Interim results

29th Sep 2009 07:00



29 September 2009

Public Service Properties Investments Limited

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

Half Year Results for the six month period to 30 June 2009

PSPI (AIM: PSPI), the specialist European real estate investment and financing company, primarily invested in care homes, announces final results for the six month period to 30 June 2009.

Highlights:

Financial

Group operating profit increased to £9.2 million for the period ( 30 June 2008: £7.3 million)

Group revenue increased by 23.3% to £9.4 million ( 30 June 2008: £7.6 million)

Interim dividend of 2p per share (30 June 2008: 2p) fully covered by cash earnings. The dividend will be paid on 13 November 2009 to shareholders on the register on 9 October 2009.

Net asset value per share at 153.1p (31 December 2008 - 155.1p) and adjusted net asset value per share¹ at 193.7p (30 June 2008 - 196.9p) after distributing 4p per share in May 2009.

Conservative leverage strategy maintained - 54 % loan to value² at 30 June 2009 (31 December 2008 - 56%) and compliant with all banking covenants.

Group short term and long term borrowings reduced to approximately £6.8 million and £139.7 million, respectively ( 31 December 2009: 15.9 million and £141.4 million )

Operational

Capital expenditure progressing well with £6 million funded from working capital since May 2008:

Rental income set to increase by up to 8.0% on the gross capital expenditure

Expansion and refurbishment of the first two properties in north Yorkshire completed in May 2009.

Demolition of existing 23 bedded care home in NE England and the construction of a new 40 bedded care home, scheduled for completion towards the end of 2009

Funding of approximately £0.3 million at a care home in Liverpool

Commenting on the results, Chairman Patrick Hall, said, "The Group continues to benefit from long term leases with financially sound tenants, indexed rents, conservative Loan to Value of 54% and geographical diversification, which all support a confident outlook.

 "We are continuously reviewing the earnings and valuation outlook of our assets to determine how to best utilise the Company's capital in prevailing market conditions. The Group is well placed to continue its strategy of enhancing the value of the UK portfolio through prudent capital expenditure programmes, and seeking increased geographic diversification through the expansion into Germany"

Notes:

¹ Adjusted Net Asset Value per Share is represented by the net assets less goodwill plus deferred tax provided on business combinations and fair value gains divided by the number of ordinary shares in issue at 30 June 2009.

² Loan to Value is represented by total short and long term borrowings expressed as a percentage of total non current assets, excluding goodwill and loans & receivables. 

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

Dr D Srinivas  Ralph Beney	Jeremy Ellis  Chris Sim	Simon Hudson Gemma Bradley
RP&C International	Evolution Securities Limited	Tavistock Communications
(Asset Managers)	(Nomad and Brokers)
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 2009. 

The Group continues to benefit from long term leases with financially sound tenants, indexed rents, conservative Loan to Value¹ of 54% and geographical diversification, which all support a confident outlook. I believe that your Company is well placed to endure the current market conditions, as demonstrated by these interim results and the Board's decision to maintain the interim dividend. The stability of our investment properties is reflected in the Adjusted Net Asset Value² per Share of 193.7p (153.1p on a reported basis) which represents a small increase over the 196.9p at 31 December 2008 after accounting for the 4p per share final dividend paid in May 2009.

Financial Review

The Group's operating profit, excluding fair value adjustments to investment properties, for the period was £9.2 million compared to £7.3 million for 2008. The increase reflects a full period of rental income from the German properties acquired in the first half of 2008 plus increased revenue from indexed rents in the UK portfolio, which benefits from a contractual minimum increase of 1.5% p.a. even as the Retail Price Index fell into negative territory for the majority of the first half of the year.

The Group reported a negative £0.9 million in fair value adjustments on investment properties at 30 June 2009, representing a decline of 0.3% for the investment property portfolio since 31 December 2008. 

