REG - Primary Health Props - Interim Results
27/07/2022 07:00
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RNS Number : 8345T Primary Health Properties PLC 27 July 2022
Primary Health Properties PLC
Interim results for the six months ended 30 June 2022
Organic rental growth continuing to drive strong property returns in a
turbulent market Uplift in NAV per share and dividend fully covered at 103%
Primary Health Properties PLC ("PHP", the "Group" or the "Company"), a leading
investor in modern primary health facilities, announces its interim results
for the six months ended 30 June 2022 (the "period").
Harry Hyman, Chief Executive of PHP, commented:
"We are encouraged by the firmer tone of rental growth experienced in the
period from the ongoing rent reviews and asset management projects
successfully completed. Furthermore, with the majority of PHP's debt either
fixed or hedged for a weighted average period of just under eight years the
Board remains confident that PHP can continue to deliver further earnings and
dividend growth.
"Notwithstanding the outlook for longer-dated interest rates the investment
market has remained robust in the first half of the year and we have continued
to see further net initial yield compression in both the UK and Ireland.
"NHS initiatives to modernise and invest in the primary care estate support
the important role that primary healthcare as a first line of defence must
play to re-focus services away from over-burdened hospital settings, and to
satisfy increased demand, driven by the long-term demographic trends of
populations that are growing, ageing and suffering from more instances of
chronic illness. We continue to maintain close relationships with our key
stakeholders, working closely with the NHS in the UK, HSE in Ireland, and our
GP partners in both markets to help them evolve and adapt as the 'new normal'
is established."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Income statement and financial metrics Six months to 30 June 2022 Six months to 30 June 2021
Change
Net rental income(1) £71.1m £67.7m +5.0%
Adjusted earnings(1,2) £44.7m £40.7m +9.8%
Adjusted earnings per share(1,2) 3.4p 3.1p +9.7%
IFRS profit for the period £107.1m £71.4m
IFRS earnings per share(2) 8.0p 5.4p
Total adjusted NTA return(1) 6.3% 5.0%
Dividends
Dividend per share(5) 3.25p 3.1p +4.8%
Dividends paid(5) £43.3m £41.1m +5.4%
Dividend cover(1) 103% 99%
Balance sheet and operational metrics 30 June 31 December
2022 2021 Change
Adjusted NTA per share(1,3) 120.8p 116.7p +3.5%
IFRS NTA per share(1,3) 117.6p 112.5p +4.5%
Property portfolio
Investment portfolio valuation(4) £2.912bn £2.796bn +1.8%
Net initial yield ("NIY") (1) 4.57% 4.64%
Contracted rent roll (annualised)(1,7) £144.2m £140.7m +1.3%
Weighted average unexpired lease term ("WAULT")(1) 11.4 years 11.6 years
Occupancy 99.7% 99.7%
Rent-roll funded by government bodies(1) 89% 90%
Debt
Average cost of debt 3.0% 2.9%
Loan to value ratio ("LTV")(1) 43.1% 42.9%
Weighted average debt maturity 7.8 years 8.2 years
Total undrawn loan facilities and cash(6,8) £290.6m £321.2m
1 Definitions for net rental income, adjusted earnings, adjusted earnings per
share, earnings per share ("EPS"), dividend cover, loan to value ("LTV"), net
tangible assets ("NTA"), rent roll, NIY, WAULT, total adjusted NTA return and
net asset value ("NAV") are set out in the Glossary of Terms.
2 See note 7, earnings per share, to the financial statements.
3 See note 7, net asset value per share, to the financial statements.
Adjusted net tangible assets, EPRA net tangible assets ("NTA"), EPRA net
disposal value ("NDV") and EPRA net reinstatement value ("NRV") are considered
to be alternative performance measures. The Group has determined that adjusted
net tangible assets is the most relevant measure.
4 Percentage valuation movement during the period based on the difference
between opening and closing valuations of properties after allowing for
acquisition costs and capital expenditure. Includes assets held for sale.
5 See note 8, dividends, to the financial statements.
(6) After deducting the remaining cost to complete contracted acquisitions,
properties under development and asset management projects.
(7) Percentage contracted rent roll increase during the period is based on the
annualised uplift achieved from all completed rent reviews and asset
management projects.
(8) Pro-forma including asset acquisitions and disposals completed post period
end.
DELIVERING EARNINGS AND DIVIDEND GROWTH
· Adjusted earnings per share increased by 9.7% to 3.4p (30 June 2021:
3.1p)
· Contracted annualised rent roll increased by 2.5% to £144.2 million
(31 December 2021: £140.7 million)
· Additional annualised rental income on a like-for-like basis of £1.8
million or 1.3% from rent reviews and asset management projects (H1 2021:
£1.3 million or 1.0%; FY 2021: £2.4 million or 1.8%)
· EPRA cost ratio 10.5% (FY 2021: 9.3%), representing the lowest in the
UK REIT sector
· Three quarterly dividends totalling 4.875 pence per share distributed
or declared in the year-to-date equivalent to 6.5 pence per share on an
annualised basis, a 4.8% increase over 2021 (6.2 pence per share) and marking
the Company's 26(th) consecutive year of dividend growth
DELIVERING NET ASSET VALUE GROWTH
· Adjusted Net Tangible Assets ("NTA") per share increased by 3.5% to
120.8 pence (31 December 2021: 116.7 pence)
· Property portfolio valued at £2.9 billion at 30 June 2022 (31
December 2021: £2.8 billion) reflecting a net initial yield of 4.57% (31
December 2021: 4.64%)
· Revaluation surplus in the period of £51.2 million (30 June 2021:
£66.9 million), representing growth of 1.8% (30 June 2021: 2.6%) with
approximately half of the valuation surplus coming from rental growth driven
by rent reviews and asset management projects
· Post period end disposal of 13 smaller assets for £27.7 million,
sale price was 13% above 31 December 2021 book values and represented 60 bps
of yield compression
· Strong pipeline of targeted acquisitions, developments and asset
management projects with a value of approximately £187 million in the UK and
£98 million (€114 million) in Ireland of which £123 million and £43
million (€50 million) is in legal due diligence in both countries
· Portfolio in Ireland now comprises 20 assets, valued at £228 million
(€265 million) (31 December 2021: £213 million / €253 million)
· The portfolio's metrics continue to reflect the Group's secure,
long-term and predictable income stream with occupancy at 99.7% (31 December
2021: 99.7%) and a WAULT of 11.4 years (31 December 2021: 11.6 years)
· Strong progression of asset management projects with 14 completed in
the period and a further 8 currently on-site, investing £14.9 million,
creating additional rental income of £0.3 million per annum and extending the
weighted average unexpired lease term (WAULT) back to over 20 years
DELIVERING FINANCIAL MANAGEMENT
· LTV ratio 43.1% (31 December 2021: 42.9%), towards the lower end of
the Group's targeted range of between 40% to 50%
· Including post period end transactions 95% of net debt fixed or
hedged for a weighted average period of just under eight years
· Weighted average debt maturity 7.8 years (31 December 2021: 8.2
years)
· Significant liquidity headroom with cash and collateralised
undrawn loan facilities totalling £290.6 million (31 December 2021: £321.2
million) after capital commitments and including post-period end transactions
· €75 million private placement loan note issued in the period for a
12-year term at a fixed rate of 1.64% to finance continued expansion in
Ireland
DELIVERING STRONG TOTAL RETURNS
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Adjusted NTA return 6.3% 5.0% 8.9%
Income return 2.5% 2.6% 5.2%
Capital return 1.8% 2.6% 4.3%
Total property return(1) 4.3% 5.2% 9.5%
1 The definition for total property return is set out in the Glossary of
Terms.
DELIVERING RESPONSIBLE BUSINESS AND ESG
· As previously announced, Net Zero Carbon ("NZC") Framework published
with the five key steps the Group is taking to achieve the ambitious target of
being NZC by 2030 for all of PHP's operational, development and asset
management activities
· Commenced construction of PHP's first NZC development in West Sussex
· All developments completed in the period achieved BREEAM rating of
Excellent or Very Good and all asset management projects completed met EPC
target of B or above
· Published PHP's Levelling- Up Impact Report, as part of the Purpose
Coalition, detailing of the work PHP is doing to level-up both locally and
nationally, and its strategy going forward
Presentation and webcast:
An in-person presentation for analysts will be held on the day at 10am at the
offices of Buchanan: 107 Cheapside, London EC2V 6DN. For those who cannot
attend in person, the meeting will be accessible via live video webcast and a
live conference call facility. Following the presentation, there will be a
managed Q&A session.
To access the briefing, please log on or dial in shortly before 10am via the
details below:
Webcast: https://stream.brrmedia.co.uk/broadcast/62b982f471203e42c1fbee33
(https://stream.brrmedia.co.uk/broadcast/62b982f471203e42c1fbee33)
UK Toll-free Dial In: +44 (0)330 165 4012
Participant PIN code: 2633375
If you would like to join the briefing, please contact Buchanan via
php@buchanan.uk.com (mailto:php@buchanan.uk.com) to confirm your place. A
recording of the webcast will be made available from c.12.00pm on the PHP
website, https://www.phpgroup.co.uk/ (https://www.phpgroup.co.uk/)
For further information
contact:
Harry Hyman Richard Howell
Primary Health Properties PLC T +44 (0) 7973 344768 Primary Health Properties PLC T +44 (0) 7766 072272
harry.hyman@phpgroup.co.uk (mailto:harry.hyman@phpgroup.co.uk) richard.howell@phpgroup.co.uk (mailto:richard.howell@phpgroup.co.uk)
David Rydell/Steph Whitmore/Hannah Ratcliff/Verity Parker Buchanan
T +44 (0) 20 7466
5066
EXECUTIVE REVIEW
PHP is pleased to have continued to deliver a strong and robust operational
and financial performance despite the ongoing volatility in the economic
outlook because of persistent price inflation resulting in recent and rapid
interest rate increases along with the outlook for longer-dated interest rates
stemming from global supply issues, BREXIT, COVID-19, higher wage pressures
and the on-going war in the Ukraine. The Group's portfolio has continued to
demonstrate strong resilience throughout the first half of 2022. The security
and longevity of our income are important drivers of our predictable income
stream and underpin our progressive dividend policy and we are now in our
26(th) year of continued dividend growth.
We are encouraged by the firmer tone of rental growth experienced in the
period from the rent reviews and asset management projects completed, and with
the majority of PHP's debt either fixed or hedged for a weighted average
period of just under eight years, we remain confident that adjusted earnings
growth will not be negatively impacted in future periods.
Notwithstanding the outlook for longer-dated interest rates the investment
market has remained robust in the first half of the year and we have continued
to see further net initial yield compression in both the UK and Ireland. We
have taken advantage of the strong prices in the market to dispose of a
portfolio of 13 medical centres, for £27.7 million post period end, which
comprise smaller facilities significantly below our average lot size.
The interest rate outlook has also caused us to reconsider a number of
pipeline acquisitions and we have selectively acquired just three standing
investments for £48.8 million, including one post-period end. We also
commenced construction of PHP's first Net Zero Carbon development at Croft,
West Sussex with a development value of £6.8 million. We believe that
significant yield compression in our sector has probably run its course and
therefore it is the improving rental growth outlook that will be the principal
driver to maintaining and increasing values in future periods.
Including post period end activity, the property portfolio currently stands at
just under £2.9 billion across 512 assets, including 20 in Ireland, with a
rent roll of £142.8 million.
PHP has continued to actively work with the NHS in the UK, HSE in Ireland, and
its GP partners in both markets to help them better utilise the Group's
properties for deployment in the recent global health crisis. Many of our
primary care facilities and occupiers will need to deal with the backlog of
procedures missed over the last three years and will be required to deliver
COVID-19 vaccines for many years to come. We continue to maintain close
relationships with our key stakeholders and GP partners to ensure we are best
placed to help the NHS and HSE, and particularly in primary care, evolve and
deal with the pressures placed on them.
Overview of results
PHP's Adjusted earnings increased by £4.0 million or 9.8% to £44.7 million
(30 June 2021: £40.7 million) in the six months to 30 June 2022, driven by
strong organic rental growth from rent reviews and asset management projects
together with interest cost savings arising from various refinancing's
completed in 2021 and the first half of 2022. Using the weighted average
number of shares in issue in the period the Adjusted earnings per share
increased to 3.4 pence (30 June 2021: 3.1 pence), an increase of 9.7%.
A revaluation surplus of £51.2 million (30 June 2021: £66.9 million) was
generated in the period from the portfolio, equivalent to 3.8 pence per share.
Encouragingly, approximately half of the valuation surplus came from rental
growth driven by rent reviews and asset management projects completed in the
period and the remainder from further net initial yield compression in the UK
and Ireland.
The robust performance in the period has delivered a total adjusted NTA return
of 6.3% (30 June 2021: 5.0%).
Rent reviews and asset management projects completed in the period added £1.8
million or 1.3% (H1 2021: £1.3 million or 1.0%; FY 2021: £2.4 million or
1.8%) to the contracted rent roll with continued positive momentum on the
number of rent reviews being settled.
