REG - Primary Health Props - Preliminary Results
16/02/2022 07:00
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RNS Number : 7956B Primary Health Properties PLC 16 February 2022
Primary Health Properties PLC
Preliminary results for the year ended 31 December 2021
Successful management internalisation, refinancing and operational performance
drive earnings growth
Primary Health Properties PLC ("PHP", the "Group" or the "Company"), a leading
investor in modern primary health facilities, announces its audited
preliminary results for the year ended 31 December 2021.
Harry Hyman, Chief Executive, commented:
"2021 has been another strong year of progress for PHP, having successfully
completed the internalisation of our management structure and refinanced a
number of legacy loan facilities which have delivered substantial annual cost
savings. In addition, we have a strong targeted pipeline and continue to see
good organic rental growth from rent reviews and asset management projects
with record levels of activity during the year.
"Throughout 2021 PHP has successfully worked with the NHS, HSE and the Group's
GP tenants to help them utilise our properties for deployment in the front
line of the COVID-19 pandemic, delivering vaccines and boosters across the UK
and Ireland. The need for modern, integrated, local primary healthcare
facilities is becoming ever more pressing in order to relieve the pressures
being placed on hospitals and A&E departments and to catch up on the
back-log of missed procedures.
"Having successfully delivered 25 years of secure and reliable growth for our
shareholders, we have firmly established ourselves as a sector leader and the
Board looks forward to delivering further earnings and dividend growth in 2022
and remains confident in PHP's future outlook."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Income statement metrics Year to Year to
31 December 31 December Change
2021 2020
Net rental income(1) £136.7m £131.2m +4.2%
Adjusted earnings(1,2) £83.2m £73.1m +13.8%
Adjusted earnings per share(1,2) 6.2p 5.8p +6.9%
IFRS profit for the year £140.1m £112.0m +25.1%
IFRS earnings per share(2) 10.5p 8.8p
EPRA cost ratio 9.3% 11.9% -260 bps
Dividends
Dividend per share(5) 6.2p 5.9p +5.1%
Dividends paid(5) £82.4m £73.3m +12.4%
Dividend cover(1) 101% 100%
Balance sheet and operational metrics 31 December 31 December
2021 2020 Change
Adjusted NTA (NAV) per share(1,3) 116.7p 112.9p +3.4%
IFRS NTA per share(1,3) 112.5p 107.5p +4.7%
Total adjusted NTA return(1) 8.9% 10.1% -120 bps
Property portfolio
Investment portfolio valuation(4) £2.796bn £2.576bn +4.1%
Net initial yield ("NIY")(1) 4.64% 4.81%
Total property return 9.5% 7.4% +210 bps
Contracted rent roll (annualised)(1,7) £140.7m £135.2m +4.1%
Weighted average unexpired lease term ("WAULT")(1) 11.6 years 12.1 years
Occupancy 99.7% 99.6%
Rent-roll funded by government bodies(1) 90% 90%
Debt
Average cost of debt 2.9% 3.5% -60 bps
Loan to value ratio(1) 42.9% 41.0%
Weighted average debt maturity - drawn facilities(8) 8.2 years 6.5 years +1.7 years
Total undrawn loan facilities and cash(6,8) £321.2m £361.5m
(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 9, earnings per share, to the financial statements.
(3) See note 9, 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 year based on the difference
between opening and closing valuations of properties after allowing for
acquisition costs and capital expenditure.
(5) See note 10, 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 year is based on the
annualised uplift achieved from all completed rent reviews and asset
management projects.
(8) Pro-forma including debt facilities secured post year-end.
DELIVERING EARNINGS AND DIVIDEND GROWTH
· Adjusted earnings per share increased by 6.9% to 6.2p (2020: 5.8p)
· Contracted annualised rent roll increased by 4.1% to £140.7 million
(31 December 2020: £135.2 million)
· Additional annualised rental income on a like-for-like basis of £2.4
million or 1.8% from rent reviews and asset management projects (FY 2020:
£2.0 million or 1.6%; FY 2019: £1.9 million or 1.5%)
· Successful refinancing of a number of legacy loan facilities with Aviva
Investors reducing average cost of debt to 2.9% (31 December 2020: 3.5%)
resulting in annualised interest cost savings of approximately £5.0 million
· Successfully completed the internalisation of the Group's management
structure which resulted in annual cost savings of approximately £4.0
million, equivalent to 0.3 pence per share
· EPRA cost ratio reduced to 9.3% (FY 2020: 11.9%) the lowest in the UK
REIT sector
· Quarterly dividends totalling 6.2 pence per share distributed in the
year, a 5.1% increase over 2020 (5.9 pence per share)
· First quarterly dividend of 1.625 pence per share declared, payable on
25 February 2022, equivalent to 6.5 pence on an annualised basis and a 4.8%
increase over the 2021 dividend per share, marking the Company's 26(th)
consecutive year of dividend growth
DELIVERING NET ASSET VALUE GROWTH
· Adjusted Net Tangible Assets ("NTA") per share increased by 3.4% to
116.7 pence (31 December 2020: 112.9 pence)
· Property portfolio at 31 December 2021 valued at £2.8 billion (31
December 2020: £2.6 billion) reflecting a net initial yield of 4.64% (31
December 2020: 4.81%)
· Revaluation surplus, including profit on sales, was generated in the
year of £110.5 million (31 December 2020: £51.4 million), representing
growth of 4.1% (2020: 2.0%)
· Strong pipeline of targeted acquisitions, developments and asset
management projects with a value of approximately £337 million in the UK and
£107 million (€127 million) in Ireland of which £72 million and £80
million (€95 million) is in legal due diligence in both countries
· Portfolio in Ireland now comprises 20 assets, valued at £213 million
(€253 million)
· The portfolio's metrics continue to reflect the secure, long-term and
predictable income stream with occupancy at 99.7% (31 December 2020: 99.6%)
and a WAULT of 11.6 years (31 December 2020: 12.1 years)
· Strong progression of asset management projects with 30 completed in
the year and a further nine currently on-site, investing £15.0 million,
creating additional rental income of £0.4 million per annum and extending the
weighted average unexpired lease term (WAULT) back to over 20 years
DELIVERING FINANCIAL MANAGEMENT
· LTV ratio 42.9% (31 December 2020: 41.0%), towards the lower end of the
Group's targeted range of between 40% to 50%
· Weighted average debt maturity extended to 8.2 years (31 December 2020:
6.5 years)
· Post period end €75 million private placement loan note issued for a
12-year term at a fixed rate of 1.64% to finance continued expansion in
Ireland
· Refinanced a number of legacy loan facilities with Aviva Investors, with
a new sustainability linked £200 million facility for a 15-year term at a
fixed rate of 2.52% and renewed existing facilities with NatWest and Santander
· Significant liquidity headroom with cash and collateralised undrawn loan
facilities totalling £321.2 million (2020: £361.5 million) after capital
commitments
DELIVERING STRONG TOTAL RETURNS
Year ended Year ended
31 December 2021 31 December 2020
Increase in Adjusted NTA plus dividends paid 8.9% 10.1%
Income return 5.2% 5.2%
Capital return 4.3% 2.2%
Total property return(1) 9.5% 7.4%
(1) The definition for total property return is set out in the Glossary of
Terms.
DELIVERING RESPONSIBLE BUSINESS AND ESG
· Net Zero Carbon ("NZC") Framework published with the five key steps the
Group is taking to achieve the ambitious target of being NZC by 2030 for all
of PHP's operational, development and asset management activities
· Construction of PHP's first two NZC developments in Lincolnshire and
West Sussex about to commence in the first quarter of 2022
· All developments completed in the year achieved BREEAM rating of
Excellent or Very Good and all asset management projects completed met EPC
target of B or above
· £300 million of sustainability linked loan facilities with Aviva and
NatWest raised in the year
· £0.2 million distributed from the Community Impact Program to
charities and groups focused on social prescribing and wellbeing linked to the
patients and communities served by PHP's properties
Presentation and webcast:
A virtual briefing for analysts will be held today, 16 February 2022 at
9.30am, via a live webcast and conference call facility.
The presentation will be accessible via live video webcast and a live
conference call facility:
Webcast: https://webcasting.brrmedia.co.uk/broadcast/61e13c18e3976b4d1b2d6e85
(https://webcasting.brrmedia.co.uk/broadcast/61e13c18e3976b4d1b2d6e85)
Tel: +44 (0)330 336 9601
Participant PIN code: 3760982
If you would like to join the briefing, please contact Buchanan via
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) 20 7451 7050 T: +44 (0) 20 3824 1841
E: harry.hyman@phpgroup.co.uk (mailto:harry.hyman@phpgroup.co.uk) E: richard.howell@phpgroup.co.uk
David Rydell/Steph Whitmore/Tilly Abraham/Verity Parker
Buchanan
T: +44 (0) 20 7466 5066
E: php@buchanan.uk.com (mailto:php@buchanan.uk.com)
Chairman's statement
Despite the uncertainty and volatility in the economic environment over the
last two years we have continued to deliver a strong and robust operational
and financial performance and the Group's portfolio has continued to
demonstrate strong resilience throughout this period. The security and
longevity of our income are important drivers of our predictable income stream
and underpin our progressive dividend policy and we have now entered our
26(th) year of continued dividend growth.
Thankfully, the speed and effectiveness of the COVID-19 vaccine rollout has
allowed us to return to some semblance of normality after the latest lockdown
and we must offer our heartfelt thanks to the brilliant people who devised,
mass produced and administered vast numbers of vaccines and boosters.
Since the start of the COVID-19 pandemic, we have seen a significant increase
in the digitalisation and adaptation of triage in both the UK and Ireland with
many initial consultations being carried out online. However, we have not seen
and do not expect to see, any reduction in space requirements across our
portfolio. This is because of the increasing burden being placed on healthcare
systems in both the UK and Ireland as a consequence of the ongoing COVID-19
pandemic, along with the long-term demographic trends of populations that are
growing, ageing and suffering from more instances of chronic illness. Many
services are now expected to move away from hospitals and into primary care
facilities which will undoubtedly require substantial investment in the future
to enable non-urgent and periphery procedures to be dealt with in such
facilities.
PHP has continued to actively work with the NHS in the UK, HSE in Ireland, and
its GP partners in both markets to help them better utilise the Group's
properties for deployment in the ongoing global health crisis. Many of our
primary care facilities and occupiers have been and will be required to
deliver COVID-19 vaccines and boosters for many years to come and to deal with
the backlog of procedures missed over the last two years. We continue to
maintain close relationships with our key stakeholders and GP partners to
ensure we are best placed to help the NHS, HSE, and in particular primary
care, evolve and deal with the pressures placed on them as the 'new normal' is
established.
We recognise that the success of the Group depends on our people and I would
again like to warmly thank the Board and all of our employees for their
continued commitment, dedication and professionalism in ongoing difficult
circumstances.
Acquisition of Nexus and management internalisation
On 5 January 2021, the Group successfully completed the internalisation of its
management structure with shareholders representing 99.95% of the votes cast
voting in favour of the internalisation which resulted in annual cost savings
of approximately £4.0 million, equivalent to 0.3 pence per share, compared to
the position if the business were still externally managed. The assumption of
Nexus's existing management and overhead costs has resulted in lower ongoing
administrative costs to the Group and the EPRA cost ratio has fallen further
to 9.3% (2020: 11.9%) in the year and is now the lowest in the UK REIT sector
by some margin.
Overview of results
PHP's recurring Adjusted earnings increased by £10.1 million or 13.8% to
£83.2m (2020: £73.1 million) and the increase in the year was driven by cost
savings arising from the internalisation of the management structure, the
refinancing of a number of legacy loans with Aviva together with rental growth
from our investment, rent review and asset management activities.
A revaluation surplus and profit on sales of £110.5 million (2020: £51.4
million) was generated in the year from the portfolio, equivalent to 8.3 pence
per share. The valuation surplus was driven by net initial yield ("NIY")
compression in the UK together with rental growth from rent reviews and asset
management projects.
The acquisition of Nexus and the refinancing of a number of legacy loans with
Aviva resulted in exceptional costs of £37.0 million and £24.6 million
respectively being expensed in the year.
A gain on the fair value of interest rate derivatives and convertible bonds
together with the amortisation of the fair value adjustment on the MedicX
fixed rate debt at acquisition of £9.5 million (2020: loss of £12.1 million)
resulted in a profit before tax as reported under IFRS of £141.6 million
(2020: £112.4 million).
The Group has continued to selectively grow its portfolio in the year, adding
nine assets for £86.6 million and selling one for £2.3 million. Rent reviews
and asset management projects completed in the year, or currently on-site,
added £2.4 million or 1.8% (2020: £2.0 million or 1.6%) to the contracted
rent.
The Group's balance sheet remains robust with a loan to value ratio of 42.9%
(2020: 41.0%), which is at the lower end of the targeted range of 40% to 50%,
and has significant liquidity headroom with cash and collateralised undrawn
loan facilities totalling £321.2 million (2020: £361.5 million).
Dividends
The Company distributed a total of 6.2 pence per share in 2021, an increase of
5.1% over 2020 of 5.9 pence per share. The total value of dividends
distributed in the year increased by 12.4% to £82.4 million (2020: £73.3
million), which were covered by Adjusted earnings. Dividends totalling £8.0
million were satisfied through the issuance of shares via the scrip dividend
scheme.
A dividend of 1.625 pence per share was declared on 6 January 2022, equivalent
to 6.5 pence on an annualised basis, which represents an increase of 4.8% over
the dividend distributed per share in 2021. The dividend will be paid to
shareholders on 25 February 2022 who were on the register at the close of
business on 13 January 2022. The dividend will comprise entirely of a normal
dividend of 1.625 pence.
The Company intends to maintain its strategy of paying a progressive dividend,
which the Company pays in equal quarterly instalments, that is covered by
underlying earnings in each financial year. Further dividend payments are
planned to be made on a quarterly basis in May, August and November 2022 which
are expected to comprise a mixture of both property income distribution and
normal dividend.
Total shareholder returns
The Company's share price started the year at 152.8 pence per share and closed
on 31 December 2021 at 151.4 pence, a decrease of 0.9%. Including dividends,
those shareholders who held the Company's shares throughout the year achieved
a Total Shareholder Return of 3.1% (2020: -0.8%).
Over the three years since our merger with MedicX in 2019 we have delivered a
total shareholder return of 50.2%. This compares to the total return delivered
by UK real estate equities (FTSE EPRA Nareit UK Index) of 28.5% and the wider
UK equity sector (FTSE All-Share Index) of 13.2% over the same period.
Environmental, Social and Governance ("ESG")
PHP has a strong commitment to responsible business and ESG matters which 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
are about to start construction of PHP's first two NZC developments in the
first quarter of 2022 and have published with these results, for the first
time, a NZC Framework with the five key steps we are taking to achieve an
ambitious target of being NZC by 2030 for all of PHP's operational,
development and asset management activities and to help our occupiers achieve
NZC by 2040, five years ahead of the NHS's target of becoming the world's
first net zero carbon national health system by 2045 and 10 years ahead of the
UK and Irish Governments' targets of 2050. Further details on our approach to
responsible business can be found in the Annual Report and website.
Board changes
In December 2021, following a review of the composition and diversity of the
Board, it was announced that Ivonne Cantú would be appointed as an
independent Non-executive director of the Company with effect from 1 January
2022.
The Company also announced that Peter Cole, Non-executive director and Chair
of the Remuneration Committee, will not stand for re-election at the Company's
Annual General Meeting ("AGM") scheduled for April 2022 and will accordingly
retire from the Board at that time. It is intended that Ivonne Cantú will
take over as Chair of the Remuneration Committee following the AGM.
The Board is grateful to Peter for his commitment and dedication to the
Company and for chairing the Remuneration Committee, particularly during the
process of internalising the management in 2020 and the transition period in
2021.
Market update and outlook
PHP's mission is to support the NHS, HSE and other healthcare providers, by
being a leading investor in modern, primary care premises. Never has this been
more important as the NHS seeks to work through the backlog of procedures
created by the COVID-19 pandemic and the Government delivers its Levelling Up
agenda. In the longer term, the ageing demographic of western populations
means that health services will also be called upon to address more ongoing,
complex, chronic co-morbidities. PHP stands ready to play its part in
delivering the real estate infrastructure required to meet this need in the
community.
We will continue to actively engage with government bodies, the NHS, HSE in
Ireland and other key stakeholders to establish, enact (where we can), support
and help alleviate increased pressures and burdens currently being placed on
healthcare networks.
In July 2021, the UK Government published a draft Health and Social Care Bill
setting out a number of reforms in order to implement the commitments of the
NHS England Long Term Plan. This included the introduction of regional
Integrated Care Boards and Partnerships tasked with co-ordinating NHS partners
with local government services and budgets such as social care and mental
health, in a geographic area, for the first time; the idea being that services
are then pushed to the most efficient, cost-effective part of the system
(whether primary care, hospital or care home) for the best patient outcomes.
We welcome these reforms and are hopeful they will lead to better outcomes for
patients and to further development opportunities in primary care in the
medium to long-term.
Despite the continued volatility in the economic and political environment and
the prolonged era of low interest rates, there continues to be an unrelenting
search for secure, long and reliable income. Primary healthcare, with its
strong fundamental characteristics and government-backed income, has been a
significant beneficiary of this trend. The UK and Irish markets for primary
healthcare property investment continues to be highly competitive with strong
yields and prices being paid by investors for assets in the sector throughout
2021.
