Final Results

Medical Property Investment Fd Ltd 13 April 2006 The Medical Property Investment Fund Limited Annual Report and Consolidated Financial Statements For the year from 1 January 2005 to 31 December 2005 Highlights The Medical Property Investment Fund Limited is listed on the London Stock Exchange and invests in primary health care property, pharmacy and related operating businesses. These results are in respect of the year ended 31 December 2005. â€¢ Excellent progress with 82 sites now acquired (and a further 23 sites in solicitors' hands)1 â€¢ Over Â£340m of capital committed1 â€¢ Estimated average net initial yield on capital committed circa 6.5% â€¢ Net profit after Investment Result Â£4.0m (Â£2.2m last year) â€¢ Proposed Final dividend2 of 3.34p (making 5p in total) up 25% â€¢ Company's strategy well placed to meet Government objectives in recently announced White Paper â€¢ Substantial pipeline of new acquisitions and developments â€¢ Healthcare Pharmacies Limited opened its first integrated pharmacy in February 2006 and plans to open a further 20 by the end of 2007 â€¢ Four Assura pilot projects to commence operations in 2006 with a further roll-out now being planned 1 As at 31 March 2006 2 Subject to Special Resolution and Royal Court of Guernsey approval. Ex-dividend date 3 May 2006, Record date 5 May 2006. Payment anticipated June 2006. Chairman's Statement For the year ended 31 December 2005 This Report is published in respect of the year ended 31 December 2005. I am pleased to report another very satisfactory year for the Company with excellent progress being made to generate future income streams out of property, pharmacy and related operating businesses. As at 31 March 2006, the Company had acquired or exchanged contracts on 82 sites and has a further 23 sites in solicitors' hands. On completion, the aggregate capital value of these investments will be approximately Â£340m. On all capital committed to date, the average net initial yield on completion is estimated to be circa 6.5%. The Company has pursued the property investment strategy outlined at the time of flotation. Whilst the commercial property market has continued to be very competitive the Company has been able to acquire existing primary health care properties and forward fund new developments at average yields generally consistent with its original forecasts. The Company's property assets were independently valued by Savills and as at 31 December 2005; the net valuation yield on all purchased property stood at 6.0%. During the year, the Company benefited from a surplus on revaluation of its property portfolio of Â£2.2m (2004: a deficit of Â£0.5m). This figure is after the payment of all property acquisition costs which arose in the period including a revaluation deficit and transaction costs, amounting to Â£5.6m which arose on acquisition of the Apollo portfolio (as advised to shareholders in the Circular dated 15 June 2005). The revaluation surplus on the underlying portfolio was therefore strong. The Company has made excellent progress during the year with the formation of its own pharmacy operating business, Healthcare Pharmacies Limited. The first integrated pharmacy opened in Bonnyrigg, Scotland, in February 2006 and good progress is being made to obtain further licenses across its portfolio of properties and developments. The Company is intending to open a further 20 integrated pharmacies by the end of 2007. Acquisitions of pharmacies close to existing sites is an important part of the Company's long term pharmacy strategy which is to provide integrated pharmacy services in all of its major facilities. It is anticipated that Practice Based Commissioning, which gives general practitioners the responsibility for managing budgets for their patients' care, will become universally applied by December 2006. This introduces a competitive and contestable market for health care which will demand new, high quality premises that deliver a much wider range of services than before and is able to accommodate the shift in services from secondary to primary care. In response to this and in advance of the publication of the Government's White Paper, which was published in January 2006, the Company and its investment manager invested considerable time and resources into developing a suitable business model to respond to these changes. Under its new Assura brand, the Company intends to pursue innovative and sustainable ways to work with larger GP practices and locality groups as well as accommodating other service providers both locally and through its national network. A number of pilot projects are in progress and should these prove to be successful, the Company expects to implement a national roll out of Assura commencing towards the end of 2006. Acquisition, Placing and Open Offer In order to maximize opportunities for the Company in the rapidly evolving UK primary care market and given that a number of opportunities extend beyond pure property investment into the development and operation of healthcare facilities and pharmacy activities, the Company is proposing to undertake a Placing and Open Offer and to acquire the Company's investment manager, Berrington Fund Management and related parties. Full details of these proposed transactions will be provided in a separate prospectus. 2005 Results During the year, total income amounted to Â£8.7m (2004: Â£7.6m) producing a net profit after investment result of Â£4.0m (2004: Â£2.2m). Due to the strong performance of the Company's share price over the last 12 months, there is a requirement for the Company to make a provision of Â£13.0m in respect of the performance fee due to the investment manager. In addition, there is a requirement to make a mark-to-market revaluation adjustment of Â£3.5m in respect of an interest rate swap entered into by the Company which effectively fixes Â£100m of debt for a period of 20 years at 4.57%. In the event that the acquisition of the investment manager completes, the performance fee and the interest rate swap liability provision would be eliminated in a subsequent accounting period. In the event that long term interest rates rise above 4.57% the fair value of the interest rate swap liability would reverse. When the Company floated in November 2003 it committed to a progressive dividend policy. Shareholders were also advised that dividends would be paid out of gross revenue. Although the Company suffered a loss for the year of Â£12.5m after the performance fee provision of Â£13.0m and the interest rate swap adjustment of Â£3.5m, the Board, having given due regard to the underlying profitability of the Company, has recommended a final dividend of 3.34p (2004: 2.67p) per Ordinary Share making a total of 5p per Ordinary Share for the year (2004: 4p). The Companies (Guernsey) Law, 1994 permits dividends to be paid out of profits available for the purpose and the Company's Articles of Association state that such profits available for distribution do not include realised or unrealised profits on capital assets. A portion of the final 2004 dividend and the interim 2005 dividend paid during the year were in excess of these distributable profits as defined above. In order for these dividends to comply with The Companies (Guernsey) Law, 1994, the Directors intend to convert a portion of the share premium reserve to a distributable reserve. This requires shareholders' approval at the Company's AGM on 12 May 2006 and application to the Royal Court of Guernsey immediately thereafter. The Directors are confident of obtaining the requisite approvals and consent of the Royal Court of Guernsey. Including the performance fee provision and swap adjustment totalling Â£16.5m and dividends paid to ordinary shareholders of Â£6.2m (2004: Â£1.9m), the loss for the year amounted to some Â£18.7m (2004: profit Â£0.3m). This loss resulted in a decrease in the net asset value per share from 96.03p as at 31 December 2004 to 82.81p as at 31 December 2005. Outlook The outlook for the Company is positive and there is significant earnings potential supported by the favourable reforms taking place within the NHS. The Company has a strong pipeline of deals and developments, it has established an integrated pharmacy model and it intends to expand its Assura businesses across its portfolio of properties. Investment Manager At the beginning of 2006, the Board learned of the premature and untimely death of Peter Dickson who was one of the investment advisers to Berrington Fund Management Limited. Peter had been actively involved in the set up and formation of the Company and will be sorely missed by all those who worked with him. I would like to take this opportunity to express the Company's sincere condolences to Peter's family at this very difficult time. Dr Mark Jackson Chairman 12 April 2006 Investment Manager's Report For the year ended 31 December 2005 The Company's investment objective is to achieve asset-backed earnings growth from property, pharmacy and other operating businesses through the acquisition and development of a modern portfolio of primary health care premises. It has been a very difficult start to 2006 following the very sad and tragic death of my friend and colleague Peter Dickson, who died in a boating accident whilst