Earnings per share, adjusted to eliminate non cash and one-off transactional items and tax, for the six months ended 30 June 2009 were 4.6p compared to 3.2p for the comparable period in 2008. As a result, the Board of Directors has maintained the interim dividend for the current financial year at 2p per share.

Gross assets at 30 June 2009 were £288.3 million compared to £302.5 million at 31 December 2008, while total borrowings fell to £146.4 million compared to £157.3 million at 31 December 2008. These decreases are primarily as a result of changes in foreign currency exchange rates. Total equity decreased to £102.3 million from £103.6 million at 31 December 2008 after payment of £2.7 million as a final dividend for 2008.

The challenges in securing first charge mortgage financing on attractive terms in the current environment has meant that the Company has taken a cautious approach to further investments during the first half of the year, and only invested in extensions and refurbishments of existing properties. Short term borrowings fell from £15.9 million at 31 December 2008 to £6.8 million at 30 June 2009, mainly as a result of the Group raising a new €8 million, five year, fixed rate loan for certain of our German properties. We are in advanced negotiations to secure further long term financing to replace certain existing facilities. 

We are continuously reviewing the earnings and valuation outlook of our assets to determine how to best utilise the Company's capital in prevailing market conditions. The Group is well placed to continue its strategy of enhancing the value of the UK portfolio through prudent capital expenditure programmes, and seeking increased geographic diversification through the expansion into Germany which was initiated in late 2007. The Asset Manager's Review includes further detail on the Group's performance and development plans. 

Patrick Hall 

Chairman

28 September 2009 

¹ Loan to Value is represented by total short and long term borrowings expressed as a percentage of total non current assets, excluding goodwill and loans & receivables.

² Adjusted Net Asset Value per Share is represented by the net assets less goodwill plus deferred tax provided on business combinations and fair value gains divided by the number of ordinary shares in issue at 30 June 2009. 

  Asset Manager's Review 

Business Outlook

The impact of the turmoil in the credit market continues to affect the property sector, although there are signs that credit may be starting to ease on a selective basis. We are examining how the Company can best capitalise on any improvement, if and when it arrives. In the meantime, the fundamentals of the care home sector remain comparatively stable which has helped to sustain valuations to a greater extent than the wider commercial property market. Notwithstanding relative stability, we are mindful that current and future pressures on government finances could have an impact on the care sector, particularly in the UK where the government has launched a "Big Care Debate" to investigate how care for the elderly should be organised and financed in the future. 

The Group remains in a relatively strong position as a pure property owner with a fully let portfolio encompassing several jurisdictions. Approximately 69% of the Group's property portfolio is situated in the UK, 20% in Germany, 6% in the US and 5% in Switzerland. All of the Company's properties are let on long term leases, with a healthy lessee EBITDAR margin to rent. At the same time, the Group maintains a conservative level of gearing with approximately two-thirds of its senior debt established at fixed interest rates. 

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. For the period ended June 2009, rents increased by a total of 1.5% on 68% of the rental contracts even though RPI ranged from 0.1% to minus 1.6% during the period. The remaining 32% of rental contracts in respect of the UK properties will be reviewed in the second half of the year and are subject to the minimum increase at 1.5%.

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 maintains the same rental level throughout the term of the lease.

Since May 2008, the Group has invested £6.0 million to improve four of its properties in the UK and it plans to support additional projects at several homes during the next few years. Whilst the Company is financing these developments with its own funds, the construction risk is borne by the tenant. Following completion of the construction, rental income will increase by 8.0% on the gross capital expenditure, creating increased rental income and the potential for fair value gains for the Group. The development of the first two properties in north Yorkshire was completed in May 2009. The development involved increasing bed capacity from 65 to 99 beds and refurbishing the existing space. The Company has funded approximately £4.5 million on this project and will receive an RPI indexed increase in rent of £360,000 per annum for the remaining 30 years of the lease. Another project has involved the demolition of the existing 23 bedded care home in the north east of England and the construction of a new 40 bedded care home which will provide specialist care for residents with advanced dementia. The total project cost will be circa £2.3 million with £1.2 million funded to date and is scheduled for completion towards the end of 2009. The Company has also funded approximately £0.3 million at a care home in Liverpool which required remedial work to a boundary wall and refurbishment of a part of the care home.

