Final Results

30 April 2012

Public Service Properties Investments Limited

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

Final Results for the year ended 31 December 2011

PSPI (AIM: PSPI), the specialist European care home real estate investment and financing company, announces audited results for the year ended 31 December 2011.

Highlights:

§ Adjusted earnings before tax of £10.4 million or 10.11p per share (31 December 2010 - £8.0 million or 8.62p per share)

§ Total rental income¹ increased by 3.3% to £17.2 million (2010: £16.7 million)

§ Investment properties valued at £256.4 million (31 December 2010 - £272.2 million)

§ Net asset value per share of 108.3p at 31 December 2011 (31 December 2010 - restated² 130.6p)

§ The Company repaid £30.7 million in debt during the year against new borrowing of £27.7 million and invested £8.4 million in capital expenditure

§ The Company's Loan to Value ratio³ at 31 December 2011 was 54% (2010 - 52%)

§ The Company has entered into negotiations with the European Care Group ("ECG"), the Company's sole UK tenant, with a view to combining a majority of PSPI's UK assets with ECG's assets and businesses and the refinancing of the combined group's assets and businesses. Further announcements will be made in due course

§ In view of the matters noted above, the Board of Directors does not recommend the declaration of a final dividend

 Patrick Hall, Chairman of PSPI, commented, 

"The economic climate in the Company's various markets remains challenging. As indicated in the Company's announcement on 2 April 2012, the outcome of the discussions with ECG and/or refinancing of the Group's debt maturing in September 2012 may have a material effect on the future value of the Group's assets and the level of its operational profitability."

Notes:

¹ Excluding accrued income of £2.6 million on straight line lease recognition included in 2010.

² Note 22 to the financial statements outlines the background to early adoption of the amendment to IAS12 "Deferred Tax: Recovery of Underlying Assets" resulting in a restatement of the balance sheet at 31 December 2010.

³ Loan to Value is represented by total short and long term borrowings expressed as a percentage of total non-current assets, excluding goodwill, loans and receivables.

For further information, please visit www.pspiltd.com or contact:

Chairman's Statement

I am pleased to report the Group's audited consolidated financial results for the year ended 31 December 2011.

Update on Strategic Review

At the end of September 2011, at the time of the Group's interim results, the Board initiated a strategic review of all the Company's assets in each jurisdiction against a background of very restricted debt markets, Government austerity measures and local authority funding difficulties throughout the UK. These factors have negatively impacted most care home operators in the UK, as evidenced by declining occupancy rates and profitability across the sector.

The Company's shares have been trading at a significant discount to Net Asset Value for some time, and, as announced on 2 April 2012, the Company has entered into negotiations with the European Care Group ("ECG"), the Company's sole UK tenant, with a view to combining a majority of PSPI's UK assets with ECG's assets and businesses and the refinancing of the combined group's assets and businesses. Further announcements will be made in due course concerning the outcome of these discussions and regarding options to maximise shareholder value in respect of the balance of the UK assets and the Group's non-UK assets.

Financial Review

Total rental income¹ increased by 3.3% to £17.2 million for the year ended 31 December 2011, primarily as a result of indexation in the UK linked to increases in the retail price index.

Fair value adjustments on investment properties, based on an Independent Valuation showed a reduction of £25.8 million at 31 December 2011, representing a decline of 9.5% for the investment property portfolio since 31 December 2010. £15.3 million of the decline was in respect of the UK portfolio where the average capitalisation rate² increased from 6.8% to 7.8%.

Adjusted earnings³ for the year 31 December 2011 were £10.4 million compared to £8.0 million for 2010 and adjusted earnings per share were 10.11p compared to 8.62p for the comparable period in 2010 representing an increase of 17.4%.

Total equity at 31 December 2011, after £7.2 million of dividends were paid in 2011, was £114.1 million compared to the adjusted £133.8 million at 31 December 2010. Net Asset Value per share at 31 December 2011 stood at 108.3p per share compared to the restated 130.6p per share at 31 December 2010.

Operational matters

The Company continued to invest in capital expenditure projects to improve the quality of the assets in the portfolio, investing a further £8.4 million in both the UK and Germany during 2011. This programme continued during 2012, after which the Company will have enlarged and upgraded a significant portion of the UK properties. The Company completed the refurbishment programme for one of its German care homes and has granted the operator a new 25 year lease effective from February 2012.

