2012

Disposal of US, German and Swiss property assets

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Disposal of US, German and Swiss property assets

Public Service Properties Investments Limited
(“PSPI” or “the Company” or “the Group”)

Strategic Review Update – Sale of non-core assets

PSPI (AIM: PSPI), the specialist European real estate investment and financing company, announces an update on its previously announced strategic review.

Sale of US portfolio

The Company is pleased to announce that it has signed a contract to dispose of the shares of the subsidiaries owning the 140 properties leased to the US Postal Service and net debt of $18.5 million for a gross price of $1.65 million. The transaction is scheduled to complete on or around 15 January 2013 after completion of updated title insurance for the buyer, but the completion date could in certain circumstances be deferred until no later than 28 February 2013. The transaction effectively values the properties at approximately $20.2 million, implying a gross rental yield of 10.1% and a discount of 13.4% to the independent valuation used in the Company’s unaudited consolidated interim results for the six months ended 30 June 2012. Net proceeds, after transaction costs of approximately $0.6 million will be used to augment Group working capital.

After the release of deferred taxation and deduction of transaction expenses, the sale will result in a decrease in net assets of approximately £1.2 million. On completion of the sale, the Group will also remove approximately £11.9 million of debt from its consolidated balance sheet.
Sale of Swiss property

The Company is pleased to announce that it has completed the sale of its only investment property in Switzerland for a gross price of Chf 12.0 million, implying a gross rental yield of 10.2%. The sale price represents a 15.3% discount to the independent valuation used in the Company’s unaudited consolidated interim results for the six months ended 30 June 2012. There will be minimal net proceeds released to the Company after repayment of debt secured against the property of Chf 10.7 million (Chf 6.0 million of which was guaranteed by the Company), taxation of Chf 0.4 million and transaction costs of Chf 0.9 million.

After the release of deferred taxation and deduction of transaction expenses the sale of this property will result in a decrease in net assets of approximately £2.4 million. The Board concluded that the sale was in the best interests of the Company since the asset has significantly declined in value over recent years due to poor trading results by the tenant resulting in negative cash flow after debt service, which was unlikely to change in the oreseeable future. The Company has also removed approximately £7.0 million of debt from its consolidated balance sheet.

Conclusion

The combination of these transactions with the sale of two properties in Germany and the seven-year debt refinancing announced on 13 December 2012, reflects the considerable progress the Company has made with its strategic review by reducing leverage and improving future operational cash flow. The Company will now focus on its remaining assets in the UK and Germany where the loan to value ratios are approximately 38% and 47%, respectively based on current debt as a percentage of the independent valuations reported at 30 June 2012, compared to the Group’s pro forma consolidated loan to value of 49% as at 31 July 2012, after the sale of a majority of the Group’s UK assets.

Patrick Hall, Chairman of PSPI, commented: “The US and Swiss assets have been identified as non-core to the Company’s business for some while, in view of the increasingly negative outlook for revenue and capital values. A number of the US properties are subject to the threat of closure under Government proposals to reduce the US Postal Service deficit, and the net revenue will also diminish as a result of scheduled interest rate rises under the associated debt facility. The Swiss property has physical limitations for use as a modern care home, and these limitations have impacted negatively on operational revenues and the ability of the current operator to meet rental commitments in full.

Given that these assets were not central to our business, the Board took the decision to dispose of both before values and revenue deteriorated further.”
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Public Service Properties Investments Limited
(“PSPI” or “the Company” or “the Group”)

Strategic Review Update – Refinancing and Sale of Properties

PSPI (AIM: PSPI), the specialist European real estate investment and financing company, announces an update on its previously announced strategic review.

German debt refinancing

The Company is pleased to announce that it has signed a refinancing agreement with an existing lender in respect of two loans, totalling approximately €17.2 million, which were due to be repaid on 31 March 2013. The loans are secured by six properties in Germany leased to the Marseille Kliniken group. The refinancing comprises two new loans each maturing on 31 March 2020 for an aggregate of €17.5 million and will be secured by the same six properties as with the current loans. The Group will be charged a fixed rate of interest of 4.05% from 1 April 2013. The Group will make capital repayments of €270,000 per annum during the term of the new loans.

The loans are non-recourse to the Company; however, the Company has guaranteed to fund up to €1.5 million towards modernisation of one property, if such a project is undertaken during the term of the loans. The borrower has already set aside €0.5 million for the same purpose, bringing the total contingent obligation to €2.0 million.

The Company believes that this refinancing endorses the value of the assets and the covenant of the tenant in otherwise challenging debt markets.

Sale of German properties

The Company is also pleased to announce that it has entered into binding contracts to sell two properties in Germany for an aggregate gross selling price of €9.7 million for an implied property yield of 8.4% on the net rent. The transaction is scheduled to complete before the end of January 2013. The Group will use €5.4 million of the proceeds to repay debt secured against properties in Germany, prepayment penalties and transaction costs of approximately €0.6 million. The balance of the net proceeds will be used for general working capital purposes.

The selling price represents a discount of 13.2% to the independent gross valuation included in the Company’s unaudited consolidated interim results for the six months ended 30 June 2012 or a discount of 7.8% to the independent net valuation at 30 June 2012. The Company entered into the sale contract after an extensive period of marketing by an independent selling agent, which was appointed by the Company in October 2011 as part of its strategic review. After the release of deferred taxation and deduction of transaction expenses, the sale of assets will result in a decrease in net assets of approximately £1.8 million.

The two properties are leased to subsidiaries of Meritus Seniorenzentrum GmbH (“Meritus”) and are being sold to an entity which is managed by IMMAC Holdings AG (“IMMAC”), the Group’s German property advisor. IMMAC is an affiliated company to Meritus. The properties are owned by two partnerships in Germany where IMMAC has provided directors who are also directors and officers of the acquiring vehicle.

The sale of the German properties is classified as a transaction with a related party for the purposes of the AIM Rules for Companies (the “AIM Rules”). In accordance, therefore, with the AIM Rules, the directors of the Company, having consulted with the Company’s nominated adviser, Westhouse Securities Limited, consider that the terms of the transaction are fair and reasonable insofar as the Company’s shareholders are concerned.

Commenting on the refinancing and the sale of properties, Patrick Hall, Chairman of the Company stated:

“The previously announced strategic review is still on-ongoing, and no timetable has been set for its completion. The refinancing and sale of properties announced today constitute good progress in the review process, and the Company will continue to work on proposals which are intended to reduce leverage and improve operational cash flow.”

Correction

In the Company’s unaudited consolidated interim results for the six months ended 30 June 2012, the Asset Manager’s Review included the following statement:

“All debt is non-recourse to the Company with the exception of Switzerland where the Company has provided an indemnity for approximately half of the current debt.”

It has come to the Company’s attention that this statement should have correctly stated:

“All debt is non-recourse to the Company with the exception of Switzerland where the Company has provided an indemnity for approximately half of the current debt and approximately £11.2 million of the debt secured against property in the UK.”

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