Chairman's Statement

In common with most public companies in the United Kingdom, this is the first time that the full year results for Primary Health Properties PLC have been prepared using International Financial Reporting Standards (“IFRS”). Accordingly, the Group’s results for the comparative periods have been restated.

As reported at the Interim stage, this change of accounting basis has no effect on the underlying business performance or strategy of the Group.

This was another year of substantial progress for the Group. The Group’s profit after taxation for the year ended 30 June 2006 totalled £15.9m (2005: £12.7m), an increase of 25%. Adjusted for the revaluation surplus and the deferred taxation charge, profits for the period were £3.8m (2005: £2.8m). Profit before tax for the year ended 30 June 2006 totalled £18.4m (2005: £19.4m), a marginal decrease – largely caused by increased administration and financing costs.

Adjusted diluted earnings per share were 16.5p*, 34% higher than the 12.3p* reported for the previous year.

The Board has recommended a final dividend of 6.75p per Ordinary Share for declaration by Shareholders at the Annual General Meeting, which, together with the Interim dividend, makes a total of 13.5p per share for the year, an increase of 12.5% over the 12.0p paid in respect of the previous year.

The year end valuation of the property portfolio carried out by Lambert Smith Hampton has resulted in a revaluation surplus of £15.0m for the year. To this must be added the £0.4m surplus generated from the sale, in the second half, of our properties in Charlotte Street and Newcastle. Of this £15.4m, £7.8m was accounted for at the Interim stage. The adjusted diluted net asset value per share has risen by 23% to 392.4p** from 320.2p** per share, reflecting both rental increases and current yields in the market.

Rent reviews during the year have again performed well, and together with new deliveries, helped increase our year end rent roll from £10.0m to £11.3m, an increase of 13%.

Purchases of properties during the year amounted to £27.5m and commitments at the year end totalled £20.9m. Our portfolio, including commitments, was £225m at 30 June 2006, an increase of £38m from £187m at the previous year end.

The table below sets out the portfolio as at 30 June 2006 :

Expansion during the year has been financed by further drawings on our committed medium term finance facilities. Since the end of the financial year we have agreed a further increase of £25m in our banking facilities. With these resources we believe we can grow our total portfolio to £385m.

We have continued to monitor our exposure to interest rates and have entered into several new swap arrangements both before the year end and shortly thereafter. As a result of this and previous activity, for the year to 30 June 2007 we have covered approximately 82% of our exposure to interest rates which falls to 62% for years 2016 to 2026 at an average rate before margin of 4.75%.

As we informed you at the Interim stage the Board has decided that the expense of a scrip dividend scheme is no longer justified and has made alternative arrangements with Capita IRG Trustees Limited, to offer a dividend reinvestment scheme for Shareholders who wish to receive their dividend as Shares. A letter explaining the Dividend Reinvestment Scheme, together with its terms and conditions and an application form, will be posted to Shareholders with the Annual Report.

As at the date of this statement, the PHP Share Plan has 34 members holding 76,355 Shares. Further details can be found in the Annual Report, at the Company’s website www.phpgroup.co.uk and at http://www.capitaregistrars.com/php.

The Board has considered the legislation contained in this year’s Finance Act concerning the introduction of REITs and has reviewed the draft regulations currently being finalised. It is the Board’s current intention to ask Shareholders to approve conversion of the Company into a REIT and the process involves the Company applying to HM Revenue & Customs for REIT status, making changes to the Articles of Association, and may affect the taxation of income and gains of the Company’s Shareholders. A circular will be posted to Shareholders at the appropriate time.

The market for primary care has remained very competitive. Administrative and funding deficits have affected the rate at which new projects are being approved by the NHS. However our strong links with a number of developers mean that we have a strong forward pipeline. The recent White Paper foresees more activity in Primary Care including the transfer of 5% of the NHS budget into the Primary Care Sector. The arrival of REITs next year is expected to further enhance investor interest in the healthcare property market.

The portfolio, at the date of this report, has 78 properties with a further 5 contracted for delivery during the next 12 months and 1 contracted for completion by August 2007. The portfolio has performed well in both capital and income terms and we believe that the prospects for investment in the sector, with its long lease lengths and good quality covenants, make the portfolio attractive.

Paul Sandford, who has been with us since March 2001, resigned as a Director on 27 July 2006. The Board thanks him for his valuable contribution and services to the Company.

The Group is well positioned to add further to its portfolio of investments in the coming year.

G A Elliot
Chairman
20 September 2006

* excludes deferred tax and revaluation gains on property
** excludes deferred tax

Taken from the annual report for the twelve months ended 30 June 2006