SIR.L Regulatory News (SIR)

4 September 2019

Secure Income REIT Plc

(the "Company" or the "Group")

Results for the six months ended 30 June 2019

Excellent returns on £350m hospitals disposal and strong core business leave Secure Income REIT well placed to take advantage of market uncertainty

Secure Income REIT Plc (AIM: SIR), the specialist long term income UK REIT, today announces its results for the six months ended 30 June 2019.

Highlights

* presented on a pro forma basis: 30 June 2019 financial position adjusted for the impact of the hospitals portfolio disposal announced on 22 July 2019, as presented on the first page of the Investment Adviser's Report.

• On 22 July 2019 eight of the group's 19 private hospitals were sold for gross consideration of £347 million:

‐ price achieved at 16% above 30 June 2019 book value

‐ increases EPRA NAV per share by 4.6 pence per share to 420.5 pence on a pro forma basis

‐ reduces net debt by c. £316 million effective from completion on 16 August 2019 and increases uncommitted cash to £232 million

‐ Net Loan To Value ratio reduced to 33.0%

‐ 65% capital return and over 100% unlevered property return on sold assets since IPO

• Results for the period deliver a 3.4% uplift in NAV per share (IFRS basis) and pro forma EPRA NAV per share (adjusted for the hospitals disposal):

‐ up 5.0% to 420.5p since 31 December 2018

‐ up 142% from placing price at IPO in June 2014

• Total Accounting Return 7.0%; Total Shareholder Return 8.2%

‐ Total Accounting Return of 20.1% per annum since listing in June 2014

• Adjusted EPRA EPS up 30.6% to 8.1p for the six months to 30 June 2019 compared to first six months of 2018

• Distributions:

‐ currently yielding an annualised 4.0% on 30 June 2019 pro forma EPRA NAV based on the Q3 2019 dividend

‐ dividends per share up 31% year on year for the first six months

• Portfolio externally valued at a blended Net Initial Yield of 5.1% amounting to £2.05 billion at 30 June 2019 pro forma; like for like portfolio valuation up 2.0% over the six months to 30 June 2019

• Portfolio of 164 Key Operating Assets (excluding the eight hospitals sold in July) in defensive sectors producing £111.1 million per annum of passing rent at 30 June 2019; like for like passing rents up 1.9%

• Weighted average unexpired lease term as at 30 June 2019 of 21.5 years with no breaks, up from 20.9 years at 31 December 2018 including increases of:

‐ 0.7 years as a result of the extension of the lease on The Brewery at Chiswell Street for no payment to the tenant

‐ 0.3 years as a result of the hospitals portfolio disposal

• Strong and predictable growth prospects underpinned by upwards only RPI-linked rent reviews (59% of passing rents) and fixed rental uplifts (41% of passing rents)

• Management team alignment with shareholders through a management shareholding of 13.9% worth c. £188 million at 30 June 2019 pro forma EPRA NAV

Martin Moore, Non-Executive Chairman of the Company, commented:

"With political uncertainty reaching a crescendo in the UK and recession fears spreading across the world, bond yields have plummeted as investors seek safety. Income returns on most safe haven assets are now minimal yet Secure Income REIT's property portfolio continues to offer a net initial yield of 5.1%, secured on leases of over 21 years without break let to strong tenants in defensive sectors, and guaranteed income growth delivered by a 60/40 blend of upwards only RPI-linked reviews and fixed uplifts. The recent sale of £347 million of our non-core hospitals at a price 16% above valuation demonstrates the strong attraction of well-let alternative property and provides the Company with over £230 million to redeploy as and when opportunities arise. With a robust balance sheet and a strongly performing portfolio delivering 5% NAV growth in the first half of the year we continue to view the future with confidence."

For further information on the Company, please contact:

Interim Results Presentation

Secure Income REIT will be holding a presentation for analysts and investors today at 9.45am at Stifel, 150 Cheapside, London, EC2V 6ET. If you would like to attend, please contact FTI Consulting on 020 3727 1000, or email SecureIncomeREIT@fticonsulting.com.

The presentation will be on the Company's website www.SecureIncomeREIT.co.uk and a conference call facility will be available. The dial-in details are:

Participants, - Local, United Kingdom: +44 (0)330 336 9125

Confirmation code: 3325962

Webcast link: https://webcasting.brrmedia.co.uk/broadcast/5d53fb17a98d141c9d04c753

About Secure Income REIT Plc

Secure Income REIT Plc is a specialist UK REIT, investing in real estate assets that provide long term rental income with inflation protection.

The Company owns a £2.05 billion portfolio at the 30 June 2019 external valuation (adjusted for the sale of eight hospitals in July 2019) of 164 high quality assets let to financially strong businesses in defensive sectors on leases with a c. 21.5 year weighted average unexpired term. 59% of the Group's rental income is subject to upwards only RPI-linked reviews and 41% to fixed uplifts.

The Company has a highly experienced board, chaired by Martin Moore, and is advised by Prestbury Investments LLP. Prestbury is owned and managed by Nick Leslau, Mike Brown, Tim Evans, Sandy Gumm and Ben Walford, a team with a long-standing and successful track record in real estate investments and asset management and, with an investment worth c. £190 million in the Company, very close alignment with the interests of shareholders.

An investment in the Company offers a secure, growing income stream, strong foundations for sustainable capital growth and the prospect of attractive risk adjusted returns for shareholders over the long term.

The Company is a UK REIT which floated on the AIM market of the London Stock Exchange in June 2014.

The Company's LEI is 213800M1VI451RU17H40

Further information on Secure Income REIT is available at www.SecureIncomeREIT.co.uk.

Forward looking statements

This document includes forward looking statements which are subject to risks and uncertainties. You are cautioned that forward looking statements are not guarantees of future performance and that if risks and uncertainties materialise, or if the assumptions underlying any of these statements prove incorrect, the actual results of operations and financial condition of the Group may differ materially from those made in, or suggested by, the forward looking statements. Other than in accordance with its legal or regulatory obligations, the Company undertakes no obligation to review, update or confirm expectations or estimates or to release publicly any revisions to any forward looking statements to reflect events that occur or circumstances that arise after the date of this document.

Chairman's Statement

Dear shareholder,

Following a very busy 2018, the Board and management team has continued its disciplined and active management of the Company's capital, culminating in the announcement in July 2019 of a £347 million sale of a portfolio of eight private hospitals, achieving a 16% premium of the gross proceeds over the 30 June 2019 book value of the assets sold. While the sale is not reflected in the financial statements as it occurred after the balance sheet date, we present in these business review reports pro forma figures, taking the 30 June 2019 balance sheet and adjusting it to reflect the impact of the sale and related debt repayment. Those adjustments are presented on the first page of the Investment Adviser's Report.

Results and financial position

The Group's NAV per share at 30 June 2019 was 411.9 pence, up 3.4% from 398.5 pence at 31 December 2018. The Group's EPRA NAV per share at 30 June 2019 was 415.9 pence and its pro forma EPRA NAV per share at that date (adjusted for the impact of the hospitals portfolio disposal) was 420.5 pence, an increase of 5.0% since 31 December 2018. Our primary focus remains on overall returns delivered to shareholders including capital and income growth, and performance in this regard was once again satisfactory, with a Total Accounting Return of 7.0% over the six months to 30 June 2019 adjusted on a pro forma basis for the hospitals portfolio disposal, and a Total Shareholder Return of 8.2% over the same period.

The like for like valuation increase over six months, excluding assets sold in the period and the hospitals portfolio disposal, was 2.0%. Rents increased by 1.9% on a like for like basis following the settlement of rent reviews on 61% of the total portfolio income. Following the rent reviews in the period and excluding the hospitals sold in July 2019, the blended Net Initial Yield was 5.1% at 30 June 2019, which was unchanged from the 31 December 2018 external valuations. As the hospitals portfolio disposal occurred after the balance sheet date, the external valuers have not taken the price achieved into account as valuation evidence as at 30 June 2019.

The Net Loan To Value ratio at 30 June 2019 was 42.2% and fell further to 33.0% on a pro forma basis following the hospitals portfolio disposal. This represents a very material reduction from the 43.0% reported at the end of 2018, in line with the Board's strategy to reduce the Net Loan to Value ratio over time. The uncommitted cash balance held by the group had increased from £66.4 million at 31 December 2018 to £68.0 million at 30 June 2019, and further increased to £232.0 million on a pro forma basis following the sale.

The Group's Adjusted EPRA EPS was 8.1 pence in the six months to 30 June 2019 compared to 6.2 pence for the equivalent period in 2018, an increase of 31% which reflects the positive impact of the two portfolio acquisitions during 2018 and the increase in like for like passing rents. The Group's EPS, measured on an IFRS basis without the industry standard EPRA adjustments, was 23.1 pence in the six months to 30 June 2019 compared to 23.0 pence for the equivalent period in 2018, also reflecting those rental increases and the positive impact of last year's acquisitions as well as the uplifts in property valuations recognised in the period.

With effect from the completion of the hospitals portfolio disposal in mid-August, the Group's Adjusted EPRA EPS will reduce as the £16.0 million per annum passing rent on the sold portfolio, net of a £6.5 million per annum saving in interest cost, is replaced by the return on c. £164 million of surplus cash realised on sale. We expect that the net impact on Adjusted EPRA EPS per share as at the date of completion of the sale is approximately 2.7 pence per annum. As announced at the time of the disposal, we intend to maintain dividends at the level achieved prior to the sale such that investors' income returns remain whole for as long as the Company holds surplus cash.

Outlook

Volatility has returned to equity markets as investors' attention has swung back to the twin threats of geo-political risks and slowing global growth. The resultant flight to safety has had a dramatic impact on the pricing of government bonds with 30 year US Treasury yields falling below 2% for the first time in history. In much of the developed world a government bond yield of 2% has become the stuff of dreams with all German and Swiss bonds across the entire maturity spectrum offering negative yields. In Japan and France bond yields only turn positive at durations over 16 years whilst in the UK 10 year gilts offer less than 0.5%. Inflation protection via long-dated index-linked gilts has been expensive for several years but investors now face an even steeper bill as yields have plummeted to minus 2.2%, pushing up their price by as much as 10% over the last month and 20% compared to six months ago. In contrast, the yields offered by well-let property with index-linked uplifts continue to be much more generous.

