994 permits dividends to be paid out of profitsavailable for the purpose and the Company's Articles of Association state thatsuch profits available for distribution do not include realised or unrealisedprofits on capital assets. A portion of the final 2004 dividend and the interim 2005 dividend paid duringthe year were in excess of these distributable profits as defined above. Inorder for these dividends to comply with The Companies (Guernsey) Law, 1994, theDirectors intend to convert a portion of the share premium reserve to adistributable reserve. This requires shareholders' approval at the Company's AGMon 12 May 2006 and application to the Royal Court of Guernsey immediatelythereafter. The Directors are confident of obtaining the requisite approvals andconsent of the Royal Court of Guernsey. If approved, it is expected that thefinal dividend will be paid to ordinary shareholders on the register on 5 May2006, in June 2006. Directors' and Other Interests Dr Mark Jackson held 40,000 shares in the Company at both 31 December 2004 and31 December 2005. In addition he benefits from an incentive fee as described innote 3 to the financial statements. None of the other Directors or persons connected with them held any shares at 31December 2004 or 31 December 2005. None of the Directors had a service contract with the Company during the year. As at 31 December 2005, Berrington Fund Management Limited was interested in147,000 (2004: 100,000) Ordinary Shares. Corporate Governance As a Guernsey incorporated company, the Company is not required to comply withthe Code of Best Practice published by the Committee on the Financial Aspects ofCorporate Governance (the "Combined Code"). However, the Directors place a highdegree of importance on ensuring that high standards of Corporate Governance aremaintained. Going Concern The Directors believe it is appropriate to adopt the going concern basis inpreparing the financial statements as, after due consideration, the Directorsconsider that the Group has adequate resources to continue in operationalexistence for the foreseeable future. Substantial Shareholdings At 15 March 2006, Directors were aware that the following shareholders owned 3%or more of the issued Ordinary Shares of the Company. Number of Ordinary Shares % of Ordinary SharesArtemis Investment Management 5,859,931 4.12Credit Suisse Asset Management 11,300,000 7.94F&C Asset Management 8,571,129 6.02INVESCO Asset Management 40,342,664 28.33Investec Asset Management 10,622,797 7.46Jupiter Asset Management 9,350,000 6.68Lazard (Institutional Group) 13,951,464 9.80Morley Fund Management 5,328,408 3.74Rathbones 4,673,325 3.28 Directors' Responsibilities The Directors are responsible for preparing financial statements for eachfinancial period which give a true and fair view of the state of affairs of theGroup and of the profit or loss of the Group for that period and are inaccordance with applicable laws. In preparing those financial statements theDirectors are required to:- • select suitable accounting policies and apply them consistently; • make judgements and estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless itis inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theGroup and to enable them to ensure that the financial statements comply with theCompanies (Guernsey) Law, 1994. They are also responsible for safeguarding theassets of the Group and hence for taking reasonable steps for the prevention anddetection of fraud and other irregularities. The Directors are responsible for ensuring that the Report of the Directors andother information included in the Annual Report is prepared in accordance withapplicable company law. They are also responsible for ensuring that the AnnualReport includes information required by the Listing Rules of the FinancialServices Authority. Status for Taxation The Income Tax Authority in Guernsey has granted the Company exemption fromGuernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance1989 and the income of the Company may be distributed or accumulated withoutdeduction of Guernsey income tax. Exemption under the above mentioned Ordinanceentails payment by the Company of an Annual Fee of £600. The property subsidiary is subject to United Kingdom tax on income arising oninvestment properties, after deduction of their debt financing costs andallowable expenses. The UK trading subsidiaries are subject to UK corporationtax on their profits. Auditors Ernst & Young LLP have indicated their willingness to continue in office. Dr Mark Jackson, Chairman Graham Chase, Director 12 April 2006 Independent Auditors' Report to the Members of The Medical Property Investment Fund Limited We have audited the Group's financial statements for the year ended 31 December2005 which comprise the Consolidated Statement of Operations, ConsolidatedBalance Sheet, Company Balance Sheet, Consolidated Statement of Changes inEquity, Consolidated Cash Flow Statement and the related notes 1 to 31. Thesefinancial statements have been prepared on the basis of the accounting policiesset out therein. This report is made solely to the Company's members, as a body, in accordancewith Section 64 of the Companies (Guernsey) Law, 1994. Our audit work has beenundertaken so that we might state to the Company's members those matters we arerequired to state to them in an auditors' report and for no other purpose. Tothe fullest extent permitted by law, we do not accept or assume responsibilityto anyone other than the Company and the Company's members as a body, for ouraudit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors The Directors are responsible for the preparation of the financial statements inaccordance with Guernsey law as described in the Statement of Directors'Responsibilities. Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements, International Standards on Auditing(UK and Ireland) and the Listing Rules of the Financial Services Authority. We report to you our opinion as to whether the financial statements give a trueand fair view and are properly prepared in accordance with the Companies(Guernsey) Law, 1994. We also report to you if, in our opinion, the Directors'Report is not consistent with the financial statements, if the Company has notkept proper accounting records, if we have not received all the information andexplanations we require for our audit or if information specified by the ListingRules regarding Directors' transactions with the Group is not disclosed. We read the other information contained in the Annual Report and considerwhether it is consistent with the audited financial statements. This otherinformation comprises the Highlights, Chairman's Statement, Investment Manager'sReport, Directors' Profiles, Management and Administration and Report of theDirectors. We consider the implications for our Report if we become aware ofany apparent misstatements or material inconsistencies with the financialstatements. Our responsibilities do not extend to any other information. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgments made by the Directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the Group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view, in accordancewith International Financial Reporting Standards, of the state of affairs of theGroup as at 31 December 2005 and of its loss for the year then ended and havebeen properly prepared in accordance with the Companies (Guernsey) Law, 1994. Ernst & Young LLP Guernsey, Channel Islands 12 April 2006 Consolidated Statement of Operations For the year from 1 January 2005 to 31 December 2005 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 Notes £ £Income Rent receivable 6,001,041 3,399,736Fees receivable 1,014,862 358,488Bank and other interest 1,729,486 3,829,875 Total Income 8,745,389 7,588,099 Expenses Interest payable and similar charges 6 200,526 43,448Investment Manager's fees 3(i) 2,691,686 2,958,265Salaries 1,721,775 409,520Legal and professional fees 258,137 189,893Property management expenses 480,056 186,546Audit fees 38,824 35,000Tax and accountancy fees 7,444 22,560Administration fee 3 (ii) 92,584 113,453Directors' fees 5 220,370 243,287Insurance 28,471 37,686Advertising, PR & marketing 216,448 260,420Abortive transaction costs 418,820 131,689Other expenses 526,182 277,479Depreciation 20,623 350Bank charges 18,804 9,503 Total Operating Expenses 6,940,750 4,919,099 Net Profit before Investment Result 1,804,639 2,669,000 Unrealised surplus/(loss) on revaluation of properties 12 2,165,005 (508,027) Net Profit after Investment Result 3,969,644 2,160,973 Minority interests 152,476 69,703Unrealised loss on revaluation of derivative financial 7 (3,472,319) -instrumentPerformance fee provision 4 (13,050,000) - (Loss)/Profit before Taxation (12,400,199) 2,230,676 Taxation 9 (98,241) - (Loss)/Profit for the Year/Period (12,498,440) 2,230,676 Dividend 8 (6,166,087) (1,893,971) (Loss)/Retained Profit (18,664,527) 336,705 Basic and Diluted (Loss)/Profit per Ordinary Share 10 (8.78)p 1.58p All items in the above statement are derived from continuing operations. Theaccompanying notes form an integral part of the financial statements. Consolidated Balance Sheet as at 31 December 2005 31/12/2005 31/12/2004 Notes £ £Non-current AssetsProperty 12 131,642,729 51,739,136 Investment in associates 13 1,367,973 4,232 Goodwill 14 5,892,020 5,867,768Development costs 15 36,458 - Tangible fixed assets 16 35,133 20,078 138,974,313 57,631,214 Current AssetsCash and cash equivalents 18 3,745,649 66,650,944Debtors 19 3,537,457 4,615,396Development work in progress 16,520,686 10,071,702 23,803,792 81,338,042 Total Assets 162,778,105 138,969,256 Current LiabilitiesCreditors 21 3,396,239 2,222,416 Non-current LiabilitiesLong term loan 22 24,929,710 -Performance fee provision 4 13,050,000 -Derivative financial instruments at fair value 7 3,472,319 - 41,452,029 -Total Liabilities 44,848,268 2,222,416 Net Assets 117,929,837 136,746,840 Represented by: Capital and ReservesShare capital 23 14,240,385 14,240,385Share premium 24 122,239,453 122,239,453Reserves 25 (18,327,822) 336,705 118,152,016 136,816,543 Minority interests (222,179) (69,703) Total Equity 117,929,837 136,746,840 Net Asset Value per Ordinary Share 26 82.81p 96.03p The financial statements were approved at a meeting of the Board of Directorsheld on 12 April 2006 and signed on its behalf by: Dr Mark Jackson, Chairman Graham Chase, Director The accompanying notes form an integral part of the financial statements. Company Balance Sheet as at 31 December 2005 31/12/2005 31/12/2004 Notes £ £Non-current AssetsInvestment in subsidiary companies 11 34,841,373 15,696,868Loans 17 107,194,059 45,788,601 142,035,432 61,485,469 Current AssetsCash and cash equivalents 18 1,079,066 66,340,103 Debtors 19 73,334 1,515,910Loans 20 16,609,554 7,510,851 17,761,954 75,366,864 Total Assets 159,797,386 136,852,333 Current LiabilitiesCreditors 21 415,520 105,493 Non-current LiabilitiesLong term loan 22 24,929,710 -Performance fee provision 4 13,050,000 -Derivative financial instruments at fair value 7 3,472,319 - 41,452,029 -Total Liabilities 41,867,549 105,493 Net Assets 117,929,837 136,746,840 Represented by: Capital and ReservesShare capital 23 14,240,385 14,240,385Share premium 24 122,239,453 122,239,453Reserves 25 (18,550,001) 267,002 Total Equity 117,929,837 136,746,840 The financial statements were approved at a meeting of the Board of Directorsheld on 12 April 2006 and signed on its behalf by: Dr Mark Jackson, Chairman Graham Chase, Director The accompanying notes form an integral part of the financial statements. Consolidated Statement of Changes in Equity For the year from 1 January 2005 to 31 December 2005 Share Share Premium Retained Minority Total Earnings Interest Capital £ £ £ £ £ Balance at 1 January 2005 14,240,385 122,239,453 336,705 (69,703) 136,746,840Minority interest - - - (152,476) (152,476)Dividends on Ordinary Shares - - (6,166,087) - (6,166,087)Loss attributable to equity - - (12,498,440) - (12,498,440)holders Balance at 31 December 2005 14,240,385 122,239,453 (18,327,822) (222,179) 117,929,837 Share Share Premium Retained Minority Total Earnings Interest Capital £ £ £ £ £ Balance at 7 October 2003 - - - - -Issue of Ordinary Shares, net of 14,240,385 122,239,453 - - 136,479,838issue costsMinority interest - - - (69,703) (69,703)Dividends on Ordinary Shares - - (1,893,971) - (1,893,971)Profit attributable to equity - - 2,230,676 - 2,230,676holders Balance at 31 December 2004 14,240,385 122,239,453 336,705 (69,703) 136,746,840 The accompanying notes form an integral part of the financial statements. Consolidated Cash Flow Statement For the year from 1 January 2005 to 31 December 2005 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 Note £Operating ActivitiesRent received 5,680,156 3,285,877Fees received 354,231 358,488Bank and other interest received 1,835,670 3,829,875Expenses paid (5,274,400) (5,240,581)Interest paid and similar charges - (43,448) Net cash inflow from operating activities 27 2,595,657 2,190,211 Investing ActivitiesPurchase of property (70,962,044) (53,228,913)Purchase of investments (35) (4,232)Purchase of fixed assets (35,678) (20,428)Pharmacy licence application costs (36,458) -Acquisition of subsidiary, net of cash acquired (24,252) (5,867,768)Cost of development work in progress (12,722,648) (10,071,702)Net loans advanced to associated companies (431,615) (932,091) Net cash outflow from investing activities (84,212,730) (70,125,134) Financing ActivitiesIssue of Ordinary Shares - 142,500,000Issue costs paid on issuance of Ordinary Shares - (6,020,162)Dividends paid (6,166,087) (1,893,971)Drawdown of term loan 25,500,000 -Loan issue costs (622,135) - Net cash inflow from financing activities 18,711,778 134,585,867 (Decrease)/Increase in cash and cash equivalents (62,905,295) 66,650,944 Cash and cash equivalents at 1 January 2005 / 7 October 66,650,944 -2003 Cash and cash equivalents at 31 December 3,745,649 66,650,944 The accompanying notes form an integral part of the financial statements. Notes to the Financial Statements For the year from 1 January 2005 to 31 December 2005 1. OperationsThe Medical Property Investment Fund Limited is a closed-ended investmentcompany incorporated in Guernsey whose investment objective is to achievecapital growth and rising rental income from the ownership and development of adiversified portfolio of primary health care properties and the provision ofrelated services, including pharmacy. 