The Company's tenant in the UK is able to support an improved package of service to its clients by an improving physical environment at the properties. By working with the tenant, the Company is able to assist in improving the services that the tenant can offer to meet the changing demands of the UK care sector. This partnership is designed to preserve the long term viability of the portfolio, increase cash rental income and assist the tenant to remain as one of the leading corporate operators providing care throughout the UK.

The care home property market in Germany remains stable with asset prices holding up despite downward pressure in other sectors of commercial property. There are numerous opportunities to acquire individual assets and portfolios, all leased to efficient and well run independent care home operators, as the trend of divestment of government and church owned properties to the private sector is expected to continue over the medium term. Debt financing for acquisitions presents challenges in the present market; however, long term financing is available from several banks with which IMMAC has historical relationships. Currently, IMMAC, the Group's German property adviser, does not foresee any material changes to government support for residents to pay fees for the types of care homes which are owned by PSPI.

The German assets acquired by PSPI to date have performed well and in line with expectations. The care homes and assisted living apartments leased to the Marseille Kliniken group which were acquired by PSPI last year, are examples of top quality properties that can be acquired at attractive prices.

The Company is reviewing the opportunity to increase the number of beds at one property in northern Germany and is awaiting planning permission before the next stage of development. In addition, the Company negotiated the replacement of a small private tenant for three care homes on a single site in the west of Germany to Meritus, a larger operator of care homes and a tenant of four other properties owned by the Company in Germany. Meritus took over the lease on the same terms as the previous tenant with a resultant increase in occupancy and efficiency.

Financial Review

The Group's revenues increased by 23.3% from £7.6 million during the first 6 months of 2008 to £9.4 million for the six months ended 30 June 2009. This increase reflects rental income on all of the assets acquired in 2008 in Germany and indexation in respect of the majority of the Group's properties in the UK and Switzerland. The Group's underlying cash rental income increased by 30% to £8.2 million for the first half of 2009 from £6.3 million in 2008.

Following updates from independent external valuers, fair value adjustments on investment properties at 30 June 2009 reflected a reduction of £0.9 million compared to a decline of £0.2 million in the first half of 2008. 

Administrative expenses decreased for the six months from £2.1 million in 2008 to £2.0 million in 2009. Total finance costs increased from £2.6 million in 2008 to £2.9 million in 2009, largely as a result of the debt secured on assets acquired in Germany in 2008.

Income tax for the six month period ended 30 June 2009 has been reflected at £0.9 million compared to a credit of £1.3 million in 2008. The latter figure included a credit of £1.7 million resulting from changes in underlying tax rates applied in calculating deferred taxation, which is a non cash item. 

Adjusted earnings for the six month period amounted to £3.1 million (2008: £2.1 million). The Board of Directors has approved an interim dividend of 2p per share (2008: 2p), totalling £1. 3 million, which will be paid on 13 November 2009 to shareholders on the register on 9 October 2009. 

The Group's non current assets and total assets decreased from £286.3 million and £302.5 million, respectively, at 31 December 2008 to £278.7 million and £288.3 million, respectively, at 30 June 2009, primarily as a result of changes in foreign currency exchange rates.

The Group's short and long term borrowings at 30 June 2009 were approximately £6.8 million and £139.7 million, respectively, compared to £15.9 million and £141.4 million at 31 December 2008. The Company secured €8 million of five year senior debt on a fixed amortising schedule, secured against two investment properties in Germany, and used the proceeds to repay short term borrowings. 

Deferred taxation on fair value gains, business combinations and recognition of straight-line income decreased from £34.0 million at 31 December 2008 to £33.5m at 30 June 2009, primarily as a result of a net fair value reduction in asset values during the period and changes in foreign currency exchange rates.

