REG - Primary Health Props - Preliminary Results
28/02/2024 07:00
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RNS Number : 6801E Primary Health Properties PLC 28 February 2024
Primary Health Properties PLC
Preliminary results for the year ended 31 December 2023
Organic rental growth continuing to underpin performance and increased
dividend remains fully covered at 101%
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 2023.
Harry Hyman, Chief Executive, commented:
"We are encouraged by the organic rental growth achieved in 2023, resulting in
another record year with an additional £4.3 million generated from our rent
review and asset management activities. The strong rental growth in the year
has been reflected in the positive total property return, significantly ahead
of the wider property market.
"Furthermore, with over 97% of PHP's debt either fixed or hedged, a strong
control on costs, significant liquidity headroom and just one development on
site we have limited exposure to further cost increases and development risk.
"The high quality of PHP's portfolio reflects the security and longevity of
our income with 89% government funded, near full occupancy and continued
rental growth which are key drivers of our predictable cash-flows and underpin
our progressive dividend policy with 28 years of continued growth. With a
market leading portfolio across the UK, and increasingly in Ireland, we are
well positioned for long-term success."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Income statement metrics Year to Year to
31 December 31 December Change
2023 2022
Net rental income(1) £149.3m £141.5m +5.5%
Adjusted earnings(1,2) £90.7m £88.7m +2.3%
Adjusted earnings per share(1,2) 6.8p 6.6p +3.0%
IFRS profit for the year £27.3m £56.3m -51.5%
IFRS earnings per share(2) 2.0p 4.2p -52.4%
Dividends
Dividend per share(5) 6.7p 6.5p +3.1%
Dividends paid(5) £89.5m £86.7m +3.2%
Dividend cover(1) 101% 102%
Balance sheet and operational metrics 31 December 31 December
2023 2022 Change
Adjusted NTA (NAV) per share(1,3) 108.0p 112.6p -4.1%
IFRS NTA per share(1,3) 106.5p 110.9p -4.0%
Property portfolio
Investment portfolio valuation(4) £2.779bn £2.796bn -1.9%
Net initial yield ("NIY")(1) 5.05% 4.82% +23 bps
Contracted rent roll (annualised)(1,7) £150.8m £145.3m +3.8%
Weighted average unexpired lease term ("WAULT")(1) 10.2 years 11.0 years -0.8 years
Occupancy(1) 99.3% 99.7% -40 bps
Rent-roll funded by government bodies(1) 89% 89%
Debt
Average cost of debt(1) 3.3% 3.2% +10 bps
Loan to value ratio(1) 47.0% 45.1% +190 bps
Weighted average debt maturity - drawn facilities 6.6 years 7.3 years -0.7 years
Total undrawn loan facilities and cash(6) £321.2m £325.9m
(1) Items marked with this footnote are alternative performance measures.
Refer to the Glossary of Terms for a description of these measures and a
reconciliation to the nearest statutory metric where appropriate.
(2) See note 8, earnings per share, to the financial statements. Per share
figures are presented on a basic basis.
(3) See note 8, 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 9, dividends, to the financial statements.
(6) After deducting the remaining cost to complete contracted acquisitions,
properties under development and committed 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.
EARNINGS AND DIVIDENDS
· Adjusted earnings per share increased by 3.0% to 6.8p (2022:
6.6p) marginally ahead of analyst consensus
· IFRS earnings per share decreased by 52.4% to 2.0p (2022: 4.2p)
reflecting non-cashflow losses arising on the valuation of the Group's
property portfolio, convertible bond and interest rate derivatives
· Contracted annualised rent roll increased by 3.8% to £150.8
million (31 December 2022: £145.3 million)
· Additional annualised rental income on a like-for-like basis of
£4.3 million or 3.0% from rent reviews and asset management projects (2022:
£3.3 million or 2.4%)
· EPRA cost ratio 10.7% (2022: 9.9%), representing one of the
lowest in the UK REIT sector
· Quarterly dividends totalling 6.7 pence (2022: 6.5 pence) per
share distributed in the year, a 3.1% increase
· First quarterly dividend of 1.725 pence per share declared and
paid on 23 February 2024, equivalent to 6.9 pence on an annualised basis and a
3.0% increase over the 2023 dividend per share, marking the Company's 28(th)
consecutive year of dividend growth
· The Company intends to maintain its strategy of paying a
progressive, fully covered dividend
NET ASSET VALUE AND PORTFOLIO MANAGEMENT
· Adjusted Net Tangible Assets ("NTA") per share decreased by 4.1%
to 108.0 pence (31 December 2022: 112.6 pence)
· IFRS NTA per share decreased by 4.0% to 106.5 pence (31 December
2022: 110.9 pence)
· Property portfolio valued at £2.779 billion at 31 December 2023
(31 December 2022: £2.796 billion) reflecting a net initial yield of 5.05%
(31 December 2022: 4.82%)
· Revaluation deficit in the year of £53.0 million (2022: deficit
£61.5 million net of profit on sales), representing a decline of -1.9% (2022:
-2.4%) driven by NIY widening of 23 bps equivalent to around £128 million
partially offset by gains of £75 million arising from rental growth and asset
management projects
· The portfolio's metrics continue to reflect the Group's secure,
long-term and predictable income stream with occupancy at 99.3% (31 December
2022: 99.7%), WAULT of 10.2 years (31 December 2022: 11.0 years) and 89% (31
December 2022: 89%) of income funded by government bodies
· Portfolio in Ireland comprises 21 assets, valued at £245 million
/ €282 million (31 December 2022: £231 million / €261 million) following
the acquisition of one of Ireland's first Enhanced Community Care facilities
at Ballincollig, near Cork. The portfolio in Ireland represents 9% (2022: 8%)
of the total portfolio and Ireland continues to represent a core part of PHP's
strategy and preferred area of future growth
· The acquisition of Axis Technical Services Limited, in January
2023, continues to provide a critical strategic advantage with a permanent
presence in Ireland, an important move as we seek new investment, development
and asset management opportunities
· Disciplined approach to future investment with pipeline of
accretive opportunities totalling £22.6 million focused on asset management
projects and one on site development
· Pipeline of 23 asset management projects and lease regears
planned over next two years, investing £19.3 million, creating additional
rental income of £0.8 million per annum and extending the weighted average
unexpired lease term (WAULT) back to over 20 years on these projects
· Winner of MSCI's UK Highest 10-Year Risk Adjusted Total Return
Award for the second consecutive year in 2022 and 2021, reflecting PHP's
market leading property performance
FINANCIAL MANAGEMENT
· LTV ratio 47.0% (31 December 2022: 45.1%) within the Group's
targeted range of between 40% to 50%
· 97% (31 December 2022: 94%) of net debt fixed or hedged for a
weighted average period of just under seven years
· Weighted average debt maturity 6.6 years (31 December 2022: 7.3
years)
· Significant liquidity headroom with cash and collateralised
undrawn loan facilities totaling £321.2 million (31 December 2022: £325.9
million) after capital commitments, providing the business with flexibility to
execute its strategy
· In October 2023, completed a secondary listing of PHP on the
Johannesburg Stock Exchange ("JSE") to further improve liquidity in the
Group's shares
· €47.8 million private placement loan note issued in December
2023 for a 10-year term at a fixed rate of 4.195% to finance continued
expansion in Ireland with the current portfolio valued at a NIY of 5.4% (31
December 2022: 5.2%). The proceeds have been used to repay more expensive
variable rate debt drawn on the Group's revolving credit facilities which are
available to be redrawn in the future
RELATIVE TOTAL RETURNS
Year ended Year ended
31 December 2023 31 December 2022
Increase in Adjusted NTA plus dividends paid 1.9% 2.1%
Total income return 5.3% 5.0%
Total capital return (1.8%) (2.2%)
Total property return(1) 3.5% 2.8%
MSCI UK Monthly Property Index (0.5%) (10.4%)
(1) The definition for income, capital and total property return is set out in
the Glossary of Terms.
RESPONSIBLE BUSINESS AND ESG
· As previously announced, PHP's Net Zero Carbon ("NZC") Framework was
published with the five key steps the Group is looking to achieve the
ambitious target of being NZC by 2030 for all of the Group's operational,
development and asset management activities
· Progress continues on construction of PHP's first NZC development in West
Sussex which is expected to achieve practical completion in Q3 2024
· Continued improvement in portfolio EPC ratings with 42% and 85% (2022:
35% and 81%) rated A-B and A-C respectively driven by the asset management
programme
Presentation and webcast:
An in-person presentation for analysts will be held today, 28 February 2024 at
10.30am (12.30am SAST) at the offices of Buchanan Communications, 107
Cheapside, London EC2V 6DN, and for those who cannot attend in person, via a
live webcast and conference call facility. Following the presentation there
will be a managed questions and answers session.
The presentation will be accessible via live video webcast and a live
conference call facility:
Webcast: https://stream.brrmedia.co.uk/broadcast/659e72fc277c2248ee137e83
(https://stream.brrmedia.co.uk/broadcast/659e72fc277c2248ee137e83)
Telephone: UK-wide: +44 (0) 33 0551 0200
Telephone: South Africa toll free: 0 800 980 512
Password: Quote "PHP full year results" when prompted
If you would like to register your interest in attending the meeting, please
contact Buchanan at php@buchanan.uk.com (mailto:php@buchanan.uk.com) .
A recording of the webcast will be made available from c.12.00pm UK time
(2.00pm SAST) on 28 February 2024 on the PHP
website, https://www.phpgroup.co.uk/ (https://www.phpgroup.co.uk/) .
For further information contact:
Harry Hyman Richard Howell
Chief Executive Officer Chief Financial Officer
Primary Health Properties PLC Primary Health Properties PLC
T: +44 (0) 7973 344768 T: +44 (0) 7766 072272
E: harry.hyman@phpgroup.co.uk (mailto:harry.hyman@phpgroup.co.uk) E: richard.howell@phpgroup.co.uk
David Rydell / Stephanie Whitmore / Verity Parker
Buchanan Communications
T: +44 (0) 20 7466 5066
E: php@buchanan.uk.com (mailto:php@buchanan.uk.com)
Chairman's statement
In my final report as Chairman before I retire from the Board at the
conclusion of the Company's Annual General Meeting to be held on 24 April 2024
("2024 AGM"), I am pleased to report PHP continued to deliver another year of
robust operational and financial performance despite the ongoing volatility in
the economic and interest rate outlook caused by both global and domestic
events. The volatile interest rate outlook has continued to weigh heavily on
the real estate sector during 2023 and early part of 2024. Against this
backdrop, the performance in the year was a testament to the quality of PHP's
business model, portfolio, management team and people.
The Group's strong operational resilience throughout the year reflects the
security and longevity of our income which are important drivers of our
predictable income stream and underpin our progressive dividend policy which
is now in its 28(th) year of continued growth.
We maintain our strong operational property metrics, with a long weighted
average unexpired lease term ("WAULT") of 10.2 years (31 December 2022: 11.0
years), high occupancy at 99.3% (31 December 2022: 99.7%) and 89% (31 December
2022: 89%) of our rent being securely funded directly or indirectly by the UK
and Irish Governments. Notwithstanding the fall in values in the year the
portfolio's average lot size remains at £5.4 million (31 December 2022: £5.4
million).
We have continued to see rental growth improving with rent reviews in 2023
generating an extra £4.0 million (2022: £3.0 million) an uplift of 8.9%
(2022: 6.8%) over the previous passing rent equivalent to 4.0% (2022: 3.4%) on
an annualised basis.
We are encouraged by the increasingly firmer tone of rental growth and believe
PHP in the medium term will be a beneficiary of the recent inflationary
environment both through open market and index-linked reviews. In particular,
the significant increases in construction costs, together with historically
suppressed levels of open market rental growth in the sector, will be
significant pull factors to future growth especially as the NHS seeks to
deliver new, larger primary care facilities and modernise the existing estate.
The improving outlook on open market value ("OMV") reviews is expected to
offset the impact of declining inflation on indexed rent reviews and it should
be noted that most of the growth on OMV rent reviews in 2023 came from the
period 2019 to 2021 and therefore does not yet reflect the impact of
significantly higher construction costs experienced in the last two years.
This continues to be a critical focus of the Group's business model and
underpins the rental growth outlook.
The value of the property portfolio currently stands at £2.779 billion (31
December 2022: £2.796 billion) across 514 assets (31 December 2022: 513
assets), including 21 in Ireland, with a rent roll of £150.8 million (31
December 2022: £145.3 million). As previously reported, the deteriorating
interest rate environment and economic outlook during 2023 caused us to
reconsider our acquisition pipeline and pause investment activity until the
economic and interest rate outlook becomes clearer. Our prudent strategy means
that we currently have just one development on site and consequently very
limited exposure to further build cost inflation and development risk.
Many of our primary care facilities and occupiers will need to deal with the
backlog of procedures and demand which has built up since the COVID-19
pandemic and the increasing pressures being placed on the healthcare systems
in both the UK and Ireland. We continue to maintain close relationships with
our key stakeholders and GP partners to ensure we are best placed to help the
NHS and Health Service Executive ("HSE"), Ireland's national health service
provider, particularly in primary care, evolve and deal with the increased
pressures placed on them.
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 and
uncertain times.
Acquisition of Axis Technical Services Limited
In January 2023, the Group successfully completed the acquisition of Axis
Technical Services Limited ("Axis"), an Irish property management business,
and signed a long-term development pipeline agreement providing access to a
strong pipeline of future primary care projects in Ireland.
Axis currently manages a portfolio of 30 properties, including all of PHP's
Irish portfolio, and the acquisition gives the Group a permanent presence on
the ground, further strengthening its position in the country and relationship
with the HSE. The acquired company also provides fit-out, property and
facilities management services to the HSE and other businesses located across
Ireland.
Following completion of the acquisition of Axis it has continued to perform in
line with expectations in 2023 generating a profit before tax of £1.1 million
(€1.3 million).
As part of the acquisition, PHP signed a development pipeline agreement with
Axis Health Care Assets Limited, a related company, which gives the Group the
option to acquire their development pipeline over the next five years from
completion. Axis Health Care Assets Limited is one of Ireland's leading
developers of primary care properties, having developed five properties over
the last five years, all of which have been acquired by PHP, and has a strong
pipeline of near-term projects with an estimated gross development value of
approximately €50 million with further potential schemes beyond that.
Overview of results
PHP's Adjusted earnings increased by £2.0 million or +2.3% (2022: £5.5
million or +6.6%) to £90.7 million (2022: £88.7 million) in the year,
primarily driven by strong organic rental growth from rent reviews and asset
management projects, plus income arising from the acquisition of Axis
partially offset by higher interest costs on the Group's variable rate debt.
Using the weighted average number of shares in issue in the year the adjusted
earnings per share increased to 6.8 pence (2022: 6.6 pence), an increase of
3.0% (2022: +6.5%).
A revaluation deficit of £53.0 million (2022: deficit of £61.5 million net
of profit on sales) was generated in the year from the portfolio, equivalent
to -4.0 pence (2022: -4.6 pence) per share. The valuation deficit was driven
by net initial yield ("NIY") widening of 23 bps (2022: 18 bps) in the year,
equivalent to a valuation reduction of around £128 million (2022: deficit of
£134 million), albeit this was partially offset by gains equivalent to £75
million (2022: gain of £70 million) arising from rental growth and asset
management projects.