Political uncertainty is reaching a crescendo in the UK as the probability of a no-deal Brexit has risen significantly. Regrettably, uncertainty is also likely to continue into 2020 and quite possibly beyond. Any of the following: a disorderly Brexit, the prospects of an imminent general election or a far-left Labour government is likely to sustain demand for lower-risk inflation-protected investments. Continued Sterling weakness should also contribute to attracting overseas capital into these assets, especially if global economic concerns continue to suppress government bond yields across the world. The £347 million sale of our non-core hospitals at a 16% premium to valuation to a US healthcare REIT is an illustration of this trend. The fact that these assets delivered an unlevered total return of over 100% during the five years of our ownership as a quoted REIT demonstrates how ostensibly "boring" assets that churn out highly predictable income streams can deliver exciting returns.

The UK REIT market has become bifurcated with the ratings between the best and worst performing sectors at an all-time high. Shopping centre REIT share prices have collapsed as landlords have lost pricing power to their retail tenants whilst CVAs drive vacancy rates inexorably upwards. At the other end of the spectrum those parts of the alternatives and warehouse markets still judged to retain their capacity to deliver sustainably growing income streams are being rewarded with premium ratings.

In a world where it is increasingly difficult to find safe assets that still provide an attractive income return, Secure Income REIT's property portfolio has continued to offer a net initial yield of 5.1%. Its income security is delivered through owning key operating assets with high barriers to entry, let on long leases averaging 21.5 years unexpired term to strong businesses operating in defensive, less cyclical sectors. The Company's income growth is highly visible, generated by a c. 60/40 blend of upward only RPI-linked reviews and fixed uplifts averaging 2.8% per annum. Our manager has an enviable track record built up over many years of anticipating the peaks and troughs of market cycles and successfully navigating between sectors. They remain aligned and motivated to sustain this performance through their substantial holding in the Company which is approaching £200 million and is one of the largest in the quoted sector.

We have sought to prepare for this period of heightened uncertainty by reducing the Group's indebtedness to its lowest ever level at 33% Net Loan To Value, refining our portfolio to a £2.1 billion core of hard to replicate assets that should continue to generate attractive inflation-protected returns. Critically we now have over £230 million of uncommitted cash to redeploy as and when opportunities arise. The surprise referendum result in 2016 resulted in us sourcing the c. £200 million Travelodge package yielding 7%; only time will tell whether similarly attractive opportunities await us, but in the meantime we continue to view our future with confidence.

Martin Moore

Chairman

4 September 2019

Investment Adviser's Report

Prestbury Investments LLP, the investment adviser to Secure Income REIT Plc, is pleased to report on the operations of the Group for the six months ended 30 June 2019.

In our report, we focus on financial measures recommended by the European Public Real Estate Association ("EPRA") to facilitate comparison with other real estate investment companies. EPRA measures are reconciled to the main financial statements prepared under IFRS in the supplementary information included at the end of this report.

Pro forma adjustments for hospitals disposal

The strategic disposal of eight of the Group's 19 hospitals let to Ramsay Health Care Limited exchanged unconditionally on 22 July 2019 and completed on 16 August 2019. The sale, at a 16% premium of gross proceeds over their 30 June 2019 external valuation, had a material impact on the Group's financial position and will have a material impact on future earnings. In order to present a suitably clear picture, the portfolio and financial information in this report includes figures presented on a pro forma basis, which excludes the sold portfolio.

The net EPRA NAV per share adjustment from the hospitals portfolio disposal comprises:

The disposal has the effect of reducing net earnings for as long as the cash surplus realised on sale is not fully reinvested. As announced at the time of the sale, the Board intends to top up dividend payments to the levels that would have been achieved without the disposal in order that shareholders' income returns remain whole for such time as the surplus funds remain uninvested or until they are returned to shareholders. The annualised reduction in Adjusted EPRA EPS is estimated at 2.7 pence per share. This is principally the impact of the £16.0 million reduction in the current passing rent net of a £6.5 million saving in interest payable, with a small offsetting effect from the estimated income that will be earned on surplus cash for as long as it is not fully redeployed in investment property acquisitions or returned to shareholders.

The portfolio

The portfolio held at 30 June 2019 comprised 172 properties and reduces to 164 properties when adjusted to exclude the hospitals portfolio disposal. The portfolio offers secure, long term income with contractual rental uplifts offering inflation protection. Annual passing rent was £127.1 million at 30 June 2019. When adjusted to exclude the hospitals portfolio disposal, passing rent is £111.1 million which represents a like for like increase of 1.9% over the period. This reflects completion of reviews on 61% of portfolio rents in the six months to 30 June 2019. A further 7% of rents were reviewed very shortly after the balance sheet date, in July 2019.

Basis of review

The income arising on the portfolio benefits from RPI-linked rent reviews and from fixed contractual rental uplifts which average 2.8% per annum. The portfolio passing rents as at 30 June 2019, adjusted for the hospitals portfolio disposal, are subject to review on the following bases:

Lease lengths

During the period, the lease term for The Brewery on Chiswell Street, London, was extended from 12 to 37 years unexpired without break, adding 0.7 years to the Group's weighted average unexpired lease term. The current passing rent at the property is £3.4 million per annum.

The leases on the Group's portfolio are very long: adjusted for the hospitals portfolio disposal in July 2019, the weighted average unexpired lease term is 21.5 years from 30 June 2019 and 97.5% of the portfolio has an unexpired lease term longer than 17.9 years without break.

Portfolio valuation

The portfolio is valued by qualified external valuers as at 30 June and 31 December each year. The change in portfolio rents and valuation over the period, adjusted for the hospitals portfolio disposal in July 2019, is as follows:

In assessing the investment property valuations, the external valuers take into account evidence from comparable transactions in the market for the period up to and including the balance sheet date. As the hospitals portfolio disposal occurred after the balance sheet date, any impact on the external valuation of the remainder of the Healthcare portfolio that may arise from the evidence created by the sale in July will be reflected in the Group's results for the second half of the year.