2. Principal Accounting PoliciesBasis of PreparationThe financial statements of the Group have been prepared in conformity withInternational Financial Reporting Standards ("IFRS") issued by the InternationalAccounting Standards Board, interpretations issued by the InternationalFinancial Reporting Interpretations Committee and applicable legal andregulatory requirements of Guernsey Law, and reflect the following policies: ConventionThe financial statements have been prepared on a going concern basis under theHistorical Cost Convention except for the measurement at fair value ofinvestment properties and derivative financial instruments. Basis of ConsolidationThe Group financial statements consolidate the financial statements of TheMedical Property Investment Fund Limited and its subsidiary undertakings. Segmental ReportingThe Directors are of the opinion that the Group is engaged in a single segmentof business, being primary care investment and development business and relatedservices. The Group invests in primary health care properties and developmentssituated in the United Kingdom. Impact of revisions to International Financial Reporting StandardsThe following International Financial Reporting Standards have been revised forperiods commencing 1 January 2005 and have been adopted by the Group: • IAS1 Presentation of financial statements • IAS8 Accounting policies, changes in accounting estimates and errors • IAS10 Events after the balance sheet date • IAS17 Leases • IAS24 Related party disclosures • IAS27 Consolidated and separate financial statements • IAS32 Financial instruments: Disclosure and presentation • IAS33 Earnings per share • IAS39 Financial instruments: Recognition and measurement • IAS40 Investment property The Company has decided to early adopt the following standards/amendments tostandards: 1. The amendments to IAS39 and IRFS4 ("Financial Guarantee Contracts"). 2. IAS39 Amendment - Cash Flow Hedge Accounting of Forecast IntragroupTransactions. 3. IAS39 Amendment - The Fair Value Option. These revised standards have not had an impact on the Group's equity. IncomeInterest and fees receivable are included in the financial statements on anaccruals basis. Rental income is included in the financial statements on anaccruals basis and is shown gross of any UK income tax. ExpensesAll expenses are accounted for on an accruals basis. SalariesThe Company has no employees. Salary costs relate to the Group's subsidiaries,BHE Management Services Limited, which at 31 December 2005 had eleven employeesand Healthcare Pharmacies Limited, which had six employees at that date. Neithercompany has a pension scheme. Issue CostsThe share issue costs incurred in the prior period amounted to £6,020,162 andwere written off in full against the share premium account in the period ended31 December 2004. Investments in Subsidiary CompaniesThe investments in subsidiary companies are included in the Company BalanceSheet at cost less any provisions for diminution in value. Investments in AssociatesThe Group's investments in associates are accounted for under the equity methodof accounting. An associate is an entity in which the Group has significantinfluence and which is neither a subsidiary nor a joint venture. Under the equity method, investments in the associates are carried in thebalance sheet at cost plus post-acquisition changes in the Group's share of netassets of the associates. After application of the equity method, the Groupdetermines whether it is necessary to recognise additional impairment loss withrespect to the Group's net investment in the associates. The consolidatedstatement of operations reflects the share of the results of operations of theassociates. Where there has been a change recognised directly in the equity ofthe associates, the Group recognises its share of any changes and disclosesthis, when applicable, in the Statement of Changes in Equity. The financial statements of the associates are prepared for the same reportingyear as the Group or with a maximum difference of no more than three months,using consistent accounting policies. Goodwill Goodwill arising on acquisition is accounted for being the difference betweenthe cost of acquisition and the fair value of the Group share of identifiablenet assets of the subsidiary acquired. It is subject to annual review for anyimpairment. Impairment of Goodwill Good will is allocated to cash generating units for the purpose of impairmenttesting. This allocation is made to those cash generating units that areexpected to benefit from the business combination in which the goodwill arose. The recoverable amount of a cash generating unit is determined based onvalue-in-use calculations. These calculations use cash flow projections based ondetailed financial models prepared by management, with all anticipated futurecash flows discounted to current day values. Property - FreeholdFreehold properties are initially recognised at cost, being the fair value ofconsideration given, including transaction costs associated with the property. After initial recognition, freehold properties are measured at fair value, withunrealised gains and losses recognised in the Consolidated Statement ofOperations. Fair value is based upon the open market valuations of theproperties as provided by Savills Commercial Limited, a firm of independentchartered surveyors, as at the balance sheet date. Property - Long LeaseholdLong leasehold properties are accounted for as freehold properties and, afterinitial recognition at cost, are measured at fair value (on the same basis asfreehold properties above). Development Costs Research expenditure is recognised as an expense as incurred. Costs incurred ondevelopment projects (relating to the development of pharmacy licenses) arerecognised as intangible assets when it is probable that the project will be asuccess considering its commercial and technical feasibility and its costs canbe measured reliably. Other development expenditures that do not meet thesecriteria are recognised as an expense as incurred. Development costs previouslyrecognised as an expense are not recognised as an asset in a subsequent period.Capitalised development costs are recorded as intangible assets and amortisedfrom the point at which the asset is ready for use on a straight line basis overits useful life, not exceeding 20 years. Tangible Fixed AssetsTangible fixed assets are carried at historical cost less accumulateddepreciation. Depreciation of assets is calculated using the straight linemethod to allocate this cost to their residual value over their estimated usefullives as follows: • Fixtures and fittings - four years. • Computer equipment - three years. Derivative Financial Instruments and Hedging Activities The Group uses