A combined loss of £11.6 million (2022: gain of £29.7 million) on the fair
value of interest rate derivatives and convertible bonds, the amortisation of
the fair value adjustment on the MedicX fixed rate debt at acquisition and
write-off of costs arising from the acquisition of Axis and listing on the
Johannesburg Stock Exchange ("JSE") resulted in a profit before tax as
reported under IFRS of £26.1 million (2022: £56.9 million).
The Group's balance sheet remains robust with a loan to value ratio of 47.0%
(2022: 45.1%), which is in line with the targeted range of between 40% and
50%, and we have significant liquidity headroom with cash and collateralised
undrawn loan facilities, after capital commitments, totalling £321.2 million
(2022: £325.9 million). The Group also has significant valuation headroom
across the various loan facilities with values needing to fall further by
around £1.1 billion or 39% before the loan to value covenants are impacted.
This headroom means the Group is well placed to continue to execute on its
strategy and adapt to market conditions accordingly.
Dividends
The Company distributed a total of 6.7 pence per share in 2023, an increase of
3.1% over the 2022 dividend of 6.5 pence per share. The total value of
dividends distributed in the year increased by 3.2% to £89.5 million (2022:
£86.7 million), which were fully covered by adjusted earnings. During 2023,
the scrip dividend scheme continued to be suspended in light of the ongoing
weakness in the share price and a dividend re-investment plan is being offered
in its place.
The first interim dividend of 1.725 pence per share was declared on 4 January
2024, equivalent to 6.9 pence on an annualised basis, which represents an
increase of 3.0% over the dividend distributed per share in 2023. The dividend
was paid to shareholders on 23 February 2024 who were on the register at the
close of business on 12 January 2024. The dividend will be paid by way of a
property income distribution of 1.45 pence and normal dividend of 0.275 pence.
The Company intends to maintain its strategy of paying a progressive dividend,
paid in equal quarterly instalments, that is covered by adjusted earnings
in each financial year. Further dividend payments are planned to be made on a
quarterly basis in May, August and November 2024 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 110.8 pence per share and closed
on 31 December 2023 at 103.8 pence, a decrease of 6.3%. Including dividends,
those shareholders who held the Company's shares throughout the year achieved
a Total Shareholder Return of -0.3% (2022: -22.5%).
During the year PHP was announced as the winner of MSCI's Highest 10-Year Risk
Adjusted Total Return Award for the UK in 2022 having previously won the award
in 2021 and 2017.
Environmental, Social and Governance ("ESG")
PHP has a strong commitment to responsible business. ESG matters are at the
forefront of the Board's and our various stakeholders' considerations and the
Group has committed to transitioning to net zero carbon ("NZC"). We commenced
construction of PHP's first NZC development which is due to achieve practical
completion in the third quarter of 2024 and published, at the start of 2022, a
NZC Framework setting out the five key steps we are taking to achieve an
ambitious target of being NZC by 2030 for all of PHP's operational,
development and asset management activities. The NZC Framework also sets out
our ambition to help our occupiers achieve NZC by 2040, five years ahead of
the NHS's target of becoming the world's first net zero carbon national health
system by 2045 for the emissions it can influence and ten years ahead of the
UK and Irish Governments' target of 2050. Further details on our progress in
the year, objectives for the future and approach to responsible business can
be found in the 2023 Annual Report and on our website.
Board succession and changes
The past year has been a significant one in the Company's history regarding
the successful execution of its succession plan and the composition of the
Board.
The first step in the plan in 2023 was to recruit a new Chief Executive
Officer ("CEO") to succeed Harry Hyman, Founder and CEO who had previously
indicated his intention to retire as CEO at the 2024 AGM.
The Company announced on 4 September 2023, after a thorough and extensive
search process, the appointment of Mark Davies as CEO with effect from the
conclusion of the 2024 AGM. In January 2024, as part of the handover process,
he commenced working alongside Harry and the wider team in order to ensure a
smooth transition.
Mark is a highly experienced FTSE 250 Executive having held CEO and Chief
Financial Officer ("CFO") roles in listed companies and private equity. He was
a Co-founder Director of NewRiver REIT plc ("NewRiver") in 2009 and played an
important role in taking NewRiver from IPO into the FTSE 250 index in seven
years. He was CFO of NewRiver for over twelve years and, alongside his role as
CFO, was also CEO/Executive Chairman of Hawthorn Leisure Limited ("Hawthorn")
for five years. Mark stood down from the Board of NewRiver following the
successful sale of Hawthorn in July 2021 to private equity at a premium price.
Mark has considerable capital markets experience and over the last fourteen
years has raised over £3 billion of equity and debt in public and private
markets.
The second step in the succession plan was to find a successor to myself as
Chairman and on 2 November 2023 the Company announced, after consultation with
a number of its major shareholders, the appointment of Harry Hyman as
Non-executive Chairman subject to shareholder approval at, and with effect
from the conclusion of, the Company's 2024 AGM. I will remain as Chairman
until I retire at the conclusion of the 2024 AGM.
The Board believes that Harry's appointment is in the best interests of the
Group and its stakeholders, particularly as Harry's knowledge and expertise
gained over nearly 30 years in the primary care property sector, which is a
niche sub-sector of the real estate market, will continue to be invaluable and
highly relevant to the Group's future success. Harry founded PHP in 1996 and
has served on the Board as Managing Director/CEO since that time. His track
record in the listed real estate sector is outstanding and he has been the key
driver in PHP's success since its inception. Further details regarding the
selection of Harry as Chair can be found in the 2023 Annual Report.
The Board considers that the combination of Mark Davies as CEO and Harry Hyman
as Chairman, together with Richard Howell as CFO and David Bateman as Chief
Investment Officer ("CIO"), makes a formidable, highly respected leadership
team that will continue to build on the success of the business.
The Board has determined that Harry's term as Chairman will be for a maximum
of three years.
The final step in the plan was to recruit an additional Non-Executive Director
in order to ensure that the Board consists of a majority of independent
Non-executive Directors and therefore be compliant with the Corporate
Governance Code from the date of appointment. As a result, Dr Bandhana (Bina)
Rawal was appointed as a fourth independent Non-executive Director of the
Company with effect from 27 February 2024 and the Board has increased in size
from six to seven.
Toby Newman was appointed Company Secretary and Chief Legal Officer on 28
February 2023 following the retirement of Paul Wright.
Secondary Listing
On the 24 October 2023 the Company completed a secondary listing of PHP shares
on the JSE. The Board of PHP believes that the secondary listing will
contribute to liquidity in the Group's shares as a result of the growing
interest in the Company and its increased profile in the South African market,
where a number of investors have already shown strong interest in the unique
healthcare property investment opportunity. Since listing on the JSE
approximately one million shares have been traded to date and we continue to
help potential South African investors acquire PHP shares and provide further
liquidity on the JSE.
Market update and outlook
The primary care market continues to face challenges in meeting the growing
demand for healthcare services. The capacity of existing facilities remains a
significant obstacle to implementing government policies aimed at expanding
service delivery within general practice, including social prescribing,
clinical pharmacists, physiotherapists, mental health, minor operations and
other activities. The need for additional space is driven by a population that
is growing, ageing and suffering from increased chronic illnesses, which is
placing a greater burden on healthcare systems in both the UK and Ireland. The
extent of the NHS England backlog remains a significant concern, with
hospitals struggling to meet objectives for cancer care and routine
treatments. The number of patients waiting for treatment has reached record
highs, exacerbating the need for improved and increased primary healthcare
infrastructure with approximately one-third of the UK's current primary care
estate in need of replacement.
There is a growing expectation that many services in the medium term will
progressively move from hospitals to primary care settings, necessitating
substantial investment in facilities to accommodate these changes and
alleviate the pressure on secondary care in the years to come. The UK
government's vision for primary care premises, advocating the establishment of
hubs or "super hubs", is a step in this direction. The UK government's vision
is that these hubs promote collaboration among primary care staff and provide
a wider range of services in a single location. Larger GP practices with more
staff and facilities are shown to produce better patient outcomes. This is in
line with larger purpose-built medical centres typical of PHP's portfolio and
our own ongoing engagement with occupiers where many surgeries require more
space.
Declining rents in real terms have made investing in the transformation of GP
facilities less appealing. Construction costs have risen significantly over
the past decade, surpassing the growth in primary care rents, driven by
material and labour costs and increasing sustainability requirements, all of
which has been compounded by Brexit, the COVID-19 pandemic and the fiscal
policy outlook.
Future developments will now need a significant shift of between 20% to 30% in
rental values to make them economically viable and we continue to actively
engage with both the NHS, Integrated Care Boards ("ICB") and District Valuer
("DV") for higher rent settlements. However, despite these negotiations
typically becoming protracted, we are starting to see positive movement in
some locations where the NHS need for investments in new buildings is
strongest. We are aware of instances where the ICB have stepped in and
overruled the DV's proposals when those have prevented much needed schemes
from progressing. This along with the use of "top-up" rents and capital
contributions is starting to allow certain schemes to progress viably and we
anticipate this will accelerate.
PHP's mission is to support the NHS, the HSE and other healthcare providers,
by being a leading investor in modern, primary care premises. We will continue
to actively engage with government bodies, the NHS, the HSE in Ireland and
other key stakeholders to establish, enact (where we can), support and help
alleviate increased pressures and burdens currently being placed on healthcare
networks.
Primary health and investment market update
The commercial property market continues to be impacted by economic turbulence
but primary care asset values have continued to perform well relative to
mainstream commercial property due to recognition of the security of their
government backed income, crucial role in providing sustainable healthcare
infrastructure and more importantly a stronger rental growth outlook enabling
attractive reversion over the course of long leases.
The continued lack of recent transactions in the year has resulted in valuers
continuing to place reliance on sentiment to arrive at fair values. Yields
adopted by the Group's valuers have moved out by 23bps to 5.05% as at 31
December 2023 (2022: 4.82%) to reflect perceived market sentiment for the
sector.
We continue to see that for both the primary care and indeed the wider
commercial property markets, the high level of financial market volatility and
economic uncertainty has resulted in a 'wait-and-see' attitude amongst
investors, which is expected to continue until the UK interest rate outlook
moderates and becomes more certain. However, notwithstanding the significant
increases and volatility in interest rates seen in 2023, we continue to
believe further significant reductions in primary care values are likely to be
limited with a stronger rental growth outlook offsetting the impact of any
further yield expansion.
Additionally, the market for primary care assets is relatively small with most
assets tightly held by the main specialists in the sector and consequently we
anticipate most investors will likely hold their existing assets in the
current market primarily because of:
· limited supplies of stock;
· very secure, rising income streams with an improving
rental growth outlook;
· the main specialists in the sector all having strong
balance sheets so there are likely to be limited "forced sales"; and
· a desire from investors to seek a "safe haven" with
some shifting from other property sectors.
PHP Outlook
Growth in the immediate future will continue to be focused on increasing
income from our existing portfolio and we are encouraged by the firmer tone of
rental growth experienced in 2022 and 2023. As already noted, we believe the
favourable dynamics of inflation over the last two years and increased build
costs combined with a demand for new primary care facilities and the need to
modernise the estate will continue to increase future rental settlements.
We are currently on site with just one development which is due to complete in
Q3 2024 and consequently have very limited exposure to higher construction
cost pressures and supply chain delays. In our immediate pipeline we have just
one development and 23 asset management projects with a total expected cost of
£22.6 million and will continue to evaluate these, together with a wider
medium-term pipeline at various stages of progress and seek to negotiate rents
with the NHS at the level required to deliver an acceptable return.
In the current environment, Ireland continues to be the Group's preferred area
of future investment activity and we have ambitions to continue to grow the
portfolio there to around 15% of the total (31 December 2023: 9%). The
acquisition of Axis, in January 2023, gives the Group a permanent presence in
Ireland, an important strategic move as we seek out new investment,
development and asset management opportunities and try to strengthen our
relationship with the HSE as the leading provider of modern primary care
infrastructure in the country.
With an improving rental growth outlook, a strong control on costs resulting
in one of the lowest EPRA cost ratios in the sector and the vast majority of
PHP's debt either fixed or hedged for a weighted average period of just under
seven years, we look forward to 2024 with confidence.
We believe that our activities benefit not only our shareholders but also our
wider stakeholders, including occupiers, patients, the NHS and HSE, suppliers,
lenders, and the wider communities in both the UK and Ireland.
On a personal level, I would like to place on record how much I have enjoyed
working with Harry and the Board, both past and present, over the last ten
years. The Company has achieved so much during this time including the merger
with MedicX, internalisation of the management structure and is now a key
member of the FTSE 250 Index.
I wish the new Board and the Company every success for the future.
Steven Owen
Chairman
27 February 2024
BUSINESS REVIEW
Investment and pipeline
In 2023 the Group selectively acquired just one asset in Ireland, our
preferred area of investment due to higher net initial yields, larger lot
sizes and cheaper cost of finance for euro denominated debt with acquisitions
and developments only being progressed if accretive to earnings.
In December 2023, the Group completed the acquisition of Ireland's first
dedicated Enhanced Community Care facility at Ballincollig, near Cork,
Ireland, for a total consideration of £25.7 million (€29.6 million). The
property is fully let to the HSE on a 25-year lease and benefits from five
yearly, compounded annually, Irish CPI indexed rent reviews. The property is
managed by Axis.
We continue to monitor a number of potential standing investments, direct and
forward funded developments and asset management projects with an advanced
pipeline of opportunities across a number of opportunities in both the UK and
Ireland.
However, the immediate pipeline of opportunities in legal due diligence
continues to be focused predominantly on PHP's existing portfolio through
asset management projects.
Pipeline In legal due diligence Advanced pipeline
Number Cost Number Cost
Ireland - forward funded development - - 2 £43.3m (c.€50m)
UK - direct development 1 £3.3m 2 £11.5m
UK - asset management 23 £19.3m 20 £16.3m
UK - investment - - - -
Total pipeline 24 £22.6m 24 £71.1m
Developments
At 31 December 2023, the Group had limited development exposure with just one
project on site at Croft Primary Care Centre, West Sussex which is due to
achieve practical completion towards the end of Q3 2024 with £5.4 million of
expenditure required to complete the project. The development is also being
built to NZC standards.
The Group is currently progressing one future development scheme in London
where we have managed to work with both the local council and ICB to make the
scheme economically viable.
The Group has currently paused any new direct development activity whilst
negotiations with the NHS, ICBs and District Valuers continue to increase
rental levels to make schemes economically viable with rental values needing
to increase by around 20%-30%.
We currently do not have any forward funded developments on site in Ireland
although continue to progress a near-term pipeline with an estimated gross
development value of approximately €50m.
PHP expects that all future direct developments will be constructed to NZC
standards.
Asset management
PHP's sector-leading metrics remain robust 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 regears) which provide an
important opportunity to increase income, extend lease terms and avoid
obsolescence whilst ensuring that our properties continue to meet the
communities' healthcare needs and improve their ESG credentials.
2023 was another record year for organic rental growth from our existing
portfolio with income increasing by £4.3 million (2022: £3.3 million) or
3.0% (2022: 2.4%) on a like-for-like basis. The progress continues the
improving outlook seen over the last couple of years and it should be noted
that most of the increase comes from rent reviews arising in the period 2019
to 2021, a period when rental growth was muted and not reflecting the higher
levels of construction cost and general inflation experienced in recent years.
We have also seen the improving rental growth outlook reflected in the
valuation of the portfolio with the independent valuers' assessment of
estimated rental values ("ERV") increasing by 2.5% in 2023 (2022: 2.2%; 2021:
1.9%).
