TIDMPHP
RNS Number : 8345T
Primary Health Properties PLC
27 July 2022
Primary Health Properties PLC
Interim results for the six months ended 30 June 2022
Organic rental growth continuing to drive strong property
returns in a turbulent market Uplift in NAV per share and dividend
fully covered at 103%
Primary Health Properties PLC ("PHP", the "Group" or the
"Company"), a leading investor in modern primary health facilities,
announces its interim results for the six months ended 30 June 2022
(the "period").
Harry Hyman, Chief Executive of PHP, commented:
"We are encouraged by the firmer tone of rental growth
experienced in the period from the ongoing rent reviews and asset
management projects successfully completed. Furthermore, with the
majority of PHP's debt either fixed or hedged for a weighted
average period of just under eight years the Board remains
confident that PHP can continue to deliver further earnings and
dividend growth.
"Notwithstanding the outlook for longer-dated interest rates the
investment market has remained robust in the first half of the year
and we have continued to see further net initial yield compression
in both the UK and Ireland.
"NHS initiatives to modernise and invest in the primary care
estate support the important role that primary healthcare as a
first line of defence must play to re-focus services away from
over-burdened hospital settings, and to satisfy increased demand,
driven by the long-term demographic trends of populations that are
growing, ageing and suffering from more instances of chronic
illness. We continue to maintain close relationships with our key
stakeholders, working closely with the NHS in the UK, HSE in
Ireland, and our GP partners in both markets to help them evolve
and adapt as the 'new normal' is established."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Income statement and financial metrics Six months to Six months
30 June 2022 to 30 June Change
2021
--------------------- ---------------
Net rental income(1) GBP71.1m GBP67.7m +5.0%
Adjusted earnings(1,2) GBP44.7m GBP40.7m +9.8%
Adjusted earnings per share(1,2) 3.4p 3.1p +9.7%
IFRS profit for the period GBP107.1m GBP71.4m
IFRS earnings per share(2) 8.0p 5.4p
Total adjusted NTA return(1) 6.3% 5.0%
Dividends
Dividend per share(5) 3.25p 3.1p +4.8%
Dividends paid(5) GBP43.3m GBP41.1m +5.4%
Dividend cover(1) 103% 99%
------------------------------------------ --------------------- --------------- --------
Balance sheet and operational metrics 30 June 31 December
2022 2021 Change
------------------------------------------ --------------------- --------------- --------
Adjusted NTA per share(1,3) 120.8p 116.7p +3.5%
IFRS NTA per share(1,3) 117.6p 112.5p +4.5%
Property portfolio
Investment portfolio valuation(4) GBP2.912bn GBP2.796bn +1.8%
Net initial yield ("NIY") (1) 4.57% 4.64%
Contracted rent roll (annualised)(1,7) GBP144.2m GBP140.7m +1.3%
Weighted average unexpired lease term 11.4 years 11.6 years
("WAULT")(1)
Occupancy 99.7% 99.7%
Rent-roll funded by government bodies(1) 89% 90%
Debt
Average cost of debt 3.0% 2.9%
Loan to value ratio ("LTV")(1) 43.1% 42.9%
Weighted average debt maturity 7.8 years 8.2 years
Total undrawn loan facilities and GBP290.6m GBP321.2m
cash(6,8)
------------------------------------------ --------------------- --------------- --------
1 Definitions for net rental income, adjusted earnings, adjusted
earnings per share, earnings per share ("EPS"), dividend cover,
loan to value ("LTV"), net tangible assets ("NTA"), rent roll, NIY,
WAULT, total adjusted NTA return and net asset value ("NAV") are
set out in the Glossary of Terms.
2 See note 7 , earnings per share, to the financial statements.
3 See note 7 , net asset value per share, to the financial
statements. Adjusted net tangible assets, EPRA net tangible assets
("NTA"), EPRA net disposal value ("NDV") and EPRA net reinstatement
value ("NRV") are considered to be alternative performance
measures. The Group has determined that adjusted net tangible
assets is the most relevant measure.
4 Percentage valuation movement during the period based on the
difference between opening and closing valuations of properties
after allowing for acquisition costs and capital expenditure.
Includes assets held for sale.
5 See note 8, dividends, to the financial statements.
(6) After deducting the remaining cost to complete contracted
acquisitions, properties under development and asset management
projects.
(7) Percentage contracted rent roll increase during the period
is based on the annualised uplift achieved from all completed rent
reviews and asset management projects.
(8) Pro-forma including asset acquisitions and disposals
completed post period end.
DELIVERING EARNINGS AND DIVID GROWTH
-- Adjusted earnings per share increased by 9.7% to 3.4p (30 June 2021: 3.1p)
-- Contracted annualised rent roll increased by 2.5% to GBP144.2
million (31 December 2021: GBP140.7 million)
-- Additional annualised rental income on a like-for-like basis
of GBP1.8 million or 1.3% from rent reviews and asset management
projects (H1 2021: GBP1.3 million or 1.0%; FY 2021: GBP2.4 million
or 1.8%)
-- EPRA cost ratio 10.5% (FY 2021: 9.3%), representing the lowest in the UK REIT sector
-- Three quarterly dividends totalling 4.875 pence per share
distributed or declared in the year-to-date equivalent to 6.5 pence
per share on an annualised basis, a 4.8% increase over 2021 (6.2
pence per share) and marking the Company's 26(th) consecutive year
of dividend growth
DELIVERING NET ASSET VALUE GROWTH
-- Adjusted Net Tangible Assets ("NTA") per share increased by
3.5% to 120.8 pence (31 December 2021: 116.7 pence)
-- Property portfolio valued at GBP2.9 billion at 30 June 2022
(31 December 2021: GBP2.8 billion) reflecting a net initial yield
of 4.57% (31 December 2021: 4.64%)
-- Revaluation surplus in the period of GBP51.2 million (30 June
2021: GBP66.9 million), representing growth of 1.8% (30 June 2021:
2.6%) with approximately half of the valuation surplus coming from
rental growth driven by rent reviews and asset management
projects
-- Post period end disposal of 13 smaller assets for GBP27.7
million, sale price was 13% above 31 December 2021 book values and
represented 60 bps of yield compression
-- Strong pipeline of targeted acquisitions, developments and
asset management projects with a value of approximately GBP187
million in the UK and GBP98 million (EUR114 million) in Ireland of
which GBP123 million and GBP43 million (EUR50 million) is in legal
due diligence in both countries
-- Portfolio in Ireland now comprises 20 assets, valued at
GBP228 million (EUR265 million) (31 December 2021: GBP213 million /
EUR253 million)
-- The portfolio's metrics continue to reflect the Group's
secure, long-term and predictable income stream with occupancy at
99.7% (31 December 2021: 99.7%) and a WAULT of 11.4 years (31
December 2021: 11.6 years)
-- Strong progression of asset management projects with 14
completed in the period and a further 8 currently on-site,
investing GBP14.9 million, creating additional rental income of
GBP0.3 million per annum and extending the weighted average
unexpired lease term (WAULT) back to over 20 years
DELIVERING FINANCIAL MANAGEMENT
-- LTV ratio 43.1% (31 December 2021: 42.9%), towards the lower
end of the Group's targeted range of between 40% to 50%
-- Including post period end transactions 95% of net debt fixed
or hedged for a weighted average period of just under eight
years
-- Weighted average debt maturity 7.8 years (31 December 2021: 8.2 years)
-- Significant liquidity headroom with cash and collateralised
undrawn loan facilities totalling GBP290.6 million (31 December
2021: GBP321.2 million) after capital commitments and including
post-period end transactions
-- EUR75 million private placement loan note issued in the
period for a 12-year term at a fixed rate of 1.64% to finance
continued expansion in Ireland
DELIVERING STRONG TOTAL RETURNS
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
--------------------------------- ---------------- -----------------
Adjusted NTA return 6.3% 5.0% 8.9%
Income return 2.5% 2.6% 5.2%
Capital return 1.8% 2.6% 4.3%
--------------------------- ---- ---------------- -----------------
Total property return(1) 4.3% 5.2% 9.5%
--------------------------- ---- ---------------- -----------------
1 The de finition for total property return is set out in the Glossary of Terms.
DELIVERING RESPONSIBLE BUSINESS AND ESG
-- As previously announced, Net Zero Carbon ("NZC") Framework
published with the five key steps the Group is taking to achieve
the ambitious target of being NZC by 2030 for all of PHP's
operational, development and asset management activities
-- Commenced construction of PHP's first NZC development in West Sussex
-- All developments completed in the period achieved BREEAM
rating of Excellent or Very Good and all asset management projects
completed met EPC target of B or above
-- Published PHP's Levelling- Up Impact Report, as part of the
Purpose Coalition, detailing of the work PHP is doing to level-up
both locally and nationally, and its strategy going forward
Presentation and webcast:
An in-person presentation for analysts will be held on the day
at 10am at the offices of Buchanan: 107 Cheapside, London EC2V 6DN.
For those who cannot attend in person, the meeting will be
accessible via live video webcast and a live conference call
facility. Following the presentation, there will be a managed
Q&A session.
To access the briefing, please log on or dial in shortly before
10am via the details below:
Webcast:
https://stream.brrmedia.co.uk/broadcast/62b982f471203e42c1fbee33
UK Toll-free Dial In: +44 (0)330 165 4012
Participant PIN code: 2633375
If you would like to join the briefing, please contact Buchanan
via php@buchanan.uk.com to confirm your place. A recording of the
webcast will be made available from c.12.00pm on the PHP website,
https://www.phpgroup.co.uk/
For further information contact:
Harry Hyman Richard Howell
Primary Health Properties Primary Health Properties PLC T +44 (0)
PLC T +44 (0) 7973 344768 7766 072272
harry.hyman@phpgroup.co.uk richard.howell@phpgroup.co.uk
--------------------------- ------------------------------------------------------------
David Rydell/Steph Whitmore/Hannah Ratcliff/Verity Parker Buchanan
T +44 (0) 20 7466 5066
EXECUTIVE REVIEW
PHP is pleased to have continued to deliver a strong and robust
operational and financial performance despite the ongoing
volatility in the economic outlook because of persistent price
inflation resulting in recent and rapid interest rate increases
along with the outlook for longer-dated interest rates stemming
from global supply issues, BREXIT, COVID-19, higher wage pressures
and the on-going war in the Ukraine. The Group's portfolio has
continued to demonstrate strong resilience throughout the first
half of 2022. The security and longevity of our income are
important drivers of our predictable income stream and underpin our
progressive dividend policy and we are now in our 26(th) year of
continued dividend growth.
We are encouraged by the firmer tone of rental growth
experienced in the period from the rent reviews and asset
management projects completed, and with the majority of PHP's debt
either fixed or hedged for a weighted average period of just under
eight years, we remain confident that adjusted earnings growth will
not be negatively impacted in future periods.
Notwithstanding the outlook for longer-dated interest rates the
investment market has remained robust in the first half of the year
and we have continued to see further net initial yield compression
in both the UK and Ireland. We have taken advantage of the strong
prices in the market to dispose of a portfolio of 13 medical
centres, for GBP27.7 million post period end, which comprise
smaller facilities significantly below our average lot size.
The interest rate outlook has also caused us to reconsider a
number of pipeline acquisitions and we have selectively acquired
just three standing investments for GBP48.8 million, including one
post-period end. We also commenced construction of PHP's first Net
Zero Carbon development at Croft, West Sussex with a development
value of GBP6.8 million. We believe that significant yield
compression in our sector has probably run its course and therefore
it is the improving rental growth outlook that will be the
principal driver to maintaining and increasing values in future
periods.
Including post period end activity, the property portfolio
currently stands at just under GBP2.9 billion across 512 assets,
including 20 in Ireland, with a rent roll of GBP142.8 million.
PHP has continued to actively work with the NHS in the UK, HSE
in Ireland, and its GP partners in both markets to help them better
utilise the Group's properties for deployment in the recent global
health crisis. Many of our primary care facilities and occupiers
will need to deal with the backlog of procedures missed over the
last three years and will be required to deliver COVID-19 vaccines
for many years to come. We continue to maintain close relationships
with our key stakeholders and GP partners to ensure we are best
placed to help the NHS and HSE, and particularly in primary care,
evolve and deal with the pressures placed on them.
Overview of results
PHP's Adjusted earnings increased by GBP4.0 million or 9.8% to
GBP44.7 million (30 June 2021: GBP40.7 million) in the six months
to 30 June 2022, driven by strong organic rental growth from rent
reviews and asset management projects together with interest cost
savings arising from various refinancing's completed in 2021 and
the first half of 2022. Using the weighted average number of shares
in issue in the period the Adjusted earnings per share increased to
3.4 pence (30 June 2021: 3.1 pence), an increase of 9.7%.
A revaluation surplus of GBP51.2 million (30 June 2021: GBP66.9
million) was generated in the period from the portfolio, equivalent
to 3.8 pence per share. Encouragingly, approximately half of the
valuation surplus came from rental growth driven by rent reviews
and asset management projects completed in the period and the
remainder from further net initial yield compression in the UK and
Ireland.
The robust performance in the period has delivered a total
adjusted NTA return of 6.3% (30 June 2021: 5.0%).
Rent reviews and asset management projects completed in the
period added GBP1.8 million or 1.3% (H1 2021: GBP1.3 million or
1.0%; FY 2021: GBP2.4 million or 1.8%) to the contracted rent roll
with continued positive momentum on the number of rent reviews
being settled.
Rental growth from rent reviews settled in the period resulted
in an uplift of GBP1.5 million per annum or 6.1% which equates to
3.0% per annum continuing the positive trend in rental growth over
the last two years
The portfolio's average lot size has increased to GBP5.5 million
and we continue to maintain our strong property metrics, with a
long weighted average unexpired lease term ("WAULT") of 11.4 years,
high occupancy at 99.7% and 89% of our rent funded directly or
indirectly by the UK and Irish governments.