derivative financial instruments, in the form of interest rateswaps, to hedge its risks associated with interest rate fluctuations.Derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently remeasured at their fair value. Derivatives are carried as assets when the fair value is positive and asliabilities when the fair value is negative. The fair value of hedging derivatives are classified as a non-current asset orliability if the remaining maturity of the hedged item is more than 12 months,and as a current asset or liability if the remaining maturity of the hedged itemis less than 12 months. The fair value of interest rate swap contracts is determined by reference tomarket values for similar instruments. Changes in the fair value of any derivative instruments that do not qualify forhedge accounting are recognised immediately in the Statement of Operations. Loans to Subsidiary CompaniesThe unsecured subordinated loan to MPIF Holdings Limited has been accounted foras an originated loan under IFRS. This loan and other loans to subsidiarycompanies, have been accounted for on an amortised cost basis with intercompanyinterest being recognised under the effective interest rate method. The loansare reviewed regularly for impairment. Development Work in ProgressDevelopment work in progress, including capitalised interest where applicable,is carried at cost or, if lower, net realisable value. Cash and Cash EquivalentsCash on hand and deposits in banks are carried at cost. Cash and cashequivalents are defined as cash in hand, demand deposits, and highly liquidinvestments readily convertible to known amounts of cash and subject toinsignificant risk of changes in value. For the purposes of the ConsolidatedCash Flow Statement, cash and cash equivalents consist of cash in hand anddeposits in banks. Bank Loans and BorrowingsAll bank loans and borrowings are initially recognised at cost, being the fairvalue of the consideration received, less issue costs where applicable. Afterinitial recognition, all interest-bearing loans and borrowings are subsequentlymeasured at amortised cost. Amortised cost is calculated by taking into accountany discount or premium on settlement. ComparativesComparative information on the loans in the Company Balance Sheet has beenreclassified. £7,510,851 of loans in 2004 have been reclassified as currentassets in 2005. 3. Material Agreements(i) Under the terms of an appointment made by the Board on 18 November 2003,Berrington Fund Management Limited ("BFML") was appointed as Investment Managerto the Company. With effect from 21 November 2003 the Investment Manager is paidan aggregate annual management fee of 2.0% of the net asset value of the Companypayable monthly in arrears. In addition, BFML is entitled to receive aperformance fee in respect of the period from Admission to 31 December 2008 of18% of the amount by which the market value per share exceeds on 31 December2008 the Placing Price (compounded annually at 12% per annum) and, thereafter,18% of the amount by which the market value per share exceeds the higher of (1)the Placing Price (compounded annually at 12% per annum) or (2) the highestprevious market value per share as stated in the Prospectus. (See also note 4). The Investment Management Agreement is terminable by the Company on 12 months'notice, such notice to be given on or after the fourth anniversary of theInvestment Manager's Agreement. The Investment Manager has delegated the management of the investment propertiesto Barlows Asset Management Limited. (ii) Under the terms of an Administration Agreement dated 18 November 2003,the Company appointed Guernsey International Fund Managers Limited ("GIFM") asAdministrator, Secretary and Registrar of the Company. This agreement wasterminated with effect from 27 April 2004. The Company entered into an Administration Agreement dated 26 April 2004 withMourant Guernsey Limited ("Mourant") under which Mourant agreed to provideservices to the Company as Administrator and Secretary to the Company. Mourantis entitled to an annual fee of £85,000 per annum, such fees being invoicedmonthly in arrears. (iii) Under the terms of a letter of appointment dated 17 November 2003, DrMark Jackson is entitled to an incentive fee in respect of the period from 21November 2003 to 31 December 2008, provided he is then still employed by theCompany, of 2% of the amount by which the market value per share exceeds, on 31December 2008, £1 compounded annually at 12% per annum and, thereafter, 2% ofthe amount by which the market value per share exceeds the higher of (1) £1compounded annually at 12% or (2) the higher previous market value per share. 4. Performance Fee Provision Based on an effective share price of 170.43p at 31 December 2005, and on theassumption that the performance fees had crystallised on that date, a provisionfor performance fees amounting to £13,050,000 has been made in the financialstatements of which £550,000 attributes to Dr Mark Jackson on a time apportionedbasis (see note 3). 5. Directors' Fees 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004During the year/period each of the Directors received the following fees: £ £ M. Jackson (Chairman) 100,000 121,643J. Curran (Deputy Chairman) 40,000 48,657G. Chase 20,000 24,329F. Porter 20,000 24,329C. Vibert 20,000 24,329P. Pichler 13,945 -S. Tremlett 6,425 - 220,370 243,287 See also Dr Mark Jackson's interest referred to in notes 3 and 4. 6. Interest Payable and Similar Charges 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 Long term loan interest payable 204,258 -Interest capitalised on developments (83,592) -SWAP interest (see note 7) (74,443) -Non-utilisation fees 102,452 -Amortisation of loan issue costs 51,845 -Bank & other interest payable 6 43,448 200,526 43,448 7. Derivative Financial Instruments at Fair Value During the year the Company entered into a 20 year interest rate SWAP at a rateof 4.5725%, on its full debt facility of £100m which, together with the marginand related fees, provides the Company with an all-in fixed cost of funds of5.4%. Throughout the year, the SWAP rate was below the three month LIBOR ratehence the Company benefited from income arising from the SWAP. Based on the 20year SWAP rate at 30 December 2005, the fair value of this SWAP was a deficit of£3,472,319. 8. Dividends Paid on Ordinary Shares 1/1/2005 7/10/2003 No. of to to Ordinary Rate 31/12/2005 Rate 31/12/2004 Shares pence £ pence £ Final dividend for 2004 142,403,847 2.67 3,802,183 - -Interim dividend for 2005 142,403,847 1.66 2,363,904 1.33 1,893,971Dividends paid 4.33 6,166,087 1.33 1,893,971 The Companies (Guernsey) Law, 1994 permits dividends to be paid out of profitsavailable for the purpose and the Company's Articles of Association state thatsuch profits available for distribution do not include realised or unrealisedprofits on capital assets. A portion of the final 2004 dividend and the interim 2005 dividend paid duringthe year were in excess of these distributable profits as defined above. Inorder for these dividends to comply with The Companies (Guernsey) Law, 1994, theDirectors intend to convert a portion of the share premium reserve to adistributable reserve. This requires shareholders' approval at the Company's AGMon 12 May 2006 and application to the Royal Court of Guernsey immediatelythereafter. The Directors intend to recommend a final dividend of 3.34p per Ordinary Sharebe paid to shareholders on the Company's register on 5 May 2006. This will besubject to the conversion of £25,000,000 from share premium reserve to adistributable reserve, which, as above, will require prior approval ofshareholders and the Royal Court of Guernsey. 