TIDMPHP
RNS Number : 6755G
Primary Health Properties PLC
28 July 2021
Primary Health Properties PLC
Interim results for the six months ended 30 June 2021
Successful management internalisation and strong operational
performance drive continued earnings growth
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
2021.
Harry Hyman , Chief Executive of PHP, commented:
"As lockdowns and restrictions in the UK and Ireland are lifted,
the COVID-19 pandemic continues to highlight the need for modern,
integrated, local primary healthcare facilities to help in the
provision of COVID-19 vaccines for many years to come while
addressing the backlog of procedures missed over the last two
years.
"NHS initiatives to modernise the primary care estate supports
the important role primary healthcare must play to re-focus
services away from over-burdened hospital settings, and to satisfy
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.
"Having successfully completed the internalisation of our
management structure in the period and with our sector leading
metrics and strong pipeline of acquisition and asset management
opportunities, we remain well placed to meet these demands.
"The Board looks forward to delivering further earnings and
dividend growth and remains confident in PHP's future outlook."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Six months Six months
to to
Income statement metrics 30 June 2021 30 June 2020 Change
------------- -------------
Net rental income(1) GBP67.7m GBP64.8m +4.5%
Adjusted earnings(1,2) GBP40.7m GBP36.0m +13.1%
Adjusted earnings per share(1,2) 3.1p 3.0p +3.3%
IFRS profit before tax excluding MedicX
merger adjustments(1,5) GBP70.4m GBP38.1m +84.8%
IFRS profit for the period GBP71.4m GBP39.5m
IFRS earnings per share(2) 5.4p 3.2p
Dividends
Dividend per share(6) 3.1p 2.95p +5.1%
Dividends paid(6) GBP41.1m GBP35.9m +14.5%
Dividend cover(1) 99% 100%
----------------------------------------- ------------- ------------- --------
30 June 31 December
Balance sheet and operational metrics 2021 2020 Change
----------------------------------------- ------------- ------------- --------
Adjusted EPRA NTA (NAV) per share(1,3) 115.4p 112.9p +2.2%
IFRS NAV per share(1,3) 110.3p 107.5p +2.6%
Property portfolio
Investment portfolio valuation(4) GBP2.655bn GBP2.576bn +2.6%
Net initial yield ("NIY") (1) 4.70% 4.81%
Contracted rent roll (annualised)(1,8) GBP136.1m GBP135.2m +0.7%
Weighted average unexpired lease 11.8 years 12.1 years
term ("WAULT")(1)
Occupancy 99.7% 99.6%
Rent-roll funded by government bodies(1) 90% 90%
Debt
Average cost of debt 3.4% 3.5%
Loan to value ratio
("LTV")(1) 40.9% 41.0%
Weighted average debt maturity 6.0 years 6.5 years
Total undrawn loan facilities and GBP335.0m GBP361.5m
cash(7)
----------------------------------------- ------------- ------------- --------
(1) Definitions for net rental income, adjusted earnings,
adjusted earnings per share, earnings per share ("EPS"), dividend
cover, loan to value ("LTV"), IFRS profit before tax excluding
MedicX merger adjustments, net tangible assets ("NTA"), rent roll,
NIY, WAULT and net asset value ("NAV") are set out in the Glossary
of Terms.
(2) See note 8, earnings per share, to the financial
statements.
(3) See note 8, net asset value per share, to the financial
statements. Adjusted net tangible assets, EPRA net tangible assets
("NTA"), EPRA net disposal value ("NDV") and EPRA net reinstatement
value ("NRV") are considered to be alternative performance
measures. The Group has determined that adjusted net tangible
assets is the most relevant measure.
(4) Percentage valuation movement during the period based on the
difference between opening and closing valuations of properties
after allowing for acquisition costs and capital expenditure.
(5) The IFRS profit before tax excluding MedicX merger
adjustments is set-out in detail in the summarised results table on
page 11.
(6) See note 9, dividends, to the financial statements.
(7) After deducting the remaining cost to complete contracted
acquisitions, properties under development and asset management
projects.
(8) Percentage contracted rent roll increase during the year is
based on the annualised uplift achieved from all completed rent
reviews and asset management projects.