Rent review performance
In the UK, the Group completed 313 (2022: 318) rent reviews with a combined
rental value of £42.4 million (2022: £42.2 million), adding £3.6 million
(2022: £2.8 million) and delivering an average uplift of 8.5% (2022: 6.7%)
against the previous passing rent.
67% of our rents are reviewed on an open market basis which typically takes
place every three years. The balance of the PHP portfolio has either indexed
(27%) or fixed uplift (6%) based reviews which also provide an element of
certainty to future rental growth within the portfolio. Approximately
one-third of indexed linked reviews in the UK are subject to caps and collars
which typically range from 6% to 12% over a three-year review cycle.
In Ireland, we concluded 18 (2022: 13) index-based reviews, adding a further
£0.4 million/ €0.4 million (2022: £0.2 million/€0.2 million), an uplift
of 15.2% (2022: 9.2%) against the previous passing rent. In Ireland, all
reviews are linked to the Irish Consumer Price Index, upwards and downwards,
with reviews typically every five years. Leases to the HSE and other
government bodies, which comprise 78% of the income in Ireland, have increases
and decreases capped and collared at 25% over a five-year review cycle.
The growth from reviews completed in the year, noted above, is summarised
below:
Review type Number Previous rent Rent increase % increase total % increase annualised
(per annum) (per annum) % %
£ million £ million
UK - open market(1) 184 24.2 1.3 5.4 1.8
UK - indexed 114 14.1 2.0 14.2 8.4
UK - fixed 15 4.1 0.3 7.3 2.7
UK - total 313 42.4 3.6 8.5 4.0
Ireland - indexed 18 2.6 0.4 15.2 3.3
Total - all reviews 331 45.0 4.0 8.9 4.0
(1) - includes 49 reviews where no uplift was achieved.
At 31 December 2023, 585 (2022: 656) open market rent reviews representing
£84.9 million (2022: £90.2 million) of passing rent, were outstanding out of
which 334 (2022: 286) have been triggered to date and are expected to add
another £2.2 million (2022: £1.7 million) to the contracted rent roll when
concluded and represents an uplift of 4.5% (2022: 4.1%) against the previous
passing rent. The balance of the outstanding reviews will be actioned when
there is further comparative evidence to support the estimated rental values.
The large number of outstanding reviews reflects the requirement for all
awards to be agreed with the District Valuer. A great deal of evidence to
support open market reviews comes from the completion of historical rent
reviews, and the rents set on delivery of new properties into the sector. We
continue to see positive momentum in the demand, commencement and delivery for
new, purpose-built premises which are being supported by NHS initiatives to
modernise the primary care estate albeit previously agreed rental values are
having to be renegotiated to make a number of these viable in the current
economic environment.
Asset Management
Projects
During 2023, we exchanged on five new asset management projects, eight lease
regears and four new lettings. These initiatives will increase rental income
by £0.3 million investing £5.2 million and extending the leases back to 15
years.
PHP continues to work closely with its occupiers and has a pipeline of 23
similar asset management projects which are currently in legal due diligence
and are being progressed to further increase rental income and extend
unexpired occupational lease terms. The immediate asset management pipeline
will require the investment of approximately £19.3 million, generating an
additional £0.8 million of rental income and extending the WAULT on those
premises back to an average of 20 years. Additionally, we continue to progress
an advanced pipeline of further asset management initiatives across 20
projects.
The Company will continue to invest capital in a range of physical extensions
or refurbishments through asset management projects which help avoid
obsolescence, including improving energy efficiency, and which are key to
maintaining the longevity and security of our income through long term
occupier retention, increased rental income and extended occupational lease
terms, adding to both earnings and capital values.
Robust portfolio metrics
The portfolio's annualised contracted rent roll at 31 December 2023 was
£150.8 million (2022: £145.3 million), an increase of £5.5 million or +3.8%
(2022: £4.6 million or +3.3%) in the year driven predominantly by organic
rent reviews and asset management projects of £4.3 million (2022: £3.3
million). Acquisitions added a further £1.6 million (2022: £1.1 million, net
of disposals) partially offset by £0.4 million loss of income arising mainly
from three lease surrenders, several lease expiries and foreign exchange
movements on our portfolio in Ireland. The leases surrendered during the year
are part of future asset management initiatives and we expect to complete the
reletting of the space during 2024.
The security and longevity of our income are important drivers of our
predictable cash-flows and underpin our progressive dividend policy.
Security: PHP continues to benefit from secure, long term cash flows with 89%
(2022: 89%) of its rent roll funded directly or indirectly by the NHS in the
UK or the HSE in Ireland. The portfolio also continues to benefit from an
occupancy rate of 99.3% (2022: 99.7%).
Rental collections: These continue to remain robust and as at 26 February 2024
97% had been collected in both the UK and Ireland for the first quarter of
2024. This is in line with collection rates experienced in both 2023 and 2022
which now stand at over 99% for both countries. The balance of rent due for
the first quarter of 2024 is expected to be received shortly.
Longevity: The portfolio's WAULT at 31 December 2023 was 10.2 years (31
December 2022: 11.0 years). £17.1 million or 11.3% of our income is currently
holding over or 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. £64.3 million or 42.7% expires in over ten years. The table
below sets out the current lease expiry profile of our income:
Income subject to expiry £ million %
Holding over 4.1 2.7
< 3 years 13.0 8.6
4 - 5 years 17.0 11.3
5 - 10 years 52.4 34.7
10 - 15 years 30.1 20.0
15 - 20 years 22.5 14.9
> 20 years 11.7 7.8
Total 150.8 100.0
As the 31 December 2023, 45 leases or £4.1 million of income (2022: 17 leases
/ £0.9 million) was holding over. All these leases are expected to renew but
are subject to NHS approval which continues to suffer from delays as ICBs
finalise their future estate strategies together with the requirement for new
rents to be approved by the DV. We continue to maintain a close relationship
with all parties concerned and receive NHS rent reimbursement in a timely
manner. If all the currently agreed transactions completed, then the WAULT on
the portfolio would increase to 10.6 years (31 December 2023: 10.2 years).
Valuation and returns
At 31 December 2023, the Group's portfolio comprised 514 (31 December 2022:
513) assets independently valued at £2.779 billion (31 December 2022: £2.796
billion). After allowing for acquisition costs and capital expenditure on
developments and asset management projects, the portfolio generated a
valuation deficit of £53.0 million or -1.9% (2022: deficit of £61.5 million
net of profit on sales).
The valuation deficit of £53.0 million in the year was driven primarily by a
loss arising from yield expansion of approximately £128 million partially
offset by gains of approximately £75 million arising from an improving rental
growth outlook and asset management projects.
During the year the Group's portfolio NIY has expanded by 23 bps to 5.05% (31
December 2022: 4.82%) and the reversionary yield increased to 5.4% at 31
December 2023 (31 December 2022: 5.2%)
At 31 December 2023, the portfolio in Ireland comprised 21 standing and fully
let properties with no developments currently on site, valued at £244.6
million or €282.2 million (31 December 2022: 20 assets/£230.9 million or
€260.8 million). At 31 December 2023, the portfolio in Ireland has been
valued at a NIY of 5.4% (31 December 2022: 5.2%).
Despite the fall in values during the year the portfolio's average lot size
remained unchanged at £5.4 million (31 December 2022: £5.4 million) and
87.1% of the portfolio is valued at over £3.0 million. The Group only has
five assets valued at less than £1.0 million.
Number of Valuation Average
properties £ million % lot size (£ million)
> £10m 58 892.1 32.1 15.4
£5m - £10m 128 875.7 31.5 6.8
£3m - £5m 163 650.9 23.5 4.0
£1m - £3m 160 353.0 12.7 2.2
< £1m (including land £1.3m) 5 4.6 0.2 0.7
Total(1) 514 2,776.3 100.0 5.4
(1) Excludes the £3.0 million impact of IFRS 16 Leases with ground rents
recognised as finance leases.
The valuation deficit combined with the portfolio's growing income, resulted
in a total property return of +3.5% for the year (2022: +2.8%). The total
property return in the year compares with the MSCI UK Monthly Property Index
of -0.5% for 2023 (2022: -10.4%).
Year ended Year ended
31 December 2023 31 December 2022
Income return 5.3% 5.0%
Capital return (1.8%) (2.2%)
Total return 3.5% 2.8%
FINANCIAL REVIEW
PHP's adjusted earnings increased by £2.0 million or 2.3% to £90.7 million
in 2023 (2022: £88.7 million). The increase in the year reflects the
continued positive organic rental growth from rent reviews and asset
management projects in both 2023 and 2022 together with the contribution from
Axis, partially offset by increased interest costs on the Group's variable
rate debt and additional administrative costs.
On 20 January 2023, the Group completed the acquisition of Axis which
contributed £1.1 million net of overheads, trading in line with expectations
during the year.
Using the weighted average number of shares in issue in the year the adjusted
earnings per share increased to 6.8 pence (2022: 6.6 pence), an increase of
3.0% (2022: +6.5%).
The financial results for the Group are summarised as follows:
Summarised results Year ended Year ended
31 December 2023 31 December 2022
£ million £ million
Net rental income 149.3 141.5
Axis contribution net of overheads 1.1 -
Administrative expenses (11.6) (9.6)
Operating profit before revaluation and net financing costs 138.8 131.9
Net financing costs (48.1) (43.2)
Adjusted earnings 90.7 88.7
Revaluation deficit on property portfolio and profit on sales (53.0) (61.5)
Fair value (loss)/gain on interest rate derivatives and convertible bond (13.2) 26.8
Amortisation of MedicX debt MtM at acquisition 3.0 2.9
Axis amortisation of intangible asset (0.9) -
Axis acquisition and JSE listing costs (0.5) -
IFRS profit before tax 26.1 56.9
Corporation tax (0.1) 0.2
Deferred tax provision 1.3 (0.8)
IFRS profit after tax 27.3 56.3
Adjusted earnings increased by £2.0 million or 2.3% (2022: £5.5 million /
6.6%) in 2023 to £90.7 million (2022: £88.7 million) and the movement in the
year can be summarised as follows:
Year ended Year ended
31 December 2023 31 December 2022
£ million £ million
Year ended 31 December 88.7 83.2
Net rental income 7.8 4.8
Axis contribution net of overheads 1.1 -
Administrative expenses (2.0) 0.9
Net financing costs (4.9) (0.2)
Year ended 31 December 90.7 88.7
Net rental income received in 2023 increased by 5.5% or £7.8 million to
£149.3 million (2022: £141.5 million) reflecting £4.6 million of additional
income from completed rent reviews and asset management projects including the
impact of rent reviews back dated to the original date of review, £2.5
million from the impact of acquisitions, disposals and developments completed
in 2023 and 2022 and a £0.7 million reduction in non-recoverable property
costs.
Notwithstanding the acquisition of Axis at the start of the year
administration expenses continue to be tightly controlled and the Group's EPRA
cost ratio remains one of the lowest in the sector at 10.7% (2022: 9.9%).
The £2.0 million increase in administration costs in the year is due mainly
to a £1.1 million increase in the provision for performance-related pay and
the cost of a voluntary redundancy programme completed in the year, together
with the impact of a one-off benefit in 2022 arising from end of the historic
performance incentive fee arrangements of £0.6 million.
EPRA cost ratio Year ended Year ended
31 December 2023 31 December 2022
£ million £ million
Gross rent less ground rent, service charge and other income 155.8 147.0
Direct property expense 18.2 12.6
Less: service charge costs recovered (13.3) (7.0)
Non-recoverable property costs 4.9 5.6
Administrative expenses 11.6 9.6
Axis overheads and costs 0.8 -
Less: ground rent (0.2) (0.2)
Less: other operating income (0.5) (0.4)
EPRA costs (including direct vacancy costs) 16.6 14.6
EPRA cost ratio 10.7% 9.9%
EPRA cost ratio excluding Axis overheads and direct vacancy costs 10.1% 9.9%
Total expense ratio (administrative expenses as a percentage of gross asset 0.4% 0.3%
value)
Net finance costs in the year increased by £4.9 million to £48.1 million
(2022: £43.2 million) because of a £45.4 million increase in the Group's net
debt during 2023, the impact of increased interest rates on the Group's
unhedged debt and the loss of interest receivable on forward funded
developments which completed in 2022, now income producing and accounted for
as rent.
Shareholder value and total accounting return
The Adjusted Net Tangible Assets ("NTA") per share declined by 4.6 pence or
-4.1% to 108.0 pence (31 December 2022: 112.6 pence per share) during the year
with the revaluation deficit of £53.0 million or -4.0 pence per share and
cost of the Axis acquisition of £7.3 million (€8.2 million) or 0.5 pence
per share being the main reason for the decrease.
The total adjusted NTA (NAV) return per share, including dividends
distributed, in the year was 2.1 pence or 1.9% (2022: 2.4 pence or 2.1%).
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 NTA per share 31 December 2023 pence per share 31 December 2022 pence per share
Opening Adjusted NTA per share 112.6 116.7
Adjusted earnings for the year 6.8 6.6
Dividends paid (6.7) (6.5)
Revaluation of property portfolio and profit on sales (4.0) (4.6)
Axis acquisition cost (0.5) -
Shares issued - 0.1
Foreign exchange and other movements (0.2) 0.3
Closing Adjusted NTA per share 108.0 112.6
Fixed rate debt and derivative mark-to-market value 8.2 8.7
Convertible bond fair value adjustment (0.4) 2.1
Deferred tax 0.1 (0.1)
Intangible assets 0.5 -
Closing EPRA NDV per share 116.4 123.3
Financing
In December 2023, the Group added to its existing euro private placement loan
notes by issuing a further €47.8 million (£41.4 million) secured on a
portfolio of six Irish assets for a ten-year term at a fixed rate of 4.195%.
The new loan notes further increase the headroom on the Group's undrawn loan
facilities with the proceeds used to repay more expensive variable rate debt
drawn on the Group's revolving credit facilities which are available to be
redrawn in the future.
During the year the Group also exercised options to extend the maturities by
one year to 2026 on a number of its shorter dated revolving credit facilities
with Barclays (£100 million), NatWest (£100 million) and HSBC (£100
million).
As at 31 December 2023, total available loan facilities were £1,642.5 million
(31 December 2022: £1,607.0 million) of which £1,309.9 million (31 December
2022: £1,290.4 million) had been drawn. Cash balances of £3.2 million (31
December 2022: £29.1 million) resulted in Group net debt of £1,306.7 million
(31 December 2022: £1,261.3 million). Contracted capital commitments at the
balance sheet date totalled £14.6 million (31 December 2022: £19.8 million)
and resulted in headroom available to the Group of £321.2 million (31
December 2022: £325.9 million).
Capital commitments at the year-end comprise costs to complete development and
asset management projects on site of £5.4 million and £7.1 million
respectively together with the deferred consideration on the acquisition of
Axis of £2.1 million (€2.5 million).
The Group's key debt metrics are summarised in the table below:
Debt metrics 31 December 2023 31 December 2022
Average cost of debt - drawn 3.3% 3.2%
Average cost of debt - fully drawn 4.1% 3.5%
Loan to value 47.0% 45.1%
Loan to value - excluding convertible bond 41.6% 39.7%
Total net debt fixed or hedged 97.2% 93.7%
Net rental income to net interest cover 3.1 times 3.3 times
Net debt / EBITDA 9.4 times 9.6 times
Weighted average debt maturity - drawn facilities 6.6 years 7.3 years
Weighted average debt maturity - all facilities 5.7 years 6.4 years
Total drawn secured debt £1,159.9m £1,140.4m
Total drawn unsecured debt £150.0m £150.0m
Total undrawn facilities and available to the Group(1) £321.2m £325.9m
Unfettered assets £37.0m £86.7m
(1) - After deducting capital commitments.