on holiday in December. He was a very popular member of our team and was well liked and respected within the primary care industry. Peter had a quiet modesty about him and a good sense of humour which we will all miss enormously. I would like to take this opportunity on behalf of his family to thank all those business and professional colleagues who have written to express their condolences. Operating Review 2005 was another very satisfactory year for the Company and I am pleased to report strong progress in acquiring and developing properties, the successful start up of the Company's pharmacy operating business and the strategic planning for the new Assura business which has been formed to assist GP practices and related providers to meet many of the objectives of Practice Based Commissioning and to address the key elements set out in the Government's White Paper which was subsequently published in January 2006. The expansion of primary health care capacity envisaged by the White Paper will require a continual upgrade of premises infrastructure and capital investment. This will need to accommodate the shift of certain services previously based in hospitals, for example diagnostics and specialist consultants. In response to this, the Company's development activities continue to be extended and this is reflected in the number of schemes under construction or at an advanced stage of negotiation. Assembling new developments is time consuming and, by partnering with specialist, regionally-based developers, the Company has been able to increase its reach in terms of the number of developments it is able to pursue. The Company is continuing to trial a fast track procurement process by adopting a speculative approach in certain cases which may unlock some substantial and high quality schemes. As at 31 March 2006, the Company had acquired or exchanged contracts on 82 sites. A further 23 sites were in solicitors' hands. The total capital committed by the Company, including transactions in solicitors' hands, is now in excess of Â£340m with an estimated average net initial yield on completion of circa 6.5%. Within its existing income producing portfolio, the Company has settled rent reviews on 27 properties during the year resulting in an aggregate increase of 17.4% on the passing rent relating to those properties. As at 31 December 2005, the portfolio had an average rent of Â£147.43 per square metre on GMS space and an average weighted income un-expired term of 19.07 years. Industry Trends and the NHS White Paper The NHS White Paper that was published in January 2006 sets out the vision for the future of health care in the United Kingdom for the next 5 years. 'Our Health, Our Care, Our Say' sets out some far reaching changes that will dramatically alter the delivery of services both in the health and social care sectors. The key areas of change are centred on an increased delivery of service within the community-moving away from hospital to primary care. In addition, core support services such as diagnostics are to be relocated next to traditional general practices. The key outcomes are designed to be an increase in patient choice close to home and the ability to provide all key services in one place eventually progressing to 'the one-stop shop' for health. It is anticipated that Practice Based Commissioning, which gives general practitioners the responsibility for managing budgets for their patients' care, will become universally applied by December 2006. This will introduce a competitive and contestable market for health care which will demand new high quality premises that deliver a much wider range of services than before. This will need a new commercial business structure to enable GPs to compete against a newly evolving market for care to include larger organisations, corporations and Foundation Trusts. Alongside this, very specific initiatives to encourage fully integrated pharmacy services (supported by the recently introduced New Contract for Pharmacy), encouragement for innovation in care delivery and specific measures to provide for care to be aligned between all the current providers. Of greater significance is the Government's intention to have 15% of GP services independently provided by the private sector by 2008. Alongside this rests a programme to encourage a national network of 'hub' primary care centres that support smaller 'spoke' surgeries, and the development of new community care centres that will replace and strengthen the existing community hospital network. Strategy and Outlook The Company's strategy is fully supported by the White Paper and going forward we will aim to focus resources and generate income from three principal businesses: Property; Pharmacy; and Assura. Property The strategy for further property investment and development, outside of LIFT areas, will focus on expanding the Company's existing primary care facilities and/or relocating them, if applicable, to larger, newer premises developed by the Company and its local developer partners. We will continue the strategy of purchasing existing premises from GP practices and working with GPs and other health professionals to develop new, modern premises according to local need. The Company intends to develop and retain for long term investment: one-stop shop primary care resource centers or polyclinics; GP surgeries; and related community care facilities. All of these types of development are entirely in line with government policy on the future of service delivery in primary care. To accelerate and facilitate this process, the Company is prepared to take careful, measured development risk and build new premises where potential tenants have yet to commit. On all of its larger developments, the Company intends to develop integrated pharmacy facilities as well as build additional space to house its Assura activities. The Company has invested in three LIFT companies through BHE and has a further LIFT investment through its shareholding in Infracare (Midlands) Limited. As at 31 March 2006, BHE Holdings Limited has been successful in reaching the final tender stage (one of three bidders in each case) on a further four LIFT projects and the outcome of those tenders should be known later in the year. It is the Company's strategy to further support LIFT investment and to play an active role in LIFT consolidation, where possible. Pharmacy The Company's vision of integrated pharmacies is in line with new government policy which envisages closer alignment of pharmacy and primary care to facilitate improved clinical outcomes and enhance the patient journey. The Company also sees significant commercial advantages to this integrated model through the development of enhanced services in the communities which the pharmacies serve making use of advances such as electronic transfer of prescriptions as well as coordinated stock holding and seamless IT. The greater cooperation between health professionals and pharmacists should reduce the burden on GPs. This type of activity accords with the new pharmacy contract and the government's vision for pharmacy in the new NHS. The Company opened its first pharmacy in February 2006 at Bonnyrigg in Scotland and it intends to establish a further 20 pharmacies by the end of 2007. The pharmacy market and the granting of pharmacy licenses is well regulated and the Company intends to finance the acquisition of additional external pharmacy businesses and licenses where it can to achieve its objective of creating integrated pharmacies throughout its portfolio of properties. Additionally, the Company believes that, should there be further deregulation of pharmacy licenses, there could be further opportunities for the Company to establish integrated pharmacies more easily within its existing portfolio of primary care properties. Assura In order to meet with the government's intention to relocate some services from hospitals (secondary care) into primary care facilities, the Company has established a serviced health platform business under the Assura brand to develop and lease additional space within its existing premises and developments in order to provide related health provider organisations, diagnostic providers and health professionals with flexible space to be let on both a short term, including sessional, and longer term basis. The service proposition to be offered by Assura will break new ground and create a new style of primary care facility as never seen before in the United Kingdom. These buildings will include the provision of full and comprehensive business support services including IT, facilities management, administration, meeting and greeting to enable health professionals working in these environments to deliver a new level of primary health care service. By working in partnership with existing GPs and health professionals, the Company believes that it can provide a much wider range of facilities and services closer to patients, taking full advantage of the opportunities identified in the White Paper and made available from the recent introduction of Practice Based Commissioning. The encouragement to move secondary care services to primary care creates many new opportunities and fully accords with the Company's building designs that are fully flexible