During 2011 debt of £30.7 million was repaid against new borrowings of £27.7 million. The Company's Loan to Value ratio4 at 31 December 2011 was 54% (31 December 2010: 52%).

Dividends

In view of the matters noted above, the Board of Directors does not recommend the declaration of a final dividend.

Outlook

The economic climate in the Company's various markets remains challenging. As indicated in the Company's announcement on 2 April 2012, the outcome of the discussions with ECG and/or refinancing of the Group's debt maturing in September 2012 may have a material effect on the future value of the Group's assets and the level of its operational profitability.

The Asset Manager's Review includes further detail on the Group's performance during 2011.

Patrick Hall

Chairman

27 April 2012

¹ Excluding accrued income of £2.6 million on straight line lease recognition included in 2010.

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 Earnings adjusted to exclude the impact of non cash and one-off items as disclosed in note 9 to the audited financial statements.

4 Loan to Value is represented by total short and long term borrowings expressed as a percentage of total non-current assets, excluding goodwill, deferred tax, loans and receivables.

Asset Manager's Review

Business Outlook

The impact of the credit crisis continues to adversely affect the property sector, with senior debt providers lending on a more cautious and selective basis. The Group continues to enjoy good relationships with its senior debt providers and remained fully compliant with all debt service and loan to value covenants during 2011 and into the current year. However, the lack of availability of senior debt for operations and acquisitions remains a critical factor going forward. In addition, the well publicised operational problems for the largest operator in the UK care home sector have created an even more challenging market and backdrop in which to operate. Whilst the longer term fundamentals of the care home sector remain strong, there are short term pressures on operators, most notably in the UK where Government spending cuts have impacted cash flows. Although we do not expect significant changes in Government support for the care home sector, there are a number of factors, such as later-stage referrals of residents, which have affected occupancy and profitability.

The Dilnot Commission reported to the Government in July 2011 making various recommendations on the potential structure of funding for the long term care sector in the UK to address the demographic trends and attendant funding requirements.

The Commission's central recommendation was to establish a cap on the level of contribution that individuals would be expected to make towards the cost of their long term care requirements, allowing individuals to better plan for these costs. However, it remains to be seen which, if any, of the Commission's recommendations the Government will adopt.

Against this background, the potential combination referred to in the Chairman's Statement of a majority of the Company's UK portfolio with the owned and operated assets of ECG, the Group's sole UK tenant, would strengthen the capital structure for the immediate future, address the Company's short term refinancing requirement and allow the tenant's management team to focus on improving operating performance and profitability in the immediate and medium term.

Capital expenditure projects in the UK

The Company continued to invest in projects that will add capacity through expansion, re-configuration and refurbishment for a number of care homes in the UK portfolio, bringing the total invested since 2006 to approximately £19 million. Inevitably occupancy and operator income has been negatively impacted at the care homes during the period of redevelopment, and those care homes that have undergone expansion or are in the course of development experienced occupancy of approximately 57% in late March 2012. Occupancy in the rest of the UK portfolio was between 86% and 88% throughout 2011, although it had dropped to 83% by late March 2012. Three homes, representing approximately 4% of the total registered beds in the UK portfolio, are empty at this time which are either currently being refurbished or are under review by ECG, again challenging operator returns.

The Company has noted that expansion and refurbishment projects, managed by our UK tenant, have taken longer than expected to be completed, that costs have generally overrun and that it is taking ECG longer to re-build occupancy than originally envisaged. These factors have adversely affected operational performance at ECG, which has been reflected in the decrease in independent valuations of the UK portfolio at the end of the year and has also reduced the expected capital uplift.

The redevelopment of the care home at Rushyfields in Brandon, near Durham was completed in May 2011. The project involved the demolition of the existing 23 bed facility and the construction of a new home comprising 41 registered beds. Occupancy was zero when the care home re-opened and had only risen to 56% by late March 2012. The expansion and refurbishment of the Hawkesgarth care home in North Yorkshire was completed in September 2011. The number of available beds increased by 33% to 48 and the existing space was completely refurbished as part of the scheme. In this instance, occupancy on re-opening all of the available beds increased from 54% in October 2011 to 90% by late March 2012.