Dividends and total shareholder return
The Company distributed a total of 3.25p per share in the six
months to 30 June 2022, equivalent to 6.5 pence on an annualised
basis, which represents an increase of 4.8% over the dividend
distributed per share in 2021 of 6.2 pence.
A third quarterly interim dividend of 1.625 pence per share was
declared on 30 June 2022. The dividend will be paid on 19 August
2022 to shareholders who were on the register at the close of
business on 8 July 2022. The dividend will comprise a normal
dividend of 0.825 pence and a property income distribution of 0.8
pence per share. The Company intends to maintain its strategy of
paying a progressive dividend, which is paid in equal quarterly
instalments, and covered by underlying earnings in each financial
year. A further interim dividend payment is planned to be made in
November 2022, which is expected to comprise a mixture of both
property income distribution and normal dividend.
The total value of dividends distributed in the period increased
by 5.4% to GBP43.3 million (30 June 2021: GBP41.1 million), which
were fully covered by Adjusted earnings. Dividends totalling GBP1.7
million were satisfied through the issuance of shares via the scrip
dividend scheme.
The Company's share price started the year at 151.4p per share
and closed on 30 June 2022 at 136.3p, a decrease of 10.0%.
Including dividends, those shareholders who held the Company's
shares throughout the period achieved a Total Shareholder Return of
-7.8% (30 June 2021: +2.7%). This compares to the total return
delivered by UK real estate equities (FTSE EPRA Nareit UK Index) of
-21.2% (30 June 2021: +15.5%) and the wider UK equity sector (FTSE
All-Share Index) of -4.8% (30 June 2021: +9.6%) in the period.
Environmental, Social and Governance ("ESG")
PHP has a strong commitment to responsible business and ESG
matters are at the forefront of the Board's and our various
stakeholders' considerations and the Group has committed to
transitioning to net zero carbon ("NZC"). We have commenced
construction of PHP's first NZC development in the first half of
2022 and published, at the start of the year, a NZC Framework with
the five key steps we are taking to achieve an ambitious target of
being NZC by 2030 for all of PHP's operational, development and
asset management activities and to help our occupiers achieve NZC
by 2040, five years ahead of the NHS's target of becoming the
world's first net zero carbon national health system by 2045 for
the emissions it can influence and 10 years ahead of the UK and
Irish Governments' targets of 2050. Further details on our progress
in the year to date and approach to responsible business can be
found on pages 15 to 16, the 2021 Annual Report and on our
website.
Board changes
Following a review of the composition of the Board in 2021,
Ivonne Cantúwas appointed as an independent Non-Executive director
of the Company with effect from 1 January 2022.
Peter Cole, Non-Executive Director and Chair of the Remuneration
Committee, retired from the Board at the Company's Annual General
Meeting ("AGM") in April 2022 and Ivonne Cantú took over as Chair
of the Remuneration Committee following the AGM.
The Board is grateful to Peter for his commitment and dedication
to the Company and for chairing the Remuneration Committee,
particularly during the process of internalising the management
function in 2020 and the transition period in 2021.
Market update and outlook
PHP's mission is to support the NHS, HSE and other healthcare
providers, by being a leading investor in modern, primary care
premises. Never has this been more important as the NHS seeks to
work through the backlog of procedures created by the COVID-19
pandemic and the Government delivers its Levelling Up agenda. In
the longer term, the ageing demographic of western populations
means that health services will also be called upon to address more
ongoing, complex, chronic co-morbidities. PHP stands ready to play
its part in delivering the real estate infrastructure required to
meet this need in the community.
We will continue to actively engage with government bodies, the
NHS, HSE in Ireland and other key stakeholders to establish, enact
(where we can), support and help alleviate increased pressures and
burdens currently being placed on healthcare networks.
In July 2021, the UK Government published a draft Health and
Social Care Bill setting out a number of reforms in order to
implement the commitments of the NHS England Long Term Plan. This
included the introduction of regional Integrated Care Boards and
Partnerships tasked with co-ordinating NHS partners with local
government services and budgets, such as social care and mental
health, in a geographic area, for the first time; the idea being
that services are then pushed to the most efficient, cost-effective
part of the system (whether primary care, hospital or care home)
for the best patient outcomes. We welcome these reforms and are
hopeful they will lead to better outcomes for patients and to
further development opportunities in primary care in the medium to
long-term.
Despite the recent and rapid interest rate increases we have not
seen any change in investor sentiment in our sector and the UK and
Irish investment markets for primary healthcare property, with its
strong fundamental characteristics and government-backed income,
continues to be robust. However, we do not expect any further
significant yield compression in the second half of the year as the
market digests the outlook for longer-dated interest rates.
We believe that our activities benefit not only our shareholders
but also our wider stakeholders, including our occupiers, patients,
the NHS and HSE, suppliers, lenders and the wider communities in
both the UK and Ireland.
We look forward to the remainder of 2022 and beyond with
confidence in our ability to create further stakeholder value.
Steven Owen Harry Hyman
Chairman Chief Executive Officer
26 July 2022
BUSINESS REVIEW
Investment and pipeline
In the first half of 2022 the primary care investment market has
continued to remain robust despite the volatile economic outlook.
Consequently, we have selectively invested in just three
acquisitions and taken advantage of these market conditions to
dispose of a portfolio of 13 smaller assets for GBP27.7 million
post period end.
In April 2022, the Group acquired a large, state-of-the- art
diagnostic centre in Chiswick let to HCA Healthcare for GBP34.5
million and a newly refurbished drug and alcohol rehabilitation
facility in Chertsey for GBP7.0 million. Post period end, the Group
acquired another medical centre in Newbury for GBP7.3 million.
Including standing investments, direct and forward funded
developments and asset management projects, we have continued to
generate and grow a strong pipeline totalling approximately GBP187
million in the UK and GBP98 million (EUR114 million) in Ireland of
which GBP123 million and GBP43 million (EUR50 million) is in legal
due diligence in both countries.
Pipeline Number UK Ireland
Investment 6 GBP60m GBP24m (EUR28m)
Direct development 7 GBP56m -
Forward funded development 7 GBP19m GBP74m (EUR86m)
--------------------------- --------------- --------------- -------------------------
Total acquisitions 20 GBP135m GBP98m (EUR114m)
Asset management 50 GBP52m -
--------------------------- --------------- --------------- -------------------------
Total pipeline 70 GBP187m GBP98m (EUR114m)
--------------------------- --------------- --------------- -------------------------
Approximately 42% of the pipeline represents opportunities in
Ireland which is our preferred area of investment due to the higher
net initial yields and larger lot sizes.
NZC direct developments
Over the course of the first half of 2022 the Group has
continued to make good progress with the commencement of
construction of the first NZC development at Croft Primary Care
Centre, West Sussex with a development value of GBP6.8 million.
In addition, the Group has a significantly advanced pipeline
across seven development projects with an estimated capital value
of approximately GBP56 million (31 December 2021: six
projects/GBP46 million). The Company expects to be on-site with two
of these projects by the end of 2022, together with a wider medium-
term pipeline at various stages of progress across seven projects
with an estimated capital value of approximately GBP56 million.
PHP expects that all future direct developments will be
constructed to NZC standards.
Forward funded developments
During the period, the forward funded development at
Enniscorthy, County Wexford, Ireland achieved practical completion
in March 2022. The scheme at Arklow, County Wicklow, Ireland is now
substantially complete and due to achieve practical completion
before the end of August 2022 at which stage we will not have any
forward funded developments on-site. Both schemes have been built
to Nearly Zero Energy Buildings ("nZEB") standards in Ireland.
Disposals
In July 2022, the Group exchanged contracts to dispose of a
portfolio of 13 smaller medical centres, located across England and
Wales, for a price of GBP27.7 million. The sale price was 13% above
31 December 2021 book values and represented 60bps of yield
compression. Completion is expected to take place at the end of
July 2022 and the proceeds from the sale will be deployed into our
pipeline across the UK and Ireland which we believe can deliver
stronger returns.
Asset management
PHP's sector leading metrics continue to remain good and we
continue to focus on delivering the organic rental growth that can
be derived from our existing assets. This growth arises mainly from
rent reviews and asset management projects (extensions,
refurbishments and lease re-gears) which provide an important
opportunity to increase income, extend lease terms and avoid
obsolescence whilst ensuring that our premises meet the
communities' healthcare needs and improve the properties ESG
credentials.
Rent reviews
During the six months to 30 June 2022, the Group concluded and
documented 192 rent reviews in the UK with a combined rental value
of GBP24.4 million resulting in an uplift of GBP1.5 million per
annum or 6.1% which equates to 3.0% per annum. This continues the
positive trend in rental growth over the last two years (year ended
31 December 2021: 1.7% per annum with an uplift of GBP2.0 million;
31 December 2020: 1.8% per annum with an uplift of GBP1.7
million).
In the period, 1.4% per annum was achieved on 104 open market
reviews including 24 reviews where no uplift was achieved. Uplifts
of 5.9% per annum were achieved on RPI-based reviews and 3.0% per
annum on fixed uplift reviews. In addition, a further 278 open
market reviews were agreed in principle, which will add another
GBP1.6 million to the contracted rent roll when concluded and
represent an uplift of 1.3% per annum.
69% of our rents are reviewed on an open market basis, typically
every three years, and the settlements achieved are impacted by
land and construction inflation. Over recent years, there have been
significant increases in these costs which is expected to result in
further rental growth in the future. The balance of the PHP
portfolio has either indexed/RPI (25%) or fixed uplift (6%) based
reviews which also provide an element of certainty to future rental
growth within the portfolio.
Approximately, one-third of indexed linked rent reviews are
subject to cap and collars which typically range from 2% to 4% per
annum.
At 30 June 2022, the rent at 633 tenancies, representing GBP85.4
million of passing rent (31 December 2021: 635 tenancies/GBP84.9
million), was under negotiation and the large number of outstanding
reviews reflects the requirement for all awards to be agreed with
the District Valuer. A great deal of evidence to support open
market reviews comes from the completion of historic rent reviews
and delivery of new properties into the sector. We continue to see
positive momentum in the demand, commencement and delivery for new,
purpose-built premises, which are being supported by NHS
initiatives to modernise the primary care estate.
In Ireland, we concluded 9 mostly indexed based reviews adding a
further GBP0.1 million (EUR0.1 million) equivalent to 2.7% per
annum to the contracted rent roll.
Asset Management Projects
We have continued to make good progress in the six months to 30
June 2022 to enhance and extend existing assets within the
portfolio with 22 projects either completed or currently on-site.
We have also completed a further 12 lease re-gears. The projects
require the investment of GBP14.9 million and will generate GBP0.3
million of additional rental income but, just as importantly, will
extend the WAULT on those premises back to an average 20 years as
well as improving the ESG performance of the buildings.
PHP continues to work closely with its tenants who are seeking
to extend and improve their facilities and has a strong pipeline of
over 50 projects which are either Board approved or in advanced
negotiations. The pipeline of projects will require the investment
of approximately GBP52 million, generating an additional GBP1.6
million of rental income and extending the WAULT on those premises
back to an average 20 years.
The Company will continue to invest capital in a range of
physical extensions or refurbishments through asset management
projects which help avoid obsolescence and are key to maintaining
the longevity and security of our income through long-term tenant
retention, increased rental income and extended occupational lease
terms, adding to both earnings and capital values.
Sector leading portfolio metrics
The portfolio's annualised contracted rent roll at 30 June 2022
was GBP144.2 million, an increase of GBP3.5 million or 2.5% in the
period (31 December 2021: GBP140.7 million) driven predominantly by
GBP1.8 million organic rental growth from rent reviews and asset
management projects. The acquisition of Chiswick and Chertsey
contributed a further GBP1.7 million. The security and longevity of
our income are important drivers of our secure, long term
predictable income stream and enable our progressive dividend
policy.
Security:PHP continues to benefit from secure, long term cash
flows with 89% of its rent roll funded directly or indirectly by
the NHS in the UK or HSE in Ireland. The portfolio also benefits
from an occupancy rate of 99.7%.
Longevity: The portfolio's WAULT at 30 June 2022 was 11.4 years
(31 December 2021: 11.6 years). Only GBP10.2 million or 7.1% of our
income expires over the next three years of which c. 50% have
agreed terms to renew and another 30% is in advanced discussions to
renew their lease. GBP71.3 million or 49.4% expires in over 10
years. The table below sets out the current lease expiry profile of
our income:
Income subject to expiry GBPm %
-------------------------- ----------------------- --------------------------
< 3 years 10.2 7.1%
4 - 5 years 11.2 7.7%
5 - 10 years 51.5 35.7%
10 - 15 years 37.0 25.7%
15 - 20 years 19.5 13.5%
> 20 years 14.8 10.3%
-------------------------- ----------------------- --------------------------
Total 144.2 100.0%
-------------------------- ----------------------- --------------------------
Valuation and returns
At 30 June 2022, the Group's portfolio comprised 524 assets
independently valued at GBP2.912 billion (31 December 2021:
GBP2.796 billion). After allowing for acquisition costs and capital
expenditure on developments and asset management projects, the
portfolio generated a valuation surplus of GBP51.2 million or 1.8%
(30 June 2021: GBP66.9 million or 2.6%). Encouragingly,
approximately half of the valuation surplus came from rental growth
driven by rent reviews and asset management projects completed in
the period and the remainder from further net initial yield
compression in the UK and Ireland.
The strong fundamentals of our sector, together with a lack of
supply, have seen strong demand and competition for primary care
assets through both investment and development led opportunities.
Consequently, the Group's portfolio NIY has tightened by 7 bp in
the period to 4.57% (31 December 2021: 4.64%). The true equivalent
yield reduced to 4.66% at 30 June 2022, declining from 4.74% at 31
December 2021. The NIY on our portfolio continues to represent a
premium over both the 10-year and 15-year UK gilts which traded at
2.22% and 2.56% respectively at 30 June 2022.
In Ireland, we completed the two developments under construction
during the period and the portfolio now comprises 20 fully let
assets, valued at GBP228.3 million or EUR265.2 million (31 December
2021: 20 assets/GBP213.0 million or EUR253.4 million). There are
currently no developments under construction in Ireland.