In addition to an increase in retained earnings, net of the final dividend paid for 2008, the Group recognised an improvement in fair value hedging reserve of £0.4 million and a reduction in its translation reserve of £3.5 million.

The Group's net asset value per share at 30 June 2009 was 153.1p, compared to 155.1p at 31 December 2008 but after payment of the final dividend of 4p per share for 2008.

The availability of senior debt is critical to the continued health of the Company's target markets in the UK and Germany. The Group enjoys very good relationships with its current senior debt providers and intends to maintain and build upon that base. There are opportunities for growth in the care home sector in Germany and for enhancing the Group's UK portfolio through capital expenditure. The Asset Manager is continuously reviewing the attractiveness of the Group's target markets and its current asset base, and advises the Board as to the strategic alternatives available to the Group in order to assess where the Company's resources should be invested to create the greatest value for shareholders. We look forward to reporting on the Company's results and initiatives as we make further progress.

RP&C International Inc.

28 September 2009

  

CONSOLIDATED INCOME STATEMENT

FOR THE PERIOD ENDED 30 JUNE 2009

	Note	Period Ended 30 June 2009	Period Ended 30 June 2008	Year Ended 31 Dec 2008
		£	£	£
		(unaudited)	(unaudited)	(audited)
Revenue		9,366,310	7,595,915	16,846,594
Net (loss) from fair value adjustments on investment properties	7	(907,922)	(241,018)	(1,253,733)
Impairment of goodwill		-	-	(531,000)
Administrative expenses	3	(1,975,888)	(2,056,128)	(4,014,905)
Finance income		880,612	1,792,385	2,485,699
Operating profit		7,363,112	7,091,154	13,532,655
Finance costs	4	(2,021,160)	(2,567,115)	(13,905,819)
Profit/(loss) before income tax		5,341,952	4,524,039	(373,164)
Income tax expense		(931,419)	1,327,028	(571)
Profit/(loss) for the period		4,410,533	5,851,067	(373,735)
Attributable to:
Equity holders of the Company		4,410,533	5,851,067	(373,735)
Basic earnings per share	5
(pence per share)		6.6	8.8	(0.006)
Diluted earnings per  share (pence per share)	5	6.6	8.8	(0.006)
Adjusted earnings per  share (pence per share)	5	4.6	3.2	7.1

  

CONSOLIDATED BALANCE SHEET

AS AT 30 JUNE 2009

	Note	As at 30 June 2009	As at 30 June 2008	As at 31 Dec 2008
		£	£	£
		(unaudited)	(unaudited)	(audited)
ASSETS
Non current assets
Investment property	7	249,681,876	238,386,871	258,450,196
Receivable from finance lease		8,448,168	8,162,418	8,413,212
Loans and receivables		4,351,500	4,351,500	4,351,500
Intangible Assets - Goodwill		2,538,832	3,069,831	2,538,832
Accrued income		13,674,629	10,991,387	12,495,127
		278,695,005	264,962,007	286,248,867
Current assets
Receivables and prepayments		7,137,328	6,292,488	9,463,647
Derivative financial instruments		-	2,424,873	-
Cash		2,442,070	10,870,733	6,752,736
		9,579,398	19,588,094	16,216,383
Total assets		288,274,403	284,550,101	302,465,250
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		61,422	2,452,684	(333,235)
Translation reserve		383,007	(2,253,061)	3,880,495
Retained Earnings		37,440,344	43,263,137	35,702,161
Total equity		102,267,793	107,845,780	103,632,441
LIABILITIES
Non current liabilites
Borrowings	10	139,655,669	128,532,349	141,384,776
Derivative financial instruments		3,629,829	-	5,556,580
Deferred income tax		33,534,272	31,372,879	33,966,478
		176,819,770	159,905,228	180,907,834
Current liabilities
Borrowings		6,767,771	13,336,335	15,917,389
Trade and other payables		176,788	316,449	142,785
Current income tax liabilities		829,832	165,974	518,085
Accruals		1,412,449	2,980,335	1,346,716
		9,186,840	16,799,093	17,924,975
Total liabilities		186,006,610	176,704,321	198,832,809
Total equity and liabilities		288,274,403	284,550,101	302,465,250

