Half Yearly Report

20 September 2010

Public Service Properties Investments Limited

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

Half Year Results for the six month period ended 30 June 2010

PSPI (AIM: PSPI), the specialist European care home real estate investment and financing company, announces half year results for the six months ended 30 June 2010.

Highlights:

Financial

Operational

Commenting on the results, Chairman Patrick Hall, said,"The Group continues to benefit from a fully let portfolio, long term leases with well established tenants, indexed rents, conservative leverage and geographical diversification, all of which supports a confident outlook. We believe that your Company, as a specialist real estate investment company, is well placed in current market conditions, as demonstrated by these interim results.

The Company is moving ahead to accelerate the capital expenditure programme on care home assets in the UK, which will create additional value for shareholders over the medium term."

Notes:

¹ Operating profit excluding adjustment for fair value adjustments to investment properties.

² This forecast relates to dividends and is not a profit forecast.

³ Adjusted net asset value per share is represented by net assets less goodwill plus deferred tax provided on business combinations and fair value gains divided by the number of ordinary shares in issue.

4 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 consolidated financial results for the six month period ended 30 June 2010.

The Group continues to benefit from a fully let portfolio, long term leases with well established tenants, indexed rents, conservative leverage and geographical diversification, all of which support a confident outlook. We believe that your Company, as a specialist real estate investment company, is well placed in current market conditions as demonstrated by these interim results.

Financial Review

The Group's operating profit, excluding fair value adjustments to investment properties, for the period ended 30 June 2010 was £8.7 million compared to £8.3 million for 2009, reflecting an increase of 4.9%. Cash rental income rose by 3.2% to £8.4 million for the six month period over the comparable period in 2009. Annual rent reviews for the UK properties reflected average increases of 3.8% up to the end of June and are expected to average approximately 4.0% for the whole of 2010.

Fair value adjustments on investment properties showed a reduction of £4.8 million at 30 June 2010, representing a decline of 1.9% for the investment property portfolio since 31 December 2009.

Adjusted earnings per share¹ for the six months ended 30 June 2010 were 4.4p compared to 4.6p for the comparable period in 2009. The reduction reflects an increase in the average number of shares in issue following the Open Offer which successfully completed on 14 April 2010, raising £24.0 million net from the issue of 35,631,326 new shares at 70p. The Board of Directors has approved an increase in the interim dividend for the current financial year from 2p to 2.5p per share and we remain on target for our forecast dividend² of 7p per share for the year as a whole, as set out at the time of the Open Offer.

Gross assets at 30 June 2010 were £320.7 million compared to £294.4 million at 31 December 2009, primarily reflecting additional capital raised through the Open Offer.

Borrowings at 30 June 2010 totalled £158.2 million compared to £148.5 million at 31 December 2009. The increase reflects €18.0 million of additional debt secured against some of the German properties offset by debt amortisation and repayments, as well as the net effect of changes in foreign currency exchange rates. The Company's total gross borrowings, at 30 June 2010, represented 58% of total non-current assets excluding goodwill, loans and receivables, with cash balances of £33.0 million available to fund the UK capital expenditure programme and meet short term debt repayments. Total equity increased from £103.3 million at 31 December 2009 to £120.0 million at 30 June 2010, reflecting the proceeds from the Open Offer less the net loss for the period and £3.0 million of dividends paid in May 2010. Net Asset Value per share at 30 June 2010 stood at 117.1p, or 143.3p if adjusted for goodwill and deferred taxation on business combinations and fair value gains.

The Company has started to invest some of the new capital into the projects detailed in the Open Offer document. These investments will accelerate for the rest of 2010 and will continue throughout 2011, after which the Company will have enlarged and upgraded a significant portion of the UK properties enabling the Company's tenant to utilise and operate a portfolio well positioned for the future.

The economic climate in the Company's various markets remains challenging, and we have adopted a strategy to invest for the longer term benefit of the Company's existing assets whilst taking a cautious approach to additional acquisitions at this time.

We continually review the Company's markets to determine how best to utilise the Company's capital in the face of prevailing market conditions. The Asset Manager's Review includes further detail on the Group's performance and development plans and some comments from the tenant of our UK portfolio.