and engineered to support a wide range of care provision and demand in a rapidly developing market that will inevitably continue to change and evolve over the coming years. The Company intends to establish four pilot projects during 2006, the first of which will open in Liverpool shortly. The purpose of the pilots is to fully refine the service proposition and to assist the development of a national network of relationships with all types of provider organisations who can potentially deliver a much wider range of services to the local health economy alongside existing GPs. Looking to the future, the Company is well advanced in developing a wider remit for Assura by working with GPs and locality groups to establish local joint venture limited liability partnerships to enable PCTs to commission entire services through these newly established joint venture partnerships. The aim of these locally-run organisations is to provide a wide range of health care, diagnostic and related services to enable patients to be treated closer to home and in a primary care setting. Conclusion The prime objective of delivering asset-backed income growth by building up the Company's portfolio of properties and development projects is on course. We continue to explore opportunities to grow other businesses and income streams from the expanding portfolio of medical premises and we are pleased with the progress of the Company to date. Richard Burrell Berrington Fund Management Limited 12 April 2006 Report of the Directors The Directors of The Medical Property Investment Fund Limited ('the Company') and its subsidiaries (together 'the Group') are pleased to submit the Audited Consolidated Financial Statements of the Group for the year ended 31 December 2005. Investment Policy The Company's investment policy is to acquire the freehold and long leasehold ownership of fully let, modern primary health care premises with further development potential and existing GP surgeries where relocation of major redevelopment is desirable. The Company also intends to purchase land and buildings from third parties, which are capable of being developed or integrated with existing facilities. It is intended that the Company's premises will be capable of accommodating enlarged GP practices and a range of complementary medical and other services including pharmacy. Listing The Ordinary Shares of the Company were admitted to the Official List of the London Stock Exchange on 21 November 2003. Results The results for the year are shown in the Consolidated Statement of Operations on page 18. Dividend During the year the Company has declared and paid the following interim dividend and subsequently declared the following final dividend to its Ordinary Shareholders: Dividend Date Declared Rate Interim 9 September 2005 1.66p Final 12 April 2006 3.34p The Companies (Guernsey) Law, 1994 permits dividends to be paid out of profits available for the purpose and the Company's Articles of Association state that such profits available for distribution do not include realised or unrealised profits on capital assets. A portion of the final 2004 dividend and the interim 2005 dividend paid during the year were in excess of these distributable profits as defined above. In order for these dividends to comply with The Companies (Guernsey) Law, 1994, the Directors intend to convert a portion of the share premium reserve to a distributable reserve. This requires shareholders' approval at the Company's AGM on 12 May 2006 and application to the Royal Court of Guernsey immediately thereafter. The Directors are confident of obtaining the requisite approvals and consent of the Royal Court of Guernsey. If approved, it is expected that the final dividend will be paid to ordinary shareholders on the register on 5 May 2006, in June 2006. Directors' and Other Interests Dr Mark Jackson held 40,000 shares in the Company at both 31 December 2004 and 31 December 2005. In addition he benefits from an incentive fee as described in note 3 to the financial statements. None of the other Directors or persons connected with them held any shares at 31 December 2004 or 31 December 2005. None of the Directors had a service contract with the Company during the year. As at 31 December 2005, Berrington Fund Management Limited was interested in 147,000 (2004: 100,000) Ordinary Shares. Corporate Governance As a Guernsey incorporated company, the Company is not required to comply with the Code of Best Practice published by the Committee on the Financial Aspects of Corporate Governance (the 'Combined Code'). However, the Directors place a high degree of importance on ensuring that high standards of Corporate Governance are maintained. Going Concern The Directors believe it is appropriate to adopt the going concern basis in preparing the financial statements as, after due consideration, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Substantial Shareholdings At 15 March 2006, Directors were aware that the following shareholders owned 3% or more of the issued Ordinary Shares of the Company. Number of Ordinary Shares % of Ordinary Shares Artemis Investment Management 5,859,931 4.12 Credit Suisse Asset Management 11,300,000 7.94 F&C Asset Management 8,571,129 6.02 INVESCO Asset Management 40,342,664 28.33 Investec Asset Management 10,622,797 7.46 Jupiter Asset Management 9,350,000 6.68 Lazard (Institutional Group) 13,951,464 9.80 Morley Fund Management 5,328,408 3.74 Rathbones 4,673,325 3.28 Directors' Responsibilities The Directors are responsible for preparing financial statements for each financial period which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period and are in accordance with applicable laws. In preparing those financial statements the Directors are required to:- â€¢ select suitable accounting policies and apply them consistently; â€¢ make judgements and estimates that are reasonable and prudent; and â€¢ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 1994. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for ensuring that the Report of the Directors and other information included in the Annual Report is prepared in accordance with applicable company law. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority. Status for Taxation The Income Tax Authority in Guernsey has granted the Company exemption from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and the income of the Company may be distributed or accumulated without deduction of Guernsey income tax. Exemption under the above mentioned Ordinance entails payment by the Company of an Annual Fee of Â£600. The property subsidiary is subject to United Kingdom tax on income arising on investment properties, after deduction of their debt financing costs and allowable expenses. The UK trading subsidiaries are subject to UK corporation tax on their profits. Auditors Ernst & Young LLP have indicated their willingness to continue in office. Dr Mark Jackson, Chairman Graham Chase, Director 12 April 2006 Independent Auditors' Report to the Members of The Medical Property Investment Fund Limited We have audited the Group's financial statements for the year ended 31 December 2005 which comprise the Consolidated Statement of Operations, Consolidated Balance Sheet, Company Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement and the related notes 1 to 31. These financial statements have been prepared on the basis of the accounting policies set out therein. This report is made solely to the Company's members, as a body, in accordance with Section 64 of the Companies (Guernsey) Law, 1994. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors The Directors are responsible for the preparation of the financial statements in accordance with Guernsey law as described in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements, International Standards on Auditing (UK and Ireland) and the Listing Rules of the Financial Services Authority. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies (Guernsey) Law, 1994. We also report to you if, in our opinion, the Directors' Report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit or if information specified by the Listing Rules regarding Directors' transactions with the Group is not disclosed. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises the Highlights, Chairman's Statement, Investment Manager's Report, Directors' Profiles, Management and Administration and Report of the Directors. We consider the implications for our Report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view, in accordance with International Financial Reporting Standards, of the state of affairs of the Group as at 31 December 2005 and of its loss for the year then ended and have been properly prepared in accordance with the Companies (Guernsey) Law, 1994. Ernst & Young LLP Guernsey, Channel Islands 12 April 2006 Consolidated Statement of Operations For the year from 1 January 2005 to 31 December 2005 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 Notes Â£ Â£ Income Rent receivable 6,001,041 3,399,736 Fees receivable 1,014,862 358,488 Bank and other interest 1,729,486 3,829,875 Total Income 8,745,389 7,588,099 Expenses Interest payable and similar charges 6 200,526 43,448 Investment Manager's fees 3(i) 2,691,686 2,958,265 Salaries 1,721,775 409,520 Legal and professional fees 258,137 189,893 Property management expenses 480,056 186,546 Audit fees 38,824 35,000 Tax and accountancy fees 7,444 22,560 Administration fee 3 (ii) 92,584 113,453 Directors' fees 5 220,370 243,287 Insurance 28,471 37,686 Advertising, PR & marketing 216,448 260,420 Abortive transaction costs 418,820 131,689 Other expenses 526,182 277,479 Depreciation 20,623 350 Bank charges 18,804 9,503 Total Operating Expenses 6,940,750 4,919,099 Net Profit before Investment Result 1,804,639 2,669,000 Unrealised surplus/(loss) on revaluation of properties 12 2,165,005 (508,027) Net Profit after Investment Result 3,969,644 2,160,973 Minority interests 152,476 69,703 Unrealised loss on revaluation of derivative financial 7 (3,472,319) - instrument Performance fee provision 4 (13,050,000) - (Loss)/Profit before Taxation (12,400,199) 2,230,676 Taxation 9 (98,241) - (Loss)/Profit for the Year/Period (12,498,440) 2,230,676 Dividend 8 (6,166,087) (1,893,971) (Loss)/Retained Profit (18,664,527) 336,705 Basic and Diluted (Loss)/Profit per Ordinary Share 10 (8.78)p 1.58p All items in the above statement are derived from continuing operations. The accompanying notes form an integral part of the financial statements. Consolidated Balance Sheet as at 31 December 2005 31/12/2005 31/12/2004 Notes Â£ Â£ Non-current Assets Property 12 131,642,729 51,739,136 Investment in associates 13 1,367,973 4,232 Goodwill 14 5,892,020 5,867,768 Development costs 15 36,458 - Tangible fixed assets 16 35,133 20,078 138,974,313 57,631,214 Current Assets Cash and cash equivalents 18 3,745,649 66,650,944 Debtors 19 3,537,457 4,615,396 Development work in progress 16,520,686 10,071,702 23,803,792 81,338,042 Total Assets 162,778,105 138,969,256 Current Liabilities Creditors 21 3,396,239 2,222,416 Non-current Liabilities Long term loan 22 24,929,710 - Performance fee provision 4 13,050,000 - Derivative financial instruments at fair value 7 3,472,319 - 41,452,029 - Total Liabilities 44,848,268 2,222,416 Net Assets 117,929,837 136,746,840 Represented by: Capital and Reserves Share capital 23 14,240,385 14,240,385 Share premium 24 122,239,453 122,239,453 Reserves 25 (18,327,822) 336,705 118,152,016 136,816,543 Minority interests (222,179) (69,703) Total Equity 117,929,837 136,746,840 Net Asset Value per Ordinary Share 26 82.81p 96.03p The financial statements were approved at a meeting of the Board of Directors held on 12 April 2006 and signed on its behalf by: Dr Mark Jackson, Chairman Graham Chase, Director The accompanying notes form an integral part of the financial statements. Company Balance Sheet as at 31 December 2005 31/12/2005 31/12/2004 Notes Â£ Â£ Non-current Assets Investment in subsidiary companies 11 34,841,373 15,696,868 Loans 17 107,194,059 45,788,601 142,035,432 61,485,469 Current Assets Cash and cash equivalents 18 1,079,066 66,340,103 Debtors 19 73,334 1,515,910 Loans 20 16,609,554 7,510,851 17,761,954 75,366,864 Total Assets 159,797,386 136,852,333 Current Liabilities Creditors 21 415,520 105,493 Non-current Liabilities Long term loan 22 24,929,710 - Performance fee provision 4 13,050,000 - Derivative financial instruments at fair value 7 3,472,319 - 41,452,029 - Total Liabilities 41,867,549 105,493 Net Assets 117,929,837 136,746,840 Represented by: Capital and Reserves Share capital 23 14,240,385 14,240,385 Share premium 24 122,239,453 122,239,453 Reserves 25 (18,550,001) 267,002 Total Equity 117,929,837 136,746,840 The financial statements were approved at a meeting of the Board of Directors held on 12 April 2006 and signed on its behalf by: Dr Mark Jackson, Chairman Graham Chase, Director The accompanying notes form an integral part of the financial statements. Consolidated Statement of Changes in Equity For the year from 1 January 2005 to 31 December 2005 Share Share Premium Retained Minority Total Earnings Interest Capital Â£ Â£ Â£ Â£ Â£ Balance at 1 January 2005 14,240,385 122,239,453 336,705 (69,703) 136,746,840 Minority interest - - - (152,476) (152,476) Dividends on Ordinary Shares - - (6,166,087) - (6,166,087) Loss attributable to equity - - (12,498,440) - (12,498,440) holders Balance at 31 December 2005 14,240,385 122,239,453 (18,327,822) (222,179) 117,929,837 Share Share Premium Retained Minority Total Earnings Interest Capital Â£ Â£ Â£ Â£ Â£ Balance at 7 October 2003 - - - - - Issue of Ordinary Shares, net of 14,240,385 122,239,453 - - 136,479,838 issue costs Minority interest - - - (69,703) (69,703) Dividends on Ordinary Shares - - (1,893,971) - (1,893,971) Profit attributable to equity - - 2,230,676 - 2,230,676 holders Balance at 31 December 2004 14,240,385 122,239,453 336,705 (69,703) 136,746,840 The accompanying notes form an integral part of the financial statements. Consolidated Cash Flow Statement For the year from 1 January 2005 to 31 December 2005 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 Note Â£ Operating Activities Rent received 5,680,156 3,285,877 Fees received 354,231 358,488 Bank and other interest received 1,835,670 3,829,875 Expenses paid (5,274,400) (5,240,581) Interest paid and similar charges - (43,448) Net cash inflow from operating activities 27 2,595,657 2,190,211 Investing Activities Purchase of property (70,962,044) (53,228,913) Purchase of investments (35) (4,232) Purchase of fixed assets (35,678) (20,428) Pharmacy licence application costs (36,458) - Acquisition of subsidiary, net of cash acquired (24,252) (5,867,768) Cost of development work in progress (12,722,648) (10,071,702) Net loans advanced to associated companies (431,615) (932,091) Net cash outflow from investing activities (84,212,730) (70,125,134) Financing Activities Issue of Ordinary Shares - 142,500,000 Issue costs paid on issuance of Ordinary Shares - (6,020,162) Dividends paid (6,166,087) (1,893,971) Drawdown of term loan 25,500,000 - Loan issue costs (622,135) - Net cash inflow from financing activities 18,711,778 134,585,867 (Decrease)/Increase in cash and cash equivalents (62,905,295) 66,650,944 Cash and cash equivalents at 1 January 2005 / 7 October 66,650,944 - 2003 Cash and cash equivalents at 31 December 3,745,649 66,650,944 The accompanying notes form an integral part of the financial statements. Notes to the Financial Statements For the year from 1 January 2005 to 31 December 2005 1. Operations The Medical Property Investment Fund Limited is a closed-ended investment company incorporated in Guernsey whose investment objective is to achieve capital growth and rising rental income from the ownership and development of a diversified portfolio of primary health care properties and the provision of related services, including pharmacy. 2. Principal Accounting Policies Basis of Preparation The financial statements of the Group have been prepared in conformity with International Financial Reporting Standards ('IFRS') issued by the International Accounting Standards Board, interpretations issued by the International Financial Reporting Interpretations Committee and applicable legal and regulatory requirements of Guernsey Law, and reflect the following policies: Convention The financial statements have been prepared on a going concern basis under the Historical Cost Convention except for the measurement at fair value of investment properties and derivative financial instruments. Basis of Consolidation The Group financial statements consolidate the financial statements of The Medical Property Investment Fund Limited and its subsidiary undertakings. Segmental Reporting The Directors are of the opinion that the Group is engaged in a single segment of business, being primary care investment and development business and related services. The Group invests in primary health care properties and developments situated in the United Kingdom. Impact of revisions to International Financial Reporting Standards The following International Financial Reporting Standards have been revised for periods commencing 1 January 2005 and have been adopted by the Group: â€¢ IAS1 Presentation of financial statements â€¢ IAS8 Accounting policies, changes in accounting estimates and errors â€¢ IAS10 Events after the balance sheet date â€¢ IAS17 Leases â€¢ IAS24 Related party disclosures â€¢ IAS27 Consolidated and separate financial statements â€¢ IAS32 Financial instruments: Disclosure and presentation â€¢ IAS33 Earnings per share â€¢ IAS39 Financial instruments: Recognition and measurement â€¢ IAS40 Investment property The Company has decided to early adopt the following standards/amendments to standards: 1. The amendments to IAS39 and IRFS4 ('Financial Guarantee Contracts'). 2. IAS39 Amendment - Cash Flow Hedge Accounting of Forecast Intragroup Transactions. 