European Care Group

ECG bolstered its senior management team with the recruitment of Ted Smith (Chief Executive) and David Manson (Finance Director) in August 2011. Both Ted and David spent several years running Craegmoor, a specialist care group which was acquired by The Priory Group in April 2011. Ted Smith and David Manson have now taken full responsibility for day to day management at European Care and have made several changes to personnel over the last six months.

Ted Smith commented on ECG's operations as follows:

The Asset Manager believes that the potential realignment of the Company's relationship with ECG as referred to in the Chairman's Statement could result in improved performance for the combined group.

The Company's non-UK asset portfolio

The care home property market in Germany remains stable. Currently, we do not foresee material changes to government support for residents who cannot afford to pay for care in the types of care homes which are owned by the Group. The Company completed a €3.2 million refurbishment of the Huttenstrasse care home in Berlin in February 2012. The property was originally acquired at a gross cost of €3.0 million in December 2007 with a lease due to expire in May 2013. In conjunction with the refurbishment programme, the Group has entered into a new 25 year lease with the tenant at an enhanced rent, reflecting a gross yield of 7.1% on the aggregate purchase price and cost of refurbishment.

The rents for the German portfolio are adjusted every three or four years by a proportion of the change in the German Consumer Price Index. Rent on the Swiss investment property adjusts annually in line with movements in the Swiss Consumer Price Index whilst the US investment portfolio provides a fixed income stream throughout the term of the lease until renewal in 2022.

The Company continues to review all options in each of these jurisdictions.

Financial Review

The Group's revenues were £17.2 million for the year to 31 December 2011 compared with £19.3 million for 2010, which included £2.6 million of non-cash accrued income linked to the guaranteed minimum annual rental increases for all of the Group's UK properties. This guaranteed minimum increase was removed from each lease relating to UK properties with effect from 31 December 2010 and the Group's underlying revenues increased by 3.3% primarily due to indexation of rental income for investment properties in the UK.

Rent reviews for approximately 36% of the Company's UK investment properties occur during the first quarter of the year. This has resulted in increases of between 3.7% and 3.9% per annum, based on the rise in the UK Retail Price Index.

Independent valuations of the PSPI Group's investment property assets at 31 December 2011 were undertaken by Colliers International for all jurisdictions except the USA where the assets were externally valued by a US company specialising in valuation of US Postal facilities. Between 31 December 2010 and 31 December 2011, the aggregate capital value of the investment properties decreased by 5.8%. The UK portfolio, which represented 69.9% of the Group's total investment property portfolio as at 31 December 2011, decreased by £10.8 million or 5.9%, before an increase in capital expenditure work in progress of £4.1 million. This reflected an increase in the average Capitalisation Rate¹ from 6.8% at 31 December 2010 to 7.8% at 31 December 2011. The valuations reflected trading and investment market conditions in the UK care home sector but also temporary disruption to trading at a number of properties as a result of the capital expenditure programme.

The value of the PSPI Group's German investment properties, which represented 19.3% of the total portfolio value at 31 December 2011, reduced by £1.8 million or 3.4% during the course of the year . This reflected an increase in the average Capitalisation Rate from 6.7% at 31 December 2010 to 7.2% at 31 December 2011.

The US portfolio of post offices and the Swiss care home property, representing 6.1% and 4.8%, respectively of the total investment property portfolio as at 31 December 2011, respectively, declined in value by £7.3 million or 21.6% during the year. This decline reflected an increase in the average Capitalisation Rate for the US properties from 7.6% at 31 December 2010 to 8.4% at 31 December 2011, driven by increased investor uncertainty as a result of adverse publicity from a closure programme announced by the US Postal Service. Although up to 10% of the portfolio of 139 properties owned by the PSPI Group could potentially be affected, the PSPI Group has not been notified of any planned closures by the US Postal Service, and even if these assets were subject to closure, the PSPI Group's total rental income would decrease by less than 1% until the properties were re-let or sold. The Capitalisation Rate for the Swiss investment property, which had not previously been valued by Colliers International, increased from 5.2% at 31 December 2010 to 7.8% at 31 December 2011, partly due to the operational challenges to the tenant's operations, although occupancy and trading performance improved in the second half of 2011.