  

CONSOLIDATED CASH FLOW STATEMENT 

FOR THE PERIOD ENDED 30 JUNE 2009

	Note	Period ended  30 June 2009	Period ended  30 June 2008	Year ended  31 Dec 2008
		£	£	£
		(unaudited)	(unaudited)	(audited)
Cash flow from operating activities
Cash generated from operations	11	6,540,378	4,329,913	10,544,975
Interest paid		(3,944,872)	(3,658,259)	(7,729,918)
Tax paid		(230,583)	-	(189,018)
Net cash generated/(used) by operating activities		2,364,923	671,654	2,626,039
Cash flow from investing activities
Cash paid for investment property	7	(58,648)	(39,839,680)	(40,145,135)
Capital expenditure		(2,131,898)	-	(2,880,560)
Interest received		205,846	533,283	820,751
Net cash used in investing activities		(1,984,700)	(39,306,397)	(42,204,944)
Cash flow from financing activities
Proceeds from borrowings
-Initial Amount		6,692,177	26,383,280	26,867,090
Repayments of borrowings		(8,861,029)	(873,875)	(2,961,859)
Dividends paid		(2,672,350)	(2,672,350)	(4,008,524)
Net cash generated/(used) by financing activities		(4,841,202)	22,837,055	19,896,707
Increase/(Decrease) in cash and cash equivalents		(4,460,979)	(15,797,688)	(19,682,198)
Movement in cash and cash equivalents
At start of period		6,752,736	26,686,185	26,686,185
Increase/(Decrease)		(4,460,979)	(15,797,688)	(19,682,198)
Foreign currency translation adjustments		150,313	(17,764)	(251,251)
At end of period		2,442,070	10,870,733	6,752,736

STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2009

	Period Ended 30 June 2009	Period Ended 30 June 2008	Year Ended 31 Dec 2008
	£	£	£
	(unaudited)	(unaudited)	(audited)
Profit/(loss) for the period/year	4,410,533	5,851,067	(373,735)
Other comprehensive income
Cash flow hedges - net	394,657	933,457	(1,852,462)
Currency translation differences	(3,497,488)	(683,297)	5,450,259
Other comprehensive income for the period - net	(3,102,831)	250,160	3,597,797
Total comprehensive income for the period	1,307,702	6,101,227	3,224,062
Attributable to:
Equity holders of the Company	1,307,702	6,101,227	3,224,062

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE PERIOD ENDED 30 JUNE 2009

Attributable to equity holders of the Company

	Notes	Share capital	Share premium	Cashflow hedging reserve	Translation reserve	Retained earnings	Total Equity
		£	£	£	£	£	£
Balance as of 1 January 2008		344,853	64,038,167	1,519,227	(1,569,764)	40,084,420	104,416,903
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)	-	250,160
Dividends relating to 2008		-	-	-	-	(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 at 30 June 2008		344,853	64,038,167	2,452,684	(2,253,061)	43,263,137	107,845,780
Balance as of 1 July 2008
Cash flow hedges - net		-	-	(2,785,919)	-	-	(2,785,919)
Issue of new shares		-	-	-	-	-	-
Foreign currency translation		-	-	-	6,133,556	-	6,133,556
Net income/(expense) recognised directly in equity		-	-	(2,785,919)	6,133,556	-	3,347,637
Dividends relating to 2008		-	-	-	-	(1,336,174)	(1,336,174)
(Loss)/Profit for the period		-	-	-	-	(6,224,802)	(6,224,802)
Total recognised income for 6 months to 31 December 2008 and balance at  31 December 2008		344,853	64,038,167	(333,235)	3,880,495	35,702,161	103,632,441
Balance as of 1 January 2009		344,853	64,038,167	(333,235)	3,880,495	35,702,161	103,632,441
Cash flow hedges - net		-	-	394,657	-	-	394,657
Foreign currency translation		-	-	-	(3,497,488)	-	(3,497,488)
Net income/(expense) recognised directly in equity		-	-	394,657	(3,497,488)	-	(3,102,831)
Dividends relating to 2008		-	-	-	-	(2,672,350)	(2,672,350)
Profit for the period		-	-	-	-	4,410,533	4,410,533
Total recognised income for 6 months to 30 June 2009 and balance at 30 June 2009		344,853	64,038,167	61,422	383,007	37,440,344	102,267,793

NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2009

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 35 of the audited statutory accounts for the year ended 31 December 2008. 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, amendments to standards and interpretations are mandatory for the period ended 30 June 2009.

IAS 1 (revised) Presentation of Financial Statements (compulsory from 1 January 2009). This revised standard prohibits the presentation of items of income and expenses (that is, non-owner changes in equity) in the statement of shareholders' equity, requiring non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equity are required to be shown in a performance statement. PSPI has made the corresponding adjustments in the statement of shareholders' equity. In addition to the income statement, a statement of comprehensive income is now shown according to IAS 1.

IFRS 8 Operating Segments (compulsory from 1 January 2009). This standard, which replaces IAS 14 Segment Reporting, requires a company to adopt the so-called management approach to reporting on the financial situation of its segments. In general, management must provide information on its approach with regard to the evaluation of the segment results and the allocation of resources to the segments. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors which makes strategic decisions.

IAS 40 Investment Property (prospective, compulsory from 1 January 2009). This revised standard stipulates that development properties which are earmarked for later use as investment properties are now part of IAS 40. Consequently development properties which are earmarked for later use as investment properties are shown in the balance sheet at their fair value as early as their development stage, if the fair value can be reliably determined. Any change in valuation is recorded in the income statement and an impairment test is carried out for such objects, if there are signs for a possible impairment.

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 

In connection with the application of IFRS 8 and IAS 40, the following accounting and valuation principles were amended:

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

Activites 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.

The board of directors assess the performance of the business using a number of measures; however particular emphasis is placed on "adjusted net profit" (as shown in Note 5). This excludes the effects of any non-cash and exceptional one-off non-recurring expenses and income to give an indication of the groups' underlying business performance.

Total segment assets excludes certain assets which are managed on a central basis such as cash balances held in the holding company. These form the reconciliation to total balance sheet assets.

Investment Property Development

The implementation of IAS 40 has had no impact on the financial statements for the period to 30 June 2009.

	FOREIGN EXCHANGE RATES
				Balance Sheet		Income Statement and
						Cash Flow Statement
						average	average
				30.06.09	30.06.08	2009	2008
				£	£	£	£
	CHF 1.00			1.79340	2.03290	1.68410	2.07453
	USD 1.00			1.65200	1.99540	1.49345	1.97525
	EUR 1.00			1.17600	1.26400	1.11840	1.29184

3. ADMINISTRATIVE EXPENSES

	30 June 2009 £	30 June 2008 £	31 Dec 2008 £
Administration of group companies	129,707	41,069	123,177
Management fees	1,044,390	953,785	2,019,594
Professional fees	450,262	851,926	1,358,359
Audit fees	96,232	65,523	198,210
Repairs, insurance and general expenses	255,297	143,825	315,565
	1,975,888	2,056,128	4,014,905