9. Taxation The Company and its Guernsey registered subsidiaries, MPIF Holdings Limited andMPF Pharmacies Limited, have obtained exempt company status in Guernsey underthe terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 so thatthey are exempt from Guernsey taxation on income arising outside Guernsey and onbank interest receivable in Guernsey. Each Company is, therefore, only liableto a fixed fee of £600 per annum. The Directors intend to conduct the Group'saffairs such that it continues to remain eligible for exemption. A taxationcharge of £1,800 arose in Guernsey. MPIF Holdings Limited is subject to United Kingdom income tax on income arisingon the investment properties, after deduction of its debt financing costs,allowable expenses and capital allowances. The Company's UK subsidiaries are subject to United Kingdom corporation tax ontheir profits less losses. BHE Holdings Ltd and its subsidiaries along with BHEBonnyrigg Ltd, BHE Wand Ltd, BHE Heartlands Ltd and Healthcare Pharmacies Ltdare subject to UK taxation and a charge of £96,441 was incurred in the year. 10. Basic and Diluted Loss per Ordinary ShareThe basic and diluted loss per Ordinary Share is based on the loss for theperiod of £12,498,440 (2004: profit of £2,230,676) and on 142,403,847 OrdinaryShares (2004: 140,909,564), being the weighted average number of Ordinary Sharesin issue in the respective year/period. 11. Investments in Subsidiary Companies The Company owns the whole of the issued Ordinary Share capital of MPIF HoldingsLimited, specially formed to act as the property investment holding company forthe Group, which is incorporated and registered in Guernsey. The Company alsoowns the whole of the issued Ordinary Share capital of Assura Medical Limitedand Assura Medical Solutions Limited, which have been set up to facilitate thetransfer of secondary health care services to primary care, in accordance withgovernment strategy. MPIF Holdings Limited owns the whole of the issued Ordinary Share capital of BHE(Heartlands) Limited and BHE (Wand) Limited, both of which are propertyinvestment companies, registered in England, and BHE (Bonnyrigg) Limited, adormant company which is also registered in England. MPIF Holdings Limited also owns the whole of the issued Ordinary Share capitalof MPF Pharmacies Limited, specially formed to act as the pharmacy investmentholding company for the Group, which is incorporated and registered in Guernsey.MPF Pharmacies Limited owns the whole of the issued Ordinary Share capital ofHealthcare Pharmacies Limited which is registered in England and will, in duecourse, carry on its pharmacy trade in the United Kingdom. Healthcare Pharmacies limited, the Company's wholly owned UK pharmacy operator,was incorporated on 6 July 2004 and its results have been consolidated for the18 months ended 31 December 2005. The Company also owns 70% of the issued Ordinary Share capital of BHE HoldingsLimited and its subsidiaries, Development Support Partnership Limited, which isdormant, BHE (York) Limited and BHE Management Services Limited. BHE HoldingsLimited, BHE (York) Limited and BHE Management Services Limited, which areregistered in England, undertake property development, health planning andrelated consultancy services. The Company has the following investments in subsidiaries: 31/12/2005 31/12/2004Company £ £MPIF Holdings Limited 28,157,000 12,000,000Assura Medical Limited 100 -Assura Medical Solutions Limited 100 -BHE Holdings Limited 6,695,023 6,670,771Provision for diminution in value (10,850) (2,973,903) 34,841,373 15,696,868 12. PropertyProperties are stated at fair value, which has been determined based onvaluations performed by Savills Commercial Limited as at 31 December 2005, onthe basis of open market value, supported by market evidence, in accordance withInternational Valuation Standards. 31/12/2005 31/12/2004Group £ £At 1 January 51,739,136 -Acquisitions 75,615,590Subsequent expenditure 2,122,998 52,247,163Unrealised profit/(loss) on revaluation 2,165,005 (508,027)At 31 December 131,642,729 51,739,136 31/12/2005 31/12/2004Company £ £At 1 January - -Acquisitions - 32,040,262Disposals - (32,040,262)At 31 December 2004 - - During the year the Group has complied with Sections 21.27 (f) to 21.27 (i) ofthe FSA Listing Rules. 13. Investments in Associates The Group has the following investments in associates: Year Shares held % held Place of BusinessName of Company ended by the Group Incorporation ActivityInfracare (Midlands) 31 December 40 Ordinary 40% England Holds 60% of theLimited Shares of £1 share capital in the Dudley South LIFT CompanyGB Consortium (No. 1) 31 December 4,200 Ordinary 40% held by England Holds 60% of theLimited Shares of £1 BHE Holdings share capital in Limited which the Barnet, is 70% owned Enfield and by the Haringey, and Company Liverpool and Sefton LIFT CompaniesGB Consortium (No. 2) 31 December 27 Ordinary 45% held by England Holds 60% of theLimited Shares of £1 BHE Holdings share capital in Limited which the Coventry LIFT is 70% owned Company by the Company The above investments comprise: 2005 2005 2004 2004 Group Company Group Company £ £ £ £Cost of sharesAssociate 4,267 - 4,227 -Investment - - 5 -Loan to GB Consortium (No. 1) Limited 433,166 - - -Loan to Infracare (Midlands) Limited 930,540 - - - 1,367,973 - 4,232 - The above loans are unsecured, due after one year, and carry interest at 12%. The following information is given in respect of the Group's share of allassociates: 2005 2004 Group Group £ £Fixed assets 464,103 4,227Current assets 545,070 255,803 1,009,173 260,030 Liabilities due within one year 101,876 126,813Liabilities due after one year 1,185,133 292,617 1,287,009 419,430 Share of associates revenue and profitRevenue 408,954 -Profit/(loss) 166,277 (164,082) No credit will be taken for the Group's share of profits until the associateshave accumulated net retained profits. The movement on investments in associates during the year was as follows: 2005 2004 Group Group £ £Balance at 1 January 4,232 -Acquired in year 35 4,232Net loans advanced or transferred 1,363,706 - Balance at 31 December 1,367,973 4,232 14. Goodwill On 30 July 2004 the Company acquired 70% of the share capital of BHE HoldingsLimited, and 100% of the share capital of BHE (Bonnyrigg) Limited and BHE(Heartlands) Limited for a consideration of £4m in cash plus 2,403,847 OrdinaryShares in the Company with a value of £2,500,000 at that date. The net assets ofthe group acquired were £nil. The Company tests annually whether goodwill has suffered any impairment. Thesecalculations use cash flow projections based on detailed financial modelsprepared by management covering a 20 year period, with all anticipated futurecash flows discounted at rates of 10% and above, to current day values. Based onthe Company's assessment of the value of the pipeline of projects in BHEHoldings Limited, no adjustment is considered necessary at 31 December 2005. Other key assumptions include property yields ranging between 5.5% - 7% andproperty development profits of 7.5% on development costs, discounted to currentday values as above. The goodwill arising and at the year end is as follows: 31/12/2005 31/12/2004Group £ £At 1 January 5,867,768 -Costs of acquisition 24,252 6,670,771Revaluation at date of acquisition - (803,003) Goodwill at 31 December 5,892,020 5,867,768 No impairment has been recognised during the year/period. 