Cash finance costs were £6.9 million for the year ended 31 December 2011 compared to £7.9 million in 2010. The reduction is primarily a result of debt repayments made at the end of 2010 and in the first half of 2011, offset by higher net interest costs on certain refinancings completed in 2011.

Adjusted earnings², as set out in note 9 of the financial statements, for the year ended 31 December 2011 amounted to 10.11p per share compared to 8.62p per share for 2010. The increase in broadly the effect of higher underlying income with lower interest costs.

The Group's non-current assets decreased from £290.0 million at 31 December 2010 to £273.7 million at 31 December 2011 primarily as a result of the fair value adjustments noted above and changes in foreign currency exchange rates. Total assets decreased from £308.9 million to £282.3 million during the same period, primarily due to the decrease in cash from investment in the capital expenditure programme and the repayment of £7.5m of fixed rate notes that matured in February 2011.

The Group's short and long term borrowings at 31 December 2011 were £92.8 million and £49.4 million, respectively, compared to £33.3 million and £112.4 million at 31 December 2010. Total borrowings at 31 December 2011 represented 53.6% of non-current assets excluding goodwill, deferred tax assets, loans and receivables compared to 51.8% at 31 December 2010.

The Company obtained a new debt refinancing secured against the US portfolio in August 2011, achieving a net 75% loan to value ten-year facility, with the principal amortising over 30 years. The new facility is non-recourse to the Group. The Company also secured a new £11.5 million senior debt facility in December 2011 that was secured against four properties in the UK portfolio. The proceeds were used to repay £4.0 million to an existing senior debt provider, £3.0 million to an affiliate of Elliott Associates, L.P., which represents the Company's largest shareholder, and which had provided a bridge loan in connection with the US refinancing noted above, as well as £4.5 million to augment working capital.

Note 22 to the financial statements outlines the background to early adoption of the amendment to IAS12 "Deferred Tax: Recovery of Underlying Assets". The Company believes that the current treatment more accurately reflects the deferred taxation appropriate on fair value gains and business combinations. As a result of the early adoption of this new standard, the Company has re-stated the impact of the change in the opening balance sheet at 1 January 2010 and 31 December 2010.

Total equity decreased from £133.8 million at 31 December 2010 to £114.1 million at 31 December 2011. The decrease primarily reflects the reported loss for the year and the £7.2 million of dividends paid in 2011.

The Company's net asset value per share at 31 December 2011 stood at 108.3p per share compared to 130.6p per share at 31 December 2010.

RP&C International

27 April 2012

¹ 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

²Adjusted earnings represent reported net profit/(loss) after tax and adjusted for non-cash adjustments to the income statement and excluding one-off costs of a non-recurring nature.

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

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

PUBLIC SERVICE PROPERTIES INVESTMENTS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION

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

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 2011, 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.

The Group has adopted the following new standards, amendments to standards and interpretations which are mandatory for the financial year ended 31 December 2011.

Amendments to IAS 12 'Deferred Tax: Recovery of Underlying Assets' (effective 1 January 2012, early application permitted). The amendment affects investment properties measured at fair value. The recognition of deferred taxes in relation to those investment properties is based on an expected recovery through a sales transaction. The SIC-21 guidance has been included in the standard. The Group has elected to early adopt the amendment before the effective date. The amendment had a material impact on the financial statements, with adjustments impacting prior year profit attributable to shareholders and retained earnings. The amendment was applied retrospectively, refer to Note 22 for relevant adjustments.

Amendments to IAS 32 'Financial Instruments: Presentation' (Classification of rights issues; effective as from 1 February 2010, early application permitted). The amendment implies that rights issues are now required to be classified as equity if they are issued for a fixed amount of cash regardless of the currency in which the exercise price is denominated provided they are offered on a pro rata basis to all owners of the same class of equity. The amendment did not have a material impact on the financial statements.

