Interim Results

22nd Sep 2008 07:00

22 September 2008

Public Service Properties Investments Limited

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

Interim Results for the six months to 30 June 2008

PSPI (AIM: PSPI), the specialist European care home real estate investment and financing company, announces interim results for the six months to 30 June 2008.

Highlights:

Financial

Gross assets increased to £284.6 million (31 December 2007 - £255.7 million) primarily as a result of acquisitions in Germany.

Operating profit¹ up 62% to £7.3 million (30 June 2007 - £4.5 million).

Net asset value per share at 161.4p at 30 June 2008 (31 December 2007 - 156.3p) with an adjusted net asset value² per share at 199.1p (31 December 2007 - 196.1p).

Investment properties reflect a small net decline of £0.2 million from fair value adjustments at 30 June 2008.

Conservative leverage³ strategy maintained - 54% loan to value at 30 June 2008.

Maintained interim dividend of 2p per share (30 June 2007 - 2p), fully covered from operational cash flow. The dividend will be paid on 17 October 2008 to shareholders on the register at 3 October 2008.

Operational

Rental income increased by 33% to £7.6 million for the six month period (30 June 2007 - £5.7 million) reflecting additional rental income from the acquisition of assets in both Germany (4th quarter 2007 and 1st quarter 2008) and in the UK (3rd quarter 2007). In addition, the Company benefited from indexation in respect of investment properties in the UK and Switzerland.

Increased presence in Germany with the previously announced acquisition of a further 12 properties at a gross acquisition cost of approximately €47 million at an average net initial yield of 7.3%. German investment properties now represent 17.6% of the total property portfolio (31 December 2007 - 1.7%). 

Asset prices remain stable in Germany and the Company has access to a proprietary pipeline of opportunities. Future acquisitions will be dependent on prevailing market conditions and access to funding on acceptable terms.

Projects continue throughout latter half of 2008 to increase bed capacity at three existing UK care homes for an aggregate estimated cost of £6.6 million. The completion of these projects is expected in May and September 2009, with an increase in rent at completion.

Commenting on the results, Chairman Patrick Hall, said, "Despite challenges posed by the credit crisis, the Group's long term leases, indexed rents, conservative leverage and further geographical diversification support a positive outlook.

"The Group is well placed to continue its strategy of acquiring care homes in Germany and enhancing the value of the UK portfolio through profitable capital expenditure programmes."

Notes:

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

² Adjusted net asset value per share is stated after deducting goodwill and adding back deferred taxation on business combinations and fair value gains to net assets. 

³ Leverage is defined as total borrowings as a percentage of total tangible non-current assets.

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

Dr D Srinivas Ralph Beney Richard Borg	Tim Worlledge Jeremy Ellis  Chris Clarke	Simon Hudson Paul Youens Gemma Bradley
RP&C International	Evolution Securities Limited	Tavistock Communications
(Asset Managers)	(Nomad and Brokers)	(Financial PR)
Tel: 020 7766 7000	Tel: 020 7071 4300	Tel: 020 7920 3150

Chairman's Statement

I am pleased to report the Group's consolidated financial results for the six month period ended 30 June 2008. 

Despite challenges posed by the credit crisis, the Group's long term leases with financially sound tenants, indexed rents, conservative leverage and geographical diversification support a confident outlook. We believe that your Company, as a specialist real estate investment company, is well placed to withstand the 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 2008 was £7.3 million compared to £4.5 million for 2007, reflecting an increase of 62%. Our results include increased revenue from indexed rents in the UK property portfolio, as well as additional rental income from acquisitions in the UK in September 2007 and in Germany between December 2007 and June 2008. Cash rental income increased by 29% to £6.3 million for the six month period.

Against a back drop of declining property values in the wider property market during the period, the Group reported a small net decline of £0.2 million from fair value adjustments on investment properties. 

The Group's profit after tax for the period was £5.8 million compared to £5.3 million for the same period in 2007 or £1.6 million against £1.4 million when adjusted to exclude non cash items. The Board of Directors has approved an interim dividend for the current financial year of 2p per share unchanged since last year.

Gross assets at 30 June 2008 were £284.6 million, representing increases of 11% and 24% over gross assets at 31 December and 30 June 2007, respectively. The Company's total borrowings represented 54% of tangible non-current assets. Total equity increased to £107.8 million from £104.4 million at 31 December 2007, after payment of £2.7 million as a final dividend for 2007. The Net Asset Value per share at 30 June 2008 stood at 161.4p, or 199.1p if adjusted for goodwill and deferred taxation on fair value gains.