4. FINANCE COSTS 

	30 June 2009 £	30 June 2008 £	31 Dec  2008 £
Interest on mortgages	3,000,195	2,889,650	6,457,921
Other interest and borrowing expenses	374,454	247,378	504,755
Interest on pre IPO notes	294	241	522
Interest on notes	398,513	453,256	905,243
	3,773,456	3,590,525	7,868,441
Fair value gains on financial instruments: - Interest rate swaps: ineffective element of cash flow hedges	(1,532,094)	(1,404,958)	3,790,576
Credit enhancement premia	431,390	381,548	758,290
Net exchange (gains)/losses	(651,592)	-	1,488,512
	2,021,160	2,567,115	13,905,819

5. EARNINGS PER SHARE

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

	As of 30 June 2009 £	As of 30 June 2008 £	As of 31 Dec 2008 £
Net profit/(loss) attributable to shareholders	4,410,533	5,851,067	(373,735)
Weighted average number of ordinary shares outstanding	66,808,738	66,808,738	66,808,738
Basic earnings per share (pence per share)	6.6	8.8	(0.6)

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 note holder 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 2009 is 610 (2008 - 610). Based on this, the diluted earnings per share at June 2009 was 6.6 pence (2008- 8.8 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:

	As of 30 June 2009 £	As of 30 June 2008 £	As of 31 Dec 2008 £
Net profit attributable to shareholders	4,410,533	5,851,067	(373,735)
Fair Value Loss/(Gains) on Investment Properties	907,922	241,018	1,253,733
Impairment of Goodwill	-	-	531,000
Deferred Taxation on Fair Value Gains	56,318	(51,337)	504,075
Credit re: Deferred taxation change in tax rate	-	(1,697,870)	(1,693,883)
Amortisation of debt issue costs	166,637	155,735	311,470
Interest rate swap charge to income statement	(1,532,094)	(1,404,958)	3,790,576
Accrued Income	(1,179,502)	(1,269,553)	(2,773,272)
Deferred Taxation on Accrued Income	332,771	380,860	766,018
One off acquisition costs	-	488,555	522,236
Current taxation	542,330	41,318	423,790
Foreign Exchange (Gains)/Losses	(651,592)	(599,753)	1,488,512
Adjusted Earnings	3,053,323	2,135,082	4,750,520
Weighted average number of ordinary shares outstanding	66,808,738	66,808,738	66,808,738
Basic adjusted earnings per share (pence per share)	4.6	3.2	7.1
Dilutive Shares	610	610	610
Diluted adjusted earnings per share (pence per share)	4.6	3.2	7.1

6. DIVIDENDS 

The Directors have approved an interim dividend in the amount of 2p per share, such dividend to be paid on 13 November 2009 to shareholders of record on 9 October 2009; this will result in a distribution of £1,336,175.

Dividends totalling £4,008,524 were paid in respect of 2008.

7. INVESTMENT PROPERTY

	30 June 2009 £	30 June 2008 £	31 Dec 2008 £
Beginning of the period /year	258,450,196	197,057,229	197,057,229
Additions	4,555,926	40,217,154	40,145,135
Net (loss) on fair value adjustment	(907,922)	(241,018)	(1,253,733)
Net changes in fair value adjustments due to exchange differences	(12,416,324)	1,353,506	22,501,565
End of the period /year	249,681,876	238,386,871	258,450,196

Valuations of the investment properties were made as at 30 June 2009 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% - 6.85% were appropriate under market conditions prevailing at 30 June 2009. PSPI has applied individual capitalisation rates as advised by Colliers CRE to each investment property (June 2008 - 6.13% for the entire UK portfolio, except the investment property within HCP Stonelea which used a rate of 5.75%) 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 a capitalisation rate of 7.45% to the net operating income.

The valuation of the investment properties in Switzerland was conducted by Botta Management AG, using a discounted cash flow analysis. A discount factor of 4.77% was used for the valuation at 30 June 2009 which reflects an implied capitalisation rate of 4.48% on the net operating income.