The movement in valuation in the period comprises:

Yields

* the healthcare yields take no account of any uplift from an outstanding May 2018 open market review on the Ramsay hospitals, which account for 94% of the healthcare rents at 30 June 2019 (adjusted for the hospitals portfolio disposal) and the leisure yields include the fixed uplifts on the German assets every July

† the leisure and budget hotels Running Yields are calculated using the relevant external valuer's assessment of RPI at 2.6% and 2.5% respectively

Portfolio total rents

The Group's principal lease counterparties, analysed by passing rent as at 30 June 2019 and adjusted for the hospitals portfolio disposal are as follows:

* £6.6 million (31 December 2018: £6.6 million) of the Merlin rents are Euro denominated

Further information on the principal portfolio tenants and guarantors is given within the portfolio analyses that follow.

Leisure assets (41% of pro forma portfolio value)

The leisure properties comprise four well known visitor attractions let to Merlin Entertainments plc together with the Manchester Arena, The Brewery events venue on Chiswell Street in the City of London and a portfolio of 18 freehold high street pubs located in England and Scotland.

The Merlin assets include two of the UK's top three theme parks, Alton Towers and Thorpe Park, together with the Alton Towers hotel and Warwick Castle. The German assets operated by Merlin are Heide Park theme park (the largest in Northern Germany) and its adjacent hotel, located in Soltau, Saxony. These assets are all held freehold and are let to subsidiaries of Merlin Entertainments Plc, the guarantor of the leases. Measured by the number of visitors, Merlin is Europe's largest and the world's second largest operator of leisure attractions. Merlin has recently been the subject of a takeover offer from a consortium of well funded, long term investors to take the business private at a price that values Merlin at approximately £6 billion.

The average term to expiry of the Merlin leases is 23.0 years from 30 June 2019 without break and the tenants have two successive rights to renew them for 35 years at the end of each term. The leases are on full repairing and insuring terms. There are upwards only uncapped RPI-linked rent reviews every June throughout the term (based on RPI over the year to April) for the UK properties, which in 2019 resulted in a rental increase of 3.0%. The German properties are subject to fixed annual increases of 3.34% every July throughout the term, as a result of which the German rents increased from £6.6 million to £6.8 million on 29 July 2019 (translated at the 30 June 2019 exchange rate).

Manchester Arena is a strategic eight-acre leasehold site located on top of Manchester Victoria Railway and Metrolink station. It comprises the UK's largest indoor arena by capacity as well as 160,000 sq ft of additional office and leisure space, together with a 1,000 space multi-storey car park and advertising hoardings.

The Arena is let to SMG and SMG Europe Holdings Limited with 26.0 years unexpired from 30 June 2019 without break. Rent is reviewed annually every June in line with RPI, collared between 2% and 5%, which in 2019 resulted in a rental increase of 3.1%. SMG is the world's largest venue management company which operates c. 200 venues globally, hosting approximately 30,000 events each year. In its latest available results up to December 2017 it reported an unbroken 25 years of annual EBITDA growth. SMG announced in February 2019 that it is to merge with AEG Facilities, subject to certain competition authority clearances, to create a global venue services company with 310 venues in five continents. The offices and ancillary leisure space at Manchester Arena are let to tenants including Serco, Manchester City Council, Unison, JCDecaux and go-karting operator TeamSport. The leases on the Manchester site as a whole have an average term to expiry of 16.9 years from 30 June 2019 and produce net passing rent of £6.1 million per annum as at 30 June 2019.

The Brewery on Chiswell Street is a predominantly freehold investment let to a specialist venue operator on a full repairing and insuring lease. It is the largest catered event space in the City of London and is located within five minutes' walk of the Moorgate entrance to the new Crossrail Station at Liverpool Street. During the period, agreement was reached for a 25 year lease extension with no premium payable to the tenant, following which the term to expiry is now 37.0 years from 30 June 2019. The lease has five-yearly fixed uplifts of 2.5% per annum compounded and passing rent of £3.4 million per annum as at 30 June 2019, with the next uplift to £3.8 million taking effect in in July 2021.

The pubs portfolio produces passing rent of £2.0 million per annum as at 30 June 2019 and the leases have an average term to expiry of 20.6 years without break. Rents are subject to five-yearly RPI-linked increases collared between 1% and 4% per annum compounded, with the next reviews falling due in February 2020. The 18 high street pubs are let on individual leases either to, or guaranteed by, Stonegate Pub Company Limited. Following its proposed acquisition of the Ei group in a deal announced in July 2019 valuing Ei at approximately a £3 billion enterprise value, Stonegate will become the UK's largest pub operator with over 4,700 pubs once the acquisition completes. The acquisition is conditional on the approval of the Competition and Markets Authority, expected by Stonegate to conclude within the next five months.

Healthcare assets (35% of pro forma portfolio value)

Following the sale of eight hospitals in July, the healthcare assets comprise 12 private hospitals: a portfolio of 11 freehold assets located throughout England let to a subsidiary of Ramsay Health Care Limited, the listed Australian healthcare company, and a private psychiatric hospital in central London, held freehold and let to Groupe Sinoué, a French company specialising in mental health.

