GlobeSt.com: What are some trends impacting healthcare properties in the UK right now?

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Hyman: There is a move away from the provision ofcare in a secondary-care setting, which in the UK means inhospitals, into more of a primary-care arena. It is a topic thatthe government is keen to foster, principally because it's cheaper,it's better for patients to be treated closer to where they live.And medical technology and the Internet make diagnostics much moredeliverable in a locality-based setting than they were 10 yearsago.

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Also, because of this movement to primary-care activity, theaverage size is getting much longer. We exchanged contracts for aproject in Wales for about $33 million, and that's the largest onewe've bought. Ten or 12 years ago, we were buying centers with anaverage cost of $2 million. Our average for 2008 is going to bearound $10 million. The size is greatly increasing. We're not aboutbuying the smaller properties, like converted houses, shops andoffices. We have about 11,000 medical centers across the UK, 35,000physicians and a very large number of those are in single anddouble-handed practices. There is going to be a reduction in thenumber of physical practices and an increase in the size of theremaining properties.

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GlobeSt.com: Since your leases are paid for by thegovernment, how much do lease payments vary between different typesof tenants?

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Hyman: The price that we have to pay, for havingour rent effectively paid for by the government, is that part ofour IRS--called the District Valuer's Office--is responsible fordistrict property rents and gets involved in setting the initialrents, and then the rents at each rent review. Usually in the UK,we have rent reviews every three years. The standard review patternin the UK is five, but in the NHS it's three years and the DV'soffice gets involved on a three-yearly basis on each of our leases.The DV only assesses the rent on the general practitioner's space,but most of the other space in the building for us is occupied bypharmacies, and they pay a market-based rent. Although there is abit of regional variation, the average rent for places like Londonbeing higher and the outer fringes of Scotland being lower, ingeneral, in the middle of the country is about 165 pounds permeter, so in dollars that's about $34 per sf.

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GlobeSt.com: What is your acquisition goal for thisyear?

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Hyman: We have a target of about $80 million. Ouroverall ambition in the next two years is to grow our portfolio toabout $1 billion because, in speaking to a number of USinstitutions, they seem to think that when we get to $1 billionwe'll be on their radar. What we want to do is take advantage ofour REIT status to be of more interest to international REITinvestors that are looking for geographical diversification. I knowhealthcare REITs have had a rocky time over here recently, buthealthcare is a terrifically stable part of the economy,particularly in the UK, where it is effectively paid for by thegovernment.

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GlobeSt.com: Are there any changes in the UK REITindustry lately?

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Hyman: There was an initial flurry of about eightcompanies that came and converted to being REITs on Jan. 1, 2007,which is when the legislation enabled them to exist. Now there areabout 18. Unfortunately, though, the launch of REITs has beencoupled with a decline in property values and, more recently, thecredit crunch. So an investor in REITs in January 2007 would havebought at the top and seen quite a bit of a decline in theirinvestment. Property is, of course, a long-term investment model.If you were skeptical in investing in REITs in 2007, perhaps atsome stage in 2008, we'll be close to the bottom of the cycle.That, of course, is the $64-billion question.

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GlobeSt.com: How has the credit crunch impacted yourbusiness?

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Hyman: On the tenant side it hasn't impacted us atall. Eighty-nine percent is paid for tenants by the government, andthe balance is paid by pharmacy operators, and you'd have to be azombie next to a medical center and not make money. Where it hasaffected us is the availability of finance and the cost of finance.Margins and fees have gone up. It hasn't affected us enormously,nonetheless, it is a negative impact on the ability to grow. Ithink the other major point is that it impacts sentimentenormously. The people who know that property is a highly-leveragedinvestment put two and two together and think that we are adverselyaffected as other players. The very interesting thing abouthealthcare economics in the UK is that there is no excess supply ofproperty. It's all built to order. There are no empty medicalcenters in the UK that are new and fit for purpose. That's verydifferent from almost every other sector in the property market.That, coupled with the covenant and the very long lease terms, makethis a very, very low-risk investment. That's why yields haveremained remarkably firm. At the peak of the market we were gettingyields at around 5% and that slipped out to 5.5%. It's nowhere asdramatic as the slippage we've seen in the UK in other sectors.

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GlobeSt.com: Is it your choice not to develop your ownassets?

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Hyman: We could develop because we're allowed toas a REIT, provided that we hold the property for three years afterit's completed. But since development is a risky business andbecause we don't want to do things that impinge on the ability topay a dividend, we, at the outset, decided not to go intodevelopment and completed a strategic review last year andconcluded it was not worth our while developing at the moment.Where we do develop is on our own portfolio, but we're not aboutgreenfield development because it's a very risky business. There isthe question of cost overruns and planning permissions. In goodtimes, it appears to be a very straight-forward way of making a lotof money. In tough times, some of the issues come out.

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GlobeSt.com: Does the weakness of the dollar makeacquisitions over here attractive?

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Hyman: The American system is completelydifferent. We have looked at some healthcare joint ventures in theUS, but frankly, we have enough to do in our domestic marketplace,and it would be difficult to see what we brought to the party,other than money. So we've decided not to go down that route forthe moment and carry on expanding in our UK marketplace.

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GlobeSt.com: What are you mainly looking to accomplishat REITWeek?

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Hyman: It's really about getting the company infront of more institutional investors and advisors. It's also aboutgetting the name of the company more widely known to try anddevelop a following among the American investors. Obviously, that'sdifficult for us as a UK company because of securities laws and thefact that the US is a big country. But if we are successful ingetting someone like Cantor Fitzgerald or someone like that tofollow the stock, it would make life a little bit easier for us.And I suppose I'll learn in my own way what's happening in the restof the world.

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