Patrick Hall

Chairman

17 September 2010

¹ Earnings per share adjusted to exclude the impact of non cash and one-off items as disclosed in the notes to the Interim Report.

² This forecast solely relates to dividends and is not a profits forecast.

Asset Manager's Review

Business Outlook

The impact of the credit crisis continues to adversely affect the property sector, although there are signs that debt financing may be starting to ease on a very selective basis.

The Group remains well positioned as a pure property owner with a fully let portfolio, on long leases located in several jurisdictions. The weighted average unexpired lease term is 22 years and the Company is investing in expansion and refurbishments in the UK that will result in this number increasing in due course. The Group maintains a conservative level of gearing with a majority of debt subject to fixed interest rates. The Company reported short term debt of £24.2 million at 30 June which, in addition to amortisation on some of the Group's financings over the next twelve months, also includes Chf 23 million (approximately £14.6 million) due in December 2010 and £7.5 million due in February 2011. The Group has cash of £33.0 million at 30 June 2010 to meet these repayments and to fund the projected capital expenditure programme.

The majority of the capital raised in April 2010 will be used to add bed capacity through expansion, re-configuration and refurbishment of a number of properties in the UK investment portfolio. The first four projects have been commissioned with aggregate expenditure of £6.7 million and a final completion date in the second quarter of 2011. The Company is also reviewing several other projects and expects to start work on these during the second half of 2010. On completion of each project, rent payable under the relevant lease will increase by 8% of the gross capital expenditure which will result in fair value gains at prevailing capitalisation rates.

Whilst the longer term fundamentals of the care home sector remain strong, there are short term pressures building for operators in the sector, most notably in the UK where government spending cuts are creating cash flow pressures across the sector. Whilst we do not expect any 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. The Company believes that its tenant in the UK is taking appropriate action to address these factors by targeting residents with higher care needs and controlling its wage costs. The Company also believes that these measures, coupled with the capital investment mentioned herein, will result in improved performance over the medium term.

The Company is working in partnership with its tenant to ensure that the longer term benefit of the expansion programme for a number of the properties in the UK is not hindered by short term pressure on the tenant's cash flow arising from a fall in the tenant's revenue during the expansion and re-configuration phase. Therefore, the Company has agreed to capitalise rent on properties in cases where there is a material disruption to occupancy, hence operational cash flow, for the Company's tenant in advance of the commencement of the new construction and refurbishment through to the post completion build up in occupancy. We have asked the UK tenant, European Care, to offer some insight into its operations compared to those of the wider sector.

The European Care Group is the sixth largest independent provider of health and social care in the United Kingdom providing care for approximately 4,200 service users from the elderly to children and adults with special needs. The Group has over 5,500 staff employed throughout the UK and has maintained a stable management team for many years. The Group focus is on provision of independently accredited high quality service with an ever increasing emphasis on specialist care including dementia and the treatment and care of several mental disorders. The Group turnover for 2010 is expected to total approximately £125 million with an expected EBITDAR, before central overheads, of approximately £34 million.

The UK care sector has not been immune from the effects of the economic downturn precipitated by the financial crisis which started in 2007. Local government authorities are referring residents later than before and as a result, core occupancy within the Group has declined by approximately 3% over he last financial year, in line with trends across the sector. The Group owns a majority of its care facilities which sets it apart from several members of the peer group which are facing increased rents and diminishing revenues across the whole of their portfolios. The European Care Group has continued to expand with its most recent acquisitions and developments expected to add a positive contribution in the years ahead. PSPI owns the vast majority of the properties leased by European Care and has agreed a programme of development on a number of facilities which will add a further positive contribution to the Group's earnings in the future.

We remain convinced of the positive drivers for the sector over the longer term as the elderly population in the UK continues to increase and insufficient new care homes are developed.

European Care, September 2010.

The care home property market in Germany remains stable. Currently, we do not foresee any material changes to government support for residents who cannot afford to pay for their fees for the types of care homes which are owned by the Group. There are opportunities to acquire individual assets and portfolios, leased to efficient and well run independent operators. Debt financing for such purchases presents challenges in the present market; however, long term financing is available on a selective basis. Although the Company's primary focus is on expansion and refurbishment for some of the properties in the UK, it will remain opportunistic to potential acquisitions in Germany should attractive opportunities become available.

The rents for the German portfolio increase every three or four years by a proportion of the increase in the German Consumer Price Index. The Swiss investment property increases annually in line with the Swiss consumer price index whilst the US investment portfolio will maintain the same rental level throughout the term of the lease until renewal in 2022.

In April 2010, the Company raised €18 million of three-year senior debt, secured against some of its German investment properties at a fixed interest rate of 3.8% per annum. These funds augment the Company's working capital and will primarily be used to repay debt maturing in the months ahead thereby maintaining a conservative Loan to Value ratio.

Financial Review

The Group's revenues increased by 2.3% to £9.6 million for the six months ended 30 June. This increase primarily reflects indexation in respect of the majority of the investment properties in the UK offset by foreign currency movements for non sterling denominated revenues. The Group's underlying cash rental income increased by 3.2% to £8.4 million for the first half of 2010 compared to £6.3 million in 2009.

Rent reviews for approximately two thirds of the Company's UK investment properties during the first half of 2010 resulted in increases averaging 3.8% per annum, based on the rise in the UK Retail Price Index, whereas residents' fees paid by local authorities rose on average by a lesser percentage in the same period, putting pressure on tenant margins in the short term. Rent reviews for the remaining part of the UK portfolio are expected to be slightly higher.

The independent valuation of the UK portfolio, which represented 70% of the Company's portfolio at 30 June 2010, decreased by 2.6% during the first half of 2010 with the average capitalisation rate for the UK investment properties assessed at 6.6% at 30 June 2010 compared to 6.3% at 31 December 2009. Of the Company's 39 properties in the UK, the individual capitalisation rate was increased for 25 properties, including eight which are subject to extension or re-configuration projects and several others that may also be considered for inclusion in the capitalisation expenditure programme in the future. Subject to market conditions, it is expected that those properties in the capital expenditure programme will benefit from a valuation re-rating post completion, in addition to increased annual revenue. This will also improve the Loan to Value cover of the Company's debt facilities, as anticipated at the time of the Open Offer.

The independent valuation of the German portfolio, which represented 18% of the Company's portfolio value at 30 June 2010, declined by 1.3% in constant currency during the first half of 2010. The average capitalisation rate for the German portfolio was 6.9% compared to 6.7% at 31 December 2009.

The independent valuation of the US and Swiss portfolios, representing 12% of the Company's portfolio at 30 June 2010, declined in value by 0.8% in constant currency during the first half of 2010.

Adjusted earnings per share for the six month period amounted to 4.4p per share (2009: 4.6p). The Board of Directors has approved an interim dividend of 2.5p per share (2009: 2p), totalling £2.6 million which will be paid on 15 October 2010 to shareholders on the register on 1 October 2010.

The Group's non current assets decreased from £287.1 million at 31 December 2009 to £281.3 million at 30 June 2010 due to due the loss on revaluation at 30 June as noted above and as a result of changes in foreign currency exchange rates. Total assets increased from £294.4 million to £320.7 million during the same period, primarily due to the net increase in cash following completion of the Open Offer in April 2010.

The Group's short and long term borrowings at 30 June 2010 were approximately £24.2 million and £134.0 million, respectively, compared to £19.0 million and £129.6 million at 31 December 2009. The overall increase was as a result of the additional senior debt secured against some of the German properties as noted earlier. Total borrowings at 30 June represented 58% of non-current assets excluding goodwill, loans and receivables. While the Board continues to monitor the Group's debt levels it considers the Group's overall gearing to be conservative given the strength of the Group's underlying cash flow from its long term leases.

Deferred taxation on fair value gains, business combinations and recognition of straight-line income decreased from £34.2 million at 31 December 2009 to £33.8m at 30 June 2010, primarily as a result of a the net fair value reduction in asset values during the period.

Total equity increased from £103.3 million at 31 December 2009, to £120.0 million at 30 June 2010. The increase in share capital and share premium was offset by the decrease in retained earnings for the period, the payment of the second interim dividend paid in respect of 2009 and a net decrease in the fair value hedging and translations reserves.

The Group's net asset value per share at 30 June 2010 was 117.1p and the net asset value per share, adjusted for goodwill and deferred taxation on fair value gains and business combinations, was 143.3p per share.

The Company's focus is on investment of the capital raised through the Open Offer, primarily through the UK capital expenditure programme and to review the Group's other investments in order to consider redeployment of any realised capital into new investment opportunities. The availability of senior debt for acquisitions will be critical for additional future growth. The Group continues to enjoy very good relationships with its senior debt providers and remains fully compliant with all debt service and loan to value covenants.

RP&C International

17 September 2010

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

The notes following are an integral part of these condensed consolidated interim financial statements

The notes following are an integral part of these condensed consolidated interim financial statements.

The notes following are an integral part of these condensed consolidated interim financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Public Service Properties Investments Limited (PSPI) (formerly USI Group Holdings Limited), domiciled in the British Virgin Islands (registered office at Nerine Chambers, Road Town, Tortola, British Virgin Islands), is the parent company of the Group. The Company and its international subsidiaries (together the Group), 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. The Company was formed in February 2001.

2. ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these interim 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 British Pounds unless otherwise stated and are based on the accounting policies set out in pages 22 to 31 of the audited statutory accounts for the year ended 31 December 2009. This report is prepared in compliance with IAS 34 "Interim Financial Reporting".

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 following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2010.

IFRS 3 (revised), 'Business combinations', and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates', and IAS 31, 'Interests in joint ventures', are effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

The revised standard continues to apply the acquisition method to business combinations but with some significant changes compared with IFRS 3. For example, all payments to purchase a business are recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets. All acquisition-related costs are expensed.

As the Group has adopted IFRS 3 (revised), it is required to adopt IAS 27 (revised), 'consolidated and separate financial statements', at the same time. IAS 27 (revised) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. There has been no impact of IFRS 3 (revised) or IAS 27 (revised) on the current period.

The following standards, amendments and interpretations to existing standards are effective in 2010 but not relevant to the Group:

IFRIC 18, 'Transfers of assets from customers', effective for transfer of assets received on or after 1 July 2009. This is not relevant to the Group, as it has not received any assets from customers.

'Additional exemptions for first-time adopters' (Amendment to IFRS 1) was issued in July 2009. The amendments are required to be applied for annual periods beginning on or after 1 January 2010. This is not relevant to the Group, as it is an existing IFRS preparer.

The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 January 2010 and have not been early adopted:

IFRS 9, 'Financial instruments', issued in December 2009. This addresses the classification and measurement of financial assets and is likely to affect the Group's accounting for its financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. The Group is yet to assess IFRS 9's full impact.

Revised IAS 24, 'Related party disclosures', issued in November 2009. It supersedes IAS 24, 'Related party disclosures', issued in 2003. The revised IAS 24 is required to be applied from 1 January 2011. Earlier application, in whole or in part, is permitted. The Group will assess the standard and any potential impact.

'Classification of rights issues' (Amendment to IAS 32), issued in October 2009. For rights issues offered for a fixed amount of foreign currency, current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to all the entity's existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment should be applied for annual periods beginning on or after 1 February 2010. Earlier application is permitted.

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 Amendments to accounting and valuation principles 

There have been no amendments to accounting or valuation principles during the period to 30 June 2010.

3. ADMINISTRATIVE EXPENSES

4. FINANCE COSTS

5. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the net (loss)/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 of 4% Senior Unsecured Pre-IPO Notes due in 2011. CHF 6.47 million of these notes were redeemed in October 2006 and a further CHF 0.505 million were redeemed in February 2007. Each noteholder received warrants attached to the notes which may be exercised up to two years after a public offering of the Company's shares. The warrants entitle the noteholders to subscribe for the Company's shares at a discount to the public offering of shares between 5% - 20% depending on the timing of a public flotation of the Company's shares.