The portfolio's average lot size has increased to GBP5.5 million
(31 December 2021: GBP5.4 million) and 87.4% of the portfolio is
valued at over GBP3.0 million. The Group only has five assets
valued at less than GBP1.0 million.
Number of Valuation Average
Properties GBPm % lot size (GBPm)
--------------------- ------------ --------------- ------------- ---------------------
> GBP10m 60 966.6 33.2 16.1
GBP5m - GBP10m 140 964.1 33.2 6.9
GBP3m - GBP5m 154 611.5 21.0 4.0
GBP1m - GBP3m 165 360.8 12.4 2.2
< GBP1m (including
land GBP1.5m) 5 4.7 0.2 0.6
--------------------- ------------ --------------- ------------- ---------------------
Total(1) 524 2,907.7 100.0 5.5
--------------------- ------------ --------------- ------------- ---------------------
1 Excludes the GBP4.5m impact of IFRS 16 Leaseswith ground rents
recognised as finance leases.
The underlying valuation uplift of GBP51.2 million, combined
with the portfolio's growing income, helped to deliver a total
property return of 4.3% in the six months to 30 June 2022 (30 June
2021: 5.2%).
Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
----------------- ----------------------- ---------------------- -----------------------
Income return 2.5% 2.6% 5.2%
Capital return 1.8% 2.6% 4.3%
----------------- ----------------------- ---------------------- -----------------------
Total return 4.3% 5.2% 9.5%
----------------- ----------------------- ---------------------- -----------------------
FINANCIAL REVIEW
PHP's Adjusted earnings increased by GBP4.0 million or 9.8% to
GBP44.7 million in the six months to 30 June 2022, compared to 30
June 2021 Adjusted earnings of GBP40.7 million. The increase in the
period reflects six months of interest cost savings which came from
a reduction on the Group's average cost of debt arising from
various refinancing initiatives completed last year and at the
start of 2022, strong organic rental growth from rent reviews and
asset management along with investment activity over the last 12
months.
Using the weighted average number of shares in issue in the
period the Adjusted earnings per share increased to 3.4p (30 June
2021: 3.1p), an increase of 9.7%.
A revaluation surplus of GBP51.2 million (30 June 2021: GBP66.9
million) was generated in the period from the portfolio with
approximately 50% driven by rental growth from rent reviews and
asset management projects and the remainder from further NIY
compression both in the UK and Ireland.
A gain on the fair value of interest rate derivatives and
convertible bonds of GBP10.4 million (30 June 2021 loss:
GBP0.2 million), together with a gain on the amortisation of the
fair value adjustment on the MedicX fixed rate debt at acquisition
of GBP1.4 million (30 June 2021 gain: GBP1.6 million) contributed
to the profit before tax as reported under IFRS of GBP107.7 million
(30 June 2021: profit of GBP72.0 million).
The financial results for the Group are summarised as
follows:
Summarised results
Six months Six months Year ended
ended ended 31 December
30 June 2022 30 June 2021 2021
GBPm GBPm GBPm
------------------------------------------------------ ------ ------------- ----------------
Net rental income 71.1 67.7 136.7
Administrative expenses (5.5) (5.0) (10.5)
------------------------------------------------------ ------ ------------- ----------------
Operating profit before revaluation gain
and net financing costs 65.6 62.7 126.2
Net financing costs (20.9) (22.0) (43.0)
------------------------------------------------------ ------ ------------- ----------------
Adjusted earnings 44.7 40.7 83.2
Revaluation surplus on property portfolio
and profit on sales 51.2 66.9 110.5
Fair value gain/(loss) on interest rate derivatives
and convertible bond 10.4 (0.2) 1.6
Amortisation of MedicX debt MtM at acquisition 1.4 1.6 7.9
Termination payment and impairment of goodwill
on acquisition of Nexus - (35.3) (35.3)
Nexus acquisition costs - (1.7) (1.7)
Exceptional item - early termination cost
on refinancing of Aviva debt - - (24.6)
------------------------------------------------------ ------ ------------- ----------------
IFRS profit before tax 107.7 72.0 141.6
Corporation tax 0.1 - (0.1)
Deferred tax provision (0.7) (0.6) (1.4)
------------------------------------------------------ ------ ------------- ----------------
IFRS profit after tax 107.1 71.4 140.1
------------------------------------------------------ ------ ------------- ----------------
Net rental income receivable in the six months to 30 June 2022
increased by 5.0% or GBP3.4 million to GBP71.1 million (30 June
2021: GBP67.7 million).
Administration expenses continue to be tightly controlled and
the Group's EPRA cost ratio remains the lowest in the sector at
10.5% for the period. The GBP0.5 million increase in administration
costs in the period is primarily due to increased staff costs
arising from annual pay increases, additional staff recruited to
assist with ESG, developments and property management, increases in
employers' national insurance rates and improvements to the pension
benefit offered to staff.
EPRA cost ratio Six months Six months ended Year ended
ended 30 June 2021 31 December
30 June 2022 2021
GBPm GBPm GBPm
--------------------------------------- ------------- ---------------- ------------
Gross rent less ground rent and
service charge income 73.5 69.1 139.6
--------------------------------------- ------------- ---------------- ------------
Direct property expense 5.7 4.0 8.9
Administrative expenses 5.5 5.0 10.5
Less: service charge costs (3.2) (2.4) (5.8)
Less: ground rent (0.1) (0.2) (0.2)
Less: other operating income (0.2) (0.2) (0.4)
--------------------------------------- ------------- ---------------- ------------
EPRA costs (including direct vacancy
costs) 7.7 6.2 13.0
--------------------------------------- ------------- ---------------- ------------
EPRA cost ratio 10.5% 9.0% 9.3%
--------------------------------------- ------------- ---------------- ------------
Total expense ratio - administrative
expenses as a
percentage of gross asset value
(annualised) 0.4% 0.4% 0.4%
--------------------------------------- ------------- ---------------- ------------
Despite net debt increasing by GBP170.1 million since June 2021
because of continued investment, net finance costs in the period
decreased by GBP1.1 million to GBP20.9 million (30 June 2021:
GBP22.0 million) reflecting the reductions in the average cost of
debt achieved in 2021 from various refinancing initiatives
completed last year.
Shareholder value
The Adjusted Net Tangible Assets (NTA), per share increased by
4.1 pence or 3.5% to 120.8 pence (31 December 2021: 116.7 pence per
share) during the period with the revaluation surplus of GBP51.2
million or 3.8 pence per share being the main reason for the
increase. Dividends distributed in the period were 103% covered by
recurring Adjusted earnings resulting in a further 0.2 pence
accretion to NTA.
The adjusted NTA return per share, including dividends
distributed, in the six months ended 30 June 2022 was 7.3 pence or
6.3% (30 June 2021: 5.6 pence or 5.0%).
The table below sets out the movements in the Adjusted NTA and
EPRA Net Disposal Value (NDV) per share over the period under
review.
Adjusted Net Tangible Asset 30 June 2022 30 June 2021 31 December
(NTA) per share pence per share pence per share 2021 pence per
share
----------------------------------------- ------------------------ ----------------------- ------------------
Opening Adjusted NTA per share 116.7 112.9 112.9
Adjusted earnings for the period 3.4 3.1 6.2
Dividends paid (3.2) (3.1) (6.2)
Revaluation of property portfolio 3.8 5.0 8.3
Shares issued 0.1 0.1 0.2
Foreign exchange movements - (0.2) (0.3)
Net impact of Nexus acquisition - (2.4) (2.4)
Net impact of Aviva refinancing - - (1.9)
Interest rate derivative cancellation - - (0.1)
----------------------------------------- ------------------------ ----------------------- ------------------
Closing Adjusted NTA per share 120.8 115.4 116.7
Fixed rate debt and swap mark-to-market
value 3.2 (6.8) (4.1)
Convertible bond fair value
adjustment (0.7) (1.9) (1.6)
Deferred tax (0.4) (0.3) (0.3)
----------------------------------------- ------------------------ ----------------------- ------------------
Closing EPRA NDV per share 122.9 106.4 110.7
----------------------------------------- ------------------------ ----------------------- ------------------
Financing
In February 2022, the Group issued a new EUR75 million (GBP64.6
million) secured private placement loan note to MetLife for a
12-year term at a fixed rate of 1.64%. The loan notes have the
option to be increased by a further EUR75 million to EUR150 million
over the next three years at the lender's discretion. The proceeds
will be used to finance the Group's continued investment in
Ireland.
The Group also renewed its existing revolving credit facility
with Santander (GBP50 million) for an initial three- year term with
options to extend by a further year at both the first and second
anniversaries of the facility.
As at 30 June 2022, total available loan facilities were
GBP1,553.3 million (31 December 2021: GBP1,550.5 million) of which
GBP1,285.0 million (31 December 2021: GBP1,232.9 million) had been
drawn. Cash balances of GBP29.7 million (31 December 2021: GBP33.4
million) resulted in Group net debt of GBP1,255.3 million (31
December 2021: GBP1,199.5 million). Contracted capital commitments
at the balance sheet date totalled GBP27.8 million (31 December
2021: GBP29.8 million) and the proceeds from the sale of a
portfolio of 13 assets post period end for GBP27.7 million less
GBP7.3 million cost of a medical centre at Newbury, resulted in
headroom available to the Group of GBP290.6 million (31 December
2021: GBP321.2 million).
Capital commitments comprise investment expenditure of GBP10.7
million, development expenditure of GBP5.3 million and asset
management projects of GBP11.8 million.
Debt metrics
30 June 2022 31 December
2021
-------------------------------------------------- -------------- -------------
Average cost of debt - fully drawn 3.0% 2.7%
Average cost of debt - drawn 3.0% 2.9%
Loan to value 43.1% 42.9%
Interest cover 3.4 times 3.2 times
Weighted average debt maturity - drawn 6.8 years 7.3 years
facilities
Weighted average debt maturity - all facilities 7.8 years 8.2 years
Total drawn secured debt GBP1,135.0m GBP1,082.9m
Total drawn unsecured debt GBP150.0m GBP150.0m
Total undrawn facilities and cash available GBP290.6m GBP321.2m
to the Group(1,) (2)
Unfettered assets GBP161.3m GBP104.9m
-------------------------------------------------- -------------- -------------
(1) After deducting capital commitments.
(2) Pro-forma including sale proceeds from a portfolio of 13
assets sold post period end for GBP27.7 million less GBP7.3 million
cost of medical centre Newbury.
Average cost of debt
The Group's average cost of debt rose marginally as at 30 June
2022 to 3.0% (31 December 2021: 2.9%) following the recent and
rapid increases in 3-month SONIA interest rates since the start of
the year which are used to calculate interest on the unhedged
element the Group's revolving credit facilities.
Interest rate exposure
The analysis of the Group's exposure to interest rate risk in
its debt portfolio as at 30 June 2022 is as follows:
Facilities Drawn
GBP million % GBP million %
------------------------------------- ---------------------------- ------ ----------------------- -------
Fixed rate debt(1) 1,078.3 69.4 1,078.3 83.9
Hedged by fixed rate interest rate
swaps 100.0 6.4 100.0 7.8
Hedged by fixed to floating rate
interest rate swaps (200.0) (12.9) (200.0) (15.6)
------------------------------------- ---------------------------- ------ ----------------------- -------
Total fixed rate debt 978.3 62.9 978.3 76.1
Hedged by interest rate caps 200.0 12.9 200.0 15.6
Floating rate debt - unhedged 375.0 24.2 106.7 8.3
------------------------------------- ---------------------------- ------ ----------------------- -------
Total 1,553.3 100.0 1,285.0 100.0
------------------------------------- ---------------------------- ------ ----------------------- -------
Interest rate swap contracts
Accounting standards require PHP to mark its interest rate swaps
to market at each balance sheet date. During the six months to 30
June 2022 there was a gain of GBP0.9 million (30 June 2021: gain
GBP1.5 million) on the fair value movement of the Group's interest
rate derivatives due primarily to increases in interest rates
assumed in the forward yield curves used to value the interest rate
swaps. The mark-to-market ("MtM") asset value of the swap portfolio
is GBP5.3 million (31 December 2021: asset GBP4.4 million)
equivalent to 0.4 pence per share.
Currency exposure
The Group owns EUR265.2 million or GBP228.3 million (31 December
2021: EUR253.4 million / GBP213.0 million) of Euro denominated
assets in Ireland as at 30 June 2022 and the value of these assets
and rental income represented 8% of the Group's total portfolio. In
order to hedge the risk associated with exchange rates, the Group
has chosen to fund its investment in Irish assets through the use
of Euro denominated debt, providing a natural asset to liability
hedge, within the overall Group loan to value limits set by the
Board. At 30 June 2022 the Group had EUR196.0 million (31 December
2021: EUR186.5 million) of drawn euro denominated debt.
Euro rental receipts are used to first finance Euro interest and
administrative costs and surpluses are used to fund further
portfolio expansion.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 30 June 2022 was an
asset of GBP37.2 million (31 December 2021: liability GBP58.9
million) equivalent to 2.8 pence per share (31 December 2021:
liability of 4.4 pence). The elimination of the MtM liability and
creation of an asset during the period is due primarily to the
significant increases in interest rates assumed in the forward
yield curves used to value the debt in the period. The MtM
valuation is sensitive to movements in interest rates assumed in
forward yield curves.
Convertible bonds
In July 2019, the Group issued for a six-year term new unsecured
convertible bonds with a nominal value of
GBP150 million and a coupon of 2.875% per annum. Subject to
certain conditions, the new bonds will be convertible into fully
paid Ordinary Shares of the Company and the initial exchange price
was set at 153.25 pence per Ordinary Share. The exchange price will
be subject to adjustment, in accordance with the dividend
protection provisions in the terms of issue, if dividends paid per
share exceed 2.8 pence per annum and in accordance with the
dividend protection provisions the conversion price has been
adjusted to 142.29 pence per Ordinary Share.