15. Development Costs 31/12/2005 31/12/2004Group £ £Pharmacy licence application costs 36,458 - Development costs and net book value at 31 December 36,458 - 16. Tangible Fixed Assets 31/12/2005 31/12/2005 31/12/2005Group £ £ £ Computer Fixtures & Total Equipment FittingsCostAt 1 January - 37,896 37,896Additions at cost 10,976 24,702 35,678At 31 December 10,976 62,598 73,574 DepreciationAt 1 January - 17,818 17,818Depreciation for the year 2,190 18,433 20,623At 31 December 2,190 36,251 38,441 Net book value at 31 December 2005 8,786 26,347 35,133Net book value at 31 December 2004 - 20,078 20,078 17. Loans 31/12/2005 31/12/2004Company £ £MPIF Holdings Limited 107,194,059 45,788,601 These comprise unsecured subordinated loans issued in support of propertyacquisitions. The loans are repayable on 31 December 2013 and interest ischarged at the fixed rate for that period plus a margin of 3%. The loans at 31 December 2004 have been reclassified between current and longterm with £7,510,851 being transferred to current assets. See note 20. 18. Cash and Cash Equivalents Cash includes £740,000 (2004: £635,000) held to the bank's order as security forletters of credit issued by the bank to the debt funders for the three LocalImprovement Finance Trusts (LIFT Companies) to which the Group has pledgedfunding upon practical completion of the medical centres under development. 19. Debtors 31/12/2005 31/12/2004Group £ £VAT recoverable 154,283 873,584Other debtors 749,429 934,796Short term loan to Infracare (Midlands) Limited* - 932,091Rent receivable 2,154,875 893,175Property purchase deposits 478,870 981,750 3,537,457 4,615,396 * The unsecured loan from MPIF Holdings Limited to Infracare (Midlands) Limited carries interest at12% and has been transferred to investments. See note 13. Company Due from MPIF Holdings Limited - 1,479,132 Prepayments and other debtors 73,334 36,778 73,334 1,515,910 20. Loans 31/12/2005 31/12/2004Company £ £MPIF Holdings Limited 9,951,661 2,567,259BHE Holdings Limited 575,000 250,000BHE (Heartlands) Limited 5,050,392 3,424,675BHE (Bonnyrigg) Limited - 1,032,032MPF Pharmacies Limited 599,335 216,560GB Consortium (No. 1) Limited 433,166 20,325 16,609,554 7,510,851 The above loans are unsecured, non interest bearing and repayable upon demand. The loan to BHE(Bonnyrigg) Limited of £3,349,238 and a loan made to BHE (Wand) Limited of £225,068 during the yearhave been provided for in full. 21. Creditors 31/12/2005 31/12/2004 £ £GroupTrade creditors 152,651 954,745Other creditors 1,054,913 488,355Corporation tax and other taxes 161,834 -Interest payable and similar charges 306,710 -Rents received in advance 1,720,131 779,316 3,396,239 2,222,416 CompanyTrade creditors 17,713 6,357Other creditors 91,097 99,136Interest payable and similar charges 306,710 - 415,520 105,493 22. Long Term Loan 31/12/2005 31/12/2004Group and Company £ £Amount drawn down in year 25,500,000 -Loan issue costs (622,135) -Amortisation of loan issue costs 51,845 - 24,929,710 - The Company has a loan facility agreement with National Australia Bank for£100,000,000. As at 31 December 2005, the Company had drawn down £25,500,000under this agreement leaving an undrawn balance of £74,500,000. This loan isdue for repayment on 21 July 2008. The fair value of the loan at 31 December 2005 was £25,500,000. During the year, the Company's bank borrowings were subject to the followingfinancial covenants: (i) Loan to value ratio - the aggregate outstanding loan to current valuation ofinvestment properties should not exceed 75%. (ii) Projected net rental income receivable during the following 12 month periodmust cover 130% of projected finance costs. (iii) Financial indebtedness must be below 65% of Gross Asset Value. (iv) Average weighted lease length must exceed 121/2 years. The Company has been in compliance with the financial covenants throughout theperiod since issue. 23. Share Capital Authorised £ 200,000,000 Ordinary Shares of 10p each 20,000,00020,000,000 Preference Shares of 10p each 2,000,000 22,000,000 Number of Share Shares CapitalOrdinary Shares issued and fully paid £ 142,403,847 Ordinary Shares of 10p each 142,403,847 14,240,385 Total share capital at 31 December 2004 and 2005 142,403,847 14,240,385 The Company has not issued any Preference Shares. Voting Rights Ordinary shareholders are entitled to vote at all general meetings. Preferenceshareholders are entitled to receive notice of and speak at any general meetingof the Company but they can only vote on any resolution relating to thePreference Shares. Dividends The preference shareholders are entitled to, in priority to the holders of anyother class of share, a fixed cumulative preferential cash dividend at the rateof 6p per Preference Share per annum. The ordinary shareholders are entitled to the balance of revenue made availablefor distribution by the Company. Conversion Each preference shareholder may convert part of his shareholding into fully paidOrdinary Shares at the rate of one Ordinary Share for each Preference Shareheld, in the manner and basis set out in the articles. Capital If not converted, the Preference Shares may be redeemed by the Company subjectto notice periods set out in the articles. The ordinary and preference shareholders are entitled to all capital pari passuonce the preference shareholders have received their dividend entitlement.24. Share Premium 31/12/2005 31/12/2004 £ £ At 1 January 122,239,453 -Proceeds arising on issue of Ordinary Shares - 128,259,615Allocation of issue costs - (6,020,162) Share premium at 31 December 122,239,453 122,239,453 25. Profit and Loss Reserve 31/12/2005 31/12/2004 £ £GroupAt 1 January 336,705 -Ordinary dividends (6,166,087) (1,893,971) (Loss)/profit for the year/period (12,498,440) 2,230,676Reserve at 31 December (18,327,822) 336,705 CompanyAt 1 January 267,002 -Ordinary dividends (6,166,087) (1,893,971)(Loss)/profit for the year/period (12,650,916) 2,160,973Reserve at 31 December (18,550,001) 267,002 26. Net Asset Value per Ordinary Share The net asset value per Ordinary Share is based on the net assets attributableto the ordinary shareholders of £117,929,837 (2004: £136,746,840) and on142,403,847 Ordinary Shares in