Average cost of debt
The Group's average cost of debt has only increased by 10 bps to 3.3% (31
December 2022: 3.2%) notwithstanding the rapid increases in 3-month SONIA and
Euribor interest rates experienced during 2023 reflecting the protection from
the additional hedging and euro denominated debt issued in the year.
Interest rate exposure
The analysis of the Group's exposure to interest rate risk in its debt
portfolio as at 31 December 2023 is as follows:
Facilities Net debt drawn
£ million % £ million %
Fixed rate debt 1,117.5 68.0 1,117.5 85.5
Hedged by fixed rate interest rate swaps 100.0 6.1 100.0 7.7
Hedged by fixed to floating rate interest rate swaps (200.0) (12.2) (200.0) (15.3)
Total fixed rate debt 1,017.5 61.9 1,017.5 77.9
Hedged by interest rate caps 252.0 15.4 252.0 19.3
Floating rate debt - unhedged 373.0 22.7 37.2 2.8
Total 1,642.5 100.0 1,306.7 100.0
Interest rate swap contracts
In April 2023, the Group converted €60.0 million (£52.0 million) of
sterling equivalent denominated debt into euros across its various revolving
credit facilities to cover a small unhedged euro denominated balance sheet
exposure which had arisen primarily because of historic valuation gains and
retained earnings arising from our portfolio in Ireland. As part of the
transaction the Group took advantage of cheaper euro denominated interest
rates and purchased 2.0% caps on €60 million nominal value for a period of
2.5 years for an all-in premium of £1.9 million (€2.2 million). This
transaction along with the euro private placement loan notes issued in
December 2023 increased the proportion of net debt that is fixed or hedged to
97.2% (31 December 2022: 93.7%).
Accounting standards require PHP to mark its interest rate swaps to market at
each balance sheet date. During the year there was a loss of £4.3 million
(2022: gain of £2.7 million) on the fair value movement of the Group's
interest rate derivatives due primarily to decreases in interest rates assumed
in the forward yield curves used to value the interest rate swaps and the
impact of the passage of time, offset by €60 million (£52.0 million) caps
purchased in the year for £1.9 million (€2.2 million). The net
mark-to-market ("MtM") of the swap portfolio is an asset value of £4.7
million (31 December 2022: net MtM asset £7.1 million).
Currency exposure
The Group owns €282.2 million or £244.6 million (31 December 2022: €260.8
million / £230.9 million) of euro denominated assets in Ireland as at 31
December 2023 and the value of these assets and rental income represented 9%
(31 December 2022: 8%) of the Group's total portfolio. In order to hedge the
risk associated with exchange rates, the Group has chosen to fund its
investment in Irish assets through the use of euro denominated debt, providing
a natural asset to liability hedge, within the overall Group loan to value
limits set by the Board. At 31 December 2023 the Group had €281.0million (31
December 2022: €196.0 million) of drawn euro denominated debt.
Euro rental receipts are used to first finance euro interest and
administrative costs and surpluses are used to fund further portfolio
expansion. Given the large Euro to Sterling fluctuations seen in recent years
and continued uncertainty in the interest rate market the Group entered a
nil-cost FX collar hedge (between €1.1675 and €1.1022: £1) for a two-year
period to cover the approximate euro denominated net annual income of €10
million per annum, minimising the downside risk of the euro gaining in value
above €1.1675: £1.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 31 December 2023 was an asset of
£106.2 million (31 December 2022: asset £141.3 million) equivalent to 7.9
pence per share (31 December 2022: asset of 10.6 pence). The movement in the
year is due primarily to the significant increases in interest rates assumed
in the forward yield curves used to value the debt at the year-end. 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, unsecured convertible
bonds with a nominal value of £150 million and a fixed coupon of 2.875% per
annum. Subject to certain conditions, the bonds are 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,
in accordance with the dividend protection provisions in the terms of issue if
dividends paid per share exceed 2.8 pence per annum. In accordance with those
provisions the exchange price has been adjusted to 131.72 pence per Ordinary
Share as at 31 December 2023.
The conversion of the £150 million convertible bonds into new Ordinary Shares
would reduce the Group's loan to value ratio by 5.4% from 47.0% to 41.6% and
result in the issue of 113.9 million new Ordinary Shares.
Risk management and principal risks
Our risk management processes enable us to be flexible and responsive to the
impact of risks on the business
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 healthcare
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 small (£1.4 million) exposure
as a direct developer of real estate, which means that the Group is not
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; and
• debt funding is procured from a range of
providers, maintaining a spread of maturities 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, 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 comprises the Chair of the Audit Committee and members of its senior
management team and chaired by the Chief Financial Officer, who is experienced
in the operation and oversight of risk management processes, along with
independent standing invitees attending throughout the year.
The Board has delegated to the Audit Committee the process of reviewing the
Group's systems of risk management and their effectiveness. 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 and emerging risks to the Audit Committee. The risk register is
reviewed and updated every six months by the Director: Commercial Finance and
Financial Reporting assisted by members of the Risk Committee, and assesses
inherent and emerging 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 Board retains ultimate responsibility for determining and
reviewing the effectiveness of risk management but has delegated the process
to the Audit Committee which is assisted by the Risk Committee. The Audit
Committee agrees which risks are managed by management in fulfilling its
duties which is reviewed by the Risk Committee.
The Board recognises that it has limited ability to control a number of the
external risks that the Group faces, such as the macroeconomic environment and
government policy, but keeps the possible impact of such risks under review
and considers them as part of its decision-making process.
Our risk management structure
Structure Responsibility
Board Sets strategic objectives and considers risk as part of this process.
Determines appropriate risk appetite levels.
Audit Committee Reports to the Board on the effectiveness of risk management processes and
controls:
· External audit
· Risk surveys
· Health and safety
· Insurance
· Need for an internal audit function
Risk Committee Reports to and assists the Audit Committee, monitoring and reviewing:
· Attitude to and appetite for risk and future risk strategy
· Company's systems of internal controls and risk management
· How risk is reported internally and externally
· Processes for compliance with law, regulators and ethical codes
of practice
· Prevention of fraud
Senior management Implements and monitors risk mitigation processes:
· Policies and procedures
· Risk management and compliance
· Key performance indicators
· Specialist third-party reviews
Monitoring of identified and emerging risks
In completing this assessment the Board continues to monitor recently
identified and emerging risks and their potential impact on the Group. The
manner in which we have addressed the challenges of the last few years has
demonstrated the resilience of our business model, and our robust risk
management approach, to protect our business through periods of uncertainty
and adapt to a rapidly changing environment.
Since the release of our 2022 full-year results, global economic uncertainty
has remained volatile and uncertain. Within the UK, the main challenges facing
the economy have been high inflation and the rapid rise in interest rates that
are still widely expected to remain at elevated levels for longer than
originally anticipated. The continued wars in Ukraine and the Middle East have
also impacted, what was already sensitive, political and macroeconomic
environments.
The potential adverse impact of these factors on our business includes reduced
demand for our assets impacting property values in the investment market,
increased financing costs and our ability to continue to execute our
acquisition and development strategy which could impact our rental income and
earnings. The Board and key Committees have overseen the Group's response to
the impact of these challenges on our business and the wider economic
influences throughout the year.
The Board has considered the principal risks and uncertainties as set out in
this Annual Report, in light of the challenging macroeconomic environment, and
do not consider that the fundamental principal risks and uncertainties facing
the Group have changed. However, our current assessment is that the interest
rate and property market principal risks have increased. Whilst there is still
much uncertainty around the future trajectory of the economy over the coming
years, we have set out in our principal risk tables on the following pages, an
update on the changes to our principal risks and expected impact on our
business of the macroeconomic uncertainty, and the mitigating actions and
controls we have in place. The Group's continued ability to be flexible to
adjust and respond to these external risks as they evolve will be fundamental
to the future performance of our business.
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.
The Board dealt with the risk of RAAC (Reinforced Autoclaved Aerated Concrete)
during the year, reviewing the portfolio, and where necessary surveyed, for
its presence. None was identified but we continue to monitor the situation.
The Board continues to consider the impact of Brexit and COVID-19 on the
business and again concluded, that these did not constitute a significant risk
to the business.
Mapping our key risks and residual risk movement
We use a risk-scoring matrix to ensure we take a consistent approach when
assessing their overall impact. Overall, there has been an increase in the
likelihood and potential impact of a number of the principal risks over the
year, which has been reached considering wider economic uncertainty and other
external factors, balanced against PHP's robust business model. The residual
risk exposures of the Company's principal risks are shown in the heat map to
the left, being the risk after mitigating actions have been taken to reduce
the initial inherent risks.
Grow property portfolio
1. Property pricing and competition
2. Financing
Manage effectively and efficiently
3. Lease expiry management
4. People
5. Responsible business
Diversified, long term funding
6. Debt financing
7. Interest rates
Deliver progressive returns
8. Potential over-reliance on the NHS and HSE
9. Foreign exchange risk
® Indicates risk movement from last year
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. As a result
of this assessment there have been no changes to the number of principal risks
faced by the business in the year, which are all still deemed appropriate;
however, as a result of the current macroeconomic uncertainty, we have amended
risk ratings accordingly. These are set out below, presented within the
strategic objective that they impact:
Grow property portfolio
1. Property pricing and competition Commentary on risk in the year Mitigation
↑ A C D KPIs impacted In terms of values, the Group has previously benefited from a flight to income The reputation and track record of the Group in the sector mean it is able to
as a consequence of the wider economic uncertainty seen in previous years, source forward funded developments and existing standing investments from
The primary care property market continues to be attractive to investors with demand increasing from investors seeking its long term, secure, developers, investors and owner-occupiers.
attracted by the secure, government backed income, low void rates and long government backed cash flows against a backdrop of limited supply.
lease.
As a result, the Group has several formal pipeline agreements and
A revaluation deficit of £53 million was generated in the year, driven by NIY long-standing development relationships that provide an increased opportunity
The emergence of new purchasers in the sector and the recent slowing in the widening of 23 bps in the year. to secure developments that come to market in the UK and Ireland.
level of approvals of new centres in the UK may restrict the ability of the
Group to secure new investments. Increased interest rates, including volatility, in particular, for gilts and Despite the unprecedented market conditions faced, the Group continues to have
bonds, have had a negative impact on the property yields in the sector, a strong, identified pipeline of investment opportunities in the UK and
despite gilt rates stabilising in Q4. This reduces investor sentiment, Ireland.
competition and attractiveness of PHP's assets and consequently impacted
valuations.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
High
Likelihood is high and impact of occurrence could be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Group's position within the sector and commitment to and understanding of
the asset class mean PHP is aware of a high proportion of transactions in the
market and potential opportunities coming to market.
Active management of the property portfolio generates regular opportunities to
increase income and lease terms and enhance value.
2. Financing Commentary on risk in the year Mitigation
←→ G H KPIs impacted The Company successfully completed one debt financing during the year, tapping Existing and new debt providers are keen to provide funds to the sector and
the existing euro private placement loan notes by issuing a further €47.8 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 million.
operations. A restriction on the availability of funds would limit the Group's
The Board monitors its capital structure and maintains regular contact with
ability to fund investment and development opportunities and implement The credit margin agreed on this new facility remains in line with previous existing and potential equity investors and debt funders. Management also
strategy. euro denominated facilities, reiterating the confidence in PHP's business closely monitors debt markets to formulate its most appropriate funding
model shown by lenders. structure.
Furthermore, a more general lack of equity or debt available to the sector
could reduce demand for healthcare assets and therefore impact values. The Group's undrawn facilities mean it currently has headroom of £321 The euro private placement was executed for a ten-year term, further
million. increasing PHP's average debt maturity of drawn facilities to 6.6 years.
All covenants have been met with regard to the Group's debt facilities and
these all remain available for their contracted term.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
High
Likelihood is high and impact of occurrence could be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Group takes positive action to ensure continued availability of resource,
maintains a prudent ratio of debt and equity funding and refinances debt
facilities in advance of their maturity.
Manage effectively and efficiently
3. Lease expiry management Commentary on risk in the year Mitigation
←→ E F KPIs impacted Lease terms for all property assets will erode and the importance of active The asset and property management teams meet with occupiers on a regular basis
management to extend the use of a building remains unchanged. to discuss the specific property and the tenant's aspirations and needs for
The bespoke nature of the Group's assets can lead to limited alternative use. its future occupation.
Their continued use as fit-for-purpose medical centres is key to delivering
the Group's strategic objectives. Eight asset management projects physically completed in the year, with a
further six projects onsite, enhancing income and extending occupational lease
terms.
In addition, there is a strong pipeline of over 43 projects that will be
progressed in 2024 and the coming years.
Only 11.3% of the Group's income is currently holding over or 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.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Likelihood of limited alternative use value is moderate but the impact of such
values could be serious.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Management employs an active asset and property management programme and has a
successful track record of securing enhancement projects and securing new long
term leases.
4. People Commentary on risk in the year Mitigation
←→ F KPI impacted The cost-of-living crisis has remained during the year and expected to Succession planning is in place for all key positions and will be reviewed
continue into 2024 as interest rates remain higher for longer, continuing the regularly by the Nomination Committee.
The inability to attract, retain and develop our people to ensure we have the risk of losing a highly skilled and specialist staff.
appropriate skill base in place in order for us to implement our strategy. Remuneration incentives are in place such as bonuses and an LTIP for Executive
Directors and senior management to incentivise and motivate the team and are
renewed annually and benchmarked to the market.
Notice periods are in place for key employees.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Likelihood and potential impact could be medium.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Remuneration Committee has benchmarked remuneration with the help of
remuneration consultants, and reviewed and updated policies to ensure
retention and motivation of the Management team.
5. Responsible business Commentary on risk in the year Mitigation
←→ D E H KPIs impacted Properties no longer meet occupiers' expected environmental requirements. PHP's ESG credentials remain at the forefront of its strategic planning and it
has established an ESG Committee to review and drive the Group's ESG agenda
Risk of non-compliance with Responsible Business practices, including climate Stakeholders including investors and debt providers see ESG as a key issue and forward. During the year PHP has:
mitigation and ethical business consideration, not meeting stakeholders' want to see a sufficiently developed plan to decarbonise the property
expectations, leading to possible reduced access to debt and capital markets, portfolio and to operate to the highest standards of business ethics and due · worked with Achilles to provide limited third party assurance of
weakened stakeholder relationships and reputational damage. diligence. our disclosures and achieved certification to Toitu Carbon Reduce and ISO
14064;
There is a risk that we may not meet the hurdles sought by stakeholders
including equity and debt investors should PHP not focus enough on ESG · provided staff training covering individual personal development
matters, potentially impacting the funding of the business significantly. and ESG;
Additionally, political and regulatory changes to corporate governance and · commissioned third party audits for development and refurbishment
disclosure, energy efficiency and net zero carbon requirements are expected to projects to guard against the risks of modern slavery and unethical supply
be mandated in the short to medium term. The introduction of Corporate chain standards;
Sustainability Reporting Directive (CSRD) and International Sustainability
Standards Board (ISSB) in the year is a key example of increasing · engaged with external experts to assess and inform our net zero
requirements, although PHP is not legally required to comply at present. carbon approach for developments and refurbishments;
· set, monitored and reported sustainability targets and hurdles to
ensure acquired assets or asset management schemes meet specific ESG criteria,
with these same criteria aligned to investors and debt providers;
· implemented Community Impact Fund to support social prescribing
activities at the Group's properties;
· achieved EPC rating benchmarks to ensure compliance with the
Minimum Energy Efficiency Standard (''MEES'') that could otherwise impact the
quality and desirability of our assets leading to higher voids, lost income
and reduced liquidity; and
· worked with our occupiers to improve the resilience of our assets
to climate change as well as with contractors which are required to conform to
our sustainable development and refurbishment requirements.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
High
Likelihood is high and impact of occurrence could be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Group is committed to meeting its obligations in line with its Responsible
Business Framework and feels it has introduced sufficient mitigants to
continue to deliver its objectives.