DELIVERING EARNINGS AND DIVID GROWTH
-- Adjusted earnings per share increased by 3.3% to 3.1p (30 June 2020: 3.0p)
-- Additional annualised rental income on a like-for-like basis
of GBP1.3 million or 1.0%, from rent reviews and asset management
projects (FY 2020: GBP2.0 million or 1.6%; FY 2019: GBP1.9 million
or 1.5%)
-- Average uplift of 1.5% per annum on rent reviews completed in
the period, continuing the positive trend in rental growth (FY
2020: 1.8%; FY 2019: 1.9%)
-- Contracted annualised rent roll increased to GBP136.1 million
(31 December 2020: GBP135.2 million)
-- Successfully completed the internalisation of the Group's
management structure which is anticipated to result in immediate
annual cost savings of approximately GBP4.0 million, equivalent to
0.3 pence per share
-- Four forward funded developments completed in the period with
a net development cost of GBP20.1 million at Mountain Ash, Wales,
Llanbradach, Wales, Epsom, Surrey and Eastbourne, East Sussex
-- Two quarterly dividends totalling 3.1p per share distributed
in the period and third quarterly dividend of 1.55p per share
declared, payable on 20 August 2021, equivalent to 6.2p on an
annualised basis. This represents a 5.1% increase over the 2020
dividend per share and will mark the Company's 25(th) consecutive
year of dividend growth
-- The Company intends to make a further dividend payment in
November 2021 and maintain its strategy of paying a progressive
dividend, in equal quarterly instalments, covered by underlying
earnings in each financial year
DELIVERING NET ASSET VALUE GROWTH
-- Adjusted Net Tangible Assets (NTA) per share increased by
2.2% to 115.4 pence (31 December 2020: 112.9 pence)
-- Property portfolio at 30 June 2021 valued at GBP2.655 billion
(31 December 2020: GBP2.576 billion) reflecting a net initial yield
of 4.70% (31 December 2020: 4.81%). A revaluation surplus was
generated in the period of GBP66.9 million (30 June 2020: GBP10.5
million), representing growth of 2.6% (30 June 2020: 0.4%)
-- Portfolio in Ireland now comprises 19 assets, valued at
GBP200 million (EUR234 million), including two forward funded
developments currently under construction which, if valued as
complete, increases the total asset value to approximately GBP217
million (EUR253 million)
-- The Group is currently on site with two developments in
Ireland with a net development cost of GBP26.2 million (EUR30.6
million). All sites in Ireland remain open and construction
continues to progress
-- Strong pipeline of targeted acquisitions and asset management
projects with a value of approximately GBP195 million, of which
GBP155 million is currently under offer and in legal due diligence;
together with additional direct development pipeline of GBP146
million of which GBP21 million is at an advance stage
-- Progression of asset management projects with 17 either
completed or currently on-site, investing GBP10.8 million, creating
additional rental income of GBP0.3 million per annum and extending
the weighted average unexpired lease term (WAULT) back to 21
years
-- The Group has a strong pipeline of over 100 incremental asset
management projects which have either been approved by the Board or
are in advanced negotiations. The pipeline of projects equates to
investing approximately GBP46 million over the next two years
generating GBP1.4 million of additional income and extending the
WAULT on those leases back to 22 years
-- Only GBP6.7 million or 4.9% of annualised rent roll expiring
in the next three years of which c. 75% is subject to either a
planned asset management initiative or terms having been agreed to
renew the lease
-- The portfolio's metrics continue to reflect the secure,
long-term and predictable income stream with occupancy at 99.7% (31
December 2020: 99.6%) and a WAULT of 11.8 years (31 December 2020:
12.1 years)
DELIVERING FINANCIAL MANAGEMENT
-- At 30 June 2021 the Group's net debt stood at GBP1,085.2
million (31 December 2020: GBP1,055.7 million) and the LTV ratio
was 40.9% (31 December 2020: 41.0%), the lower end of the Group's
targeted range of between 40% to 50%
-- After capital commitments the Group has undrawn loan
facilities and cash on deposit totalling GBP335.0 million (31
December 2020: GBP361.5 million) providing significant liquidity
headroom. Cash on deposit totals GBP72.5 million
-- Significant headroom in LTV and interest cover covenants
across the Group's various borrowing facilities
-- Low, average marginal cost of debt of 1.7%
DELIVERING ROBUST RENTAL COLLECTION
-- Of PHP's contracted rental income, 90% is paid either
directly or indirectly by the UK and Irish governments, with the
balance mainly coming from pharmacies co-located at our
properties
-- Rental collections continue to remain robust and as at 26
July 2021 97% had been collected in both the UK and Ireland for the
third quarter of 2021 and in-line with collection rates experienced
in 2020 and the first half of 2021 which now stand at over 99% for
both countries. The balance of rent due for the third quarter of
2021 is expected to be received shortly
DELIVERING STRONG TOTAL RETURNS
Six months Six months Year ended
ended ended 31 December
30 June 2021 30 June 2020 2020
-------------------------------- -------------- -------------- -------------
Increase in Adjusted EPRA NTA
plus dividends paid 5.0% 3.8% 10.1%
Income return 2.6% 2.6% 5.2%
Capital return 2.6% 0.5% 2.2%
-------------------------------- -------------- -------------- -------------
Total property return(1) 5.2% 3.1% 7.4%
MSCI UK Monthly Property Index 6.2% (3.5%) (0.8%)
-------------------------------- -------------- -------------- -------------
(Under)/out performance over
MSCI (1.0%) 6.6% 8.2%
-------------------------------- -------------- -------------- -------------
(1) The de finition for total property return is set out in the
Glossary of Terms.