3. IAS39 Amendment - The Fair Value Option. These revised standards have not had an impact on the Group's equity. Income Interest and fees receivable are included in the financial statements on an accruals basis. Rental income is included in the financial statements on an accruals basis and is shown gross of any UK income tax. Expenses All expenses are accounted for on an accruals basis. Salaries The Company has no employees. Salary costs relate to the Group's subsidiaries, BHE Management Services Limited, which at 31 December 2005 had eleven employees and Healthcare Pharmacies Limited, which had six employees at that date. Neither company has a pension scheme. Issue Costs The share issue costs incurred in the prior period amounted to Â£6,020,162 and were written off in full against the share premium account in the period ended 31 December 2004. Investments in Subsidiary Companies The investments in subsidiary companies are included in the Company Balance Sheet at cost less any provisions for diminution in value. Investments in Associates The Group's investments in associates are accounted for under the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, investments in the associates are carried in the balance sheet at cost plus post-acquisition changes in the Group's share of net assets of the associates. After application of the equity method, the Group determines whether it is necessary to recognise additional impairment loss with respect to the Group's net investment in the associates. The consolidated statement of operations reflects the share of the results of operations of the associates. Where there has been a change recognised directly in the equity of the associates, the Group recognises its share of any changes and discloses this, when applicable, in the Statement of Changes in Equity. The financial statements of the associates are prepared for the same reporting year as the Group or with a maximum difference of no more than three months, using consistent accounting policies. Goodwill Goodwill arising on acquisition is accounted for being the difference between the cost of acquisition and the fair value of the Group share of identifiable net assets of the subsidiary acquired. It is subject to annual review for any impairment. Impairment of Goodwill Good will is allocated to cash generating units for the purpose of impairment testing. This allocation is made to those cash generating units that are expected to benefit from the business combination in which the goodwill arose. The recoverable amount of a cash generating unit is determined based on value-in-use calculations. These calculations use cash flow projections based on detailed financial models prepared by management, with all anticipated future cash flows discounted to current day values. Property - Freehold Freehold properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the property. After initial recognition, freehold properties are measured at fair value, with unrealised gains and losses recognised in the Consolidated Statement of Operations. Fair value is based upon the open market valuations of the properties as provided by Savills Commercial Limited, a firm of independent chartered surveyors, as at the balance sheet date. Property - Long Leasehold Long leasehold properties are accounted for as freehold properties and, after initial recognition at cost, are measured at fair value (on the same basis as freehold properties above). Development Costs Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the development of pharmacy licenses) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight line basis over its useful life, not exceeding 20 years. Tangible Fixed Assets Tangible fixed assets are carried at historical cost less accumulated depreciation. Depreciation of assets is calculated using the straight line method to allocate this cost to their residual value over their estimated useful lives as follows: â€¢ Fixtures and fittings - four years. â€¢ Computer equipment - three years. Derivative Financial Instruments and Hedging Activities The Group uses derivative financial instruments, in the form of interest rate swaps, to hedge its risks associated with interest rate fluctuations. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. The fair value of hedging derivatives are classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the Statement of Operations. Loans to Subsidiary Companies The unsecured subordinated loan to MPIF Holdings Limited has been accounted for as an originated loan under IFRS. This loan and other loans to subsidiary companies, have been accounted for on an amortised cost basis with intercompany interest being recognised under the effective interest rate method. The loans are reviewed regularly for impairment. Development Work in Progress Development work in progress, including capitalised interest where applicable, is carried at cost or, if lower, net realisable value. Cash and Cash Equivalents Cash on hand and deposits in banks are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits, and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash in hand and deposits in banks. Bank Loans and Borrowings All bank loans and borrowings are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. Comparatives Comparative information on the loans in the Company Balance Sheet has been reclassified. Â£7,510,851 of loans in 2004 have been reclassified as current assets in 2005. 3. Material Agreements (i) Under the terms of an appointment made by the Board on 18 November 2003, Berrington Fund Management Limited ('BFML') was appointed as Investment Manager to the Company. With effect from 21 November 2003 the Investment Manager is paid an aggregate annual management fee of 2.0% of the net asset value of the Company payable monthly in arrears. In addition, BFML is entitled to receive a performance fee in respect of the period from Admission to 31 December 2008 of 18% of the amount by which the market value per share exceeds on 31 December 2008 the Placing Price (compounded annually at 12% per annum) and, thereafter, 18% of the amount by which the market value per share exceeds the higher of (1) the Placing Price (compounded annually at 12% per annum) or (2) the highest previous market value per share as stated in the Prospectus. (See also note 4). The Investment Management Agreement is terminable by the Company on 12 months' notice, such notice to be given on or after the fourth anniversary of the Investment Manager's Agreement. The Investment Manager has delegated the management of the investment properties to Barlows Asset Management Limited. (ii) Under the terms of an Administration Agreement dated 18 November 2003, the Company appointed Guernsey International Fund Managers Limited ('GIFM') as Administrator, Secretary and Registrar of the Company. This agreement was terminated with effect from 27 April 2004. The Company entered into an Administration Agreement dated 26 April 2004 with Mourant Guernsey Limited ('Mourant') under which Mourant agreed to provide services to the Company as Administrator and Secretary to the Company. Mourant is entitled to an annual fee of Â£85,000 per annum, such fees being invoiced monthly in arrears. (iii) Under the terms of a letter of appointment dated 17 November 2003, Dr Mark Jackson is entitled to an incentive fee in respect of the period from 21 November 2003 to 31 December 2008, provided he is then still employed by the Company, of 2% of the amount by which the market value per share exceeds, on 31 December 2008, Â£1 compounded annually at 12% per annum and, thereafter, 2% of the amount by which the market value per share exceeds the higher of (1) Â£1 compounded annually at 12% or (2) the higher previous market value per share. 4. Performance Fee Provision Based on an effective share price of 170.43p at 31 December 2005, and on the assumption that the performance fees had crystallised on that date, a provision for performance fees amounting to Â£13,050,000 has been made in the financial statements of which Â£550,000 attributes to Dr Mark Jackson on a time apportioned basis (see note 3). 5. Directors' Fees 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 During the year/period each of the Directors received the following fees: Â£ Â£ M. Jackson (Chairman) 100,000 121,643 J. Curran (Deputy Chairman) 40,000 48,657 G. Chase 20,000 24,329 F. Porter 20,000 24,329 C. Vibert 20,000 24,329 P. Pichler 13,945 - S. Tremlett 6,425 - 220,370 243,287 See also Dr Mark Jackson's interest referred to in notes 3 and 4. 6. Interest Payable and Similar Charges 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 Long term loan interest payable 204,258 - Interest capitalised on developments (83,592) - SWAP interest (see note 7) (74,443) - Non-utilisation fees 102,452 - Amortisation of loan issue costs 51,845 - Bank & other interest payable 6 43,448 200,526 43,448 7. Derivative Financial Instruments at Fair Value During the year the Company entered into a 20 year interest rate SWAP at a rate of 4.5725%, on its full debt facility of Â£100m which, together with the margin and related fees, provides the Company with an all-in fixed cost of funds of 5.4%. Throughout the year, the SWAP rate was below the three month LIBOR rate hence the Company benefited from income arising from the SWAP. Based on the 20 year SWAP rate at 30 December 2005, the fair value of this SWAP was a deficit of Â£3,472,319. 