The Ramsay hospitals are let on full repairing and insuring leases with a term to expiry at 30 June 2019 of 17.9 years without break. The rents increase in May each year by a minimum of a fixed 2.75% per annum throughout the lease term. Following the May 2019 fixed uplifts, the rents on the retained hospitals portfolio increased from £32.6 million to £33.5 million. There is also an upwards only open market review within each lease as at 3 May 2018 and then in May 2022 and every five years thereafter. The May 2018 open market review remains outstanding and these financial statements take no account of any potential increase in rental income that may arise from it.

The leases on the Ramsay hospitals are all guaranteed by Ramsay Health Care Limited, the listed parent company of one of the top five private hospital operators in the world and a constituent of the ASX 50 index of Australia's largest companies, with a market capitalisation at 3 September 2019 of £7.4 billion.

The London psychiatric hospital is let on a full repairing and insuring lease with a term to expiry at 30 June 2019 of 25.1 years without break. The rent increases in May each year by a fixed 3.0% per annum throughout the lease term and as a result increased from £2.0 million to £2.1 million on 3 May 2019. The lease is guaranteed by Orpea SA, a leading European operator of nursing homes, post-acute care and psychiatric care, listed on Euronext Paris with a market capitalisation at3 September 2019 of £6.8 billion.

Budget hotel assets (24% of pro forma portfolio value)

The budget hotel assets at the balance sheet date comprise 126 Travelodges (31 December 2018: 129 Travelodges) located in England, Wales and Scotland, let to Travelodge Hotels Limited which is the main operating company within the Travelodge group trading in the UK, Ireland and Spain. Travelodge is the UK's second largest budget hotel brand, with 584 hotels and over 44,500 rooms as at 30 June 2019.

Three budget hotels not considered core to the portfolio were sold in the period for net proceeds of £5.2 million, representing a gain of £0.4 million over 31 December 2018 book value and £1.1 million over their March 2018 purchase price. One further sale has taken place since the balance sheet date for net proceeds of £1.8 million, which was in line with 30 June 2019 book value and a gain of £0.2 million over its September 2016 purchase price. Taken together, these disposals achieved proceeds 7.5% above their 31 December 2018 book values.

The average term to expiry of the Travelodge leases is 22.9 years from 30 June 2019 with no break clauses. The leases are on full repairing and insuring terms and Travelodge is also responsible for the cost of any headlease payments and other amounts owing to the superior landlords of the 54 leasehold properties. There are upwards only uncapped RPI-linked rent reviews every five years throughout the term of each lease, with reviews falling due over a staggered pattern across the portfolio. Reviews on four budget hotels with passing rent totalling £1.3 million as at 30 June 2019 (4% of the portfolio) will take effect in the second half 2019. 22% of the portfolio rents are then reviewed in 2020, 24% in 2021, 39% in 2022 and 11% in 2023.

Financing

The Group's operations are financed by a combination of cash resources and non-recourse debt finance, where the equity at risk is limited to the net assets within six ring-fenced subgroups. Each subgroup is self-contained, with no cross-default provisions between the six of them. In all cases substantial financial covenant headroom has been negotiated into loan terms together with appropriate remedial 'cure' rights where cash can be diverted to a security group in order to maintain covenant compliance if that becomes necessary.

The Group's Net Loan To Value ratio fell from 43.0% to 42.2% over the period and then further, to 33.0% on a pro forma basis, as a result of the hospitals portfolio disposal. Interest cover, measured for these purposes as passing rent divided by annualised interest cost, has remained at 2.4 times throughout the period and remains at approximately that level following the hospitals portfolio sale.

To reduce uncertainty over the Group's interest cost, rates are fixed or capped for the term of each loan. The actual weighted average cost of debt in the period was 4.8% (year to 31 December 2018: 4.9%). The pro forma maximum weighted average interest rate, adjusted for the hospitals portfolio disposal, is 4.9% per annum.

* rate shown is maximum rate; actual rate on the facilities in the period was 3.0% (period from debt drawdown to 31 December 2018: 2.7%)

The pro forma weighted average term to maturity of the Group's debt, adjusted for the hospitals portfolio disposal where debt maturing in September 2025 was partly repaid, is 4.6 years at 30 June 2019 compared to 5.3 years at 31 December 2018.

Key terms of the facilities as adjusted for the hospitals portfolio disposal are set out below.

* £316.8 million of senior and mezzanine Sterling loans secured on UK assets and €71.8 million of senior and mezzanine Euro denominated loans secured on German assets (translated at the period end exchange rate of €1:£0.8948) with all loan tranches cross-collateralised.

† amortisation in each of the years ending October 2021 and October 2022 comprises £3.2 million on the Sterling facility and €0.7 million on the Euro facility.

There have been no defaults or potential defaults in any facility during the period or since the balance sheet date. The extent of headroom on financial covenants at the balance sheet date is analysed in the financial review on the following pages.

Financial review

The Board monitors the following key performance indicators, which are further commented on in this report.

* adjusted where relevant for the hospitals portfolio disposal

Key performance indicator - Total Accounting Return

The principal financial outcome that the Board seeks to achieve is attractive growth in shareholder returns. In assessing the Group's results and financial position, the Board's primary focus is on financial results, principally Net Asset Value per share and Earnings Per Share, adjusted to conform with the industry standard EPRA guidelines which the Board considers provide a better comparison with other real estate companies. We also comment on the financial position and results prepared in accordance with IFRS, without adjustment.