Presentation and webcast:
A virtual briefing for analysts will be held today, 28 July 2021
at 09.30am, via a live video webcast and conference call
facility.
To access the briefing, please dial in or log on via the details
below shortly before 09.30am. There will be a Q&A session
following the presentation, with questions taken via the conference
call phone lines and the webcast chat function.
UK Toll Free: 0800 358 9473
UK Toll: 0333 300 0804
International dial in numbers:
https://event.sharefile.com/d-s7bae1d9235d495a8
Participant PIN code: 64977382#
Webcast:
https://webcasting.brrmedia.co.uk/broadcast/60dee70e1ba1724bfa99e020
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 PLC Primary Health Properties PLC
T +44 (0) 20 7451 7050 T +44 (0) 20 7104 2004
harry.hyman@phpgroup.co.uk richard.howell@phpgroup.co.uk
--------------------------------- ------------------------------
David Rydell/Steph Whitmore/Tilly
Abraham
Buchanan
T +44 (0) 20 7466 5066
--------------------------------- ------------------------------
EXECUTIVE REVIEW
As the lockdown and restrictions in the UK and Ireland start to
come to an end the Group's portfolio has demonstrated strong
resilience throughout the pandemic. The security and longevity of
our income are important drivers of our secure, long term
predictable income stream and underpin our progressive dividend
policy and we have now entered our 25(th) year of continued
dividend growth.
The first half of 2021 has been characterised by a very
competitive investment market with a lack of suitable product and
strong pricing. Despite this, the strong investment market together
with continued organic rental growth across the portfolio has
delivered a valuation uplift of GBP66.9 million equivalent to 5.0
pence per share helping to deliver a total property return of 5.2%
(30 June 2020: 3.1%) in the period.
PHP has continued to actively work with the NHS in the UK, HSE
in Ireland, and its GP partners in both markets to help them better
utilise the Group's properties for deployment in the ongoing global
health crisis. Many of our primary care facilities and occupiers
have been and will be required to deliver COVID-19 vaccines for
many years to come and to deal with the backlog of procedures
missed over the last two years . We continue to maintain close
relationships with our key stakeholders and GP partners to ensure
we are best placed to help the NHS and HSE, and in particular
primary care, evolve and deal with the pressures placed on them as
the 'new normal' is established.
The Group now has a market capitalisation of over GBP2 billion
and the property portfolio stands at over GBP2.6 billion across 514
assets, including 19 in Ireland. Notwithstanding, the competitive
investment market, t he Group continues to have a strong, active
pipeline of potential acquisitions both in the UK and Ireland
totalling approximately GBP195 million, including GBP155 million
under offer, in addition to a wider pipeline of opportunities under
negotiation. Additionally, following the acquisition of PHP Primary
Care Developments Limited (formerly Nexus Primary Care Developments
Limited) ("Nexus Developments") there is a direct development
pipeline of GBP146 million of which GBP21 million is at an advanced
stage.
Rental collections continue to remain robust and as at 26 July
2021 97% had been collected in both the UK and Ireland for the
third quarter of 2021 and in-line with collection rates experienced
in 2020 and the first half of 2021 which now stand at over 99% for
both countries. The balance of rent due for the third quarter of
2021 is expected to be received shortly.
Two quarterly dividends totalling 3.1 pence per share were
distributed in the period and a third quarterly dividend of 1.55
pence per share declared, payable on 20 August 2021, equivalent to
6.2 pence on an annualised basis. This represents a 5.1% increase
over the 2020 dividend per share and will mark the Company's 25(th)
consecutive year of dividend growth. The Company intends to make a
further dividend payment in November 2021 and maintain its strategy
of paying a progressive dividend, in equal quarterly instalments,
covered by underlying earnings in each financial year.