The conversion of the GBP150 million convertible bonds into new
Ordinary Shares would reduce the Group's loan to value ratio by
5.1% from 43.1% to 38.0% and result in the issue of 105.4 million
new Ordinary Shares.
Alternative Performance Measures ("APMs")
PHP uses Adjusted earnings and Adjusted net tangible assets
amongst other APMs to highlight the recurring performance of the
property portfolio and business. The APMs are in addition to the
statutory measures from the condensed financial statements. The
measures are defined and reconciled to amounts presented in the
financial statements within this interim statement at note 7 on
pages 32 to 36. The Company has used EPRA earnings and EPRA net
tangible assets to measure performance and will continue to do so.
However, these APMs have also been adjusted to remove the impact of
the adjustments arising from the MtM on fixed debt acquired on
completion of the merger with MedicX in 2019. The reasons for the
Company's use of these APMs are set out in the Glossary and 2021
Annual Report.
Related party transactions
Related party transactions are disclosed in note 16 to the
condensed financial statements.
Responsible business - continued progress
PHP aims to operate and manage our business in a way that
enables positive social and environmental outcomes, whilst
continuing to grow and deliver value to our stakeholders.
We have continued to deliver against our ESG commitments in the
first half of 2022 and evolve our strategy, processes and plans to
improve our ESG performance. As part of this, we have updated and
strengthened our ESG policies, including those focused on equality,
diversity and inclusion, business ethics, environmental and social
impact and sustainable development and refurbishment. The new
policies are available on our website and reflect our continued
drive to improve what we do and how we do it.
We have continued to engage with investors and stakeholders on
ESG and our decarbonisation plans and have for the third year taken
part in the GRESB and have also responded to CDP for the first time
which we see as a key benchmark going forward. We have also joined
as a member of UK Green Building Council to support our own
business and the wider built environment sector to tackle
sustainability challenges.
Environmental impact
We continue to make good progress on our net zero carbon
framework commitments and are on track to reach our first milestone
of net zero operations in 2023. We are also now on site with our
first NZC development at Croft Medical Centre, West Sussex and
continue to progress a strong pipeline of further NZC schemes.
We continue to modernise existing buildings and improve the
environmental credentials of our existing portfolio through the
asset management programme and have completed 14 projects in the
period, improving EPC ratings to B from C or D. A further eight
projects are currently on site and due to complete this year with a
long pipeline of additional schemes where we continue to evaluate
options for energy efficiency, renewable energy and net zero
refurbishments.
As part of establishing the wider carbon impact of the buildings
in our portfolio, we have also engaged with tenants and increased
the visibility of their energy and carbon performance, increasing
this to 70% of the portfolio.
Social Impact
As a leading provider of modern primary care premises, we aim to
create a lasting positive social impact, particularly in the health
outcomes and wellbeing for the communities into which we
invest.
As part of our Community Impact Fund, we have renewed our
partnership with UK Community Foundations to target grants for
social prescribing in the communities around our buildings. In
2022, we have chosen to target the most deprived regions across the
North-West and North-East of England and are currently working with
two community foundations in these regions.
PHP has also continued to play a key role in levelling-up the
UK, working with the Purpose Coalition, on the development of a set
of Levelling-up Goals focused on good health and wellbeing. The
first impact report was launched in June 2022 and is available on
our website.
People
PHP recognises the importance of the welfare of our employees
who work on behalf of the Group and are critical to its success. We
have continued to support our employees' personal and professional
development, improve the diversity and equal opportunities within
the team and promote the highest levels of ethics, conduct and
inclusion.
Harry Hyman Richard Howell
Chief Executive Officer Chief Financial Officer
26 July 2022
Principal risks and uncertainties Risk management overview
Effective risk management is a key element of the Board's
operational processes. Risk is inherent in any business, and the
Board has determined the Group's risk appetite, which is reviewed
on an annual basis. Group operations have been structured in order
to accept risks within the Group's overall risk appetite, and to
oversee the management of these risks to minimise exposure and
optimise the returns generated for the accepted risk. The Group
aims to operate in a low-risk environment, appropriate for its
strategic objective of generating progressive returns for
shareholders. Key elements of maintaining this low-risk approach
are:
-- investment focuses on the primary health real estate sector
which is traditionally much less cyclical than other real estate
sectors;
-- the majority of the Group's rental income is received
directly or indirectly from government bodies in the UK and
Ireland;
-- the Group benefits from long initial lease terms, largely
with upwards-only review terms, providing clear visibility of
income;
-- debt funding is procured from a range of providers,
maintaining a spread of maturities and a mix of terms, with
interest costs either fixed or hedged across the majority of debt
drawn;
-- the Board funds its operations to maintain an appropriate mix of debt and equity; and
-- the Group has a very small (GBP0.8m) exposure as a direct
developer of real estate, which means that the Group is not
materially exposed to risks that are inherent in property
development.
The structure of the Group's operations includes rigorous,
regular review of risks and how these are mitigated and managed
across all areas of the Group's activities. The Group faces a
variety of risks that have the potential to impact on its
performance, position and its longer-term viability. These include
external factors that may arise from the markets in which the Group
operates, government and fiscal policy, general economic conditions
including interest rates and inflation together with internal risks
that arise from how the Group is managed and chooses to structure
its operations.
Principal risks and changes in risk factors
The Board has concluded that there should be no further
principal risks to be presented in the 2022 Interim Results
Announcement, and that the principal risks presented in the 2021
Annual report remain relevant for this period.
COVID- 19
We continue to reassess the impact of the ongoing global
pandemic, COVID-19, which has had no discernible impact on the
Group's performance in the current period and prior year as we
transitioned out of COVID-19 restrictions across the UK and
Ireland. As a result of the above COVID-19 was removed as principal
risk in 2021.
Increasing risks
The Board has continued to undertake a robust assessment of
emerging and increasing risks faced by the Group. In particular,
the volatile and deteriorating economic outlook because of
persistent price inflation resulting in recent and rapid interest
rate increases along with the outlook for longer-dated rates
stemming from global supply issues, BREXIT, higher wage pressures
and the on-going war in the Ukraine.
Whilst the above risks are already covered in the Principal
Risks reported in the 2021 Annual Report the Board believes the
risk of increasing longer-dated interest rates may negatively
impact property valuations and interest costs in future
periods.
Going concern analysis
The Group's financial review and budgetary processes are based
on an integrated model that projects performance, cash flows,
position and other key performance indicators including earnings
per share, leverage rates, net asset values per share and REIT
compliance over the review period. In addition, the forecast model
looks at the funding of the Group's activities and its compliance
with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its
forecasts that reflect the Group's strategy, operating processes
and the Board's expectation of market developments in the review
period. In undertaking its financial review, these parameters have
been flexed to reflect severe, but realistic, scenarios both
individually and collectively. Sensitivities applied are derived
from the principal risks faced by the Group that could affect
solvency or liquidity and are as follows:
-- Declining attractiveness / possible obsolescence of the
Group's assets as a result of ESG initiatives or otherwise or
deteriorating economic circumstances impact investment values -
valuation parameter stress tested to provide for a one-off
10%/GBP290m fall in December 2022 valuation.
-- We have applied a 15% tenant default rate. In addition,
rental growth assumptions have been amended to see nil uplifts on
open market reviews.
-- Variable rate interest rates rise by an immediate 2%
effective from 1 July 2022, impacting the variable interest debt in
the portfolio.
-- Tightly controlled NHS scheme approval restricts investment
opportunity - investment quantum flexed to remove non-committed
transactions.
-- Impact on shareholder returns of all of the above occurrences
- projected dividend payments held at expected 2022 level, 6.5p per
share.
A number of specific assumptions have been made that overlay the
financial parameters used in the Group's models. It has been
assumed that the Group will be able to refinance or replace other
debt facilities that mature within the review period in advance of
their maturity and on terms similar to those at present.
Further details on going concern are set out in note 1 to the
Financial Statements.
INDEPENT REVIEW REPORT TO PRIMARY HEALTH PROPERTIES PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises the Condensed Group
Statement of Comprehensive Income, the Condensed Group Balance
Sheet, the Condensed Group Statement of Changes in Equity, the
Condensed Group Cash Flow Statement and related notes 1 to 19.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the group a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our conclusion, including our Conclusions Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor London, United Kingdom
26 July 2022
Condensed Group Statement of Comprehensive Income For the six
months ended 30 June 2022
Six months Six months Year ended
ended 30 ended 30 31 December
June June 2021
2022 2021
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
------------------------------------------ ----- ------------------- -------------------- ------------------------
Rental income 2 76.8 71.7 145.6
Direct property expenses (5.7) (4.0) (8.9)
------------------------------------------ ----- ------------------- -------------------- ------------------------
Net rental income 71.1 67.7 136.7
Administrative expenses 3 (5.5) (5.0) (10.5)
------------------- -------------------- ------------------------
Revaluation gain on property portfolio 9 51.2 66.9 110.2
Profit on sale of land - - 0.3
------------------- -------------------- ------------------------
Total revaluation gain 51.2 66.9 110.5
------------------- -------------------- ------------------------
Operating profit 116.8 129.6 236.7
Finance income 4 0.5 0.4 0.8
Finance costs 5 (20.0) (20.8) (35.9)
Exceptional early loan redemption
finance cost 5 - - (24.6)
Termination payment and goodwill
impairment on
acquisition of Nexus - (35.3) (35.3)
Exceptional Nexus acquisition costs - (1.7) (1.7)
Fair value loss on derivative interest
rate swaps and
amortisation of cash flow hedging
reserve 5 (1.4) (0.7) (1.8)
Fair value gain on convertible bond 5 11.8 0.5 3.4
------------------------------------------ ----- ------------------- -------------------- ------------------------
Profit before taxation 107.7 72.0 141.6
Taxation charge 6 (0.6) (0.6) (1.5)
------------------------------------------ ----- ------------------- -------------------- ------------------------
Profit after taxation for the
period/year
(1) 107.1 71.4 140.1
Other comprehensive income:
Items that may be reclassified subsequently to profit and loss:
Fair value gain on interest rate
swaps treated as cash flow hedges
and amortisation of hedging reserve 2.2 2.2 4.5
Exchange gain/(loss) on translation
of foreign balances 1.4 (2.3) (3.4)
------------------------------------------ ----- ------------------- -------------------- ------------------------
Other comprehensive income/(loss)
for the period net of tax(1) 3.6 (0.1) 1.1
------------------------------------------ ----- ------------------- -------------------- ------------------------
Total comprehensive income for the
period net of tax(1) 110.7 71.3 141.2
------------------------------------------ ----- ------------------- -------------------- ------------------------
IFRS earnings per share
Basic 7 8.0p 5.4p 10.5p
Diluted 7 6.8p 5.1p 9.8p
Adjusted earnings per share(2)
Basic 7 3.4p 3.1p 6.2p
Diluted 7 3.3p 3.0p 6.1p
------------------------------------------ ----- ------------------- -------------------- ------------------------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC
(2) See Glossary of Terms on pages 48 to 50 .
The above relates wholly to continuing operations.
Condensed Group Balance Sheet As at 30 June 2022
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
---------------------------------- ---------- ------------------ ----------- ----------------
Non-current assets
Investment properties 9a 2,887.2 2,655.2 2,795.9
Derivative interest rate
swaps 14, 15 13.1 1.3 5.2
Fixed assets 0.5 0.1 0.3
---------------------------------- ---------- ------------------ ----------- ----------------
2,900.8 2,656.6 2,801.4
Current assets
Trade and other receivables 18.3 14.9 17.6
Cash and cash equivalents 10 29.7 72.5 33.4
Assets held for sale 9b 25.0 - -
Development work in progress 0.8 - 0 . 7
---------------------------------- ---------- ------------------ ----------- ----------------
73.8 87.4 51.7
---------------------------------- ---------- ------------------ ----------- ----------------
Total assets 2,974.6 2,744.0 2,853.1
---------------------------------- ---------- ------------------ ----------- ----------------
Current liabilities
Deferred rental income (29.6) (27.9) (28.3)
Trade and other payables (45.5) (31.1) (40.0)
Borrowings: term loans and
overdraft 11 (2.2) (73.1) (2.2)
---------------------------------- ---------- ------------------ ----------- ----------------
(77.3) (132.1) (70.5)
---------------------------------- ---------- ------------------ ----------- ----------------
Non-current liabilities
Borrowings: term loans and
overdraft 11 (684.1) (558.8) (700.2)
Borrowings: bonds 12 (626.7) (577.8) (572.8)
Derivative interest rate
swaps 14, 15 (7.8) - (0.8)
Head lease liabilities 13 (4.5) (4.5) (4.5)
Deferred tax liability (5.3) (3.9) (4.4)
---------------------------------- ---------- ------------------ ----------- ----------------
(1,328.4) (1,145.0) (1,282.7)
---------------------------------- ---------- ------------------ ----------- ----------------
Total liabilities (1,405.7) (1,277.1) (1,353.2)
---------------------------------- ---------- ------------------ ----------- ----------------
Net assets 1,568.9 1,466.9 1,499.9
---------------------------------- ---------- ------------------ ----------- ----------------
Equity
Share capital 17 166.8 166.3 166.6
Share premium account 476.3 470.9 474.9
Merger and other reserves 18 414.8 414.6 413.5
Hedging reserve (13.3) (17.9) (15.6)
Retained earnings 524.3 433.0 460.5
---------------------------------- ---------- ------------------ ----------- ----------------
Total equity (1) 1,568.9 1,466.9 1,499.9
---------------------------------- ---------- ------------------ ----------- ----------------
Basic net asset value per
share
IFRS net assets - basic
and diluted 7 117.6 110.3 112.5p
Adjusted net tangible assets(2)
- basic 7 120.8 115.4 116.7p
Adjusted net tangible assets(2)
- diluted 7 122.4 117.5 118.6p
---------------------------------- ---------- ------------------ ----------- ----------------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) See Glossary of Terms on pages 48 to 50.