Diversified, long term funding
6. Debt financing Commentary on risk in the year Mitigation
←→ G H KPIs impacted Negotiations with lenders have confirmed that the Group enjoys the confidence Existing lenders remain keen to finance PHP and new entrants to debt capital
of the lending markets both in terms of the traditional high street lenders markets have increased available resource. Credit margins agreed on the new
Without appropriate confirmed debt facilities, PHP may be unable to meet and the bond markets. facility and RCF plus one extensions in the year, remained in line with what
current and future commitments or repay or refinance debt facilities as they
has been achieved in previous years, reiterating the confidence in PHP's
become due. The Company successfully completed one debt financing during the year, tapping business model shown by the lending banks.
its existing euro private placement loan notes by issuing a further €47.8
million. Management regularly monitors the composition of the Group's debt portfolio to
ensure compliance with covenants and continued availability of funds.
Management regularly reports to the Board on current debt positions and
provides projections of future covenant compliance to ensure early warning of
any possible issues.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The likelihood of insufficient facilities is moderate but the impact of such
an event would be serious.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Board regularly monitors the facilities available to the Group and looks
to refinance in advance of any maturity. The Group is subject to the changing
conditions of debt capital markets.
7. Interest rates Commentary on risk in the year Mitigation
↑ A B F G H KPIs impacted Interest rates continued to increase significantly during the year because of The Group holds the majority of its debt in long term, fixed rate loans and
the stubbornly high inflation and the uncertain macroeconomic/political mitigates its exposure to interest rate movements on floating rate facilities
Adverse movement in underlying interest rates could adversely affect the environment in the UK. through the use of interest rate swaps.
Group's earnings and cash flows and could impact property valuations.
These elevated interest rates, that are widely forecast to remain at these As at the balance sheet date 97% of net debt is fixed or hedged.
elevated levels over the coming year, have forced us to critically re-evaluate
investment yields on acquisitions and developments. These have the potential MtM valuation on debt and derivative movements do not impact the Group's cash
to limit the Group's ability to profitably acquire investment and development flows and are not included in any covenant test in the Group's debt
opportunities and implement it's strategy. This in turn is likely to continue facilities.
to weigh on property yields and consequently valuations in the future.
However, notwithstanding these significant increases and volatility in The Group continues to monitor and consider further hedging opportunities in
interest rates seen in 2023, we continue to believe further significant order to manage exposure to rising interest rates.
reductions in primary care values are likely to be limited with a stronger
rental growth outlook offsetting the impact of any further yield expansion.
Whilst no immediate refinances are required until 2025, any additional drawn
debt in 2024 will be subject to variable interest rates, and would increase
the current 3%, of unhedged variable debt as at 31 December 2023.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
High
The likelihood of volatility in interest rate markets is high and the
potential impact if not managed adequately could be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
The Group is currently well protected against the risk of interest rate rises
but, due to its continued investment in new properties and the need to
maintain available facilities, is increasingly exposed to rising interest rate
levels.
Property values are still subject to market conditions which will continue to
be impacted by the interest rate environment.
Deliver progressive returns
8. Potential over-reliance on the NHS and HSE Commentary on risk in the year Mitigation
←→ D C KPIs impacted 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
primary care services and initiatives to develop new models of care Governments and on a cross-party basis. Never has the modernisation of the
PHP invests in a niche asset sector where changes in healthcare policy, the increasingly focusing on greater utilisation of primary care. primary care estate been more important in order to reduce the huge backlog of
funding of primary care, economic conditions and the availability of finance
treatments, and to avoid patients being directed to understaffed and
may adversely affect the Group's portfolio valuation and performance. Despite the UK's economic outlook and the continued backlog of treatments over-burdened hospitals.
created by the COVID-19 pandemic, staff shortages and recruitment issues that
the NHS faces, we expect the demand for health services to continue to grow, Management engages directly with government and healthcare providers in both
driven by demographics. Despite future government funding levels in the UK and the UK and Ireland to promote the need for continued investment in modern
Ireland likely being impacted by economic performance and political elections, premises.
primary care remains a critical infrastructure with no indications it is an
area being considered for cuts. This continued investment provides attractive long term, secure income streams
that characterises the sector,
A fundamental change in government policy could impact how the private sector
leading to stability of values.
regards its investment in this asset class and its willingness to further
deploy private sector resources to improve the quality of primary care PHP continues to appraise and invest in other adjacent, government funded
facilities. The NHS, HSE and District Valuer need to acknowledge that higher healthcare related real estate assets.
build costs and inflation will need to be reflected in future rent settlements
for new schemes to be economically viable.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Likelihood is low but impact of occurrence may be major.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Policy risk and general economic conditions are out of the control of the
Board, but proactive measures are taken to monitor developments and to
consider their possible implications for the Group.
9. Foreign exchange risk Commentary on risk in the year Mitigation
←→ A B C D KPIs impacted The Group now has 21 investments in Ireland. Asset values, funding and net The Board has funded and will continue to fund its investments in Ireland with
income are denominated in Euros. Euros to create a natural hedge between asset values and liabilities in
Income and expenditure that will be derived from PHP's investments in Ireland
Ireland.
will be denominated in Euros and may be affected unfavourably by fluctuations The wider macroeconomic and political environment across the world continues
in currency rates, impacting the Group's earnings and portfolio valuation. to cause exchange rate volatility. To hedge out the Euro denominated income exposure PHP has a zero cost Euro
foreign exchange cap and collar to rates between a range of €1.1675: £1 and
€1.1022: £1, to cover net annual income of €10 million per annum, which
expires in July 2024.
Management closely monitors the Euro to GBP currency rates with its banks to
formulate a formal hedging strategy against Irish net cash flow.
Inherent risk rating
2 4 6 8 10 12 14 16 18 20
↑
Medium
Likelihood of volatility is high but the potential impact at present is low
due to the quantum of investment in Ireland, albeit this is increasing.
Residual risk rating
2 4 6 8 10 12 14 16 18 20
↑
Low
PHP has implemented a natural hedging strategy to cover balance sheet exposure
and has hedged out the income exposure for the period until July 2024.
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.
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 2026. 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.
The sensitivities applied are generally the same as used for the 31 December
2022 year end audit which included a 10% decline in valuations, and 15% tenant
default rate. We believe these remain realistic reasonable worst-case
scenarios, having seen an absolute valuation decline of 1.9% in 2023.
Across our various loan facilities, valuations will need to fall by a further
£1.1 billion or 39% before the loan to value covenants are impacted.
Acknowledging the further 175bps increase in the Bank of England base rate
during 2023, in light of governmental targets to reduce inflation being met in
the year, many economists and market consensus is that rates have potentially
peaked at 5.25%. We therefore feel the increase in variable interest rates
should remain a sensitivity but have reduced the sensitivity from 2% to 1%.
The sensitivities applied 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%/£279 million fall in
June 2024;
• 15% tenant default rate;
• rental growth assumptions amended to see nil
uplifts on open market reviews;
• variable rate interest rates rise by an
immediate 1% effective from 1 January 2024; 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 covenant compliance,
profitability, net debt, loan to value ratios and available financial headroom
which are as follows:
Key metrics at 31 December 2026 31 December Viability
2023 scenario
Loan to value ratio 47.0% 54.2%
Net debt £1,307m £1,408m
Interest cover ratio 3.08x 2.59x
Adjusted net assets £1,443m £1,164m
Available financial headroom £321m £228m
All covenants have been monitored throughout the viability period that has
been assessed and any breaches were minor and could be remedied with cash or
property collateral.
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 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. See Note 14 to the financial statements for a profile of the
Group's debt maturity.
Harry Hyman
Chief Executive Officer
27 February 2024
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 Accounting Standards in
conformity with the requirements of the Companies Act 2006 and UK-adopted
International Accounting Standards ("IFRS"). The Directors have also 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 is 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, is fair, balanced and understandable and provides 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 27
February 2024 and is signed on its behalf by:
Steven Owen
Chair
27 February 2024
Group statement of comprehensive income
for the year ended 31 December 2023
Notes 2023 2022
£m £m
Rental and related income 169.8 154.1
Direct property expenses (18.8) (12.6)
Net rental and related income 3 151.0 141.5
Administrative expenses (12.3) (9.6)
Amortisation of intangible assets (0.9) -
Axis acquisition costs and JSE listing fees (0.5) -
Total administrative expenses 4 (13.7) (9.6)
Revaluation deficit on property portfolio 10 (53.0) (64.4)
Profit on sale of land and property 10 - 2.9
Total revaluation deficit (53.0) (61.5)
Operating profit 4 84.3 70.4
Finance income 5 0.2 0.9
Finance costs 6a (45.2) (41.2)
Fair value loss on derivative interest rate swaps and amortisation of hedging 6b (8.4) (1.9)
reserve
Fair value (loss)/gain on convertible bond 6c (4.8) 28.7
Profit before taxation 26.1 56.9
Taxation credit/(charge) 7 1.2 (0.6)
Profit after taxation1 27.3 56.3
Other comprehensive income:
Items that may be reclassified subsequently to profit and loss
Amortisation of hedging reserve 21 4.1 4.5
Exchange (loss)/gain on translation of foreign balances (0.3) 3.2
Other comprehensive income net of tax1 3.8 7.7
Total comprehensive income net of tax1 31.1 64.0
IFRS earnings per share
Basic 8 2.0p 4.2p
Diluted 8 2.0p 2.2p
Adjusted earnings per share2
Basic 8 6.8p 6.6p
Diluted 8 6.6p 6.4p
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 2023
Notes 2023 2022
£m £m
Non-current assets
Investment properties 10 2,779.3 2,796.3
Derivative interest rate swaps 16 0.9 19.6
Intangible assets 6.2 -
Property, plant and equipment 0.5 0.4
2,786.9 2,816.3
Current assets
Trade and other receivables 11 24.9 17.8
Cash and cash equivalents 12 3.2 29.1
Derivative interest rate swaps 16 10.5 -
Developments work in progress 1.4 1.3
40.0 48.2
Total assets 2,826.9 2,864.5
Current liabilities
Deferred rental income (30.4) (29.2)
Trade and other payables 13 (31.7) (32.6)
Borrowings: term loans and overdraft 14a (2.4) (2.3)
Derivative interest rate swaps 16 (6.7) -
(71.2) (64.1)
Non-current liabilities
Borrowings: term loans and overdraft 14a (664.5) (682.5)
Borrowings: bonds 14b (656.4) (614.6)
Derivative interest rate swaps 16 - (12.5)
Head lease liabilities 15 (3.0) (3.2)
Trade and other payables 13 (4.1) -
Deferred tax liability (3.8) (5.4)
(1,331.8) (1,318.2)
Total liabilities (1,403.0) (1,382.3)
Net assets 1,423.9 1,482.2
Equity
Share capital 18 167.1 167.1
Share premium account 19 479.4 479.4
Merger and other reserves 20 415.3 416.7
Hedging reserve 21 (7.0) (11.1)
Retained earnings 22 369.1 430.1
Total equity1 1,423.9 1,482.2
Net asset value per share
IFRS net assets - basic and diluted 8 106.5p 110.9p
Adjusted net tangible assets2 - basic 8 108.0p 112.6p
Adjusted net tangible assets2 - diluted 8 109.8p 114.5p
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 27
February 2024 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 2023
Notes 2023 2022
£m £m
Operating activities
Profit on ordinary activities after tax 27.3 56.3
Adjustments to reconcile to operating profit before financing costs:
Taxation (credit)/charge 7 (1.2) 0.6
Finance income 5 (0.2) (0.9)
Finance costs 6a 45.2 41.2
Fair value loss on derivative interest rate swaps and amortisation of hedging 6b 8.4 1.9
reserve
Fair value loss/(gain) on convertible bond 6c 4.8 (28.7)
Operating profit before financing costs 84.3 70.4
Adjustments to reconcile Group operating profit before financing costs to net
cash flows from operating activities:
Revaluation loss on property portfolio 10 53.0 64.4
Profit on sale of land and property 10 - (2.9)
Axis acquisition costs and JSE listings fees 0.5 -
Amortisation of intangible assets 0.9 -
Fixed rent uplift (0.7) (0.9)
Tax paid/(received) (0.3) 0.2
(Increase)/decrease in trade and other receivables (7.1) (0.7)
Increase/(decrease) in trade and other payables 3.0 (12.9)
Net cash flow from operating activities 133.6 117.6
Investing activities
Payments to acquire and improve investment properties (39.5) (74.8)
Receipts from disposal of properties - 27.5
Cash paid for acquisition of Axis (5.1) -
Interest received on development loans - 1.5
Net cash flow used in investing activities (44.6) (45.8)
Financing activities
Cost of share issues - (0.1)
Term bank loan drawdowns 14 282.4 161.6
Term bank loan repayments 14 (300.0) (175.7)
Proceeds from bond issues 14 41.2 62.9
Loan arrangement fees (1.8) (3.5)
Purchase of derivative financial instruments (1.9) -
Swap interest received 3.9 1.4
Non-utilisation fees (2.2) (2.0)
Interest paid (47.0) (39.8)
Equity dividends paid net of scrip dividend 9 (89.5) (81.6)
Net cash flow from financing activities (114.9) (76.8)
Decrease in cash and cash equivalents for the year (25.9) (5.0)
Effect of exchange rate fluctuations on Euro-denominated cash and cash - 0.7
equivalents
Cash and cash equivalents at start of year 29.1 33.4
Cash and cash equivalents at end of year 12 3.2 29.1
Group statement of changes in equity
for the year ended 31 December 2023
Share Share Merger Hedging Retained Total
capital premium and other reserve earnings £m
£m £m reserve £m £m
£m
1 January 2023 167.1 479.4 416.7 (11.1) 430.1 1,482.2
Profit for the year - - - - 27.3 27.3
Other comprehensive income
Amortisation of hedging reserve - - - 4.1 - 4.1
Exchange (loss)/gain on translation of foreign balances - - (1.4) - 1.1 (0.3)
Total comprehensive income - - (1.4) 4.1 28.4 31.1
Share-based awards ("LTIP") - - - - 0.1 0.1
Dividends paid - - - - (89.5) (89.5)
Scrip dividend in lieu of cash - - - - - -
31 December 2023 167.1 479.4 415.3 (7.0) 369.1 1,423.9
Share Share Merger Hedging Retained Total
capital premium and other reserve earnings £m
£m £m reserve £m £m
£m
1 January 2022 166.6 474.9 413.5 (15.6) 460.5 1,499.9
Profit for the year - - - - 56.3 56.3
Other comprehensive income
Amortisation of hedging reserve - - - 4.5 - 4.5
Exchange gain on translation of foreign balances - - 3.2 - - 3.2
Total comprehensive income - - 3.2 4.5 56.3 64.0
Share issue expenses - (0.1) - - - (0.1)
Share-based awards ("LTIP") - - - - - -
Dividends paid - - - - (81.6) (81.6)
Scrip dividend in lieu of cash 0.5 4.6 - - (5.1) -
31 December 2022 167.1 479.4 416.7 (11.1) 430.1 1,482.2
Notes to the financial statements
2. Corporate information
The Group's financial statements for the year ended 31 December 2023 were
approved by the Board of Directors on 27 February 2024 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, limited by shares. 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, the convertible bond 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 121 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 in
accordance with United Kingdom adopted International Accounting Standards and
applied in accordance with the Companies Act 2006. The preliminary results for
the year ended 31 December 2023 have been extracted from audited accounts
which have not yet been delivered to the Registrar of Companies. The Financial
Statements set out in this announcement do not constitute statutory accounts
for the year ended 31 December 2023 or 31 December 2022. The financial
information for the year ended 31 December 2022 is derived from the statutory
accounts from that year. The report of the auditors on the statutory accounts
for the year ended 31 December 2023 was unqualified and did not contain a
statement under Section 498 of the Companies Act 2006.