Acquisition of Nexus and management internalisation
On 5 January 2021, the Group successfully completed the
internalisation of its management structure with shareholders
representing 99.95% of the votes cast voting in favour of the
internalisation which is anticipated to result in immediate annual
cost savings of approximately GBP4.0 million, equivalent to 0.3
pence per share. The Group acquired the entire share capital of PHP
Tradeco Holdings Limited and certain subsidiaries ("Nexus"). The
assumption of Nexus's existing management and overhead costs has
resulted in lower ongoing administrative costs to the Company and
the EPRA cost ratio, which was already among the lowest in the
sector, has fallen further to 9.0% (FY 2020: 11.9%) in the
period.
The management team, systems and procedures acquired with Nexus
have now been successfully integrated into the wider Group.
Direct developments
The acquisition of Nexus also enabled PHP to acquire the
development expertise of Nexus Developments which at completion had
a pipeline of GBP80 million of direct development opportunities at
varying stages of progression.
During the period the Group has continued to make good progress
and increase the number of live projects to four with an estimated
capital value of approximately GBP21 million (5 January 2021: two
projects/GBP10 million). The Company expects to be on-site with two
of these projects by early Q1 2022. In addition, PHP continues to
bring forward a wider medium-term pipeline at various stages of
progress across 17 projects with an estimated capital value of
approximately GBP125 million.
Overview of results
PHP's recurring Adjusted earnings increased by GBP4.7 million or
13.1% to GBP40.7 million (30 June 2020: GBP36.0 million) in the six
months to 30 June 2021 driven by six months of cost savings arising
from the acquisition of Nexus and internalisation of the management
structure together with strong organic rental growth from rent
reviews and asset management projects. Using the weighted average
number of shares in issue in the period the Adjusted earnings per
share increased to 3.1 pence (30 June 2020: 3.0 pence), an increase
of 3.3%.
A revaluation surplus of GBP66.9 million (30 June 2020: GBP10.5
million) was generated in the period from the portfolio, equivalent
to 5.0 pence per share. The valuation surplus was driven by net
initial yield ("NIY") compression in the UK and rental growth and
asset management activity across the portfolio.
The acquisition of Nexus resulted in an exceptional termination
payment, goodwill impairment and acquisition costs totalling
GBP37.0 million, equivalent to 2.4 pence per share, being expensed
in the period.
Rent reviews and asset management projects completed in the
period added GBP1.3 million or 1.0% (H1 2020: GBP0.9 million or
0.7%; FY 2020: GBP2.0 million or 1.6%) to the contracted rent roll
with continued positive momentum on the number of rent reviews
being settled. Annualised rental growth on reviews completed in the
period was 1.5% compared to 1.8% and 1.9% achieved in FY 2020 and
FY 2019 respectively.
The portfolio's average lot size has increased to GBP5.2 million
and we continue to maintain our very strong metrics, with a long
weighted average unexpired lease term ("WAULT") of 11.8 years, high
occupancy at 99.7% and only 4.9% of our rent due to expire in the
next three years.
Dividends and total shareholder return
The Company distributed a total of 3.1p per share in the six
months to 30 June 2021, an increase of 5.1% over that distributed
in the first half of 2020 of 2.95p per share. The total value of
dividends distributed in the period increased by 14.5% to GBP41.1
million (30 June 2020: GBP35.9 million), which were materially
covered by Adjusted earnings. Dividends totalling GBP4.7 million
were satisfied through the issuance of shares via the scrip
dividend scheme.
The Company's share price started the year at 152.8p per share
and closed on 30 June 2021 at 153.9p, an increase of 0.7%.
Including dividends, those shareholders who held the Company's
shares throughout the period achieved a Total Shareholder Return of
2.7% (30 June 2020: -0.3%). This compares to the total return
delivered by UK real estate equities (FTSE EPRA Nareit UK Index) of
15.5% (FY 2020: -28.5%) and the wider UK equity sector (FTSE
All-Share Index) of 9.6% (FY 2020: -17.9%) in the period.