During the first six months of this year, your Company completed the acquisition of a further twelve properties in Germany at a gross acquisition cost of approximately €47.2 million (£37.8 million). The full cash flow benefits from all acquisitions in Germany will accrue during the second half of the year, and in a full year will add €4.6 million (£3.7 million) to our rental income. Our German investment properties now represent 17.6% of our total property portfolio compared to 1.7% at 31 December 2007.

Although we anticipate that the second half of the year will continue to present challenging market conditions, we are confident that attractive opportunities still exist for investment today. The Group is well placed to continue its strategy of acquiring care homes in Germany and enhancing the value of the UK portfolio through prudent capital expenditure programmes. The Asset Manager's Review which follows provides further detail on the Group's performance and development plans. 

Patrick Hall 

Chairman

19 September 2008 

Asset Manager's Review 

Business Outlook

The credit crisis which emerged in 2007 has continued into 2008 with most sectors of the global economy being adversely affected. The impact on the property sector has been particularly severe with asset values coming under pressure and declining in many areas of the market. Due to the fundamentals of the care home sector, these adverse effects have been less evident to date. However, there has been negative publicity in respect of some residential care home operators in the UK in recent months and the full impact of this negative sentiment cannot yet be determined. 

We believe that the Group, which is a pure property owner without any operating activity is in a strong position for a variety of reasons. Its properties are let on long term leases, with a healthy lessee EBITDAR margin to rent. In addition, the Group has conservative levels of gearing with the majority of the senior debt established at fixed interest rates. The Group has continued its geographical and lessee diversification, primarily through asset acquisitions in Germany which comprise 17.6% of the investment property portfolio at 30 June 2008 compared to 1.7% on 31 December 2007. All of the Group's UK leases are subject to indexation based on changes in the retail price index ("RPI"), subject to a minimum and a maximum annual increase, which gave rise to an average year-on-year increase in rent of 4.6% for the period ended June 2008, and will lead to increases in cash flow during the current financial year. 

Following its first two property acquisitions in Germany at the end of 2007, the Group's investment programme for 2008 has continued with the acquisition of a further twelve German investment properties during the six months to 30 June 2008 at a gross acquisition cost of approximately €47.2 million (£32.8 million) and an initial net yield of approximately 7.3%.

In March 2008, the Group acquired three care homes at a single location in Brakel and a further three homes in Wiefelstede for a combined acquisition cost of €10.9 million (£8.7 million). These acquisitions comprise 81 and 90 beds respectively and have been leased to two separate private operators on 25 year leases. The rents will increase every four years by a proportion of the increase in the German Consumer Price Index ("GCPI"). The initial net yield in respect of these acquisitions is approximately 7.4%.

In June 2008, the Group completed a €36.3 million (£29.0 million) acquisition of six care homes which have been leased to the Marseille Kliniken group ("Marseille"), one of Germany's leading care home operators listed on the Xetra, Frankfurt and Hamburg stock exchanges. Marseille operate nearly 9,000 care home beds and assisted living places throughout Germany.

The portfolio acquired consists of 403 care home beds and 154 assisted living places. The leases with Marseille have an initial term of 20 years with renewal options for an additional 5 or 10 years, exercisable at the discretion of the lessee. The initial net yield is approximately 7.3% and the obligations of the lessees are guaranteed by the parent company of the Marseille group. 

The rent under the leases will increase every four years by a proportion of the increase in the German Consumer Price Index. This transaction represents a significant acquisition for the Group and is consistent with the strategy of acquiring assets of the highest quality at attractive prices.

Our acquisitions in Germany have been funded with additional floating rate borrowings of €18.9 million (£15 million) from existing senior debt providers, through a new €15.0 million (£12.0 million) acquisition facility and from working capital resources. Additional long-term, fixed rate senior debt facilities are being negotiated, a portion of which will be used to repay the acquisition facility which may then be re-drawn to fund additional acquisitions. Euro swap rates initially rose for the first few months of the year, but have since eased. They will be closely monitored as it is the Group's intention to fix the majority of its Euro senior debt interest obligations at the appropriate time. 

The Group continues to review a significant pipeline of potential German acquisitions which are in line with the Group's strategy and investment criteria. Comments from IMMAC our German property adviser on current German market conditions are included below.

The care home property market in Germany remains stable with asset prices holding up despite downward pressure in other sectors of the commercial property market. There are numerous opportunities to acquire individual assets and portfolios, all leased to efficient and well run independent operators, as the trend of divestment of government and church owned properties to the private sector continues over the medium term. Debt financing for such purchases presents challenges in the present market; however, long term financing continues to be available from several banks with which IMMAC has had historical relationships. 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 considered by PSPI.