issue at the balance sheet date. 27. Note to the Consolidated Cash Flow Statement 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 £ £Reconciliation of net profit before investment result to net cash outflow from operating activities: Net profit before investment result 1,804,639 2,669,000UK tax charge (98,241) -Adjustment for non-cash items:Depreciation 20,623 350(Increase) in debtors (357,032) (2,701,555)Increase in creditors 1,173,823 2,222,416Amortisation of loan issue costs 51,845 -Net cash inflow from operating activities 2,595,657 2,190,211 28. Financial Instruments and PropertiesThe Group holds cash and liquid resources as well as having debtors andcreditors that arise directly from its operations. The Group has entered into aninterest rate SWAP during the year as disclosed in note 7. The main risks arising from the Group's financial instruments and properties aremarket price risk, credit risk, liquidity risk and interest rate risk. TheBoard regularly reviews and agrees policies for managing each of these risks andthese are summarised below. Market Price RiskThe Group's exposure to market price risk is comprised mainly of movements inthe value of the Group's investment in property. Property and property relatedassets are inherently difficult to value due to the individual nature of eachproperty. As a result, valuations are subject to uncertainty. There is noassurance that the estimates resulting from the valuation process will reflectthe actual sales price even where a sale occurs shortly after the valuationdate. Rental income and the market value for properties are generally affected byoverall conditions in the local economy, such as growth in gross domesticproduct, employment trends, inflation and changes in interest rates. Changes ingross domestic product may also impact employment levels, which in turn mayimpact the demand for premises. Furthermore, movements in interest rates mayalso affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factorsspecific to the real estate market, such as competition from other propertyowners, the perceptions of prospective tenants of the attractiveness,convenience and safety of properties, the inability to collect rents because ofthe bankruptcy or the insolvency of tenants or otherwise, the periodic need torenovate, repair and release space and the costs thereof, the costs ofmaintenance and insurance, and increased operating costs. The Directors monitor market value by having independent valuations carried outquarterly by Savills Commercial Limited. Credit RiskCredit risk is the risk that an issuer or counterparty will be unable orunwilling to meet a commitment that it has entered into with the Group. In theevent of a default by an occupational tenant, the Group will suffer a rentalincome shortfall and incur additional costs, including legal expenses, inmaintaining, insuring and re-letting the property. Liquidity Risk Liquidity risk is the risk that the Group will encounter in realising assets orotherwise raising funds to meet financial commitments. Investments in propertyare relatively illiquid, however, the Group has tried to mitigate this risk byinvesting in desirable properties which are well let to General Practitionersand Primary Care Trusts. Interest Rate Risk The Group's exposure to market risk for changes in interest rates relatesprimarily to the Group's cash deposits and, as debt is utilised, long-term debtobligations. The Group's policy is to manage its interest cost using interestrate SWAPs (see note 7). The interest rate profile of the Group at 31 December 2005 was as follows: Total Fixed Variable Assets on Weighted rate rate which no average interest is interest rate received per annum £ £ £ £ %Financial AssetsProperties 131,642,729 - - 131,642,729 -Fixed assets 35,133 - - 35,133 -Goodwill 5,892,020 - - 5,892,020 -Intangible fixed assets 36,458 - - 36,458 -Investments in associates 1,367,973 1,367,973 - - 12.0Non-current assets 138,974,313 1,367,973 - 137,606,340 -Cash and cash equivalents 3,745,649 - 3,745,649 - 4.6Debtors 3,537,457 - - 3,537,457 -Development work in progress 16,520,686 - - 16,520,686 -Total assets as per Balance Sheet 162,778,105 1,367,973 3,745,649 157,664,483 - Total Fixed Liabilities Weighted rate on which average no interest interest rate is paid per annum £ £ £ %Financial LiabilitiesBank loans 24,929,710 24,929,710 - 5.45Interest rate SWAP liability 3,472,319 - 3,472,319 -Performance fee provision 13,050,000 - 13,050,000 -Creditors 3,396,239 - 3,396,239 -Total liabilities as per Balance Sheet 44,848,268 24,929,710 19,918,558 The interest rate profile of the Group at 31 December 2004 was as follows: Total Variable Assets on Weighted rate which no average interest is interest received rate per annum £ £ £ %AssetsProperties 51,739,136 - 51,739,136 -Fixed assets 20,078 - 20,078 -Goodwill 5,867,768 - 5,867,768 -Investments 4,232 - 4,232 -Non-current assets 57,631,214 - 57,631,214 -Cash and cash equivalents 66,650,944 66,650,944 - 4.6Debtors 4,615,396 - 4,615,396 -Development work in progress 10,071,702 - 10,071,702 -Total assets as per Balance Sheet 138,969,256 66,650,944 72,318,312 Total Variable Liabilities Weighted rate on which average no interest interest rate is paid per annum £ £ £ %Financial LiabilitiesBank loans - - - -Interest rate SWAP liability - - - -Creditors 2,222,416 - 2,222,416 -Total liabilities as per Balance Sheet 2,222,416 - 2,222,416 29. Commitments At the year end the Group had commitments to invest a further £56,300,000 (2004:£15,616,000) in its portfolio of investment property. The Company has given guarantees in favour of the General Practice FinanceCorporation (GPFC) amounting to £740,000 (2004: £635,000) to secure future LIFTinvestments by the Group. 30. Related Parties The Company was charged investment manager's fees totalling £2,691,686 (2004:£2,958,265) by Berrington Fund Management Limited, none of which was outstandingat the balance sheet date. Provision has been made for a performance fee payable to Berrington FundManagement Limited, and Dr Mark Jackson, in respect of the year ended 31December 2005 of £13,050,000 (see note 4). At the year end Berrington Fund Management Limited had an interest in 147,000Ordinary Shares in the Company. During the year certain costs, amounting to £450,606 in total, relating to theGroup's pharmacy company were supplied by Pharma-e Limited, a company in whichJohn Curran is a director and shareholder. No balance was outstanding at theyear end. The Group was charged administration fees of £92,584 (2004: £113,453) by MourantGuernsey Limited, none of which (2004: £nil) was outstanding at the year end.Serena Tremlett, who is a director of the Company, is an employee of MourantGuernsey Limited. MPIF Holdings Limited exchanged contracts in the year for the purchase of amedical centre at Argyle Court, Liverpool, which is being developed by RopewalksOne LLP. WPL Ventures Limited, a wholly owned subsidiary of the The WestburyProperty Fund Limited, which is managed by Berrington Fund Management Limited,is a member of Ropewalks One LLP. Included in property management expenses is an amount of £161,862 (2004:£88,258) payable to Barlows Asset Management Limited, a subsidiary of BarlowsHoldings Limited, a shareholder in the Company, in accordance with theirproperty management agreement with MPIF Holdings Limited. No balance wasoutstanding at the year end (2004: £nil). 