IFRIC 19 'Extinguishing financial liabilities with equity instruments' (effective 1 July 2010, retrospective application from beginning of the earliest comparative period, early application permitted). IFRIC 19 clarifies the accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished by the debtor issuing its own equity instruments to the creditor (referred to as a "debt for equity swap"). The interpretation requires a gain or loss to be recognised in profit or loss when a liability is settled through the issuance of the entity's own equity instruments. Furthermore, it provides guidance on the calculation of those gains or losses. 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 2011 and have not been early adopted:

Amendments to IFRS 7 'Disclosures - Transfers of financial assets' (effective on 1 July 2011, early application permitted). The amendments require additional disclosures in respect of risk exposures arising from transferred financial assets (e.g. factoring, securitisation), any associated liabilities and it includes additional disclosure requirements in respect to those transfers. The Group has not elected to adopt the amendment before the effective date. The amendment is not expected to have a material impact on the financial statements.

IFRS 9 'Financial Instruments' (effective 1 January 2015, retrospective application, early application permitted). IFRS 9 comprises two measurement categories for financial assets: amortised cost and fair value. All equity instruments are measured at fair value. 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 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 represent principal and interest. It will otherwise need to be considered at fair value through profit or loss. The Group has not elected to adopt the standard before the effective date. The amendment could have an impact if changes in assessments of existing financial assets are made.

Amendments to IFRS 9, 'Financial instruments' (effective 1 January 2015, retrospective application, early application permitted). The amendment includes guidance on financial liabilities and derecognition of financial instruments. The accounting and presentation for financial liabilities and for derecognising 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 Group has not elected to adopt the amendment before the effective date. The amendment could have an impact if changes in assessments of existing financial liabilities are made.

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 key changes are as follows:

- Definition of control: focus on the need to have both power and variable returns before control is present and power is the current ability to direct the activities that significantly influence returns. As a SIC-12 criterion no longer exists, existing relationships are in the scope of this standard;

- De facto control: It is now embedded in the standard, however not a new concept, but now there is application guidance explicit in the standard;

- Principal-agent relationships: new factors for an entity to consider in determining if it is acting as a principal or an agent, which has a direct impact on the decision who has control;

- Potential voting rights: Only substantive potential voting rights have to be considered.

The Group has not elected to adopt the standard before the effective date. The amendment is not expected to 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 definition of joint control is unchanged, but the new standard introduces new terminology - joint arrangements is now the umbrella term used to describe all of the arrangements, and there exist only two types i.e. joint operations and joint ventures. The classification is purely based on substance not on legal form. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting according to IAS 28 is mandatory for participants in joint ventures. Entities that participate in joint operations will follow accounting much like that for joint assets or joint operations today. The Group has not elected to adopt the standard before the effective date. The amendment is not expected to 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). IFRS 12 sets out the required disclosures for entities reporting under the two new standards, IFRS 10 and IFRS 11 and replaces the disclosure requirements currently found in IAS 28 'Investments in associates'. IFRS 12 requires entities to disclose information about the nature, risks and financial effects associated with the entity's interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. IFRS 12 sets out the required disclosures for entities reporting under the two new standards, IFRS 10 and IFRS 11 and replaces the disclosure requirements currently found in IAS 28 'Investments in associates'. IFRS 12 requires entities to disclose information about the nature, risks and financial effects associated with the entity's interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities. The Group has not elected to adopt the standard before the effective date. The amendment is not expected to 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, early application permitted). IFRS 13 explains how to measure fair value and aims to enhance fair value disclosures; it does not say when to measure fair value or require additional fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The fair value of a liability therefore reflects non-performance risk (that is, own credit risk). The Group has not elected to adopt the standard before the effective date. The amendment is not expected to have a material impact on the financial statements.

Amendments to IAS 1 'Presentation of items of other comprehensive income', (effective for annual periods beginning on or after 1 July 2012, early application permitted). The amendment requires entities to separate items presented in OCI 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 remeasurements 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 Group has not elected to adopt the standard before the effective date. The amendment is not expected to have a material impact on the financial statements.

2.2 Principles of consolidation

The results of subsidiary undertakings, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and they cease to be consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. All intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group.

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. Management has determined the operating segments based on these reports.

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

·; Activities in the United States of America

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, sales between segments are carried out at arms length.