Market update and outlook
As restrictions and the end of lockdown in the UK and Ireland
come to an end, we salute the NHS and HSE on the way they have
dealt with the COVID-19 pandemic and subsequent vaccination
programme. However, the provision of healthcare in the UK and
Ireland will now need to be transformed over the coming years as
the NHS and HSE respond to the long-term requirements of dealing
with the COVID-19 pandemic together with the resultant backlog of
non-COVID-19 treatments that have been suspended and now need to be
addressed. While remote consulting is here to stay, we do not
expect it to have a material impact on future space requirements;
although useful for an initial triage, it often results in the need
for a subsequent physical appointment or is not suitable for all
patients, especially the elderly.
In July 2021, the 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 including 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 further development opportunities in primary care in
the medium to long-term.
With many services now expected to move away from hospitals and
into primary care facilities together with the NHS's ambition of
being the world's first carbon net zero healthcare system by 2045;
these changes will undoubtedly require substantial investment into
other areas, most notably primary care that will be able to take on
the non-urgent and periphery procedures and deal with the long-term
demographic trends of populations that are growing, ageing and
suffering from more instances of chronic illness.
We will continue to actively engage with government bodies, the
NHS, HSE in Ireland and other key stakeholders to establish and
enact where we can support and help alleviate increased pressures
and burdens currently being placed on healthcare networks.
Despite the continued volatility in the economic and political
environment and the prolonged era of low interest rates, there
continues to be an unrelenting search for secure and reliable
income. Primary healthcare, with its strong fundamental
characteristics and government-backed income, has been a
significant beneficiary. The UK market for primary healthcare
property investment continues to be highly competitive with
continued yield compression and strong prices being paid by
investors for assets in the sector.
We believe that our activities benefit not only our shareholders
but also our other stakeholders, including our occupiers, patients,
the NHS and HSE, suppliers, lenders and the wider communities in
both the UK and Ireland.
As the UK and Ireland prepare for the 'new normal' and how this
impacts the NHS and HSE respectively and those reliant on them, we
are ideally placed to support their needs, with the financial
strength, sector expertise and knowledge to enable them to succeed,
as well as deliver long term value to shareholders and wider
stakeholders. The Board continues to look forward with confidence
to the future.
Steven Owen Harry Hyman
Chairman Chief Executive
27 July 2021
BUSINESS REVIEW
Investment and development activity
The first half of 2021 has been characterised by a lack of
suitable product, strong pricing and a very competitive market
which has resulted in the acquisition of just one standing
investment at Shankill Primary Care Centre, Ireland, for EUR3.8
million in March 2021.
Investment pipeline (excluding direct development)
Notwithstanding the difficult investment market conditions in
the first half of 2021, we have continued to generate and grow a
strong immediate off-market pipeline of potential acquisitions both
in the UK and Ireland totalling approximately GBP195 million
including GBP155 million in legal due diligence. In addition to the
immediate pipeline, we continue to progress a number of other
investment and forward funded development opportunities both in the
UK and Ireland.
Approximately half of the pipeline represents opportunities in
Ireland which is our preferred area of investment due to the higher
net initial yields and lower cost of finance. The COVID-19 pandemic
has also resulted in vendors withdrawing from sales negotiations,
protracted negotiations and due diligence resulting in delays to
completing acquisitions in the first half of the year but we expect
to complete a number of transactions in the second half of the
year.
Direct developments
The acquisition of Nexus in January 2021 also enabled PHP to
acquire the development expertise of Nexus Developments which at
completion had a pipeline of GBP80 million of direct development
opportunities at varying stages of progression.
Over the course of the first half of 2021 the Group has
continued to make good progress and increase the number of live
projects to four with an estimated capital value of approximately
GBP21 million (5 January 2021: two projects/GBP10 million). The
Company expects to be on-site with two of these projects by early
Q1 2022. In addition, PHP continues to bring forward a wider
medium-term pipeline at various stages of progress across 17
projects with an estimated capital value of approximately GBP125
million.
Forward funded developments
During the period the four UK forward funded developments at
Mountain Ash, Wales, Llanbradach, Wales, Epsom, Surrey and
Eastbourne, East Sussex were completed on time and budget with a
net development cost of GBP20.1 million.
The Group now has only two forward funded developments currently
on site in Ireland with a net development cost of GBP21.4
million:
Anticipated Area Net development Costs to
Asset PC date (Sq. m) cost complete
----------------------- ------------ --------- ---------------- --------------------
Ireland
Arklow, County Wicklow Q1 2022 5,333 GBP15.4m GBP8.6m (EUR10.0m)
(EUR18.0m)
Enniscorthy, County Q1 2022 4,633 GBP10.8m GBP8.2m (EUR9.6m)
Wexford (EUR12.6m)
Total 9,966 GBP26.2m GBP16.8m (EUR19.6m)
(EUR30.6m)
----------------------- ------------ --------- ---------------- --------------------
All sites in Ireland remain open and construction continues to
progress.