The Board monitors both Total Accounting Return, which is the movement in EPRA NAV per share plus dividends, and Total Shareholder Return, which is the share price movement plus dividends. The principal focus for the Board is on Total Accounting Return as the Total Shareholder Return, while important, is also subject to wider market movements not necessarily related to the Group itself.

The movements in net asset value reported under IFRS and shown in the consolidated balance sheet, adjusted for the hospitals portfolio disposal, are as follows:

EPRA NAV takes the balance sheet measure of net asset value and excludes items that are considered to have no relevance to the assessment of long term performance. Consistent with the EPRA guidance, the Group's reported NAV is adjusted to exclude deferred tax on investment property revaluations (which in this case relate to the German assets) and fair value movements on derivatives.

The Group's EPRA NAV per share at 30 June 2019 was 415.9 pence, up 3.8% since 31 December 2018. The Group's pro forma EPRA NAV per share at that date, adjusted for the hospitals portfolio disposal, was 420.5 pence which represents a 5.0% increase since 31 December 2018. This 20.0 pence per share uplift, together with dividends of 7.9 pence per share, results in a 7.0% Total Accounting Return.

The analysis of movements in the Group's EPRA NAV and EPRA NAV per share is as follows:

* adjusted by £5.5 million or 1.7 pence per share (2018: £5.2 million or 1.9 pence per share) of Rent Smoothing Adjustments

EPRA NAV is reconciled to the balance sheet net asset value measured in accordance with IFRS in note 17 to the interim financial statements.

The calculation of Total Accounting Return and Total Shareholder Return is included in the Supplementary Information in the section following the interim financial statements.

Rent Smoothing Adjustments

Rent Smoothing Adjustments to investment property revaluations and revenue arise from the Group's accounting policy, as required by IFRS, to spread the impact of any fixed or minimum rental uplifts evenly over the term of each relevant lease. This treatment gives rise to a mismatch between rental cash flows and reported rental revenue in any period. These adjustments relate to rents that are subject to fixed uplifts, which amounted to 49% of passing rent over the six months to 30 June 2019 (reducing to 41% following the hospitals portfolio disposal), together with the 5% of rents (increasing to 6% after the hospitals portfolio disposal) with fixed minimum uplifts on RPI-linked reviews.

The impact of this accounting treatment is to record a receivable, included in the book value of investment property, for the amount of rent included in the income statement ahead of actual cash receipts. This receivable increases over the first half of each lease term then unwinds to zero over the second half of each lease term. In order that the receivable does not overstate the value of the portfolio when included in the book value of the investment properties, any movement in the receivable is offset against property revaluation movements. Since this adjustment increases rental income and reduces property revaluation gains by the same amount (and vice versa in the second half of each lease term) it does not change the Group's retained earnings or net assets.

The impact of each of the rental income flows subject to a Rent Smoothing Adjustment is as follows:

* at the 30 June 2019 Euro conversion rate of €1:£0.8948

The future impact of this adjustment would only change if there were acquisitions, disposals or lease variations relating to properties with fixed or minimum RPI-linked rental uplifts. Assuming no change in the portfolio beyond the sale of the hospitals announced in July 2019, the adjustment that will be recognised on the portfolio during the year and that is expected for each of the next three financial years (translating the German adjustment at the 30 June 2019 Euro conversion rate of €1:£0.8948) is as follows:

Key performance indicator - Adjusted EPRA EPS

The Company's policy is to distribute its Adjusted EPRA EPS through payment of a fully covered cash dividend, paid quarterly. In addition to that fully covered distribution, the Board has announced its intention, for as long as the surplus proceeds of the hospitals portfolio disposal which completed in August 2019 are not fully deployed or returned to shareholders, to top up the dividend to the extent that Adjusted EPRA EPS has been reduced by that disposal.

The Group's basic and diluted EPS calculated in accordance with IFRS not only include property valuation movements and Rent Smoothing Adjustments but are also required to be calculated on the assumption that any shares issued in settlement of an incentive fee are treated as having been issued on the first day of the period, when in fact they are issued some three months after the end of the year in which they have been earned. As a result, basic EPS for 2019 is calculated on the basis that the 1.3 million shares issued in settlement of the 2018 incentive fee were in issue for the whole period, although they were not in fact issued until March 2019. This factor has a distorting effect on Dividend Cover and is therefore excluded from the Adjusted EPRA EPS measure.

Any investment property revaluations, profits on the sale of investment properties, fair value movements on derivatives and related deferred tax are excluded from basic EPS in order to calculate EPRA EPS, and so provide a measure of underlying earnings from core operating activities using the industry standard guidance issued by EPRA. Calculations are based on the same share weightings as required for the calculation of basic earnings per share, details of which are included within the supplementary information at the end of this report.

Adjusted EPRA EPS takes EPRA EPS and then adjusts it by:

·; removing the effect of Rent Smoothing Adjustments;

·; excluding any significant non-recurring costs;

·; excluding any incentive fee and the associated irrecoverable VAT, which are considered to be linked to revaluation movements and therefore best treated consistently with revaluations; and

·; calculating the weighted average number of shares to reflect the actual date on which shares are issued.

The Board considers this adjusted measure to be appropriate for comparison of the performance of the Group from year to year and with its peer group, and to avoid distortions in the per share figures which in turn can distort the measurement of Dividend Cover.