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 Company's presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. 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.

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.

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

2.5 Investment property

Property held for long-term rental yields or for capital appreciation or both and not occupied by the Group is classified as investment property.

Investment property comprises freehold land and buildings. Investment property is initially recognised at historic cost including related transaction costs. After initial recognition investment property is held at fair value. Fair value 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 on a similar basis, any cash outflows that could be expected in respect of the property.

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 ISA 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 RPI index - minimum increase of 1.5%, 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:

See Notes 2.10 and 2.19

Lease classification:

See Note 4.c

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

The recoverable amounts of assets such as intangible assets are estimated whenever there is an indication that the asset may be impaired.

Goodwill is not subject to amortisation but is tested annually for impairment. An impairment loss is recognised for the amount by which the assets carrying value exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and its value in use. For the purposes of assessing impairment, assets are grouped at the levels for which there are separately identifiable cash flows (cash generating units).

Non financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of impairment at each reporting date.

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 Accounting for leases and accrued income

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.

2.11 Trade receivables and prepayments

Trade receivables and prepayments are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Effective 31 December 2010, the Company adopted a policy whereby a provision of 50% and 100% would be made against any trade receivables outstanding for more than six and twelve months, respectively. 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.

2.12 Cash and cash equivalents

For the purposes of the cash flow statement, 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.

2.13 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.

2.14 Trade payables and other payables

Trade payables and other payables are recognised initially at fair value.

2.15 Dividends

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

2.16 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. Interest on borrowings is charged to the income statement.

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.

2.17 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 company 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. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

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 7 to 35 years.

2.20 Business combinations

Business combinations are accounted for using the purchase method of accounting. The costs of a business combination are equivalent to the fair value, valid at the time of purchase, of the assets paid and the liabilities entered into or assumed. Any difference between the acquisition costs of the business combination and the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised as goodwill (see Note 15). .

If the Group's interest in the net fair value of identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the Group

(a) reassesses the identification and measurement of the Group's identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination, and

(b) recognises immediately in the profit and loss any excess remaining after that reassessment.

2.21 Borrowing costs

In respect of borrowings relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009, the Group capitalises borrowing costs directly attributable to the acquisition or construction of a qualifying asset as part of the cost of the asset. Other borrowing costs are charged to the income statement.

2.22 Joint ventures

The Group's interests in jointly controlled entities are accounted for by proportionate consolidation. The Group combines its share of the joint ventures' individual income and expenses, assets and liabilities and cash flows on a line by line basis with similar items in the Group's financial statements. The Group recognises the portion of gains or losses on the sale of assets by the Group to the joint venture that is attributable to the other venturers. The Group does not recognise its share of profits or losses from the joint venture that result from the Group's purchase of assets from the joint venture until it resells the assets to an independent party. However, a loss on the transaction is recognised immediately if the loss provides evidence of a reduction in the net realisable value of current assets, or an impairment loss.

 2.23 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:

(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.

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 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.

The Group's concentration of credit risk with non financial institutions is primarily with its rental customers. Management has assessed that the credit risk is low as the rental contracts are granted to customers with good credit history and due to the good record of recovery of receivables other than as described in Note 19. As a result the Group has not incurred any significant losses.

(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 to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

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 cashflows arising from interest rate swaps.

In addition, Group's investment property assets are substantially financed by concentrated debt facilities. As per the debt agreements, £81.3 million (approximately 50%) of the total borrowings are scheduled to be repaid in September 2012 to a sole lender. Additional repayments totalling £11.2 million of the total borrowings are also classified as current as at 31 December 2011 and payable in 2012. A refinancing of these debt facilities is expected to be completed before the repayment date and various opportunities have been considered. If the term of the debt facilities is not extended or if the financing cannot be substituted, there is a material uncertainty and significant doubt about the Group's ability to continue as a going concern with respect to liquidity. The Group will monitor the situation.

(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, 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 and receivables. 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 2011 and 2010 were as follows:

3.2 Fair value estimation

The table below provides disclosure of fair value measurements 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).

The following table presents the Group's liabilities that are measured at fair value at 31 December:

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 are 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.