We believe that our activities benefit not only our shareholders but also our
wider stakeholders, including our occupiers, patients, the NHS and HSE,
suppliers, lenders and the wider communities in both the UK and Ireland.
We look forward to 2022 with confidence in our ability to create further
stakeholder value.
Steven Owen
Chairman
15 February 2022
BUSINESS REVIEW
Investment and pipeline
During 2021, the market was characterised by a lack of suitable product,
strong pricing and a very competitive market. However, we continued to make
strong progress in the second half of the year selectively acquiring nine
assets in 2021 for £86.6 million (2020: 27 assets, £93.0 million) and
selling one asset for £2.3 million.
Including standing investments, direct and forward funded developments and
asset management projects, we have continued to generate and grow a strong
pipeline totalling approximately £337 million in the UK and £107 million
(€127 million) in Ireland of which £72 million and £80 million (€95
million) is in legal due diligence in both countries.
Pipeline Number UK Ireland
Investment 11 £87m £18m (€22m)
Direct development 21 £163m -
Forward funded development 12 £20m £89m (€105m)
Asset management 100+ £67m -
Total pipeline 143+ £337m £107m (€127m)
Net zero carbon ("NZC") direct developments
The acquisition of Nexus in January 2021, enabled PHP to acquire the
development expertise of Nexus Developments which at the time of completion
had a pipeline of approximately £80 million of direct development
opportunities at varying stages of progression.
Over the course of 2021 the Group has continued to make good progress,
increase the number of live projects and is on schedule to commence
construction of PHP's first NZC developments in Lincolnshire and West Sussex
in the first quarter of 2022. The two projects have an estimated capital value
of £11 million and are expected to generate a profit on cost of approximately
11%.
In addition to the above, the Group has a significantly advanced pipeline of
£42 million across five projects of direct developments which will be
progressed over the course of 2022 together with a wider medium-term pipeline
at various stages of progress across 14 projects with an estimated capital
value of £110 million.
PHP expects that all future direct developments will be constructed to NZC
standards.
Forward funded developments
During the year, four UK forward funded developments at Mountain Ash, Wales,
Llanbradach, Wales, Epsom, Surrey and at Eastbourne, East Sussex were
completed on time and on budget with a net development cost of £20.1 million.
The Group now has two forward funded developments currently on site at Arklow,
County Wicklow (£15.1 million/€18.0 million) and Enniscorthy, County
Wexford (£10.6 million/€12.6 million) which continue to progress on
schedule, remain on site and are due to reach practical completion in Q1 2022
as previously indicated.
Rental growth
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, avoid
obsolescence and improve the environmental performance of our assets whilst
ensuring that they continue to meet the communities' healthcare needs.
Rent reviews
During 2021, the Group concluded and documented 375 rent reviews, including 74
reviews where no uplift was achieved, in the UK with a combined rental value
of £49.5 million resulting in an uplift of £2.0 million (2020: £1.7
million) per annum or 4.0% (2020: 4.3%) which equates to 1.7% (2020: 1.8%) per
annum. The positive rate of rental growth is broadly in line with the rate of
growth experienced in the last couple of years.
In the year, an aggregate 1.5% per annum uplift (2020: 1.3%) was achieved on
159 open market reviews. Uplifts of 2.8% (2020: 2.3%) per annum were achieved
on RPI-based reviews and 2.7% (2020: 2.9%) per annum on fixed uplift reviews.
In addition, a further 236 open market reviews have been agreed in principle,
which will add another £1.7 million to the contracted rent roll when
concluded and represents an uplift of 1.6% per annum.
69% of our rents are reviewed on an open market basis, typically every three
years and are impacted by land and construction inflation. Over recent years,
there have been significant increases in these costs which is expected to
result in further rental growth in the future. The balance of the PHP
portfolio has either indexed/RPI (25%) or fixed uplift (6%) based reviews
which also provide an element of certainty to future rental growth within the
portfolio. In Ireland all rents are linked to the Irish Consumer Price Index.
At 31 December 2021 the rent at 635 tenancies, representing £84.9 million of
passing rent (2020: 669 tenancies/£90.4 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
historic rent reviews, delivery of new properties into the sector and we
continue to see positive momentum in the demand, commencement and delivery for
new, purpose-built premises which are being supported by NHS initiatives to
modernise the primary care estate.
In Ireland, we concluded 12 indexed based reviews adding a further £0.1
million (€0.1 million) equivalent to 0.8% per annum to the contracted rent
roll.
Asset Management Projects
30 asset management projects have been completed in the year and a further
nine are currently on site which will increase rental income by a further
£0.4 million per annum, investing £15.0 million to enhance and extend
existing assets within PHP's portfolio.
PHP continues to work closely with its occupiers and has a strong pipeline of
over 100 similar projects which are being progressed to further increase
rental income and extend unexpired occupational lease terms. The asset
management pipeline will require the investment of approximately £67 million,
generating an additional £1.3 million of rental income and extending the
WAULT on those premises back to an average of over 20 years.
The Company will continue to invest capital in a range of physical extensions
or refurbishments through asset management projects which help avoid
obsolescence and are key to maintaining the longevity and security of our
income through long-term 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 31 December 2021 was
£140.7 million, an increase of £5.5 million or 4.1% in the year (31 December
2020: £135.2 million) driven predominantly by acquisitions in the UK and
Ireland that contributed £4.1 million. Organic rental growth from rent
reviews and asset management projects added a further £2.4 million although
these gains were offset slightly by foreign exchange movements since the start
of the year.
The security and longevity of our income are important drivers of our
predictable income stream and underpin our progressive dividend policy.
Security: PHP continues to benefit from secure, long term cash flows with 90%
of its rent roll funded directly or indirectly by the NHS in the UK or HSE in
Ireland. The portfolio also benefits from an occupancy rate of 99.7% (2020:
99.6%).
Rental collections: continue to remain robust and as at 15 February 2022 97%
had been collected in both the UK and Ireland for the first quarter of 2022.
This is in-line with collection rates experienced in both 2021 and 2020 which
now stand at over 99% for both countries. The balance of rent due for the
first quarter of 2022 is expected to be received shortly.
Longevity: The portfolio's WAULT at 31 December 2021 was 11.6 years (31
December 2020: 12.1 years). Only £8.9 million or 6.3% of our income expires
over the next three years of which c. 70% is either subject to a planned asset
management initiative or terms have been agreed to renew the lease. £73.1
million or 52.0% expires in over 10 years. The table below sets out the
current lease expiry profile of our income:
Income subject to expiry £ million %
< 3 years 8.9 6.3%
4 - 5 years 9.3 6.6%
5 - 10 years 49.4 35.1%
10 - 15 years 39.2 27.9%
15 - 20 years 17.3 12.3%
> 20 years 16.6 11.8%
Total 140.7 100.0%
Valuation and returns
At 31 December 2021, the Group's portfolio comprised 521 assets independently
valued at £2.796 billion (31 December 2020: £2.576 billion). After allowing
for acquisition costs and capital expenditure on forward funded developments
and asset management projects, the portfolio generated a valuation surplus of
£110.2 million or 4.1% (2020: £51.4 million or 2.0%). One asset was sold in
the year generating a profit on sale of £0.3 million. The valuation surplus
was driven mainly by NIY compression in the UK for government backed,
long-dated income together with rental growth from rent reviews and asset
management projects.
During the year the Group's portfolio NIY has contracted by 17bps to 4.64% (31
December 2020: 4.81%) and the true equivalent yield reduced to 4.74% at 31
December 2021 (31 December 2020: 4.84%).
At 31 December 2021, the portfolio in Ireland comprised 20 assets, including
two assets currently under development, valued at £213.0 million or €253.4
million (31 December 2020: 18 assets/£197.7 million or €221.1 million). The
costs to complete the developments are £9.0 million (€10.7 million) and
once complete the assets in Ireland will be valued at approximately £222.1
million (€264.2 million).
The portfolio's average lot size has increased to £5.4 million (31 December
2020: £5.0 million) and 86.6% 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 59 892.6 32.0 15.1
£5m - £10m 131 909.7 32.6 6.9
£3m - £5m 155 615.3 22.0 4.0
£1m - £3m 171 368.9 13.2 2.2
< £1m (including land £1.5m) 5 4.9 0.2 0.7
Total(1) 521 2,791.4 100.0 5.4
(1) Excludes the £4.5m impact of IFRS 16 Leases with ground rents recognised
as finance leases.
The underlying valuation uplift and profit on sales of £110.5 million,
combined with the portfolio's growing income, helped to deliver a total
property return of 9.5% in the year (2020: 7.4%).
Year ended Year ended
31 December 2021 31 December 2020
Income return 5.2% 5.2%
Capital return 4.3% 2.2%
Total return 9.5% 7.4%
FINANCIAL REVIEW
PHP's Adjusted earnings increased by £10.1 million or 13.8% to £83.2 million
in 2021 (2020: £73.1 million). The increase reflects twelve months of cost
saving synergies arising from the acquisition of Nexus and internalisation of
the management structure at the start of the year, good organic rental growth
from rent reviews and asset management projects together with interest cost
savings arising from the reduction in the Group's cost of finance following
the refinancing of a number of legacy loan facilities with Aviva.
Using the weighted average number of shares in issue in the year the Adjusted
earnings per share increased to 6.2 pence (2020: 5.8 pence), an increase of
6.9%.
A revaluation surplus and profit on sales of £110.5 million (2020: £51.4
million) was generated in the year from the portfolio driven by yield
compression in the UK for government backed income together with rental growth
from rent reviews and asset management projects.
The acquisition of Nexus at the start of the year resulted in an exceptional
termination payment and impairment of goodwill totalling £35.3 million and
represents the fair value of the consideration paid of £34.1 million plus the
fair value of the net liabilities acquired of £1.2 million. In addition,
acquisition costs totalling £1.7 million have been expensed.
The refinancing of a number of legacy loan facilities with Aviva Investors,
with a new sustainability linked £200 million facility for a 15-year term at
a fixed rate of 2.52% resulted in an exceptional early termination cost of
£24.6 million.
A gain on the fair value of interest rate derivatives and convertible bonds
together with the amortisation of the fair value adjustment on the MedicX
fixed rate debt at acquisition of £9.5 million (2020: loss £12.1 million)
contributed to the profit before tax as reported under IFRS of £141.6 million
(2020: £112.4 million).
The financial results for the Group are summarised as follows:
Summarised results Year ended Year ended
31 December 2021 31 December 2020
£ million £ million
Net rental income 136.7 131.2
Administrative expenses (10.5) (13.2)
Operating profit before revaluation gain and net financing costs 126.2 118.0
Net financing costs (43.0) (44.9)
Adjusted earnings 83.2 73.1
Revaluation surplus on property portfolio and profit on sales 110.5 51.4
Termination payment and impairment of goodwill on acquisition of Nexus (35.3) -
Nexus acquisition costs (1.7) -
Exceptional item - early termination cost on refinancing of Aviva debt (24.6) -
Fair value gain/(loss) on interest rate derivatives and convertible bond 1.6 (15.2)
Amortisation of MedicX debt MtM at acquisition 7.9 3.1
IFRS profit before tax 141.6 112.4
Corporation tax (0.1) (0.1)
Deferred tax provision (1.4) (0.3)
IFRS profit after tax 140.1 112.0
Net rental income receivable in the year increased by 4.2% or £5.5 million to
£136.7 million (2020: £131.2 million).
Following the internalisation of the management structure, operational costs
have continued to be managed closely and effectively. Overall property and
administrative costs, excluding service charge costs recoverable, have fallen
by £3.1 million or 18.6% to £13.6 million (2020: £16.7 million). The
Group's EPRA cost ratio is now the lowest in the sector at 9.3%, a decrease
against the 11.9% incurred during the 2020 financial year reflecting the cost
savings of approximately £4.0 million per annum, arising from the
internalisation of the management structure partially offset by larger
performance related pay, due to the strong performance in the year, additional
staff and cost inflation on administrative costs.
EPRA cost ratio Year ended Year ended
31 December 2021 31 December 2020
£ million £ million
Gross rent less ground rent, service charge and other income 139.6 134.6
Direct property expense 8.9 7.8
Less: service charge costs recovered (5.8) (4.3)
Non-recoverable property costs 3.1 3.5
Administrative expenses 10.5 13.2
Less: ground rent (0.2) (0.2)
Less: other operating income (0.4) (0.4)
EPRA costs (including direct vacancy costs) 13.0 16.1
EPRA cost ratio 9.3% 11.9%
Total expense ratio (administrative expenses as a percentage of gross asset 0.4% 0.5%
value)
Despite net debt increasing in the year by £143.8 million as a result of
continued investment, net finance costs in the year decreased to £43.0
million (2020: £44.9 million) reflecting the reductions in the average cost
of debt achieved from various refinancing initiatives in both 2021 and 2020.
Shareholder value and total accounting return
The Adjusted Net Tangible Assets ("NTA"), per share increased by 3.8 pence or
3.4% to 116.7 pence (31 December 2020: 112.9 pence per share) during the year
with the revaluation surplus and profit on sales of £110.5 million or 8.3
pence per share being the main reason for the increase although this was
partially offset by the £37.0 million or 2.4 pence per share cost of the
Nexus acquisition and internalisation of the management structure and £24.6
million or 1.9 pence per share early termination cost on refinancing a number
of Aviva legacy loans. Dividends distributed in the year were covered by
recurring Adjusted earnings with no impact on NTA.
The total adjusted NTA (NAV) return per share, including dividends
distributed, in the year was 10.0 pence or 8.9% (2020: 10.9 pence or 10.1%).
Over the three years since our merger with MedicX in 2019 we have delivered a
total NAV return of 27.9%.
The table below sets out the movements in the Adjusted NTA and EPRA Net
Disposal Value (NDV) per share over the year under review.
Adjusted Net Tangible Asset (NTA) per share 31 December 2021 pence per share 31 December 2020 pence per share
Opening Adjusted NTA per share 112.9 107.9
Adjusted earnings for the year 6.2 5.8
Dividends paid (6.2) (5.9)
Revaluation of property portfolio 8.3 3.9
Net impact of Nexus acquisition (2.4) -
Net impact of Aviva refinancing (1.9) -
Shares issued 0.2 2.7
Foreign exchange movements (0.3) -
Interest rate derivative transactions (0.1) (1.5)
Closing Adjusted NTA per share 116.7 112.9
Fixed rate debt and swap mark-to-market value (4.1) (9.9)
Convertible bond fair value adjustment (1.6) (1.9)
Deferred tax (0.3) (0.3)
Closing EPRA NDV per share 110.7 100.8
Financing
In October 2021, the Group refinanced a number of legacy loan facilities with
Aviva Investors with a new £200 million facility for a 15-year term at a
fixed rate of 2.52% and renewed its existing £100 million facility with
NatWest. Sustainability KPIs have been incorporated into both facilities based
around PHP's existing environment targets and the Group will benefit from a
margin reduction, conditional on achieving these targets.
Post year-end, the Group issued a new €75 million (£63 million) secured
private placement loan note to MetLife for a 12-year term at a fixed rate of
1.64%. The loan notes have the option to be increased by a further €75
million to €150 million over the next three years at the lender's
discretion. The proceeds will be used to finance the Group's continued
investment in Ireland.
Post year-end, the Group also renewed its existing revolving credit facility
with Santander (£50 million) for an initial three-year term with options to
extend by a further year at both the first and second anniversaries of the
facility.
Including the facilities secured post year-end, the Group has £1,550.5
million (31 December 2020: £1,456.8 million) of debt facilities available to
it, of which £1,232.9 million (31 December 2020: £1,159.3 million) had been
drawn.
Cash balances of £33.4 million (31 December 2020: £103.6 million) resulted
in Group net debt of £1,199.5 million (31 December 2020: £1,055.7 million).
Contracted capital commitments at the balance sheet date totalled £29.8
million (31 December 2020: £39.6 million) and result in headroom available to
the Group of £321.2 million (31 December 2020: £361.5 million).
Capital commitments comprise investment expenditure of £10.7 million, forward
funded development expenditure of £9.0 million and asset management projects
on site of £10.1 million.
The Group's key debt metrics are summarised in the table below:
Debt metrics(1) 31 December 2021 31 December 2020
Average cost of debt - fully drawn(1) 2.7% 3.1%
Average cost of debt - drawn(1) 2.9% 3.5%
Loan to value 42.9% 41.0%
Loan to value - excluding convertible bond 37.5% 35.2%
Net rental income to net interest cover 3.2 times 2.9 times
Weighted average debt maturity - all facilities(1) 7.3 years 7.6 years
Weighted average debt maturity - drawn facilities(1) 8.2 years 6.5 years
Total drawn secured debt £1,082.9m £1,009.3m
Total drawn unsecured debt £150.0m £150.0m
Total undrawn facilities and available to the Group(1,2) £321.2m £361.5m
Unfettered assets(1) £104.9m £88.4m
(1) - Pro-forma including debt facilities secured post year-end.
(2) - After deducting capital commitments.
Average cost of debt
The Group's marginal cost of debt on its revolving credit facilities is just
1.8% following the refinancing's noted above. As these facilities are drawn
the Group's average cost of drawn debt will continue to fall from the current
2.9% to 2.7%, assuming fully drawn.
The Group still has £386 million of legacy loans, acquired with the merger of
MedicX in 2019, at a blended fixed rate of 4.2% and a weighted average
maturity of 9.7 years. Excluding these facilities, the Group's average cost of
debt is 2.3% and we continue to look at further opportunities to reduce the
Group's average cost of debt and deliver further finance cost-saving
synergies.