Condensed Group Cash Flow Statement For the six months ended 30
June 2022
Six months Six months Year ended
ended 30 ended 30 June 31 December
June 2022 2021 2021
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
---------------------------------------------- -------- ----------- ----------------- ----------------------
Operating activities
Profit on ordinary activities after
tax 107.1 71.4 140.1
Taxation charge 6 0.6 0.6 1.5
Finance income 4 (0.5) (0.4) (0.8)
Finance costs 5 20.0 20.8 35.9
Exceptional early loan redemption
finance costs 5 - - 24.6
Termination payment and goodwill impairment
on acquisition of Nexus - 35.3 35.3
Exceptional Nexus acquisition costs - 1.7 1.7
Fair value loss on derivatives 1.4 0.7 1.8
Fair value gain on convertible bond (11.8) (0.5) (3.4)
---------------------------------------------- -------- ----------- ----------------- ----------------------
Operating profit before financing
costs 116.8 129.6 236.7
Adjustments to reconcile Group operating
profit to net cash flows from operating
activities:
Revaluation gain on property portfolio 9 (51.2) (66.9) (110.2)
Profit on sale of land and property - - (0.3)
Long term incentive plan (LTIP) 0.1 0.1 0.2
Fixed rent uplift (0.5) (0.6) (1.2)
Tax received/(paid) 0.1 (0.1) (0.4)
(Increase)/decrease in trade and other
receivables (0.2) 2.8 (0.3)
(Decrease)/increase in trade and other
payables (15.1) (0.5) 15.9
---------------------------------------------- -------- ----------- ----------------- ----------------------
Cash generated from operations 50.0 64.4 140.4
---------------------------------------------- -------- ----------- ----------------- ----------------------
Net cash flow from operating activities 50.0 64.4 140.4
---------------------------------------------- -------- ----------- ----------------- ----------------------
Investing activities
Payments to acquire and improve properties
and fixed assets (39.1) (23.6) (129.6)
Receipts from disposal of properties - - 0.3
Cash paid for acquisition of Nexus,
including fees - (18.2) (18.2)
Cash acquired as part of merger - - 0.4
Interest received on development loans 0.4 0.3 0.7
---------------------------------------------- -------- ----------- ----------------- ----------------------
Net cash flow used in investing activities (38.7) (41.5) (146.4)
---------------------------------------------- -------- ----------- ----------------- ----------------------
Financing activities
Costs of share issues (0.1) (0.1) (0.1)
Term bank loan drawdowns 88.9 8.2 335.6
Term bank loan repayments (103.5) (3.6) (252.8)
Proceeds from bond issue 62.9 - -
Loan arrangement fees (2.5) (0.7) (2.7)
Exceptional early loan redemption
finance cost - - (24.6)
Termination of derivative financial
instruments - - (1.9)
Non-utilisation fees (1.1) (0.9) (1.8)
Interest paid (19.1) (20.0) (40.9)
Swap interest received 0.9 - -
Equity dividends paid net of scrip
dividend 8 (41.6) (36.4) (74.4)
---------------------------------------------- -------- ----------- ----------------- ----------------------
Net cash flow used in financing activities (15.2) (53.5) (63.6)
---------------------------------------------- -------- ----------- ----------------- ----------------------
Increase in cash and cash equivalents (3.9) (30.6) (69.6)
Effect of exchange rate fluctuations
on Euro denominated loans and cash
equivalents 0.2 (0.5) (0.6)
Cash and cash equivalents at start
of period/year 33.4 103.6 103.6
---------------------------------------------- -------- ----------- ----------------- ----------------------
Cash and cash equivalents at end
of period/year 10 29.7 72.5 33.4
---------------------------------------------- -------- ----------- ----------------- ----------------------
Condensed Group Statement of Changes in Equity For the six
months ended 30 June 2022 (unaudited)
Six months ended 30 June 2022 (unaudited)
Merger
Share Share & Hedging Retained
capital premium other reserve earnings Total
reserves
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------------- --------------- --------- ------------ ------------- -------
1 January 2022 166.6 474.9 413.5 (15.6) 460.5 1,499.9
Profit for the period - - - - 107.1 107.1
Other comprehensive
income
Exchange gain on translation
of foreign balances - - 1.3 - - 1.3
Amortisation of hedging
reserve - - - 2.3 - 2.3
------------------------------- -------------- --------------- --------- ------------ ------------- -------
Total comprehensive
income - - 1.3 2.3 107.1 110.7
Share issue expenses - (0.1) - - - (0.1)
Shares based awards - - - - - -
(LTIP)
Dividends paid - - - - (41.6) (41.6)
Scrip dividend in lieu
of cash 0.2 1.5 - - (1.7) -
------------------------------- -------------- --------------- --------- ------------ ------------- -------
30 June 2022 166.8 476.3 414.8 (13.3) 524.3 1,568.9
------------------------------- -------------- --------------- --------- ------------ ------------- -------
Six months ended 30 June 2021 (unaudited)
Merger
Share Share & Hedging Retained
capital premium other reserve earnings Total
reserves
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------------- --------------- --------- ------------ ------------- -------
1 January 2021 164.4 466.7 400.8 (20.1) 402.6 1,414.4
Profit for the period - - - - 71.4 71.4
Other comprehensive
income
Exchange gain on translation
of foreign balances - - (2.3) - - (2.3)
Amortisation of hedging
reserve - - - 2.2 - 2.2
------------------------------- --------------- --------------- --------- ------------ ------------- -------
Total comprehensive
income - - (2.3) 2.2 71.4 71.3
------------------------------- --------------- --------------- --------- ------------ ------------- -------
Shares issued on acquisition
of Nexus 1.5 - 16.1 - - 17.6
Share issue expenses - (0.1) - - - (0.1)
Shares based awards
(LTIP) - - - - 0.1 0.1
Dividends paid - - - - (36.4) (36.4)
Scrip dividend in lieu
of cash 0.4 4.3 - - (4.7) -
------------------------------- --------------- --------------- --------- ------------ ------------- -------
30 June 2021 166.3 470.9 414.6 (17.9) 433.0 1,466.9
------------------------------- --------------- --------------- --------- ------------ ------------- -------
Condensed Group Statement of Changes in Equity (continued)
Year ended 31 December 2021 (audited)
Merger
Share Share & Hedging Retained
capital premium other reserve earnings Total
reserves
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- --------------- --------------- --------- ------------ ------------- -------
1 January 2021 164.4 466.7 400.8 (20.1) 402.6 1,414.4
Profit for the period - - - - 140.1 140.1
Other comprehensive
income
Exchange gain on translation
of foreign balances - - (3.4) - - (3.4)
Amortisation of hedging
reserve - - - 4.5 - 4.5
------------------------------- --------------- --------------- --------- ------------ ------------- -------
Total comprehensive
income - - (3.4) 4.5 140.1 141.2
------------------------------- --------------- --------------- --------- ------------ ------------- -------
Shares issued on acquisition
of Nexus 1.5 - 16.1 - - 17.6
Shares issued for other
acquisitions 0.1 0.9 - - - 1.0
Share issue expenses - (0.1) - - - (0.1)
Share-based awards
("LTIP") - - - - 0.2 0.2
Dividends paid - - - - (74.4) (74.4)
Scrip dividend in lieu
of cash 0.6 7.4 - - (8.0) -
------------------------------- --------------- --------------- --------- ------------ ------------- -------
31 December 2021 166.6 474.9 413.5 (15.6) 460.5 1,499.9
------------------------------- --------------- --------------- --------- ------------ ------------- -------
Notes to the condensed financial statements
1. Accounting policies General information
The financial information set out in this report does not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The Group's statutory financial statements for
the year ended 31 December 2021 have been filed with the Registrar
of Companies. The Auditor's Report on these condensed consolidated
interim financial statements was unqualified and did not contain a
statement under Sections 498(2) or 498(3) of the Companies Act
2006.
The condensed consolidated interim financial statements of the
Group are unaudited but have been formally reviewed by the auditor
and its report to the Company is included on pages 19 to 20. These
condensed consolidated interim financial statements of the Group
for the six months ended 30 June 2022 were approved and authorised
for issue by the Board on 26 July 2022.
Basis of preparation/statement of compliance
The condensed consolidated interim financial statements for the
six months ended 30 June 2022 have been prepared in accordance with
IAS 34 'Interim Financial Reporting'. The annual financial
statements of the Group will be prepared in accordance with United
Kingdom adopted international accounting standards.
The condensed consolidated interim financial statements do not
include all the information and disclosures required in the
statutory financial statements and should be read in conjunction
with the Group's financial statements as at 31 December 2021.
Convention
The condensed interim financial statements are presented in
Sterling, rounded to the nearest million.
Segmental reporting
The Directors are of the opinion that the Group currently has
one operating and reportable segment, being the acquisition and
development of property in the United Kingdom and Ireland leased
principally to GPs, Government and Healthcare organisations and
other associated healthcare users.
Going concern
The directors are required to assess the Group's ability to
continue as a going concern for a period of at least the next 12
months. In assessing the appropriateness of the going concern basis
used in preparing the interim report, the directors have performed
a review of the Group's financial performance and position,
continued access to borrowing facilities and the ability to
continue to operate the Group's facilities within its financial
covenants, as well the Group's budgetary model.
Notes to the condensed financial statements (continued) Going
concern (continued)
The Group's financial review and budgetary processes are based
on an integrated model that projects performance, cash flows,
position and other key performance indicators including earnings
per share, leverage rates, net asset values per share and REIT
compliance over the review period. In addition, the forecast model
looks at the funding of the Group's activities and its compliance
with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its
forecasts that reflect the Group's strategy, operating processes
and the Board's expectation of market developments in the review
period. In undertaking its financial review, these parameters have
been flexed to reflect severe, but realistic, scenarios both
individually and collectively. Sensitivities applied are derived
from the principal risks faced by the Group that could affect
solvency or liquidity and are as follows:
-- Declining attractiveness / possible obsolescence of the
Group's assets as a result of ESG initiatives or otherwise, or
deteriorating economic circumstances impacts investment values -
valuation parameter stress tested to provide for a one-off
10%/GBP290m fall in December 2022 valuations.
-- We have applied a 15% tenant default rate. In addition,
rental growth assumptions have been amended to see nil uplifts on
open market reviews.
-- Variable rate interest rates rise by an immediate 2%
effective from 1 July 2022, impacting the variable interest debt in
the portfolio
-- Tightly controlled NHS scheme approval restricts investment
opportunity - investment quantum flexed to remove non-committed
transactions.
-- Impact on shareholder returns of all of the above occurrences
- projected dividend payments held at expected 2022 level, 6.5p per
share.
The Group's property portfolio is let on long leases to tenants
with strong covenants and the business is substantially cash
generative. The Group's loan to-value ratio at 30 June 2022 was
43.1% (30 June 2021: 40.9%) and the Group's interest cover for the
period under review was 3.4 times (30 June 2021: 3.2), well above
the minimum Group banking covenant of 1.3 times (30 June 2021:
1.3).
The COVID-19 pandemic has had no discernible impact on the
Group's performance in the current period and prior year, with
minimal direct impact on the primary health centres we invest in
due to the fact that the business is affected more by demographics
than economics. The Board has continued to undertake a robust
assessment of emerging and increasing risks faced by the Group. In
particular, the volatile and deteriorating economic outlook because
of persistent price inflation resulting in recent and rapid
interest rate increases along with the outlook for longer-dated
rates stemming from global supply issues, BREXIT, higher wage
pressures and the on-going war in the Ukraine.
Taking these and others factors into account, the Directors are
satisfied that the Group has sufficient resources to continue in
operation for a period of not less than twelve months from the date
of this report. Accordingly, they continue to adopt the going
concern basis in preparing the condensed consolidated interim
financial statements.
Notes to the condensed financial statements (continued)
Accounting policies
The accounting policies adopted are consistent with those of the
previous financial year as set out in the Annual Report. There has
been a new accounting policy adopted during the period:
Properties held for sale
Investment property (and disposal groups) classified as held for
sale are measured at fair value consistent with other investment
properties.
Investment property and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the asset
(or disposal group) is available for immediate sale in its present
condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one
year from the date of classification.
2. Rental and related income
Revenue comprises rental income receivable on property
investments in the UK and Ireland, which is exclusive of VAT.
Revenue is derived from one reportable operating segment.
3. Administrative expenses
Administrative expenses as a proportion of rental income were
7.2% (30 June 2021: 7.0% excluding exceptional contract termination
payment). The Group's EPRA cost ratio has increased to 10.5%,
compared to 9.0% for the same period in 2021.
Administrative expenses include staff costs of GBP3.0m (30 June
2021: GBP2.5m).
4. Finance income
Six months Six months Year ended
ended 30 June ended 30 31 December
2022 June 2021 2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------- ----------------------------------------- --------------------- ----------------
Interest income on financial
assets
Bank interest - - -
Development loan interest 0.5 0.4 0.8
------------------------------- ----------------------------------------- --------------------- ----------------
0.5 0.4 0.8
------------------------------- ----------------------------------------- --------------------- ----------------
Notes to the condensed financial statements (continued)
5. Finance costs
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2021 2021
2022
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------- ----------- ------------- ----------------
Interest expense and similar charges
on financial liabilities
(i) Interest
Bank loan interest 11.2 12.3 24.0
Swap interest (0.7) - (0.3)
Bond interest 8.4 7.6 15.5
Bank facility non utilisation fees 1.0 1.1 1.9
Exceptional early loan redemption
finance cost - - 24.6
Bank charges and loan arrangement
fees 1.5 1.4 2.7
--------------------------------------- ----------- ------------- ----------------
21.4 22.4 68.4
Amortisation of MedicX debt MtM at
acquisition (1.4) (1.6) (7.9)
--------------------------------------- ----------- ------------- ----------------
20.0 20.8 60.5
--------------------------------------- ----------- ------------- ----------------
Six months Six months Year ended
ended 30 June ended 30 31 December
2022 June 2021 2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------ ------------------------------ --------------------- ----------------
(ii) Derivatives
Net fair value gain on interest
rate swaps 0.9 1.5 2.7
Amortisation of cash flow hedging
reserve (2.3) (2.2) (4.5)
------------------------------------ ------------------------------ --------------------- ----------------
(1.4) (0.7) (1.8)
------------------------------------ ------------------------------ --------------------- ----------------
The fair value loss on derivatives recognised in the Condensed
Group Statement of Comprehensive Income has arisen from the
interest rate swaps for which hedge accounting does not apply. A
fair value loss on derivatives which meet the hedge effectiveness
criteria under IFRS 9 of GBPnil (30 June 2021: GBPnil), (31
December 2021: GBPnil) is accounted for directly in equity.