Management 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 £9.8 million higher (2010 - £10.5 million) or £8.8 million lower (2010 - £9.5 million).

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

(c) 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. 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 between 7 years and 35 years.

5. FOREIGN EXCHANGE RATES

6. REVENUE

Rental income is stated after reallocation of £603,793 (2010 - £583,943) to interest income as referred to in Note 14.

Rental income included accrued income provided to recognise guaranteed future income over the period of the leases, see Note 17 up to 31 December 2010. As at this date the UK leases were amended to remove the guaranteed 1.5% annual increase (see Note 17).

The future aggregate minimum rentals receivable under non-cancellable operating leases are as follows:

A majority of the investment properties in the UK are leased for an initial period of 35 years. The leases terminate between 2036 and 2039, although the lessee has the right to renew the leases two years before their expiry, for a further period of 35 years subject to agreement on the revised rent. The remaining Investment Properties in the UK are leased for an initial period of 7 years, with the leases terminating in 2012. These leases have the same renewal rights as those described above. Effective 31 December 2010 each of the leases relating to UK properties was amended to reflect that the rent on each lease increases on its anniversary by the annual increase in the UK Retail Price Index, subject to a maximum of 5% of the prior year's rent. In addition, each lease is subject to an upward only market rent review every five years from the start of the lease. Prior to the 31 December 2010, each lease was subject to a minimum increase of 1.5% and maximum of 5.0% per annum with no market reviews. In the event that a UK property is damaged or destroyed by any insured risk and is not reinstated by the Group within a period of 3 years, the lessee has the right to terminate the lease in respect of that UK property. The lessor may terminate each lease, subject to the senior lender's consent, for various reasons including the breach of material clauses of the lease.

The investment property in Switzerland is leased for a term of 20 years expiring on 30 June 2023. The lessor may terminate the lease prior to the end of the term in accordance with Swiss law and on 3 months written notice in the event of a change in control of the lessee. The lease rental payments are adjusted annually on 1 July of each year, in accordance with movements in the Swiss Index of Consumer Prices.

Investment properties in the United States of America are leased to the United States Postal Service under a master lease executed in March 1997 and amended on 29 January 1999. The lease expires on 28 February 2022. The rent under the lease is fixed for the entire period of the lease. The lessee has the right to unilaterally relinquish use of up to 25 of the post office properties provided that the resultant reduction in annual rent payable under the lease does not exceed a maximum of $300,000 (£193,911) per annum or 13% of the annual rental. Management have factored this into their analysis of minimum lease payments, and have no reason to believe that this right will be exercised in the foreseeable future.

The majority of investment properties in Germany are leased for an initial period of 25 years; however the lessee has the right to renew the leases for a further period of 5 years, subject to the agreement of the revised rent. The rent on the leases is changed at least every three years from the anniversary of inception, with reference to the German Consumer Price Index.

7. ADMINISTRATIVE EXPENSES

8. a) NET FINANCE INCOME

b) NET FINANCE COSTS

9. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares outstanding during the period.

In January 2004, the Company issued CHF 7 million (£3.15 million) of 4% Senior Unsecured Pre-IPO Notes due in 2011 which included warrants. CHF 6.47 million (£2.74 million) of these notes were redeemed in October 2006 and a further CHF 0.51 million (£0.21 million) were redeemed in February 2007. The remaining warrants expired in 2011.

Adjusted Earnings per Share - Non GAAP

The Directors have chosen to disclose "adjusted earnings per share" in order to provide an indication of the Group's underlying business performance. Accordingly it excludes the effect of items as detailed below.

10. DIVIDENDS

A final dividend for 2010 in the amount of 4.5p per share was paid in May 2011; this resulted in a distribution of £4,609,803 (2010 - £3,006,393).

The Directors approved an interim dividend for 2011 in the amount of 2.5p per share with a scrip alternative which was paid in November 2011; this resulted in a distribution of £706,130 (2010 - £2,561,002). As a result of the scrip dividend, £1,854,872 of additional dividends were distributed in shares (See Note 20 for details of the scrip dividend issue).

The Directors do not recommend a final dividend for 2011.

11. INVESTMENT PROPERTY

Bank borrowings are secured on investment property as outlined in Note 21.