Interest rate exposure
The analysis of the Group's exposure to interest rate risk in its debt
portfolio as at 31 December 2021 is as follows:
Facilities(1) Drawn
£ million % £ million %
Fixed rate debt(1) 1,075.5 69.4 1,075.5 87.2
Hedged by fixed rate interest rate swaps 188.0 12.1 188.0 15.3
Hedged by fixed to floating rate interest rate swaps (200.0) (12.9) (200.0) (16.2)
Total fixed rate debt 1,063.5 68.6 1,063.5 86.3
Hedged by interest rate caps 200.0 12.9 200.0 16.2
Floating rate debt - unhedged 287.0 18.5 (30.6) (2.5)
Total 1,550.5 100.0 1,232.9 100.0
(1) - Pro-forma including debt facilities secured post year-end.
Interest rate swap contracts
Following the refinancing of a number of legacy loan facilities with Aviva
Investors with a new £200 million facility the Group swapped the 2.52% fixed
rate back to variable rate, 3-month SONIA plus a spread of 160bps, for a
limited three-year period to take advantage of the shorter dated variable
interest rates and to offset the short-term over-hedged position regarding
fixed rate debt. To mitigate the risk of further interest rate rises we
purchased 1.25% caps with a nominal value of £200 million to cover the same
period at a cost of £1.8 million or 0.1 pence per share.
Accounting standards require PHP to mark its interest rate swaps to market at
each balance sheet date. During the year there was a gain of £2.7 million
(2020: loss £8.5million) on the fair value movement of the Group's interest
rate derivatives due primarily to increases in interest rates assumed in the
forward yield curves used to value the interest rate swaps. As at 31 December
2021 the mark-to-market ("MtM") value of the swap and cap portfolio was an
asset of £4.4 million (31 December 2020: liability of £0.1 million).
Currency exposure
The Group now owns €253.4 million or £213.0 million (31 December 2020:
€221.1 million / £197.7 million) of Euro denominated assets in Ireland as
at 31 December 2021 and the value of these assets and rental income
represented just 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 31 December 2021 the Group had €186.5 million (31 December
2020: €163.6 million) of drawn euro denominated debt.
Euro rental receipts are used to first finance Euro interest and
administrative costs and surpluses are used to fund further portfolio
expansion.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 31 December 2021 was £58.9
million (31 December 2020: £130.3 million) equivalent to 4.4 pence per share
(31 December 2020: 9.9 pence). The large decrease in the MtM during the year
is due to the refinancing of various legacy loans with Aviva Investors and
increases in interest rates assumed in the forward yield curves used to value
the debt during the year. 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 is subject to adjustment
if dividends paid per share exceed 2.8 pence per annum and in accordance with
the dividend protection provisions the conversion price has been adjusted to
142.29 pence per Ordinary Share.
The conversion of the £150 million convertible bond into new Ordinary Shares
would reduce the Group's loan to value ratio by 5.4% from 42.9% to 37.5% and
result in the issue of 105.4 million new Ordinary Shares.
RISK MANAGEMENT AND PRINCIPAL RISKS
The Board believes the Group has strong long term prospects, being well
positioned to address the need for better primary healthcare buildings in the
UK and Ireland.
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.
• The Group has a very small (£0.7 million) 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 Board funds its operations so as to maintain an
appropriate mix of debt and equity.
• Debt funding is procured from a range of providers,
maintaining a spread of maturities, currencies and a mix of terms so as to fix
or hedge the majority of interest costs.
• 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 longer term
viability. These include external factors that may arise from the markets in
which the Group operates, government and fiscal policy and general economic
conditions and internal risks that arise from how the Group is managed and
chooses to structure its operations.
Approach to risk management
Risk is considered at every level of the Group's operations and is reflected
in the controls and processes that have been put in place across the Group.
The Group's risk management process is underpinned by strong working
relationships between the Board and the management team which enables the
prompt assessment and response to risk issues that may be identified at any
level of the Group's business.
The Board is responsible for effective risk management across the Group and
retains ownership of the significant risks that are faced by the Group. This
includes ultimate responsibility for determining and reviewing the nature and
extent of the principal risks faced by the Group and assessing the Group's
risk management processes and controls. These systems and controls are
designed to identify, manage and mitigate risks that the Group faces but will
not eliminate such risks and can provide reasonable but not absolute
assurance.
The management team assists the Board in its assessment and monitoring of
operational and financial risks and PHP has in place robust systems and
procedures to ensure risk management is embedded in its approach to managing
the Group's portfolio and operations. PHP has established a Risk Committee
that is formed of members of its senior management team and chaired by the CFO
who is experienced in the operation and oversight of risk management
processes, with independent standing invitees attending throughout the year.
The Audit Committee reviews the Group's systems of risk management and their
effectiveness on behalf of the Board. These systems and processes have been in
place for the year under review and remained in place up to the date of
approval of the Annual Report and Accounts.
PHP has implemented a wide-ranging system of internal controls and operational
procedures that are designed to manage risk as effectively as possible, but it
is recognised that risk cannot be totally eliminated. Staff employed by PHP
are intrinsically involved in the identification and management of risk.
Strategic risks are recorded in a risk register and are assessed and rated
within a defined scoring system.
The Risk Committee reports its processes of risk management and rating of
identified risks to the Audit Committee. The risk register is reviewed and
updated twice annually by the secretary assisted by members of the Risk
Committee, and assesses inherent risks the business faces, as well as the
residual risk after specific safeguards, mitigation and/or management actions
have been overlaid. The risk register forms an appendix to the report which
details risks that have (i) an initial high inherent risk rating, and (ii)
higher residual risk ratings. The Audit Committee in turn agrees those risks
that will be managed by management and those where the Board will retain
direct ownership and responsibility for managing and monitoring those risks.
The Board recognises that it has limited ability to control a number of the
external risks that the Group faces, such as government policy, but keeps the
possible impact of such risks under review and considers them as part of its
decision-making process.
Principal risks and uncertainties
The Board has undertaken a robust assessment of the emerging and principal
risks faced by the Group that may threaten its business model, future
performance, solvency or liquidity and its ability to meet the overall
objective of the Group of delivering progressive returns to shareholders
through a combination of earnings growth and capital appreciation. A result of
this assessment was to remove COVID-19 as a principal risk in the year as a
result of the impact being less material than envisaged, and to introduce a
new principal risk, responsible business. The new principal risk is a direct
result of the greater scrutiny by both regulators and investors, as well as
recent political agendas that are expected to impose that further
environmental initiatives be mandated. These are set out below:
Risk Inherent risk rating Change to Commentary on risk in the year Mitigation Residual risk rating
risk in 2021
Grow property portfolio
Competition High Unchanged In terms of values, the Group has benefited from a flight to income as a The reputation and track record of the Group in the sector means it is able to Medium
consequence of the current wider economic uncertainty - investors have been source forward funded developments and existing standing investments from
The emergence of new purchasers in the sector and the recent slowing in the Likelihood is high and impact of occurrence could be major. attracted to the sector due to its long term, secure, government-backed cash developers, investors and owner-occupiers. The Group's position within the sector and commitment to and understanding of
level of approvals of new centres in the UK may restrict the ability of the flows. Lack of supply, as a consequence of the low number of new development
the asset class mean PHP is aware of a high proportion of transactions in the
Group to secure new investments. approvals in the UK, has also contributed to the increase in values. As a result, the Group has a number of formal pipeline agreements and market and potential opportunities coming to market.
long-standing development relationships that provide an increased opportunity
However, the same increase in demand and lack of supply have meant that the to secure developments that come to market in the UK and Ireland. Active management of the property portfolio generates regular opportunities to
Group is facing increased competition for viable opportunities.
increase income and lease terms and enhance value.
The Group has a strong, identified pipeline of investment opportunities in the
UK and Ireland.
Financing High Unchanged The Company successfully completed two debt refinances during the year, Existing and new debt providers are keen to provide funds to the sector and Medium
entering into one new revolving credit facility of £100 million with NatWest, specifically to the Group, attracted by the strength of its cash flows.
The Group uses a mix of shareholder equity and external debt to fund its Likelihood of a restricted supply is moderate but the potential impact of such as well as refinancing £200 million of legacy debt with Aviva. The Company
The Group takes positive action to ensure continued availability of resource,
operations. A restriction on the availability of funds would limit the Group's a restriction could be major. entered into a new £50 million revolving credit facility with Santander and The Board monitors its capital structure and maintains regular contact with maintain a prudent ratio of debt and equity funding and refinance debt
ability to invest. €75 million Euro private placement immediately post year end. existing and potential equity investors and debt funders. Management also facilities in advance of their maturity.
closely monitors debt markets to formulate its most appropriate funding
Furthermore, a more general lack of equity or debt available to the sector The Group's undrawn facilities mean it currently has headroom of £321 structure.
could reduce demand for healthcare assets and therefore impact values. million, after taking into account the debt financings completed in the first
quarter of 2022. The terms of the completed revolving credit facilities are three years with
the option to extend for a further two years at the lender's discretion. The
All covenants have been met with regard to the Group's debt facilities and Aviva refinance was completed for a 15-year term and Euro private placement
these all remain available for their contracted term. was executed for a 12-year term, further increasing PHP's average debt profile
to 7.3 years.
Manage effectively and efficiently
Lease expiry management Medium Unchanged Lease terms for all property assets will erode and the importance of active Management meets with occupiers on an ongoing basis to discuss the specific Medium
management to extend the use of a building remains unchanged. property and the tenant's aspirations and needs for their future occupation.
The bespoke nature of the Group's assets can lead to limited alternative use. Likelihood of limited alternative use value is moderate but the impact of such
Management employs an active asset management programme and has a successful
Their continued use as fit-for-purpose medical centres is key to delivering values could be serious.
39 projects either completed or started on site in the period, enhancing track record of securing enhancement projects and securing new long term
the Group's strategic objectives. income and extending occupational lease terms. leases.
In addition, there is a strong pipeline of over 100 projects that will be
progressed in 2022 and coming years.
Only 12.9% of the Group's income expires in the next five years and management
is actively managing these lease expiries.
People Medium Unchanged As the country's post COVID-19 economic recovery continues, and with inflation Succession planning is in place for all key positions, and will be reviewed Medium
of 5% in the year, the risk of staff retention has increased in a very regularly by the Nomination Committee.
The inability to attract, retain and Likelihood and potential impact could be medium. competitive market.
The Remuneration Committee has reviewed and updated policies to ensure
develop our people to ensure we have
Remuneration incentives are in place such as bonuses and the LTIP for retention and motivation of the management team.
the appropriate skill base in place in Executive Directors and senior management to incentivise and motivate the
order for us to implement our strategy. team.
Notice periods are in place for key employees.
PHP continues to outsource a PHP HR professional that has historically looked
after the Nexus employees and has familiarity with contracts and procedures in
place.
Responsible business High New All debt and equity investors now prioritise ESG as a standard agenda item, Over the last 18 months PHP has focused on its ESG credentials, implementing Low
with a notable increase in its occurrence noted during the year, and is and putting in place the following to ensure we continue to meet investor
Due to the far greater scrutiny by regulators, debt providers and investors Likelihood is high and impact of occurrence could be major. expected to continue. expectations: The Group is committed to meeting its obligations in line with its Responsible
over the last twelve months, should this rate continue there is a risk we do
Business Framework and feels it has introduced sufficient mitigants to
not meet their criteria in the short term. There is a risk that we may not meet the hurdles sought by debt and equity Put in place an ESG policy, set up an ESG Committee that reviews the ESG Risk continue to deliver its objectives.
investors should PHP not focus enough on these ESG agenda items, potentially Dashboard, as well as employed a new ESG Director as part of its management
impacting the funding of the business significantly. team.
Additionally, political and regulatory changes to the energy efficiency and Engaged external experts GRESB and Carbon Trust to review our current ESG
net carbon neutral targets of corporates are expected to be mandated in the agenda and appropriateness for a listed REIT.
short term, notably in light of COP26.
Sustainability targets and hurdles are monitored to ensure acquired assets or
asset management schemes meet specific ESG criteria, with these same criteria
aligned to investors and debt providers.
Constant communication with debt and equity providers, resulting in £300
million of sustainability linked financing for the two debt refinances in the
year.
Community Impact Fund introduced in the year.
EPC rating benchmarks are set to ensure compliance with Minimum Energy
Efficiency Standards (''MEES'') that could otherwise impact the quality and
desirability of our assets leading to higher voids, lost income and reduced
liquidity; we consider environmental and climate change risk relating to our
assets and commission reports.
We work with our occupiers to improve the resilience of our assets to climate
change as well as with contractors who are required to conform to our
responsible development requirements.
Diversified, long term funding
Debt financing Medium Unchanged Negotiations with lenders have confirmed that the Group enjoys the confidence Existing lenders remain keen to finance PHP and new entrants to debt capital Medium
of the lending markets both in terms of the traditional high street lenders markets have increased available resource.
Without appropriate confirmed debt facilities, PHP may be unable to meet The likelihood of insufficient facilities is moderate but the impact of such and the bond markets.
The Board regularly monitors the facilities available to the Group and looks
current and future commitments or repay or refinance debt facilities as they an event would be serious.
Management regularly monitors the composition of the Group's debt portfolio to to refinance in advance of any maturity. The Group is subject to the changing
become due. The Company successfully completed two debt refinances during the year, ensure compliance with covenants and continued availability of funds. conditions of debt capital markets.
entering into one new revolving credit facility of £100 million with NatWest,
as well as refinancing £200 million of legacy debt with Aviva. The Company Management regularly reports to the Board on current debt positions and
entered into a new £50 million revolving credit facility with Santander and provides projections of future covenant compliance to ensure early warning of
€75 million Euro private placement immediately post year end. any possible issues.
Interest rates Medium Unchanged Term interest rate markets remained volatile during the period and this The Group holds a proportion of its debt in long term, fixed rate loans and Low
volatility is likely to continue in the near future. mitigates its exposure to interest rate movements on floating rate facilities
Adverse movement in underlying interest rates could adversely affect the The likelihood of volatility in interest rate markets is high and the
through the use of interest rate swaps. The Group is currently well protected against the risk of interest rate rises
Group's earnings and cash flows and could impact property valuations. potential impact if not managed adequately could be major.
Over the year, term interest rates have reduced which has impacted the MtM
but, due to its continued investment in new properties and the need to
valuations of the Group's debt. As at the balance sheet date 100% of drawn debt is fixed or hedged. maintain available facilities, will be exposed to future interest rate levels.
In October 2021 the Group entered into £200 million of interest rate hedges, MtM valuation movements do not impact on the Group's cash flows and are not
swapping fixed rate for three-month floating rate for a three-year period, as included in any covenant test in the Group's debt facilities.
well as mitigating downside risk by capping variable exposure.
Deliver progressive returns
Potential over-reliance on Medium Unchanged The UK and Irish Governments continue to be committed to the development of The commitment to primary care is a stated objective of both the UK and Irish Medium
the NHS and HSE
primary care services and initiatives to develop new models of care Governments and on a cross-party basis.
Likelihood is low but impact of occurrence may be major. increasingly focusing on greater utilisation of primary care.
Policy risk and general economic conditions are out of the control of the
PHP invests in a niche asset sector where changes in healthcare policy, the
Management engages directly with government and healthcare providers in both Board, but pro-active measures are taken to monitor developments and to
funding of primary care, economic conditions and the availability of finance Despite the UK's exit from the European Union and COVID-19 pandemic, we expect the UK and Ireland to promote the need for continued investment in modern consider their possible implications for the Group.
may adversely affect the Group's portfolio valuation and performance. the demand for health services will continue to grow, driven by demographics. premises.
However, future government funding levels in the UK and Ireland may be
impacted by any long term, material change to economic performance. This continued investment provides attractive long term, secure income streams
that characterise the sector leads to stability of values.
A fundamental change in government policy could impact how the private sector
regards its investment in this asset class and its willingness to further
deploy private sector resources to improve the quality of primary care
facilities.
Foreign exchange risk Medium Unchanged The Group now has 20 investments in Ireland. Asset values, funding and net The Board has funded and will continue to fund its investments in Ireland with Low
income are denominated in Euros. Euros so as to create a natural hedge between asset values and liabilities in
Income and expenditure that will be derived from PHP's investments in Ireland Likelihood of volatility high but the potential impact at present is
Ireland. PHP has implemented a hedging strategy in the form of a natural hedge so as to
will be denominated in Euros and may be affected unfavourably by fluctuations relatively low due to quantum of investment in Ireland, albeit this is The continued impact of COVID-19 throughout the European Union continues to
manage exchange rate risk.
in currency rates, impacting the Group's earnings and portfolio valuation. increasing. cause exchange rate volatility. Management closely monitors the Euro to GBP currency rates with its banks to
formulate a formal hedging strategy against Irish net cash flows.
Viability Statement
In accordance with the 2018 UK Corporate Governance Code, the Board has
assessed the prospects of the Group over the longer term, taking account of
the Group's current position, business strategy, principal risks and outlook.
The Board believes the Company has strong long term prospects, being well
positioned to address the need for better primary care health centres in the
UK and Ireland.
Emerging risks
In completing this assessment the Board continues to monitor emerging risks
and their potential impact on the Group. Development delivery risk was added
to the Risk Register during 2020, and continues to be monitored, however the
Board still believe the current exposure to this risk is not yet considered a
principal risk and is therefore not included in the table above.