The assets acquired by PSPI to date have performed well and in line with expectations. The acquisition of care homes and assisted living apartments leased to the Marseille Kliniken group is an example of a top quality portfolio that has been acquired at an attractive price. We continue to work with RP&C to ensure that assets of comparable quality can be acquired by PSPI in the months ahead.

In the UK, PSPI is continuing to develop additional bed capacity at existing locations. In Yorkshire two homes situated on adjacent sites are being combined to increase bed capacity by 50%. The budgeted cost is £4.3 million and the project is due for completion in May 2009 at which point the rent will be increased to provide an initial yield of 8.0% p.a. on the gross capital expenditure. To date, the Group has funded approximately £1.1 million in respect of this project from working capital.

A second development has recently commenced at a property close to Sunderland at a budgeted cost of approximately £2.3 million. It involves the demolition of an existing 23 bed converted nursing home and the construction of a new purpose built 40 bed specialist care home to cater for patients with dementia. The project is due for completion in September 2009 when rent will be increased to provide an initial yield of 7.0% p.a. on the gross capital expenditure. There are a number of similar opportunities under review involving the Group's existing assets where planning permission already has been obtained.

Financial Review

The Group's revenues for the six months to 30 June increased by 33.3% from £5.7 million in 2007 to £7.6 million in 2008. This increase reflects rent indexation in respect of investment properties in the UK and Switzerland, a first full period of rental income from the Stonelea portfolio acquired in September 2007 and the first period of rental income from the Group's German acquisitions which contributed £0.4 million for the period. The Group's underlying cash rental income increased from £4.9 million in 2007 to £6.3 million in 2008.

Following updates from independent external valuers, the Group reported a net loss from fair value adjustments on investment properties at 30 June 2008 of £0.2 million compared to a net gain of £9.8m in 2007. The loss relates to a modest adjustment in value of the Group's Swiss investment property, while remaining portfolio valuations have been held at the same levels as at 31 December 2007. Our German properties have been reflected at their gross acquisition cost which is consistent with independent valuations obtained during the acquisition process.

Administrative expenses decreased for the six months from £2.4 million in 2007 to £2.1 million in 2008, primarily as a result of fees paid in 2007 in connection with the Company's initial public offering.

Total finance costs for the six month period to 30 June were reduced from £3.2 million in 2007 to £2.6 million in 2008. Cash interest expense increased from £2.0 million to £2.9 million reflecting increased borrowings used to finance the Stonelea acquisition in September 2007 and our German acquisitions in 2008. However, this increase has been offset by a £1.4 million non-cash credit in respect of interest rate swaps and hedges associated with the bank re-financing negotiated at the time of the Stonelea acquisition in September 2007. 

Income tax for the six month period ended 30 June has been reduced from an expense of £5.7 million in 2007 to a credit of £1.3 million in 2008, primarily as a result of changes in the underlying tax rates applied in calculating deferred taxation, which is a non cash item. 

Adjusted earnings per share for the six month period amounted to 2.4p (2007: 2.4p). The Board of Directors has approved an interim dividend of 2p per share (2007: 2p), totalling £1,336,015 which will be paid on 17 October 2008 to shareholders on the register on 3 October 2008. 

The Group's non current assets and total assets increased from £222.4 million and £256.7 million, respectively, at 31 December 2007 to £265.0 million and £284.6 million, respectively, at 30 June 2008, primarily as a result of the German acquisitions mentioned above.

The Group's net current assets stood at £2.8 million at 30 June 2008 compared to £27.2 million at 31 December 2007, primarily as a result of the investment of cash in German acquisitions during the period. It is expected that a majority of the Group's short term borrowings will be converted into long term borrowings in the near term.

The Group's short and long term borrowings at 30 June 2008 were approximately £13.3 million and £128.5 million, respectively, reflecting total borrowings at 54% of tangible non-current assets. While the Board continues to monitor the Group's overall 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 reduced from £32.6 million at 31 December 2007 to £31.5m at 30 June 2008, primarily as a result of a reduction in the UK Corporation tax rate from 30% to 28% during the period.

Total equity increased from £104.4 million at 31 December 2007, to £107.8 million at 30 June 2008. In addition to an increase in retained earnings, the Group recognised an improvement in fair value hedging reserve from a surplus of £1.5 million at 31 December 2007 to a surplus of £2.4 million at 30 June 2008. The increase reflects a mark to market valuation on the interest rate swaps associated with senior lending on some of the Company's investment properties in the UK.