An amount of GBP2.3m (30 June 2021: GBP2.2m), (31 December 2021:
GBP4.5m) has been amortised from the cash flow hedging reserve in
the period.
Notes to the condensed financial statements (continued)
5. Finance costs (continued)
Six months Six months Year ended
ended ended 31 December
30 June 2022 30 June 2021 2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------- ------------- ------------- ----------------
(iii) Convertible Bond
Fair value gain on Convertible
Bond 11.8 0.5 3.4
--------------------------------- ------------- ------------- ----------------
11.8 0.5 3.4
--------------------------------- ------------- ------------- ----------------
The fair value movement in the convertible bonds is recognised
in the Group Statement of Comprehensive Income within profit before
taxation and is excluded from the calculation of EPRA earnings and
EPRA NTA (replacing EPRA NAV). Refer to note 12 for further details
about the Convertible Bond.
Six months Six months Year ended
ended ended 31 December
30 June 2022 30 June 2021
2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------- ----------- ----------------
Finance income (Note 4) 0.5 0.4 0.8
Finance costs (Note 5 (i)) (21.4) (22.4) (68.4)
------------------------------------- ------------- ----------- ----------------
(20.9) (22.0) (67.6)
Amortisation of MedicX debt MtM on
acquisition 1.4 1.6 7.9
Net finance costs (19.5) (20.4) (59.7)
Notes to the condensed financial statements (continued)
6. Taxation
The Group elected to be treated as a UK-REIT with effect from 1
January 2007. The UK-REIT rules exempt the profits of the Group's
property rental business from corporation tax. Gains on properties
are also exempt from tax, provided they are not held for trading or
sold in the three years post completion of development. The Group
will otherwise be subject to corporation tax at 19% (2021:
19%).
Acquired companies are effectively converted to UK-REIT status
from the date on which they become a member of the Group.
As a UK-REIT, the Company is required to pay Property Income
Distributions ("PIDs") equal to at least 90% of the Group's rental
profit calculated by reference to tax rules rather than accounting
standards.
To remain as a UK-REIT there are a number of conditions to be
met in respect of the principal company of the Group, the Group's
qualifying activities and the balance of its business. The Group
remains compliant as at 30 June 2022.
The Group's activities in Ireland are conducted via Irish
companies or an Irish Collective Asset Vehicle ("ICAV"). The Irish
companies pay Irish Corporation Tax on trading activities and
deferred tax is calculated on the increase in capital values. The
ICAV does not pay any Irish Corporation Tax on its trading or
capital profits but a 20% withholding tax is paid on distributions
to owners.
Six months Six months Year ended
ended 30 ended 30 31 December
June 2022 June 2021 2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------
Taxation in the Condensed Group Statement
of Comprehensive Income:
Current tax
UK corporation tax charge on non-property - - -
income
Irish corporation tax credit/(charge) 0.1 - (0.1)
Deferred tax on Irish activities (0.7) (0.6) (1.4)
Taxation charge in the Condensed Group
Statement of
Comprehensive Income (0.6) (0.6) (1.5)
Notes to the condensed financial statements (continued)
7. Earnings per share Performance measures
In the tables below, we present earnings per share and net
assets per share calculated in accordance with IFRS, together with
our own adjusted measure and certain measures defined by the
European Public Real Estate Association ("EPRA"), which have been
included to assist comparison between European property companies.
Two of the Group's key financial performance measures are adjusted
earnings per share and adjusted net tangible assets per share.
Adjusted earnings, which is a tax adjusted measure of revenue
profit, is the basis for the calculation of adjusted earnings per
share. We believe adjusted earnings and adjusted earnings per share
provide further insight into the results of the Group's operational
performance to stakeholders as they focus on the net rental income
performance of the business and exclude capital and other items
which can vary significantly from year to year.
Earnings per share
30 June 2022 30 June 2021
(unaudited) (unaudited)
IFRS Adjusted EPRA IFRS Adjusted EPRA
earnings earnings earnings earnings earnings earnings
GBPm GBPm GBPm GBPm GBPm GBPm
Profit after taxation 107.1 107.1 107.1 71.4 71.4 71.4
Adjustments to remove:
Revaluation gain on
property
portfolio - (51.2) (51.2) - (66.9) (66.9)
Profit on sale of land - - - - - -
and
property
Fair value movement on
derivatives - 1.4 1.4 - 0.7 0.7
Fair value movement and
issue
costs on
convertible bond - (11.8) (11.8) - (0.5) (0.5)
Taxation charge - 0.6 0.6 - 0.6 0.6
Termination payment and
goodwill
impairment on
acquisition
of Nexus - - - - 35.3 6.3
Exceptional Nexus
acquisition
costs - - - - 1.7 1.7
Amortisation of MtM loss
on
debt acquired - (1.4) - - (1.6) -
Basic earnings 107.1 44.7 46.1 71.4 40.7 13.3
Dilutive effect of
convertible
bond (9.6) 2.1 2.1 1.6 2.1 2.1
Diluted earnings 97.5 46.8 48.2 73.0 42.8 15.4
Number of shares
million million million million million million
Ordinary Shares 1,333.5 1,333.5 1,333.5 1,328.7 1,328.7 1,328.7
Dilutive effect of convertible
bond 105.4 105.4 105.4 103.3 103.3 103.3
Diluted Ordinary Shares 1,438.9 1,438.9 1,438.9 1,432.0 1,432.0 1,432.0
Profit per share attributable to shareholders:
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Basic 8.0 3.4 3.5 5.4 3.1 1.0
Diluted 6.8 3.3 3.4 5.1 3.0 1.1
Notes to the condensed financial statements (continued)
7. Earnings per share (continued) Earnings per share
31 December 2021
(audited)
IFRS Adjusted EPRA
earnings earnings earnings
GBPm GBPm GBPm
Profit after taxation 140.1 140.1 140.1
Adjustments to remove:
Revaluation gain on property
portfolio - (110.2) (110.2)
Profit on the sale of land - (0.3) (0.3)
Fair value movement on derivatives - 1.8 1.8
Fair value movement and issue
costs on
convertible bond - (3.4) (3.4)
Taxation charge - 1.5 1.5
Termination payment and goodwill
impairment on acquisition
of Nexus - 35.3 6.3
Exceptional Nexus acquisition
costs - 1.7 1.7
Early termination fees on
bank debt - 24.6 24.6
MtM write off on early termination
of - (4.7) -
bank debt
Amortisation of MtM loss
on debt - (3.2) -
acquired
Basic earnings 140.1 83.2 62.1
Dilutive effect of convertible
bond 0.9 4.3 4.3
Diluted earnings 141.0 87.5 66.4
Number of shares
million million million
Ordinary Shares 1,330.4 1,330.4 1,330.4
Dilutive effect of convertible
bond 105.4 105.4 105.4
Diluted Ordinary Shares 1,435.8 1,435.8 1,435.8
Profit per share attributable to shareholders:
IFRS Adjusted EPRA
pence pence pence
Basic 10.5 6.2 4.7
Diluted 9.8 6.1 4.6
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net assets per share
30 June 2022 30 June 2021
(unaudited) (unaudited)
IFRS Adjusted EPRA IFRS Adjusted EPRA
GBPm GBPm GBPm GBPm GBPm GBPm
Net assets attributable
to shareholders 1,568.9 1,568.9 1,568.9 1,466.9 1,466.9 1,466.9
Derivative interest rate
swaps liability - (5.3) (5.3) - (1.3) (1.3)
Deferred tax - 5.3 5.3 - 3.9 3.9
Cumulative convertible bond
fair value
movement - 9.8 9.8 - 24.5 24.5
MtM on MedicX loans net
of
amortisation - 33.0 - - 40.7 -
Net tangible assets ("NTA") 1,568.9 1,611.7 1,578.7 1,466.9 1,534.7 1,494.0
Real estate transfer taxes 200.6 182.9
Net reinstatement value
("NRV") 1,779.3 1,676.9
Fixed rate debt and swap
mark-to-
market value 75.5 (49.6)
Deferred tax (5.3) (3.9)
Cumulative convertible bond
fair value
movement (9.8) (24.5)
Real estate transfer taxes (200.6) (182.9)
Net disposal value ("NDV") 1,639.1 1,416.0
Ordinary shares
million million million million million million
Diluted Ordinary Shares 1,334.1 1,334.1 1,334.1 1,330.2 1,330.2 1,330.2
Basic net asset value per share(1)
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 117.6 120.8 118.3 110.3 115.4 112.3
Net reinstatement value
("NRV") 133.4 126.1
Net disposal value ("NDV") 122.9 106.4
1 The above are calculated on a "basic" basis without the
adjustment for the impact of the convertible bond which is shown in
the diluted basis table below.
Diluted net asset value per share(2)
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 117.6 122.4 120.1 110.3 117.5 114.7
Net reinstatement value
("NRV") 134.0 127.4
Net disposal value ("NDV") 124.3 109.2
2 The Company assesses the dilutive impact of the unsecured
convertible bond, issued by the Group on 15 July 2019, on its net
asset value per share with a current exchange price of 142.29 pence
(30 June 2021: 145.21 pence) (31 December 2021: 142.29 pence).
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net assets per share
31 December 2021
(audited)
IFRS Adjusted EPRA
GBPm GBPm GBPm
Net assets attributable
to shareholders 1,499.9 1,499.9 1,499.9
Derivative interest rate
swaps liability - (4.4) (4.4)
Deferred tax - 4.4 4.4
Cumulative convertible bond
fair value
movement - 21.6 21.6
MtM on MedicX loans net -
of 34.4 -
amortisation
Net tangible assets ("NTA") 1,499.9 1,555.9 1521.5
Real estate transfer taxes 189.0
Net reinstatement value
("NRV") 1,710.5
Fixed rate debt and swap
mark-to-
market value (20.1)
Deferred tax (4.4)
Cumulative convertible bond
fair value
movement (21.6)
Real estate transfer taxes (189.0)
Net disposal value ("NDV") 1,475.4
Ordinary shares
million million million
Diluted Ordinary Shares 1,332.9 1,332.9 1,332.9
Basic net asset value per share(1)
IFRS Adjusted EPRA
pence pence pence
Net tangible assets ("NTA") 112.5 116.7 114.1
Net reinstatement value
("NRV") 128.3
Net disposal value ("NDV") 110.7
1 The above are calculated on a "basic" basis without the
adjustment for the impact of the convertible bond which is shown in
the diluted basis table below.
Diluted net asset value per share(2)
IFRS Adjusted EPRA
pence pence pence
Net tangible assets ("NTA") 112.5 118.6 116.2
Net reinstatement value
("NRV") 129.4
Net disposal value ("NDV") 113.0
2 The Company assesses the dilutive impact of the unsecured
convertible bond, issued by the Group on 15 July 2019, on its net
asset value per share with a current exchange price of 142.29 pence
(30 June 2021: 145.21 pence) (31 December 2021: 142.29 pence).
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Conversion of the convertible bond would result in the issue of
105.4 million (31 December 2021: 105.4 million) new Ordinary
Shares. The IFRS net asset value and EPRA NDV would increase by
GBP159.8 million (31 December 2021: GBP171.6 million) and the EPRA
NTA, Adjusted NTA and EPRA NRV would increase by GBP150.0 million
(31 December 2021: GBP150.0 million). The resulting diluted net
asset values per share are anti-dilutive to all measures and
therefore basic IFRS net assets value per share are presented
above.
8. Dividends
Six months Six months Year ended
ended 30 June 2022 ended 30 31 December
June 2021 2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------
Quarterly interim dividend paid 25
February 2022 21.0 - -
Scrip dividend in lieu of quarterly
cash dividend
25 February 2022 0.6 - -
Quarterly interim dividend paid 20
May 2022 20.6 - -
Scrip dividend in lieu of quarterly
cash dividend
20 May 2022 1.1 - -
Quarterly interim dividend paid 26
February 2021 - 18.7 -
Scrip dividend in lieu of quarterly
cash dividend 26
February 2021 - 1.8 -
Quarterly interim dividend paid 21
May 2021 - 17.7 -
Scrip dividend in lieu of quarterly
cash dividend 21 May
2021 - 2.9 -
Quarterly interim dividend paid 26
February 2021 - - 18.7
Scrip dividend in lieu of quarterly
cash dividend 26
February 2021 - - 1.8
Quarterly interim dividend paid 21
May 2021 - - 17.7
Scrip dividend in lieu of quarterly
cash dividend 21 May
2021 - - 2.9
Quarterly interim dividend paid 20
August 2021 - - 18.3
Scrip dividend in lieu of quarterly
cash dividend 20
August 2021 - - 2.4
Quarterly interim dividend paid 26
November 2021 - - 19.7
Scrip dividend in lieu of quarterly
cash dividend 26
November 2021 - - 0.9
Total dividends distributed 43.3 41.1 82.4
------------
Per share 3.2p 3.1p 6.2p
------------
The Company will pay a third interim dividend of 1.625 pence per
Ordinary Share for the year ending 31 December 2022, payable on 19
August 2022. The dividend will comprise a Property Income
Distribution ("PID") of 0.8 pence per share and an ordinary
dividend of 0.825 pence per share. The Company will be offering a
scrip alternative with this dividend.