The Board also considered, at its annual strategy day, emerging risks
affecting the current primary care delivery model, in particular the impact of
digital technologies. As part of the outcome of the Board's evaluation process
it was agreed to include a formal emerging risk review in conjunction with the
annual strategy review.
With respect to Brexit, the Board continues to monitor the situation but, as
disclosed in the Annual Report, does not consider Brexit, in itself, to
constitute a significant risk to the business. With respect to COVID-19,
whilst the Board also continues to monitor the situation, it no longer feels
that it in itself constitutes a significant risk to the business, and so it
has been removed from the principal risks.
Viability statement
The Directors confirm that, as part of their strategic planning and risk
management processes, they have undertaken an assessment of the viability of
the Group, considering the current position and the potential impact of the
principal risks and prospects over a three-year time horizon. Based on this
assessment, the Directors have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall due over
the period to 31 December 2024. Although individually the Group's assets may
have relatively long unexpired lease terms and will all have a defined asset
management strategy, the Board has undertaken its detailed financial review
over a three-year period because:
• the Group's financial review and budgetary processes
cover a three-year look forward period; and
• occupational leases within the Group's property
portfolio typically have a three-yearly rent review pattern and so modelling
over this period allows the Group's financial projections to include a full
cycle of reversion, arising from open market, fixed and index-linked rent
reviews.
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 and 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 of the Group's assets or
extenuating economic circumstances impact investment values - valuation
parameter stress tested to provide for a one-off 10% / £283 million fall in
June 2022;
• 15% tenant default rate;
• rental growth assumptions amended to see nil uplifts on
open market reviews;
• variable rate interest rates rise by an immediate 2%
effective from 1 January 2022; and
• tightly controlled NHS scheme approval restricts
investment opportunity - investment quantum flexed to remove non-committed
transactions.
We have assessed the impact of these assumptions on the Group's key financial
metrics over the assessment period including profitability, net debt, loan to
value ratios and available financial headroom which are as follows:
Key metrics 31 December Viability
31 December 2024
2021 scenario
Loan to value ratio 42.9% 49.2%
Net debt £1,200m £1,343m
Adjusted net assets £1,556m £1,337m
Available financial headroom* £321m £203m
*The above analysis takes into account the two debt facilities completed
immediately post year end.
In making its assessment, the Board has made a number of specific assumptions
that overlay the financial parameters used in the Group's models. The Board
has assumed that, in addition to the specific impact of new debt facilities,
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.
Harry Hyman
Chief Executive Officer
15 February 2022
Group statement of comprehensive income
for the year ended 31 December 2021
2021 2020
Notes £m £m
Rental income 145.6 139.0
Direct property expenses (8.9) (7.8)
Net rental income 3 136.7 131.2
Administrative expenses 4 (10.5) (13.2)
Revaluation gain on property portfolio 11 110.2 51.3
Profit on sale of land and property 11 0.3 0.1
Total revaluation gain 110.5 51.4
Operating profit 236.7 169.4
Finance income 5 0.8 1.2
Finance costs 6a (35.9) (43.0)
Exceptional early loan redemption finance cost 6a (24.6) -
Termination payment and goodwill impairment on acquisition of Nexus 7 (35.3) -
Exceptional Nexus acquisition costs 7 (1.7) -
Fair value loss on derivative interest rate swaps and amortisation of hedging 6b (1.8) (12.9)
reserve
Fair value gain/(loss) on convertible bond 6c 3.4 (2.3)
Profit before taxation 141.6 112.4
Taxation charge 8 (1.5) (0.4)
Profit after taxation1 140.1 112.0
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 23 4.5 4.0
amortisation of hedging reserve
Exchange (loss)/gain on translation of foreign balances (3.4) 2.2
Other comprehensive income net of tax1 1.1 6.2
Total comprehensive income net of tax1 141.2 118.2
IFRS earnings per share
Basic 9 10.5p 8.8p
Diluted 9 9.8p 8.7p
Adjusted earnings per share2
Basic 9 6.2p 5.8p
Diluted 9 6.1p 5.7p
1 Wholly attributable to equity shareholders of Primary Health
Properties PLC.
2 See Glossary of Terms.
The above relates wholly to continuing operations.
Group balance sheet
at 31 December 2021
2021 2020
Notes £m £m
Non-current assets
Investment properties 11 2,795.9 2,576.1
Derivative interest rate swaps 17 5.2 -
Fixed assets 0.3 -
2,801.4 2,576.1
Current assets
Trade and other receivables 12 17.6 17.4
Cash and cash equivalents 13 33.4 103.6
Developments work in progress 0.7 -
51.7 121.0
Total assets 2,853.1 2,697.1
Current liabilities
Deferred rental income (28.3) (27.0)
Trade and other payables 14 (40.0) (34.7)
Borrowings: term loans and overdraft 15a (2.2) (6.4)
(70.5) (68.1)
Non-current liabilities
Borrowings: term loans and overdraft 15a (700.2) (623.6)
Borrowings: bonds 15b (572.8) (582.9)
Derivative interest rate swaps 17 (0.8) (0.1)
Head lease liabilities 16 (4.5) (4.5)
Deferred tax liability (4.4) (3.5)
(1,282.7) (1,214.6)
Total liabilities (1,353.2) (1,282.7)
Net assets 1,499.9 1,414.4
Equity
Share capital 19 166.6 164.4
Share premium account 20 474.9 466.7
Merger and other reserves 21 413.5 400.8
Special reserve 22 - -
Hedging reserve 23 (15.6) (20.1)
Retained earnings 24 460.5 402.6
Total equity1 1,499.9 1,414.4
Net asset value per share
IFRS net assets - basic and diluted 9 112.5p 107.5p
Adjusted net tangible assets2 - basic 9 116.7p 112.9p
Adjusted net tangible assets2 - diluted 9 118.6p 115.4p
1 Wholly attributable to equity shareholders of Primary Health
Properties PLC.
2 See Glossary of Terms.
These financial statements were approved by the Board of Directors on 15
February 2022 and signed on its behalf by:
Richard Howell
Chief Financial Officer
Registered in England Number: 3033634
Group cash flow statement
for the year ended 31 December 2021
2021 2020
Notes £m £m
Operating activities
Profit on ordinary activities after tax 140.1 112.0
Taxation charge 8 1.5 0.4
Finance income 5 (0.8) (1.9)
Finance costs 6a 35.9 43.7
Exceptional early loan redemption finance cost 6a 24.6 -
Termination payment and goodwill impairment on acquisition of Nexus 7 35.3 -
Exceptional Nexus acquisition costs 7 1.7 -
Fair value loss on derivatives 6b 1.8 12.9
Fair value loss on convertible bond 6c (3.4) 2.3
Operating profit before financing costs 236.7 169.4
Adjustments to reconcile Group operating profit before financing to net cash
flows from operating activities:
Revaluation gain on property portfolio 11 (110.2) (51.3)
Profit on sale of land and property 11 (0.3) (0.1)
Long term incentive plan ("LTIP") 0.2 -
Effect of exchange rate fluctuations on operations - (0.3)
Fixed rent uplift (1.2) (1.5)
Tax paid (0.4) (0.2)
(Increase) in trade and other receivables (0.3) (1.3)
Increase in trade and other payables 15.9 4.2
Cash generated from operations 140.4 118.9
Net cash flow from operating activities 140.4 118.9
Investing activities
Payments to acquire and improve investment properties (129.6) (102.9)
Receipts from disposal of properties 0.3 0.1
Cash paid for acquisition of Nexus, including fees 7 (18.2) -
Cash acquired as part of merger 7 0.4
Interest received on development loans 0.7 1.9
Net cash flow used in investing activities (146.4) (100.9)
Financing activities
Proceeds from issue of shares - 140.0
Cost of share issues (0.1) (3.2)
Term bank loan drawdowns 15 335.6 17.8
Term bank loan repayments 15 (252.8) (76.2)
Loan arrangement fees (2.7) (2.0)
Termination of derivative financial instruments (1.9) (21.8)
Exceptional early loan redemption finance cost 6a (24.6) -
Swap interest paid - (0.1)
Non-utilisation fees (1.8) (1.9)
Interest paid (40.9) (42.0)
Bank interest received - 0.4
Equity dividends paid net of scrip dividend 10 (74.4) (69.1)
Net cash flow from financing activities (63.6) (58.1)
(Decrease) in cash and cash equivalents for the year (69.6) (40.1)
Effect of exchange rate fluctuations on Euro-denominated loans and cash (0.6) 0.6
equivalents
Cash and cash equivalents at start of year 103.6 143.1
Cash and cash equivalents at end of year 13 33.4 103.6
Group statement of changes in equity
for the year ended 31 December 2021
Merger
Share Share and other Special Hedging Retained
capital premium reserve reserve reserve earnings Total
£m £m £m £m £m £m £m
1 January 2021 164.4 466.7 400.8 - (20.1) 402.6 1,414.4
Profit for the year - - - - - 140.1 140.1
Other comprehensive income
Amortisation of hedging reserve - - - - 4.5 - 4.5
Exchange gain on translation of foreign balances - - (3.4) - - - (3.4)
Total comprehensive income - - (3.4) - 4.5 140.1 141.2
Shares issued on acquisition of Nexus 1.5 - 16.1 - - - 17.6
Shares issued for other acquisitions 0.1 0.9 - - - - 1.0
Share issue expenses - (0.1) - - - - (0.1)
Share-based awards ("LTIP") - - - - - 0.2 0.2
Dividends paid - - - - - (74.4) (74.4)
Scrip dividend in lieu of cash 0.6 7.4 - - - (8.0) -
31 December 2021 166.6 474.9 413.5 - (15.6) 460.5 1,499.9
Merger
Share Share and other Special Hedging Retained
capital premium reserve reserve reserve earnings Total
£m £m £m £m £m £m £m
1 January 2020 152.0 338.1 398.6 65.4 (24.1) 298.5 1,228.5
Profit for the year - - - - - 112.0 112.0
Other comprehensive income
Fair value movement on interest rate swaps - - - - - - -
Reclassification to profit and loss - amortisation of hedging reserve - - - - 4.0 - 4.0
Exchange loss on translation of foreign balances - - 2.2 - - - 2.2
Total comprehensive income - - 2.2 - 4.0 112.0 118.2
Shares issued on conversion of convertible bonds - - - - - - -
Shares issued as part of capital raise 12.1 127.9 - - - - 140.0
Share issue expenses - (3.2) - - - - (3.2)
Dividends paid - - - (61.2) - (7.9) (69.1)
Scrip dividend in lieu of cash 0.3 3.9 - (4.2) - - -
31 December 2020 164.4 466.7 400.8 - (20.1) 402.6 1,414.4
Notes to the financial statements
1. Corporate information
The Group's financial statements for the year ended 31 December 2021 were
approved by the Board of Directors on 15 February 2022 and the Group Balance
Sheet was signed on the Board's behalf by the Chairman, Steven Owen. Primary
Health Properties PLC is a public limited company incorporated in England and
Wales and domiciled in the United Kingdom. The Company's Ordinary Shares are
admitted to the Official List of the UK Listing Authority, a division of the
Financial Conduct Authority, and traded on the London Stock Exchange.
2. Accounting policies
2.1 Basis of preparation
The Group's financial statements have been prepared on the historical cost
basis, except for investment properties, including investment properties under
construction and land and derivative financial instruments that have been
measured at fair value. The Group's financial statements are prepared on the
going concern basis (see page 102 of the Annual Report for further details)
and presented in Sterling rounded to the nearest million.
Statement of compliance
The consolidated financial statements for the Group have been prepared under
International Financial Reporting Standards ("IFRSs") as adopted by the United
Kingdom and applied in accordance with the Companies Act 2006 and Article 4 of
the IAS Regulation.
2.2 Standards adopted during the year
The accounting policies adopted are consistent with those of the previous
financial year, except for the following new and amended IFRSs effective for
the Group as of 1 January 2021.
First time application of IFRS 2 Share-based payments
The Group has applied IFRS 2, which had not been applicable in prior years,
for the first time in the current year. The standard requires an entity to
recognise share-based payment transactions (such as granted shares, share
options, or share appreciation rights) in its financial statements, including
transactions with employees or other parties to be settled in cash, other
assets, or equity instruments of the entity.
2.3 Summary of significant accounting policies
Basis of consolidation
The Group's financial statements consolidate the financial statements of
Primary Health Properties PLC and its wholly owned subsidiary undertakings.
Subsidiaries are consolidated from the date of their acquisition, being the
date on which the Group obtained control, and continue to be consolidated
until the date that such control ceases. Control comprises the power to govern
the financial and operating policies of the investee so as to obtain benefit
from its activities and is achieved through direct or indirect ownership of
voting rights; through currently exercisable or convertible potential voting
rights; or by way of contractual agreement. The financial statements of the
subsidiary undertakings are prepared for the accounting reference period
ending 31 December each year using consistent accounting policies. All
intercompany balances and transactions, including unrealised profits arising
from them, are eliminated on consolidation.
The individual financial statements of Primary Health Properties PLC and each
of its subsidiary undertakings will be prepared under FRS 101. The use of
IFRSs at Group level does not affect the distributable reserves available to
the Group.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being investment property in the United Kingdom and Ireland
leased principally to GPs, government healthcare organisations and other
associated healthcare users.
Foreign currency transactions
Each Group company presents its individual financial statements in its
functional currency. The functional currency of all UK subsidiaries (with the
exception of PHP Euro Private Placement Limited and MXF Properties Ireland
Limited which are Euro) is Sterling and the functional currency of Primary
Health Properties ICAV and its Irish domiciled subsidiaries is Euro.
Transactions in currencies other than an individual entity's functional
currency (foreign currencies) are recognised at the applicable exchange rate
ruling on the transaction date. Exchange differences resulting from settling
these transactions, or from retranslating monetary assets and liabilities
denominated in foreign currencies, are included in the Group Statement of
Comprehensive Income.
Foreign operations
In preparing the Group's consolidated financial statements, the assets and
liabilities of foreign entities are translated into Sterling at exchange rates
prevailing on the balance sheet date. The income, expenses and cash flows of a
foreign entity are translated at the average exchange rate for the period,
unless exchange rates fluctuate significantly during the period, in which case
the exchange rates at the date of transactions are used.
The exchange rates used to translate foreign currency amounts in 2021 are as
follows:
• Group Balance Sheet: £1 = €1.1893 (2020: €1.1185).
• Group Statement of Comprehensive Income: £1 = €1.1778
(2020: €1.105).
Investment properties and investment properties under construction
The Group's investment properties are held for long term investment.
Investment properties and those under construction are initially measured at
cost, including transaction costs. Subsequent to initial recognition,
investment properties and investment properties under construction are stated
at fair value based on market data and a professional valuation made as of
each reporting date. The fair value of investment property does not reflect
future capital expenditure that will improve or enhance the property and does
not reflect future benefits from this future expenditure.
Gains or losses arising from changes in the fair value of investment
properties and investment properties under construction are included in the
Group Statement of Comprehensive Income in the year in which they arise.
Investment properties are recognised on acquisition upon completion of
contract, which is when control of the asset passes to the Group. Investment
properties cease to be recognised when control of the property passes to the
purchaser, which is upon completion of the sales contract. Any gains and
losses arising are recognised in the Group Statement of Comprehensive Income
in the year of disposal.
All costs associated with the purchase and construction of investment
properties under construction are capitalised including attributable interest
and staff costs. Interest is calculated on the expenditure by reference to the
average rate of interest on the Group's borrowings. When properties under
construction are completed the capitalisation of costs ceases and they are
reclassified as investment properties.
The Group may enter into a forward funding agreement with third-party
developers in respect of certain properties under development. In accordance
with these agreements, the Group will make monthly stage payments to the
developer based on certified works on site at that time. Interest is charged
to the developer on all stage payments made during the construction period and
on the cost of the land acquired by the Group at the outset of the development
and taken to the Group Statement of Comprehensive Income in the year in which
it accrues.
Property acquisitions and business combinations
Where a property is acquired through the acquisition of corporate interests,
the Board considers the substance of the assets and activities of the acquired
entity in determining whether the acquisition represents the acquisition of a
business. The basis of the judgement is set out in Note 2.4(b).
Where such acquisitions are not judged to be an acquisition of a business,
they are not treated as business combinations. Rather, the cost to acquire the
corporate entity is allocated between the identifiable assets and liabilities
of the entity based on their relative fair values on the acquisition date.
Accordingly, no goodwill or additional deferred taxation arises. Where any
excess of the purchase price of business combinations over the fair value of
the assets, liabilities and contingent liabilities is acquired, goodwill is
recognised. This is recognised as an asset and is reviewed for impairment
immediately, and then at least annually. Any impairment is recognised
immediately in the income statement.
Gains on sale of properties
Gains on sale of properties are recognised on the completion of the contract,
and are calculated by reference to the carrying value at the end of the
previous reporting period, adjusted for subsequent capital expenditure and
sale costs.
Net rental income
Rental income arising from operating leases on investment properties is
accounted for on a straight line basis over the lease term. An adjustment to
rental income is recognised from the rent review date of each lease in
relation to unsettled rent reviews. Such adjustments are accrued at 100%
(2020: 100%) of the additional rental income that is expected to result from
the review. For leases which contain fixed or minimum deemed uplifts, the
rental income is recognised on a straight line basis over the lease term.
Incentives for lessees to enter into lease agreements are spread evenly over
the lease terms, even if the payments are not made on such a basis. Rental
income is measured at the fair value of the consideration receivable,
excluding discounts, rebates, VAT and other sales taxes or duty.
Net rental income is the rental income receivable in the period after payment
of direct property costs.
Interest income
Revenue is recognised as interest accrues, using the effective interest method
(that is, the rate that exactly discounts estimated future cash receipts
through the expected life of the financial instrument to the net carrying
amount of the financial asset).
Financial instruments under IFRS 9
Trade receivables
Trade receivables are recognised and carried at amortised cost as the Group's
business model is to collect the contractual cash flows due from tenants.
Provision is made based on the expected credit loss model which reflects the
Group's historical credit loss experience over the past three years but also
reflects the lifetime expected credit loss.
Cash and cash equivalents
Cash and cash equivalents are defined as cash and short term deposits,
including any bank overdrafts, with an original maturity of three months or
less, measured at amortised cost.
Trade and other payables
Trade payables are recognised and carried at their invoiced value inclusive of
any VAT that may be applicable.
Bank loans and borrowings
All loans and borrowings are initially measured at fair value less directly
attributable transaction costs. After initial recognition, all
interest-bearing loans and borrowings are subsequently measured at amortised
cost, using the effective interest method.
The interest due within the next twelve months is accrued at the end of the
year and presented as a current liability within trade and other payables.
Borrowing costs
Borrowing costs that are separately identifiable and directly attributable to
the acquisition or construction of an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale are
capitalised as part of the cost of the respective assets. All other borrowing
costs are expensed in the period in which they occur. Borrowing costs consist
of interest and other costs the Group incurs in connection with the borrowing
of funds.
Convertible bond
The convertible bond is designated as "at fair value through profit or loss"
and so is presented on the Group Balance Sheet at fair value with all gains
and losses, including the write-off of issuance costs, recognised in the Group
Statement of Comprehensive Income. The fair value of the convertible bond is
assessed in accordance with level 1 valuation techniques as set out within
"Fair value measurements" within these accounting policies. The interest
charge in respect of the coupon rate on the bond has been recognised within
the underlying component of net financing costs on an accruals basis. Refer to
Note 15b for further details. The amount of the change in fair value of the
financial liability designated at fair value through profit or loss that is
attributable to changes in credit risk will be recognised in other
comprehensive income.
De-recognition of financial assets and liabilities
Financial assets
A financial asset (or where applicable a part of a financial asset or part of
a group of similar financial assets) is de-recognised where:
• the rights to receive cash flows from the asset have
expired;
• the Group retains the right to receive cash flows from
the asset, but has assumed an obligation to pay them in full without material
delay to a third party under a "pass-through" arrangement;
• the Group has transferred its right to receive cash
flows from the asset and either: (a) has transferred substantially all the
risks and rewards of the asset; or (b) has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred
control of the asset; or
• when the cash flows are significantly modified.
Where the Group has transferred its rights to receive cash flows from an asset
and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is
recognised to the extent of the Group's continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred
asset is measured at the lower of the original carrying amount of the asset
and the maximum amount of consideration that the Group could be required to
repay.
Financial liabilities
A financial liability is de-recognised when the obligation under the liability
is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as a
de-recognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts is recognised
in profit or loss.
When the exchange or modification of an existing financial liability is not
accounted for as an extinguishment, any costs or fees incurred adjust the
liability's carrying amount and are amortised over the modified liability's
remaining term and any difference in the carrying amount after modification is
recognised as a modification gain or loss.
Tax
Taxation on the profit or loss for the period not exempt under UK REIT
regulations comprises current and deferred tax. Taxation is recognised in the
Group Statement of Comprehensive Income except to the extent that it relates
to items recognised as direct movements in equity, in which case it is also
recognised as a direct movement in equity.
Current tax is the expected tax payable on any non-REIT taxable income for the
period, using tax rates enacted or substantively enacted at the balance sheet
date, and any adjustment to tax payable in respect of previous years.
Fair value measurements
The Group measures certain financial instruments such as derivatives, and
non-financial assets such as investment property, at fair value at the end of
each reporting period. Also, fair values of financial instruments measured at
amortised cost are disclosed in the financial statements.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place
either:
• in the principal market for the asset or liability; or
• in the absence of a principal market, in the most
advantageous market for the asset or liability.
The Group must be able to access the principal or the most advantageous market
at the measurement date.
The fair value of an asset or liability is measured using the assumptions that
market participants would use when pricing the asset or liability, assuming
that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits using the asset in its
highest and best use or by selling it to another market participant that would
use the asset in its highest and best use.
The Group uses valuation techniques at three levels that are appropriate in
the circumstances and for which sufficient data is available to measure fair
value, maximising the use of relevant observable inputs and minimising the use
of unobservable inputs significant to the fair value measurement as a whole:
Level 1: Quoted (unadjusted) market prices in active
markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest input
that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on
a recurring basis, the Group determines whether transfers have occurred
between levels in the hierarchy by reassessing categorisation at the end of
each reporting period.
Hedge accounting
At the inception of a transaction the Group documents the relationship between
hedging instruments and hedged items, as well as its risk management
objectives and strategy for undertaking various hedging transactions. The
Group also documents its assessment, both at inception and on an ongoing
basis.
For cash flow hedging, the Group monitors the hedging instrument to check it
continues to meet the criteria of IAS 39, having applied the practical
expedient on transition, for being described as "highly effective" in
offsetting changes in the fair values or cash flows of hedged items.
For net investment hedge relationships, the Group monitors the hedging
instrument to check it continues to meet the criteria of IAS 39 for being
described as "highly effective".
i) Derivative financial instruments ("derivatives")
The Group uses interest rate swaps to help manage its interest rate risk.
All interest rate derivatives are initially recognised at fair value at the
date the derivative is entered into and are subsequently remeasured at fair
value. The fair values of the Group's interest rate swaps are calculated by
Chatham (formally JCRA), an independent specialist which provides treasury
management services to the Group.
The method of recognising the resulting gain or loss depends on whether the
derivative is designated as an effective hedging instrument:
• Where a derivative is designated as a hedge of the
variability of a highly probable forecast transaction, such as an interest
payment, the element of the gain or loss on the derivative that is an
"effective" hedge is recognised directly in equity. When the forecast
transaction subsequently results in the recognition of a financial asset or a
financial liability, the associated gains or losses that were recognised
directly in the cash flow hedging reserve are reclassified into the Group
Statement of Comprehensive Income in the same period or periods during which
the asset acquired or liability assumed affects the Group Statement of
Comprehensive Income, i.e. when interest income or expense is recognised.
• The gain or loss on derivatives that do not meet the
strict criteria for being "effective" and so do not qualify for hedge
accounting and the non-qualifying element of derivatives that do qualify for
hedge accounting are recognised in the Group Statement of Comprehensive Income
immediately. The treatment does not alter the fact that the derivatives are
economic hedges of the underlying transaction.
For swaps that have been cancelled which previously qualified for hedge
accounting, the remaining value within the cash flow hedging reserve at the
date of cancellation is recycled to the Group Statement of Comprehensive
Income on a straight line basis from the date of cancellation to the original
swap expiry date where the hedged transaction is still expected to occur. If
the swaps have been cancelled and the hedged transaction is no longer expected
to occur, the amount accumulated in the hedging reserve is reclassified to
profit and loss immediately.
Leases - Group as a lessor
The vast majority of the Group's properties are leased out under operating
leases and are included within investment properties. Rental income, including
the effect of lease incentives, is recognised on a straight line basis over
the lease term.
Where the Group transfers substantially all the risks and benefits of
ownership of the asset, the arrangement is classified as a finance lease and a
receivable is recognised for the initial direct costs of the lease and the
present value of the minimum lease payments. Finance income is recognised in
the Group Statement of Comprehensive Income so as to achieve a constant rate
of return on the remaining net investment in the lease. Interest income on
finance leases is restricted to the amount of interest actually received.
Employee costs
Defined contribution pension plans
Obligations for contributions to defined contribution pension plans are
charged to the income statement as incurred.
Share-based employee remuneration
The fair value of equity-settled share-based payments to employees is
determined with reference to the fair value of the equity instruments at the
date of grant and is expensed on a straight line basis over the vesting
period, based on the Group's estimate of shares or options that will
eventually vest. The fair value of awards is equal to the market value at
grant date.
Capitalised salaries
Certain internal staff and associated costs directly attributable to the
management of major projects are capitalised. Internal staff costs are
capitalised from the start of the project until the date of practical
completion.
2.4 Significant accounting estimates and judgements
The preparation of the Group financial statements requires management to make
a number of estimates and judgements that affect the reported amounts of
assets and liabilities and may differ from future actual results. The
estimates and judgements that are considered most critical and that have a
significant inherent risk of causing a material adjustment to the carrying
amounts of assets and liabilities are:
a) Estimates
Fair value of investment properties
Investment properties include: (i) completed investment properties; and (ii)
investment properties under construction. Completed investment properties
comprise real estate held by the Group or leased by the Group under a finance
lease in order to earn rental income or for capital appreciation, or both.
The fair market value of a property is deemed by the independent property
valuer appointed by the Group to be the estimated amount for which a property
should exchange, on the date of valuation, in an arm's length transaction.
Properties have been valued on an individual basis, assuming that they will be
sold individually over time. Allowances are made to reflect the purchaser's
costs of professional fees and stamp duty and tax.
In accordance with RICS Appraisal and Valuation Standards, factors taken into
account are current market conditions, annual rentals, state of repair, ground
stability, contamination issues and fire and health and safety legislation.
Refer to Note 11 of the financial statements which includes further
information on the fair value assumptions and sensitivities.
In determining the fair value of investment properties under construction the
valuer is required to consider the significant risks which are relevant to the
development process including, but not limited to, construction and letting
risks. The valuer takes into account any pre-lets and whether construction
risk remains with the respective developer or contractor.
Fair value of derivatives
In accordance with IFRS 9, the Group values its derivative financial
instruments at fair value. Fair value is estimated by Chatham (formerly JCRA)
on behalf of the Group, using a number of assumptions based upon market rates
and discounted future cash flows. The derivative financial instruments have
been valued by reference to the mid-price of the yield curve prevailing on 31
December 2021. Fair value represents the net present value of the difference
between the cash flows produced by the contracted rate and the valuation rate.
Refer to Note 17 of the financial statements.
b) Judgements
Hedge effectiveness
The Group has a number of interest rate swaps that mature after the Group's
bank facilities, to which they relate, are due to expire. In accordance with
IAS 39, in order to apply hedge accounting in relation to these interest rate
swaps, the Group has determined that it is highly probable that these bank
facilities will be renegotiated on or before expiry and that variable interest
rate debt finance will be in place until the expiry date of the swaps.
The Group is exposed to foreign exchange rate movements due to operations in
Ireland. In accordance with IAS 39, in order to apply hedge accounting with
the Euro-denominated cash flows, the Group has determined that it is highly
probably that there will be corresponding Euro bank drawdowns and that these
will be renegotiated on or before expiry.
Property acquisitions during the year
The Directors have reviewed the acquisitions during the year on an individual
basis in accordance with the requirements of IFRS 3(R). Where corporate
entities were acquired through special purpose vehicles for holding properties
rather than separate business entities, these were accounted for as asset
acquisitions. Where business processes inherent in the entities were acquired,
these were accounted for as a business combination.
2.5 Standards issued but not yet effective
At the date of authorisation of these financial statements, the Group has not
applied the following new and revised IFRSs that have been issued but are not
yet effective and in some cases have not yet been adopted by the UK:
• Amendments to IAS 1 Classification of liabilities as
current or non-current.
• IAS 8 Definition of accounting estimates.
• IFRS 3 Reference to the conceptual framework.
• Annual improvements to IFRS standards 2018-2020.
A number of new standards and amendments to standards and interpretations are
effective for annual periods beginning on or after 1 January 2022, but are not
yet applicable to the Group and have not been applied in preparing these
consolidated financial statements. None of these are expected to have a
significant effect on the consolidated financial statements of the Group.
3. Rental and related income
Revenue comprises rental income receivable on property investments in the UK
and Ireland, which is exclusive of VAT. Revenue is derived from one reportable
operating segment and £134.7 million and £10.9 million of rental income is
derived from the UK and Ireland respectively. Details of the lease income are
given below.
Group as a lessor
a) The future minimum lease payments under non-cancellable operating leases
receivable by the Group are as follows:
Less than One to Two to Three to Four to More than Total
one year two years three years four years five years five years £m
£m £m £m £m £m £m
2021 138.6 136.1 130.8 126.3 121.0 859.1 1,511.9
2020 134.4 133.6 131.2 126.0 121.3 935.5 1,582.0
b) The rental income earned on operating leases is recognised on a straight
line basis over the lease term.
The Group leases medical centres to GPs, NHS organisations, the HSE in Ireland
and other healthcare users, typically on long term occupational leases which
provide for regular reviews of rent on an effectively upwards-only basis.
4. Group operating profit is stated after charging:
2021 2020
£m £m
Administrative expenses including:
Advisory fees (Note 4a) 0.1 9.1
Staff costs (Note 4b) 5.2 -
Performance Incentive Fees (Note 4c) 1.0 1.6
Directors' fees 0.4 0.4
Audit fees
Fees payable to the Company's auditor and its associates for the audit of the 0.4 0.3
Company's annual accounts
Fees payable to the Company's auditor and its associates for the audit of the 0.1 0.1
Company's subsidiaries
Total audit fees 0.5 0.4
Total audit and assurance services 0.5 0.4
Non-audit fees
Fees payable to the Company's auditor and its associates for the interim 0.1 0.1
review
Advisory services - -
Total non-audit fees 0.1 0.1
Total fees 0.6 0.5
a) Advisory fees
On 5 January 2021 the Group completed the acquisition of Nexus and
internalised the management arrangements and consequently payments ceased at
this date with no further amounts payable in relation to advisory fees to
Nexus.
The advisory fees calculated and payable for the period to 31 December are as
follows:
2021 2020
£m £m
Nexus Tradeco Limited ("Nexus") 0.1 9.1
As at 31 December 2021 £nil was payable to Nexus (2020: £0.8 million).
There were no other fees paid to Nexus during the year in respect of capital
projects and service charge management fees (2020: £0.4 million and £0.4
million respectively).
The Group shares certain operational services with Nexus. Amounts paid
during the year in relation to these shared services totalled £0.1 million,
and amounts received during the year totalled £0.2 million.
Refer to Note 7 for further information on the Nexus acquisition.
b) Staff costs
2021 2020
£m £m
Wages and salaries 5.6 -
Less staff costs capitalised in respect of development and asset management (1.3) -
projects
Social security costs 0.5 -
Pension costs 0.1 -
Equity-settled share-based payments 0.3 -
5.2 -
The Group operates a defined contribution pension scheme for all employees.
The Group contribution to the scheme during the year was £0.1 million (2020:
£nil), which represents the total expense recognised through the income
statement. As at 31 December 2021, there were no contributions (2020: £nil)
due in respect of the reporting period that had not been paid over to the
plan.
The average monthly number of Group employees during the year was 59 (2020:
nil), and as at 31 December 2021 was 62 (2020: nil).
The Executive Directors and Non-executive Directors are the key management
personnel. Full disclosure of Directors' emoluments, as required by the
Companies Act 2006, can be found in the Remuneration Report in the Annual
Report.
The Group's equity-settled share-based payments comprise the following:
Scheme Fair value measure
Long Term Incentive Plan ("LTIP") Face value at grant date
Save As You Earn ("SAYE") Face value at grant date
The Group expenses an estimate of how many shares are likely to vest based on
the market price at the date of grant, taking account of expected performance
against the relevant performance targets and service periods, which are
discussed in further detail in the Remuneration Report.
c) Performance Incentive Fee ("PIF")
Information about the Performance Incentive Fee is provided in the Corporate
Governance section of the Strategic Review in the Annual Report.
A PIF of £1.4 million was paid in the period in respect of 2020 and at 31
December 2021 the balance on the notional cumulative PIF account was £9.2
million (2020: £8.1 million), of which £1.3 million (2020: £1.5 million)
will become payable on approval of the Annual Report by the Board. The balance
is conditional on performance in future years and the restrictions noted in
the Financial Review on pages 23 to 27.
5. Finance income
2021 2020
£m £m
Interest income on financial assets
Bank interest - 0.4
Development loan interest 0.8 0.8
0.8 1.2
6. Finance costs
2021 2020
£m £m
Interest expense and similar charges on financial liabilities
a) Interest
Bank loan interest 24.0 26.1
Swap interest (0.3) 0.1
Bond interest 15.5 16.0
Bank facility non-utilisation fees 1.9 1.9
Exceptional early loan redemption finance cost 24.6 -
Bank charges and loan arrangement fees 2.7 2.7
68.4 46.8
Interest capitalised - (0.7)
68.4 46.1
Amortisation of MedicX debt MtM on acquisition (7.9) (3.1)
60.5 43.0
The exceptional early loan redemption finance cost was an amount paid in the
year to terminate the Aviva facilities. The weighted average interest rate on
the loans redeemed was 4.99% with associated early repayment costs of £24.6
million.
2021 2020
£m £m
b) Derivatives
Net fair value gain/(loss) on interest rate swaps 2.7 (8.5)
Amortisation of cash flow hedging reserve (4.5) (4.4)
(1.8) (12.9)
The fair value loss on derivatives recognised in the Group Statement of
Comprehensive Income has arisen from the interest rate swaps for which hedge
accounting does not apply. There was no fair value gain or loss accounted for
directly in equity on derivatives which do meet the hedge effectiveness
criteria under IAS 39 (2020: loss of £0.4 million). An amount of £4.5
million (2020: £4.4 million) has been amortised from the cash flow hedging
reserve in the year resulting from early termination of effective swap
contracts (see Note 23).
Details of the fair value loss on hedges which meet the effectiveness criteria
for hedge accounting under IAS 39 are set out in Note 23.
2021 2020
£m £m
c) Convertible bond
Fair value loss on convertible bond fully redeemed in the year - -
Fair value loss on convertible bond issued in the year - -
Fair value gain/(loss) on existing convertible bond 3.4 (2.3)
Convertible bond issue costs - -
3.4 (2.3)
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 15 for further details about the convertible bonds.
2021 2020
£m £m
Net finance costs
Finance income (Note 5) 0.8 1.2
Finance costs (as per above) (68.4) (46.8)
(67.6) (45.6)
Interest capitalised - 0.7
(67.6) (44.9)
Amortisation of MedicX debt MtM on acquisition 7.9 3.1
(59.7) (41.8)
7. Business combination
On 5 January 2021 the Group's management function was internalised by
acquiring PHP Tradeco Holdings Limited (formerly Nexus Tradeco Holdings
Limited), which is the holding company of its long-standing external property
adviser, PHP Tradeco Limited (formerly Nexus Tradeco Limited), and certain
subsidiaries, including the primary care development business ("Nexus").
Primary Health Properties PLC acquired the entire issued ordinary share
capital of PHP Tradeco Holdings Limited at a total cost of £34.1 million,
including a termination payment of £29.0 million.
The total cost was met by £16.5 million payment in cash, and £17.6 million
satisfied by the issue of 11,485,080 new Ordinary Shares of 12.5 pence each in
the share capital of PHP at the quoted market price on completion of 152.8
pence per share.
The acquisition of PHP Tradeco Holdings Limited for a total fair value of
consideration of £5.1 million resulted in the transfer of certain assets and
liabilities and the fair value of the net liabilities acquired was £1.2
million, resulting in a goodwill on acquisition of £6.3 million.
The acquisition resulted in the termination of the advisory agreement. The
total cost of terminating the Nexus agreement and goodwill on acquisition has
been calculated to be £35.3 million (fair value of consideration paid £34.1
million plus fair value of net liabilities acquired £1.2 million) when taking
into account the consideration and the net assets with fair value adjustments.
The goodwill on acquisition of £35.3 million was to affect the termination of
the management agreement with Nexus and reflects the termination notice
period, approximately 2 years and 2.5 months under the management agreement
totalling £29.0 million. The remaining £6.3 million represents a
discretionary payment on account of the acquisition of principally the
management team, assembled workforce, systems, operational platform and
know-how which were "re-branded" from Nexus to PHP.
Book Adjustments Total
value to fair value fair value
£m £m £m
Cash consideration 16.5 - 16.5
Equity instruments 17.6 - 17.6
Total cost 34.1 - 34.1
Less: termination payment - - (29.0)
Fair value of consideration paid - - 5.1
Fair value of net assets acquired
Tangible fixed assets 0.1 - 0.1
Cash and cash equivalents 0.4 - 0.4
Trade and other debtors 1.2 - 1.2
Total assets 1.7 - 1.7
Trade creditors and other creditors (1.4) (1.1) (2.5)
Amounts due to HMRC (0.4) - (0.4)
Total liabilities (1.8) (1.1) (2.9)
Fair value of net assets acquired (0.1) (1.1) (1.2)
Termination payment and goodwill arising on acquisition 35.3
Net cash flow arising on acquisition
Cash consideration 16.5
Acquisition costs 1.7
Less: cash and cash equivalent balances acquired (0.4)
17.8
Acquisition of the Nexus entities contributed £nil revenue and a cost saving
of £3.9 million to the Group's profit for the period between the date of
acquisition and the reporting date. If the acquisition had completed on the
first day of the financial year, the impact on Group revenues for the year
would have been £nil and the impact on Group profit would have been a cost
saving of £4.0 million.
8. Taxation
a) Taxation charge in the Group Statement of Comprehensive Income
The taxation charge is made up as follows:
2021 2020
£m £m
Current tax
UK corporation tax - -
Irish corporation tax 0.1 0.1
Deferred tax on Irish activities 1.4 0.3
Total tax 1.5 0.4
The UK corporation tax rate of 19% (2020: 19%) and the Irish corporation tax
rate of 20% (2020: 20%) have been applied in the measurement of the Group's UK
and Ireland related activities tax liability at 31 December 2021.
b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than (2020: lower than) the standard
rate of corporation tax in the UK. The differences are explained below:
2021 2020
£m £m
Profit on ordinary activities before taxation 141.6 112.4
Theoretical tax at UK corporation tax rate of 19% (2020: 19%) 26.9 21.4
REIT exempt income (36.4) (25.7)
Transfer pricing adjustment 4.7 4.1
Termination payment and goodwill 7.0 -
impairment on acquisition of Nexus
Fair value (gain)/loss on convertible bond (0.6) 0.4
Non-taxable items (0.6) 0.2
Losses brought forward utilised (0.2) -
Irish corporation tax 0.7 0.7
Deferred tax on Irish activities - (0.8)
Taxation charge (Note 8a) 1.5 0.4
The UK REIT rules exempt the profits of the Group's property rental business
from corporation tax.
c) Basis of 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%
(2020: 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 31 December
2021.
The Group's activities in Ireland are conducted via Irish companies, a
Guernsey company and 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 Guernsey company pays tax on
its net rental income. The ICAV does not pay any Irish corporation tax on its
profits but a 20% withholding tax is paid on distributions to owners.
9. Earnings per share
Performance measures
In the tables below, we present earnings per share and net assets per share
calculated in accordance with IFRSs, 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
2021 2020
IFRS Adjusted EPRA IFRS Adjusted EPRA
earnings earnings earnings earnings earnings earnings
£m £m £m £m £m £m
Profit after taxation 140.1 140.1 140.1 112.0 112.0 112.0
Adjustments to remove:
Revaluation gain on property portfolio - (110.2) (110.2) - (51.3) (51.3)
Profit on sale of land and property - (0.3) (0.3) - (0.1) (0.1)
Fair value movement on derivatives - 1.8 1.8 - 12.9 12.9
Fair value movement and issue costs on convertible bond - (3.4) (3.4) - 2.3 2.3
Taxation charge - 1.5 1.5 - 0.4 0.4
Termination payment and goodwill impairment on acquisition of Nexus - 35.3 6.3 - - -
Exceptional Nexus acquisition costs - 1.7 1.7 - - -
Early termination fees on bank debt 24.6 24.6 - - -
MtM write off on early termination of bank debt (4.7) - - - -
Amortisation of MtM loss on debt acquired - (3.2) - - (3.1) -
Basic earnings 140.1 83.2 62.1 112.0 73.1 76.2
Dilutive effect of convertible bond 0.9 4.3 4.3 6.6 4.3 4.3
Diluted earnings 141.0 87.5 66.4 118.6 77.4 80.5
Number of shares
2021 weighted average 2020 weighted average
million million million million million million
Ordinary Shares 1,330.4 1,330.4 1,330.4 1,266.4 1,266.4 1,266.4
Dilutive effect of convertible bond 105.4 105.4 105.4 102.0 102.0 102.0
Diluted Ordinary Shares 1,435.8 1,435.8 1,435.8 1,368.4 1,368.4 1,368.4
Profit/(loss) per share attributable to shareholders:
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Basic 10.5 6.2 4.7 8.8 5.8 6.0
Diluted 9.8 6.1 4.6 8.7 5.7 5.9
Net assets per share
31 December 2021 31 December 2020
IFRS Adjusted EPRA IFRS Adjusted EPRA
£m £m £m £m £m £m
Net assets attributable to shareholders 1,499.9 1,499.9 1,499.9 1,414.4 1,414.4 1,414.4
Derivative interest rate swaps liability (4.4) (4.4) 0.1 0.1
Deferred tax 4.4 4.4 3.5 3.5
Cumulative convertible bond fair value movement 21.6 21.6 25.0 25.0
MtM on MedicX loans net of amortisation 34.4 - 42.3 -
Net tangible assets ("NTA") 1,555.9 1,521.5 1,485.3 1,443.0
Real estate transfer taxes 189.0 174.7
Net reinstatement value ("NRV") 1,710.5 1,617.7
Fixed rate debt and swap MtM value (20.1) (88.0)
Deferred tax (4.4) (3.5)
Cumulative convertible bond fair value movement (21.6) (25.0)
Real estate transfer taxes (189.0) (174.7)
Net disposal value ("NDV") 1,475.4 1,326.5
Ordinary Shares
million million million million million million
Issued share capital 1,332.9 1,332.9 1,332.9 1,315.6 1,315.6 1,315.6
Basic net asset value per share1
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 112.5 116.7 114.1 107.5 112.9 109.7
Net reinstatement value ("NRV") 128.3 123.0
Net disposal value ("NDV") 110.7 100.8
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 share2
31 December 2021 31 December 2020
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 114.7 118.6 116.2 110.4 115.4 112.4
Net reinstatement value ("NRV") 129.4 124.7
Net disposal value ("NDV") 113.0 104.2
2 The Company assesses the dilutive impact of the unsecured convertible
bond, issued by the Group on 15 July 2019, on its net asset value per share
with a current exchange price of 142.29 pence (31 December 2020: 147.10
pence).
Conversion of the convertible bond would result in the issue of 105.4 million
(31 December 2020: 102.0 million) new Ordinary Shares. The IFRS net asset
value and EPRA NDV would increase by £171.6 million (31 December 2020:
£175.0 million) and the EPRA NTA, adjusted NTA and EPRA NRV would increase by
£150.0 million (31 December 2020: £150.0 million). The resulting diluted net
asset values per share are anti-dilutive to all measures and are set out in
the table above.
10. Dividends
Amounts recognised as distributions to equity holders in the year:
2021 2020
£m £m
Quarterly interim dividend paid 26 February 2021 18.7 -
Scrip dividend in lieu of quarterly cash dividend 26 February 2021 1.8 -
Quarterly interim dividend paid 21 May 2021 17.7 -
Scrip dividend in lieu of quarterly cash dividend 21 May 2021 2.9 -
Quarterly interim dividend paid 20 August 2021 18.3 -
Scrip dividend in lieu of quarterly cash dividend 20 August 2021 2.4 -
Quarterly interim dividend paid 26 November 2021 19.7 -
Scrip dividend in lieu of quarterly cash dividend 26 November 2021 0.9 -
Quarterly interim dividend paid 21 February 2020 - 16.9
Scrip dividend in lieu of quarterly cash dividend 21 February 2020 - 1.0
Quarterly interim dividend paid 22 May 2020 - 16.9
Scrip dividend in lieu of quarterly cash dividend 22 May 2020 - 1.1
Quarterly interim dividend paid 21 August 2020 - 16.4
Scrip dividend in lieu of quarterly cash dividend 21 August 2020 - 1.5
Quarterly interim dividend paid 20 November 2020 - 18.9
Scrip dividend in lieu of quarterly cash dividend 20 November 2020 - 0.6
Total dividends distributed in the year 82.4 73.3
Per share 6.2p 5.9p
On 6 January 2022, the Board declared an interim dividend of 1.625 pence per
Ordinary Share with regard to the year ended 31 December 2021, payable on 25
February 2022. This dividend will comprise wholly of a ordinary dividend of
1.625 pence and no Property Income Dividend ("PID").
11. Investment properties and investment properties under construction
Properties have been independently valued at fair value by Lambert Smith
Hampton UK, Jones Lang LaSalle and CBRE Chartered Surveyors and Valuers, 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 Appraisal and Valuation Standards 2017 (the
"Red Book"). There were no changes to the valuation techniques during the
year. 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 COVID-19 pandemic continues to provide some degree of uncertainty
surrounding the valuation of certain property sub-sectors; however, the
primary care real estate sector remains robust, and as a result neither UK nor
Irish valuers have included a material uncertainty clause in the valuation
report at 31 December 2021.
The properties are 99.7% let (2020: 99.6%). The valuations reflected a 4.64%
(2020: 4.81%) net initial yield and a 4.74% (2020: 4.84%) true equivalent
yield. 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 valuers.
In accordance with IAS 40, investment properties under construction have also
been valued at fair value by the 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 £9.0 million (2020:
£32.1 million) 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 £19.0 million (2020: £7.5 million) which have not been provided for in
the financial statements.
A fair value increase of £0.4 million (2020: £0.2 million) in respect of
investment property under construction has been recognised in the Group
Statement of Comprehensive Income, as part of the total net valuation gain on
the property portfolio in the year of £110.2 million (2020: £51.3 million).
Of the £2,791.4 million (2020: £2,571.6 million) valuation, £2,578.4
million (92%) (2020: £2,373.9 million) relates to investment properties in
the UK and £213.0 million (8%) (2020: £197.7 million) relates to investment
properties in Ireland.
In line with accounting policies, the Group has assessed whether the
acquisitions during the year were asset purchases or business combinations.
Investment Investment Investment
properties properties long properties under
freehold 1 leasehold construction Total
£m £m £m £m
As at 1 January 2021 2,061.3 491.4 23.4 2,576.1
Property additions 52.4 48.1 22.4 122.9
Property disposals (2.0) - - (2.0)
Impact of lease incentive adjustment 0.7 0.4 - 1.1
Transfer from properties under construction 23.4 2.9 (26.3) -
Foreign exchange movements (9.7) (2.0) (0.7) (12.4)
2,126.1 540.8 18.8 2,685.7
Revaluations for the year 82.3 27.5 0.4 110.2
As at 31 December 2021 2,208.4 568.3 19.2 2,795.9
As at 1 January 2020 1,902.2 476.9 34.0 2,413.1
Property additions 66.3 0.4 33.3 100.0
Property disposals 0.1 - - 0.1
Impact of lease incentive adjustment 0.9 0.6 - 1.5
Transfer from properties under construction 46.8 - (46.8) -
Interest capitalised - - 0.7 0.7
Foreign exchange movements 7.0 0.4 2.0 9.4
2,023.3 478.3 23.2 2,524.8
Revaluations for the year 38.0 13.1 0.2 51.3
As at 31 December 2020 2,061.3 491.4 23.4 2,576.1
1 Includes development land held at £0.9 million (31 December 2020: £0.9
million).
Bank borrowings, bonds and interest rate swaps are secured on investment
properties with a value of £2,515.4 million (2020: £2,483.2 million).
Right of use assets
In accordance with IFRS 16 Leases, the Group has recognised a £4.5 million
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 31 December 2021 and 31 December 2020. There were no
transfers between levels during the year or during 2020. 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).
Valuation techniques used to derive level 3 fair values
The valuations have been prepared on the basis of fair market value ("FMV")
which is defined in the RICS Valuation Standards as:
'The estimated amount for which a property should exchange on the date of
valuation between a willing buyer and a willing seller in an arm's length
transaction after proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion.'
Valuation techniques: market comparable method
Under the market comparable method (or market comparable approach), a
property's fair value is estimated based on comparable transactions and using
certain unobservable inputs. These inputs are detailed below.
Unobservable input: estimated rental value ("ERV")
The rent at which space could be let in the market conditions prevailing at
the date of valuation. ERV is also used in determining expected rental uplift
on outstanding rent reviews.
2021 2020
ERV - range of the portfolio £30,000 - £1,433,486 £18,000 - £1,242,000
per annum
per annum
Unobservable input: equivalent yield
The equivalent yield is defined as the internal rate of return of the cash
flow from the property, assuming a rise to ERV at the next review date, but
with no further rental growth.
2021 2020
True equivalent yield - range of the portfolio 3.23% - 19.58% 3.11% - 19.51%
Unobservable input: physical condition of the property
The properties are physically inspected by the valuer on a three-year rotating
basis.
Unobservable input: rental growth
The estimated average increase in rent based on both market estimations and
contractual situations.
Sensitivity of measurement of significant unobservable inputs
• A decrease in the estimated annual rent will decrease
the fair value. A 1% decrease/increase in annual rent would have an
approximately £28 million decrease/increase in the investment property
valuation.
• A decrease in the equivalent yield will increase the
fair value. A 0.10% shift of equivalent yield would have an approximately £60
million impact on the investment property valuation.
• A deterioration in the physical condition of the
property will decrease the fair value.
• An increase in the rental growth will increase the fair
value.
12. Trade and other receivables
2021 2020
£m £m
Trade receivables (net of provision for doubtful debts) 11.6 9.8
Prepayments and accrued income 5.4 7.1
Other debtors 0.6 0.5
17.6 17.4
The expected credit losses are estimated using a provision matrix by reference
to past default experience and an analysis of the debtor's current financial
position, adjusted for factors that are specific to the debtor on the
recoverability, general economic conditions of the industry and an assessment
of both the current and the forecast direction of conditions at the reporting
date. The Group has therefore not recognised a loss allowance because
historical experience has indicated that the risk profile of trade receivables
is deemed low.
The Group's principal customers are invoiced and pay quarterly in advance,
usually on English, Scottish and Gale quarter days. There is no significant
concentration of credit risk with respect to trade receivables, as the Group
has a large number of tenants.