The Group's net asset value per share at 30 June 2008 is 161.4p, up 3.3% from 156.3p at 31 December 2007 after payment of the final dividend of 4p per share for the year. The net asset value per share, adjusted for goodwill and deferred taxation on fair value gains and business combinations, stood at 199.1p compared to 196.1p on 31 December 2007.

In our view, the remainder of 2008 will present challenges for the Group. The availability of senior debt for new acquisitions is critical to continued growth and disruptions in the credit market make the availability of credit facilities less predictable. The Group enjoys very good relationships with its current senior debt providers and intends to maintain and build upon that base. There are excellent opportunities for expansion into the care home sector in Germany and for capital expenditure development of the Company's existing UK portfolio. We look forward to reporting on further acquisitions and operational improvements in the months ahead.

CONSOLIDATED INCOME STATEMENT 

FOR THE PERIOD ENDED 30 JUNE 2008

	Note	Period Ended	Period Ended	Year Ended
		30 June 2008	30 June 2007	31 Dec 2007
		£	£	£
		(unaudited)	(unaudited)	(audited)
Revenue		7,595,915	5,704,789	12,558,158
Net gain from fair value adjustments on investment properties	7	(241,018)	9,758,764	8,650,606
Negative Goodwill		-	-	310,011
Administrative expenses	3	(2,056,128)	(2,425,467)	(3,161,819)
Finance income		1,792,385	1,245,392	3,295,182
Operating profit		7,091,154	14,283,478	21,652,138
Finance costs	4	(2,567,115)	(3,271,870)	(9,791,129)
Profit before income tax		4,524,039	11,011,608	11,861,009
Income tax expense		1,327,028	(5,721,540)	(6,296,392)
Profit for the period		5,851,067	5,290,068	5,564,617
Attributable to:
Equity holders of the Company		5,851,067	5,290,068	5,564,617
Basic earnings per share	5
(pence per share)		8.8	9.4	9
Diluted earnings per	5	8.8	9.3	9
share (pence per share)
Adjusted earnings per	5	2.42	2.4	6.2
share (pence per share)

CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2008

	Note	As at  30 June 2008	As at  30 June 2007	As at  31 Dec 2007
		£	£	£
		(unaudited)	(unaudited)	(audited)
ASSETS
Non current assets
Investment property	7	238,386,871	165,994,859	197,057,229
Receivable from finance lease		8,162,418	7,895,375	8,143,701
Loans and receivables		4,351,500	7,304,252	4,351,500
Intangible Assets - Goodwill		3,069,831	-	3,090,249
Accrued income		10,991,387	8,313,584	9,721,855
		264,962,007	189,508,070	222,364,534
Current assets
Receivables and prepayments		6,292,488	4,462,993	6,305,382
Derivative financial instruments		2,424,873	2,309,348	325,129
Cash		10,870,733	31,899,066	26,686,185
		19,588,094	38,671,407	33,316,696
Total assets		284,550,101	228,179,477	255,681,230
EQUITY
Capital and reserves
Share Capital	8	344,853	344,853	344,853
Share Premium	8	64,038,167	64,038,167	64,038,167
Fair value hedging reserve		2,452,684	2,309,348	1,519,227
Translation reserve		(2,253,061)	(1,308,427)	(1,569,764)
Retained Earnings		43,263,137	41,146,046	40,084,420
Total equity		107,845,780	106,529,987	104,416,903
LIABILITIES
Non current liabilities
Borrowings	10	128,532,349	86,872,352	112,308,006
Derivative financial instruments		-	-	238,671
Deferred income tax		31,372,879	25,035,189	32,606,715
		159,905,228	111,907,541	145,153,392
Current liabilities
Borrowings		13,336,335	6,848,477	2,233,098
Trade and other payables		316,449	1,965,535	2,706,119
Current income tax liabilities		165,974	-	283,313
Accruals		2,980,335	927,937	888,405
		16,799,093	9,741,949	6,110,935
Total liabilities		176,704,321	121,649,490	151,264,327
Total equity and liabilities		284,550,101	228,179,477	255,681,230