Adjusted EPRA EPS is reconciled to basic EPS in note 8 to the financial statements. EPRA earnings and Adjusted EPRA earnings are analysed as follows:

Adjusted EPRA earnings per share - administrative expenses

The Group's administrative expenses for the period are the same under IFRS and the EPRA measure, while Adjusted EPRA EPS excludes any performance linked incentive fees which are payable in shares.

Because VAT cannot be applied to the rents on the Healthcare assets, there is an element of irrecoverable VAT incurred on the Group's running costs which is included within each relevant line item in the table above. The proportion of disallowed VAT on administrative expenses averaged 38% during the period and, following the hospitals portfolio disposal, reduced to 30% with effect from mid-August 2019.

As an externally managed business, the majority of the Group's overheads are covered by the advisory fees paid to the Investment Adviser, which in the period amounted to £6.8 million plus irrecoverable VAT of £0.5 million (30 June 2018: £5.6 million plus irrecoverable VAT of £0.6 million). The Investment Adviser itself meets office running costs, administrative expenses and remuneration for the whole management and support team. The advisory fees are further explained in note 18 to the financial statements.

Until 31 March 2019, advisory fees were calculated on a sliding scale based on the Group's EPRA NAV, payable at:

·; 1.25% per annum on EPRA NAV up to £500 million; plus

·; 1.0% on EPRA NAV from £500 million to £1 billion; plus

·; 0.75% thereafter.

With effect from 1 April 2019 and following an independent benchmarking exercise conducted by the Remuneration Committee and reviewed by the independent Directors, the tiered fee arrangements noted above remain in place but with a reduction in the level of advisory fees payable on EPRA NAV exceeding £1.5 billion from 0.75% per annum to 0.5%, reflecting the significant growth of the size of the Company since the fee arrangements were last formally reviewed by the Independent Directors.

The management contract between the Company and Prestbury Investments LLP expires in December 2025. There are no renewal rights or payments at the time of expiry. Any payments triggered by a change of control in the Company are limited to four times the most recent quarterly fee at the time any such change occurs.

The other recurring administrative expenses are principally professional fees, including the costs of the external property valuations, external trustee and administration costs, tax compliance fees and audit fees, which are largely billed directly to subsidiary undertakings.

Corporate costs are those costs necessarily incurred as a result of the Company being listed and comprise:

·; fees payable to the four Independent Directors amounting to £0.1 million in the period (2018: £0.1 million), with the other three Directors being partners in the Investment Adviser who receive no directors' fees from the Company; and

·; other costs of being listed, such as the fees of the nominated adviser required under the AIM Rules, registrars' fees and AIM fees, which together total £0.2 million (six months to 30 June 2018: £0.2 million) in the period.

An incentive fee becomes due if total returns to investors over a financial year, as set out in the audited accounts, exceed a compound growth rate of 10% per annum above the EPRA NAV per share the last time any incentive fee was paid. If the threshold return is exceeded, the Investment Adviser receives 20% of any surplus above that priority return to shareholders, subject to a cap of 5.0% of EPRA NAV. Any such fee is payable in shares which are not permitted to be sold, save in certain limited circumstances, for a period of between 18 and 42 months following the end of the year for which the fee was earned. In order to make a reasonable assessment of whether or not such a fee is likely to be payable in respect of the 2019 financial year, the Board has estimated the EPRA NAV of the Group at 31 December 2019 on the basis of the assumptions set out in note 18 to the financial statements. On the basis of that assessment no fee would be payable for the 2019 financial year and as a result no fee is accrued at 30 June 2019 (30 June 2018: £nil).

Adjusted EPRA EPS: net finance costs

* headlease interest is reclassified against rental income net of property outgoings in Adjusted EPRA EPS

The nature and principal terms of the Group's loan facilities are explained in the Financing section earlier in this report.

Adjusted EPRA EPS - tax

The Group operates under the UK REIT regime so its rental operations, which make up the majority of the Group's earnings, are exempt from UK corporation tax, subject to the Group's continuing compliance with the UK REIT rules. The Group is otherwise subject to UK corporation tax.

German tax was charged in the period at an effective rate of 15% (2018: 15%) on realised profits from the Group's German rental operations and the resulting tax charge was £0.2 million (six months to 30 June 2018: £0.2 million). The balance sheet includes a deferred tax liability of £11.8 million (31 December 2018: £11.1 million) relating to unrealised German capital gains tax on investment properties which would only be crystallised on a sale of those assets. There are currently no plans to sell these assets.

On an IFRS basis, the current tax charge and the movement in deferred tax result in a net tax charge of £0.9 million (six months to 30 June 2018: £0.7 million). Deferred tax is excluded from Adjusted EPRA EPS as shown in note 8 to the financial statements.

Adjusted EPRA EPS - currency translation

The majority of the Group's assets are located in the UK and the financial statements are therefore presented in Sterling. 3.8% (31 December 2018: 3.9%) of the Group's pro forma EPRA NAV comprises assets and liabilities relating to properties located in Germany, valued in and generating net earnings in Euros. Exposure to currency fluctuations is partially hedged through both assets and liabilities being Euro denominated. The Group remains exposed to currency translation differences on the net results and net assets of these unhedged operations. Foreign currency movements are recognised in the statement of other comprehensive income.

The German properties are valued at €129.7 million as at 30 June 2019, with the Euro denominated secured debt amounting to €71.8 million. There was no material change in the Euro exchange rate against Sterling in the period or the prior year.