13. Cash and cash equivalents
2021 2020
£m £m
Cash held at bank 33.4 103.6
33.4 103.6
Bank interest is earned at floating rates depending upon the bank deposit
rate. Short term deposits may be made for varying periods of between one day
and three months, dependent on available cash and forthcoming cash
requirements of the Group. These deposits earn interest at various short term
deposit rates.
14. Trade and other payables
2021 2020
£m £m
Trade payables 0.6 0.7
Bank and bond loan interest accrual 6.3 8.0
Other payables 9.1 8.6
VAT 6.6 6.5
Accruals 17.4 10.9
40.0 34.7
15. Borrowings
a) Term loans and overdrafts
The table indicates amounts drawn and undrawn from each individual facility as
at 31 December:
Facility Amounts drawn Undrawn
2021 2020 2021 2020 2021 2020
Expiry date £m £m £m £m £m £m
Current
RBS overdraft Jun 2022 5.0 5.0 - - 5.0 5.0
Santander2 Jul 2021 - 30.6 - - - 30.6
Aviva HIL loan 1 Jan 2032 - 1.0 - 1.0 - -
Aviva MXF loan Sep 2033 2.2 2.0 2.2 2.0 - -
Aviva loan1 Jun 2040 - 0.7 - 0.7 - -
Aviva loan1 Aug 2029 - 2.7 - 2.7 - -
7.2 42.0 2.2 6.4 5.0 35.6
Non-current
Aviva HIL loan 1 Jan 2032 - 19.4 - 19.4 - -
Aviva AV loan Oct 2036 200.0 - 200.0 - - -
Aviva loan1 Dec 2022 - 25.0 - 25.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Aviva loan1 Aug 2024 - 50.0 - 50.0 - -
Aviva loan1 Aug 2029 - 57.3 - 57.3 - -
Barclays loan Dec 2023 100.0 100.0 - - 100.0 100.0
HSBC loan Nov 2024 100.0 100.0 25.5 - 74.5 100.0
Lloyds loan Dec 2024 50.0 50.0 38.7 28.8 11.3 21.2
RBS loan1 Mar 2022 - 100.0 - 59.4 - 40.7
NatWest loan Oct 2024 100.0 - 86.3 - 13.7 -
Aviva MXF loan Sep 2033 225.2 227.4 225.2 227.4 - -
Aviva MXF loan Sep 2028 30.8 30.8 30.8 30.8 - -
Aviva loan1 Jun 2040 - 24.1 - 24.1 - -
881.0 859.0 681.5 597.2 199.5 261.9
Total 888.2 901.0 683.7 603.6 204.5 297.5
1 Refinanced during 2021.
2 Facility has been renewed in January 2022. Refer to Note 27 for more
details.
2021 2020
£m £m
Balance as at 1 January 630.0 688.8
Changes from financing activities
Term bank loan drawdowns 335.6 17.8
New loan facilities drawn 335.6 17.8
Repayments of mortgages principal (20.4) (3.6)
Repayments of term bank loans (232.4) (72.6)
Repayments of term loan borrowings (252.8) (76.2)
Loan issue costs for new facilities/refinancing (2.7) (1.9)
Total changes from financing cash flows 80.1 (60.3)
Other non-cash changes
MtM on loans net of amortisation (7.2) (2.4)
Amortisation of loan issue costs 2.2 2.4
Exchange (gain)/loss on translation of foreign balances (2.7) 1.5
Total other changes (7.7) 1.5
Balance as at 31 December 702.4 630.0
At 31 December 2021, total facilities of £1,437.4 million (2020: £1,456.8
million) were available to the Group. This included a £70.0 million secured
bond, a £100.0 million secured bond, a £150.0 million nominal value
convertible bond, £42.9 million and £58.8 million Euro-denominated bonds, a
£50.0 million Ignis loan note, a £77.5 million Standard Life loan note and a
£5.0 million overdraft facility. Of these facilities, as at 31 December 2021,
£1,232.9 million was drawn (2020: £1,159.3 million).
On 22 October 2021, the Group secured a new £200.0 million 15-year debt
facility with Aviva Investors at a fixed rate of 2.52%. The proceeds of the
loan have been used to repay a number of legacy facilities with Aviva
Investors totalling £177.0 million at a blended fixed rate of 5.0% and
weighted average term of just under six years. As part of the refinancing a
termination cost of £24.6 million has been paid.
On 27 October 2021, the Group has renewed its existing £100.0 million
revolving credit facility with NatWest for a further three-year term with
options to extend by a further year on the first and second anniversaries of
the new facility.
Costs associated with the arrangement and extension of the facilities,
including legal advice and loan arrangement fees, are amortised using the
effective interest rate.
Any amounts unamortised as at the period end are offset against amounts drawn
on the facilities as shown in the table below:
2021 2020
£m £m
Term loans drawn: due within one year 2.2 6.4
Term loans drawn: due in greater than one year 681.5 597.2
Total terms loans drawn 683.7 603.6
Plus: MtM on loans net of amortisation 29.3 36.6
Less: unamortised borrowing costs (10.6) (10.2)
Total term loans per the Group Balance Sheet 702.4 630.0
The Group has been in compliance with all of the financial covenants of the
above facilities as applicable through the year. Further details are shown in
Note 18e.
The Group has entered into interest rate swaps to manage its exposure to
interest rate fluctuations. These are set out in Note 17.
b) Bonds
2021 2020
£m £m
Unsecured:
Convertible bond July 2025 at fair value 171.6 175.0
Less: unamortised costs - -
Total unsecured bonds 171.6 175.0
Secured:
Secured bond December 2025 70.0 70.0
Secured bond March 2027 100.0 100.0
€51 million secured bond (Euro private placement) December 2028-30 42.9 45.6
€70 million secured bond (Euro private placement) September 2031 58.8 62.6
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised bond issue costs (3.1) (3.6)
Plus: MtM on loans net of amortisation 5.1 5.8
Total secured bonds 401.2 407.9
Total bonds 572.8 582.9
There were no bond conversions during the year (2020: £nil).
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 £70.0 million and
mature on 3 December 2025. The Secured Bonds incur interest at an annualised
rate of 220bps above six-month LIBOR, payable semi-annually in arrears.
On 21 March 2017, a £100.0 million Secured Bond was issued for a ten-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 €51.0 million
(£42.9 million) were issued at a blended fixed rate of 2.4793% and a weighted
average maturity of 10.4 years. Interest is paid semi-annually in arrears. The
notes represent PHP's first Euro-denominated transaction in the private
placement market. The secured notes were placed with UK and Irish
institutional investors in two tranches:
• €40.0 million 2.46% senior notes due December 2028.
• €11.0 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior secured notes for a total of €70.0 million
(£58.8 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.
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 of £50.0 million 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, £50.0 million and £27.5 million 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 £150.0 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 £75.0 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 has been adjusted to 142.29 pence as at 31
December 2021 (2020: 147.10 pence).
2021 2020
£m £m
Opening balance - fair value 175.0 172.7
Issued in the year - -
Cumulative fair value movement in convertible bond (3.4) 2.3
Closing balance - fair value 171.6 175.0
The fair value of the Bonds at 31 December 2021 and 31 December 2020 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).
c) Total borrowings
2021 2020
£m £m
Current liabilities:
Term loans and overdrafts 2.2 6.4
Bonds - -
Total current liabilities 2.2 6.4
Non-current liabilities:
Term loan and overdrafts 681.5 597.2
MtM on loans net of amortisation 29.3 36.6
Less: unamortised loan issue costs (10.6) (10.2)
700.2 623.6
Bonds 549.2 555.7
MtM on loans net of amortisation 5.1 5.8
MtM on convertible bond 21.6 25.0
Less: unamortised bond issue costs (3.1) (3.6)
Total non-current bonds 572.8 582.9
Total borrowings 1,275.2 1,212.9
16. 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.
2021 2020
£m £m
Due within one year 0.1 0.1
Due after one year 4.4 4.4
Closing balance - fair value 4.5 4.5
17. 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 facilities. 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.
2021 2020
£m £m
Fair value of interest rate swaps treated as cash flow hedges under IAS 39
("effective swaps")
Non-current liabilities - -
- -
Fair value of interest rate swaps not qualifying as cash flow hedges under IAS
39 ("ineffective swaps")
Non-current assets 5.2 -
Non-current liabilities (0.8) (0.1)
4.4 (0.1)
Total fair value of interest rate swaps 4.4 (0.1)
Shown in the balance sheet as:
Total non-current assets 5.2 -
Total non-current liabilities (0.8) (0.1)
Changes in the fair value of the contracts that do not meet the strict IAS 39
criteria to be designated as effective hedging instruments are taken to the
Group Statement of Comprehensive Income. For contracts that meet the IAS 39
criteria and are designated as "effective" cash flow hedges, the change in
fair value of the contract is recognised in the Group Statement of Changes in
Equity through the cash flow hedging reserve. The result recognised in the
Group Statement of Comprehensive Income on "effective" cash flow hedges in
2021 was a £4.5 million gain (2020: £4.0 million gain), including the
amortisation of the cash flow hedging reserve of £4.5 million (2020: £4.4
million).
Interest rate swaps and caps with a contract value of £188.0 million (2020:
£188.0 million) were in effect at 31 December 2021. Details of all floating
to fixed rate interest rate swap contracts held are as follows:
Fixed interest
Contract value Product Start date Maturity per annum %
2021
£88.0 million Swap September 2020 March 2022 0.0397
£100.0 million Swap October 2021 November 2024 0.0699
£(66.0) million Reverse swap October 2021 November 2024 2.5200
£66.0 million Cap October 2021 November 2024 1.2500
£(67.0) million Reverse swap October 2021 November 2024 2.5200
£67.0 million Cap October 2021 November 2024 1.2500
£(67.0) million Reverse swap October 2021 November 2024 2.5200
£67.0 million Cap October 2021 November 2024 1.2500
£188.0 million
2020
£88.0 million September 2020 March 2022 0.0397
£100.0 million September 2020 November 2024 0.0699
£188.0 million
On 28 October 2021 the HSBC £100.0 million variable leg of the LIBOR swap was
converted to SONIA. The term and fixed rate were unchanged at November 2024
expiry and 0.0699%.
On 27 October 2021 three new swap agreements were entered into totalling
£200.0 million. All are effective until 29 November 2024 and receive a fixed
rate of 2.52%, with variable rates payable. These included a £66.0 million
swap agreement with HSBC paying a variable of SONIA + 1.6275%, a £67.0
million swap agreement with Barclays paying a variable of SONIA + 1.575% and a
£67.0 million swap agreement with NatWest paying a variable of SONIA +
1.5849%. A one-off payment of £1.8 million across all three new swap
agreements was made to cap SONIA at 1.25% for the length of the agreement,
equivalent to 0.1 pence per share on an adjusted net tangible asset value
basis.
18. Financial risk management
In pursuing its investment objectives, the Group is exposed to a variety of
risks that could impact net assets or distributable profits.
The Group's principal financial liabilities, other than interest rate swaps,
are loans and borrowings hedged by these swaps. The main purpose of the
Group's loans and borrowings is to finance the acquisition and development of
the Group's property portfolio. The Group has trade and other receivables,
trade and other payables and cash and short term deposits that arise directly
from its operations.
A review of the Group's objectives, policies and processes for managing and
monitoring risk is set out in the Strategic Report. This note provides further
detail on financial risk management and includes quantitative information on
specific financial risks.
Financial risk factors
a) Interest rate risk
Interest rate risk is the risk that future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The
Group's exposure to the risk of changes in market interest rates relates
primarily to the Group's long term debt obligations with floating rates as the
Group, generally, does not hold significant cash balances, with short term
borrowings being used when required. To manage its interest rate risk, the
Group enters into interest rate swaps, in which the Group agrees to exchange,
at specified intervals, the difference between fixed and variable rate
interest amounts calculated by reference to an agreed-upon principal amount.
Note 17 provides details of interest swap contracts in effect at the year end.
The sensitivity analysis below shows the impact on profit before tax and
equity of reasonably possible movements in interest rates with all other
variables held constant. It should be noted that the impact of movement in the
interest rate variable is not necessarily linear.
The fair value is arrived at with reference to the difference between the
contracted rate of a swap and the market rate for the remaining duration at
the time the valuation is performed. As market rates increase and this
difference reduces, the associated fair value also decreases.
Effect on fair
value of Effect on
financial profit before Effect on
instruments taxation equity
£m £m £m
2021
London Interbank Offered Rate Increase of 50 basis points 5.5 6.0 11.5
London Interbank Offered Rate Decrease of 50 basis points (5.5) (6.0) (11.5)
2020
London Interbank Offered Rate Increase of 50 basis points 4.5 5.0 9.5
London Interbank Offered Rate Decrease of 50 basis points (4.5) (5.0) (9.5)
b) Credit risk
Credit risk is the risk that a counterparty will not meet its obligations
under financial instruments or customer contracts, leading to a financial
loss. The Group is exposed to credit risk from its principal financial assets
being cash and cash equivalents, and trade and other receivables (see Note
12).
Trade receivables
Trade receivables, primarily tenant rentals, are recognised and carried at
amortised cost and presented in the balance sheet net of allowances for
doubtful receivables and are monitored on a case-by-case basis. Impairment
losses are recognised through the expected credit loss model. Credit risk is
primarily managed by requiring tenants to pay rentals in advance.
The Group has policies in place to ensure that rental contracts are entered
into only with lessees with an appropriate credit history, but the Group does
not monitor the credit quality of receivables on an ongoing basis.
Banks and financial institutions
One of the principal credit risks of the Group arises from financial
derivative instruments and deposits with banks and financial institutions. The
Board of Directors believes that the credit risk on short term deposits and
interest rate swaps is limited because the counterparties are banks, which are
committed lenders to the Group, with high credit ratings assigned by
international credit rating agencies.
c) Liquidity risk
The liquidity risk is that the Group will encounter difficulty in meeting
obligations associated with its financial liabilities as the majority of the
Group's assets are property investments and are therefore not readily
realisable. The Group's objective is to maintain a mixture of available cash
and committed bank facilities that is designed to ensure that the Group has
sufficient available funds for its operations and to fund its committed
capital expenditure. This is achieved by continuous monitoring of forecast and
actual cash flows.
The table below summarises the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments including interest.
Less than Three to One to More than
On demand three months twelve months five years five years Total
£m £m £m £m £m £m
2021
Interest-bearing loans and borrowings - 9.8 29.7 514.6 1,001.4 1,555.5
Interest rate swaps (net) - - - - - -
Trade and other payables 1.6 29.6 3.2 2.9 2.0 39.3
1.6 39.4 32.9 517.5 1,003.4 1,594.8
2020
Interest-bearing loans and borrowings - 10.8 32.7 543.5 885.5 1,472.5
Interest rate swaps (net) - 0.4 1.1 2.1 - 3.6
Trade and other payables 0.5 25.7 4.0 2.4 2.1 34.7
0.5 36.9 37.8 548.0 887.6 1,510.8
The Group's borrowings have financial covenants which, if breached, could
result in the borrowings becoming repayable immediately. Details of the
covenants are given below under (e) Capital risk management and are disclosed
to the facility providers on a quarterly basis. There have been no breaches
during the year (2020: none).
d) Market risk
Market risk is the risk that fair values of financial instruments will
fluctuate because of changes in market prices. The Board of Directors has
identified two elements of market risk that principally affect the Group -
interest rate risk and price risk.
Interest rate risk
Interest rate risk is outlined above. The Board assesses the exposure to other
price risks when making each investment decision and monitors the overall
level of market risk on the investment portfolio on an ongoing basis through a
discounted cash flow analysis. Details of this analysis can be found in the
Strategic Report in the Annual Report.
Price risk
The Group is exposed to price risk in respect of property price risk including
property rentals risk. Refer to Note 2.3. The Group has no significant
exposure to price risk in respect of financial instruments other than the
convertible bond and interest rate derivatives (see also Note 17), as it does
not hold any equity securities or commodities.
Fair values
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
2021 2021 2020 2020
£m £m £m £m
Financial assets
Trade and other receivables 17.6 17.6 17.4 17.4
Effective interest rate swaps - - - -
Ineffective interest rate swaps 5.2 5.2 - -
Cash and short term deposits 33.4 33.4 103.6 103.6
Financial liabilities
Interest-bearing loans and borrowings (1,232.9) (1,275.1) (1,159.3) (1,212.9)
Effective interest rate swaps - - - -
Ineffective interest rate swaps (net) (0.8) (0.8) (0.1) (0.1)
Trade and other payables (40.0) (40.0) (34.7) (34.7)
The fair value of the financial assets and liabilities is included as an
estimate of the amount at which the instruments could be exchanged 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 value of fixed rate debt is estimated using the
mid yield to maturity on the reporting date. The valuations are on a clean
basis, which exclude accrued interest from the previous settlement date to the
reporting date.
• 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.
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels are defined as follows:
Level 1: Quoted (unadjusted) prices in active markets
for identical assets or liabilities.
Level 2: Other techniques for which all inputs which
have a significant effect on the recorded fair value are observable, either
directly or indirectly.
Level 3: Techniques which use inputs which have a
significant effect on the recorded fair value that are not based on observable
market data.
Fair value measurements at 31 December 2021 were 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 - 5.2 - 5.2
Financial liabilities
Derivative interest rate swaps - (0.8) - (0.8)
Convertible bond (171.6) - - (171.6)
Fixed rate debt - 921.3 - 921.3
1 Valuation is based on unadjusted quoted prices in active markets for
identical financial assets and liabilities.