CONSOLIDATED CASH FLOW STATEMENT 

FOR THE PERIOD ENDED 30 JUNE 2008

	Note	Period ended  30 June 2008	Period ended  30 June 2007	Year ended  31 Dec 2007
		£	£	£
		(unaudited)	(unaudited)	(audited)
Cash flow from operating activities
Cash generated from operations	11	4,329,913	1,781,496	7,668,387
Interest paid		(3,658,259)	(2,753,753)	(6,129,554)
Tax received		-	-	-
Net cash generated/(used) by operating activities		671,654	(972,257)	1,538,833
Cash flow from investing activities
Business Combination		-	-	(23,565,317)
Cash paid for investment property	7	(39,839,680)	(1,290,956)	(4,848,963)
Cash received/(paid) for loans & receivables		-	-	2,952,750
Interest received		533,283	621,138	1,706,326
Net cash used in investing activities		(39,306,397)	(669,818)	(23,755,204)
Cash flow from financing activities
Proceeds from borrowings
-Initial Amount		26,383,280	(257,661)	23,750,000
-Associated Costs		-	-	(363,067)
Repayments of borrowings		(873,875)	(1,299,040)	(5,582,888)
Capital increases	8	-	34,212,692	34,212,692
Transaction costs relating to capital raising	8	-	(1,575,128)	(3,010,128)
Dividends paid		(2,672,350)	-	(1,336,175)
Net cash generated/(used) by financing activities		22,837,055	31,080,863	47,670,434
Increase/(Decrease) in cash and cash equivalents		(15,797,688)	29,438,788	25,454,063
Movement in cash and cash equivalents
At start of period		26,686,185	2,444,528	1,213,463
Increase/(Decrease)		(15,797,688)	29,438,788	25,454,063
Foreign currency translation adjustments		(17,764)	15,750	18,659
At end of period		10,870,733	31,899,066	26,686,185

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE PERIOD ENDED 30 JUNE 2008

Attributable to equity holders of the Company

	Notes	Share capital  £	Share premium  £	Fair value hedging reserve £	Translation reserve £	Retained earnings  £	Total Equity  £
Balance as of 1 January 2007		16,633	31,728,823	512,763	(1,177,602)	35,855,978	66,936,595
Cash flow hedges - net		-	-	1,796,585	-	-	1,796,585
Issue of new shares	8	328,220	33,884,472	-	-	-	34,212,692
Transaction costs relating to Capital Raising	8	-	(1,575,128)	-	-	-	(1,575,128)
Foreign currency translation		-	-	-	(130,828)	-	(130,828)
Net income/(expense) recognised directly in equity		328,220	32,309,344	1,796,585	(130,828)	-	-
Profit for the period		-	-	-	-	5,290,068	5,290,068
Total recognised income for 6 months to 30 June 2007 and balance as of 30 June 2007		344,853	64,038,167	2,309,348	(1,308,430)	41,146,046	106,529,987
Balance as of 1 July 2007
Cash flow hedges - net		-	-	(790,121)	-	-	(790,121)
Transaction costs relating to Capital Raising		-	-	-	-	-	-
Foreign currency translation		-	-	-	(261,334)	-	(261,334)
Net income/(expense) recognised directly in equity		-	-	(790,121)	(261,334)	-	(1,051,455)
Dividends relating to 2007						(1,336,175)	(1,336,175)
Profit for the period		-	-	-	-	274,549	274,549
Total recognised income for 6 months to 31 December and balance as of 31 December 2007		344,853	64,038,167	1,519,227	(1,569,764)	40,084,420	104,416,903
Balance as of 1 January 2008
Cash flow hedges - net		-	-	933,457	-	-	933,457
Foreign currency translation		-	-	-	(683,297)	-	(683,297)
Net income/(expense) recognised directly in equity		-	-	933,457	(683,297)	-	251,160
Dividends relating to 2007		-	-	-	-	(2,672,350)	(2,672,350)
Profit for the period		-	-	-	-	5,851,067	5,851,067
Total recognised income for 6 months to 30 June 2008 and balance as of 30 June 2008		344,853	64,038,167	2,452,684	(2,253,061)	43,263,137	107,845,780

NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2008

1. GENERAL INFORMATION

Public Service Properties Investments Limited (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 36 of the audited statutory accounts for the year ended 31 December 2007. 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.

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 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns which are different from those of other business segments. A geographical segment is one that is engaged in providing products or services within a particular economic area that are subject to risks and returns that are different from those of segments operating in other economic areas.

FOREIGN EXCHANGE RATES
			Balance Sheet		Income Statement and Cash Flow Statement
					average	average
			30.06.08	30.06.07	2008	2007
			£	£	£	£
CHF 1.00			2.03290	2.46240	2.07453	2.41892
USD 1.00			1.99540	2.00390	1.97525	1.96997
EUR 1.00			1.26400	1.48720	1.29184	1.48247

3.  ADMINISTRATIVE EXPENSES

	30 June 2008 £		30 June 2007 £		31 Dec 2007 £
Property rent, maintenance and office expenses	50,259		78,534		78,711
Administration of group companies	41,069		39,836		114,322
Management fees	953,785		355,672		1,456,575
Professional fees	851,926		404,585		1,086,659
Audit fees	65,523		75,215		152,016
Sundry expenses	93,566		36,625		273,536
Capital Raising Fees	-		1,435,000		-
	2,056,128		2,425,467		3,161,819