Management has estimated that the maximum number of additional ordinary shares that could be issued at 30 June 2010 is 610 (2009 - 610). Based on this, the diluted earnings per share at June 2010 was (3.7) pence (2009- 6.6 pence).

ADJUSTED EARNINGS PER SHARE

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 the items as detailed below:

6. DIVIDENDS

The Directors have approved an interim dividend in the amount of 2.5p per share, such dividend to be paid on 15 October 2010 to shareholders of record on 1 October 2010; this will result in a distribution of £2,561,002.

Dividends totalling £4,342,568 were paid in respect of 2009.

7. INVESTMENT PROPERTY

Valuations of the investment properties were made as at 30 June 2010 by independent property consultants.

The valuation of the investment properties in the UK was conducted by Colliers CRE, UK. Based on the detailed review of relevant information, Colliers CRE concluded that capitalisation rates of between 6.0% - 10.00% were appropriate under market conditions prevailing at 30 June 2010 resulting in an average capitalisation rate of 6.6% (31 December 2009: 6.3%). PSPI has applied individual capitalisation rates as advised by Colliers CRE to each investment property in preparation of the consolidated financial statements.

The valuation of the investment properties in the US was conducted by Real Estate Asset Counselling Inc, US, using the direct capitalisation of the NOI (Net Operating Income) approach in their valuation. Based on the most recent transactions in the sector reviewed by REAC, the overall direct capitalisation rates ranged between 7.35% and 7.54%. The Company applied a capitalisation rate of 7.45%.

The valuation of the investment properties in Switzerland was conducted by Botta Management AG, using a discounted cash flow analysis. A discount factor of 4.5% was used for the valuation at 30 June 2010.

The valuation of the investment properties in Germany was conducted by Colliers CRE, UK (and in the previous period by IMMAC Holding AG, Hamburg). Based on the duration of the leases, the future cash flows and after due consideration of transaction activity in the market, Colliers CRE concluded that capitalisation rates of 6.45% to 8.50% were appropriate under the market conditions prevailing at 30 June 2010. PSPI has applied individual capitalisation rates as advised by Colliers CRE to each investment property in preparation of the consolidated financial statements.

Additions in the period relate to the capitalisation of capital expenditure relating to the extension and improvement of certain UK investment properties.

Included in property rent, maintenance and office expenses, as detailed in Note 3, are repairs of £49,693 (2009 - £64,227) in respect of investment properties generating rental income. These costs were incurred in respect of investment properties where the Group is responsible for structural and roof repairs. There were no repairs and maintenance costs incurred in respect of investment properties that did not generate rental income.

8. GOODWILL

Impairment tests for goodwill

In accordance with IAS 36 Impairment of Assets, the carrying amount of the CGU has been compared with its recoverable amount to test if impairment has occurred. The recoverable amount is defined as the higher of value in use and fair value less costs to sell.

The recoverable amount of the CGU has been based upon fair value less costs to sell calculations. These calculations, use the independent property valuation performed by Colliers CRE, UK as at 30 June 2010, adjusted for the known rental increase due in the second half of 2010, as their basis. It is assumed that it is normal practice for such properties to be sold within its "corporate wrapper" and consequently that any deferred taxation liability in relation to the property should be included in the calculation of the value of the CGU. As such it is assumed that any future buyer of the investment properties would assume a share of the deferred taxation liability.

This test indicated that no impairment of goodwill had occurred in 2010 (2009: £Nil).

9. SHARE CAPITAL

On 26 March 2010, the Company announced an 8 for 15 Open Share Offer with the issue of 35,631,326 Open Offer Shares at a price of 70 pence per share. This offer closed on 13 April 2010 at which point valid applications for 18,487,890 by qualifying shareholders had been received. As a consequence, the remaining 17,143,436 were issued to qualifying shareholders under the excess application facility. The total of 35,631,326 shares were admitted for trading on AIM on 14 April 2010.

10. DEFERRED INCOME TAX

11. BORROWINGS

In March 2010 the Group borrowed €18.0million (£14.6 million) over three years from CorealCredit Bank AG.

During the period to 30 June 2010 a loan of £1.5m owed to USI Group Holdings AG was repaid.

12. CASH GENERATED FROM OPERATIONS