8. Dividends Paid on Ordinary Shares 1/1/2005 7/10/2003 No. of to to Ordinary Rate 31/12/2005 Rate 31/12/2004 Shares pence Â£ pence Â£ Final dividend for 2004 142,403,847 2.67 3,802,183 - - Interim dividend for 2005 142,403,847 1.66 2,363,904 1.33 1,893,971 Dividends paid 4.33 6,166,087 1.33 1,893,971 The Companies (Guernsey) Law, 1994 permits dividends to be paid out of profits available for the purpose and the Company's Articles of Association state that such profits available for distribution do not include realised or unrealised profits on capital assets. A portion of the final 2004 dividend and the interim 2005 dividend paid during the year were in excess of these distributable profits as defined above. In order for these dividends to comply with The Companies (Guernsey) Law, 1994, the Directors intend to convert a portion of the share premium reserve to a distributable reserve. This requires shareholders' approval at the Company's AGM on 12 May 2006 and application to the Royal Court of Guernsey immediately thereafter. The Directors intend to recommend a final dividend of 3.34p per Ordinary Share be paid to shareholders on the Company's register on 5 May 2006. This will be subject to the conversion of Â£25,000,000 from share premium reserve to a distributable reserve, which, as above, will require prior approval of shareholders and the Royal Court of Guernsey. 9. Taxation The Company and its Guernsey registered subsidiaries, MPIF Holdings Limited and MPF Pharmacies Limited, have obtained exempt company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 so that they are exempt from Guernsey taxation on income arising outside Guernsey and on bank interest receivable in Guernsey. Each Company is, therefore, only liable to a fixed fee of Â£600 per annum. The Directors intend to conduct the Group's affairs such that it continues to remain eligible for exemption. A taxation charge of Â£1,800 arose in Guernsey. MPIF Holdings Limited is subject to United Kingdom income tax on income arising on the investment properties, after deduction of its debt financing costs, allowable expenses and capital allowances. The Company's UK subsidiaries are subject to United Kingdom corporation tax on their profits less losses. BHE Holdings Ltd and its subsidiaries along with BHE Bonnyrigg Ltd, BHE Wand Ltd, BHE Heartlands Ltd and Healthcare Pharmacies Ltd are subject to UK taxation and a charge of Â£96,441 was incurred in the year. 10. Basic and Diluted Loss per Ordinary Share The basic and diluted loss per Ordinary Share is based on the loss for the period of Â£12,498,440 (2004: profit of Â£2,230,676) and on 142,403,847 Ordinary Shares (2004: 140,909,564), being the weighted average number of Ordinary Shares in issue in the respective year/period. 11. Investments in Subsidiary Companies The Company owns the whole of the issued Ordinary Share capital of MPIF Holdings Limited, specially formed to act as the property investment holding company for the Group, which is incorporated and registered in Guernsey. The Company also owns the whole of the issued Ordinary Share capital of Assura Medical Limited and Assura Medical Solutions Limited, which have been set up to facilitate the transfer of secondary health care services to primary care, in accordance with government strategy. MPIF Holdings Limited owns the whole of the issued Ordinary Share capital of BHE (Heartlands) Limited and BHE (Wand) Limited, both of which are property investment companies, registered in England, and BHE (Bonnyrigg) Limited, a dormant company which is also registered in England. MPIF Holdings Limited also owns the whole of the issued Ordinary Share capital of MPF Pharmacies Limited, specially formed to act as the pharmacy investment holding company for the Group, which is incorporated and registered in Guernsey. MPF Pharmacies Limited owns the whole of the issued Ordinary Share capital of Healthcare Pharmacies Limited which is registered in England and will, in due course, carry on its pharmacy trade in the United Kingdom. Healthcare Pharmacies limited, the Company's wholly owned UK pharmacy operator, was incorporated on 6 July 2004 and its results have been consolidated for the 18 months ended 31 December 2005. The Company also owns 70% of the issued Ordinary Share capital of BHE Holdings Limited and its subsidiaries, Development Support Partnership Limited, which is dormant, BHE (York) Limited and BHE Management Services Limited. BHE Holdings Limited, BHE (York) Limited and BHE Management Services Limited, which are registered in England, undertake property development, health planning and related consultancy services. The Company has the following investments in subsidiaries: 31/12/2005 31/12/2004 Company Â£ Â£ MPIF Holdings Limited 28,157,000 12,000,000 Assura Medical Limited 100 - Assura Medical Solutions Limited 100 - BHE Holdings Limited 6,695,023 6,670,771 Provision for diminution in value (10,850) (2,973,903) 34,841,373 15,696,868 12. Property Properties are stated at fair value, which has been determined based on valuations performed by Savills Commercial Limited as at 31 December 2005, on the basis of open market value, supported by market evidence, in accordance with International Valuation Standards. 31/12/2005 31/12/2004 Group Â£ Â£ At 1 January 51,739,136 - Acquisitions 75,615,590 Subsequent expenditure 2,122,998 52,247,163 Unrealised profit/(loss) on revaluation 2,165,005 (508,027) At 31 December 131,642,729 51,739,136 31/12/2005 31/12/2004 Company Â£ Â£ At 1 January - - Acquisitions - 32,040,262 Disposals - (32,040,262) At 31 December 2004 - - During the year the Group has complied with Sections 21.27 (f) to 21.27 (i) of the FSA Listing Rules. 13. Investments in Associates The Group has the following investments in associates: Year Shares held % held Place of Business Name of Company ended by the Group Incorporation Activity Infracare (Midlands) 31 December 40 Ordinary 40% England Holds 60% of the Limited Shares of Â£1 share capital in the Dudley South LIFT Company GB Consortium (No. 1) 31 December 4,200 Ordinary 40% held by England Holds 60% of the Limited Shares of Â£1 BHE Holdings share capital in Limited which the Barnet, is 70% owned Enfield and by the Haringey, and Company Liverpool and Sefton LIFT Companies GB Consortium (No. 2) 31 December 27 Ordinary 45% held by England Holds 60% of the Limited Shares of Â£1 BHE Holdings share capital in Limited which the Coventry LIFT is 70% owned Company by the Company The above investments comprise: 2005 2005 2004 2004 Group Company Group Company Â£ Â£ Â£ Â£ Cost of shares Associate 4,267 - 4,227 - Investment - - 5 - Loan to GB Consortium (No. 1) Limited 433,166 - - - Loan to Infracare (Midlands) Limited 930,540 - - - 1,367,973 - 4,232 - The above loans are unsecured, due after one year, and carry interest at 12%. The following information is given in respect of the Group's share of all associates: 2005 2004 Group Group Â£ Â£ Fixed assets 464,103 4,227 Current assets 545,070 255,803 1,009,173 260,030 Liabilities due within one year 101,876 126,813 Liabilities due after one year 1,185,133 292,617 1,287,009 419,430 Share of associates revenue and profit Revenue 408,954 - Profit/(loss) 166,277 (164,082) No credit will be taken for the Group's share of profits until the associates have accumulated net retained profits. The movement on investments in associates during the year was as follows: 2005 2004 Group Group Â£ Â£ Balance at 1 January 4,232 - Acquired in year 35 4,232 Net loans advanced or transferred 1,363,706 - Balance at 31 December 1,367,973 4,232 14. Goodwill On 30 July 2004 the Company acquired 70% of the share capital of BHE Holdings Limited, and 100% of the share capital of BHE (Bonnyrigg) Limited and BHE (Heartlands) Limited for a consideration of Â£4m in cash plus 2,403,847 Ordinary Shares in the Company with a value of Â£2,500,000 at that date. The net assets of the group acquired were Â£nil. The Company tests annually whether goodwill has suffered any impairment. These calculations use cash flow projections based on detailed financial models prepared by management covering a 20 year period, with all anticipated future cash flows discounted at rates of 10% and above, to current day values. Based on the Company's assessment of the value of the pipeline of projects in BHE Holdings Limited, no adjustment is considered necessary at 31 December 2005. Other key assumptions include property yields ranging between 5.5% - 7% and property development profits of 7.5% on development costs, discounted to current day values as above. The goodwill arising and at the year end is as follows: 31/12/2005 31/12/2004 Group Â£ Â£ At 1 January 5,867,768 - Costs of acquisition 24,252 6,670,771 Revaluation at date of acquisition - (803,003) Goodwill at 31 December 5,892,020 5,867,768 No impairment has been recognised during the year/period. 15. Development Costs 31/12/2005 31/12/2004 Group Â£ Â£ Pharmacy licence application costs 36,458 - Development costs and net book value at 31 December 36,458 - 16. Tangible Fixed Assets 31/12/2005 31/12/2005 31/12/2005 Group Â£ Â£ Â£ Computer Fixtures & Total Equipment Fittings Cost At 1 January - 37,896 37,896 Additions at cost 10,976 24,702 35,678 At 31 December 10,976 62,598 73,574 Depreciation At 1 January - 17,818 17,818 Depreciation for the year 2,190 18,433 20,623 At 31 December 2,190 36,251 38,441 Net book value at 31 December 2005 8,786 26,347 35,133 Net book value at 31 December 2004 - 20,078 20,078 17. Loans 31/12/2005 31/12/2004 Company Â£ Â£ MPIF Holdings Limited 107,194,059 45,788,601 These comprise unsecured subordinated loans issued in support of property acquisitions. The loans are repayable on 31 December 2013 and interest is charged at the fixed rate for that period plus a margin of 3%. The loans at 31 December 2004 have been reclassified between current and long term with Â£7,510,851 being transferred to current assets. See note 20. 