4. FINANCE COSTS 

	30 June 2008 £		30 June 2007 £		31 Dec  2007 £
Interest on mortgages	2,889,650		1,969,014		4,408,697
Other interest and borrowing expenses	247,378		345,808		686,000
Interest on pre IPO notes	241		207		418
Interest on notes	453,256		543,149		1,079,016
	3,590,525		2,858,178		6,174,131
Fair value gains on financial instruments: - Interest rate swaps: ineffective element of cash flow hedges	(1,404,958)		-		1,432,769
Credit enhancement premia	381,548		413,692		749,229
Capital Raising Fees	-		-		1,435,000
	2,567,115		3,271,870		9,791,129

5. 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. 

	As of 30 June 2008 £		As of 30 June 2007 £		As of 31 Dec 2007 £
Net profit attributable to shareholders 11	5,851,067		5,290,068		5,564,617
Weighted average number of ordinary shares outstanding	66,808,738		56,164,171		61,530,199
Basic earnings per share (pence per share)	8.8		9.4		9.0

In December 2002 the Company issued warrants to a third party for an amount of up to $4 million. Under the terms of the warrants, the holder is entitled to exercise the warrants at any time during a two year period following completion of a public offering of shares in the Company at the same share price as that offered at the time of flotation. During 2006 these warrants were assumed by an affiliated company outside of the Group.

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 2008 is 610 (2007 - 610). Based on this, the diluted earnings per share at June 2008 was £0.09 (2007- £0.09).

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:

	As of 30 June 2008 £		As of 30 June 2007 £		As of 31 Dec 2007 £
Net profit attributable to shareholders	5,851,067		5,290,068		5,564,617
Fair Value Gains on Investment Properties	241,018		(9,758,764)		(8,650,606)
Negative Goodwill	-		-		(310,011)
Deferred Taxation on Fair Value Gains	(51,337)		2,927,629		3,629,271
Loss of Tax Losses due to change in beneficial ownership of subsidiary	-		2,006,548		2,006,548
Capital Raising Fees	-		1,435,000		1,435,000
Amortisation of debt issue costs	155,735		68,321		274,848
Interest rate swap charge to income statement	(1,404,958)		-		1,432,769
Deferred Tax Credit due to change in tax rate	(1,697,870)		-		-
Accrued Income	(1,269,553)		(834,582)		(2,242,852)
Deferred Taxation on Accrued Income	380,860		250,375		672,856
Foreign Exchange Gains	(599,753)		-		-
Adjusted Earnings	1,605,209		1,384,595		3,812,440
Weighted average number of ordinary shares outstanding	66,808,738		56,164,171		61,530,199
Basic adjusted earnings per share (pence per share)	2.4		2.4		6.2
Dilutive Shares	610		610		610
Diluted adjusted earnings per share (pence per share)	2.4		2.4		6.2

6. DIVIDENDS 

The Directors have approved an interim dividend in the amount of 2p per share, such dividend to be paid on 17 October 2008 to shareholders of record on 3 October 2008; this will result in a distribution of £1,336,175.

Dividends totalling £4,008,525 were paid in respect of 2007.

7. INVESTMENT PROPERTY

	30 June 2008 £	30 June 2007 £	31 Dec 2007 £
Beginning of the period /year	197,057,229	155,650,387	155,650,387
Extension of properties	-	-	1,323,222
Additions	40,217,154	1,290,956	27,478,261
Share of additions from Joint Ventures	-	-	3,525,741
Net gains on fair value adjustment	(241,018)	9,758,764	8,650,606
Net changes in fair value adjustments due to exchange differences	1,353,506	(705,248)	429,012
End of the period /year	238,386,871	165,994,859	197,057,229

Valuations of the investment properties were made as at 30 June 2008 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 a capitalisation rate of 6.13% was appropriate under market conditions prevailing at 30 June 2008. The Company has used this rate 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 6.00% and 8.01%. The Company applied the mean capitalisation rate of 6.85%.

The valuation of the investment properties in Switzerland was conducted by Botta Management AG, using a discounted cash flow analysis. A discount factor of 4.8% was used for the valuation at 30 June 2008.

In the period to 30 June 2008, the Group acquired 10 investment properties in Germany; these properties are shown at Gross Acquisition Cost.