31. Post Balance Sheet Events The Company has intended, subject to shareholders' approval, to acquire theentire share capital of Berrington Fund Management Limited and the Member'scapital of Berrington Fund Management LLP. In connection with this transaction,the Company also intends to undertake a Placing and Open Offer of new OrdinaryShares. Full details of these transactions will be provided in a prospectus toshareholders. The Company intends, subject to approval of shareholder, creditors and the RoyalCourt of Guernsey, to transfer £25,000,000 from share premium account todistributable reserves. Assuming that this is approved and also subject toshareholder approval, a dividend of 3.34p per share will be paid. Notice of Annual General Meeting NOTICE IS HEREBY GIVEN THAT THE SECOND ANNUAL GENERAL MEETING OF THESHAREHOLDERS OF THE MEDICAL PROPERTY INVESTMENT FUND LIMITED (THE "COMPANY")WILL BE HELD AT LA FREGATE HOTEL, LES COTILS, ST. PETER PORT, GUERNSEY ON 12 MAY2006. Agenda 1. Chairman To elect a Chairman of the Meeting. Ordinary Resolutions 2. Annual Report and Audited Financial Statements To approve and adopt the Annual Report and FinancialStatements of the Company for the year ended 31 December 2005. 3. Auditors To re-appoint Ernst & Young LLP as Auditors to the Company andto authorise the Directors to determine the Auditors' remuneration. 4. Appointment of Directors To approve the re-election of Peter Pichler and SerenaTremlett as Directors of the Company. 5. Directors' Remuneration To authorise and agree the remuneration of the Directors. 6. Approval of Dividend To approve the payment of a final dividend in respect of theyear ended 31 December 2005 to shareholders on the register on 5 May 2006,subject to the approval of the Royal Court of Guernsey for the cancellation ofthe share premium of the Company as set out in the Special Resolution below. Special Resolution 7. Cancellation of Share Premium To approve, subject to the approval of the Royal Court ofGuernsey, the amount of £25,000,000 standing to the credit of the share premiumof the Company be cancelled in accordance with the Companies (Guernsey) Laws,1994 (as amended) and that such amount of £25,000,000 of the share premiumaccount so cancelled be credited as a distributable reserve to be established inthe books of account of the Company which shall be able to be applied in anymanner in which the Company's profits available for distribution are able to beapplied, including the purchase of the Company's own shares and/or payment ofdividends. 8. Any Other Business By Order of the Board For and on behalf of Mourant Guernsey Limited Secretary A Member entitled to attend and vote is entitled to appoint one or more proxiesto attend and vote in his stead. A proxy need not also be a Member. Form of Proxy I/We, being a Member of The Medical Property Investment Fund Limited hereby appoint ........................................................................ of.............................................................................. or failing him, the Chairman of the Meeting as our proxy to attend and to voteon our behalf and if necessary demand a poll at the Second Annual GeneralMeeting of the Company to be held at La Fregate Hotel, Les Cotils, St. PeterPort, Guernsey, Channel Islands on 12 May 2006 at 11.30 a.m. and at anyadjournment thereof. Please indicate with an 'X' in the appropriate box how you wish your vote to becast in respect of the Resolution. If you do not insert an 'X' in theappropriate box your Proxy will vote or abstain at his discretion. Ordinary Resolutions For Against1. To approve and adopt the Annual Report and Financial Statements of the Company for the year ended 31 December 2005.2. To re-appoint Ernst & Young LLP as Auditors of the Company until the next Ordinary General Meeting.3. To authorise the Directors to determine the Auditors' remuneration. 4. To approve the re-election of Peter Pichler and Serena Tremlett as Directors of the Company. 5. To authorise and agree the remuneration of Directors. 6. To approve the payment of a final dividend in respect of the year ended 31 December 2005 to shareholders on the register on 5 May 2006, subject to the approval of the Royal Court of Guernsey for the cancellation of the share premium of the Company as set out in the Special Resolution below. Special Resolution For Against 7. To approve, subject to the approval of the Royal Court of Guernsey, the amount of £25,000,000 standing to the credit of the share premium of the Company be cancelled in accordance with the Companies (Guernsey) Laws, 1994 (as amended) and that such amount of £25,000,000 of the share premium account so cancelled be credited as a distributable reserve to be established in the books of account of the Company which shall be able to be applied in any manner in which the Company's profits available for distribution are able to be applied, including the purchase of the Company's own shares and/or payment of dividends. Authorised Signatory ................................................Date.................................... 2006 Notes 1. A member entitled to attend and vote is entitled toappoint one or more proxies to attend and vote instead of him. A proxy need notbe a member. 2. The instrument appointing a proxy shall be in writingunder the hand of the appointor or of his attorney duly authorised in writingor, if the appointor is a corporation, either under seal or under the hand of anofficer or attorney duly authorised. 3. If it is desired to appoint some other person or personsas proxy or proxies the name(s) of the Proxy or Proxies desired must be insertedin the space provided and the alteration should be initialled. 4. Any corporation which is a Member of the Company may byresolution of its Directors or other governing body, authorise such person as itthinks fit to act as its representative at any meeting of the Company or of anyclass of Members of the Company, and the person so authorised shall be entitledto exercise the same powers (other than a power to appoint a proxy) as thatcorporation could exercise if it were an individual Member of the Company. The instrument appointing a proxy and the power of attorney or other authority(if any) under which it is signed or a notarially certified copy of that poweror authority shall be deposited at the Office not less than 48 hours before thetime for holding the meeting or adjourned meeting at which the person named inthe instrument proposes to vote or, in the case of a poll, not less than 24hours before the time appointed for the taking of the poll, and in default theinstrument of proxy shall not be treated as valid. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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