18. Cash and Cash Equivalents Cash includes Â£740,000 (2004: Â£635,000) held to the bank's order as security for letters of credit issued by the bank to the debt funders for the three Local Improvement Finance Trusts (LIFT Companies) to which the Group has pledged funding upon practical completion of the medical centres under development. 19. Debtors 31/12/2005 31/12/2004 Group Â£ Â£ VAT recoverable 154,283 873,584 Other debtors 749,429 934,796 Short term loan to Infracare (Midlands) Limited* - 932,091 Rent receivable 2,154,875 893,175 Property purchase deposits 478,870 981,750 3,537,457 4,615,396 * The unsecured loan from MPIF Holdings Limited to Infracare (Midlands) Limited carries interest at 12% and has been transferred to investments. See note 13. Company Due from MPIF Holdings Limited - 1,479,132 Prepayments and other debtors 73,334 36,778 73,334 1,515,910 20. Loans 31/12/2005 31/12/2004 Company Â£ Â£ MPIF Holdings Limited 9,951,661 2,567,259 BHE Holdings Limited 575,000 250,000 BHE (Heartlands) Limited 5,050,392 3,424,675 BHE (Bonnyrigg) Limited - 1,032,032 MPF Pharmacies Limited 599,335 216,560 GB Consortium (No. 1) Limited 433,166 20,325 16,609,554 7,510,851 The above loans are unsecured, non interest bearing and repayable upon demand. The loan to BHE (Bonnyrigg) Limited of Â£3,349,238 and a loan made to BHE (Wand) Limited of Â£225,068 during the year have been provided for in full. 21. Creditors 31/12/2005 31/12/2004 Â£ Â£ Group Trade creditors 152,651 954,745 Other creditors 1,054,913 488,355 Corporation tax and other taxes 161,834 - Interest payable and similar charges 306,710 - Rents received in advance 1,720,131 779,316 3,396,239 2,222,416 Company Trade creditors 17,713 6,357 Other creditors 91,097 99,136 Interest payable and similar charges 306,710 - 415,520 105,493 22. Long Term Loan 31/12/2005 31/12/2004 Group and Company Â£ Â£ Amount drawn down in year 25,500,000 - Loan issue costs (622,135) - Amortisation of loan issue costs 51,845 - 24,929,710 - The Company has a loan facility agreement with National Australia Bank for Â£100,000,000. As at 31 December 2005, the Company had drawn down Â£25,500,000 under this agreement leaving an undrawn balance of Â£74,500,000. This loan is due for repayment on 21 July 2008. The fair value of the loan at 31 December 2005 was Â£25,500,000. During the year, the Company's bank borrowings were subject to the following financial covenants: (i) Loan to value ratio - the aggregate outstanding loan to current valuation of investment properties should not exceed 75%. (ii) Projected net rental income receivable during the following 12 month period must cover 130% of projected finance costs. (iii) Financial indebtedness must be below 65% of Gross Asset Value. (iv) Average weighted lease length must exceed 121/2 years. The Company has been in compliance with the financial covenants throughout the period since issue. 23. Share Capital Authorised Â£ 200,000,000 Ordinary Shares of 10p each 20,000,000 20,000,000 Preference Shares of 10p each 2,000,000 22,000,000 Number of Share Shares Capital Ordinary Shares issued and fully paid Â£ 142,403,847 Ordinary Shares of 10p each 142,403,847 14,240,385 Total share capital at 31 December 2004 and 2005 142,403,847 14,240,385 The Company has not issued any Preference Shares. Voting Rights Ordinary shareholders are entitled to vote at all general meetings. Preference shareholders are entitled to receive notice of and speak at any general meeting of the Company but they can only vote on any resolution relating to the Preference Shares. Dividends The preference shareholders are entitled to, in priority to the holders of any other class of share, a fixed cumulative preferential cash dividend at the rate of 6p per Preference Share per annum. The ordinary shareholders are entitled to the balance of revenue made available for distribution by the Company. Conversion Each preference shareholder may convert part of his shareholding into fully paid Ordinary Shares at the rate of one Ordinary Share for each Preference Share held, in the manner and basis set out in the articles. Capital If not converted, the Preference Shares may be redeemed by the Company subject to notice periods set out in the articles. The ordinary and preference shareholders are entitled to all capital pari passu once the preference shareholders have received their dividend entitlement. 24. Share Premium 31/12/2005 31/12/2004 Â£ Â£ At 1 January 122,239,453 - Proceeds arising on issue of Ordinary Shares - 128,259,615 Allocation of issue costs - (6,020,162) Share premium at 31 December 122,239,453 122,239,453 25. Profit and Loss Reserve 31/12/2005 31/12/2004 Â£ Â£ Group At 1 January 336,705 - Ordinary dividends (6,166,087) (1,893,971) (Loss)/profit for the year/period (12,498,440) 2,230,676 Reserve at 31 December (18,327,822) 336,705 Company At 1 January 267,002 - Ordinary dividends (6,166,087) (1,893,971) (Loss)/profit for the year/period (12,650,916) 2,160,973 Reserve at 31 December (18,550,001) 267,002 26. Net Asset Value per Ordinary Share The net asset value per Ordinary Share is based on the net assets attributable to the ordinary shareholders of Â£117,929,837 (2004: Â£136,746,840) and on 142,403,847 Ordinary Shares in issue at the balance sheet date. 27. Note to the Consolidated Cash Flow Statement 1/1/2005 7/10/2003 to to 31/12/2005 31/12/2004 Â£ Â£ Reconciliation of net profit before investment result to net cash outflow from operating activities: Net profit before investment result 1,804,639 2,669,000 UK tax charge (98,241) - Adjustment for non-cash items: Depreciation 20,623 350 (Increase) in debtors (357,032) (2,701,555) Increase in creditors 1,173,823 2,222,416 Amortisation of loan issue costs 51,845 - Net cash inflow from operating activities 2,595,657 2,190,211 28. Financial Instruments and Properties The Group holds cash and liquid resources as well as having debtors and creditors that arise directly from its operations. The Group has entered into an interest rate SWAP during the year as disclosed in note 7. The main risks arising from the Group's financial instruments and properties are market price risk, credit risk, liquidity risk and interest rate risk. The Board regularly reviews and agrees policies for managing each of these risks and these are summarised below. Market Price Risk The Group's exposure to market price risk is comprised mainly of movements in the value of the Group's investment in property. Property and property related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where a sale occurs shortly after the valuation date. Rental income and the market value for properties are generally affected by overall conditions in the local economy, such as growth in gross domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factors specific to the real estate market, such as competition from other property owners, the perceptions of prospective tenants of the attractiveness, convenience and safety of properties, the inability to collect rents because of the bankruptcy or the insolvency of tenants or otherwise, the periodic need to renovate, repair and release space and the costs thereof, the costs of maintenance and insurance, and increased operating costs. The Directors monitor market value by having independent valuations carried out quarterly by Savills Commercial Limited. Credit Risk Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. In the event of a default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property. Liquidity Risk Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. Investments in property are relatively illiquid, however, the Group has tried to mitigate this risk by investing in desirable properties which are well let to General Practitioners and Primary Care Trusts. Interest Rate Risk The Group's exposure to market risk for changes in interest rates relates primarily to the Group's cash deposits and, as debt is utilised, long-term debt obligations. The Group's policy is to manage its interest cost using interest rate SWAPs (see note 7). The interest rate profile of the Group at 31 December 2005 was as follows: Total Fixed Variable Assets on Weighted rate rate which no average interest is interest rate received per annum Â£ Â£ Â£ Â£ % Financial Assets Properties 131,642,729 - - 131,642,729 - Fixed assets 35,133 - - 35,133 - Goodwill 5,892,020 - - 5,892,020 - Intangible fixed assets 36,458 - - 36,458 - Investments in associates 1,367,973 1,367,973 - - 12.0 Non-current assets 138,974,313 1,367,973 - 137,606,340 - Cash and cash equivalents 3,745,649 - 3,745,649 - 4.6 Debtors 3,537,457 - - 3,537,457 - Development work in progress 16,520,686 - - 16,520,686 - Total assets as per Balance Sheet 162,778,105 1,367,973 3,745,649 157,664,483 - Total Fixed Liabilities Weighted rate on which average no interest interest rate is paid per annum Â£ Â£ Â£ % Financial Liabilities Bank loans 24,929,710 24,929,710 - 5.45 Interest rate SWAP liability 3,472,319 - 3,472,319 - Performance fee provision 13,050,000 - 13,050,000 - Creditors 3,396,239 - 3,396,239 - Total liabilities as per Balance Sheet 44,848,268 24,929,710 19,918,558 The interest rate profile of the Group at 31 December 2004 was as follows: Total Variable Assets on Weighted rate which no average interest is interest received rate per annum Â£ Â£ Â£ % Assets Properties 51,739,136 - 51,739,136 - Fixed assets 20,078 - 20,078 - Goodwill 5,867,768 - 5,867,768 - Investments 4,232 - 4,232 - Non-current assets 57,631,214 - 57,631,214 - Cash and cash equivalents 66,650,944 66,650,944 - 4.6 Debtors 4,615,396 - 4,615,396 - Development work in progress 10,071,702 - 10,071,702 - Total assets as per Balance Sheet 138,969,256 66,650,944 72,318,312 Total Variable Liabilities Weighted rate on which average no interest interest rate is paid per annum Â£ Â£ Â£ % Financial Liabilities Bank loans - - - - Interest rate SWAP liability - - - - Creditors 2,222,416 - 2,222,416 - Total liabilities as per Balance Sheet 2,222,416 - 2,222,416 29. Commitments At the year end the Group had commitments to invest a further Â£56,300,000 (2004: Â£15,616,000) in its portfolio of investment property. The Company has given guarantees in favour of the General Practice Finance Corporation (GPFC) amounting to Â£740,000 (2004: Â£635,000) to secure future LIFT investments by the Group. 