Joint Ventures

During the period to June 2008, the Group was informed that the Joint Venturer would not be exercising its co-investment rights in the German properties acquired in December 2007. As the Group met all of its obligations under the Joint Venture agreement, there is no requirement to restate comparative figures. The Group has acquired 100% ownership of these properties after the acquisition of the 50% outstanding as at 31 December 2007 from the Joint Venturer and this forms part of Investment Property additions in 2008.

8. SHARE CAPITAL

	30 June 2008 £		30 June 2007 £		31 Dec 2007 £
Authorised:
Equity interests:
150,000,000 Ordinary shares of $0.01 each	786,081		786,081		786,081
Allotted, called up and fully paid:
Equity interests:
66,808,738 Ordinary shares of $0.01 each	344,853		344,853		344,853

		Number of shares	Ordinary shares £	Share premium £	Total £
At 31 December 2007 and 30 June 2008		66,808,738	344,853	64,038,167	64,383,020

Pursuant to a written resolution passed on 22 November 2006, the amount of shares the company is authorised to issue was increased from 5,000,000 to 150,000,000 ordinary shares of US $0.01 each.

On 20 March 2007, 41,326,049 were issued to USIGH Limited at par value resulting in a payment to PSPI of $413,260.49.

On 26 March 2007, 22,666,667 were issued upon admission to the Alternative Investment Market of the London Stock Exchange ("AIM"). These shares were issued at a placing price of 150 pence per share.

9. DEFERRED INCOME TAX

Deferred tax liabilities:	Business combinations £	Fair value gains £	Straight line recognition of lease income £	Total £
At 31 December 2007	11,753,966	17,902,507	2,950,242	32,606,715
Charged to the income statement	-	(51,337)	380,860	329,523
Adjustment due to change in tax rate	(789,805)	(688,258)	(219,807)	(1,697,870)
Effect of exchange rate movements	-	134,504	-	134,504
At 30 June 2008	10,964,161	17,297,416	3,111,295	31,372,872

Adjustment has been made to the provision for deferred taxation to reflect the change in UK Corporation Taxation from 30% to 28% during the period.

10. BORROWINGS

Since 1 January 2008 the Group has increased its borrowings by £25.8 million to partially fund its acquisitions in Germany. £15 million has been drawn down from an existing facility with Bank of Scotland and £10.8 million borrowed under an acquisition facility with KBC Bank Deutschland AG. The Group has also amortised £801,266 of borrowings in the period.

11. CASH GENERATED FROM OPERATIONS

			30 June 2008 £		30 June 2007 £		31 Dec 2007 £
Profit for the period attributable to equity holders:			5,851,067		5,290,068		5,564,617
Adjustments for:
- Interest expense (Note 4)			3,590,525		2,858,178		6,174,131
- Net Foreign Exchange Gains			(599,753)		-		-
- Capital raising fees			-		-		1,435,000
- Interest income			(1,192,632)		(1,245,392)		(3,295,182)
- Tax			(1,327,028)		5,693,423		6,296,392
- Ineffective element of cashflow hedge			(1,404,958)		-		1,432,769
- Changes in fair value of investment property & loans and goodwill			261,436		(9,758,764)		(8,650,606)
- Amortisation of debt issue costs			155,735		-		274,848
- Changes in receivable and prepayments			653,526		913,043		1,581,750
- Changes in accrued income			(1,269,532)		(834,581)		(2,242,852)
- Changes in trade and other payables			(2,389,670)		(905,966)		(649,954)
- Changes in accruals			2,001,197		(228,513)		(252,526)
Cash generated from operations			4,329,913		1,781,496		7,668,387

12. EMPLOYEES

 The Company had no employees at 30 June 2008 (2007 - none).

13. ULTIMATE CONTROLLING PARTY

The ultimate controlling company up to 26 March 2007 was USI Group Holdings AG ("USIGH AG"), a company domiciled in Switzerland (registered office: Bahnhofstrasse 106, CH-8023, Zurich, Switzerland), with registered shares listed at the SWX Swiss Stock Exchange under the ticker symbol USIN. 

In March 2007, the Company reorganised its capital structure as referred to in note 8 above. As a result of the new shares issued to a number of institutional investors on the London AIM stock market, USIGH AG's holding was reduced to 25.16% of the enlarged capital. As such, the Company did not have a controlling party with effect from this date. 