Notes to the condensed financial statements (continued)
9. Investment properties, investment properties under construction and assets held for sale
a) Investment properties and investment properties under construction
Investment
Investment Investment properties
properties long leasehold under construction
freehold(1) Total
GBPm GBPm GBPm GBPm
As at 1 January 2022 (audited) 2,208.4 568.3 19.2 2,795.9
Reclassification of freehold
& leasehold (27.5) 27.5 - -
Property additions 48.6 0.6 10.1 59.3
Assets held for sale (9b) (23.8) (1.2) - (25.0)
Impact of lease incentive
adjustment 0.3 0.2 - 0.5
Foreign exchange movements 3.9 0.7 0.7 5.3
Revaluations for the period 37.6 13.2 0.4 51.2
As at 30 June 2022 (unaudited) 2,247.5 609.3 30.4 2,887.2
(1) Includes development land held at GBP0.9m (31 December 2021:
GBP0.9m)
Total
GBPm
Fair value per LSH UK valuation 1,259.8
Fair value of JLL UK valuation 1,419.6
Fair value of CBRE Ireland valuation 228.3
2,907.7
Assets held for sale (25.0)
Ground rents recognized as finance leases 4.5
Fair value 30 June 2022 (unaudited) 2,887.2
The investment properties have been independently valued at fair
value by Lambert Smith Hampton ("LSH"), Jones Lang LaSalle ("JLL")
and CBRE Chartered Surveyors and Valuers ("CBRE"), as at the
balance sheet date in accordance with accounting standards. The
valuers have confirmed that they have valued the properties in
accordance with the Practice Statements in the RICS Valuation
Global Standards 2017 ("Red Book"). There were no changes to the
valuation techniques during the period. The valuers are
appropriately qualified and have sufficient market knowledge and
relevant experience of the location and category of investment
property and have had full regard to market evidence when
determining the values.
The properties are 99.7% let (31 December 2021: 99.7%). The
valuations reflected a 4.57% net initial yield (31 December 2021:
4.64%). Where properties have outstanding rent reviews, an estimate
is made of the likely rent on review in line with market
expectations and the knowledge of the valuer.
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under construction (continued)
In accordance with IAS 40, investment properties under
construction have also been valued at fair value by the independent
valuers. In determining the fair value, the valuer is required to
value development property as if complete, deduct the costs
remaining to be paid to complete the development and consider the
significant risks which are relevant to the development process
including, but not limited to, construction and letting risks and
the impact they may have on fair value. In the case of the Group's
portfolio under construction, where the sites are pre-let and
construction risk remains with the builder/developer, the valuer
has deemed that the residual risk to the Group is minimal. As
required by the Red Book, the valuers have deducted the outstanding
cost to the Group through to the completion of construction of
GBP5.3m (31 December 2021: GBP9.0m) in arriving at the fair value
to be included in the financial statements.
In addition to the above, capital commitments have been entered
into amounting to GBP11.8m (30 June 2021:
GBP10.7m; 31 December 2021: GBP10.0m) which have not been
provided for in the financial statements.
Right-of-use-assets
In accordance with IFRS 16 Leases, the Group has recognised a
GBP4.5m head lease liability and an equal and opposite ground rents
recognised as finance leases asset which is included in non-current
assets.
Fair value hierarchy
All of the Group's properties are level 3, as defined by IFRS
13, in the fair value hierarchy as at 30 June 2022 and 31 December
2021. There were no transfers between levels during the period or
during 2021. Level 3 inputs used in valuing the properties are
those which are unobservable, as opposed to level 1 (inputs from
quoted prices) and level 2 (observable inputs either directly, i.e.
as prices, or indirectly, i.e. derived from prices).
b) Assets held for sale
30 June 2022 31 December 2021
GBPm GBPm
(unaudited) (audited)
Assets held for sale 25.0 -
Post period end the Group exchanged contracts to sell a
portfolio of 13 smaller medical centres, located across England and
Wales, for a price of GBP27.7 million. The completion of the sale
is anticipated to take place on 28 July 2022. As at 30 June 2022,
these 13 assets are being held for sale.
10. Cash and cash equivalents
30 June 2022 31 December 2021
GBPm GBPm
(unaudited) (audited)
Cash held at bank 29.7 33.4
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts
The table indicates amounts drawn and undrawn from each
individual facility:
Expiry Facility Amounts drawn Undrawn
date
30 June 31 December 30 June 31 December 30 June 31 December
2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm
Current
RBS Overdraft Jun 2023 5.0 5.0 - - 5.0 5.0
Aviva loan
1 Sep 2033 2.2 2.2 2.2 2.2 - -
7.2 7.2 2.2 2.2 5.0 5.0
Non-current
Aviva AV Lending Oct 2036 200.0 200.0 200.0 200.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Barclays loan Dec 2023 100.0 100.0 - - 100.0 100.0
HSBC loan Nov 2024 100.0 100.0 25.5 25.5 74.5 74.5
Lloyds loan Dec 2024 50.0 50.0 32.5 38.7 17.5 11.3
NatWest loan Oct 2024 100.0 100.0 39.0 86.3 61.0 13.7
Santander loan Jan 2025 50.0 - 39.7 - 10.3 -
Aviva loan
1 Sep 2033 224.1 225.2 224.1 225.2 - -
Aviva loan
1 Sep 2028 30.8 30.8 30.8 30.8 - -
929.9 881.0 666.6 681.5 263.3 199.5
Total 937.1 888.2 668.8 683.7 268.3 204.5
1 Acquired as part of the merger with MedicX.
At 30 June 2022, total facilities of GBP1,553.3m (31 December
2021: GBP1,437.4m) were available to the Group. This included term
loan facilities and the bonds in note 12. Of these facilities, as
at 30 June 2022, GBP1,285.0m was drawn (31 December 2021:
GBP1,232.9m).
Costs associated with the arrangement of the facilities,
including legal advice and loan arrangement fees, are amortised
over the life of the related facility.
On 6 January 2022, the Group refinanced a GBP50.0 million
revolving credit facility with Santander. The facility can be drawn
in Sterling and Euros and has an interest rate of 1.65% plus SONIA
or EURIBOR.
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts (continued)
Any amounts unamortised as at the period end are offset against
amounts drawn on the facilities as shown in the table below:
30 June 31 December
2022 2021
GBPm GBPm
(unaudited) (audited)
Term loans drawn: due within one year 2.2 2.2
Term loans drawn: due in greater than one
year 666.6 681.5
Total term loans drawn 668.8 683.7
Plus: MtM on loans net of amortisation 28.2 29.3
Less: unamortised borrowing costs (10.7) (10.6)
Total term loans per the Condensed Group
Balance Sheet 686.3 702.4
The Group has been in compliance with all the applicable
financial covenants of the above facilities through the period.
12. Borrowings: Bonds
30 June 31 December
2022 2021
GBPm GBPm
(unaudited) (audited)
Unsecured
Convertible bond July 2025 at fair value 159.8 171.6
Total unsecured bonds 159.8 171.6
Secured
Secured Bond December 2025 70.0 70.0
Secured Bond March 2027 100.0 100.0
EUR51m Secured Bond (Euro private placement)
December 2028/30 43.9 42.9
EUR70 million secured bond (Euro private
placement) September 2031 60.2 58.8
EUR75 million secured bond (Euro private
placement) February 2034 64.6 -
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised issue costs (4.0) (3.1)
Plus: MtM on loans net of amortization 4.7 5.1
Total secured bonds 466.9 401.2
Total bonds 626.7 572.8
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Secured Bonds
On 18 December 2013, PHP successfully listed the floating rate
guaranteed secured bonds issued on 4 November 2013 (the "Secured
Bonds") on the London Stock Exchange. The Secured Bonds have a
nominal value of GBP70m and mature on or about 30 December 2025.
The Secured Bonds incur interest on the paid-up amount at an
annualised rate of 220 basis points above six-month LIBOR, payable
semi-annually in arrears.
On 21 March 2017, a GBP100m Secured Bond was issued for a
10-year term at a fixed coupon of 2.83% that matures on 21 March
2027. Interest is paid semi-annually in arrears.
On 20 December 2018, senior secured notes for a total of EUR51
million (GBP43.9 million) were issued at a blended fixed rate of
2.4793% and a weighted average maturity of 10.4 years. Interest is
paid semi-annually in arrears. The notes represent PHP's first
Euro-denominated transaction in the private placement market. The
secured notes were placed with UK and Irish institutional investors
in two tranches:
-- EUR40 million 2.46% senior notes due December 2028.
-- EUR11 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior secured notes for a total of
EUR70 million (GBP60.3 million) were issued at a fixed rate of
1.509% and a maturity of twelve years. Interest is paid
semi-annually in arrears. The secured notes are guaranteed by the
Company and were placed with UK and Irish institutional
investors.
On 11 February 2022, the Group issued a new EUR75.0 million
(GBP64.6 million) secured private placement loan note to MetLife
for a 12-year term at a fixed rate of 1.64%. The loan notes have
the option to be increased by a further EUR75 million to EUR150
million over the next three years at the Metlife's discretion.
Ignis and Standard Life loan notes
On 14 March 2019, the loan notes were added to the portfolio as
a part of the MedicX acquisition. The Ignis loan note incurs a
fixed coupon of 3.99% payable semi-annually in arrears and matures
on 1 December 2028.
The Standard Life loan note matures on 30 September 2028 and is
split into two tranches, GBP50m and GBP27.5m at fixed coupon rates
of 3.84% and 3.00% respectively. Interest is payable semi-annually
in arrears.
Convertible Bond
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the
"Issuer"), a wholly owned subsidiary of the Group, issued GBP150
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
GBP75 million, 5.375% senior unsecured retail bonds at maturity and
otherwise for general corporate purposes.
Subject to certain conditions, the bonds will be convertible
into fully paid Ordinary Shares of the Company and the initial
exchange price was set at 153.25 pence, a premium of 15% above the
volume weighted average price of the Company's shares on 18 June
2019, being 133.26 pence. Under the terms of the Bonds, the Company
will have the right to elect to settle exercise of any conversion
rights entirely in shares or cash, or with a combination of shares
and cash. The exchange price is subject to adjustment if dividends
paid per share exceed 2.8 pence per annum and other certain
circumstances and consequently the exchange price was adjusted to
142.29 pence as at 30 June 2022.
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued) Convertible Bond
30 June 31 December
2022 2021
(unaudited) (audited)
GBPm GBPm
Opening balance - fair value 171.6 175.0
Cumulative fair value movement in Convertible
Bond (11.8) (3.4)
Closing balance - fair value 159.8 171.6
The fair value of the Convertible Bond at 30 June 2022 was
established by obtaining quoted market prices. The fair value
movement is recognised in the Group Statement of Comprehensive
Income within profit before taxation and is excluded from the
calculation of EPRA earnings and EPRA NTA (replacing EPRA NAV).
13. Head lease liabilities
The Group holds certain long leasehold properties which are
classified as investment properties. The head leases are accounted
for as finance leases. These leases typically have lease terms
between 25 years and perpetuity and fixed rentals.
30 June 31 December
2022 2021
(unaudited) (audited)
GBPm GBPm
Due within one year 0.1 0.1
Due after one year 4.4 4.4
Closing balance - fair value 4.5 4.5
Notes to the condensed financial statements (continued)
14. Derivatives and other financial instruments
It is Group policy to maintain the proportion of floating rate
interest exposure at between 20% and 40% of total debt. The Group
uses interest rate swaps to mitigate its remaining exposure to
interest-rate risk in line with this policy. The fair value of
these contracts is recorded in the balance sheet and is determined
by discounting future cash flows at the prevailing market rates at
the balance sheet date.
The table below sets out the movements in the value of the
Group's interest rate swaps during the period:
Interest rate swaps not hedge accounted for
GBPm
Assets
As at 1 January 2022 (audited) 5.2
Fair value movement in the period 7.9
As at 30 June 2022 (unaudited) 13.1
Liabilities
As at 1 January 2022 (audited) (0.8)
Fair value movement in the period (7.0)
As at 30 June 2022 (unaudited) (7.8)
Total - derivative financial instruments
As at 1 January 2022 (audited) 4.4
Fair value movement in the period 0.9
As at 30 June 2022 (unaudited) 5.3
Notes to the condensed financial statements (continued)
15. Financial risk management
Set out below is a comparison by class of the carrying amount
and fair values of the Group's financial instruments that are
carried in the financial statements.
Book value Fair value Book value Fair value
30 June 2022 30 June 2022 31 December 31 December
2021 2021
(unaudited) (unaudited) (audited) (audited)
GBPm GBPm GBPm GBPm
Financial assets
Trade and other receivables 18.3 18.3 17.6 17.6
Effective interest rate - - - -
swaps
Ineffective interest rate
swaps 13.1 13.1 5.2 5.2
Cash and short-term deposits 29.7 29.7 33.4 33.4
Financial liabilities
Interest-bearing loans
and
borrowings (1,285.0) (1,257.6) (1,232.9) (1,275.1)
Effective interest rate - - - -
swaps
Ineffective interest rate
swaps (net) (7.8) (7.8) (0.8) (0.8)
Trade and other payables (45.5) (45.5) (40.0) (40.0)
The fair value of the financial assets and liabilities is
included as an estimate of the amount at which the instruments
could be transferred in a current transaction between willing
parties, other than a forced sale. The following methods and
assumptions were used to estimate fair values:
-- The fair values of the Group's cash and cash equivalents and
trade payables and receivables are not materially different from
those at which they are carried in the financial statements due to
the short- term nature of these instruments.
-- The fair value of floating rate borrowings is estimated by
discounting future cash flows using rates currently available for
instruments with similar terms and remaining maturities. The fair
value approximates their carrying values, gross of unamortised
transaction costs.
-- The fair values of the derivative interest rate swap
contracts are estimated by discounting expected future cash flows
using market interest rates and yield curves over the remaining
term of the instrument.
The Group held the following financial instruments at fair value
at 30 June 2022. The Group has no financial instruments with fair
values that are determined by reference to significant unobservable
inputs, i.e. those that would be classified as level 3 in the fair
value hierarchy, nor have there been any transfers of assets or
liabilities between levels of the fair value hierarchy. There are
no non-recurring fair value measurements.