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 2023.
Amendments to IAS 1 Classification of liabilities as current or non-current
On 23 January 2020, the IASB issued Amendments to IAS 1 Classification of
liabilities as current providing a more general approach to the classification
of liabilities under IAS 1 based on the contractual arrangements in place at
the reporting date.
Amendments to IAS 12 Deferred tax related to assets and liabilities arising
from a single transaction
On 7 May 2021, the IASB issued amendments to IAS 12 Deferred Tax related to
assets and liabilities arising from a single transaction clarifying how
companies account for deferred tax on transactions such as leases.
Amendments to IAS 8 Definition of accounting estimates
On 12 February 2021, the IASB issued amendments to IAS 8 Definition of
accounting estimates to help entities to distinguish between accounting
policies and accounting estimates.
None of the above have a significant effect on the consolidated financial
statements of the Group.
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 is exercised if and only if
an investor has all the following: power over an investee; exposure, or
rights, to variable returns from its involvement with the investee; and the
ability to use its power over the investee to affect the amount of the
investor's returns. 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 Axis Real Estate Group their 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 2023 are as
follows:
• Group Balance Sheet: £1 = €1.15355 (2022:
€1.1295).
• Group Statement of Comprehensive Income: £1 =
€1.15977 (2022: €1.1490).
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.
Where properties are acquired through the purchase of a corporate entity but
the transaction does not meet the definition of a business combination under
IFRS 3, the purchase is treated as an asset acquisition. Where the acquisition
is considered a business combination, the excess of the consideration
transferred over the fair value of assets and liabilities acquired is held as
goodwill, initially recognised at cost with subsequent impairment assessments
completed at least annually. Where the initial calculation of goodwill arising
is negative, this is recognised immediately in the income statement. 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 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%
(2022: 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
Interest income 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 at their transaction price and carried at
amortised cost as the Group's business model is to collect the contractual
cash flows due from tenants which are solely the payment of principal and
interest. A loss allowance 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, with an
original maturity of three months or less, measured at amortised cost.
Trade and other payables
Trade payables are initially recognised at fair value and subsequently
measured at amortised cost 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 14b 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; or
• 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; or
• 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
• 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.
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".
Derivative financial instruments (the "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.
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, the
Group's convertible bond 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.
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.
Properties held for sale
Investment property (and disposal groups) classified as held for sale are
measured at fair value consistent with other investment properties.
Investment property and disposal groups are classified as held for sale if
their carrying amount will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as met only when the sale
is highly probable, and the asset (or disposal group) is available for
immediate sale in its present condition. Management must be committed to the
sale which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Capitalised costs
A capitalised cost is an expense added to the cost basis of a fixed asset on
the balance sheet. Capitalised costs are incurred when purchasing fixed assets
following the matching principle of accounting to record expenses in the same
period as related revenues or useful life of an asset. The historical costs
are recorded on the balance sheet and depreciated over the useful life of an
asset.
Contract-based intangible assets comprise the value of customer contracts
arising on business combinations. Intangible assets arising on business
combinations are initially recognised at fair value. Intangible assets arising
on business combinations are amortised on a straight line basis to the income
statement over their expected useful lives, and are carried at depreciated
historical cost.
2.4 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.
Investment properties under construction are not material and therefore there
is no estimation uncertainty.
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 10 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 2023. 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 16 of the financial statements.
b) Judgements
In the process of applying the Group's accounting policies. which are
described above, the Directors do not consider there to be significant
judgements applied with regard to the policies adopted.
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 Non-current liabilities with
covenants;
• amendments to IFRS 16 Lease liability in a sale
and leaseback;
• amendments to IAS 21 Lack of exchangeability;
and
• 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 2024, 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, plus facilities and properties
management income. Revenue is derived from one reportable operating segment,
with £136.0 million and £14.8 million of rent roll 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
2023 145.0 139.9 135.4 128.0 120.7 862.8 1,531.8
2022 142.9 138.1 133.9 129.6 122.7 910.2 1,577.4
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
Operating profit is stated after charging administrative expense of £12.3
million, amortisation of intangible assets of £0.9 million, Axis acquisition
costs of £0.3 million and one off set up costs associated with the JSE
listing of £0.2 million (31 December 2022: £9.6 million). Administrative
expenses as a proportion of rental and related income were 7.2% (31 December
2022: 6.5%). The Group's EPRA cost ratio has increased to 10.7%, compared to
9.9% for the same period in 2022.
Administrative expenses include staff costs of £7.1 million (31 December
2022: £5.4 million).
In the year PHP acquired Axis, an Irish property management business. In the
period Axis contributed £5.7 million of related income and incurred direct
property expenses of £3.9 million, contributing £1.8 million of net related
income. After the deduction of £0.7 million administrative expenses Axis
generated an operating profit of £1.1 million.
Group operating profit is stated after charging:
2023 2022
£m £m
Administrative expenses including:
Advisory fees (Note 4a) - 0.1
Staff costs (Note 4b) 7.5 5.4
Performance Incentive Fees (Note 4c) - -
Directors' fees 0.4 0.4
Audit fees
Fees payable to the Company's auditor and its associates for the audit of the 0.5 0.5
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 0.6 0.6
Total audit and assurance services 0.6 0.6
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 0.7 0.7
Please refer to page 93 of the Annual Report for analysis of non-audit fees.
a) Advisory fees
The Group shares certain operational services with Nexus. Amounts paid during
the year in relation to these shared services totalled £nil million (2022:
£nil).
b) Staff costs
2023 2022
£m £m
Wages and salaries 7.9 6.0
Less staff costs capitalised in respect of development and asset management (1.5) (1.4)
projects
Social security costs 0.7 0.6
Pension costs 0.3 0.2
Equity-settled share-based payments 0.1 -
7.5 5.4
In addition to the above, there were £0.9 million of direct salaries
recognised within property costs for Axis employees. The Group operates a
defined contribution pension scheme for all employees. The Group contribution
to the scheme during the year was £0.3 million (2022: £0.2 million), which
represents the total expense recognised through the income statement. As at
31 December 2023, there were no contributions (2022: £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 62 which
included 60 full time and 2 part time employees (2022: 67 which included 64
full time and 3 part time), and as at 31 December 2023 was 58 (2022: 65). In
addition to this, the average employees in the Axis team during the year was
27, with 28 employees as at 31 December 2023.
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 of 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 PIF is provided in the Corporate Governance section in
the Annual Report.
The internalisation of management in 2021 resulted in the unwinding of the
PIF, with 2022 being the last year of its operation. The necessary hurdle rate
was not met in 2022, with no payment due and no balance on the notional
cumulative PIF account.
5. Finance income
2023 2022
£m £m
Interest income on financial assets
Development loan interest 0.2 0.9
0.2 0.9
6. Finance costs
2023 2022
£m £m
Interest expense and similar charges on financial liabilities
a) Interest
Bank loan interest 27.4 23.0
Swap interest (4.6) (1.4)
Bond interest 20.0 17.5
Bank facility non-utilisation fees 2.2 2.0
Bank charges and loan arrangement fees 3.3 3.0
48.3 44.1
Interest capitalised (0.1) -
48.2 44.1
Amortisation of MedicX debt MtM on acquisition (3.0) (2.9)
45.2 41.2
2023 2022
£m £m
b) Derivatives
Net fair value loss/(gain) on interest rate swaps 4.3 (2.6)
Amortisation of cash flow hedging reserve 4.1 4.5
8.4 1.9
The fair value movement 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 (2022: £nil). An amount of £4.1 million (2022: £4.5
million) has been amortised from the cash flow hedging reserve in the year
resulting from early termination of effective swap contracts (see Note 21).
2023 2022
£m £m
c) Convertible bond
Fair value loss/(gain) on existing convertible bond 4.8 (28.7)
4.8 (28.7)
The fair value movement in the convertible bond 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. Refer to Note 14
for further details about the convertible bonds.
2023 2022
£m £m
Net finance costs
Finance income (Note 5) 0.2 0.9
Finance costs (as per above) (48.3) (44.1)
(48.1) (43.2)
Interest capitalised 0.1 -
(48.0) (43.2)
Amortisation of MedicX debt MtM on acquisition 3.0 2.9
(45.0) (40.3)
7. Taxation
a) Taxation charge in the Group Statement of Comprehensive Income
The taxation charge is made up as follows:
2023 2022
£m £m
Current tax
UK corporation tax - -
Irish corporation tax 0.1 (0.2)
Deferred tax on Irish activities (1.3) 0.8
Total tax (credit)/charge (1.2) 0.6
The UK corporation tax rate of 25% (2022: 19%) and the Irish corporation tax
rate of 19% (2022: 19%) have been applied in the measurement of the Group's UK
and Ireland related activities tax liability at 31 December 2023. The UK
corporation tax rate was increased to 25% effective 1 April 2023 and has been
pro rated for the purposes of the UK corporation tax rate applied in the year.
b) Factors affecting the tax charge for the year
The tax assessed for the year is lower than (2022: lower than) the standard
rate of corporation tax in the UK. The differences are explained below:
2023 2022
£m £m
Profit on ordinary activities before taxation 26.1 56.9
Theoretical tax at UK corporation tax rate of 23.5% (2022: 19%) 6.1 10.8
REIT exempt income (16.5) (11.2)
Transfer pricing adjustment 8.5 7.1
Fair value loss/(gain) on convertible bond 0.5 (5.4)
Non-taxable items 0.8 -
Losses brought forward utilised 0.1 (0.6)
Difference in Irish tax rates (0.7) (0.1)
Taxation (credit)/charge (Note 7a) (1.2) 0.6
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 25%
(2022: 19%).
Acquired companies are effectively converted to UK REIT status from the date
on which they become a member of the Group.
As a UK REIT, the Company is required to pay Property Income Distributions
("PIDs") equal to at least 90% of the Group's rental profit calculated by
reference to tax rules rather than accounting standards.
To remain as a UK REIT there are a number of conditions to be met in respect
of the principal company of the Group, the Group's qualifying activities and
the balance of its business. The Group remains compliant as at 31 December
2023.
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.
8. 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
2023 2022
IFRS Adjusted EPRA IFRS Adjusted EPRA
earnings earnings earnings earnings earnings earnings
£m £m £m £m £m £m
Profit after taxation 27.3 27.3 27.3 56.3 56.3 56.3
Adjustments to remove:
Revaluation deficit on property portfolio - 53.0 53.0 - 64.4 64.4
Profit on sale of land and property - - - - (2.9) (2.9)
Fair value movement on derivatives - 8.4 8.4 - 1.9 1.9
Fair value movement and issue costs on convertible bond - 4.8 4.8 - (28.7) (28.7)
Taxation charge/(credit) - (1.2) (1.2) - 0.6 0.6
JSE listing fees - 0.2 0.2 - - -
Amortisation of intangible assets - 0.9 0.9 - - -
Axis acquisition costs - 0.3 0.3 - - -
Amortisation of MtM loss on debt acquired - (3.0) - - (2.9) -
Basic earnings 27.3 90.7 93.7 56.3 88.7 91.6
Dilutive effect of convertible bond - 4.3 4.3 (24.3) 4.3 4.3
Diluted earnings 27.3 95.0 98.0 32.0 93.0 95.9
Number of shares
2023 weighted average 2022 weighted average
million million million million million million
Ordinary Shares 1,336.5 1,336.5 1,336.5 1,334.8 1,334.8 1,334.8
Dilutive effect of convertible bond - 113.9 113.9 108.9 108.9 108.9
Diluted Ordinary Shares 1,336.5 1,450.4 1,450.4 1,443.7 1,443.7 1,443.7
Profit/(loss) per share attributable to shareholders:
2023 2022
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Basic 2.0 6.8 7.0 4.2 6.6 6.9
Diluted 2.0 6.6 6.8 2.2 6.4 6.6
In the year ended 31 December 2023 the effect of the convertible bond has been
excluded from the diluted profit and weighted average diluted number of shares
when calculating IFRS diluted profit per share because they are anti-dilutive.
Net assets per share
31 December 2023 31 December 2022
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net assets attributable to shareholders 1,423.9 1,423.9 1,423.9 1,482.2 1,482.2 1,482.2
Derivative interest rate swaps liability - (4.7) (4.7) - (7.1) (7.1)
Deferred tax - 3.8 3.8 - 5.4 5.4
Intangible assets - (6.2) (6.2) - - -
Cumulative convertible bond fair value movement - (2.3) (2.3) - (7.1) (7.1)
MtM on MedicX debt net of amortisation - 28.5 - - 31.4 -
Net tangible assets ("NTA") 1,423.9 1,443.0 1,414.5 1,482.2 1,504.8 1,473.4
Intangible assets - - 6.2 - - -
Real estate transfer taxes - - 184.4 - - 189.1
Net reinstatement value ("NRV") 1,423.9 1,443.0 1,605.1 - - 1,662.5
Fixed rate debt and swap MtM value - - 137.0 - - 172.7
Deferred tax - - (3.8) - - (5.4)
Cumulative convertible bond fair value movement - - 2.3 - - 7.1
Real estate transfer taxes - - (184.4) - - (189.1)
Net disposal value ("NDV") 1,423.9 1,443.0 1,556.2 1,482.2 1,504.8 1,647.8
Ordinary Shares
31 December 2023 31 December 2022
million million million million million million
Issued share capital 1,336.5 1,336.5 1,336.5 1,336.5 1,336.5 1,336.5
Basic net asset value per share1
31 December 2023 31 December 2022
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 106.5 108.0 105.8 110.9 112.6 110.2
Net reinstatement value ("NRV") - - 120.1 - - 124.4
Net disposal value ("NDV") - - 116.4 - - 123.3
1 The above are calculated on a "basic" basis without the
adjustment for the impact of the convertible bond which is shown in the
diluted basis table below.
Diluted net asset value per share2
31 December 2023 31 December 2022
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 108.5 109.8 105.8 112.9 114.5 112.3
Net reinstatement value ("NRV") - - 120.1 - - 125.4
Net disposal value ("NDV") - - 116.4 - - 124.4
2 The Company assesses the dilutive impact of the unsecured
convertible bond, issued by the Group on 15 July 2019, on its net asset value
per share with a current exchange price of 131.72 pence (31 December 2022:
137.69 pence).