30. Related Parties The Company was charged investment manager's fees totalling Â£2,691,686 (2004: Â£2,958,265) by Berrington Fund Management Limited, none of which was outstanding at the balance sheet date. Provision has been made for a performance fee payable to Berrington Fund Management Limited, and Dr Mark Jackson, in respect of the year ended 31 December 2005 of Â£13,050,000 (see note 4). At the year end Berrington Fund Management Limited had an interest in 147,000 Ordinary Shares in the Company. During the year certain costs, amounting to Â£450,606 in total, relating to the Group's pharmacy company were supplied by Pharma-e Limited, a company in which John Curran is a director and shareholder. No balance was outstanding at the year end. The Group was charged administration fees of Â£92,584 (2004: Â£113,453) by Mourant Guernsey Limited, none of which (2004: Â£nil) was outstanding at the year end. Serena Tremlett, who is a director of the Company, is an employee of Mourant Guernsey Limited. MPIF Holdings Limited exchanged contracts in the year for the purchase of a medical centre at Argyle Court, Liverpool, which is being developed by Ropewalks One LLP. WPL Ventures Limited, a wholly owned subsidiary of the The Westbury Property Fund Limited, which is managed by Berrington Fund Management Limited, is a member of Ropewalks One LLP. Included in property management expenses is an amount of Â£161,862 (2004: Â£88,258) payable to Barlows Asset Management Limited, a subsidiary of Barlows Holdings Limited, a shareholder in the Company, in accordance with their property management agreement with MPIF Holdings Limited. No balance was outstanding at the year end (2004: Â£nil). 31. Post Balance Sheet Events The Company has intended, subject to shareholders' approval, to acquire the entire share capital of Berrington Fund Management Limited and the Member's capital of Berrington Fund Management LLP. In connection with this transaction, the Company also intends to undertake a Placing and Open Offer of new Ordinary Shares. Full details of these transactions will be provided in a prospectus to shareholders. The Company intends, subject to approval of shareholder, creditors and the Royal Court of Guernsey, to transfer Â£25,000,000 from share premium account to distributable reserves. Assuming that this is approved and also subject to shareholder approval, a dividend of 3.34p per share will be paid. Notice of Annual General Meeting NOTICE IS HEREBY GIVEN THAT THE SECOND ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF THE MEDICAL PROPERTY INVESTMENT FUND LIMITED (THE 'COMPANY') WILL BE HELD AT LA FREGATE HOTEL, LES COTILS, ST. PETER PORT, GUERNSEY ON 12 MAY 2006. Agenda 1. Chairman To elect a Chairman of the Meeting. Ordinary Resolutions 2. Annual Report and Audited Financial Statements To approve and adopt the Annual Report and Financial Statements of the Company for the year ended 31 December 2005. 3. Auditors To re-appoint Ernst & Young LLP as Auditors to the Company and to authorise the Directors to determine the Auditors' remuneration. 4. Appointment of Directors To approve the re-election of Peter Pichler and Serena Tremlett as Directors of the Company. 5. Directors' Remuneration To authorise and agree the remuneration of the Directors. 6. Approval of Dividend To approve the payment of a final dividend in respect of the year ended 31 December 2005 to shareholders on the register on 5 May 2006, subject to the approval of the Royal Court of Guernsey for the cancellation of the share premium of the Company as set out in the Special Resolution below. Special Resolution 7. Cancellation of Share Premium To approve, subject to the approval of the Royal Court of Guernsey, the amount of Â£25,000,000 standing to the credit of the share premium of the Company be cancelled in accordance with the Companies (Guernsey) Laws, 1994 (as amended) and that such amount of Â£25,000,000 of the share premium account so cancelled be credited as a distributable reserve to be established in the books of account of the Company which shall be able to be applied in any manner in which the Company's profits available for distribution are able to be applied, including the purchase of the Company's own shares and/or payment of dividends. 8. Any Other Business By Order of the Board For and on behalf of Mourant Guernsey Limited Secretary A Member entitled to attend and vote is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need not also be a Member. Form of Proxy I/We, being a Member of The Medical Property Investment Fund Limited hereby appoint ........................................................................ of.............................................................................. or failing him, the Chairman of the Meeting as our proxy to attend and to vote on our behalf and if necessary demand a poll at the Second Annual General Meeting of the Company to be held at La Fregate Hotel, Les Cotils, St. Peter Port, Guernsey, Channel Islands on 12 May 2006 at 11.30 a.m. and at any adjournment thereof. Please indicate with an 'X' in the appropriate box how you wish your vote to be cast in respect of the Resolution. If you do not insert an 'X' in the appropriate box your Proxy will vote or abstain at his discretion. Ordinary Resolutions For Against 1. To approve and adopt the Annual Report and Financial Statements of the Company for the year ended 31 December 2005. 2. To re-appoint Ernst & Young LLP as Auditors of the Company until the next Ordinary General Meeting. 3. To authorise the Directors to determine the Auditors' remuneration. 4. To approve the re-election of Peter Pichler and Serena Tremlett as Directors of the Company. 5. To authorise and agree the remuneration of Directors. 6. To approve the payment of a final dividend in respect of the year ended 31 December 2005 to shareholders on the register on 5 May 2006, subject to the approval of the Royal Court of Guernsey for the cancellation of the share premium of the Company as set out in the Special Resolution below. Special Resolution For Against 7. To approve, subject to the approval of the Royal Court of Guernsey, the amount of Â£25,000,000 standing to the credit of the share premium of the Company be cancelled in accordance with the Companies (Guernsey) Laws, 1994 (as amended) and that such amount of Â£25,000,000 of the share premium account so cancelled be credited as a distributable reserve to be established in the books of account of the Company which shall be able to be applied in any manner in which the Company's profits available for distribution are able to be applied, including the purchase of the Company's own shares and/or payment of dividends. Authorised Signatory ................................................ Date.................................... 2006 Notes 1. A member entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member. 2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under seal or under the hand of an officer or attorney duly authorised. 3. If it is desired to appoint some other person or persons as proxy or proxies the name(s) of the Proxy or Proxies desired must be inserted in the space provided and the alteration should be initialled. 4. Any corporation which is a Member of the Company may by resolution of its Directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members of the Company, and the person so authorised shall be entitled to exercise the same powers (other than a power to appoint a proxy) as that corporation could exercise if it were an individual Member of the Company. The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority shall be deposited at the Office not less than 48 hours before the time for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll, not less than 24 hours before the time appointed for the taking of the poll, and in default the instrument of proxy shall not be treated as valid. This information is provided by RNS The company news service from the London Stock Exchange

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