Rental growth from rent reviews settled in the period resulted in an uplift of
£1.5 million per annum or 6.1% which equates to 3.0% per annum continuing the
positive trend in rental growth over the last two years
The portfolio's average lot size has increased to £5.5 million and we
continue to maintain our strong property metrics, with a long weighted average
unexpired lease term ("WAULT") of 11.4 years, high occupancy at 99.7% and 89%
of our rent funded directly or indirectly by the UK and Irish governments.
Dividends and total shareholder return
The Company distributed a total of 3.25p per share in the six months to 30
June 2022, equivalent to 6.5 pence on an annualised basis, which represents an
increase of 4.8% over the dividend distributed per share in 2021 of 6.2 pence.
A third quarterly interim dividend of 1.625 pence per share was declared on 30
June 2022. The dividend will be paid on 19 August 2022 to shareholders who
were on the register at the close of business on 8 July 2022. The dividend
will comprise a normal dividend of 0.825 pence and a property income
distribution of 0.8 pence per share. The Company intends to maintain its
strategy of paying a progressive dividend, which is paid in equal quarterly
instalments, and covered by underlying earnings in each financial year. A
further interim dividend payment is planned to be made in November 2022, which
is expected to comprise a mixture of both property income distribution and
normal dividend.
The total value of dividends distributed in the period increased by 5.4% to
£43.3 million (30 June 2021: £41.1 million), which were fully covered by
Adjusted earnings. Dividends totalling £1.7 million were satisfied through
the issuance of shares via the scrip dividend scheme.
The Company's share price started the year at 151.4p per share and closed on
30 June 2022 at 136.3p, a decrease of 10.0%. Including dividends, those
shareholders who held the Company's shares throughout the period achieved a
Total Shareholder Return of -7.8% (30 June 2021: +2.7%). This compares to the
total return delivered by UK real estate equities (FTSE EPRA Nareit UK Index)
of -21.2% (30 June 2021: +15.5%) and the wider UK equity sector (FTSE
All-Share Index) of -4.8% (30 June 2021: +9.6%) in the period.
Environmental, Social and Governance ("ESG")
PHP has a strong commitment to responsible business and ESG matters are at the
forefront of the Board's and our various stakeholders' considerations and the
Group has committed to transitioning to net zero carbon ("NZC"). We have
commenced construction of PHP's first NZC development in the first half of
2022 and published, at the start of the year, a NZC Framework with the five
key steps we are taking to achieve an ambitious target of being NZC by 2030
for all of PHP's operational, development and asset management activities and
to help our occupiers achieve NZC by 2040, five years ahead of the NHS's
target of becoming the world's first net zero carbon national health system by
2045 for the emissions it can influence and 10 years ahead of the UK and Irish
Governments' targets of 2050. Further details on our progress in the year to
date and approach to responsible business can be found on pages 15 to 16, the
2021 Annual Report and on our website.
Board changes
Following a review of the composition of the Board in 2021, Ivonne Cantúwas
appointed as an independent Non-Executive director of the Company with effect
from 1 January 2022.
Peter Cole, Non-Executive Director and Chair of the Remuneration Committee,
retired from the Board at the Company's Annual General Meeting ("AGM") in
April 2022 and Ivonne Cantú took over as Chair of the Remuneration Committee
following the AGM.
The Board is grateful to Peter for his commitment and dedication to the
Company and for chairing the Remuneration Committee, particularly during the
process of internalising the management function in 2020 and the transition
period in 2021.
Market update and outlook
PHP's mission is to support the NHS, HSE and other healthcare providers, by
being a leading investor in modern, primary care premises. Never has this been
more important as the NHS seeks to work through the backlog of procedures
created by the COVID-19 pandemic and the Government delivers its Levelling Up
agenda. In the longer term, the ageing demographic of western populations
means that health services will also be called upon to address more ongoing,
complex, chronic co-morbidities. PHP stands ready to play its part in
delivering the real estate infrastructure required to meet this need in the
community.
We will continue to actively engage with government bodies, the NHS, HSE in
Ireland and other key stakeholders to establish, enact (where we can), support
and help alleviate increased pressures and burdens currently being placed on
healthcare networks.
In July 2021, the UK Government published a draft Health and Social Care Bill
setting out a number of reforms in order to implement the commitments of the
NHS England Long Term Plan. This included the introduction of regional
Integrated Care Boards and Partnerships tasked with co-ordinating NHS partners
with local government services and budgets, such as social care and mental
health, in a geographic area, for the first time; the idea being that services
are then pushed to the most efficient, cost-effective part of the system
(whether primary care, hospital or care home) for the best patient outcomes.
We welcome these reforms and are hopeful they will lead to better outcomes for
patients and to further development opportunities in primary care in the
medium to long-term.
Despite the recent and rapid interest rate increases we have not seen any
change in investor sentiment in our sector and the UK and Irish investment
markets for primary healthcare property, with its strong fundamental
characteristics and government-backed income, continues to be robust. However,
we do not expect any further significant yield compression in the second half
of the year as the market digests the outlook for longer-dated interest rates.
We believe that our activities benefit not only our shareholders but also our
wider stakeholders, including our occupiers, patients, the NHS and HSE,
suppliers, lenders and the wider communities in both the UK and Ireland.
We look forward to the remainder of 2022 and beyond with confidence in our
ability to create further stakeholder value.
Steven Owen Harry Hyman
Chairman
Chief Executive Officer
26 July 2022
BUSINESS REVIEW
Investment and pipeline
In the first half of 2022 the primary care investment market has continued to
remain robust despite the volatile economic outlook. Consequently, we have
selectively invested in just three acquisitions and taken advantage of these
market conditions to dispose of a portfolio of 13 smaller assets for £27.7
million post period end.
In April 2022, the Group acquired a large, state-of-the- art diagnostic centre
in Chiswick let to HCA Healthcare for £34.5 million and a newly refurbished
drug and alcohol rehabilitation facility in Chertsey for £7.0 million. Post
period end, the Group acquired another medical centre in Newbury for £7.3
million.
Including standing investments, direct and forward funded developments and
asset management projects, we have continued to generate and grow a strong
pipeline totalling approximately £187 million in the UK and £98 million
(€114 million) in Ireland of which £123 million and £43 million (€50
million) is in legal due diligence in both countries.
Pipeline Number UK Ireland
Investment 6 £60m £24m (€28m)
Direct development 7 £56m -
Forward funded development 7 £19m £74m (€86m)
Total acquisitions 20 £135m £98m (€114m)
Asset management 50 £52m -
Total pipeline 70 £187m £98m (€114m)
Approximately 42% of the pipeline represents opportunities in Ireland which is
our preferred area of investment due to the higher net initial yields and
larger lot sizes.
NZC direct developments
Over the course of the first half of 2022 the Group has continued to make good
progress with the commencement of construction of the first NZC development at
Croft Primary Care Centre, West Sussex with a development value of £6.8
million.
In addition, the Group has a significantly advanced pipeline across seven
development projects with an estimated capital value of approximately £56
million (31 December 2021: six projects/£46 million). The Company expects to
be on-site with two of these projects by the end of 2022, together with a
wider medium- term pipeline at various stages of progress across seven
projects with an estimated capital value of approximately £56 million.
PHP expects that all future direct developments will be constructed to NZC
standards.
Forward funded developments
During the period, the forward funded development at Enniscorthy, County
Wexford, Ireland achieved practical completion in March 2022. The scheme at
Arklow, County Wicklow, Ireland is now substantially complete and due to
achieve practical completion before the end of August 2022 at which stage we
will not have any forward funded developments on-site. Both schemes have been
built to Nearly Zero Energy Buildings ("nZEB") standards in Ireland.
Disposals
In July 2022, the Group exchanged contracts to dispose of a portfolio of 13
smaller medical centres, located across England and Wales, for a price of
£27.7 million. The sale price was 13% above 31 December 2021 book values and
represented 60bps of yield compression. Completion is expected to take place
at the end of July 2022 and the proceeds from the sale will be deployed into
our pipeline across the UK and Ireland which we believe can deliver stronger
returns.
Asset management
PHP's sector leading metrics continue to remain good and we continue to focus
on delivering the organic rental growth that can be derived from our existing
assets. This growth arises mainly from rent reviews and asset management
projects (extensions, refurbishments and lease re-gears) which provide an
important opportunity to increase income, extend lease terms and avoid
obsolescence whilst ensuring that our premises meet the communities'
healthcare needs and improve the properties ESG credentials.
Rent reviews
During the six months to 30 June 2022, the Group concluded and documented 192
rent reviews in the UK with a combined rental value of £24.4 million
resulting in an uplift of £1.5 million per annum or 6.1% which equates to
3.0% per annum. This continues the positive trend in rental growth over the
last two years (year ended 31 December 2021: 1.7% per annum with an uplift of
£2.0 million; 31 December 2020: 1.8% per annum with an uplift of £1.7
million).
In the period, 1.4% per annum was achieved on 104 open market reviews
including 24 reviews where no uplift was achieved. Uplifts of 5.9% per annum
were achieved on RPI-based reviews and 3.0% per annum on fixed uplift reviews.
In addition, a further 278 open market reviews were agreed in principle, which
will add another £1.6 million to the contracted rent roll when concluded and
represent an uplift of 1.3% per annum.
69% of our rents are reviewed on an open market basis, typically every three
years, and the settlements achieved are impacted by land and construction
inflation. Over recent years, there have been significant increases in these
costs which is expected to result in further rental growth in the future. The
balance of the PHP portfolio has either indexed/RPI (25%) or fixed uplift (6%)
based reviews which also provide an element of certainty to future rental
growth within the portfolio.
Approximately, one-third of indexed linked rent reviews are subject to cap and
collars which typically range from 2% to 4% per annum.
At 30 June 2022, the rent at 633 tenancies, representing £85.4 million of
passing rent (31 December 2021: 635 tenancies/£84.9 million), was under
negotiation and the large number of outstanding reviews reflects the
requirement for all awards to be agreed with the District Valuer. A great deal
of evidence to support open market reviews comes from the completion of
historic rent reviews and delivery of new properties into the sector. We
continue to see positive momentum in the demand, commencement and delivery for
new, purpose-built premises, which are being supported by NHS initiatives to
modernise the primary care estate.
In Ireland, we concluded 9 mostly indexed based reviews adding a further £0.1
million (€0.1 million) equivalent to 2.7% per annum to the contracted rent
roll.
Asset Management Projects
We have continued to make good progress in the six months to 30 June 2022 to
enhance and extend existing assets within the portfolio with 22 projects
either completed or currently on-site. We have also completed a further 12
lease re-gears. The projects require the investment of £14.9 million and will
generate £0.3 million of additional rental income but, just as importantly,
will extend the WAULT on those premises back to an average 20 years as well as
improving the ESG performance of the buildings.
PHP continues to work closely with its tenants who are seeking to extend and
improve their facilities and has a strong pipeline of over 50 projects which
are either Board approved or in advanced negotiations. The pipeline of
projects will require the investment of approximately £52 million, generating
an additional £1.6 million of rental income and extending the WAULT on those
premises back to an average 20 years.
The Company will continue to invest capital in a range of physical extensions
or refurbishments through asset management projects which help avoid
obsolescence and are key to maintaining the longevity and security of our
income through long-term tenant retention, increased rental income and
extended occupational lease terms, adding to both earnings and capital values.
Sector leading portfolio metrics
The portfolio's annualised contracted rent roll at 30 June 2022 was £144.2
million, an increase of £3.5 million or 2.5% in the period (31 December 2021:
£140.7 million) driven predominantly by £1.8 million organic rental growth
from rent reviews and asset management projects. The acquisition of Chiswick
and Chertsey contributed a further £1.7 million. The security and longevity
of our income are important drivers of our secure, long term predictable
income stream and enable our progressive dividend policy.
Security:PHP continues to benefit from secure, long term cash flows with 89%
of its rent roll funded directly or indirectly by the NHS in the UK or HSE in
Ireland. The portfolio also benefits from an occupancy rate of 99.7%.
Longevity: The portfolio's WAULT at 30 June 2022 was 11.4 years (31 December
2021: 11.6 years). Only £10.2 million or 7.1% of our income expires over the
next three years of which c. 50% have agreed terms to renew and another 30% is
in advanced discussions to renew their lease. £71.3 million or 49.4% expires
in over 10 years. The table below sets out the current lease expiry profile of
our income:
Income subject to expiry £m %
< 3 years 10.2 7.1%
4 - 5 years 11.2 7.7%
5 - 10 years 51.5 35.7%
10 - 15 years 37.0 25.7%
15 - 20 years 19.5 13.5%
> 20 years 14.8 10.3%
Total 144.2 100.0%
Valuation and returns
At 30 June 2022, the Group's portfolio comprised 524 assets independently
valued at £2.912 billion (31 December 2021: £2.796 billion). After allowing
for acquisition costs and capital expenditure on developments and asset
management projects, the portfolio generated a valuation surplus of £51.2
million or 1.8% (30 June 2021: £66.9 million or 2.6%). Encouragingly,
approximately half of the valuation surplus came from rental growth driven by
rent reviews and asset management projects completed in the period and the
remainder from further net initial yield compression in the UK and Ireland.
The strong fundamentals of our sector, together with a lack of supply, have
seen strong demand and competition for primary care assets through both
investment and development led opportunities. Consequently, the Group's
portfolio NIY has tightened by 7 bp in the period to 4.57% (31 December 2021:
4.64%). The true equivalent yield reduced to 4.66% at 30 June 2022, declining
from 4.74% at 31 December 2021. The NIY on our portfolio continues to
represent a premium over both the 10-year and 15-year UK gilts which traded at
2.22% and 2.56% respectively at 30 June 2022.
In Ireland, we completed the two developments under construction during the
period and the portfolio now comprises 20 fully let assets, valued at £228.3
million or €265.2 million (31 December 2021: 20 assets/£213.0 million or
€253.4 million). There are currently no developments under construction in
Ireland.
The portfolio's average lot size has increased to £5.5 million (31 December
2021: £5.4 million) and 87.4% of the portfolio is valued at over £3.0
million. The Group only has five assets valued at less than £1.0 million.
Number of Valuation Average
Properties £m % lot size (£m)
> £10m 60 966.6 33.2 16.1
£5m - £10m 140 964.1 33.2 6.9
£3m - £5m 154 611.5 21.0 4.0
£1m - £3m 165 360.8 12.4 2.2
< £1m (including land £1.5m) 5 4.7 0.2 0.6
Total(1) 524 2,907.7 100.0 5.5
1 Excludes the £4.5m impact of IFRS 16 Leaseswith ground rents recognised as
finance leases.
The underlying valuation uplift of £51.2 million, combined with the
portfolio's growing income, helped to deliver a total property return of 4.3%
in the six months to 30 June 2022 (30 June 2021: 5.2%).
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Income return 2.5% 2.6% 5.2%
Capital return 1.8% 2.6% 4.3%
Total return 4.3% 5.2% 9.5%
FINANCIAL REVIEW
PHP's Adjusted earnings increased by £4.0 million or 9.8% to £44.7 million
in the six months to 30 June 2022, compared to 30 June 2021 Adjusted earnings
of £40.7 million. The increase in the period reflects six months of interest
cost savings which came from a reduction on the Group's average cost of debt
arising from various refinancing initiatives completed last year and at the
start of 2022, strong organic rental growth from rent reviews and asset
management along with investment activity over the last 12 months.
Using the weighted average number of shares in issue in the period the
Adjusted earnings per share increased to 3.4p (30 June 2021: 3.1p), an
increase of 9.7%.
A revaluation surplus of £51.2 million (30 June 2021: £66.9 million) was
generated in the period from the portfolio with approximately 50% driven by
rental growth from rent reviews and asset management projects and the
remainder from further NIY compression both in the UK and Ireland.
A gain on the fair value of interest rate derivatives and convertible bonds of
£10.4 million (30 June 2021 loss:
£0.2 million), together with a gain on the amortisation of the fair value
adjustment on the MedicX fixed rate debt at acquisition of £1.4 million (30
June 2021 gain: £1.6 million) contributed to the profit before tax as
reported under IFRS of £107.7 million (30 June 2021: profit of £72.0
million).
The financial results for the Group are summarised as follows:
Summarised results
Six months Six months Year ended 31 December
ended ended 2021
30 June 2022 30 June 2021
£m £m £m
Net rental income 71.1 67.7 136.7
Administrative expenses (5.5) (5.0) (10.5)
Operating profit before revaluation gain and net financing costs 65.6 62.7 126.2
Net financing costs (20.9) (22.0) (43.0)
Adjusted earnings 44.7 40.7 83.2
Revaluation surplus on property portfolio and profit on sales 51.2 66.9 110.5
Fair value gain/(loss) on interest rate derivatives and convertible bond 10.4 (0.2) 1.6
Amortisation of MedicX debt MtM at acquisition 1.4 1.6 7.9
Termination payment and impairment of goodwill on acquisition of Nexus - (35.3) (35.3)
Nexus acquisition costs - (1.7) (1.7)
Exceptional item - early termination cost on refinancing of Aviva debt - - (24.6)
IFRS profit before tax 107.7 72.0 141.6
Corporation tax 0.1 - (0.1)
Deferred tax provision (0.7) (0.6) (1.4)
IFRS profit after tax 107.1 71.4 140.1
Net rental income receivable in the six months to 30 June 2022 increased by
5.0% or £3.4 million to £71.1 million (30 June 2021: £67.7 million).
Administration expenses continue to be tightly controlled and the Group's EPRA
cost ratio remains the lowest in the sector at 10.5% for the period. The £0.5
million increase in administration costs in the period is primarily due to
increased staff costs arising from annual pay increases, additional staff
recruited to assist with ESG, developments and property management, increases
in employers' national insurance rates and improvements to the pension benefit
offered to staff.
EPRA cost ratio Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Gross rent less ground rent and service charge income 73.5 69.1 139.6
Direct property expense 5.7 4.0 8.9
Administrative expenses 5.5 5.0 10.5
Less: service charge costs (3.2) (2.4) (5.8)
Less: ground rent (0.1) (0.2) (0.2)
Less: other operating income (0.2) (0.2) (0.4)
EPRA costs (including direct vacancy costs) 7.7 6.2 13.0
EPRA cost ratio 10.5% 9.0% 9.3%
Total expense ratio - administrative expenses as a
percentage of gross asset value (annualised) 0.4% 0.4% 0.4%
Despite net debt increasing by £170.1 million since June 2021 because of
continued investment, net finance costs in the period decreased by £1.1
million to £20.9 million (30 June 2021: £22.0 million) reflecting the
reductions in the average cost of debt achieved in 2021 from various
refinancing initiatives completed last year.
Shareholder value
The Adjusted Net Tangible Assets (NTA), per share increased by 4.1 pence or
3.5% to 120.8 pence (31 December 2021: 116.7 pence per share) during the
period with the revaluation surplus of £51.2 million or 3.8 pence per share
being the main reason for the increase. Dividends distributed in the period
were 103% covered by recurring Adjusted earnings resulting in a further 0.2
pence accretion to NTA.
The adjusted NTA return per share, including dividends distributed, in the six
months ended 30 June 2022 was 7.3 pence or 6.3% (30 June 2021: 5.6 pence or
5.0%).
The table below sets out the movements in the Adjusted NTA and EPRA Net
Disposal Value (NDV) per share over the period under review.
Adjusted Net Tangible Asset (NTA) per share 30 June 2022 pence per share 30 June 2021 pence per share 31 December 2021 pence per share
Opening Adjusted NTA per share 116.7 112.9 112.9
Adjusted earnings for the period 3.4 3.1 6.2
Dividends paid (3.2) (3.1) (6.2)
Revaluation of property portfolio 3.8 5.0 8.3
Shares issued 0.1 0.1 0.2
Foreign exchange movements - (0.2) (0.3)
Net impact of Nexus acquisition - (2.4) (2.4)
Net impact of Aviva refinancing - - (1.9)
Interest rate derivative cancellation - - (0.1)
Closing Adjusted NTA per share 120.8 115.4 116.7
Fixed rate debt and swap mark-to-market value 3.2 (6.8) (4.1)
Convertible bond fair value adjustment (0.7) (1.9) (1.6)
Deferred tax (0.4) (0.3) (0.3)
Closing EPRA NDV per share 122.9 106.4 110.7
Financing
In February 2022, the Group issued a new €75 million (£64.6 million)
secured private placement loan note to MetLife for a 12-year term at a fixed
rate of 1.64%. The loan notes have the option to be increased by a further
€75 million to €150 million over the next three years at the lender's
discretion. The proceeds will be used to finance the Group's continued
investment in Ireland.
The Group also renewed its existing revolving credit facility with Santander
(£50 million) for an initial three- year term with options to extend by a
further year at both the first and second anniversaries of the facility.
As at 30 June 2022, total available loan facilities were £1,553.3 million (31
December 2021: £1,550.5 million) of which £1,285.0 million (31 December
2021: £1,232.9 million) had been drawn. Cash balances of £29.7 million (31
December 2021: £33.4 million) resulted in Group net debt of £1,255.3 million
(31 December 2021: £1,199.5 million). Contracted capital commitments at the
balance sheet date totalled £27.8 million (31 December 2021: £29.8 million)
and the proceeds from the sale of a portfolio of 13 assets post period end for
£27.7 million less £7.3 million cost of a medical centre at Newbury,
resulted in headroom available to the Group of £290.6 million (31 December
2021: £321.2 million).
Capital commitments comprise investment expenditure of £10.7 million,
development expenditure of £5.3 million and asset management projects of
£11.8 million.
Debt metrics
30 June 2022 31 December 2021
Average cost of debt - fully drawn 3.0% 2.7%
Average cost of debt - drawn 3.0% 2.9%
Loan to value 43.1% 42.9%
Interest cover 3.4 times 3.2 times
Weighted average debt maturity - drawn facilities 6.8 years 7.3 years
Weighted average debt maturity - all facilities 7.8 years 8.2 years
Total drawn secured debt £1,135.0m £1,082.9m
Total drawn unsecured debt £150.0m £150.0m
Total undrawn facilities and cash available to the Group(1,) (2) £290.6m £321.2m
Unfettered assets £161.3m £104.9m
(1) After deducting capital commitments.
(2) Pro-forma including sale proceeds from a portfolio of 13 assets sold post
period end for £27.7 million less £7.3 million cost of medical centre
Newbury.
Average cost of debt
The Group's average cost of debt rose marginally as at 30 June 2022 to 3.0%
(31 December 2021: 2.9%) following the recent and rapid increases in 3-month
SONIA interest rates since the start of the year which are used to calculate
interest on the unhedged element the Group's revolving credit facilities.
Interest rate exposure
The analysis of the Group's exposure to interest rate risk in its debt
portfolio as at 30 June 2022 is as follows:
Facilities Drawn
£ million % £ million %
Fixed rate debt(1) 1,078.3 69.4 1,078.3 83.9
Hedged by fixed rate interest rate swaps 100.0 6.4 100.0 7.8
Hedged by fixed to floating rate interest rate swaps (200.0) (12.9) (200.0) (15.6)
Total fixed rate debt 978.3 62.9 978.3 76.1
Hedged by interest rate caps 200.0 12.9 200.0 15.6
Floating rate debt - unhedged 375.0 24.2 106.7 8.3
Total 1,553.3 100.0 1,285.0 100.0
Interest rate swap contracts
Accounting standards require PHP to mark its interest rate swaps to market at
each balance sheet date. During the six months to 30 June 2022 there was a
gain of £0.9 million (30 June 2021: gain £1.5 million) on the fair value
movement of the Group's interest rate derivatives due primarily to increases
in interest rates assumed in the forward yield curves used to value the
interest rate swaps. The mark-to-market ("MtM") asset value of the swap
portfolio is £5.3 million (31 December 2021: asset £4.4 million) equivalent
to 0.4 pence per share.
Currency exposure
The Group owns €265.2 million or £228.3 million (31 December 2021: €253.4
million / £213.0 million) of Euro denominated assets in Ireland as at 30 June
2022 and the value of these assets and rental income represented 8% of the
Group's total portfolio. In order to hedge the risk associated with exchange
rates, the Group has chosen to fund its investment in Irish assets through the
use of Euro denominated debt, providing a natural asset to liability hedge,
within the overall Group loan to value limits set by the Board. At 30 June
2022 the Group had €196.0 million (31 December 2021: €186.5 million) of
drawn euro denominated debt.
Euro rental receipts are used to first finance Euro interest and
administrative costs and surpluses are used to fund further portfolio
expansion.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 30 June 2022 was an asset of
£37.2 million (31 December 2021: liability £58.9 million) equivalent to 2.8
pence per share (31 December 2021: liability of 4.4 pence). The elimination of
the MtM liability and creation of an asset during the period is due primarily
to the significant increases in interest rates assumed in the forward yield
curves used to value the debt in the period. The MtM valuation is sensitive to
movements in interest rates assumed in forward yield curves.
Convertible bonds
In July 2019, the Group issued for a six-year term new unsecured convertible
bonds with a nominal value of
£150 million and a coupon of 2.875% per annum. Subject to certain conditions,
the new bonds will be convertible into fully paid Ordinary Shares of the
Company and the initial exchange price was set at 153.25 pence per Ordinary
Share. The exchange price will be subject to adjustment, in accordance with
the dividend protection provisions in the terms of issue, if dividends paid
per share exceed 2.8 pence per annum and in accordance with the dividend
protection provisions the conversion price has been adjusted to 142.29 pence
per Ordinary Share.
The conversion of the £150 million convertible bonds into new Ordinary Shares
would reduce the Group's loan to value ratio by 5.1% from 43.1% to 38.0% and
result in the issue of 105.4 million new Ordinary Shares.
Alternative Performance Measures ("APMs")
PHP uses Adjusted earnings and Adjusted net tangible assets amongst other APMs
to highlight the recurring performance of the property portfolio and business.
The APMs are in addition to the statutory measures from the condensed
financial statements. The measures are defined and reconciled to amounts
presented in the financial statements within this interim statement at note 7
on pages 32 to 36. The Company has used EPRA earnings and EPRA net tangible
assets to measure performance and will continue to do so. However, these APMs
have also been adjusted to remove the impact of the adjustments arising from
the MtM on fixed debt acquired on completion of the merger with MedicX in
2019. The reasons for the Company's use of these APMs are set out in the
Glossary and 2021 Annual Report.
Related party transactions
Related party transactions are disclosed in note 16 to the condensed financial
statements.
Responsible business - continued progress
PHP aims to operate and manage our business in a way that enables positive
social and environmental outcomes, whilst continuing to grow and deliver value
to our stakeholders.
We have continued to deliver against our ESG commitments in the first half of
2022 and evolve our strategy, processes and plans to improve our ESG
performance. As part of this, we have updated and strengthened our ESG
policies, including those focused on equality, diversity and inclusion,
business ethics, environmental and social impact and sustainable development
and refurbishment. The new policies are available on our website and reflect
our continued drive to improve what we do and how we do it.
We have continued to engage with investors and stakeholders on ESG and our
decarbonisation plans and have for the third year taken part in the GRESB and
have also responded to CDP for the first time which we see as a key benchmark
going forward. We have also joined as a member of UK Green Building Council to
support our own business and the wider built environment sector to tackle
sustainability challenges.
Environmental impact
We continue to make good progress on our net zero carbon framework commitments
and are on track to reach our first milestone of net zero operations in 2023.
We are also now on site with our first NZC development at Croft Medical
Centre, West Sussex and continue to progress a strong pipeline of further NZC
schemes.
We continue to modernise existing buildings and improve the environmental
credentials of our existing portfolio through the asset management programme
and have completed 14 projects in the period, improving EPC ratings to B from
C or D. A further eight projects are currently on site and due to complete
this year with a long pipeline of additional schemes where we continue to
evaluate options for energy efficiency, renewable energy and net zero
refurbishments.
As part of establishing the wider carbon impact of the buildings in our
portfolio, we have also engaged with tenants and increased the visibility of
their energy and carbon performance, increasing this to 70% of the portfolio.
Social Impact
As a leading provider of modern primary care premises, we aim to create a
lasting positive social impact, particularly in the health outcomes and
wellbeing for the communities into which we invest.
As part of our Community Impact Fund, we have renewed our partnership with UK
Community Foundations to target grants for social prescribing in the
communities around our buildings. In 2022, we have chosen to target the most
deprived regions across the North-West and North-East of England and are
currently working with two community foundations in these regions.
PHP has also continued to play a key role in levelling-up the UK, working with
the Purpose Coalition, on the development of a set of Levelling-up Goals
focused on good health and wellbeing. The first impact report was launched in
June 2022 and is available on our website.
People
PHP recognises the importance of the welfare of our employees who work on
behalf of the Group and are critical to its success. We have continued to
support our employees' personal and professional development, improve the
diversity and equal opportunities within the team and promote the highest
levels of ethics, conduct and inclusion.
Harry Hyman Richard Howell
Chief Executive
Officer
Chief Financial Officer
26 July 2022
Principal risks and uncertainties Risk management overview
Effective risk management is a key element of the Board's operational
processes. Risk is inherent in any business, and the Board has determined the
Group's risk appetite, which is reviewed on an annual basis. Group operations
have been structured in order to accept risks within the Group's overall risk
appetite, and to oversee the management of these risks to minimise exposure
and optimise the returns generated for the accepted risk. The Group aims to
operate in a low-risk environment, appropriate for its strategic objective of
generating progressive returns for shareholders. Key elements of maintaining
this low-risk approach are:
· investment focuses on the primary health real estate sector which is
traditionally much less cyclical than other real estate sectors;
· the majority of the Group's rental income is received directly or
indirectly from government bodies in the UK and Ireland;
· the Group benefits from long initial lease terms, largely with
upwards-only review terms, providing clear visibility of income;
· debt funding is procured from a range of providers, maintaining a
spread of maturities and a mix of terms, with interest costs either fixed or
hedged across the majority of debt drawn;
· the Board funds its operations to maintain an appropriate mix of debt
and equity; and
· the Group has a very small (£0.8m) exposure as a direct developer of
real estate, which means that the Group is not materially exposed to risks
that are inherent in property development.
The structure of the Group's operations includes rigorous, regular review of
risks and how these are mitigated and managed across all areas of the Group's
activities. The Group faces a variety of risks that have the potential to
impact on its performance, position and its longer-term viability. These
include external factors that may arise from the markets in which the Group
operates, government and fiscal policy, general economic conditions including
interest rates and inflation together with internal risks that arise from how
the Group is managed and chooses to structure its operations.
Principal risks and changes in risk factors
The Board has concluded that there should be no further principal risks to be
presented in the 2022 Interim Results Announcement, and that the principal
risks presented in the 2021 Annual report remain relevant for this period.
COVID-19
We continue to reassess the impact of the ongoing global pandemic, COVID-19,
which has had no discernible impact on the Group's performance in the current
period and prior year as we transitioned out of COVID-19 restrictions across
the UK and Ireland. As a result of the above COVID-19 was removed as principal
risk in 2021.
Increasing risks
The Board has continued to undertake a robust assessment of emerging and
increasing risks faced by the Group. In particular, the volatile and
deteriorating economic outlook because of persistent price inflation resulting
in recent and rapid interest rate increases along with the outlook for
longer-dated rates stemming from global supply issues, BREXIT, higher wage
pressures and the on-going war in the Ukraine.
Whilst the above risks are already covered in the Principal Risks reported in
the 2021 Annual Report the Board believes the risk of increasing longer-dated
interest rates may negatively impact property valuations and interest costs in
future periods.
Going concern analysis
The Group's financial review and budgetary processes are based on an
integrated model that projects performance, cash flows, position and other key
performance indicators including earnings per share, leverage rates, net asset
values per share and REIT compliance over the review period. In addition, the
forecast model looks at the funding of the Group's activities and its
compliance with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its forecasts that
reflect the Group's strategy, operating processes and the Board's expectation
of market developments in the review period. In undertaking its financial
review, these parameters have been flexed to reflect severe, but realistic,
scenarios both individually and collectively. Sensitivities applied are
derived from the principal risks faced by the Group that could affect solvency
or liquidity and are as follows:
· Declining attractiveness / possible obsolescence of the Group's
assets as a result of ESG initiatives or otherwise or deteriorating economic
circumstances impact investment values - valuation parameter stress tested to
provide for a one-off 10%/£290m fall in December 2022 valuation.
· We have applied a 15% tenant default rate. In addition, rental growth
assumptions have been amended to see nil uplifts on open market reviews.
· Variable rate interest rates rise by an immediate 2% effective from 1
July 2022, impacting the variable interest debt in the portfolio.
· Tightly controlled NHS scheme approval restricts investment
opportunity - investment quantum flexed to remove non-committed transactions.
· Impact on shareholder returns of all of the above occurrences -
projected dividend payments held at expected 2022 level, 6.5p per share.
A number of specific assumptions have been made that overlay the financial
parameters used in the Group's models. It has been assumed that the Group will
be able to refinance or replace other debt facilities that mature within the
review period in advance of their maturity and on terms similar to those at
present.
Further details on going concern are set out in note 1 to the Financial
Statements.
INDEPENDENT REVIEW REPORT TO PRIMARY HEALTH PROPERTIES PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the Condensed Group Statement of Comprehensive
Income, the Condensed Group Balance Sheet, the Condensed Group Statement of
Changes in Equity, the Condensed Group Cash Flow Statement and related notes 1
to 19.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 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 inquiries, 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
As disclosed in note 1, the annual financial statements of the group will be
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion relating to Going Concern
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for Conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with this ISRE (UK), however future events or conditions may cause the entity to cease to continue as a going concern
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for expressing to the group a conclusion on the condensed set of financial statement in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity" issued by the
Financial Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Deloitte LLP
Statutory Auditor London, United Kingdom
26 July 2022
Condensed Group Statement of Comprehensive Income For the six months ended 30 June 2022
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2022 2021 2021
£m £m £m
Notes (unaudited) (unaudited) (audited)
Rental income 2 76.8 71.7 145.6
Direct property expenses (5.7) (4.0) (8.9)
Net rental income 71.1 67.7 136.7
Administrative expenses 3 (5.5) (5.0) (10.5)
Revaluation gain on property portfolio 9 51.2 66.9 110.2
Profit on sale of land - - 0.3
Total revaluation gain 51.2 66.9 110.5
Operating profit 116.8 129.6 236.7
Finance income 4 0.5 0.4 0.8
Finance costs 5 (20.0) (20.8) (35.9)
Exceptional early loan redemption finance cost 5 - - (24.6)
Termination payment and goodwill impairment on
acquisition of Nexus - (35.3) (35.3)
Exceptional Nexus acquisition costs - (1.7) (1.7)
Fair value loss on derivative interest rate swaps and
amortisation of cash flow hedging reserve 5 (1.4) (0.7) (1.8)
Fair value gain on convertible bond 5 11.8 0.5 3.4
Profit before taxation 107.7 72.0 141.6
Taxation charge 6 (0.6) (0.6) (1.5)
Profit after taxation for the period/year(1) 107.1 71.4 140.1
Other comprehensive income:
Items that may be reclassified subsequently to profit and loss:
Fair value gain on interest rate swaps treated as cash flow hedges and
amortisation of hedging reserve
2.2 2.2 4.5
Exchange gain/(loss) on translation of foreign balances 1.4 (2.3) (3.4)
Other comprehensive income/(loss) for the period net of tax(1) 3.6 (0.1) 1.1
Total comprehensive income for the period net of tax(1) 110.7 71.3 141.2
IFRS earnings per share
Basic 7 8.0p 5.4p 10.5p
Diluted 7 6.8p 5.1p 9.8p
Adjusted earnings per share(2)
Basic 7 3.4p 3.1p 6.2p
Diluted 7 3.3p 3.0p 6.1p
(1) Wholly attributable to equity shareholders of Primary Health Properties
PLC
(2) See Glossary of Terms on pages 48 to 50.
The above relates wholly to continuing operations.
Condensed Group Balance Sheet As at 30 June 2022
30 June 30 June 31 December
2022 2021 2021
£m £m £m
Notes (unaudited) (unaudited) (audited)
Non-current assets
Investment properties 9a 2,887.2 2,655.2 2,795.9
Derivative interest rate swaps 14, 15 13.1 1.3 5.2
Fixed assets 0.5 0.1 0.3
2,900.8 2,656.6 2,801.4
Current assets
Trade and other receivables 18.3 14.9 17.6
Cash and cash equivalents 10 29.7 72.5 33.4
Assets held for sale 9b 25.0 - -
Development work in progress 0.8 - 0.7
73.8 87.4 51.7
Total assets 2,974.6 2,744.0 2,853.1
Current liabilities
Deferred rental income (29.6) (27.9) (28.3)
Trade and other payables (45.5) (31.1) (40.0)
Borrowings: term loans and overdraft 11 (2.2) (73.1) (2.2)
(77.3) (132.1) (70.5)
Non-current liabilities
Borrowings: term loans and overdraft 11 (684.1) (558.8) (700.2)
Borrowings: bonds 12 (626.7) (577.8) (572.8)
Derivative interest rate swaps 14, 15 (7.8) - (0.8)
Head lease liabilities 13 (4.5) (4.5) (4.5)
Deferred tax liability (5.3) (3.9) (4.4)
(1,328.4) (1,145.0) (1,282.7)
Total liabilities (1,405.7) (1,277.1) (1,353.2)
Net assets 1,568.9 1,466.9 1,499.9
Equity
Share capital 17 166.8 166.3 166.6
Share premium account 476.3 470.9 474.9
Merger and other reserves 18 414.8 414.6 413.5
Hedging reserve (13.3) (17.9) (15.6)
Retained earnings 524.3 433.0 460.5
Total equity(1) 1,568.9 1,466.9 1,499.9
Basic net asset value per share
IFRS net assets - basic and diluted 7 117.6 110.3 112.5p
Adjusted net tangible assets(2) - basic 7 120.8 115.4 116.7p
Adjusted net tangible assets(2) - diluted 7 122.4 117.5 118.6p
(1) Wholly attributable to equity shareholders of Primary Health Properties
PLC.
(2) See Glossary of Terms on pages 48 to 50.
Condensed Group Cash Flow Statement For the six months ended 30 June 2022
Six months ended 30 June 2022 Six months ended 30 June 2021 Year ended 31 December 2021
£m £m £m
Notes (unaudited) (unaudited) (audited)
Operating activities
Profit on ordinary activities after tax 107.1 71.4 140.1
Taxation charge 6 0.6 0.6 1.5
Finance income 4 (0.5) (0.4) (0.8)
Finance costs 5 20.0 20.8 35.9
Exceptional early loan redemption finance costs 5 - - 24.6
Termination payment and goodwill impairment on acquisition of Nexus - 35.3 35.3
Exceptional Nexus acquisition costs - 1.7 1.7
Fair value loss on derivatives 1.4 0.7 1.8
Fair value gain on convertible bond (11.8) (0.5) (3.4)
Operating profit before financing costs 116.8 129.6 236.7
Adjustments to reconcile Group operating profit to net cash flows from
operating activities:
Revaluation gain on property portfolio 9 (51.2) (66.9) (110.2)
Profit on sale of land and property - - (0.3)
Long term incentive plan (LTIP) 0.1 0.1 0.2
Fixed rent uplift (0.5) (0.6) (1.2)
Tax received/(paid) 0.1 (0.1) (0.4)
(Increase)/decrease in trade and other receivables (0.2) 2.8 (0.3)
(Decrease)/increase in trade and other payables (15.1) (0.5) 15.9
Cash generated from operations 50.0 64.4 140.4
Net cash flow from operating activities 50.0 64.4 140.4
Investing activities
Payments to acquire and improve properties and fixed assets (39.1) (23.6) (129.6)
Receipts from disposal of properties - - 0.3
Cash paid for acquisition of Nexus, including fees - (18.2) (18.2)
Cash acquired as part of merger - - 0.4
Interest received on development loans 0.4 0.3 0.7
Net cash flow used in investing activities (38.7) (41.5) (146.4)
Financing activities
Costs of share issues (0.1) (0.1) (0.1)
Term bank loan drawdowns 88.9 8.2 335.6
Term bank loan repayments (103.5) (3.6) (252.8)
Proceeds from bond issue 62.9 - -
Loan arrangement fees (2.5) (0.7) (2.7)
Exceptional early loan redemption finance cost - - (24.6)
Termination of derivative financial instruments - - (1.9)
Non-utilisation fees (1.1) (0.9) (1.8)
Interest paid (19.1) (20.0) (40.9)
Swap interest received 0.9 - -
Equity dividends paid net of scrip dividend 8 (41.6) (36.4) (74.4)
Net cash flow used in financing activities (15.2) (53.5) (63.6)
Increase in cash and cash equivalents (3.9) (30.6) (69.6)
Effect of exchange rate fluctuations on Euro denominated loans and cash
equivalents
0.2 (0.5) (0.6)
Cash and cash equivalents at start of period/year 33.4 103.6 103.6
Cash and cash equivalents at end of period/year 10 29.7 72.5 33.4
Condensed Group Statement of Changes in Equity For the six months ended 30 June 2022 (unaudited)
Six months ended 30 June 2022 (unaudited)
Merger &
Share capital Share premium other Hedging reserve Retained earnings
reserves Total
£m £m £m £m £m £m
1 January 2022 166.6 474.9 413.5 (15.6) 460.5 1,499.9
Profit for the period - - - - 107.1 107.1
Other comprehensive income
Exchange gain on translation of foreign balances - - 1.3 - - 1.3
Amortisation of hedging reserve - - - 2.3 - 2.3
Total comprehensive income - - 1.3 2.3 107.1 110.7
Share issue expenses - (0.1) - - - (0.1)
Shares based awards (LTIP) - - - - - -
Dividends paid - - - - (41.6) (41.6)
Scrip dividend in lieu of cash 0.2 1.5 - - (1.7) -
30 June 2022 166.8 476.3 414.8 (13.3) 524.3 1,568.9
Six months ended 30 June 2021 (unaudited)
Merger &
Share capital Share premium other Hedging reserve Retained earnings
reserves Total
£m £m £m £m £m £m
1 January 2021 164.4 466.7 400.8 (20.1) 402.6 1,414.4
Profit for the period - - - - 71.4 71.4
Other comprehensive income
Exchange gain on translation of foreign balances - - (2.3) - - (2.3)
Amortisation of hedging - - - 2.2 - 2.2
reserve
Total comprehensive income - - (2.3) 2.2 71.4 71.3
Shares issued on acquisition of Nexus
1.5 - 16.1 - - 17.6
Share issue expenses - (0.1) - - - (0.1)
Shares based awards (LTIP) - - - - 0.1 0.1
Dividends paid - - - - (36.4) (36.4)
Scrip dividend in lieu of cash 0.4 4.3 - - (4.7) -
30 June 2021 166.3 470.9 414.6 (17.9) 433.0 1,466.9
Condensed Group Statement of Changes in Equity (continued)
Year ended 31 December 2021 (audited)
Merger &
Share capital Share premium other Hedging reserve Retained earnings
reserves Total
£m £m £m £m £m £m
1 January 2021 164.4 466.7 400.8 (20.1) 402.6 1,414.4
Profit for the period - - - - 140.1 140.1
Other comprehensive income
Exchange gain on translation of foreign balances - - (3.4) - - (3.4)
Amortisation of hedging - - - 4.5 - 4.5
reserve
Total comprehensive income - - (3.4) 4.5 140.1 141.2
Shares issued on acquisition of Nexus
1.5 - 16.1 - - 17.6
Shares issued for other
acquisitions 0.1 0.9 - - - 1.0
Share issue expenses - (0.1) - - - (0.1)
Share-based awards ("LTIP") - - - - 0.2 0.2
Dividends paid - - - - (74.4) (74.4)
Scrip dividend in lieu of cash 0.6 7.4 - - (8.0) -
31 December 2021 166.6 474.9 413.5 (15.6) 460.5 1,499.9
Notes to the condensed financial statements
1. Accounting policies General information
The financial information set out in this report does not constitute statutory
accounts as defined in Section 434 of the Companies Act 2006. The Group's
statutory financial statements for the year ended 31 December 2021 have been
filed with the Registrar of Companies. The Auditor's Report on these condensed
consolidated interim financial statements was unqualified and did not contain
a statement under Sections 498(2) or 498(3) of the Companies Act 2006.
The condensed consolidated interim financial statements of the Group are
unaudited but have been formally reviewed by the auditor and its report to the
Company is included on pages 19 to 20. These condensed consolidated interim
financial statements of the Group for the six months ended 30 June 2022 were
approved and authorised for issue by the Board on 26 July 2022.
Basis of preparation/statement of compliance
The condensed consolidated interim financial statements for the six months
ended 30 June 2022 have been prepared in accordance with IAS 34 'Interim
Financial Reporting'. The annual financial statements of the Group will be
prepared in accordance with United Kingdom adopted international accounting
standards.
The condensed consolidated interim financial statements do not include all the
information and disclosures required in the statutory financial statements and
should be read in conjunction with the Group's financial statements as at 31
December 2021.
Convention
The condensed interim financial statements are presented in Sterling, rounded
to the nearest million.
Segmental reporting
The Directors are of the opinion that the Group currently has one operating
and reportable segment, being the acquisition and development of property in
the United Kingdom and Ireland leased principally to GPs, Government and
Healthcare organisations and other associated healthcare users.
Going concern
The directors are required to assess the Group's ability to continue as a
going concern for a period of at least the next 12 months. In assessing the
appropriateness of the going concern basis used in preparing the interim
report, the directors have performed a review of the Group's financial
performance and position, continued access to borrowing facilities and the
ability to continue to operate the Group's facilities within its financial
covenants, as well the Group's budgetary model.
Notes to the condensed financial statements (continued) Going concern (continued)
The Group's financial review and budgetary processes are based on an
integrated model that projects performance, cash flows, position and other key
performance indicators including earnings per share, leverage rates, net asset
values per share and REIT compliance over the review period. In addition, the
forecast model looks at the funding of the Group's activities and its
compliance with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its forecasts that
reflect the Group's strategy, operating processes and the Board's expectation
of market developments in the review period. In undertaking its financial
review, these parameters have been flexed to reflect severe, but realistic,
scenarios both individually and collectively. Sensitivities applied are
derived from the principal risks faced by the Group that could affect solvency
or liquidity and are as follows:
· Declining attractiveness / possible obsolescence of the Group's
assets as a result of ESG initiatives or otherwise, or deteriorating economic
circumstances impacts investment values - valuation parameter stress tested to
provide for a one-off 10%/£290m fall in December 2022 valuations.
· We have applied a 15% tenant default rate. In addition, rental growth
assumptions have been amended to see nil uplifts on open market reviews.
· Variable rate interest rates rise by an immediate 2% effective from 1
July 2022, impacting the variable interest debt in the portfolio
· Tightly controlled NHS scheme approval restricts investment
opportunity - investment quantum flexed to remove non-committed transactions.
· Impact on shareholder returns of all of the above occurrences -
projected dividend payments held at expected 2022 level, 6.5p per share.
The Group's property portfolio is let on long leases to tenants with strong
covenants and the business is substantially cash generative. The Group's loan
to-value ratio at 30 June 2022 was 43.1% (30 June 2021: 40.9%) and the Group's
interest cover for the period under review was 3.4 times (30 June 2021: 3.2),
well above the minimum Group banking covenant of 1.3 times (30 June 2021:
1.3).
The COVID-19 pandemic has had no discernible impact on the Group's performance
in the current period and prior year, with minimal direct impact on the
primary health centres we invest in due to the fact that the business is
affected more by demographics than economics. The Board has continued to
undertake a robust assessment of emerging and increasing risks faced by the
Group. In particular, the volatile and deteriorating economic outlook because
of persistent price inflation resulting in recent and rapid interest rate
increases along with the outlook for longer-dated rates stemming from global
supply issues, BREXIT, higher wage pressures and the on-going war in the
Ukraine.
Taking these and others factors into account, the Directors are satisfied that
the Group has sufficient resources to continue in operation for a period of
not less than twelve months from the date of this report. Accordingly, they
continue to adopt the going concern basis in preparing the condensed
consolidated interim financial statements.
Notes to the condensed financial statements (continued) Accounting policies
The accounting policies adopted are consistent with those of the previous
financial year as set out in the Annual Report. There has been a new
accounting policy adopted during the period:
Properties held for sale
Investment property (and disposal groups) classified as held for sale are
measured at fair value consistent with other investment properties.
Investment property and disposal groups are classified as held for sale if
their carrying amount will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as met only when the sale
is highly probable and the asset (or disposal group) is available for
immediate sale in its present condition. Management must be committed to the
sale which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
2. Rental and related income
Revenue comprises rental income receivable on property investments in the UK
and Ireland, which is exclusive of VAT. Revenue is derived from one reportable
operating segment.
3. Administrative expenses
Administrative expenses as a proportion of rental income were 7.2% (30 June
2021: 7.0% excluding exceptional contract termination payment). The Group's
EPRA cost ratio has increased to 10.5%, compared to 9.0% for the same period
in 2021.
Administrative expenses include staff costs of £3.0m (30 June 2021: £2.5m).
4. Finance income
Six months Six months Year ended 31 December
ended 30 June 2022 ended 30 June 2021 2021
£m £m £m
(unaudited) (unaudited) (audited)
Interest income on financial assets
Bank interest - - -
Development loan interest 0.5 0.4 0.8
0.5 0.4 0.8
Notes to the condensed financial statements (continued)
5. Finance costs
Six months Six months Year ended 31 December
ended ended 2021
30 June 2022 30 June 2021
£m £m £m
(unaudited) (unaudited) (audited)
Interest expense and similar charges on financial liabilities
(i) Interest
Bank loan interest 11.2 12.3 24.0
Swap interest (0.7) - (0.3)
Bond interest 8.4 7.6 15.5
Bank facility non utilisation fees 1.0 1.1 1.9
Exceptional early loan redemption finance cost - - 24.6
Bank charges and loan arrangement fees 1.5 1.4 2.7
21.4 22.4 68.4
Amortisation of MedicX debt MtM at acquisition (1.4) (1.6) (7.9)
20.0 20.8 60.5
Six months Six months Year ended 31 December
ended 30 June 2022 ended 30 June 2021 2021
£m £m £m
(unaudited) (unaudited) (audited)
(ii) Derivatives
Net fair value gain on interest rate swaps 0.9 1.5 2.7
Amortisation of cash flow hedging reserve (2.3) (2.2) (4.5)
(1.4) (0.7) (1.8)
The fair value loss on derivatives recognised in the Condensed Group Statement
of Comprehensive Income has arisen from the interest rate swaps for which
hedge accounting does not apply. A fair value loss on derivatives which meet
the hedge effectiveness criteria under IFRS 9 of £nil (30 June 2021: £nil),
(31 December 2021: £nil) is accounted for directly in equity.
An amount of £2.3m (30 June 2021: £2.2m), (31 December 2021: £4.5m) has
been amortised from the cash flow hedging reserve in the period.
Notes to the condensed financial statements (continued)
5. Finance costs (continued)
Six months Six months Year ended 31 December
ended ended 2021
30 June 2022 30 June 2021
£m £m £m
(unaudited) (unaudited) (audited)
(iii) Convertible Bond
Fair value gain on Convertible Bond 11.8 0.5 3.4
11.8 0.5 3.4
The fair value movement in the convertible bonds is recognised in the Group
Statement of Comprehensive Income within profit before taxation and is
excluded from the calculation of EPRA earnings and EPRA NTA (replacing EPRA
NAV). Refer to note 12 for further details about the Convertible Bond.
Six months Six months Year ended 31 December
ended ended 2021
30 June 2022 30 June 2021
£m £m £m
(unaudited) (unaudited) (audited)
Finance income (Note 4) 0.5 0.4 0.8
Finance costs (Note 5 (i)) (21.4) (22.4) (68.4)
(20.9) (22.0) (67.6)
Amortisation of MedicX debt MtM on acquisition 1.4 1.6 7.9
Net finance costs (19.5) (20.4) (59.7)
Notes to the condensed financial statements (continued)
6. Taxation
The Group elected to be treated as a UK-REIT with effect from 1 January 2007.
The UK-REIT rules exempt the profits of the Group's property rental business
from corporation tax. Gains on properties are also exempt from tax, provided
they are not held for trading or sold in the three years post completion of
development. The Group will otherwise be subject to corporation tax at 19%
(2021: 19%).
Acquired companies are effectively converted to UK-REIT status from the date
on which they become a member of the Group.
As a UK-REIT, the Company is required to pay Property Income Distributions
("PIDs") equal to at least 90% of the Group's rental profit calculated by
reference to tax rules rather than accounting standards.
To remain as a UK-REIT there are a number of conditions to be met in respect
of the principal company of the Group, the Group's qualifying activities and
the balance of its business. The Group remains compliant as at 30 June 2022.
The Group's activities in Ireland are conducted via Irish companies or an
Irish Collective Asset Vehicle ("ICAV"). The Irish companies pay Irish
Corporation Tax on trading activities and deferred tax is calculated on the
increase in capital values. The ICAV does not pay any Irish Corporation Tax on
its trading or capital profits but a 20% withholding tax is paid on
distributions to owners.
Six months Six months Year ended 31 December
ended 30 June 2022 ended 30 June 2021 2021
£m £m £m
(unaudited) (unaudited) (audited)
Taxation in the Condensed Group Statement of Comprehensive Income:
Current tax
UK corporation tax charge on non-property income - - -
Irish corporation tax credit/(charge) 0.1 - (0.1)
Deferred tax on Irish activities (0.7) (0.6) (1.4)
Taxation charge in the Condensed Group Statement of
Comprehensive Income (0.6) (0.6) (1.5)
Notes to the condensed financial statements (continued)
7. Earnings per share Performance measures
In the tables below, we present earnings per share and net assets per share
calculated in accordance with IFRS, together with our own adjusted measure and
certain measures defined by the European Public Real Estate Association
("EPRA"), which have been included to assist comparison between European
property companies. Two of the Group's key financial performance measures are
adjusted earnings per share and adjusted net tangible assets per share.
Adjusted earnings, which is a tax adjusted measure of revenue profit, is the
basis for the calculation of adjusted earnings per share. We believe adjusted
earnings and adjusted earnings per share provide further insight into the
results of the Group's operational performance to stakeholders as they focus
on the net rental income performance of the business and exclude capital and
other items which can vary significantly from year to year.
Earnings per share
30 June 2022 30 June 2021
(unaudited)
(unaudited)
IFRS Adjusted earnings EPRA IFRS Adjusted earnings EPRA
earnings £m earnings earnings £m earnings
£m £m £m £m
Profit after taxation 107.1 107.1 107.1 71.4 71.4 71.4
Adjustments to remove:
Revaluation gain on property portfolio - (51.2) (51.2) - (66.9) (66.9)
Profit on sale of land and property - - - - - -
Fair value movement on derivatives - 1.4 1.4 - 0.7 0.7
Fair value movement and issue costs on
convertible bond - (11.8) (11.8) - (0.5) (0.5)
Taxation charge - 0.6 0.6 - 0.6 0.6
Termination payment and goodwill
impairment on acquisition of Nexus - - - - 35.3 6.3
Exceptional Nexus acquisition costs - - - - 1.7 1.7
Amortisation of MtM loss on debt acquired - (1.4) - - (1.6) -
Basic earnings 107.1 44.7 46.1 71.4 40.7 13.3
Dilutive effect of convertible bond (9.6) 2.1 2.1 1.6 2.1 2.1
Diluted earnings 97.5 46.8 48.2 73.0 42.8 15.4
Number of
shares
million million million million million million
Ordinary Shares 1,333.5 1,333.5 1,333.5 1,328.7 1,328.7 1,328.7
Dilutive effect of convertible bond 105.4 105.4 105.4 103.3 103.3 103.3
Diluted Ordinary Shares 1,438.9 1,438.9 1,438.9 1,432.0 1,432.0 1,432.0
Profit per share attributable to
shareholders:
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Basic 8.0 3.4 3.5 5.4 3.1 1.0
Diluted 6.8 3.3 3.4 5.1 3.0 1.1
Notes to the condensed financial statements (continued)
7. Earnings per share (continued) Earnings per share
31 December 2021
(audited)
IFRS Adjusted earnings EPRA
earnings £m earnings
£m £m
Profit after taxation 140.1 140.1 140.1
Adjustments to remove:
Revaluation gain on property portfolio - (110.2) (110.2)
Profit on the sale of land - (0.3) (0.3)
Fair value movement on derivatives - 1.8 1.8
Fair value movement and issue costs on
convertible bond - (3.4) (3.4)
Taxation charge - 1.5 1.5
Termination payment and goodwill impairment on acquisition of Nexus - 35.3 6.3
Exceptional Nexus acquisition costs - 1.7 1.7
Early termination fees on bank debt - 24.6 24.6
MtM write off on early termination of
bank debt - (4.7) -
Amortisation of MtM loss on debt
acquired - (3.2) -
Basic earnings 140.1 83.2 62.1
Dilutive effect of convertible bond 0.9 4.3 4.3
Diluted earnings 141.0 87.5 66.4
Number of shares
million million million
Ordinary Shares 1,330.4 1,330.4 1,330.4
Dilutive effect of convertible bond 105.4 105.4 105.4
Diluted Ordinary Shares 1,435.8 1,435.8 1,435.8
Profit per share attributable to
shareholders:
IFRS Adjusted EPRA
pence pence pence
Basic 10.5 6.2 4.7
Diluted 9.8 6.1 4.6
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net assets per share
30 June 2022 30 June 2021
(unaudited) (unaudited)
IFRS Adjusted EPRA IFRS Adjusted EPRA
£m £m £m £m £m £m
Net assets attributable to shareholders 1,568.9 1,568.9 1,568.9 1,466.9 1,466.9 1,466.9
Derivative interest rate swaps liability - (5.3) (5.3) - (1.3) (1.3)
Deferred tax - 5.3 5.3 - 3.9 3.9
Cumulative convertible bond fair value - -
movement 9.8 9.8 24.5 24.5
MtM on MedicX loans net of - -
amortisation 33.0 - 40.7 -
Net tangible assets ("NTA") 1,568.9 1,611.7 1,578.7 1,466.9 1,534.7 1,494.0
Real estate transfer taxes 200.6 182.9
Net reinstatement value ("NRV") 1,779.3 1,676.9
Fixed rate debt and swap mark-to-
market value 75.5 (49.6)
Deferred tax (5.3) (3.9)
Cumulative convertible bond fair value
movement (9.8) (24.5)
Real estate transfer taxes (200.6) (182.9)
Net disposal value ("NDV") 1,639.1 1,416.0
Ordinary shares
million million million million million million
Diluted Ordinary Shares 1,334.1 1,334.1 1,334.1 1,330.2 1,330.2 1,330.2
Basic net asset value per share(1)
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 117.6 120.8 118.3 110.3 115.4 112.3
Net reinstatement value ("NRV") 133.4 126.1
Net disposal value ("NDV") 122.9 106.4
1 The above are calculated on a "basic" basis without the adjustment for
the impact of the convertible bond which is shown in the diluted basis table
below.
Diluted net asset value per share(2)
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 117.6 122.4 120.1 110.3 117.5 114.7
Net reinstatement value ("NRV") 134.0 127.4
Net disposal value ("NDV") 124.3 109.2
2 The Company assesses the dilutive impact of the unsecured convertible
bond, issued by the Group on 15 July 2019, on its net asset value per share
with a current exchange price of 142.29 pence (30 June 2021: 145.21 pence) (31
December 2021: 142.29 pence).
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net assets per share
31 December 2021
(audited)
IFRS Adjusted EPRA
£m £m £m
Net assets attributable to shareholders 1,499.9 1,499.9 1,499.9
Derivative interest rate swaps liability - (4.4) (4.4)
Deferred tax - 4.4 4.4
Cumulative convertible bond fair value -
movement 21.6 21.6
MtM on MedicX loans net of -
amortisation 34.4 -
Net tangible assets ("NTA") 1,499.9 1,555.9 1521.5
Real estate transfer taxes 189.0
Net reinstatement value ("NRV") 1,710.5
Fixed rate debt and swap mark-to-
market value (20.1)
Deferred tax (4.4)
Cumulative convertible bond fair value
movement (21.6)
Real estate transfer taxes (189.0)
Net disposal value ("NDV") 1,475.4
Ordinary shares
million million million
Diluted Ordinary Shares 1,332.9 1,332.9 1,332.9
Basic net asset value per share(1)
IFRS Adjusted EPRA
pence pence pence
Net tangible assets ("NTA") 112.5 116.7 114.1
Net reinstatement value ("NRV") 128.3
Net disposal value ("NDV") 110.7
1 The above are calculated on a "basic" basis without the adjustment for
the impact of the convertible bond which is shown in the diluted basis table
below.
Diluted net asset value per share(2)
IFRS Adjusted EPRA
pence pence pence
Net tangible assets ("NTA") 112.5 118.6 116.2
Net reinstatement value ("NRV") 129.4
Net disposal value ("NDV") 113.0
2 The Company assesses the dilutive impact of the unsecured convertible
bond, issued by the Group on 15 July 2019, on its net asset value per share
with a current exchange price of 142.29 pence (30 June 2021: 145.21 pence) (31
December 2021: 142.29 pence).
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Conversion of the convertible bond would result in the issue of 105.4 million
(31 December 2021: 105.4 million) new Ordinary Shares. The IFRS net asset
value and EPRA NDV would increase by £159.8 million (31 December 2021:
£171.6 million) and the EPRA NTA, Adjusted NTA and EPRA NRV would increase by
£150.0 million (31 December 2021: £150.0 million). The resulting diluted net
asset values per share are anti-dilutive to all measures and therefore basic
IFRS net assets value per share are presented above.
8. Dividends
Six months Six months Year ended 31 December
ended 30 June 2022 ended 30 June 2021 2021
£m £m £m
(unaudited) (unaudited) (audited)
Quarterly interim dividend paid 25 February 2022 21.0 - -
Scrip dividend in lieu of quarterly cash dividend 0.6 - -
25 February 2022
Quarterly interim dividend paid 20 May 2022 20.6 - -
Scrip dividend in lieu of quarterly cash dividend 1.1 - -
20 May 2022
Quarterly interim dividend paid 26 February 2021 - 18.7 -
Scrip dividend in lieu of quarterly cash dividend 26 - 1.8 -
February 2021
Quarterly interim dividend paid 21 May 2021 - 17.7 -
Scrip dividend in lieu of quarterly cash dividend 21 May - 2.9 -
2021
Quarterly interim dividend paid 26 February 2021 - - 18.7
Scrip dividend in lieu of quarterly cash dividend 26 - - 1.8
February 2021
Quarterly interim dividend paid 21 May 2021 - - 17.7
Scrip dividend in lieu of quarterly cash dividend 21 May - - 2.9
2021
Quarterly interim dividend paid 20 August 2021 - - 18.3
Scrip dividend in lieu of quarterly cash dividend 20 - - 2.4
August 2021
Quarterly interim dividend paid 26 November 2021 - - 19.7
Scrip dividend in lieu of quarterly cash dividend 26 - - 0.9
November 2021
Total dividends distributed 43.3 41.1 82.4
Per share 3.2p 3.1p 6.2p
The Company will pay a third interim dividend of 1.625 pence per Ordinary
Share for the year ending 31 December 2022, payable on 19 August 2022. The
dividend will comprise a Property Income Distribution ("PID") of 0.8 pence per
share and an ordinary dividend of 0.825 pence per share. The Company will be
offering a scrip alternative with this dividend.
Notes to the condensed financial statements (continued)
9. Investment properties, investment properties under
construction and assets held for sale
a) Investment properties and investment properties under construction
Investment properties
Investment properties freehold(1) Investment under construction
long leasehold
Total
£m £m £m £m
As at 1 January 2022 (audited) 2,208.4 568.3 19.2 2,795.9
Reclassification of freehold & leasehold (27.5) 27.5 - -
Property additions 48.6 0.6 10.1 59.3
Assets held for sale (9b) (23.8) (1.2) - (25.0)
Impact of lease incentive adjustment 0.3 0.2 - 0.5
Foreign exchange movements 3.9 0.7 0.7 5.3
Revaluations for the period 37.6 13.2 0.4 51.2
As at 30 June 2022 (unaudited) 2,247.5 609.3 30.4 2,887.2
(1) Includes development land held at £0.9m (31 December 2021: £0.9m)
Total
£m
Fair value per LSH UK valuation 1,259.8
Fair value of JLL UK valuation 1,419.6
Fair value of CBRE Ireland valuation 228.3
2,907.7
Assets held for sale (25.0)
Ground rents recognized as finance leases 4.5
Fair value 30 June 2022 (unaudited) 2,887.2
The investment properties have been independently valued at fair value by
Lambert Smith Hampton ("LSH"), Jones Lang LaSalle ("JLL") and CBRE Chartered
Surveyors and Valuers ("CBRE"), as at the balance sheet date in accordance
with accounting standards. The valuers have confirmed that they have valued
the properties in accordance with the Practice Statements in the RICS
Valuation Global Standards 2017 ("Red Book"). There were no changes to the
valuation techniques during the period. The valuers are appropriately
qualified and have sufficient market knowledge and relevant experience of the
location and category of investment property and have had full regard to
market evidence when determining the values.
The properties are 99.7% let (31 December 2021: 99.7%). The valuations
reflected a 4.57% net initial yield (31 December 2021: 4.64%). Where
properties have outstanding rent reviews, an estimate is made of the likely
rent on review in line with market expectations and the knowledge of the
valuer.
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under construction
(continued)
In accordance with IAS 40, investment properties under construction have also
been valued at fair value by the independent valuers. In determining the fair
value, the valuer is required to value development property as if complete,
deduct the costs remaining to be paid to complete the development and consider
the significant risks which are relevant to the development process including,
but not limited to, construction and letting risks and the impact they may
have on fair value. In the case of the Group's portfolio under construction,
where the sites are pre-let and construction risk remains with the
builder/developer, the valuer has deemed that the residual risk to the Group
is minimal. As required by the Red Book, the valuers have deducted the
outstanding cost to the Group through to the completion of construction of
£5.3m (31 December 2021: £9.0m) in arriving at the fair value to be included
in the financial statements.
In addition to the above, capital commitments have been entered into amounting
to £11.8m (30 June 2021:
£10.7m; 31 December 2021: £10.0m) which have not been provided for in the
financial statements.
Right-of-use-assets
In accordance with IFRS 16 Leases, the Group has recognised a £4.5m head
lease liability and an equal and opposite ground rents recognised as finance
leases asset which is included in non-current assets.
Fair value hierarchy
All of the Group's properties are level 3, as defined by IFRS 13, in the fair
value hierarchy as at 30 June 2022 and 31 December 2021. There were no
transfers between levels during the period or during 2021. Level 3 inputs used
in valuing the properties are those which are unobservable, as opposed to
level 1 (inputs from quoted prices) and level 2 (observable inputs either
directly, i.e. as prices, or indirectly, i.e. derived from prices).
b) Assets held for sale
30 June 2022 31 December 2021
£m £m
(unaudited) (audited)
Assets held for sale 25.0 -
Post period end the Group exchanged contracts to sell a portfolio of 13
smaller medical centres, located across England and Wales, for a price of
£27.7 million. The completion of the sale is anticipated to take place on 28
July 2022. As at 30 June 2022, these 13 assets are being held for sale.
10. Cash and cash equivalents
30 June 2022 31 December 2021
£m £m
(unaudited) (audited)
Cash held at bank 29.7 33.4
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts
The table indicates amounts drawn and undrawn from each individual facility:
Expiry date Facility Amounts drawn Undrawn
30 June 31 December 30 June 31 December 30 June 31 December
2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m
Current
RBS Overdraft Jun 2023 5.0 5.0 - - 5.0 5.0
Aviva loan1 Sep 2033 2.2 2.2 2.2 2.2 - -
7.2 7.2 2.2 2.2 5.0 5.0
Non-current
Aviva AV Lending Oct 2036 200.0 200.0 200.0 200.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Barclays loan Dec 2023 100.0 100.0 - - 100.0 100.0
HSBC loan Nov 2024 100.0 100.0 25.5 25.5 74.5 74.5
Lloyds loan Dec 2024 50.0 50.0 32.5 38.7 17.5 11.3
NatWest loan Oct 2024 100.0 100.0 39.0 86.3 61.0 13.7
Santander loan Jan 2025 50.0 - 39.7 - 10.3 -
Aviva loan1 Sep 2033 224.1 225.2 224.1 225.2 - -
Aviva loan1 Sep 2028 30.8 30.8 30.8 30.8 - -
929.9 881.0 666.6 681.5 263.3 199.5
Total 937.1 888.2 668.8 683.7 268.3 204.5
1 Acquired as part of the merger with MedicX.
At 30 June 2022, total facilities of £1,553.3m (31 December 2021: £1,437.4m)
were available to the Group. This included term loan facilities and the bonds
in note 12. Of these facilities, as at 30 June 2022, £1,285.0m was drawn (31
December 2021: £1,232.9m).
Costs associated with the arrangement of the facilities, including legal
advice and loan arrangement fees, are amortised over the life of the related
facility.
On 6 January 2022, the Group refinanced a £50.0 million revolving credit
facility with Santander. The facility can be drawn in Sterling and Euros and
has an interest rate of 1.65% plus SONIA or EURIBOR.
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts (continued)
Any amounts unamortised as at the period end are offset against amounts drawn
on the facilities as shown in the table below:
30 June 31 December
2022 2021
£m £m
(unaudited) (audited)
Term loans drawn: due within one year 2.2 2.2
Term loans drawn: due in greater than one year 666.6 681.5
Total term loans drawn 668.8 683.7
Plus: MtM on loans net of amortisation 28.2 29.3
Less: unamortised borrowing costs (10.7) (10.6)
Total term loans per the Condensed Group Balance Sheet 686.3 702.4
The Group has been in compliance with all the applicable financial covenants
of the above facilities through the period.
12. Borrowings: Bonds
30 June 31 December
2022 2021
£m £m
(unaudited) (audited)
Unsecured
Convertible bond July 2025 at fair value 159.8 171.6
Total unsecured bonds 159.8 171.6
Secured
Secured Bond December 2025 70.0 70.0
Secured Bond March 2027 100.0 100.0
€51m Secured Bond (Euro private placement) December 2028/30 43.9 42.9
€70 million secured bond (Euro private placement) September 2031 60.2 58.8
€75 million secured bond (Euro private placement) February 2034 64.6 -
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised issue costs (4.0) (3.1)
Plus: MtM on loans net of amortization 4.7 5.1
Total secured bonds 466.9 401.2
Total bonds 626.7 572.8
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Secured Bonds
On 18 December 2013, PHP successfully listed the floating rate guaranteed
secured bonds issued on 4 November 2013 (the "Secured Bonds") on the London
Stock Exchange. The Secured Bonds have a nominal value of £70m and mature on
or about 30 December 2025. The Secured Bonds incur interest on the paid-up
amount at an annualised rate of 220 basis points above six-month LIBOR,
payable semi-annually in arrears.
On 21 March 2017, a £100m Secured Bond was issued for a 10-year term at a
fixed coupon of 2.83% that matures on 21 March 2027. Interest is paid
semi-annually in arrears.
On 20 December 2018, senior secured notes for a total of €51 million (£43.9
million) were issued at a blended fixed rate of 2.4793% and a weighted average
maturity of 10.4 years. Interest is paid semi-annually in arrears. The notes
represent PHP's first Euro-denominated transaction in the private placement
market. The secured notes were placed with UK and Irish institutional
investors in two tranches:
· €40 million 2.46% senior notes due December 2028.
· €11 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior secured notes for a total of €70 million
(£60.3 million) were issued at a fixed rate of 1.509% and a maturity of
twelve years. Interest is paid semi-annually in arrears. The secured notes are
guaranteed by the Company and were placed with UK and Irish institutional
investors.
On 11 February 2022, the Group issued a new €75.0 million (£64.6 million)
secured private placement loan note to MetLife for a 12-year term at a fixed
rate of 1.64%. The loan notes have the option to be increased by a further
€75 million to €150 million over the next three years at the Metlife's
discretion.
Ignis and Standard Life loan notes
On 14 March 2019, the loan notes were added to the portfolio as a part of the
MedicX acquisition. The Ignis loan note incurs a fixed coupon of 3.99% payable
semi-annually in arrears and matures on 1 December 2028.
The Standard Life loan note matures on 30 September 2028 and is split into two
tranches, £50m and £27.5m at fixed coupon rates of 3.84% and 3.00%
respectively. Interest is payable semi-annually in arrears.
Convertible Bond
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the "Issuer"), a wholly
owned subsidiary of the Group, issued £150 million of 2.875% convertible
bonds (the "Bonds") for a six-year term and if not previously converted,
redeemed or purchased and cancelled, the Bonds will be redeemed at par on
maturity in July 2025. The net proceeds were partially used to repay the
Company's £75 million, 5.375% senior unsecured retail bonds at maturity and
otherwise for general corporate purposes.
Subject to certain conditions, the bonds will be convertible into fully paid
Ordinary Shares of the Company and the initial exchange price was set at
153.25 pence, a premium of 15% above the volume weighted average price of the
Company's shares on 18 June 2019, being 133.26 pence. Under the terms of the
Bonds, the Company will have the right to elect to settle exercise of any
conversion rights entirely in shares or cash, or with a combination of shares
and cash. The exchange price is subject to adjustment if dividends paid per
share exceed 2.8 pence per annum and other certain circumstances and
consequently the exchange price was adjusted to 142.29 pence as at 30 June
2022.
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued) Convertible Bond
30 June 31 December
2022 2021
(unaudited) (audited)
£m £m
Opening balance - fair value 171.6 175.0
Cumulative fair value movement in Convertible Bond (11.8) (3.4)
Closing balance - fair value 159.8 171.6
The fair value of the Convertible Bond at 30 June 2022 was established by
obtaining quoted market prices. The fair value movement is recognised in the
Group Statement of Comprehensive Income within profit before taxation and is
excluded from the calculation of EPRA earnings and EPRA NTA (replacing EPRA
NAV).
13. Head lease liabilities
The Group holds certain long leasehold properties which are classified as
investment properties. The head leases are accounted for as finance leases.
These leases typically have lease terms between 25 years and perpetuity and
fixed rentals.
30 June 31 December
2022 2021
(unaudited) (audited)
£m £m
Due within one year 0.1 0.1
Due after one year 4.4 4.4
Closing balance - fair value 4.5 4.5
Notes to the condensed financial statements (continued)
14. Derivatives and other financial instruments
It is Group policy to maintain the proportion of floating rate interest
exposure at between 20% and 40% of total debt. The Group uses interest rate
swaps to mitigate its remaining exposure to interest-rate risk in line with
this policy. The fair value of these contracts is recorded in the balance
sheet and is determined by discounting future cash flows at the prevailing
market rates at the balance sheet date.
The table below sets out the movements in the value of the Group's interest
rate swaps during the period:
Interest rate swaps not hedge accounted for
£m
Assets
As at 1 January 2022 (audited) 5.2
Fair value movement in the period 7.9
As at 30 June 2022 (unaudited) 13.1
Liabilities
As at 1 January 2022 (audited) (0.8)
Fair value movement in the period (7.0)
As at 30 June 2022 (unaudited) (7.8)
Total - derivative financial instruments
As at 1 January 2022 (audited) 4.4
Fair value movement in the period 0.9
As at 30 June 2022 (unaudited) 5.3
Notes to the condensed financial statements (continued)
15. Financial risk management
Set out below is a comparison by class of the carrying amount and fair values
of the Group's financial instruments that are carried in the financial
statements.
Book value Fair value Book value Fair value
30 June 2022 30 June 2022 31 December 2021 31 December 2021
(unaudited) (unaudited) (audited) (audited)
£m £m £m £m
Financial assets
Trade and other receivables 18.3 18.3 17.6 17.6
Effective interest rate swaps - - - -
Ineffective interest rate swaps 13.1 13.1 5.2 5.2
Cash and short-term deposits 29.7 29.7 33.4 33.4
Financial liabilities
Interest-bearing loans and
borrowings (1,285.0) (1,257.6) (1,232.9) (1,275.1)
Effective interest rate swaps - - - -
Ineffective interest rate swaps (net) (7.8) (7.8) (0.8) (0.8)
Trade and other payables (45.5) (45.5) (40.0) (40.0)
The fair value of the financial assets and liabilities is included as an
estimate of the amount at which the instruments could be transferred in a
current transaction between willing parties, other than a forced sale. The
following methods and assumptions were used to estimate fair values:
• The fair values of the Group's cash and cash equivalents and trade
payables and receivables are not materially different from those at which they
are carried in the financial statements due to the short- term nature of these
instruments.
• The fair value of floating rate borrowings is estimated by discounting
future cash flows using rates currently available for instruments with similar
terms and remaining maturities. The fair value approximates their carrying
values, gross of unamortised transaction costs.
• The fair values of the derivative interest rate swap contracts are
estimated by discounting expected future cash flows using market interest
rates and yield curves over the remaining term of the instrument.
The Group held the following financial instruments at fair value at 30 June
2022. The Group has no financial instruments with fair values that are
determined by reference to significant unobservable inputs, i.e. those that
would be classified as level 3 in the fair value hierarchy, nor have there
been any transfers of assets or liabilities between levels of the fair value
hierarchy. There are no non-recurring fair value measurements.
Notes to the condensed financial statements (continued)
15. Financial risk management (continued)
Fair value measurements at 30 June 2022 are as follows:
Level 1(1) Level 2(2) Level 3(3) Total
Recurring fair value measurements £m £m £m £m
Financial assets
Derivative interest rate swaps - 13.1 - 13.1
Financial liabilities
Derivative interest rate swaps - (7.8) - (7.8)
Convertible Bond (159.8) - - (159.8)
Fixed rate debt - (1,078.3) - (1,078.3)
Fair value measurements at 31 December 2021 were as follows:
Recurring fair value measurements Level 1(1) Level 2(2) Level 3(3) Total
£m £m £m £m
Financial assets
Derivative interest rate swaps - 5.2 - 5.2
Financial liabilities
Derivative interest rate swaps - (0.8) - (0.8)
Convertible Bond (171.6) - - (171.6)
Fixed rate debt - (921.3) - (921.3)
(1) Valuation is based on unadjusted quoted prices in active markets for
identical financial assets and liabilities
(2) Valuation is based on inputs (other than quoted prices included in Level
1) that are observable for the financial asset or liability, either directly
(i.e. as unquoted prices) or indirectly (i.e. derived from prices)
(3) Valuation is based on inputs that are not based on observable market data
The interest rate swaps whose fair values include the use of level 2 inputs
are valued by discounting expected future cash flows using market interest
rates and yield curves over the remaining term of the instrument. The
following inputs are used in arriving at the valuation:
• Interest rates;
• Yield curves;
• Swaption volatility;
• Observable credit spreads;
• Credit default swap curve; and
• Observable market data.
Notes to the condensed financial statements (continued)
16. Related party transactions
Harry Hyman, Chief Executive Officer, is a Director and the ultimate
beneficial owner of a number of Nexus entities and is considered to be a
related party. Following the acquisition of certain Nexus entities on the
internalisation of management structure on 5 January 2021, the Group has
continued to share certain operational services with Nexus.
Amounts paid during the period in relation to shared services totalled
£35,100 (30 June 2021: net payment £19,263; 31 December 2021: net receipt
£35,637). Amounts paid in relation to prior periods include an element of
advisory fees up to the date of internalisation.
As at 30 June 2022, outstanding fees payable to Nexus totalled £nil (31
December 2021: £nil; 30 June 2021: £nil).
17. Share capital
30 June 30 June 31 December
2022 2021 2021
£m £m £m
(unaudited) (unaudited) (audited)
Issued and fully paid Ordinary Shares at 12.5p each 166.8 166.3 166.6
At beginning of year 166.6 164.4 164.4
Scrip issues in lieu of cash dividends 0.2 0.4 0.7
Shares issued 5 January 2021 and on other acquisitions - 1.5 1.5
166.8 166.3 166.6
18. Merger and other reserves
30 June 30 June 31 December
2022 2021 2021
£m £m £m
(unaudited) (unaudited) (audited)
At beginning of year 413.5 400.8 400.8
Premium on shares issued for Nexus acquisition - 16.1 16.1
Exchange gain on translation of foreign balances 1.3 (2.3) (3.4)
414.8 414.6 413.5
19. Subsequent events
On 6 July 2022, the Group exchanged contracts to sell a portfolio of 13 assets
for £27.7 million which is expected to complete at the end of July 2022.
On 22 July 2022, the Group acquired the Strawberry Hill Medical Centre,
Newbury for £7.25 million.
Notes to the condensed financial statements (continued) DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this condensed
consolidated set of interim financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the United
Kingdom and that the operating and financial review herein includes a fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R of the
Disclosure and Transparency rules of the United Kingdom's Financial Services
Authority namely:
• an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
consolidated interim financial statements and a description of the principal
risks and uncertainties for the remaining six months of the financial year;
and
• material related party transactions in the first six months and any
material changes in the related party transactions described in the last
Annual Report.
Shareholder information is as disclosed in the Annual Report and is also
available on the PHP website, www.phpgroup.co.uk (http://www.phpgroup.co.uk/)
.
By order of the Board
Steven Owen Chairman
26 July 2022
Glossary of terms
Adjusted earnings is EPRA earnings excluding the exceptional contract
termination payment and amortisation of MtM adjustments for fixed rate debt
acquired on the merger with MedicX.
Adjusted earnings per share is adjusted earnings divided by the weighted
average number of shares in issue during the year.
Adjusted net tangible assets ("adjusted NTA") (which has replaced the former
adjusted EPRA net asset value alternative performance measure) is EPRA net
tangible asset value excluding the MtM adjustment of the fixed rate debt, net
of amortisation, acquired on the merger with MedicX. The objective of the
adjusted NTA measure is to highlight the value of net assets on a long-term
basis and excludes assets and liabilities that are not expected to crystallise
in normal circumstances and continues to be used as a measure to determine the
PIF payment.
Annualised rental income on a like-for-like basis is the contracted rent on a
per annum basis assuming a consistent number of properties between each year.
Building Research Establishment Environmental Assessment Method ("BREEAM")
assesses the sustainability of buildings against a range of criteria.
Clinical Commissioning Groups ("CCGs") are the groups of GPs and other
healthcare professionals that are responsible for designing local health
services in England with effect from 1 April 2013.
Company and/or Parent is Primary Health Properties PLC ("PHP").
Direct property costs comprise ground rents payable under head leases, void
costs, other direct irrecoverable property expenses, rent review fees and
valuation fees.
District Valuer ("DV") is the District Valuer Service, being the commercial
arm of the Valuation Office Agency ("VOA"). It provides professional property
advice across the public sector and in respect of primary healthcare
represents NHS bodies on matters of valuation, rent reviews and initial rents
on new developments.
Dividend cover is the number of times the dividend payable (on an annual
basis) is covered by EPRA earnings.
Earnings per Ordinary Share from continuing operations ("EPS") is the profit
attributable to equity holders of the Parent divided by the weighted average
number of shares in issue during the year.
EPC is an Energy Performance certificate.
European Public Real Estate Association ("EPRA") is a real estate industry
body, which has issued Best Practice Recommendations in order to provide
consistency and transparency in real estate reporting across Europe.
EPRA cost ratio is the ratio of net overheads and operating expenses against
gross rental income (with both amounts excluding ground rents payable). Net
overheads and
operating expenses relate to all administrative and operating expenses, net of
any service fees, recharges or other income specifically intended to cover
overhead and property expenses.
EPRA earnings is the profit after taxation excluding investment and
development property revaluations, gains/losses on disposals, changes in the
fair value of financial instruments and associated close-out costs and their
related taxation.
EPRA net assets ("EPRA NAV") are the balance sheet net assets excluding own
shares held, the MtM value of derivative financial instruments and the
convertible bond fair value movement
EPRA NAV per share is the balance sheet net assets excluding own shares held,
the MtM value of derivative financial instruments and the convertible bond
fair value movement, divided by the number of shares in issue at the balance
sheet date.
EPRA NNNAV is adjusted EPRA NAV including the MtM value of fixed rate debt and
derivatives.
EPRA net reinstatement value ("EPRA NRV") is the balance sheet net assets
including real estate transfer taxes but excluding the MtM value of derivative
financial instruments, deferred tax and the convertible bond fair value
movement. The aim of the metric is to reflect the value that would be required
to recreate the Company through the investment markets based on its current
capital and financing structure. Refer to Note 7.
EPRA NRV per share is the EPRA net reinstatement value divided by the number
of shares in issue at the balance sheet date. Refer to Note 7.
EPRA net disposal value "EPRA NDV" (replacing EPRA NNNAV) is EPRA NRV
including deferred tax and the MtM value of fixed rate debt and derivatives.
The aim of the metric is to reflect the value that would be realised under a
disposal scenario. Refer to Note 7.
EPRA net tangible assets ("NTA") (which has replaced the former EPRA net asset
value alternative performance measure) are the balance sheet net assets but
excluding the MtM value of derivative financial instruments, deferred tax and
the convertible bond fair value movement. The aim of the metric is to reflect
the fair value of the assets and liabilities of the Group that it intends to
hold and does not intend in the long run to sell. Refer to Note 7.
EPRA NTA per share is the EPRA net tangible assets divided by the number of
shares in issue at the balance sheet date. Refer to Note 7.
EPRA vacancy rate is, as a percentage, the ERV of vacant space in the Group's
property portfolio divided by ERV of the whole portfolio.
Glossary of terms (continued)
Equivalent yield (true and nominal) is a weighted average of the net initial
yield and reversionary yield and represents the return a property will produce
based upon the timing of the income received. The true equivalent yield
assumes rents are received quarterly in advance. The nominal equivalent
assumes rents are received annually in arrears.
Estimated rental value ("ERV") is the external valuer's opinion as to the open
market rent which, on the date of valuation, could reasonably be expected to
be obtained on a new letting or rent review of a property.
Gross rental income is the gross accounting rent receivable.
Group is Primary Health Properties PLC ("PHP") and its subsidiaries.
HSE or the Health Service Executiveis the executive agency of the Irish
government responsible for health and social services for people living in
Ireland.
IFRS is International Financial Reporting Standards as adopted by the European
Union.
IFRS or Basic net asset value per share ("IFRS NAV")are the balance sheet net
assets, excluding own shares held, divided by the number of shares in issue at
the balance sheet date.
Interest cover is the number of times net interest payable is covered by net
rental income.
Interest rate swap is a contract to exchange fixed payments for floating
payments linked to an interest rate, and is generally used to manage exposure
to fluctuations in interest rates.
London Interbank Offered Rate ("LIBOR") is the interest rate charged by one
bank to another for lending money.
Loan to value ("LTV") is the ratio of net debt to the total value of property
and assets.
Mark to market ("MTM") is the difference between the book value of an asset or
liability and its market value.
MedicX is MXF Fund Limited and its subsidiaries.
MSCI (IPD) provides performance analysis for most types of real estate and
produces an independent benchmark of property returns.
MSCI (IPD) Healthcare is the UK Annual Healthcare Property Index.
MSCI (IPD) Total Return is calculated as the change in capital value, less any
capital expenditure incurred, plus net income, expressed as a percentage of
capital employed over the period, as calculated by MSCI (IPD).
Net asset value ("NAV") is the value of the Group's assets minus the value of
its liabilities.
Net initial yield ("NIY") is the annualised rents generated by an asset, after
the deduction of an estimate of annual recurring irrecoverable property
outgoings, expressed as a percentage of the asset valuation (after notional
purchasers' costs).
Net rental income is the rental income receivable in the period after payment
of direct property costs. Net rental income is quoted on an accounting basis.
Net zero carbon refers to the point at which a process, activity, system etc.
produces net zero carbon emissions, through emissions reduction, use of low or
zero carbon energy and removal or offsetting of residual emissions. In the
context of buildings and activities associated with the construction,
refurbishment, maintenance and operation of buildings, PHP refers to the UK
Green Building Council "Net zero
carbon, a framework
definition" (https://www.ukgbc.org/ukgbc-work/
(https://www.ukgbc.org/ukgbc-work/) net-zero-carbon-
buildings-a-framework-definition/). This sets out the key requirements for
buildings to achieve 'net zero carbon - construction' and 'net zero carbon -
operational energy'.
NHSPS is NHS Property Services Limited, the company wholly owned and funded by
the Department of Health, which, as of 1 April 2013, has taken on all property
obligations formerly borne by Primary Care Trusts.
Parity value is calculated based on dividing the convertible bond value by the
exchange price.
Progressive returns / dividend is where it is expected to continue to rise
each year.
Property Income Distribution ("PID") is the required distribution of income as
dividends under the REIT regime. It is calculated as 90% of exempted net
income.
Real Estate Investment Trust ("REIT") is a listed property company which
qualifies for and has elected into a tax regime, which exempts qualifying UK
profits, arising from property rental income and gains on investment property
disposals, from corporation tax, but which has a number of specific
requirements.
Rent reviews take place at intervals agreed in the lease and their purpose is
usually to adjust the rent to the current market level at the review date.
Rent roll is the passing rent, being the total of all the contracted rents
reserved under the leases.
Reversionary yield is the anticipated yield which the initial yield will rise
to once the rent reaches the ERV and when the property is fully let. It is
calculated by dividing the ERV by the valuation.
Retail Price Index ("RPI") is the official measure of the general level of
inflation as reflected in the retail price of a basket of goods and services
such as energy, food, petrol, housing, household goods, travelling fare, etc.
RPI is commonly computed on a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews which are linked to
changes in the RPI.
Special reserve is a distributable reserve.
Sterling Overnight Interbank Average Rate ("SONIA") is the effective overnight
interest rate paid by banks for unsecured transactions in the British Sterling
market.
Glossary of terms (continued)
Total expense ratio ("TER") is calculated as total administrative costs for
the year divided by the average total asset value during the year.
Total property return is the overall return generated by properties on a
debt-free basis. It is calculated as the net rental income generated by the
portfolio plus the change in market values, divided by opening property assets
plus additions.
£m
Net rental income 71.1
Revaluation surplus and profit on sales 51.2
122.3
Opening property assets 2,791.4
Weighted additions in the period 29.8
2,821.2
Total property return 4.3%
Total adjusted NTA return is calculated as the movement in adjusted net
tangible asset value for the period plus the dividends paid, divided by
opening adjusted net tangible asset value.
At 31 December 2021 116.7p
At 30 June 2022 120.8p
Increase / (decrease) 4.1p
Add: Dividends paid
25/02/2022 Q1 interim 1.625p
20/05/2022 Q2 interim 1.625p
Total return 7.35p
Total adjusted NTA return 6.3%
Total shareholder return is calculated as the movement in the share price for
the period plus the dividends paid, divided by the opening share price.
Weighted average facility maturity is calculated by multiplying each tranche
of Group debt by the remaining period to its maturity and dividing the result
by total Group debt in issue at the year end.
Weighted average unexpired lease term ("WAULT") is the average lease term
remaining to first break, or expiry, across the portfolio weighted by
contracted rental income.
Yield on cost is the estimated annual rent of a completed development divided
by the total cost of development, including site value and finance costs
expressed as a percentage return.
Yield shift is a movement (usually expressed in basis points) in the yield of
a property asset, or like-for-like portfolio over a given period. Yield
compression is a commonly used term for a reduction in yields.
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