2 Valuation is based on inputs (other than quoted prices included in level
1) that are observable for the financial asset or liability, either directly
(i.e. as unquoted prices) or indirectly (i.e. derived from prices).
3 Valuation is based on inputs that are not based on observable market
data.
Fair value measurements at 31 December 2020 were 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 - - - -
Financial liabilities
Derivative interest rate swaps - (0.1) - (0.1)
Convertible bond (175.0) - - (175.0)
Fixed rate debt - (981.5) - (981.5)
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.
e) Capital risk management
The primary objectives of the Group's capital management are to ensure that it
remains a going concern, operates within its quantitative banking covenants
and meets the criteria so as to continue to qualify for UK REIT status.
The capital structure of the Group consists of shareholders' equity and net
borrowings. The type and maturity of the Group's borrowings are analysed
further in Notes 15 and 17 and the Group's equity is analysed into its various
components in the Group Statement of Changes in Equity. The Board monitors and
reviews the Group's capital so as to promote the long term success of the
business, to facilitate expansion and to maintain sustainable returns for
shareholders.
Under several of its debt facilities, the Group is subject to a covenant
whereby consolidated Group rental income must exceed Group borrowing costs by
the ratio 1.3:1 (2020: 1.3:1). No debt facility has a Group loan to value
covenant.
Facility-level covenants also operate with regard to specific pools of
property assets provided to lenders to secure individual loan facilities.
These range as follows:
• interest cover1: 1.05 to 2.25 (2020: 1.05 to 1.75); and
• loan to value1: 55% to 75% (2020: 55% to 75%).
UK REIT compliance tests include loan to property value and gearing tests. The
Group must satisfy these tests in order to continue trading as a UK REIT. This
is also an internal requirement imposed by the Articles of Association.
1 See Glossary of Terms.
During the period the Group has complied with all of the requirements set out
above.
2021 2020
Group loan to value ratio £m £m
Fair value of completed investment properties 2,772.2 2,548.2
Fair value of development properties 19.2 23.4
Ground rent recognised as finance leases 4.5 4.5
2,795.9 2,576.1
Interest-bearing loans and borrowings (with convertible bond at nominal value) 1,232.9 1,159.3
Less cash held (33.4) (103.6)
Nominal amount of interest-bearing loans and borrowings 1,199.5 1,055.7
Group loan to value ratio 42.9% 41.0%
19. Share capital
Ordinary Shares issued and fully paid at 12.5 pence each
2021 2020
Number - 2021 Number - 2020
million £m million £m
Balance at 1 January 1,315.6 164.4 1,216.3 152.0
Scrip issues in lieu of cash dividends 5.2 0.7 2.7 0.3
Share issue 9 July 2020 and 5 January 2021 11.5 1.4 96.6 12.1
Share issues on other acquisitions 0.6 0.1 - -
Balance at 31 December 1,332.9 166.6 1,315.6 164.4
Issue of shares in 2021
Number
of shares - Issue
Date of issue million price
Share issue 5 January 2021 11.5 152.80p
Scrip issue in lieu of cash dividend 26 February 2021 1.2 148.52p
Scrip issue in lieu of cash dividend 21 May 2021 1.9 148.98p
Scrip issue in lieu of cash dividend 20 August 2021 1.5 159.50p
Share issue on other acquisition 9 September 2021 0.6 168.02p
Scrip issue in lieu of cash dividend 26 November 2021 0.6 154.90p
20. Share premium
2021 2020
£m £m
Balance at 1 January 466.7 338.1
Scrip issue in lieu of cash dividend 7.4 3.9
Share issue 9 July 2020 and 5 January 2021 - 127.9
Premium on shares issued for Nexus merger - -
Share issue on other acquisitions 0.9 -
Shares issued on bond conversions - -
Share issue expense (0.1) (3.2)
Balance at 31 December 474.9 466.7
21. Merger and other reserves
The merger and other reserves are made up of the capital reserve which is held
to finance any proposed repurchases of Ordinary Shares, following approval of
the High Court in 1998, the foreign exchange translation reserve and the
premium on shares issued for the MedicX Fund Limited merger and the Nexus
merger.
2021 2020
£m £m
Capital reserve
Balance at 1 January and 31 December 1.6 1.6
Foreign exchange translation reserve
Balance at 1 January 1.2 (1.0)
Exchange differences on translating the net assets of foreign operations (3.4) 2.2
Balance at 31 December (2.2) 1.2
Merger reserve
Balance at 1 January 398.0 398.0
Shares issued on acquisition of Nexus 16.1 -
Balance at 31 December 414.1 398.0
Balance of merger and other reserves at 31 December 413.5 400.8
22. Special reserve
2021 2020
£m £m
Balance at 1 January - 65.4
Dividends paid - (61.2)
Scrip issue in lieu of cash dividend - (4.2)
Balance at 31 December - -
The special reserve has arisen on previous issues of the Company's shares. It
represents the share premium on the issue of the shares, net of expenses, from
issues effected by way of a cash box mechanism.
A cash box raising is a mechanism for structuring a capital raising whereby
the cash proceeds from investors are invested in a subsidiary company of the
Parent instead of the Parent itself. Use of a cash box mechanism has enabled
the share premium arising from the issue of shares to be deemed to be a
distributable reserve and has therefore been shown as a special reserve in
these financial statements. Any issue costs are also deducted from the special
reserve.
As the special reserve is a distributable reserve, the dividends distributed
in the previous periods have been distributed from this reserve. The remaining
dividends distributed in the period have been distributed from retained
earnings.
23. Cash flow hedging reserve
Information on the Group's hedging policy and interest rate swaps is provided
in Note 17.
The transfer to the Group Statement of Comprehensive Income and the fair value
movement on cash flow hedges which meet the effectiveness criteria under IAS
39, taken to equity, can be analysed as follows:
2021 2020
£m £m
Balance at 1 January (20.1) (24.1)
Fair value movement on cash flow hedges - (0.4)
Amortisation of cash flow hedging reserve - 4.4
Net movement on cash flow hedges ("effective swaps") and amortisation of cash 4.5 4.0
flow hedging reserve
Balance at 31 December (15.6) (20.1)
The balance within the cash flow hedge reserve relating to cancelled swaps
will be amortised through the Group Statement of Comprehensive Income over the
remainder of the original contract period (see Note 6b).
24. Retained earnings
2021 2020
£m £m
Balance at 1 January 402.6 298.5
Retained profit for the year 140.1 112.0
Dividends paid (74.4) (7.9)
Scrip dividend in lieu of cash (8.0) -
Share-based awards ("LTIP") 0.2 -
Balance at 31 December 460.5 402.6
25. Capital commitments
As at 31 December 2021, the Group has entered into forward funding development
agreements with third parties for the development of primary healthcare
properties in the UK and Ireland. The Group has acquired the land and advances
funds to the developers as the construction progresses. Total consideration of
£9.0 million (2020: £32.1 million) remains to be funded with regard to these
properties.
As at 31 December 2021, the Group has capital commitments totalling £10.0
million (2020: £7.5 million) being the cost to complete asset management
projects on site, and £10.7 million (2020: £nil) being the cost to complete
investments.
26. Related party transactions
On 5 January 2021 the Group completed the acquisition of Nexus and
internalised the management arrangements. Refer to Note 4a for details on
payments made and received in relation to shared services with Nexus, and on
fees payable to Nexus in prior periods. Refer to Note 7 for further
information on the acquisition of Nexus.
27. Subsequent events
On 11 February 2022, the Group completed a €75.0 million private placement
for a term of twelve years at 1.64%.
On 6 January 2022, the Group refinanced a £50.0 million revolving credit
facility with Santander. The facility can be drawn in Sterling and Euros and
has an interest rate of 1.65% plus SONIA or EURIBOR.
28. Audit exemptions taken for subsidiaries
The following subsidiaries are exempt from the requirements of the Companies
Act 2006 relating to the audit of individual accounts by virtue of Section
479A of the Act.
Name Companies House registration number
Primary Health Investment Properties (No. 8) Limited 11274227
Primary Health Investment Properties (No. 9) Limited 11328330
PHP Euro Private Placement ML Limited 11714222
PHP Epsom Limited 12004850
GP Property One Limited 10801028
PHP SPV Limited 12256431
PHP Primary Properties (Haymarket) Limited 08304612
Motorstep Limited 04532029
MXF Properties OM Holdings Limited 10946803
MXF Properties OM Group Limited 07039742
MXF Properties Bridlington Limited 07763871
PHP Liverpool Holding Company Limited 07342781
PHP Tradeco Holdings Limited 09642987
PHP Cardiff Group Limited 10253987
PHP (Spilsby) Limited 13735391
PHP Health Solutions Limited 06949900
PHP Liverpool Limited 08872347
PHP Tradeco Limited 07685933
PHP Property Management Services Limited 02877191
PHP Primary Care Developments Limited 11862233
PHP Cardiff Limited 10254492
PHP Developments (Cardiff) Limited 04856121
DIRECTORS' RESPONSIBILITY STATEMENT
Statement of Directors' responsibilities in respect of the Group and Company
financial statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the Group
financial statements in accordance with International Financial Reporting
Standards ("IFRSs") as adopted by the European Union and Article 4 of the IAS
Regulation and have elected to prepare the Parent Company financial statements
in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law), including FRS 101
Reduced disclosure framework. Under company law the Directors must not approve
the accounts unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing the Parent Company financial statements, the Directors are
required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether applicable UK Accounting Standards have
been followed, subject to any material departures disclosed and explained in
the financial statements; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the Company will continue in
business.
In preparing the Group financial statements, International Accounting Standard
1 requires that the Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to understand
the impact of particular transactions, other events and conditions on the
entity's financial position and financial performance; and
• make an assessment of the Company's ability to continue
as a going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with
the relevant financial reporting framework, give a true and fair view of the
assets, liabilities, financial position and profit of the Company and the
undertakings included in the consolidation taken as a whole;
• the Strategic Report includes a fair review of the
development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face;
and
• the Annual Report and Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position, performance,
business model and strategy.
This Responsibility Statement was approved by the Board of Directors on 15
February 2022.
For and on behalf of the Board
Steven Owen
Chairman
15 February 2022
GLOSSARY OF TERMS
Adjusted earnings is EPRA earnings excluding the exceptional contract
termination fee 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.
Adviser is PHP Tradeco Limited.
Annualised rental income on a like-for-like basis is the contracted rent on a
per annum basis assuming a consistent number of properties between each year.
Building Research Establishment Environmental Assessment Method ("BREEAM")
assesses the sustainability of buildings against a range of criteria.
Clinical Commissioning Groups ("CCGs") are the groups of GPs and other
healthcare professionals that are responsible for designing local health
services in England with effect from 1 April 2013.
Company and/or Parent is Primary Health Properties PLC ("PHP").
Direct property costs comprise ground rents payable under head leases, void
costs, other direct irrecoverable property expenses, rent review fees and
valuation fees.
District Valuer ("DV") is the District Valuer Service, being the commercial
arm of the Valuation Office Agency ("VOA"). It provides professional property
advice across the public sector and in respect of primary healthcare
represents NHS bodies on matters of valuation, rent reviews and initial rents
on new developments.
Dividend cover is the number of times the dividend payable (on an annual
basis) is covered by EPRA earnings.
EPC is an Energy Performance Certificate
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.
European Public Real Estate Association ("EPRA") is a real estate industry
body, which has issued Best Practice Recommendations in order to provide
consistency and transparency in real estate reporting across Europe.
EPRA cost ratio is the ratio of net overheads and operating expenses against
gross rental income (with both amounts excluding ground rents payable). Net
overheads and operating expenses relate to all administrative and operating
expenses, net of any service fees, recharges or other income specifically
intended to cover overhead and property expenses.
EPRA earnings is the profit after taxation excluding investment and
development property revaluations, gains/losses on disposals, changes in the
fair value of financial instruments and associated close-out costs and their
related taxation.
EPRA net assets ("EPRA NAV") are the balance sheet net assets excluding own
shares held, the MtM value of derivative financial instruments and the
convertible bond fair value movement.
EPRA NAV per share is the balance sheet net assets excluding own shares held,
the MtM value of derivative financial instruments and the convertible bond
fair value movement, divided by the number of shares in issue at the balance
sheet date.
EPRA NNNAV is adjusted EPRA NAV including the MtM value of fixed rate debt and
derivatives.
EPRA net reinstatement value ("EPRA NRV") is the balance sheet net assets
including real estate transfer taxes but excluding the MtM value of derivative
financial instruments, deferred tax and the convertible bond fair value
movement. The aim of the metric is to reflect the value that would be required
to recreate the Company through the investment markets based on its current
capital and financing structure. Refer to Note 9.
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 9.
EPRA net disposal value ("EPRA NDV") (replacing EPRA NNNAV) is adjusted 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 9.
EPRA net tangible assets ("NTA") (which has replaced the former EPRA net asset
value alternative performance measure) are the balance sheet net assets but
excluding the MtM value of derivative financial instruments, deferred tax and
the convertible bond fair value movement. The aim of the metric is to reflect
the fair value of the assets and liabilities of the Group that it intends to
hold and does not intend in the long run to sell. Refer to Note 9.
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 9.
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.
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 Executive is the executive agency of the Irish
Government responsible for health and social services for people living in
Ireland.
IFRSs are International Financial Reporting Standards as adopted by the United
Kingdom.
IFRS or Basic net asset value per share ("IFRS NAV") is the balance sheet net
assets, excluding own shares held, divided by the number of shares in issue at
the balance sheet date.
Interest cover is the number of times net interest payable is covered by net
rental income.
Interest rate swap is a contract to exchange fixed payments for floating
payments linked to an interest rate, and is generally used to manage exposure
to fluctuations in interest rates.
London Interbank Offered Rate ("LIBOR") is the interest rate charged by one
bank to another for lending money.
Loan to value ("LTV") is the ratio of net debt to the total value of property
and assets.
Mark to market ("MtM") is the difference between the book value of an asset or
liability and its market value.
MedicX is MXF Fund Limited and its subsidiaries.
MSCI (IPD) provides performance analysis for most types of real estate and
produces an independent benchmark of property returns.
MSCI (IPD) Healthcare is the UK Annual Healthcare Property Index.
MSCI (IPD) total return is calculated as the change in capital value, less any
capital expenditure incurred, plus net income, expressed as a percentage of
capital employed over the period, as calculated by MSCI (IPD).
Net asset value ("NAV") is the value of the Group's assets minus the value of
its liabilities.
Net initial yield ("NIY") is the annualised rents generated by an asset, after
the deduction of an estimate of annual recurring irrecoverable property
outgoings, expressed as a percentage of the asset valuation (after notional
purchasers' costs).
Net rental income is the rental income receivable in the period after payment
of direct property costs. Net rental income is quoted on an accounting basis.
Net zero carbon refers to the point at which a process, activity, system
etc… produces net zero carbon emissions, through emissions reduction, use of
low or zero carbon energy and removal or offsetting of residual emissions. In
the context of buildings and activities associated with the construction,
refurbishment, maintenance and operation of buildings, PHP refers to the UK
Green Building Council "Net zero carbon, a frame work definition"
(https://www.ukgbc.org/ukgbc-work/net-zero-carbon-buildings-a-framework-definition/).
This sets out the key requirements for buildings to achieve 'net zero carbon -
construction' and 'net zero carbon - operational energy'.
NHSPS is NHS Property Services Limited, the company wholly owned and funded by
the Department of Health, which, as of 1 April 2013, has taken on all property
obligations formerly borne by Primary Care Trusts.
Parity value is calculated based on dividing the convertible bond value by the
exchange price.
Property Income Distribution ("PID") is the required distribution of income as
dividends under the REIT regime. It is calculated as 90% of exempted net
income.
Real Estate Investment Trust ("REIT") is a listed property company which
qualifies for and has elected into a tax regime, which exempts qualifying UK
profits, arising from property rental income and gains on investment property
disposals, from corporation tax, but which has a number of specific
requirements.
Rent reviews take place at intervals agreed in the lease and their purpose is
usually to adjust the rent to the current market level at the review date.
Rent roll is the passing rent, being the total of all the contracted rents
reserved under the leases.
Reversionary yield is the anticipated yield which the initial yield will rise
to once the rent reaches the ERV and when the property is fully let. It is
calculated by dividing the ERV by the valuation.
Retail Price Index ("RPI") is the official measure of the general level of
inflation as reflected in the retail price of a basket of goods and services
such as energy, food, petrol, housing, household goods, travelling fare, etc.
RPI is commonly computed on a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews which are linked to
changes in the RPI.
Special reserve is a distributable reserve.
Sterling Overnight Interbank Average Rate ("SONIA") is the effective overnight
interest rate paid by banks for unsecured transactions in the British Sterling
market.
Total expense ratio ("TER") is calculated as total administrative costs for
the year divided by the average total asset value during the year.
Total property return is the overall return generated by properties on a
debt-free basis. It is calculated as the net rental income generated by the
portfolio plus the change in market values, divided by opening property assets
plus additions.
£m
Net rental income 136.7
Revaluation surplus and profit on sales 110.5
247.2
Opening property assets 2,576.1
Weighted additions in the period 33.1
2,609.2
Total property return 9.5%
Total NAV 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.
NAV
At 31 December 2020 112.9
At 31 December 2021 116.7
Increase/(decrease) 3.8
Add: dividends paid
Q1 interim 1.550
Q2 interim 1.550
Q3 interim 1.550
Q4 interim 1.550
Total shareholder return 10.0
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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