Conversion of the convertible bond would result in the issue of 113.9 million
(31 December 2022: 108.9 million) new Ordinary Shares. The IFRS net asset
value and EPRA NDV would increase by £147.7 million (31 December 2022:
£142.9 million) and the EPRA NTA, adjusted NTA and EPRA NRV would increase by
£150.0 million (31 December 2022: £150.0 million). The resulting diluted net
asset values per share are anti-dilutive to all measures and are set out in
the table above.
In accordance with IAS 33 Earnings per share the Company is required to assess
and disclose the dilutive impact of the contingently issuable shares within
the convertible bond. The impact is not recognised where it is anti-dilutive.
Headline earnings per share
The JSE listing conditions require the calculation of headline earnings
(calculated in accordance with Circular 1/2021 - Headline Earnings as issued
by the South African Institute of Chartered Accountants) and disclosure of a
detailed reconciliation of headline earnings to the earnings numbers used in
the calculation of basic earnings per share in accordance with the
requirements of IAS 33 Earnings per share. Disclosure of headline earnings is
not a requirement of IFRS.
Reconciliation of profit for the period to headline earnings 2023 2022
£m £m
Basic earnings 27.3 56.3
Adjustments to calculate headline earnings:
JSE listing fees & Axis acquisition costs 0.5 -
Amortisation of intangible assets 0.9 -
Revaluation deficit 53.0 64.4
Profit on sale on properties - (2.9)
Deferred tax on Irish activities (1.3) 0.8
Headline earnings 80.4 118.6
Corporation tax 0.1 (0.2)
Fair value gain on derivative financial instruments and convertible bond 13.2 (26.8)
Non-recurring items (3.0) (2.9)
Adjusted earnings 90.7 88.7
Diluted basic earnings 36.4 32.0
Diluted headline earnings 89.5 94.3
Basic earnings per share 2.0 4.2
Headline earnings per share 6.0 8.9
Adjusted earnings per share 6.8 6.6
Diluted basic earnings per share 2.0 2.2
Diluted headline earnings per share 6.2 6.5
Number of shares 1,336.5 1,336.5
Weighted average number of Ordinary Shares for headline, basic and adjusted 1,336.5 1,334.8
earnings per share
Weighted average number of Ordinary Shares for diluted basic and headline 1,450.4 1,443.7
earnings per share
9. Dividends
Amounts recognised as distributions to equity holders in the year:
2023 2022
£m £m
Quarterly interim dividend paid 23 February 2023 22.4 -
Quarterly interim dividend paid 19 May 2023 22.4 -
Quarterly interim dividend paid 18 August 2023 22.3 -
Quarterly interim dividend paid 24 November 2023 22.4 -
Quarterly interim dividend paid 25 February 2022 - 21.0
Scrip dividend in lieu of quarterly cash dividend paid 25 February 2022 - 0.6
Quarterly interim dividend paid 20 May 2022 - 20.6
Scrip dividend in lieu of quarterly cash dividend paid 20 May 2022 - 1.1
Quarterly interim dividend paid 19 August 2022 - 18.1
Scrip dividend in lieu of quarterly cash dividend paid 19 August 2022 - 3.4
Quarterly interim dividend paid 25 November 2022 - 21.9
Total dividends distributed in the year 89.5 86.7
Per share 6.7p 6.5p
On 3 January 2024, the Board declared an interim dividend of 1.725 pence per
Ordinary Share with regard to the year ended 31 December 2023, payable on 22
February 2024. This dividend will comprise wholly of an ordinary dividend of
0.275 pence and Property Income Distribution ("PID") of 1.45 pence.
10. Investment properties and investment properties under construction
Properties have been independently valued at fair value by Avison Young (UK)
Limited, 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 2022 (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 properties are 99.3% let (2022: 99.7%). The valuations reflected a 5.05%
(2022: 4.82%) net initial yield and a 5.06% (2022: 4.89%) 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
valuers are 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 valuers have deemed that the residual risk to the Group is minimal. As
required by the Red Book, the valuers have deducted the outstanding cost to
the Group through to the completion of construction of £5.4 million (2022:
£2.8 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 £7.1 million (2022: £9.9 million) which have not been provided for in the
financial statements.
A fair value decrease of £4.2 million (2022: increase of £0.6 million) in
respect of investment property under construction has been recognised in the
Group Statement of Comprehensive Income, as part of the overall total net
valuation loss on the property portfolio in the year of £53.0 million (2022:
£64.4 million loss).
Of the £2,776.3 million (2022: £2,793.1 million) valuation, £2,531.7
million (91%) (2022: £2,562.2 million) relates to investment properties in
the UK and £244.6 million (9%) (2022: £230.9 million) relates to investment
properties in Ireland.
In line with accounting policies, the Group assessed whether the acquisitions
during the year were asset purchases or business combinations.
Investment Investment Investment Total
properties - properties - properties - £m
freehold 1 long leasehold under
£m £m construction
£m
As at 1 January 2023 2,214.5 577.3 4.5 2,796.3
Property additions 10.3 28.3 1.4 40.0
Reclassification of freehold and leasehold and land 2.1 (1.4) (0.7) -
Transfer from properties under construction - - - -
Impact of lease incentive adjustment 0.4 0.5 - 0.9
Foreign exchange movements (3.8) (0.9) - (4.7)
Lease ground rent adjustment - (0.2) - (0.2)
2,223.5 603.6 5.2 2,832.3
Revaluations for the year (28.4) (20.4) (4.2) (53.0)
As at 31 December 2023 2,195.1 583.2 1.0 2,779.3
As at 1 January 2022 2,208.4 568.3 19.2 2,795.9
Property additions 66.8 0.7 10.6 78.1
Property disposals (23.4) (1.2) - (24.6)
Reclassification of freehold and leasehold (27.5) 27.5 - -
Transfer from properties under construction 0.8 0.3 - 1.1
Impact of lease incentive adjustment 26.4 - (26.4) -
Foreign exchange movements 8.9 2.1 0.5 11.5
Lease ground rent adjustment (1.3) - - (1.3)
2,259.1 597.7 3.9 2,860.7
Revaluations for the year (44.6) (20.4) 0.6 (64.4)
As at 31 December 2022 2,214.5 577.3 4.5 2,796.3
1 Includes development land held at £0.7 million (31 December
2022: £0.7 million).
Bank borrowings, bonds and interest rate swaps are secured on investment
properties with a value of £2,739.3 million (2022: £2,706.5 million).
Right of use assets
In accordance with IFRS 16 Leases, the Group has recognised a £3.0 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 2023 and 31 December 2022. There were no
transfers between levels during the year or during 2022. Level 3 inputs used
in valuing the properties are those which are unobservable, as opposed to
level 1 (inputs from quoted prices) and level 2 (non-quoted 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
Under the market comparable approach, a property's fair value is estimated
based on comparable transactions on an arm's length basis, 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.
2023 2022
ERV - range of the portfolio £27,500-£1,515,482 £26,500-£1,515,482
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.
2023 2022
True equivalent yield - range of the portfolio 2.77%-16.10% 2.52%-17.50%
Unobservable input: physical condition of the property
The properties are physically inspected by the valuers on a three-year
rotating basis.
Unobservable input: net initial yield
The NIY is the annualised rental income based on the cash rents passing at the
balance sheet date, less non-recoverable property operating expenses, divided
by the market value of the property, increased with (estimated) purchaser's
costs.
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
During 2023 the Group experienced an 23bps increase in the portfolio net
initial yield, reducing investment property by £128 million (4.6% reduction),
before reflecting gains as a result of rental growth and asset management
projects. We have therefore applied the following sensitivities:
• A decrease in the estimated annual rent will
decrease the fair value. A 5% decrease/increase in annual rent would result in
an approximately £139 million decrease/increase in the investment property
valuation.
• A decrease in the equivalent yield will increase
the fair value. A 25bps shift of equivalent yield would have an approximately
£145 million impact on the investment property valuation, either an increase
or decrease.
• A deterioration in the physical condition of the
property will decrease the fair value.
• An increase in the net initial yield will
decrease fair value. A further 25bps shift in the net initial yield would have
an approximately £131 million impact on the investment property valuation,
either an increase or decrease.
• An increase in the rental growth will increase
the fair value.
11. Trade and other receivables
2023 2022
£m £m
Trade receivables (net of loss allowance) 16.3 11.6
Prepayments and accrued income 7.9 6.0
Other debtors 0.7 0.2
24.9 17.8
The expected credit losses are estimated using a provision matrix by reference
to past 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.
Payment default is where PHP assesses there could be a probable failure of a
tenant making a contractual payment of rent. The Group has therefore not
recognised a significant loss allowance because historical experience has
indicated that the risk profile of trade receivables is deemed low, and any
loss allowance would therefore be insignificant.
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.
12. Cash and cash equivalents
2023 2022
£m £m
Cash held at bank 3.2 29.1
3.2 29.1
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.
13. Trade and other payables
2023 2022
£m £m
Non-current liabilities
Other payables 4.1 -
4.1 -
Current liabilities
Trade payables 2.5 3.3
Bank and bond loan interest accrual 6.5 6.8
Other payables 8.6 9.1
VAT 6.7 5.9
Accruals 7.4 7.5
31.7 32.6
14. 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
Expiry date 2023 2022 2023 2022 2023 2022
£m £m £m £m £m £m
Current
RBS overdraft Jun 2024 5.0 5.0 - - 5.0 5.0
Aviva MXF loan Sep 2033 2.4 2.3 2.4 2.3 - -
7.4 7.3 2.4 2.3 5.0 5.0
Non-current
Aviva loan Oct 2036 200.0 200.0 200.0 200.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Barclays loan Sep 2026 100.0 100.0 - - 100.0 100.0
HSBC loan Dec 2026 100.0 100.0 64.4 25.5 35.6 74.5
Lloyds loan Oct 2025 100.0 100.0 1.8 32.5 98.2 67.5
NatWest loan Oct 2026 100.0 100.0 31.8 41.8 68.2 58.2
Santander loan Jan 2025 50.0 50.0 24.4 38.6 25.6 11.4
Aviva MXF loan Sep 2033 220.5 222.9 220.5 222.9 - -
Aviva MXF loan Sep 2028 30.8 30.8 30.8 30.8 - -
976.3 978.7 648.7 667.1 327.6 311.6
Total 983.7 986.0 651.1 669.4 332.6 316.6
At 31 December 2023, total facilities of £1,642.5 million (2022: £1,607.0
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, £44.2 million, £60.7 million, £65.0 million and £41.4
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 2023, £1,309.9 million was drawn (2022:
£1,290.4 million).
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:
2023 2022
£m £m
Term loans drawn: due within one year 2.4 2.3
Term loans drawn: due in greater than one year 648.7 667.1
Total terms loans drawn 651.1 669.4
Plus: MtM on loans net of amortisation 24.9 27.1
Less: unamortised borrowing costs (9.1) (11.7)
Total term loans per the Group Balance Sheet 666.9 684.8
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 17e.
The Group has entered into interest rate swaps to manage its exposure to
interest rate fluctuations. These are set out in Note 16.
b) Bonds
2023 2022
£m £m
Unsecured:
Convertible bond July 2025 at fair value 147.7 142.9
Less: unamortised costs - -
Total unsecured bonds 147.7 142.9
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 44.2 45.1
€70 million secured bond (Euro private placement) September 2031 60.7 62.0
€75 million secured bond (Euro private placement) February 2034 65.0 66.4
€47.8 million secured bond (Euro private placement) December 2033 41.4 -
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised bond issue costs (3.6) (3.6)
Plus: MtM on loans net of amortisation 3.5 4.3
Total secured bonds 508.7 471.7
Total bonds 656.4 614.6
There were no bond conversions during the year (2022: £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 30 December 2025. The Secured Bonds incur interest at an annualised
rate of 220bps plus a credit spread adjustment of 28bps above six-month SONIA,
payable semi-annually in arrears.
On 21 March 2017, a £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
(£44.2 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; and
• €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
(£60.7 million) were issued at a fixed rate of 1.509% and a maturity of
twelve years. Interest is paid semi-annually in arrears. The secured notes are
guaranteed by the Company and were placed with UK and Irish institutional
investors.
On 11 February 2022, the Group issued a new €75.0 million (£65.0 million)
secured private placement loan note to MetLife for a twelve-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 MetLife's
discretion.
On 19 December 2023, new senior secured notes for a total of €47.8 million
(£41.4 million) were issued at a fixed rate of 4.195% and a maturity of
ten-years. Interest is paid semi-annually in arrears. The secured notes are
guaranteed by the Company and were placed with UK and Canadian 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 7 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 131.72 pence as at 31
December 2023 (2022: 137.69 pence).
2023 2022
£m £m
Opening balance - fair value 142.9 171.6
Issued in the year - -
Fair value movement in convertible bond 4.8 (28.7)
Closing balance - fair value 147.7 142.9
The fair value of the Bonds at 31 December 2023 and 31 December 2022 was
established by obtaining quoted market prices. The fair value movement is
recognised in the Group Statement of Comprehensive Income within profit before
taxation and is excluded from the calculation of EPRA earnings and EPRA NTA
(replacing EPRA NAV).
c) Total borrowings
2023 2022
£m £m
Current liabilities:
Term loans and overdrafts 2.4 2.3
Bonds - -
Total current liabilities 2.4 2.3
Non-current liabilities:
Term loans 648.7 667.1
MtM on loans net of amortisation 24.9 27.1
Less: unamortised loan issue costs (9.1) (11.7)
Total non-current liabilities 664.5 682.5
Bonds 658.8 621.0
MtM on bonds net of amortisation 3.5 4.3
MtM on convertible bond (2.3) (7.1)
Less: unamortised bond issue costs (3.6) (3.6)
Total non-current bonds 656.4 614.6
Total borrowings 1,323.3 1,299.4
2023 2022
£m £m
Balance as at 1 January 1,299.1 1,277.1
Changes from financing activities
Proceeds from bond issues 41.2 62.9
Term bank loan drawdowns 282.4 161.6
New facilities drawn 323.6 224.5
Repayments of mortgage principal (2.3) (2.2)
Repayments of term bank loans (297.7) (173.5)
Repayments of term loan borrowings (300.0) (175.7)
Loan and bond interest paid (47.0) (39.8)
Swap interest paid 3.9 1.4
Swap premium paid (1.9) -
Loan/bond issue costs for new facilities/refinancing (1.8) (3.5)
(46.8) (41.9)
Total changes from financing cash flows (23.2) 6.9
Other non-cash changes
Loan and bond interest expense 47.4 40.5
Swap interest expense (4.6) (1.4)
Fair value movement on derivatives interest rate swaps 4.3 (2.6)
Fair value movement on Convertible Bond 4.8 (28.7)
MtM on loans net of amortisation (3.0) (3.0)
Amortisation of loan issue costs 4.4 1.8
Exchange gain on translation of foreign balances (4.1) 8.5
Total other changes 49.2 15.1
Balance as at 31 December 1,325.1 1,299.1
15. 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.
2023 2022
£m £m
Due within one year 0.1 0.1
Due after one year 2.9 3.1
Closing balance - fair value 3.0 3.2
16. 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.
2023 2022
£m £m
Fair value of interest rate swaps not qualifying as cash flow hedges under IAS
39:
Current assets 10.5 -
Non-current assets 0.9 19.6
Current liabilities (6.7) -
Non-current liabilities - (12.5)
Total fair value of interest rate swaps 4.7 7.1
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 relates to the amortisation of
the cash flow hedging reserve of £4.1 million (2022: £4.5 million).
