Trading Statement

24 January 2013

Public Service Properties Investments Limited

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

Trading Update for the year to 31 December 2012

PSPI (AIM: PSPI), the specialist European real estate investment and financing company, announces a trading update for its financial year to 31 December 2012.

Update on strategic review

On 13 and 20 December 2012, the Company announced that it had signed agreements to dispose of the Swiss and two German investment properties. The Company is pleased to confirm that these transactions have completed, producing net proceeds of approximately £3.4 million, after repayment of debt and transaction costs, which has been used to augment working capital.

On 20 December 2012, the Company also announced that it had signed a contract to dispose of the shares of its subsidiaries owning 140 properties leased to the US Postal Service. The transaction is scheduled to complete in the latter part of February 2013 after title insurance is updated for the buyer.

These sales will have realised gross amounts between 13.2% and 15.3% less than the values applied in the interim report at 30 June 2012 which, together with selling costs, will reduce net assets reported at 30 June 2012 by approximately £5.5 million before transaction costs.

On 25 July 2012, the Group confirmed that it had disposed of a majority of the UK properties leased to the European Care Group ("ECG"), and transferred £82 million of senior debt and £5 million of liabilities in respect of interest rate swaps in exchange for a 20% equity stake in the holding company of ECG and a £2.8 million loan note. The Company also reported in September 2012 that, as a result, net assets had reduced by approximately £45 million.

The Chairman reports that:

"Significant progress has been made in disposing of non-core assets and those that were either trading or likely to trade with negative cash flows or where the outlook for revenue and capital values was increasingly negative. The sale of two German properties repaid debt in that jurisdiction and released equity for working capital. Whilst the Company has regrettably suffered a material reduction in net asset value in the process, the Board and its advisers are making every effort to protect the equity in the assets that continue to be held by the Group. The consolidated leverage has also been brought down as a result of these transactions and the debt refinancing in Germany has improved the debt maturity profile. I believe that, absent of any further deterioration in trading conditions for the Company's tenants, the greatest challenges are now behind us. The Group will continue the strategic review of its remaining assets." 

Future operations

Following completion of the disposals referred to above, the Group will own a portfolio of properties in the UK and Germany which generate gross rental income of £6.9 million per annum and finance lease income of £0.9 million per annum. The investment properties have been independently valued at 31 December 2012 at an aggregate value of £84.0 million, excluding the finance lease asset, with debt totalling £33.5 million secured against the property portfolio at 31 December 2012. The weighted average interest rate is currently 5.0% per annum, and the debt will be amortised at the rate of £2.4 million per annum.

The UK portfolio

The UK portfolio is comprised of nine care homes, a school/resource centre for children and adults with learning difficulties and an office building leased to ECG. The Group receives gross rental income and business licence fees of £3.9 million per annum in respect of these properties and businesses and also receives finance lease income at the rate of £0.9 million per annum in respect of a domiciliary care business licenced to ECG. All rental and finance lease income due from ECG up to 31 December 2012 has been received and is due to increase from 19 February 2013 in line with any upward movement in the Retail Price Index for the year ending January 2013. The UK investment properties were independently valued at 31 December 2012 at an aggregate gross figure of £47.3 million which represents an overall decline of £0.4 million from the value reported at 30 June 2012. Seven properties reflected an increase and four a decrease in value during this period, with the average Capitalisation Rate¹ increasing from 8.1% at 30 June 2012 to 8.2% at 31 December 2012.

At 31 December 2012, the Group had net borrowings of £17.6 million secured against the UK investment properties and finance lease income stream, with a weighted average interest rate of 5.7% per annum. The debt is subject to amortisation at approximately £2.1 million per annum with scheduled maturity dates of December 2013 (£10.6 million) and February 2014 (£7.0 million) and the facility maturing in December 2013 is guaranteed by the Company. The aggregate loan to value ratio of the investment properties was 38% (excluding the finance lease asset) at 31 December 2012.

The German portfolio

The Group's German portfolio is comprised of six properties leased to the Marseille Kliniken Group ("MKG"), an operator of care homes listed in Germany, and two further properties leased to independent operators. The portfolio generates gross rental income of approximately £3.0 million per annum (€3.6 million) of which 75% is received from MKG. All rental income up to 31 December 2012 has been received, and the properties were independently valued at 31 December 2012 at an aggregate gross sum of £36.7 million (€45.0 million) representing an increase of £0.7 million over the value reported at 30 June 2012. Seven properties reflected an increase and one a decrease in value between these dates, whilst the average Capitalisation Rate¹ decreased from 7.9% at 30 June 2012 to 7.8% at 31 December 2012.

At 31 December 2012, the Group had borrowings of £15.6 million secured against the German investment properties with a weighted average interest rate of 4.1% per annum. The debt amortises at approximately £0.3 million per annum with scheduled maturity dates of May 2014 (£1.3 million) and March 2020 (£14.3 million), following completion of a seven-year refinancing announced on 13 December 2012. The aggregate loan to value ratio of the investment properties was 43% at 31 December 2012.

Other matters

Recurring management fees will be reduced in line with the reduction of reported net asset value and non-recurring professional fees will be significantly lower in 2013 compared to 2012. The Board is looking to further reduce costs during the course of 2013 and has already confirmed, in the Half Year Report, that the number of directors has been reduced from seven to five from the beginning of 2013.

The Board will continue to test the market for the Group's assets and address the next round of debt refinancing for the UK assets over the next twelve months. Pending the outcome of these matters, the Board will keep its dividend policy under review.

¹ Capitalisation Rate is represented by the net rental income receivable divided by the gross market value of the properties from which the rental income is derived.

² Figures in Euros are reflected at an exchange rate of €1.2234 : £1

For further information please visit www.pspiltd.com or call: