REG - Primary Health Props - Interim Results
26/07/2023 07:00
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RNS Number : 1725H Primary Health Properties PLC 26 July 2023
Primary Health Properties PLC
Interim results for the six months ended 30 June 2023
Organic rental growth continuing to drive performance and dividend fully
covered at 102%
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 2023 (the "period").
Harry Hyman, Chief Executive of PHP, commented:
"We are encouraged by the improvement in rental growth experienced in the
first half of the year and expect to deliver over £4 million of extra income
during 2023, another record and continuing the trend seen in recent years. We
believe PHP will be a beneficiary of both the current inflationary environment
and the significant rise in construction costs seen in recent years both
through open market and index-linked reviews. Furthermore, with 97% of PHP's
debt either fixed or hedged for a weighted average period of just under seven
years, a strong control on costs and just one development on site we have
limited exposure to further cost increases and development risk.
"The security and longevity of our income, near full occupancy together with
stronger rental growth are the key drivers of our predictable cash-flows and
underpin our progressive dividend policy with 27 years of continued growth."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Income statement and financial metrics Six months to 30 June 2023 Six months to 30 June 2022
Change
Net rental income(1) £75.5m £71.1m +6.2%
Adjusted earnings(1,2) £45.9m £44.7m +2.7%
Adjusted earnings per share(1,2) 3.4p 3.4p -
IFRS profit for the period £39.5m £107.1m
IFRS earnings per share(2) 3.0p 8.0p
Dividends
Dividend per share(5) 3.35p 3.25p +3.1%
Dividends paid(5) £44.8m £43.3m +3.5%
Dividend cover(1) 102% 103%
Balance sheet and operational metrics 30 June 31 December
2023 2022 Change
Adjusted NTA per share(1,3) 111.1p 112.6p -1.3%
IFRS NTA per share(1,3) 110.6p 110.9p -0.3%
Property portfolio
Investment portfolio valuation(4) £2.783bn £2.796bn -0.4%
Net initial yield ("NIY") (1) 4.90% 4.82%
Contracted rent roll (annualised)(1,7) £147.4m £145.3m +1.4%
Weighted average unexpired lease term ("WAULT")(1) 10.6 years 11.0 years
Occupancy 99.6% 99.7%
Rent-roll funded by government bodies(1) 89% 89%
Debt
Average cost of debt 3.2% 3.2%
Loan to value ratio ("LTV")(1) 45.6% 45.1%
Weighted average debt maturity 6.9 years 7.3 years
Total undrawn loan facilities and cash(6) £314.4m £325.9m
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.
EARNINGS AND DIVIDEND GROWTH
· Adjusted earnings per share unchanged at 3.4p (30 June 2022: 3.4p)
· IFRS earnings per share decreased by 62.5% to 3.0p (30 June 2022: 8.0p)
· Contracted annualised rent roll increased by 1.4% to £147.4 million
(31 December 2022: £145.3 million)
· Additional annualised rental income on a like-for-like basis of £2.2
million or 1.5% from rent reviews and asset management projects (H1 2022:
£1.8 million or 1.3%; FY 2022: £3.3 million or 2.4%)
· EPRA cost ratio 10.1% (FY 2022: 9.9%), representing one of the lowest
in the UK REIT sector
· First three quarterly dividends totalling 5.025 pence per share
distributed or declared in the year-to-date, equivalent to 6.7 pence per share
on an annualised basis, a 3.1% increase over 2022 (6.5 pence per share) and
marking the Company's 27(th) consecutive year of dividend growth
· The Company intends to maintain its strategy of paying a progressive
dividend fully covered by Adjusted earnings
NET ASSET VALUE AND PORTFOLIO MANAGEMENT
· Adjusted Net Tangible Assets ("NTA") per share decreased by 1.3% to
111.1 pence (31 December 2022: 112.6 pence)
· Property portfolio valued at £2.783 billion at 30 June 2023 (31
December 2022: £2.796 billion) reflecting a net initial yield of 4.90% (31
December 2022: 4.82%)
· Revaluation deficit in the period of £11.9 million (30 June 2022:
surplus £51.2 million), representing a decline of -0.4% (30 June 2022:
+1.8%), comprising a £45 million decline driven by NIY widening of 8bps
partially offset by gains of £33 million arising from rental growth and asset
management projects
· The portfolio's metrics continue to reflect the Group's secure,
long-term and predictable income stream with occupancy at 99.6% (31 December
2022: 99.7%), WAULT of 10.6 years (31 December 2022: 11.0 years) and 89% (31
December 2022: 89%) of income funded by government bodies
· Portfolio in Ireland comprises 20 assets, valued at £219 million
(€255 million) (31 December 2022: £231 million / €261 million) and
continues to be the Group's preferred area of future investment activity with
a target to grow to around 15% of the total portfolio
· The acquisition of Axis Technical Services Limited, an Irish property
management business, in January 2023, gives the Group a permanent presence in
Ireland and is an important strategic move as we seek out new investment,
development and asset management opportunities
· Pipeline of 32 asset management projects and lease regears planned over
next two years, investing £23.7 million, creating additional rental income of
£1.2 million per annum and extending the weighted average unexpired lease
term (WAULT) back to over 20 years
· Disciplined approach to future investment focused on Ireland, direct
developments and asset management projects are our preferred areas of future
investment
FINANCIAL MANAGEMENT
· LTV ratio 45.6% (31 December 2022: 45.1%) in the middle of the
Group's targeted range of between 40% to 50%
· 97% (31 December 2022: 94%) of net debt fixed or hedged for a
weighted average period of just under seven years
· Weighted average debt maturity 6.9 years (31 December 2022: 7.3
years)
· Significant liquidity headroom with cash and collateralised
undrawn loan facilities totaling £314.4 million (31 December 2022: £325.9
million) after capital commitments
DELIVERING STRONG TOTAL RETURNS
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
Adjusted NTA return 1.6% 6.3% 2.1%
Income return 2.7% 2.5% 5.0%
Capital return (0.4%) 1.8% (2.2%)
Total property return(1) 2.3% 4.3% 2.8%
1 The definition for total property return is set out in the Glossary of
Terms.
RESPONSIBLE BUSINESS AND ESG
· As previously announced, Net Zero Carbon ("NZC") Framework
published with the five key steps to achieve the Group's ambitious target of
being NZC by 2030 for all of PHP's operational, development and asset
management activities
· Ongoing construction of PHP's first NZC development in West
Sussex expected to achieve practical completion in Q1 2024
Presentation and webcast:
An in-person presentation for analysts will be held today, 26 July 2023 at
9.30am at the offices of Numis Securities: 45 Gresham Street, London EC2V 7BF.
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 9.30am via the details below:
Webcast: https://stream.brrmedia.co.uk/broadcast/648c7d6ee1ace244e084c4b0
(https://stream.brrmedia.co.uk/broadcast/648c7d6ee1ace244e084c4b0)
Conference call details:
UK: +44 (0) 33 0551 0200;
USA Local: +1 786 697 3501
Password (if prompted): Quote PHP Interim Results when prompted by the
operator.
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/)
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.
For further information contact:
Harry Hyman Richard Howell
Chief Executive Officer Chief Financial Officer
Primary Health Properties PLC Primary Health Properties PLC
T: +44 (0) 7973 344768 T: +44 (0) 7766 072272
E: harry.hyman@phpgroup.co.uk (mailto:harry.hyman@phpgroup.co.uk) E: richard.howell@phpgroup.co.uk (mailto:richard.howell@phpgroup.co.uk)
David Rydell/Jamie Hooper/Hannah Ratcliff/Verity Parker
Buchanan Communications
T: +44 (0) 20 7466 5066
E: php@buchanan.uk.com (mailto:php@buchanan.uk.com)
EXECUTIVE REVIEW
PHP is pleased to have continued to deliver another period of robust
operational and financial performance in the first half of 2023 despite the
ongoing volatility in the economic and interest rate outlook caused by both
global and domestic events. The negative interest rate outlook has continued
to weigh heavily on the real estate sector.
The Group's strong operational resilience throughout the period reflects the
security and longevity of our income which are important drivers of our
predictable income stream and underpin our progressive dividend policy and we
are now in our 27(th) year of continued dividend growth.
We continue to maintain our strong operational property metrics, with a long
weighted average unexpired lease term ("WAULT") of 10.6 years (31 December
2022: 11.0 years), high occupancy at 99.6% (31 December 2022: 99.7%) and 89%
(31 December 2022: 89%) of our rent being securely funded directly or
indirectly by the UK and Irish Governments. Notwithstanding the fall in values
in the period the portfolio's average lot size remains at £5.4 million (31
December 2022: £5.4 million).
We have continued to see rental growth improving with rent reviews in the six
months ended 30 June 2023 generating an extra £2.2 million (six months ended
30 June 2022: £1.5 million) an uplift of 9.9% over the previous passing rent
equivalent to 4.4% on annualised basis (six months ended 30 June 2022: 6.1%
uplift or 3.0% annualised). Over the course of 2023 the Group continues to
anticipate that rent reviews will generate in excess of £4.0 million (2022:
£3.0 million) of incremental income driven by the impact of inflation on both
index-linked and open market value ("OMV") reviews, continuing the positive
trend in growth seen over the last couple of years. It should be noted that
most of the growth on OMV rent reviews came from the period 2019 to 2021 and
therefore does not yet reflect the impact of significantly higher construction
costs experienced in the last two years.
We are encouraged by the increasingly firmer tone of rental growth and believe
PHP in the medium term will be a beneficiary of the current inflationary
environment both through open market and index-linked reviews. In particular,
the significant increases in construction costs, together with historically
suppressed levels of open market rental growth in the sector, will be
significant pull factors to future growth especially as the NHS seeks to
deliver new, larger primary care facilities and modernise the existing estate.
The value of the property portfolio remains broadly unchanged and currently
stands at just under £2.8 billion (31 December 2022: £2.8 billion) across
513 assets (31 December 2022: 513 assets), including 20 in Ireland, with a
rent roll of £147.4 million (31 December 2022: £145.3 million). As
previously reported with PHP's full year 2022 results, the deteriorating
interest rate environment and economic outlook caused us to reconsider our
acquisition pipeline and pause investment activity until the economic and
interest rate outlook becomes clearer. Our prudent strategy means we currently
have just one development on site and consequently very limited exposure to
further build cost inflation and development risk.
Many of our primary care facilities and occupiers will need to deal with the
backlog of procedures and demand which has built up over the last three years
and the increasing pressures being placed on the healthcare systems in both
the UK and Ireland. We continue to maintain close relationships with our key
stakeholders and GP partners to ensure we are best placed to help the NHS and
Health Service Executive ("HSE"), Ireland's national health service provider,
particularly in primary care, evolve and deal with the increased pressures
placed on them.
Acquisition of Axis Technical Services Limited ("Axis")
In January 2023, the Group successfully completed the acquisition of Axis, an
Irish property management business, and signed a long-term development
pipeline agreement providing access to a strong pipeline of future primary
care projects in Ireland.
Axis currently manages a portfolio of over 30 properties, including the
majority of PHP's Irish portfolio, and the acquisition gives the Group a
permanent presence on the ground, further strengthening its position in the
country and relationship with the HSE. The acquired company also provides
fit-out, property and facilities management services to the HSE and other
businesses located across Ireland.
As part of the acquisition, PHP signed a development pipeline agreement with
Axis Health Care Assets Limited, a related company not acquired by the
Company, which gives the Group the option to acquire its development pipeline
over the next five years. Axis Health Care Assets Limited is one of Ireland's
leading developers of primary care properties, having developed five
properties over the last five years, all of which have been acquired by PHP.
Axis Health Care Assets Limited has a pipeline of projects with an estimated
gross development value of €50 million with further potential schemes beyond
that.
Overview of results
PHP's Adjusted earnings increased by £1.2 million or 2.7% to £45.9 million
(30 June 2022: £44.7 million) in the six months to 30 June 2023, driven by
strong organic rental growth from rent reviews and asset management projects,
plus income arising from the acquisition of Axis, partially offset by higher
interest costs on the Group's variable rate debt. Using the weighted average
number of shares in issue in the period the Adjusted earnings per share
remained unchanged at 3.4 pence (30 June 2022: 3.4 pence).
A revaluation deficit of £11.9 million (30 June 2022: surplus £51.2 million)
was generated in the period from the portfolio, equivalent to -0.9 pence per
share. The valuation deficit was driven by net initial yield ("NIY") widening
of 8 bps in the period, equivalent to a valuation reduction of around £45
million, albeit this was partially offset by gains equivalent to £33 million
arising from rental growth and asset management projects.
A combined gain of £4.8 million (30 June 2022: gain of £11.8 million) from
the fair value movements of interest rate derivatives and convertible bonds,
the amortisation of the fair value adjustment on the MedicX fixed rate debt at
acquisition, the amortisation of the intangible asset and write off of costs
arising on the acquisition of Axis resulted in a profit before tax as reported
under IFRS of £38.8 million (30 June 2022: £107.7 million).
The Group's balance sheet remains robust with a loan to value ratio of 45.6%
(31 December 2022: 45.1%), which is in the middle of the targeted range of
between 40% and 50%, and we have significant liquidity headroom with cash and
collateralised undrawn loan facilities, after capital commitments, totalling
£314.4 million (31 December 2022: £325.9 million). The Group continues to
have significant valuation headroom across the various loan facilities with
values needing to fall by around £1.2 billion or 42% before the loan to value
covenants are impacted.
Dividends and total shareholder return
The Company distributed a total of 3.35p per share in the six months to 30
June 2023, equivalent to 6.7 pence on an annualised basis, which represents an
increase of 3.1% over the dividend per share distributed in 2022 of 6.5 pence.
A third quarterly interim dividend of 1.675 pence per share was declared on 29
June 2023. The dividend will be paid on 18 August 2023 to shareholders who
were on the register at the close of business on 7 July 2023. The dividend
will comprise a Property Income Distribution of 1.34 pence per share and a
normal dividend of 0.335 pence. 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 2023, 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 3.5% to
£44.8 million (30 June 2022: £43.3 million), which were fully covered by
Adjusted earnings. As previously reported, we suspended the scrip dividend
scheme in light of the fall in the share price in 2022 and first half of 2023
and are continuing to offer a dividend re-investment plan in its place.
The Company's share price started the year at 110.8p per share and closed on
30 June 2023 at 95.45p, a decrease of 13.9%. Including dividends, those
shareholders who held the Company's shares throughout the period achieved a
Total Shareholder Return of -10.8% (30 June 2022: -7.8%). This compares to the
total return delivered by UK real estate equities (FTSE EPRA Nareit UK Index)
of -7.6% (30 June 2022: -21.2%) and the wider UK equity sector (FTSE All-Share
Index) of +2.6% (30 June 2022: -4.8%) in the period.
Environmental, Social and Governance ("ESG")
PHP has a strong commitment to responsible business. 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 commenced
construction of PHP's first NZC development which is due to achieve practical
completion in the first quarter of 2024 and published, at the start of 2022, 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. The NZC Framework also sets out our ambition 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 ten years ahead of the UK and Irish
Governments' target of 2050. Further details on our progress in the year,
objectives for the future and approach to responsible business can be found on
pages 32 to 53 of the 2022 Annual Report and on our website.
Board changes
As previously reported, Harry Hyman, Chief Executive Officer ("CEO"), intends
to retire from his role at the Company's Annual General Meeting ("AGM") in
2024. This intention is consistent with the commitment made at the time of the
MedicX merger, announced in January 2019, that he manage PHP for a further
five years. The Company has now commenced the search for a new CEO which is
currently ongoing and hopes to make an announcement later in the third quarter
of the year with an appointment expected to take effect from the 2024 AGM.
Market update and outlook
The primary care market continues to face challenges in meeting the growing demand for healthcare services. The capacity of existing facilities remains a significant obstacle to implementing government policies aimed at expanding service delivery within general practice, including social prescribing, clinical pharmacists, physiotherapists, mental health, minor operations and other activities. The need for additional space is driven by a population that is growing, aging and suffering from increased chronic illnesses, which are placing a greater burden on healthcare systems in both the UK and Ireland. The extent of the NHS England backlog remains a significant concern, with hospitals struggling to meet objectives for cancer care and routine treatments. The number of patients waiting for treatment has reached record highs, exacerbating the need for improved and increased primary healthcare infrastructure.
There is a growing expectation that many services in the medium-term will progressively move from hospitals to primary care settings, necessitating substantial investment in facilities to accommodate these changes and alleviate the pressure on secondary care. in the years to come. The UK government's new vision for primary care premises, advocating the establishment of hubs or "super hubs" is a step in this direction. The UK government's vision is that these hubs is to promote collaboration among various primary care staff and provide a wider range of services in a single location. Larger GP practices with more staff and patients are shown to produce better outcomes. This is in line with larger purpose-built medical centres typical of PHP's portfolio.
Declining rents in real terms have made investing in the transformation of GP facilities less appealing. Construction costs have risen significantly over the past decade, surpassing the growth in primary care rents, driven by material and labour costs and increasing sustainability requirements, all of which has been compounded by Brexit and the COVID-19 pandemic. Future developments will now need a significant shift of between 20% to 30% in rental values to make them economically viable and we continue to actively engage with both the NHS, Integrated Care Boards and District Valuer for higher rent settlements.
PHP's mission is to support the NHS, the HSE and other healthcare providers,
by being a leading investor in modern, primary care premises. We will continue
to actively engage with government bodies, the NHS, the 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.
Primary care and property investment market update
The commercial property market continues to be impacted by economic turbulence
but primary care asset values have continued to perform well relative to
mainstream commercial property recognising the security of their government
backed income, crucial role in providing sustainable healthcare infrastructure
and more importantly a much stronger rental growth outlook enabling attractive
reversion over the course of long leases.
The lack of recent transactions in the first half of the year has resulted in
valuers, to an extent, placing reliance on sentiment to arrive at fair values.
We continue to see that for both the primary care and indeed the wider
commercial property markets, the high level of financial market volatility and
economic uncertainty has resulted in a 'wait-and-see' attitude amongst
investors until the outlook settles down.
Rising interest rates will undoubtedly continue to impact the market. However,
notwithstanding the significant increases and volatility in interest rates
seen in the first half of 2023 we continue to believe further significant
reductions in primary care values are likely to be muted with a stronger
rental growth outlook offsetting the impact of any further yield expansion.
Additionally, the market for primary care assets is relatively small with most
assets tightly held by the main specialists in the sector and consequently we
anticipate most investors will likely hold their existing assets in the
current market primarily because of:
· Limited supplies of stock;
· Very secure, rising income streams with an improving rental
growth outlook;
· The main specialists in the sector all having strong balance
sheets so there are unlikely to be any "forced sales"; and
· A desire from investors to seek a "Safe Haven" with some
shifting from other property sectors.
PHP Outlook
Growth in the immediate future will continue to be focused on increasing
income from our existing portfolio and we are encouraged by the firmer tone of
rental growth experienced both in 2022 and the first six months of 2023. As
already noted, we believe the favourable dynamics of higher inflation and
increased build costs combined with a demand for new primary care facilities
and the need to modernise the estate will continue to increase future rental
settlements.
We are currently on site with just one development and consequently have very
limited exposure to higher construction cost pressures and supply chain
delays. In our immediate development pipeline we have just three projects with
a total expected cost of £15.2 million and will continue to evaluate these,
together with a wider medium term pipeline at various stages of progress, and
seek to negotiate rents with the NHS at the level required to deliver an
acceptable return.
In the current environment, Ireland continues to be the Group's preferred area
of future investment activity and we have ambitions to continue to grow the
portfolio there to around 15% of the total (30 June 2023: 8%). The acquisition
of Axis, in January 2023, gives the Group a permanent presence in Ireland, an
important strategic move as we seek out new investment, development and asset
management opportunities and try to strengthen our relationship with the HSE
as the leading provider of modern primary care infrastructure in the country.
With an improving rental growth outlook, a strong control on costs resulting
in one of the lowest EPRA cost ratio in the sector and the vast majority of
PHP's debt either fixed or hedged for a weighted average period of just under
seven years, we look forward to the rest of 2023 with confidence.
We believe that our activities benefit not only our shareholders but also our
wider stakeholders, including occupiers, patients, the NHS and HSE, suppliers,
lenders, and the wider communities in both the UK and Ireland.
Steven Owen Harry Hyman
Chairman
Chief Executive Officer
25 July 2023
BUSINESS REVIEW
Investment and pipeline
In the first half of 2023 the Group did not acquire or dispose of any assets
because of the ongoing turmoil in the wider economy. In the short term, we
expect further investment activity will continue to be muted and future
acquisitions and developments will only take place if accretive to earnings.
The Group currently has only one forward funded development in legal due
diligence, in Ireland for £12.8 million (€14.8 million) together with 32
asset management projects in the UK at a cost of £23.7 million which will be
progressed over the next two years.
However, we continue to monitor a number of potential standing investments,
direct and forward funded developments, primarily in Ireland - our preferred
area of investment due to higher net initial yields, larger lots sizes and
cheaper cost of finance for euro denominated debt.
Pipeline In legal due diligence Advanced pipeline
Number Cost Number Cost
Ireland - forward funded development 1 £12.8m (€14.8m) 2 £27.4m (€31.8m)
UK - direct development - - 3 £15.2m
UK - asset management 20 £16.8m 12 £6.9m
UK - investment - - - -
Total pipeline 21 £29.6m 17 £49.5m
Developments
At 30 June 2023, the Group had limited development exposure with just one
project on site at Croft Primary Care Centre, West Sussex with £5.9 million
of expenditure required to complete the project which is being built to NZC
standards.
The Group has currently paused an advanced direct development pipeline across
three schemes, with a total cost of £15.2 million, whilst negotiations with
the NHS, Integrated Care Boards and District Valuer continue to increase
rental levels to make these schemes economically viable. We are hopeful that
previously agreed rents will be increased by around 20%-30% across the three
pipeline developments.
We currently do not have any forward funded developments on-site in Ireland.
PHP expects that all future direct developments will be constructed to NZC
standards.
Asset management
PHP's sector-leading metrics 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 properties continue to meet the communities' healthcare needs and improve their ESG credentials.
In the first half of 2023 we have continued to see stronger organic rental growth from our existing portfolio with income increasing by £2.2 million or 1.5% (six months ended 30 June 2022: £1.8 million or 1.3%; year ended 31 December 2022: £3.3 million or 2.4%) on a like-for-like basis. The progress continues the improving rental growth outlook seen over the last couple of years and it should be noted that most of the increase comes from rent reviews arising in the period 2019 to 2021, a period when rental growth was muted and not reflecting the higher levels of construction cost and general inflation experienced in recent periods. We have also seen the improving rental growth outlook reflected in the valuation of the portfolio with the independent valuers' assessment of estimated rental values ("ERV") increasing by 1.4% in the six months ended 30 June 2023 (six months ended 30 June 2022: 1.0%; year ended 31 December 2022: 2.2%).
Rent review performance
The Group completed 172 (six months ended 30 June 2022: 192; year ended 31
December 2022: 318) rent reviews with a combined rental value of £22.4
million (six months ended 30 June 2022: £24.4 million; year ended 31 December
2022: £42.2 million), adding £2.2 million and delivering an average uplift
of 9.9% against the previous passing rent (six months ended 30 June 2022:
£1.5 million / 6.1%; year ended 31 December 2022: £2.8 million / 6.7%).
In addition, a further 315 (31 December 2022: 286) open market reviews have
been agreed in principle, which will add another £1.9 million (31 December
2022: £1.7 million) to the contracted rent roll when concluded and represents
an uplift of 4.3% (31 December 2022: 4.1%) against the previous passing rent.
69% of our rents are reviewed on an open market basis which typically takes
place every three years. The balance of the PHP portfolio has either indexed
(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 index linked reviews in the UK are subject to caps and collars
which typically range from 2% to 4%.
In Ireland, we concluded 13 index-based reviews, adding a further £0.3
million (€0.4 million), an uplift of 15.3% against the previous passing
rent. In Ireland, all reviews are linked to the Irish Consumer Price Index,
upwards and downwards, with reviews typically every five years. Leases to the
HSE and other government bodies, which comprise 75% of the income in Ireland,
have increases and decreases capped and collared at 25% over a five-year
period.
The growth from reviews completed in the period, noted above, is summarised
below:
Number Previous rent Rent increase Total Annualised
(per annum) (per annum) increase increase
£ million £ million % %
UK - open market(1) 83 11.0 0.7 6.2 2.0
UK - indexed 67 8.2 1.1 14.0 8.1
UK - fixed 9 1.1 0.1 6.8 2.5
UK - total 159 20.3 1.9 9.4 4.5
Ireland - indexed 13 2.1 0.3 15.3 3.4
Total - all reviews 172 22.4 2.2 9.9 4.4
(1) - includes 24 reviews where no uplift was achieved.
At 30 June 2023 the rent at 607 (31 December 2022: 656) tenancies, representing £84.6 million (31 December 2022: £90.2 million) of passing rent, 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 historical rent reviews and the rents set on 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 albeit previously agreed rental values are having to be renegotiated to make a number of these viable in the current economic environment.
Asset Management Projects
During the six months ended 30 June 2023, we exchanged on four new asset
management projects, four lease re-gears and one new letting. These
initiatives will increase rental income by £0.2 million investing £4.3
million and extending the leases back to 17 years. In the period, seven leases
expired and the units became vacant with the loss of £0.2m of income.
PHP continues to work closely with its occupiers and has a strong pipeline of
32 similar asset management projects which are at an advanced stage and are
being progressed to further increase rental income and extend unexpired
occupational lease terms. The asset management pipeline will require the
investment of approximately £23.7 million, generating an additional £1.2
million of rental income and extending the WAULT on those premises back to an
average of 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, including improving energy efficiency, and which are key to
maintaining the longevity and security of our income through long term
occupier 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 2023 was £147.4
million (31 December 2022: £145.3 million), an increase of £2.1 million or
+1.4% in the period driven entirely by stronger organic growth from rent
reviews and asset management projects of £2.2 million (six months ended 30
June 2022: £1.8 million) offset by £0.1 million loss of income arising from
foreign exchange movements on our portfolio in Ireland.
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%
(31 December 2022: 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 99.6% (31 December 2022: 99.7%).
Rental collections: These continue to remain robust and as at 25 July 2023 98%
had been collected in both the UK and Ireland for the first three quarters of
2023. This is in line with collection rates experienced in both 2022 and 2021
which now stand at over 99% for both countries. The balance of rent due for
the third quarter of 2023 is expected to be received shortly.
Longevity: The portfolio's WAULT at 30 June 2023 was 10.6 years (31 December
2022: 11.0 years). Only £13.3 million or 9% of our income expires over the
next three years of which c. 70% have agreed terms or are in advanced
discussions to renew their lease. £65.8 million or 45% 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 13.3 9%
4 - 5 years 14.8 10%
5 - 10 years 53.5 36%
10 - 15 years 31.9 22%
15 - 20 years 22.6 15%
> 20 years 11.3 8%
Total 147.4 100%
Valuation and returns
During the period there were no acquisitions or disposals and as at 30 June
2023, the Group's portfolio comprised 513 (31 December 2022: 513) assets
independently valued at £2.783 billion (31 December 2022: £2.796 billion).
After allowing for capital expenditure on developments and asset management
projects, the portfolio generated a valuation deficit of £11.9 million or
-0.4% (Six months ended 30 June 2022: surplus of £51.2 million or +1.8%).
The valuation deficit of £11.9 million in the period was driven primarily by
a loss arising from yield expansion of approximately £45 million partially
offset by gains of approximately £33 million arising from an improving rental
growth outlook and asset management projects.
During the period the Group's portfolio NIY has expanded by 8 bps to 4.90% (31
December 2022: 4.82%) and the true equivalent yield increased to 4.94% at 30
June 2023 (31 December 2022: 4.89%).
At 30 June 2023, the portfolio in Ireland comprised 20 standing and fully let
properties with no developments currently on site, valued at £218.9 million
or €254.8 million (31 December 2022: 20 assets/£230.9 million or €260.8
million). At 30 June 2023, the portfolio in Ireland has been valued at a NIY
of 5.4% (31 December 2022: 5.2%).
Despite the fall in values during the period the portfolio's average lot size
remained unchanged at £5.4 million (31 December 2022: £5.4 million) and 88%
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 £ million % lot size (£ million)
> £10m 58 886.2 32 15.3
£5m - £10m 137 928.8 34 6.8
£3m - £5m 155 615.9 22 4.0
£1m - £3m 158 344.8 12 2.2
< £1m (including land £1.3m) 5 4.7 0 0.7
Total(1) 513 2,780.4 100 5.4
(1) Excludes the £3.0 million impact of IFRS 16 Leases with ground rents
recognised as finance leases.
The valuation deficit combined with the portfolio's growing income, resulted
in a total property return of 2.3% for the period (six months ended 30 June
2022: +4.3%). The total property return in the period compares with the MSCI
UK Monthly Property Index of +1.1% for the first six months of 2023 (six
months ended 30 June 2022: +9.3%, year ended 31 December 2022: -10.4%).
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
Income return 2.7% 2.5% 5.0%
Capital return (0.4%) 1.8% (2.2%)
Total return 2.3% 4.3% 2.8%
FINANCIAL REVIEW
PHP's Adjusted earnings increased by £1.2 million or 2.7% to £45.9 million
in the six months to 30 June 2023, (30 June 2022: £44.7 million). The
increase in the period reflects the improving organic rental growth from rent
reviews and asset management projects in both 2022 and the first half of 2023
partially offset by increased interest costs on the Group's variable rate
debt.
On 20 January 2023 the Group completed the acquisition of Axis which
contributed £0.5 million and is trading in line with expectations and is
forecast to generate a profit of approximately £1.0 million in 2023.
Using the weighted average number of shares in issue in the period the
Adjusted earnings per share remained unchanged at 3.4p (30 June 2022: 3.4p).
The financial results for the Group are summarised as follows:
Six months Six months Year ended 31 December
ended ended 2022
30 June 2023 30 June 2022
£m £m £m
Net rental income 75.5 71.1 141.5
Axis contribution 0.5 - -
Administrative expenses(1) (6.1) (5.5) (9.6)
Operating profit before revaluation gain and net financing costs 69.9 65.6 131.9
Net financing costs (24.0) (20.9) (43.2)
Adjusted earnings 45.9 44.7 88.7
Revaluation (deficit)/surplus on property portfolio and profit on sales (11.9) 51.2 (61.5)
Fair value gain on interest rate derivatives and convertible bond 3.9 10.4 26.8
Amortisation of MedicX debt MtM at acquisition 1.5 1.4 2.9
Axis amortisation of intangible asset (0.4) - -
Axis acquisition costs (0.2) - -
IFRS profit before tax 38.8 107.7 56.9
Corporation tax - 0.1 0.2
Deferred tax provision 0.7 (0.7) (0.8)
IFRS profit after tax 39.5 107.1 56.3
(1) Excludes amortisation of intangible asset and costs arising on the
acquisition of Axis.
Adjusted earnings increased by £1.2 million or 2.7% in the six months to June
2023 to £45.9m (30 June 2022: £44.7m) and the movement can be summarised as
follows:
£m
Six months ended 30 June 2022 44.7
Net rental income 4.4
Axis contribution 0.5
Administrative expenses (0.6)
Net financing costs (3.1)
Six months ended 30 June 2023 45.9
Net rental income received in the six months to 30 June 2023 increased by 6.2%
or £4.4 million to £75.5 million (30 June 2022: £71.7 million) reflecting
£3.4 million of additional income from completed rent reviews and asset
management projects, £0.8 million from the impact of acquisitions, disposals
and developments completed 2022 and a £0.2 million reduction in
non-recoverable property costs.
Notwithstanding the acquisition of Axis at the start of the year
administration expenses continue to be tightly controlled and the Group's EPRA
cost ratio remains one of the lowest in the sector at 10.1% (30 June 2022:
10.5%). The £0.6 million increase in administration costs in the period is
due to £0.4 million increase in staff costs from annual pay increases and
provision for performance-related pay together with an additional £0.2
million arising from the acquisition of Axis and cost of the team now based in
Ireland.
EPRA cost ratio Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£m £m £m
Gross rent less ground rent and service charge income 78.2 73.5 147.0
Direct property expense 7.9 5.7 12.6
Less: service charge and recoverable costs (5.7) (3.2) (7.0)
Non-recoverable property costs 2.2 2.5 5.6
Administrative expenses 6.1 5.5 9.6
Less: ground rent (0.1) (0.1) (0.2)
Less: other operating income (0.3) (0.2) (0.4)
EPRA costs (including direct vacancy costs) 7.9 7.7 14.6
EPRA cost ratio 10.1% 10.5% 9.9%
Total expense ratio - administrative expenses as a
percentage of gross asset value (annualised) 0.4% 0.4% 0.3%
Net finance costs in the period increased by £3.1 million to £24.0 million
(30 June 2022: £20.9 million) because of a £14.4 million increase in the
Group's net debt since June 2022, the impact of increased in interest rates on
the Group's unhedged debt and the loss of interest receivable on forward
funded developments which completed in 2022, now income producing and
accounted for as rent.
Shareholder value
The Adjusted Net Tangible Assets (NTA), per share decreased by 1.5 pence or
1.3% to 111.1 pence (31 December 2022: 112.6 pence per share) during the
period with the revaluation deficit of £11.9 million or 0.9 pence per share
and cost of the Axis acquisition of £7.3 million (€8.2 million) or 0.5
pence per share being the main reason for the decrease.
The adjusted NTA return per share, including dividends distributed, in the six
months ended 30 June 2023 was 1.9 pence or 1.6% (30 June 2022: 7.3 pence or
6.3%).
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 2023 pence per share 30 June 2022 pence per share 31 December 2022 pence per share
Opening Adjusted NTA per share 112.6 116.7 116.7
Adjusted earnings for the period 3.4 3.4 6.6
Dividends paid (3.4) (3.2) (6.5)
Revaluation of property portfolio and profit on sales (0.9) 3.8 (4.6)
Amortisation of intangible assets (0.5) - -
Net impact of Interest rate derivatives (0.1) - -
Foreign exchange movements - - 0.3
Shares issued - 0.1 0.1
Closing Adjusted NTA per share 111.1 120.8 112.6
Fixed rate debt and swap mark-to-market value 12.6 3.2 8.7
Convertible bond fair value adjustment 0.4 (0.7) 2.1
Deferred tax 0.1 (0.4) (0.1)
Intangible assets 0.5 - -
Closing EPRA NDV per share 124.7 122.9 123.3
Financing
The Group's balance sheet and financing position remains strong with cash and
committed undrawn facilities totalling £314.4 million (31 December 2022:
£325.9 million) after contracted capital commitments of £16.6 million (31
December 2022: £19.8 million).
At 30 June 2023, total available loan facilities were £1,600.8 million (31
December 2022: £1,607.0 million) of which £1,272.2 million (31 December
2022: £1,290.4 million) had been drawn. Cash balances of £2.4 million (31
December 2022: £29.1 million) resulted in Group net debt of £1,269.8 million
(31 December 2022: £1,261.3 million). Contracted capital commitments at the
balance sheet date totalled £16.6 million (31 December 2022: £19.8 million)
and comprise development expenditure of £5.9 million, asset management
projects of £8.6 million and deferred consideration on the acquisition of
Axis of £2.1 million.
The Group's key debt metrics are summarised in the table below:
Debt metrics 30 June 2023 31 December 2022
Average cost of debt - drawn 3.2% 3.2%
Average cost of debt - fully drawn 3.8% 3.5%
Loan to value 45.6% 45.1%
Loan to value - excluding convertible bond 40.2% 39.7%
Total net debt fixed or hedged 96.7% 93.7%
Net rental income to net interest cover 3.1 times 3.3 times
Net debt / EBITDA (annualised) 9.1 times 9.6 times
Weighted average debt maturity - drawn facilities 6.9 years 7.3 years
Weighted average debt maturity - all facilities 5.9 years 6.4 years
Total drawn secured debt £1,122.2m £1,140.4m
Total drawn unsecured debt £150.0m £150.0m
Total undrawn facilities and cash available to the Group(1) £314.4m £325.9m
Unfettered assets £80.7m £86.7m
(1) After deducting capital commitments.
Average cost of debt
Notwithstanding the recent and rapid increases in 3-month SONIA interest rates
since the start of the year which is used to calculate interest on the
unhedged element the Group's revolving credit facilities we have managed to
keep the average cost of debt unchanged at 3.2% (31 December 2022: 3.2%).
Interest rate exposure
The analysis of the Group's exposure to interest rate risk in its debt
portfolio as at 30 June 2023 is as follows:
Facilities Drawn
£ million % £ million %
Fixed rate debt 1,075.8 67.2 1,075.8 84.5
Hedged by fixed rate interest rate swaps 100.0 6.2 100.0 7.9
Hedged by fixed to floating rate interest rate swaps (200.0) (12.5) (200.0) (15.7)
Total fixed rate debt 975.8 60.9 975.8 76.7
Hedged by interest rate caps 251.6 15.7 251.6 19.8
Floating rate debt - unhedged 373.4 23.4 44.8 3.5
Total 1,600.8 100.0 1,272.2 100.0
Interest rate swap contracts
On 18 April 2023, the Group converted €60.0 million (£51.6 million) of
sterling equivalent denominated debt into euros across its various revolving
credit facilities to cover a small unhedged euro denominated balance sheet
exposure which had arisen primarily because of historic valuation gains and
retained earnings arising on our portfolio in Ireland. As part of the
transaction the Group took advantage of cheaper euro denominated interest
rates and purchased 2.0% caps on €60 million nominal value for a period of
2.5 years for an all-in premium of £1.9 million (€2.2 million). The
transaction increased the proportion of net debt that is fixed or hedged to
97% (31 December 2022: 94%).
Accounting standards require PHP to mark its interest rate swaps to market at
each balance sheet date. During the six months to 30 June 2023 there was an
increase of £2.1 million (30 June 2022: £0.9 million) on the fair value
movement of the Group's interest rate derivatives due primarily due to the
€60 million caps purchased in the period for £1.9 million along with
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 £9.2 million (31 December 2022: asset £7.1 million).
Currency exposure
The Group owns €254.8 million or £218.9 million (31 December 2022: €260.8
million / £230.9 million) of Euro denominated assets in Ireland as at 30 June
2023 and the value of these assets and rental income represented 8% (31
December 2022: 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 2023 the Group had €253.1 million (31 December 2022:
€196.0 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. Given the large Euro to Sterling fluctuations seen in recent years and continued uncertainty in the interest rate market the Group entered a nil-cost FX collar hedge (between €1.1675 and €1.1022: £1) for a two-year period to cover the approximate Euro denominated net annual income of €10 million per annum, minimising the downside risk of the Euro gaining in value above €1.1675: £1.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 30 June 2023 was an asset of
£171.0 million (31 December 2022: asset £141.3 million) equivalent to 12.8
pence per share (31 December 2022: asset of 10.6 pence). The movement in 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 was
adjusted on 6 July 2023 to 134.16 pence (31 December 2022: 137.69 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 5.4% from 45.6% to 40.2% and
result in the issue of 111.8 million (31 December 2022: 108.9 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.
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 2022 Annual
Report.
Related party transactions
Related party transactions are disclosed in note 16 to the condensed financial
statements.
Responsible business - continued progress
Environmental impact
We continue to make good progress on our net zero carbon framework commitments
and achieved our first milestone of net zero operations in 2022 one year ahead
of target. We are also on site with our first NZC development at Croft Medical
Centre, West Sussex and continue to progress a 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 five projects in the period, improving EPC ratings to B
from C and D. A further eight projects are currently on site and due to be
completed this year with a long pipeline of additional schemes where we
continue to evaluate options for energy efficiency, renewable energy and net
zero refurbishments. 39% of assets now have an EPC rating of A or B (31
December 2022: 35%) and 84% at A to C (31 December 2022: 81%).
As part of establishing the wider carbon impact of the buildings in our
portfolio, we have continued to engage with tenants and increased the
visibility of their energy and carbon performance and improved the quality of
data we hold, increasing this to 62% of the portfolio (31 December 2022: 60%;
31 December 2021: 8%).
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 2023, we are working with one large
community foundation in the heart of England covering an extended area in the
Midlands as well as aiming to deliver grants directly in combination with our
asset management programme.
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
diversity and equal opportunities within the team and promote the highest
standard of ethics, conduct and inclusion. At the start of the year, we
launched a mentoring programme to provide another dimension of support for
personal and professional development.
Harry Hyman Richard Howell
Chief Executive
Officer
Chief Financial Officer
25 July 2023
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 (£1.4m) 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 2023 Interim Results Announcement, and that the principal
risks presented in the 2022 Annual Report remain relevant for this period.
Increasing risks
The Board has continued to undertake a robust assessment of emerging and
increasing risks faced by the Group.
Since the release of our 2022 full-year results, the global economic
uncertainty has continued. Within the UK, the main challenges facing the
economy are rising interest rates and heightened inflation and the increasing
risk of recession, compounded by the impact of the ongoing war in Ukraine. The
potential adverse impact of these factors on our business includes reduced
demand for our assets impacting property values in the investment market, the
ability for us to continue to execute our acquisition and development strategy
and increased financing costs, which could impact our rental income and
earnings. The Board and key Committees have continued to oversee the Group's
response to the impact of these challenges on our business and the wider
economic influences throughout the period.
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%/£278 million fall in the December 2023 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 2023, 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 2023 level, 6.7p 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 2023 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 2023 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 (ISRE (UK) 2410). 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
ISRE (UK) 2410; 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
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion 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 ISRE (UK) 2410.
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
25 July 2023
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2023
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2023 2022 2022
£m £m £m
Notes (unaudited) (unaudited) (audited)
Rental and related income 2 83.9 76.8 154.1
Direct property expenses (7.9) (5.7) (12.6)
Net rental and related income 76.0 71.1 141.5
Administrative expenses (6.1) (5.5) (9.6)
Amortisation of intangible assets (0.4) - -
Axis acquisition costs (0.2) - -
Total administrative expenses 3 (6.7) (5.5) (9.6)
Revaluation (deficit)/ gain on property portfolio 9 (11.9) 51.2 (64.4)
Profit on sale of land and properties - - 2.9
Total revaluation (deficit)/ gain (11.9) 51.2 (61.5)
Operating profit 3 57.4 116.8 70.4
Finance income 4 - 0.5 0.9
Finance costs 5 (22.5) (20.0) (41.2)
Fair value loss on derivative interest rate swaps and
amortisation of cash flow hedging reserve 5 (1.7) (1.4) (1.9)
Fair value gain on convertible bond 5 5.6 11.8 28.7
Profit before taxation 38.8 107.7 56.9
Taxation credit/ (charge) 6 0.7 (0.6) (0.6)
Profit after taxation for the period/year(1) 39.5 107.1 56.3
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
1.9 2.3 4.5
Exchange (loss)/ gain on translation of foreign balances (0.1) 1.3 3.2
Other comprehensive income for the period net of tax(1) 1.8 3.6 7.7
Total comprehensive income for the period net of tax(1) 41.3 110.7 64.0
IFRS earnings per share
Basic 7 3.0p 8.0p 4.2p
Diluted 7 2.5p 6.8p 2.2p
Adjusted earnings per share(2)
Basic 7 3.4p 3.4p 6.6p
Diluted 7 3.3p 3.3p 6.4p
(1) Wholly attributable to equity shareholders of Primary Health Properties
PLC
(2) See Glossary of Terms on pages 50 to 52.
The above relates wholly to continuing operations.
Condensed Group Balance Sheet As at 30 June 2023
30 June 30 June 31 December
2023 2022 2022
£m £m £m
Notes (unaudited) (unaudited) (audited)
Non-current assets
Investment properties 9 2,783.4 2,887.2 2,796.3
Derivative interest rate swaps 14 22.6 13.1 19.6
Intangible assets 6.6 - -
Fixed assets 0.6 0.5 0.4
2,813.2 2,900.8 2,816.3
Current assets
Trade and other receivables 22.6 18.3 17.8
Cash and cash equivalents 10 2.4 29.7 29.1
Assets held for sale - 25.0 -
Development work in progress 1.4 0.8 1.3
26.4 73.8 48.2
Total assets 2,839.6 2,974.6 2,864.5
Current liabilities
Deferred rental income (30.3) (29.6) (29.2)
Trade and other payables (34.1) (45.5) (32.6)
Borrowings: term loans and overdraft 11 (2.3) (2.2) (2.3)
(66.7) (77.3) (64.1)
Non-current liabilities
Borrowings: term loans and overdraft 11 (669.5) (684.1) (682.5)
Borrowings: bonds 12 (603.8) (626.7) (614.6)
Derivative interest rate swaps 14 (13.4) (7.8) (12.5)
Head lease liabilities 13 (3.0) (4.5) (3.2)
Deferred tax liability (4.5) (5.3) (5.4)
(1,294.2) (1,328.4) (1,318.2)
Total liabilities (1,360.9) (1,405.7) (1,382.3)
Net assets 1,478.7 1,568.9 1,482.2
Equity
Share capital 17 167.1 166.8 167.1
Share premium account 479.4 476.3 474.9
Merger and other reserves 18 416.6 414.8 416.7
Hedging reserve (9.2) (13.3) (11.1)
Retained earnings 424.8 524.3 430.1
Total equity(1) 1,478.7 1,568.9 1,482.2
Basic net asset value per share
IFRS net assets - basic and diluted 7 110.6 117.6 110.9p
Adjusted net tangible assets(2) - basic 7 111.1 120.8 112.6p
Adjusted net tangible assets(2) - diluted 7 113.1 122.4 114.5p
(1) Wholly attributable to equity shareholders of Primary Health Properties
PLC.
(2) See Glossary of Terms on pages 50 to 52.
Condensed Group Cash Flow Statement For the six months ended 30 June 2023
Six months ended 30 June 2023 Six months ended 30 June 2022 Year ended 31 December 2022
£m £m £m
Notes (unaudited) (unaudited) (audited)
Operating activities
Profit on ordinary activities after tax 39.5 107.1 56.3
Taxation (credit) / charge 6 (0.7) 0.6 0.6
Finance income 4 - (0.5) (0.9)
Finance costs 5 22.5 20.0 41.2
Fair value loss on derivatives 1.7 1.4 1.9
Fair value gain on convertible bond (5.6) (11.8) (28.7)
Operating profit before financing costs 57.4 116.8 70.4
Adjustments to reconcile Group operating profit to net cash flows from
operating activities:
Revaluation deficit / (gain) on property portfolio 9 11.9 (51.2) 64.4
Profit on sale of land and property - - (2.9)
Amortisation of intangible assets 0.4 - -
Long term incentive plan (LTIP) - 0.1 -
Effect of exchange rate fluctuations on operations (0.1) - -
Fixed rent uplift (0.4) (0.5) (0.9)
Tax (paid) / received (0.1) 0.1 0.2
(Increase) / decrease in trade and other receivables (4.5) (0.2) (0.7)
Increase / (decrease) in trade and other payables 1.7 (15.1) (12.9)
Cash generated from operations 66.3 50.0 117.6
Net cash flow from operating activities 66.3 50.0 117.6
Investing activities
Payments to acquire and improve properties and fixed assets (5.6) (39.1) (74.8)
Receipts from disposal of properties - - 27.5
Cash paid for acquisition of Axis (5.2) - -
Interest received on development loans - 0.4 1.5
Net cash flow used in investing activities (10.8) (38.7) (45.8)
Financing activities
Costs of share issues - (0.1) (0.1)
Term bank loan drawdowns 126.8 88.9 161.6
Term bank loan repayments (138.7) (103.5) (175.7)
Proceeds from bond issue - 62.9 62.9
Loan arrangement fees (0.9) (2.5) (3.5)
Premium paid on derivatives financial instruments (1.9) - -
Non-utilisation fees (1.1) (1.1) (2.0)
Interest paid (22.8) (19.1) (39.8)
Swap interest received 1.4 0.9 1.4
Equity dividends paid net of scrip dividend 8 (44.8) (41.6) (81.6)
Net cash flow used in financing activities (82.0) (15.2) (76.8)
Increase in cash and cash equivalents (26.5) (3.9) (5.0)
Effect of exchange rate fluctuations on Euro denominated loans and cash
equivalents
(0.2) 0.2 0.7
Cash and cash equivalents at start of period / year 29.1 33.4 33.4
Cash and cash equivalents at end of period / year 10 2.4 29.7 29.1
Condensed Group Statement of Changes in Equity For the six months ended 30 June 2023 (unaudited)
Six months ended 30 June 2023 (unaudited)
Merger &
Share capital Share premium other Hedging reserve Retained earnings
reserves Total
£m £m £m £m £m £m
1 January 2023 167.1 479.4 416.7 (11.1) 430.1 1,482.2
Profit for the period - - - - 39.5 39.5
Other comprehensive income
Exchange gain on translation of foreign balances - - (0.1) - - (0.1)
Amortisation of hedging reserve - - - 1.9 - 1.9
Total comprehensive income - - (0.1) 1.9 39.5 41.3
Share issue expenses - - - - - -
Shares based awards (LTIP) - - - - - -
Dividends paid - - - - (44.8) (44.8)
Scrip dividend in lieu of cash - - - - - -
30 June 2023 167.1 479.4 416.6 (9.2) 424.8 1,478.7
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
Condensed Group Statement of Changes in Equity (continued)
Year ended 31 December 2022 (audited)
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 - - - - 56.3 56.3
Other comprehensive income
Exchange gain on translation of foreign balances - - 3.2 - - 3.2
Amortisation of hedging - - - 4.5 - 4.5
reserve
Total comprehensive income - - 3.2 4.5 56.3 64.0
Share issue expenses - (0.1) - - - (0.1)
Share-based awards ("LTIP") - - - - - -
Dividends paid - - - - (81.6) (81.6)
Scrip dividend in lieu of cash 0.5 4.6 - - (5.1) -
31 December 2022 167.1 479.4 416.7 (11.1) 430.1 1,482.2
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 2022 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 21 to 22. These condensed consolidated interim
financial statements of the Group for the six months ended 30 June 2023 were
approved and authorised for issue by the Board on 25 July 2023.
Basis of preparation/statement of compliance
The condensed consolidated interim financial statements for the six months
ended 30 June 2023 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 2022.
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%/£278m fall in December 2023 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 2023, 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 2023 level, 6.7p 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 2023 was 45.6% (30 June 2022: 43.1%) and the Group's
interest cover for the period under review was 3.1 times (30 June 2022: 3.4),
well above the minimum Group banking covenant of 1.3 times (30 June 2022:
1.3).
The Board has continued to undertake a robust assessment of emerging and
increasing risks faced by the Group.
Since the release of our 2022 full-year results, the global economic
uncertainty has continued. Within the UK, the main challenges facing the
economy are rising interest rates and heightened inflation and the increasing
risk of recession, compounded by the impact of the ongoing war in Ukraine. The
potential adverse impact of these factors on our business includes reduced
demand for our assets impacting property values in the investment market, the
ability for us to continue to execute our acquisition and development strategy
and increased financing costs, which could impact our rental income and
earnings. The Board and key Committees have continued to oversee the Group's
response to the impact of these challenges on our business and the wider
economic influences throughout the period.
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:
Intangible assets
Contract based intangible assets comprise the value of customer contracts
arising on business combinations. Intangible assets arising on business
combinations are initially recognised at fair value. Intangible assets arising
on business combinations are amortised on a straight line basis to the income
statement over their expected useful lives, and are carried at depreciated
historical cost.
2. Rental and related income
Revenue comprises rental income receivable on property investments in the UK
and Ireland, which is exclusive of VAT, plus facilities and properties
management income. Revenue is derived from one reportable operating segment.
3. Operating profit
Operating profit is stated after charging administrative expense of £6.1m,
amortisation of intangible assets of £0.4m and Axis acquisition costs of
£0.2m (30 June 2022: £5.5m). Administrative expenses as a proportion of
rental and related income were 7.3% (30 June 2022: 7.2%). The Group's EPRA
cost ratio has decreased to 10.1%, compared to 10.5% for the same period in
2022.
Administrative expenses include staff costs of £3.4m (30 June 2022: £3.0m).
In the year PHP acquired Axis, an Irish property management business. In the
period Axis contributed £1.3m of related income and incurred direct property
expenses of £0.8m, contributing £0.5m of net related income. After the
deduction of £0.2m administrative expenses Axis generated an operating profit
of £0.3m.
Notes to the condensed financial statements (continued)
4. Finance income
Six months Six months Year ended 31 December
ended 30 June 2023 ended 30 June 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
Interest income on financial assets
Development loan interest - 0.5 0.9
- 0.5 0.9
5. Finance costs
Six months Six months Year ended 31 December
ended ended 2022
30 June 2023 30 June 2022
£m £m £m
(unaudited) (unaudited) (audited)
Interest expense and similar charges on financial liabilities
(i) Interest
Bank loan interest 13.4 11.2 23.0
Swap interest (1.8) (0.7) (1.4)
Bond interest 9.8 8.4 17.5
Bank facility non utilisation fees 1.1 1.0 2.0
Bank charges and loan arrangement fees 1.6 1.5 3.0
24.1 21.4 44.1
Interest capitalised (0.1) - -
Amortisation of MedicX debt MtM at acquisition (1.5) (1.4) (2.9)
22.5 20.0 41.2
Six months Six months Year ended 31 December
ended 30 June 2023 ended 30 June 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
(ii) Derivatives
Net fair value gain on interest rate swaps 0.2 0.9 2.6
Amortisation of cash flow hedging reserve (1.9) (2.3) (4.5)
(1.7) (1.4) (1.9)
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.
An amount of £1.9m (30 June 2022: £2.3m), (31 December 2022: £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 2022
30 June 2023 30 June 2022
£m £m £m
(unaudited) (unaudited) (audited)
(iii) Convertible bond
Fair value gain on Convertible bond 5.6 11.8 28.7
5.6 11.8 28.7
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 2022
30 June 2023 30 June 2022
£m £m £m
(unaudited) (unaudited) (audited)
Finance income (Note 4) - 0.5 0.9
Finance costs (Note 5 (i)) (24.0) (21.4) (41.2)
(24.0) (20.9) (40.3)
Amortisation of MedicX debt MtM on acquisition 1.5 1.4 (2.9)
Net finance costs (22.5) (19.5) (43.2)
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%
(2022: 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 2023.
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 2023 ended 30 June 2022 2022
£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 charge/(credit) - (0.1) (0.2)
Deferred tax on Irish activities (0.7) 0.7 0.8
Taxation (credit)/ charge in the Condensed Group Statement of
Comprehensive Income (0.7) 0.6 0.6
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 2023 30 June 2022
(unaudited)
(unaudited)
IFRS Adjusted earnings EPRA IFRS Adjusted earnings EPRA
earnings £m earnings earnings £m earnings
£m £m £m £m
Profit after taxation 39.5 39.5 39.5 107.1 107.1 107.1
Adjustments to remove:
Revaluation deficit/ (gain) on property portfolio - 11.9 11.9 - (51.2) (51.2)
Profit on sale of land and property - - - - - -
Fair value movement on derivatives - 1.7 1.7 - 1.4 1.4
Fair value movement and issue costs on
convertible bond - (5.6) (5.6) - (11.8) (11.8)
Taxation (credit)/ charge - (0.7) (0.7) - 0.6 0.6
Amortisation of intangible assets 0.4 0.4 - - -
Axis acquisition costs - 0.2 0.2 - - -
Amortisation of MtM loss on debt acquired - (1.5) - - (1.4) -
Basic earnings 39.5 45.9 47.4 107.1 44.7 46.1
Dilutive effect of convertible bond (3.5) 2.1 2.1 (9.6) 2.1 2.1
Diluted earnings 36.0 48.0 49.5 97.5 46.8 48.2
Number of
shares
million million million million million million
Ordinary Shares 1,336.5 1,336.5 1,336.5 1,333.5 1,333.5 1,333.5
Dilutive effect of convertible bond 108.9 108.9 108.9 105.4 105.4 105.4
Diluted Ordinary Shares 1,445.4 1,445.4 1,445.4 1,438.9 1,438.9 1,438.9
Profit per share attributable to
shareholders:
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Basic 3.0 3.4 3.5 8.0 3.4 3.5
Diluted 2.5 3.3 3.4 6.8 3.3 3.4
Notes to the condensed financial statements (continued)
31 December 2022
(audited)
IFRS Adjusted earnings EPRA
earnings £m earnings
£m £m
Profit after taxation 56.3 56.3 56.3
Adjustments to remove:
Revaluation deficit on property portfolio - 64.4 64.4
Profit on the sale of land - (2.9) (2.9)
Fair value movement on derivatives - 1.9 1.9
Fair value movement and issue costs on
convertible bond - (28.7) (28.7)
Taxation charge - 0.6 0.6
Amortisation of MtM loss on debt
acquired - (2.9) -
Basic earnings 56.3 88.7 91.6
Dilutive effect of convertible bond (24.3) 4.3 4.3
Diluted earnings 32.0 93.0 95.9
7. Earnings per share (continued) Earnings per share
Number of shares
million million million
Ordinary Shares 1,334.8 1,334.8 1,334.8
Dilutive effect of convertible bond 108.9 108.9 108.9
Diluted Ordinary Shares 1,443.7 1,443.7 1,443.7
Profit per share attributable to
shareholders:
IFRS Adjusted EPRA
pence pence pence
Basic 4.2 6.6 6.9
Diluted 2.2 6.4 6.6
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net assets per share
30 June 2023 30 June 2022
(unaudited)
(unaudited)
IFRS Adjusted EPRA IFRS Adjusted EPRA
£m £m £m £m £m £m
Net assets attributable to shareholders 1,478.7 1,478.7 1,478.7 1,568.9 1,568.9 1,568.9
Derivative interest rate swaps liability - (9.2) (9.2) - (5.3) (5.3)
Deferred tax - 4.5 4.5 - 5.3 5.3
Intangible assets - (6.6) (6.6) - - -
Cumulative convertible bond fair value - -
movement (12.7) (12.7) 9.8 9.8
MtM on MedicX loans net of - -
amortisation 30.0 - 33.0 -
Net tangible assets ("NTA") 1,478.7 1,484.7 1,454.7 1,568.9 1,611.7 1,578.7
Intangible assets - - 6.6 - - -
Real estate transfer taxes - - 194.4 200.6
Net reinstatement value ("NRV") 1,478.7 1,484.7 1,655.7 1,568.9 1,611.7 1,779.3
Fixed rate debt and swap mark-to- - - - -
market value 197.5 75.5
Deferred tax - - (4.5) - - (5.3)
Cumulative convertible bond fair value - - - -
movement 12.7 (9.8)
Real estate transfer taxes - - (194.4) - - (200.6)
Net disposal value ("NDV") 1,478.7 1,484.7 1,667.0 1,568.9 1,611.7 1,639.1
Number of
shares
million million million million million million
Ordinary Shares 1,336.5 1,336.5 1,336.5 1,333.5 1,333.5 1,333.5
Dilutive effect of convertible bond 108.9 108.9 108.9 105.4 105.4 105.4
Diluted Ordinary Shares 1,445.4 1,445.4 1,445.4 1,438.9 1,438.9 1,438.9
Basic net asset value per share(1)
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 110.6 111.1 108.8 117.6 120.8 118.3
Net reinstatement value ("NRV") 123.9 133.4
Net disposal value ("NDV") 124.7 122.9
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") 112.7 113.1 111.0 110.3 122.4 120.1
Net reinstatement value ("NRV") 124.9 134.0
Net disposal value ("NDV") 125.7 124.3
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 137.69 pence (30 June 2022: 142.29 pence) (31
December 2022: 137.69 pence).
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net assets per share
31 December 2022
(audited)
IFRS Adjusted EPRA
£m £m £m
Net assets attributable to shareholders 1,482.2 1,482.2 1,482.2
Derivative interest rate swaps liability - (7.1) (7.1)
Deferred tax - 5.4 5.4
Cumulative convertible bond fair value -
movement (7.1) (7.1)
MtM on MedicX loans net of -
amortisation 31.4 -
Net tangible assets ("NTA") 1,482.2 1,504.8 1473.4
Real estate transfer taxes 189.1
Net reinstatement value ("NRV") 1,482.2 1,504.8 1,662.5
Fixed rate debt and swap mark-to- - -
market value 172.7
Deferred tax - - (5.4)
Cumulative convertible bond fair value - -
movement 7.1
Real estate transfer taxes - - (189.1)
Net disposal value ("NDV") 1,482.2 1,504.8 1,647.8
Number of shares
million million million
Ordinary Shares 1,334.8 1,334.8 1,334.8
Dilutive effect of convertible bond 108.9 108.9 108.9
Diluted Ordinary Shares 1,443.7 1,443.7 1,443.7
Basic net asset value per share(1)
IFRS Adjusted EPRA
pence pence pence
Net tangible assets ("NTA") 110.9 112.6 110.2
Net reinstatement value ("NRV") 124.4
Net disposal value ("NDV") 123.3
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") 112.9 114.5 112.3
Net reinstatement value ("NRV") 125.4
Net disposal value ("NDV") 124.4
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 137.69 pence (30 June 2022: 142.29 pence) (31
December 2022: 137.69 pence).
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Conversion of the convertible bond would result in the issue of 108.9 million
(31 December 2022: 108.9 million) new Ordinary Shares. The IFRS net asset
value and EPRA NDV would increase by £137.3 million (31 December 2022:
£142.9 million) and the EPRA NTA, Adjusted NTA and EPRA NRV would increase by
£150.0 million (31 December 2022: £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 2023 ended 30 June 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
Quarterly interim dividend paid 23 February 2023 22.4 - -
Quarterly interim dividend paid 19 May 2023 22.4 - -
Quarterly interim dividend paid 25 February 2022 - 21.0 21.0
Scrip dividend in lieu of quarterly cash dividend 25 February 2022 - 0.6 0.6
Quarterly interim dividend paid 20 May 2022 - 20.6 20.6
Scrip dividend in lieu of quarterly cash dividend 20 May 2022 - 1.1 1.1
Quarterly interim dividend paid 19 August 2022 - - 18.1
Scrip dividend in lieu of quarterly cash dividend 19 August 2022 - - 3.4
Quarterly interim dividend paid 25 November 2022 - - 21.9
Total dividends distributed 44.8 43.3 86.7
Per share 3.35p 3.25p 6.5p
The Company will pay a third interim dividend of 1.675 pence per Ordinary
Share for the year ending 31 December 2023, payable on 18 August 2023. The
dividend will comprise a Property Income Distribution ("PID") of 1.340 pence
per share and an ordinary dividend of 0.335 pence per share. The scrip
dividend scheme was suspended in light of the falls in the share price in 2022
and first half of 2023 and the company continues to offer a dividend
reinvestment plan in its place.
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under
construction
Investment properties
Investment properties freehold Investment under construction
long leasehold
Total
£m £m £m £m
As at 1 January 2023 (audited) 2,214.5 577.3 4.5 2,796.3
Reclassification of land(1) 0.9 - (0.9) -
Property additions 5.5 0.1 - 5.6
Impact of lease incentive adjustment 0.1 0.2 - 0.3
Lease ground rent adjustment - (0.2) - (0.2)
Foreign exchange movements (4.3) (2.4) - (6.7)
Revaluations for the period (2.8) (5.7) (3.4) (11.9)
As at 30 June 2023 (unaudited) 2,213.9 569.3 0.2 2,783.4
(1) Includes development land held at £0.9m (31 December 2022: £0.7m)
Total
£m
Fair value per AY UK valuation 1,217.6
Fair value of JLL UK valuation 1,343.9
Fair value of CBRE Ireland valuation 218.9
2,780.4
Ground rents recognised as finance leases 3.0
Fair value 30 June 2023 (unaudited) 2,783.4
The investment properties have been independently valued at fair value by
Avison Young ("AY"), 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 2022 ("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 99.6% let (31 December 2022: 99.7%). The valuations
reflected a 4.90% net initial yield (31 December 2022: 4.82%). 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
£6.3m (31 December 2022: £2.8m) 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 £9.2m (30 June 2022:
£11.8m; 31 December 2022: £9.9m) 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 £3.0m head
lease liability and an equal and opposite finance lease 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 2023 and 31 December 2022. There were no
transfers between levels during the period or during 2022. 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).
10. Cash and cash equivalents
30 June 2023 31 December 2022
£m £m
(unaudited) (audited)
Cash held at bank 2.4 29.1
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
2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Current
RBS Overdraft Jun 2024 5.0 5.0 - - 5.0 5.0
Aviva loan1 Sep 2033 2.3 2.3 2.3 2.3 - -
7.3 7.3 2.3 2.3 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 Sep 2025 100.0 100.0 - - 100.0 100.0
HSBC loan Nov 2025 100.0 100.0 34.4 25.5 65.6 74.5
Lloyds loan Dec 2025 100.0 100.0 21.7 32.5 78.3 67.5
NatWest loan Oct 2024 100.0 100.0 32.9 41.8 67.1 58.2
Santander loan Jan 2025 50.0 50.0 37.4 38.6 12.6 11.4
Aviva loan1 Sep 2033 221.7 222.9 221.7 222.9 - -
Aviva loan1 Sep 2028 30.8 30.8 30.8 30.8 - -
977.5 978.7 653.9 667.1 323.6 311.6
Total 984.8 986.0 656.2 669.4 328.6 316.6
1 Acquired as part of the merger with MedicX.
At 30 June 2023, total facilities of £1,600.8m (31 December 2022: £1,607.0m)
were available to the Group. This included term loan facilities and the bonds
in note 12. Of these facilities, as at 30 June 2023, £1,272.2m was drawn (31
December 2022: £1,290.4m).
Costs associated with the arrangement of the facilities, including legal
advice and loan arrangement fees, are amortised using the effective interest
rate.
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
2023 2022
£m £m
(unaudited) (audited)
Term loans drawn: due within one year 2.3 2.3
Term loans drawn: due in greater than one year 653.9 667.1
Total term loans drawn 656.2 669.4
Plus: MtM on loans net of amortisation 26.0 27.1
Less: unamortised borrowing costs (10.4) (11.7)
Total term loans per the Condensed Group Balance Sheet 671.8 684.8
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
2023 2022
£m £m
(unaudited) (audited)
Unsecured
Convertible bond July 2025 at fair value 137.3 142.9
Total unsecured bonds 137.3 142.9
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 43.8 45.1
€70 million secured bond (Euro private placement) September 2031 60.2 62.0
€75 million secured bond (Euro private placement) February 2034 64.4 66.4
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised issue costs (3.4) (3.6)
Plus: MtM on loans net of amortisation 4.0 4.3
Total secured bonds 466.5 471.7
Total bonds 603.8 614.6
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 at an annualised
rate of 220bps plus a credit spread adjustment of 28bps above six-month SONIA,
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 (£43.8
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
(£60.2 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 (£64.4 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 134.16 pence on 6 July 2023
(31 December 2022: 137.69 pence).
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued) Convertible Bond
30 June 31 December
2023 2022
(unaudited) (audited)
£m £m
Opening balance - fair value 142.9 171.6
Cumulative fair value movement in convertible bond (5.6) (28.7)
Closing balance - fair value 137.3 142.9
The fair value of the convertible bond at 30 June 2023 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
2023 2022
(unaudited) (audited)
£m £m
Due within one year 0.1 0.1
Due after one year 2.9 3.1
Closing balance - fair value 3.0 3.2
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 2023 (audited) 19.6
Premium on new Euro currency caps 1.9
Fair value movement in the period 1.1
As at 30 June 2023 (unaudited) 22.6
Liabilities
As at 1 January 2023 (audited) (12.5)
Fair value movement in the period (0.9)
As at 30 June 2023 (unaudited) (13.4)
Total - derivative financial instruments
As at 1 January 2023 (audited) 7.1
Premium on new Euro currency caps 1.9
Fair value movement in the period 0.2
As at 30 June 2023 (unaudited) 9.2
On 18 April 2023, the Group converted €60.0 million (£51.6 million) of
sterling equivalent denominated debt into euros across its various revolving
credit facilities. The Group purchased 2.0% caps on €60m nominal value for a
period of 2.5 years until October 2025 for an all-in premium of €2.2 million
(£1.9 million).
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 2023 30 June 2023 31 December 2022 31 December 2022
(unaudited) (unaudited) (audited) (audited)
£m £m £m £m
Financial assets
Trade and other receivables 22.6 22.6 17.8 17.8
Ineffective interest rate swaps 22.6 22.6 19.6 19.6
Cash and short-term deposits 2.4 2.4 29.1 29.1
Financial liabilities
Interest-bearing loans and
borrowings (1,272.2) (1,101.2) (1,290.4) (1,149.1)
Ineffective interest rate swaps (13.4) (13.4) (12.5) (12.5)
Trade and other payables (34.1) (34.1) (32.6) (32.6)
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
2023. 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 2023 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 - 22.6 - 22.6
Financial liabilities
Derivative interest rate swaps - (13.4) - (13.4)
Convertible bond (137.3) - - (137.3)
Fixed rate debt - (904.8) - (917.5)
Fair value measurements at 31 December 2022 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 - 19.6 - 19.6
Financial liabilities
Derivative interest rate swaps - (12.5) - (12.5)
Convertible bond (142.9) - - (142.9)
Fixed rate debt - (797.8) - (797.8)
(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 2022: £35,100; 31 December 2022: £70,200).
As at 30 June 2023, outstanding fees payable to Nexus totalled £nil (31
December 2022: £nil; 30 June 2022: £nil).
17. Share capital
30 June 30 June 31 December
2023 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
Issued and fully paid Ordinary Shares at 12.5p each 167.1 166.8 167.1
At beginning of year 167.1 166.6 166.6
Scrip issues in lieu of cash dividends - 0.2 0.5
167.1 166.8 167.1
18. Merger and other reserves
30 June 30 June 31 December
2023 2022 2022
£m £m £m
(unaudited) (unaudited) (audited)
At beginning of year 416.7 413.5 413.5
Exchange gain on translation of foreign balances (0.1) 1.3 3.2
416.6 414.8 416.7
19. Subsequent events
There have been no significant events affecting the Company since the period
ended 30 June 2023.
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
25 July 2023
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.
Adjusted NTA per share is adjusted NTA divided by the number of shares in
issue at the balance sheet date.
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.
Average cost of debt is the total interest cost of drawn debt and swaps,
divided by the amount of drawn debt.
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 Adjusted 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.
EBITDA is operating profit excluding amortisation of intangibles, Axis
acquisition costs and investment property revaluations.
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, associated close-out costs and their
related taxation, and amortisation of non-monetary items such as intangible
assets.
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 and intangible assets.
EPRA NAV per share is the balance sheet net assets excluding own shares held,
the MtM value of derivative financial instruments, the convertible bond fair
value movement and intangible assets, 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) is the balance sheet net assets but
excluding the MtM value of derivative financial instruments, deferred tax,
intangible assets 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.
IASs are International Accounting Standards as adopted by the United Kingdom.
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 related income is the Related income after the payment
of direct property costs that include service charge payments.
Net rental and related income is the sum of Net rental income and Net related
income.
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" (.
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.
Occupancy is the level of units occupied, after deducting the ERV vacancy
rate.
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.
Progressive dividends is where it is expected to continue to rise each year on
a per share basis.
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.
Related income is the property and service charge income generated from the
Axis business.
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.
Glossary of terms (continued)
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.
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 and related income 76.0
Revaluation surplus and profit on sales (11.9)
64.1
Opening property assets 2,796.3
Weighted additions in the period 2.8
Impact of foreign exchange movements (3.4)
2,795.7
Total property return 2.3%
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 EPRA net tangible asset value.
At 31 December 2022 112.6p
At 30 June 2023 111.1p
Increase / (decrease) (1.5)p
Add: Dividends paid
23/02/2023 Q1 interim 1.675p
19/05/2023 Q2 interim 1.675p
Total return 3.35p
Total adjusted NTA return 1.6%
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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. END IR DELFLXDLEBBFRecent news on Primary Health Properties
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