Notes to the condensed financial statements (continued)
15. Financial risk management (continued)
Fair value measurements at 30 June 2022 are as follows:
Level 1(1) Level 2(2) Level 3(3) Total
Recurring fair value measurements GBPm GBPm GBPm GBPm
Financial assets
Derivative interest rate
swaps - 13.1 - 13.1
Financial liabilities
Derivative interest rate
swaps - (7.8) - (7.8)
Convertible Bond (159.8) - - (159.8)
Fixed rate debt - (1,078.3) - (1,078.3)
Fair value measurements at 31 December 2021 were as follows:
Recurring fair value measurements Level 1(1) Level 2(2) Level 3(3) Total
GBPm GBPm GBPm GBPm
Financial assets
Derivative interest rate
swaps - 5.2 - 5.2
Financial liabilities
Derivative interest rate
swaps - (0.8) - (0.8)
Convertible Bond (171.6) - - (171.6)
Fixed rate debt - (921.3) - (921.3)
(1) Valuation is based on unadjusted quoted prices in active
markets for identical financial assets and liabilities
(2) Valuation is based on inputs (other than quoted prices
included in Level 1) that are observable for the financial asset or
liability, either directly (i.e. as unquoted prices) or indirectly
(i.e. derived from prices)
(3) Valuation is based on inputs that are not based on
observable market data
The interest rate swaps whose fair values include the use of
level 2 inputs are valued by discounting expected future cash flows
using market interest rates and yield curves over the remaining
term of the instrument. The following inputs are used in arriving
at the valuation:
-- Interest rates;
-- Yield curves;
-- Swaption volatility;
-- Observable credit spreads;
-- Credit default swap curve; and
-- Observable market data.
Notes to the condensed financial statements (continued)
16. Related party transactions
Harry Hyman, Chief Executive Officer, is a Director and the
ultimate beneficial owner of a number of Nexus entities and is
considered to be a related party. Following the acquisition of
certain Nexus entities on the internalisation of management
structure on 5 January 2021, the Group has continued to share
certain operational services with Nexus.
Amounts paid during the period in relation to shared services
totalled GBP35,100 (30 June 2021: net payment GBP19,263; 31
December 2021: net receipt GBP35,637). Amounts paid in relation to
prior periods include an element of advisory fees up to the date of
internalisation.
As at 30 June 2022, outstanding fees payable to Nexus totalled
GBPnil (31 December 2021: GBPnil; 30 June 2021: GBPnil).
17. Share capital
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
-----------
Issued and fully paid Ordinary Shares
at 12.5p each 166.8 166.3 166.6
-----------
At beginning of year 166.6 164.4 164.4
Scrip issues in lieu of cash dividends 0.2 0.4 0.7
Shares issued 5 January 2021 and on
other acquisitions - 1.5 1.5
-----------
166.8 166.3 166.6
-----------
18. Merger and other reserves
30 June 30 June 31 December
2022 2021 2021
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
-----------
At beginning of year 413.5 400.8 400.8
Premium on shares issued for Nexus
acquisition - 16.1 16.1
Exchange gain on translation of
foreign balances 1.3 (2.3) (3.4)
414.8 414.6 413.5
-----------
19. Subsequent events
On 6 July 2022, the Group exchanged contracts to sell a
portfolio of 13 assets for GBP27.7 million which is expected to
complete at the end of July 2022.
On 22 July 2022, the Group acquired the Strawberry Hill Medical
Centre, Newbury for GBP7.25 million.
Notes to the condensed financial statements (continued)
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this
condensed consolidated set of interim financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the United Kingdom and that the operating and financial
review herein includes a fair review of the information required by
DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency rules
of the United Kingdom's Financial Services Authority namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed consolidated interim financial statements and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
-- material related party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
Shareholder information is as disclosed in the Annual Report and
is also available on the PHP website, www.phpgroup.co.uk .
By order of the Board
Steven Owen Chairman
26 July 2022
Glossary of terms
Adjusted earnings is EPRA earnings excluding the exceptional
contract termination payment and amortisation of MtM adjustments
for fixed rate debt acquired on the merger with MedicX.
Adjusted earnings per share is adjusted earnings divided by the
weighted average number of shares in issue during the year.
Adjusted net tangible assets ("adjusted NTA") (which has
replaced the former adjusted EPRA net asset value alternative
performance measure) is EPRA net tangible asset value excluding the
MtM adjustment of the fixed rate debt, net of amortisation,
acquired on the merger with MedicX. The objective of the adjusted
NTA measure is to highlight the value of net assets on a long-term
basis and excludes assets and liabilities that are not expected to
crystallise in normal circumstances and continues to be used as a
measure to determine the PIF payment.
Annualised rental income on a like-for-like basis is the
contracted rent on a per annum basis assuming a consistent number
of properties between each year.
Building Research Establishment Environmental Assessment Method
("BREEAM") assesses the sustainability of buildings against a range
of criteria.
Clinical Commissioning Groups ("CCGs") are the groups of GPs and
other healthcare professionals that are responsible for designing
local health services in England with effect from 1 April 2013.
Company and/or Parent is Primary Health Properties PLC
("PHP").
Direct property costs comprise ground rents payable under head
leases, void costs, other direct irrecoverable property expenses,
rent review fees and valuation fees.
District Valuer ("DV") is the District Valuer Service, being the
commercial arm of the Valuation Office Agency ("VOA"). It provides
professional property advice across the public sector and in
respect of primary healthcare represents NHS bodies on matters of
valuation, rent reviews and initial rents on new developments.
Dividend cover is the number of times the dividend payable (on
an annual basis) is covered by EPRA earnings.
Earnings per Ordinary Share from continuing operations ("EPS")
is the profit attributable to equity holders of the Parent divided
by the weighted average number of shares in issue during the
year.
EPC is an Energy Performance certificate.
European Public Real Estate Association ("EPRA") is a real
estate industry body, which has issued Best Practice
Recommendations in order to provide consistency and transparency in
real estate reporting across Europe.
EPRA cost ratio is the ratio of net overheads and operating
expenses against gross rental income (with both amounts excluding
ground rents payable). Net overheads and
operating expenses relate to all administrative and operating
expenses, net of any service fees, recharges or other income
specifically intended to cover overhead and property expenses.
EPRA earnings is the profit after taxation excluding investment
and development property revaluations, gains/losses on disposals,
changes in the fair value of financial instruments and associated
close-out costs and their related taxation.
EPRA net assets ("EPRA NAV") are the balance sheet net assets
excluding own shares held, the MtM value of derivative financial
instruments and the convertible bond fair value movement
EPRA NAV per share is the balance sheet net assets excluding own
shares held, the MtM value of derivative financial instruments and
the convertible bond fair value movement, divided by the number of
shares in issue at the balance sheet date.
EPRA NNNAV is adjusted EPRA NAV including the MtM value of fixed
rate debt and derivatives.
EPRA net reinstatement value ("EPRA NRV") is the balance sheet
net assets including real estate transfer taxes but excluding the
MtM value of derivative financial instruments, deferred tax and the
convertible bond fair value movement. The aim of the metric is to
reflect the value that would be required to recreate the Company
through the investment markets based on its current capital and
financing structure. Refer to Note 7.
EPRA NRV per share is the EPRA net reinstatement value divided
by the number of shares in issue at the balance sheet date. Refer
to Note 7.
EPRA net disposal value "EPRA NDV" (replacing EPRA NNNAV) is
EPRA NRV including deferred tax and the MtM value of fixed rate
debt and derivatives. The aim of the metric is to reflect the value
that would be realised under a disposal scenario. Refer to Note
7.
EPRA net tangible assets ("NTA") (which has replaced the former
EPRA net asset value alternative performance measure) are the
balance sheet net assets but excluding the MtM value of derivative
financial instruments, deferred tax and the convertible bond fair
value movement. The aim of the metric is to reflect the fair value
of the assets and liabilities of the Group that it intends to hold
and does not intend in the long run to sell. Refer to Note 7.
EPRA NTA per share is the EPRA net tangible assets divided by
the number of shares in issue at the balance sheet date. Refer to
Note 7.
EPRA vacancy rate is, as a percentage, the ERV of vacant space
in the Group's property portfolio divided by ERV of the whole
portfolio.
Glossary of terms (continued)
Equivalent yield (true and nominal) is a weighted average of the
net initial yield and reversionary yield and represents the return
a property will produce based upon the timing of the income
received. The true equivalent yield assumes rents are received
quarterly in advance. The nominal equivalent assumes rents are
received annually in arrears.
Estimated rental value ("ERV") is the external valuer's opinion
as to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
Gross rental income is the gross accounting rent receivable.
Group is Primary Health Properties PLC ("PHP") and its
subsidiaries.
HSE or the Health Service Executiveis the executive agency of
the Irish government responsible for health and social services for
people living in Ireland.
IFRS is International Financial Reporting Standards as adopted
by the European Union.
IFRS or Basic net asset value per share ("IFRS NAV")are the
balance sheet net assets, excluding own shares held, divided by the
number of shares in issue at the balance sheet date.
Interest cover is the number of times net interest payable is
covered by net rental income.
Interest rate swap is a contract to exchange fixed payments for
floating payments linked to an interest rate, and is generally used
to manage exposure to fluctuations in interest rates.
London Interbank Offered Rate ("LIBOR") is the interest rate
charged by one bank to another for lending money.
Loan to value ("LTV") is the ratio of net debt to the total
value of property and assets.
Mark to market ("MTM") is the difference between the book value
of an asset or liability and its market value.
MedicX is MXF Fund Limited and its subsidiaries.
MSCI (IPD) provides performance analysis for most types of real
estate and produces an independent benchmark of property
returns.
MSCI (IPD) Healthcare is the UK Annual Healthcare Property
Index.
MSCI (IPD) Total Return is calculated as the change in capital
value, less any capital expenditure incurred, plus net income,
expressed as a percentage of capital employed over the period, as
calculated by MSCI (IPD).
Net asset value ("NAV") is the value of the Group's assets minus
the value of its liabilities.
Net initial yield ("NIY") is the annualised rents generated by
an asset, after the deduction of an estimate of annual recurring
irrecoverable property outgoings, expressed as a percentage of the
asset valuation (after notional purchasers' costs).
Net rental income is the rental income receivable in the period
after payment of direct property costs. Net rental income is quoted
on an accounting basis.
Net zero carbon refers to the point at which a process,
activity, system etc. produces net zero carbon emissions, through
emissions reduction, use of low or zero carbon energy and removal
or offsetting of residual emissions. In the context of buildings
and activities associated with the construction, refurbishment,
maintenance and
operation of buildings, PHP refers to the UK Green Building Council "Net zero carbon,
a framework definition" ( https://www.ukgbc.org/ukgbc-work/ net-zero-carbon- buildings-a-framework-definition/). This sets out the key requirements for buildings to achieve 'net zero carbon - construction' and 'net zero carbon - operational energy'.
NHSPS is NHS Property Services Limited, the company wholly owned
and funded by the Department of Health, which, as of 1 April 2013,
has taken on all property obligations formerly borne by Primary
Care Trusts.
Parity value is calculated based on dividing the convertible
bond value by the exchange price.
Progressive returns / dividend is where it is expected to
continue to rise each year.
Property Income Distribution ("PID") is the required
distribution of income as dividends under the REIT regime. It is
calculated as 90% of exempted net income.
Real Estate Investment Trust ("REIT") is a listed property
company which qualifies for and has elected into a tax regime,
which exempts qualifying UK profits, arising from property rental
income and gains on investment property disposals, from corporation
tax, but which has a number of specific requirements.
Rent reviews take place at intervals agreed in the lease and
their purpose is usually to adjust the rent to the current market
level at the review date.
Rent roll is the passing rent, being the total of all the
contracted rents reserved under the leases.
Reversionary yield is the anticipated yield which the initial
yield will rise to once the rent reaches the ERV and when the
property is fully let. It is calculated by dividing the ERV by the
valuation.
Retail Price Index ("RPI") is the official measure of the
general level of inflation as reflected in the retail price of a
basket of goods and services such as energy, food, petrol, housing,
household goods, travelling fare, etc. RPI is commonly computed on
a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews which
are linked to changes in the RPI.
Special reserve is a distributable reserve.
Sterling Overnight Interbank Average Rate ("SONIA") is the
effective overnight interest rate paid by banks for unsecured
transactions in the British Sterling market.
Glossary of terms (continued)
Total expense ratio ("TER") is calculated as total
administrative costs for the year divided by the average total
asset value during the year.
Total property return is the overall return generated by
properties on a debt-free basis. It is calculated as the net rental
income generated by the portfolio plus the change in market values,
divided by opening property assets plus additions.
GBPm
Net rental income 71.1
Revaluation surplus and
profit on sales 51.2
122.3
Opening property assets 2,791.4
Weighted additions in the
period 29.8
2,821.2
Total property return 4.3%
Total adjusted NTA return is calculated as the movement in
adjusted net tangible asset value for the period plus the dividends
paid, divided by opening adjusted net tangible asset value.
At 31 December 2021 116.7p
At 30 June 2022 120.8p
Increase / (decrease) 4.1p
Add: Dividends paid
25/02/2022 Q1 interim 1.625p
20/05/2022 Q2 interim 1.625p
Total return 7.35p
Total adjusted NTA
return 6.3%
Total shareholder return is calculated as the movement in the
share price for the period plus the dividends paid, divided by the
opening share price.
Weighted average facility maturity is calculated by multiplying
each tranche of Group debt by the remaining period to its maturity
and dividing the result by total Group debt in issue at the year
end.
Weighted average unexpired lease term ("WAULT") is the average
lease term remaining to first break, or expiry, across the
portfolio weighted by contracted rental income.
Yield on cost is the estimated annual rent of a completed
development divided by the total cost of development, including
site value and finance costs expressed as a percentage return.
Yield shift is a movement (usually expressed in basis points) in
the yield of a property asset, or like-for-like portfolio over a
given period. Yield compression is a commonly used term for a
reduction in yields.
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