14. SEGMENT INFORMATION	For the year ended 30 June 2008
	SEGMENT
	UK	US	Germany	Switzerland	Total
	£	£	£	£	£
Revenue	6,284,680	584,545	437,562	289,128	7,595,915
Net gain on fair value adjustment of investment property	-	-	-	(241,018)	(241,018)
Administrative expenses	(1,384,190)	(95,370)	(525,093)	(51,475)	(2,056,128)
Interest income	1,774,102	8,797	9,363	123	1,792,385
Segment result / operating profit	6,674,592	497,972	(78,168)	(3,242)	7,091,154
Finance costs - net	(2,128,434)	(324,297)	(416)	(113,968)	(2,567,115)
Profit / (loss) before income tax	4,546,158	173,675	(78,584)	(117,210)	4,524,039
Income Taxes	1,275,691	-	-	51,337	1,327,028
Profit for the year	5,821,849	173,675	(78,584)	(65,873)	5,851,067
Attributable to:
Equity holders of the Company					5,851,067
ASSETS
Segment assets	197,292,177	15,693,347	45,331,721	14,229,721	272,546,966
Unallocated assets					12,003,135
Total assets					284,550,101
LIABILITIES
Segment liabilities	(133,072,946)	(11,338,332)	(12,986,206)	(7,942,802)	(165,340,286)
Unallocated liabilities					(11,364,035)
Total liabilities					(176,704,321)

At 30 June 2008, the Group's business segment was organised on a worldwide basis into four main geographical areas. The nature of operations in the US is that of Postal Offices and in the UK, Germany and Switzerland that of Nursing Homes, although geographical segments are considered primary. 

14.	SEGMENT INFORMATION				For the period ended 30 June 2007
					SEGMENT
					UK	US	Switzerland	Total
					£	£	£	£
Revenue					4,873,312	585,378	246,099	5,704,789
Net gain on fair value adjustment of investment property and loans					9,758,764	-	-	9,758,764
Administrative expenses					(1,959,004)	(310,858)	(155,605)	(2,425,467)
Interest income					1,234,953	10,431	8	1,245,392
Segment result / operating profit					13,908,025	284,951	90,502	14,283,478
Finance costs - net					(2,736,426)	(437,970)	(97,474)	(3,271,870)
Profit / (loss) before income tax					11,171,599	(153,019)	(6,972)	11,011,608
Income Taxes					(3,686,875)	(2,006,548)	(28,117)	(5,721,540)
Profit for the year								5,290,068
Attributable to:
Equity holders of the Company								5,290,068
ASSETS
Segment assets					161,001,098	17,566,051	12,125,543	190,692,692
Unallocated assets								37,486,785
Total assets								228,179,477
LIABILITIES
Segment liabilities					(87,806,153)	(11,337,345)	(12,125,543)	(105,910,520)
Unallocated liabilities								(15,738,970)
Total liabilities								(121,649,490)
Other segment items
Amortisation of loan notes					-	-	-	-

At 30 June 2007, the Group's business segment is organised on a worldwide basis into three main geographical areas. The nature of operations in the US is that of Postal Offices and in the UK and Switzerland that of Nursing Homes, although geographical segments are considered primary.

14. SEGMENT INFORMATION	For the year ended 31 December 2007
	SEGMENT
	UK	US	Germany	Switzerland	Total
	£	£	£	£	£
Revenue	10,904,532	1,152,857	-	500,769	12,558,158
Net gain on fair value adjustment of investment property	9,312,961	(354,679)	-	(307,676)	8,650,606
Negative Goodwill	310,011	-	-	-	310,011
Administrative expenses	(2,013,930)	(666,178)	(79,557)	(402,154)	(3,161,819)
Interest income	3,271,363	23,805	-	14	3,295,182
Segment result / operating profit	21,784,937	155,805	(79,557)	(209,047)	21,652,138
Finance costs - net	(8,732,053)	(862,568)	-	(196,508)	(9,791,129)
Profit / (loss) before income tax	13,052,884	(706,763)	(79,557)	(405,555)	11,861,009
Income Taxes	(6,253,250)	-	-	(43,142)	(6,296,392)
Profit for the year	6,799,634	(706,763)	(79,557)	(448,697)	5,564,617
Attributable to:
Equity holders of the Company					5,564,617
Minority interests					-
					5,564,617
ASSETS
Segment assets	195,045,794	15,779,486	3,644,771	13,033,518	227,503,569
Unallocated assets					28,177,661
Total assets					255,681,230
LIABILITIES
Segment liabilities	(118,599,151)	(11,320,662)	(3,724,327)	(7,260,393)	(140,904,533)
Unallocated liabilities					(10,359,794)
Total liabilities					(151,264,327)
Capital expenditure	30,568,510	-	-	-	30,568,510

At 31 December 2007, the Group's business segment was organised on a worldwide basis into four main geographical areas. The nature of operations in the US is that of Postal Offices and in the UK, Germany and Switzerland that of Nursing Homes, although geographical segments are considered primary. 

ENDIR QKLFFVKBFBBB

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