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Portfolio Analysis

Primary Care Property Market

As reported during 2009, the challenging economic environment continued to have a negative impact on the value of commercial property. However, the niche primary care market in which we operate still has good fundamentals and there is continued demand for the provision of modern primary health care facilities, from both tenants and investors. The Group has an excellent portfolio of modern properties with secure long leases and high quality tenants, backed by the Government. Our buildings are all used in the delivery of primary care, which is in the front line of delivery of NHS services. Spending on healthcare through the NHS remains at the heart of the Government's and the Opposition's policy agendas. The medium term outlook for rental growth prospects is also enhanced by the High Court judgment in March 2009 which will encourage a fairer, more robust and more transparent system for reviewing rent. The Board remains committed to increasing the Group's portfolio on a prudent basis, actively managing assets through refurbishment, enhancement and redevelopment, increasing revenue from existing leases and delivering returns for Shareholders. We believe that the business is well positioned and we remain confident in the prospects for the Group.

Portfolio Rental Levels

	Tenant area (sqm)	Area (sqft)	Rent (£psm)	Rent (£psf)	% of portfolio
NHS Activities	105,772	1,138,538	164	15	93.2
Pharmacy	6,651	71,592	255	24	5.9
Other	1,101	11,850	154	14	0.9
Total	113,524	1,221,980	170	16	100.0

Rent Reviews

The Group completed a number of rent reviews during the period and there are a number of reviews outstanding that we expect to be resolved during the coming year. The results of the reviews completed during the period added £473k to our rent roll. There are further reviews due from the past year which amount to some £5.6m of rent passing. We have accounted for the majority of this based on expected outcomes.

The chart on page 10 shows the timing of reviews across the portfolio. The average increase in rent as a percentage of passing rent over the three year review process has been 12.35% (2007: 11.00%) equating to 3.96% p.a. (2007: 3.39%p.a.).

Portfolio Characteristics

Length of Leases

The pie chart below shows the analysis of rent by expiry term. A second diagram reflects security of income by term certain. The pie chart indicates that some 75% (2007: 84%) of the lease income has more than 15 years unexpired whilst the security of the income by term certain diagram shows the rental cashflow as a percentage of the year end rent roll, ignoring any subsequent increases and lease renewals during the subsequent periods. This shows that in year 10 the Group is still receiving 94% of its current income, without further action.

Geographical Spread

Forthcoming Rent Reviews

Future Prospects

Spending on healthcare is driven by demographics as well as the growth of the economy. Primary care remains at the heart of the changes going on in healthcare in the UK. There remains a strong demand for larger purpose built primary care centres. We also see evidence of more institutional and corporate interest in the sector. The underlying property portfolio remains attractive, particularly in today's market. It offers currently 100% occupancy with some 90% of the rent roll effectively being paid for by the Government and has an unexpired lease length of almost 18 years. We are also still recording rental increases. The new procedure for appeals has started to yield positive results. Since the year end, we have completed the acquisition of £34.5million of properties being the Anchor Meadow Medical Centre, Aldridge, for £5.5million, a portfolio of fourteen medical properties for £24.2million from Care Capital Plc and two medical centres for £4.8million developed by the Abstract Group. These acquisitions will add approximately £2.1million to the annual rent roll. We have further deals totalling £10million in an advanced stage of negotiation, which we expect to announce shortly. Given these continuing developments, a more positive outlook for commercial property generally and following our recent capital raisings, we look forward to providing a secure and attractive rate of return to our Shareholders.

Environmental matters

PHP specialises in the ownership of freehold or long leasehold interests in modern purpose-built healthcare facilities, the majority of which are leased to general practitioners and other associated healthcare users. The Board views the assessment of environmental risk as an important element of its due diligence process when it acquires land or purpose built properties. Before purchase, an environmental desk top study is carried out and energy efficiency certificates are obtained. PHP has engaged an Environmental Consultant, Collier & Madge, to help specifically in this process. PHP's ability to influence the energy efficiency of buildings is limited where ready built properties are acquired and let on FRI terms. However, the buildings acquired are generally specified to meet the NHS's exacting standards. PHP is committed to the principles of continuous improvement in managing environmental issues, including the proper management and monitoring of waste, the reduction of pollution and emissions and compliance with environmental legislation and codes of practice. PHP considers environmental matters as part of the assessment of the suitability of purchasing new state of the art medical centres to expand the portfolio, either through forward purchase development agreements or through open market purchases and if appropriate, environmental issues are included in the leases entered into by the medical practitioners.