Key performance indicator - Net Loan To Value ratio

The Board structures debt facilities with a view to maintaining a capital structure that will enhance shareholder returns while withstanding a range of market conditions. During the period, the Group's Net LTV fell from 43.0% to 42.2% and has further reduced to 33.0% on a pro forma basis adjusted for the hospitals portfolio disposal. This reduction reflects the impact of £152.0 million of debt repayment on the hospitals portfolio, £48.9 million of property valuation uplifts, £2.1 million of scheduled debt amortisation in the six months to 30 June 2019 and the £164.0 million of surplus cash realised on completion of the hospitals portfolio disposal.

Key performance indicator - headroom on debt covenants

The Board's approach to managing the Group's capital structure includes ensuring that the risk of any breach of covenants within secured debt facilities is carefully monitored on a range of scenarios and, to the extent possible, able to be managed. This includes structuring facilities to ring fence the extent to which the Group's assets are at risk, ensuring that levels of headroom over financial covenants are appropriate and maintaining a level of uncommitted cash to apply in curing debt defaults in the event that it is needed.

When evaluating the appropriateness of the level of secured debt, the Board has regard to the unusual nature of the Group's income streams, specifically that all of the occupational leases are significantly longer than conventional leases for UK real estate and that the Group's rental income increases annually as a result of the annual minimum fixed rental uplifts on 38% of portfolio income (following the hospitals portfolio disposal), with a further 3% subject to three or five yearly fixed uplifts and the additional prospect of increases from the upwards only RPI-linked reviews on the rest of the portfolio. Overall two thirds of the portfolio rents are subject to annual review with the remainder subject to three or five yearly reviews. This structure gives rise to a naturally deleveraging debt profile on the assumption of constant valuation yields.

The Board reviews the headroom on all financial covenants at least quarterly. The headroom on key financial covenants at 30 June 2019 (adjusted for the hospitals portfolio disposal) is summarised below. We also disclose here the net initial valuation yield, the fall in valuation or the fall in rent that would trigger a breach of the relevant covenant at the first test date after the balance sheet date. The results shown in the following table do not include the effects of preventative measures that could be taken, including utilising the Group's significant uncommitted cash balance which stands at £232.0 million following the hospitals portfolio disposal and which is further explained in the following section.

Key performance indicator - uncommitted cash

The Board considers that the ability to manage potential debt covenant breaches is an important part of a prudent leverage strategy. The Group has negotiated headroom on financial covenants considered appropriate to the business and has also obtained certain contractual cure rights, including the ability to inject cash (subject to certain limitations as to the frequency and duration of cash cures) into ring-fenced financing structures in the event of actual or prospective breaches of financial covenants. The Board regularly monitors the Group's levels of uncommitted cash which comprises cash balances outside ring-fenced structures secured to lenders, net of any creditors or other cash commitments at the balance sheet date and excluding any capital required to be retained under the AIFMD regulatory capital rules.

The Group's uncommitted cash was £68.0 million at 30 June 2019 and £232.0 million at that date on a pro forma basis following the hospitals disposal, up from £66.4 million as at 31 December 2018.

Cash flow

The movement in cash over the period and as adjusted for the hospitals portfolio disposal in July 2019 comprises:

Cash secured under credit facilities is represented by rent held in charged accounts between the date of receipt, which is typically in the week before each calendar quarter end, and the date of payment of interest and any debt amortisation, which is typically three to four weeks after the quarter end. Following the debt service payments those surpluses are then available to be released to free cash.

The Group's investment properties are let on full repairing and insuring terms, with each tenant obliged to keep the premises in good and substantial repair and condition, including rebuilding, reinstating, renewing or replacing premises where necessary. Consequently, no material unrecovered capital expenditure, property maintenance or insurance costs have been incurred in the period and it is not expected that material costs of that nature will be incurred on the current portfolio.

Following the hospitals portfolio disposal after the balance sheet date, the Board has committed to topping up the dividends payable to keep investors' income returns whole for the period during which the net proceeds realised on the sale are not fully deployed through either acquisitions or returns to shareholders. This top-up amount is currently estimated at 2.7 pence per share or approximately £8.7 million per annum. Other than the reduction in cash as a result of the top-up amount, in the absence of acquisitions or further disposals, cash balances are expected to remain relatively stable over time.

Nick Leslau

Chairman, Prestbury Investments LLP

4 September 2019

Independent Review Report

Introduction

We have been engaged by the Company to review the condensed financial statements included within this interim report for the six months to 30 June 2019 which comprise the Group Income Statement, the Group Statement of Other Comprehensive Income, the Group Statement of Changes in Equity, the Group Balance Sheet, the Group Cash Flow Statement and the related notes.

We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market ("AIM"). Those rules require that the interim report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.

As disclosed in note 2, the annual financial statements of the Group will be prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The condensed financial statements included in this interim report have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed financial statements in the interim report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed financial statements in the interim report for the six months to 30 June 2019 are not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the rules of the London Stock Exchange for companies trading securities on AIM.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants and Registered Auditors

London, United Kingdom

4 September 2019

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Group Income Statement

All amounts relate to continuing activities.

Group Statement of Other Comprehensive Income

The notes form part of these condensed financial statements.

Group Statement of Changes in Equity

The notes form part of these condensed financial statements.

Group Balance Sheet