Interest rate swaps and caps with a contract value of £152.0 million (2022:
£100.0 million) were in effect at 31 December 2023. Details of all floating
to fixed rate interest rate swap contracts held are as follows:
Contract value Product Start date Maturity Fixed interest
per annum %
2023
€20.0 million (£17.3 million) Euro cap April 2023 October 2025 2.0000
€20.0 million (£17.3 million) Euro cap April 2023 October 2025 2.0000
€20.0 million (£17.4 million) Euro cap April 2023 October 2025 2.0000
£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
£152.0 million
2022
£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
£100.0 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.
On 18 April 2023, the Group converted €60.0 million (£51.6 million) of
Sterling equivalent denominated debt into Euros across its various revolving
credit facilities. The Group purchased 2.0% caps on €60 million nominal
value for a period of 2.5 years until October 2025 for an all-in premium of
€2.2 million (£1.9 million).
17. 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 16 provides details of interest swap contracts in effect at the year end.
Interest rate exposure
The analysis of the Group's exposure to interest rate risk in its debt
portfolio as at 31 December 2023 is as follows:
Facilities Net debt drawn
£m % £m %
Fixed rate debt 1,117.5 68.0 1,117.5 85.5
Hedged by fixed rate interest rate swaps 100.0 6.1 100.0 7.7
Hedged by fixed to floating rate interest rate swaps (200.0) (12.2) (200.0) (15.3)
Total fixed rate debt 1,017.5 61.9 1,017.5 77.9
Hedged by interest rate caps 252.0 15.4 252.0 19.3
Floating rate debt - unhedged 373.0 22.7 37.2 2.8
Total 1,642.5 100.0 1,306.7 100.0
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.
Impact on Total impact
income statement on equity
£m £m
2023
Sterling Overnight Index Average Rate Increase of 50 basis points (1.0) (1.0)
Sterling Overnight Index Average Rate Decrease of 50 basis points 1.0 1.0
2022
Sterling Overnight Index Average Rate Increase of 50 basis points (2.0) (2.0)
Sterling Overnight Index Average Rate Decrease of 50 basis points 2.0 2.0
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,
cash and cash equivalents, and trade and other receivables (see Notes 11 and
12).
Trade receivables
Trade receivables, primarily tenant rentals, are recognised and carried at
amortised cost and presented in the balance sheet net of loss allowances 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.
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 reputable 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.
On demand Less than Three to One to More than Total
£m three months twelve months five years five years £m
£m £m £m £m
2023
Interest-bearing loans and borrowings - 12.7 38.6 848.9 688.3 1,588.5
Interest rate swaps (net) - (0.8) (2.2) (0.8) - (3.8)
Trade and other payables 2.0 18.6 4.5 1.4 2.6 29.1
2.0 30.5 40.9 849.5 690.9 1,613.8
2022
Interest-bearing loans and borrowings - 11.3 34.4 500.0 1,037.9 1,583.6
Interest rate swaps (net) - (0.2) (0.6) (0.8) - (1.6)
Trade and other payables 2.7 16.4 3.5 1.8 2.1 26.5
2.7 27.5 37.3 501.0 1,040.0 1,608.5
The Group's borrowings have financial covenants which, if breached, could
result in the borrowings becoming repayable immediately. Details of the
covenants are given under (e) Capital risk management and are disclosed to the
facility providers on a quarterly basis. There have been no breaches during
the year (2022: 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 16), 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
2023 2023 2022 2022
£m £m £m £m
Financial assets
Trade and other receivables 18.4 18.4 12.6 12.6
Ineffective interest rate swaps 11.4 11.4 19.6 19.6
Cash and short term deposits 3.2 3.2 29.1 29.1
Financial liabilities
Interest-bearing loans and borrowings (1,323.3) (1,203.8) (1,299.4) (1,149.1)
Ineffective interest rate swaps (6.7) (6.7) (12.5) (12.5)
Trade and other payables (27.8) (27.8) (24.9) (24.9)
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 excludes accrued interest from the previous settlement date
to the reporting date; and
• 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 2023 were as follows:
Recurring fair value measurements Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Derivative interest rate swaps - 11.4 - 11.4
Financial liabilities
Derivative interest rate swaps - (6.7) - (6.7)
Convertible bond (147.7) - - (147.7)
Fixed rate debt - (1,011.4) - (1,011.4)
Fair value measurements at 31 December 2022 were as follows:
Recurring fair value measurements Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Derivative interest rate swaps - 19.6 - 19.6
Financial liabilities
Derivative interest rate swaps - (12.5) - (12.5)
Convertible bond (142.9) - - (142.9)
Fixed rate debt - (797.8) - (797.8)
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 14 and 16 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 (2022: 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: 1.15 to 2.25 (2022: 1.15 to
2.25); and
• loan to value1: 55% to 75% (2022: 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.
During the year the Group has complied with all of the requirements set out
above.
1 See Glossary of Terms.
Group loan to value ratio 2023 2022
£m £m
Fair value of completed investment properties 2,775.3 2,788.6
Fair value of development properties 1.0 4.5
Ground rent recognised as finance leases 3.0 3.2
2,779.3 2,796.3
Interest-bearing loans and borrowings (with convertible bond at nominal value) 1,309.9 1,290.4
Less cash held (3.2) (29.1)
Nominal amount of interest-bearing loans and borrowings 1,306.7 1,261.3
Group loan to value ratio 47.0% 45.1%
18. Share capital
Ordinary Shares issued, authorised and fully paid at 12.5 pence each
2023 2022
Number - £m Number - £m
million million
Balance at 1 January 1,336.5 167.1 1,332.9 166.6
Scrip issues in lieu of cash dividends - - 3.6 0.5
Share issues - - - -
Share issues on other acquisitions - - - -
Balance at 31 December 1,336.5 167.1 1,336.5 167.1
19. Share premium
2023 2022
£m £m
Balance at 1 January 479.4 474.9
Scrip issues in lieu of cash dividends - 4.6
Share issues on other acquisitions - -
Share issue expense - (0.1)
Balance at 31 December 479.4 479.4
20. 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.
2023 2022
£m £m
Capital reserve
Balance at 1 January and 31 December 1.6 1.6
Foreign exchange translation reserve
Balance at 1 January 1.0 (2.2)
Exchange differences on translation of foreign balances (1.4) 3.2
Balance at 31 December (0.4) 1.0
Merger reserve
Balance at 1 January and 31 December 414.1 414.1
Balance of merger and other reserves at 31 December 415.3 416.7
21. Hedging reserve
Information on the Group's hedging policy and interest rate swaps is provided
in Note 16.
The transfer to the Group Statement of Comprehensive Income can be analysed as
follows:
2023 2022
£m £m
Balance at 1 January (11.1) (15.6)
Amortisation of cash flow hedging reserve 4.1 4.5
Balance at 31 December (7.0) (11.1)
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).
22. Retained earnings
2023 2022
£m £m
Balance at 1 January 430.1 460.5
Retained profit for the year 27.3 56.3
Dividends paid (89.5) (81.6)
Scrip dividend in lieu of cash - (5.1)
Exchange differences on translation of foreign balances 1.1 -
Share-based awards ("LTIP") 0.1 -
Balance at 31 December 369.1 430.1
23. Capital commitments
As at 31 December 2023, 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
£5.4 million (2022: £2.8 million) remains to be funded with regard to these
properties.
As at 31 December 2023, the Group has capital commitments totalling £7.1
million (2022: £9.9 million), being the cost to complete asset management
projects on site, together with deferred consideration on the acquisition of
Axis of £2.1 million (€2.5 million).
24. Related party transactions
Harry Hyman, Chief Executive Officer, is a Director and the ultimate
beneficial owner of a number of Nexus entities and is considered to be a
related party. Following the acquisition of certain Nexus entities on the
internalisation of management structure on 5 January 2021, the Group has
continued to share certain operational services with a Nexus entity, Nexus
Central Management Services Limited. Harry Hyman is a current Director and
ultimate controlling party of Nexus Central Management Services Limited.
Amounts paid during the period in relation to shared services totalled £nil
million (31 December 2022: £0.1 million).
As at 31 December 2023, outstanding fees payable to Nexus totalled £nil (31
December 2022: £nil).
25. Subsequent events
There have been no significant events affecting the Group since the period
ended 31 December 2023.
26. 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
PHP Epsom Limited 12004850
GP Property One Limited 10801028
PHP SPV Limited 12256431
PHP Primary Properties (Haymarket) Limited 08304612
MXF Properties Bridlington Limited 07763871
PHP Tradeco Holdings Limited 09642987
PHP Health Solutions Limited 06949900
PHP Tradeco Limited 07685933
PHP Property Management Services Limited 02877191
PHP Primary Care Developments Limited 11862233
PHP Croft Limited 13938144
PHP (Spilsby) Limited 13735391
Glossary of terms
Adjusted earnings is EPRA earnings excluding the 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.
Adjusted NTA per share is adjusted NTA divided by the number of shares in
issue at the balance sheet date.
Annualised rental income on a like-for-like basis is the contracted rent on a
per annum basis assuming a consistent number of properties between each year.
Average cost of debt is the total interest cost of drawn debt and swaps,
divided by the amount of drawn debt.
Axis is Axis Technical Services Limited.
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").
CSRD is Corporate Sustainability Reporting Directive.
Direct property costs comprise ground rents payable under head leases, void
costs, other direct irrecoverable property expenses, rent review fees and
valuation fees.
District Valuer ("DV") is the District Valuer Service, being the commercial
arm of the Valuation Office Agency ("VOA"). It provides professional property
advice across the public sector and in respect of primary healthcare
represents NHS bodies on matters of valuation, rent reviews and initial rents
on new developments.
Dividend cover is the number of times the dividend payable (on an annual
basis) is covered by adjusted earnings.
Earnings per Ordinary Share from continuing operations ("EPS") is the profit
attributable to equity holders of the Parent divided by the weighted average
number of shares in issue during the year.
EBITDA is operating profit excluding amortisation of intangibles, Axis
acquisition costs and investment property revaluations.
EPC is an Energy Performance Certificate.
European Public Real Estate Association ("EPRA") is a real estate industry
body, which has issued Best Practice Recommendations in order to provide
consistency and transparency in real estate reporting across Europe.
EPRA cost ratio is the ratio of net overheads and operating expenses against
gross rental income (with both amounts excluding ground rents payable). Net
overheads and operating expenses relate to all administrative and operating
expenses, net of any service fees, recharges or other income specifically
intended to cover overhead and property expenses.
EPRA earnings is the profit after taxation excluding investment and
development property revaluations, gains/losses on disposals, changes in the
fair value of financial instruments and associated close-out costs and their
related taxation and amortisation of non-monetary items such as intangible
assets.
EPRA earnings per share is EPRA earnings divided by the weighted average
number of shares in issue during the year.
EPRA net assets ("EPRA NAV") is the balance sheet net assets excluding own
shares held, the MtM value of derivative financial instruments and the
convertible bond fair value movement and intangible assets.
EPRA NAV per share is the balance sheet net assets excluding own shares held,
the MtM value of derivative financial instruments and the convertible bond
fair value movement and intangible assets, divided by the number of shares in
issue at the balance sheet date.
EPRA NNNAV is adjusted EPRA NAV including the MtM value of fixed rate debt and
derivatives.
EPRA net reinstatement value ("EPRA NRV") is the balance sheet net assets
including real estate transfer taxes but excluding the MtM value of derivative
financial instruments, deferred tax and the convertible bond fair value
movement. The aim of the metric is to reflect the value that would be required
to recreate the Company through the investment markets based on its current
capital and financing structure. Refer to Note 8.
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 8.
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 8.
EPRA net tangible assets ("NTA") (which has replaced the former EPRA net asset
value alternative performance measure) is the balance sheet net assets but
excluding the MtM value of derivative financial instruments, deferred tax 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 8.
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 8.
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 valuers' 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.
Headline earnings is the profit after taxation excluding investment and
development property revaluations, gains/losses on disposals and their related
taxation.
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.
IASs are International Accounting Standards as adopted by the United Kingdom.
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.
JSE is Johannesburg Stock Exchange, the largest stock exchange in Africa.
Like for like compares prior year to current year excluding acquisitions,
disposals and developments.
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
properties.
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 debt is total drawn debt, less cash and cash equivalents
Net initial yield ("NIY") is the annualised rents generated by an asset, after
the deduction of an estimate of annual recurring irrecoverable property
outgoings, expressed as a percentage of the asset valuation (after notional
purchasers' costs).
Net related income is the related income after the payment of direct property
costs, which include service charge payments.
Net rental and related income is the sum of net rental income and net related
income.
Net rental income is the rental income receivable in the period after payment
of direct property costs. Net rental income is quoted on an accounting basis.
Net zero carbon refers to the point at which a process, activity or 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's "Net zero carbon, a framework definition".
NHSPS is NHS Property Services Limited, the company wholly owned and funded by
the Department of Health, which, as of 1 April 2013, has taken on all property
obligations formerly borne by primary care trusts.
Occupancy is the level of units occupied, after deducting the ERV vacancy
rate.
Parity value is calculated based on dividing the convertible bond value by the
exchange price.
Progressive returns is where it is expected to continue to rise each year.
Progressive dividends is where it is expected to continue to rise each year on
a per share basis.
Property Income Distribution ("PID") is the required distribution of income as
dividends under the REIT regime. It is calculated as 90% of exempted net
income.
Real Estate Investment Trust ("REIT") is a listed property company which
qualifies for and has elected into a tax regime, which exempts qualifying UK
profits, arising from property rental income and gains on investment property
disposals, from corporation tax, but which has a number of specific
requirements.
Related income is the property and service charge income generated from the
Axis business.
Rent reviews take place at intervals agreed in the lease and their purpose is
usually to adjust the rent to the current market level at the review date.
Rent roll is the passing rent, being the total of all the contracted rents
reserved under the leases.
Reversionary yield is the anticipated yield which the initial yield will rise
to once the rent reaches the ERV and when the property is fully let. It is
calculated by dividing the ERV by the valuation.
Retail Price Index ("RPI") is the official measure of the general level of
inflation as reflected in the retail price of a basket of goods and services
such as energy, food, petrol, housing, household goods, travelling fare, etc.
RPI is commonly computed on a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews which are linked to
changes in the RPI.
Special reserve is a distributable reserve.
Sterling Overnight Interbank Average Rate ("SONIA") is the effective overnight
interest rate paid by banks for unsecured transactions in the British Sterling
market.
Total expense ratio ("TER") is calculated as total administrative costs for
the year divided by the average total asset value during the year.
Total property return is the overall return generated by properties on a
debt-free basis. It is calculated as the net rental income generated by the
portfolio plus the change in market values, divided by opening property assets
plus additions.
£m
Net rental and related income (A) 151.1
Revaluation deficit and profit on sales (B) (53.0)
Total return (C) 98.1
Opening property assets 2,796.3
Weighted additions in the period 36.0
Total weighted average closing property assets (D) 2,832.3
Income return (A/D) 5.3%
Property return (B/D) (1.8)%
Total property return (C/D) 3.5%
Total adjusted NTA return is calculated as the movement in adjusted net
tangible asset value for the period plus the dividends paid, divided by
opening EPRA net tangible asset value.
Adjusted NTA per share
At 31 December 2022 112.6p
At 31 December 2023 108.0p
Increase/(decrease) (4.6)p
Add: dividends paid
Q1 interim 1.675p
Q2 interim 1.675p
Q3 interim 1.675p
Q4 interim 1.675p
Total 2.1p
Total adjusted NTA return 1.9%
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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