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 6.25% to 8.50% were appropriate under the market conditions prevailing at 30 June 2009. 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 £64,227 (2008 - £73,878) 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.   SHARE CAPITAL

	30 June 2009 £	30 June 2008 £	31 Dec 2008 £
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 2008 and 30 June 2009		66,808,738	344,853	64,038,167	64,383,020

9.  DEFERRED INCOME TAX

Deferred tax liabilities:	Business combinations	Fair value gains	Straight line recognition  of lease income	Total
		£	£	£
At 31 December 2008	11,057,273	19,412,750	3,496,455	33,966,478
Charged to the income statement	-	56,318	332,771	389,089
Adjustment due to change in tax rate	-	-	-	-
Effect of exchange rate movements	-	(821,295)	-	(821,295)
At 30 June 2009	11,057,273	18,647,773	3,829,226	33,534,272

 

10. CASH GENERATED FROM OPERATIONS

	30 June 2009 £	30 June 2008 £	31 Dec 2008 £
Profit for the period attributable to equity holders:	4,410,533	5,851,067	(373,735)
Adjustments for:
- Interest expense (Note 4)	3,773,456	3,590,525	7,868,441
- Net Foreign Exchange (Gains)/Losses	(651,592)	(599,753)	1,488,512
- Impairment of Goodwill	-	-	531,000
- Interest income	(880,612)	(1,192,632)	(2,485,699)
- Tax	931,419	(1,327,028)	571
- Ineffective element of cashflow hedge	(1,532,094)	(1,404,958)	3,790,576
- Changes in fair value of investment property & loans and goodwill	907,922	261,436	1,253,733
- Amortisation of debt issue costs	133,474	155,735	311,470
- Changes in receivable and prepayments	356,222	653,526	453,777
- Changes in accrued income	(1,179,502)	(1,269,532)	(2,773,272)
- Changes in trade and other payables	34,003	(2,389,670)	159,815
- Changes in accruals	237,149	2,001,197	319,786
Cash generated from operations	6,540,378	4,329,913	10,544,975

11.  SEGMENT INFORMATION	For the year ended 30 June 2009
	SEGMENT
	UK	US	Germany	Switzerland	Total
Six months ended 30 June 2009	£	£	£	£	£
Revenue	6,361,697	773,124	1,862,947	368,542	9,366,310
Adjusted profit after tax	1,367,907	418,427	988,229	278,761	3,053,323
Six months ended 30 June 2008
Revenue	6,284,680	584,545	437,562	289,128	7,595,915
Adjusted profit after tax	1,409,648	212,065	389,561	123,808	2,135,082
Total Assets
30 June 2009	201,597,230	17,448,849	52,765,289	14,528,353	286,339,721
31 December 2008	197,559,376	20,229,260	59,697,047	18,858,724	296,344,407
30 June 2008	197,292,177	15,693,347	45,331,721	14,229,721	272,546,966

A reconciliation of total adjusted profit after tax to profit after tax as per the consolidated income statement is provided as follows:

	30 June 2009 £	30 June 2008 £
Adjusted profit for reportable segments	3,053,323	2,135,082
Fair value movement on investment properties	(907,922)	(241,018)
Deferred Taxation on Fair Value Gains	(56,318)	51,337
Credit re: Deferred taxation change in tax rate	-	1,697,870
Amortisation of debt issue costs	(166,637)	(155,735)
Interest rate swap charge to income statement	1,532,094	1,404,958
Accrued Income	1,179,502	1,269,553
Deferred Taxation on Accrued Income	(332,771)	(380,860)
One off acquisition costs	-	(488,555)
Current taxation	(542,330)	(41,318)
Foreign Exchange movement	651,592	599,753
Profit for the period per income statement	4,410,533	5,851,067

Reportable segments' assets are reconciled to total assets as follows:

	30 June 2009 £	31 Dec 2008 £	30 June 2008 £
Total segment assets	286,339,721	296,344,407	272,546,966
Unallocated holding company assets	1,934,682	6,120,843	12,003,135
(centrally held cash and prepayments)
Total assets per balance sheet	288,274,403	302,465,250	284,550,101

ENDIR DVLFLKKBEBBD

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