Asset management
PHP's sector leading metrics continue to remain strong 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 2021, the Group concluded and
documented 213 rent reviews with a combined rental value of GBP26.0
million resulting in an uplift of GBP1.0 million per annum or 3.8%
which equates to 1.5% per annum. This continues the positive trend
in rental growth over the last two years (year ended 31 December
2020: 1.8% per annum with an uplift of GBP1.7 million; year ended
31 December 2019: 1.9% per annum with an uplift of GBP1.6 million)
.
In the period, 1.0% per annum was achieved on 132 open market
reviews including 42 reviews where no uplift was achieved. Uplifts
of 2.2% per annum were achieved on RPI-based reviews and 2.7% per
annum on fixed uplift reviews. In addition, a further 231 open
market reviews were agreed in principle, which will add another
GBP1.2 million to the contracted rent roll when concluded and
represent an uplift of 1.2% per annum.
69% of our rents are reviewed on an open market basis, typically
every three years and are impacted by land and construction
inflation. Over recent years, there have been significant increases
in these costs which is expected to result in further rental growth
in the future. The balance of the PHP portfolio has either
indexed/RPI (25%) or fixed uplift (6%) based reviews which also
provide an element of certainty to future rental growth within the
portfolio.
At 30 June 2021, the rent at 619 tenancies, representing GBP83.4
million of passing rent, was under negotiation and the large number
of outstanding reviews reflects the requirement for all awards to
be agreed with the District Valuer. A great deal of evidence to
support open market reviews comes from the delivery of new
properties into the sector and we continue to see positive momentum
in the demand, commencement and delivery for new, purpose-built
premises which are being supported by NHS initiatives to modernise
the primary care estate. We expect the COVID-19 pandemic will
increase the future provision of health services and continued
re-focusing of services away from over-burdened hospital settings.
As technology continues to drive digital consulting and triage in
the future, the crisis has highlighted the important role primary
healthcare must play and we continue to see more new properties
being approved.
Asset Management Projects
We have continued to make good progress in the six months to 30
June 2021 to enhance and extend existing assets within the
portfolio with 17 projects either completed or currently on-site.
The projects require the investment of GBP10.8 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 21 years.
PHP continues to work closely with its tenants and has a strong
pipeline of over 100 projects which are either Board approved or in
advanced negotiations. The pipeline of projects will require the
investment of approximately GBP46 million, generating an additional
GBP1.4 million of rental income and extending the WAULT on those
premises back to an average 22 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 2021
was GBP136.1 million, an increase of GBP0.9 million or 0.7% in the
period (31 December 2020: GBP135.2 million) driven predominantly by
GBP1.3 million organic rental growth from rent reviews and asset
management projects. The acquisition of Shankill, Dublin, Ireland
contributed a further GBP0.2 million offset by foreign exchange
movements, since the start of the year, on the Group's Irish
portfolio of GBP0.6 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 90% of its rent roll funded directly or indirectly by
the NHS in the UK or HSE in Ireland. The portfolio also benefits
from an occupancy rate of 99.7%.
Longevity: The portfolio's WAULT at 30 June 2021 was 11.8 years
(31 December 2020: 12.1 years). Only GBP6.7 million or 4.9% of our
income expires over the next three years of which c. 75% is either
subject to a planned asset management initiative or terms have been
agreed to renew the lease. GBP74.6 million or 54.8% expires in over
10 years. The table below sets out the current lease expiry profile
of our income:
Income subject to GBPm %
expiry
------------------- ------ -------
< 3 years 6.7 4.9%
4 - 5 years 9.2 6.8%
5 - 10 years 45.7 33.6%
10 - 15 years 39.4 28.9%
15 - 20 years 17.3 12.7%
> 20 years 17.8 13.1%
------------------- ------ -------
Total 136.1 100.0%
------------------- ------ -------
Valuation and returns
At 30 June 2021, the Group's portfolio comprised 514 assets
independently valued at GBP2.655 billion (31 December 2020:
GBP2.576 billion). After allowing for acquisition costs and capital
expenditure on forward funded developments and asset management
projects, the portfolio generated a valuation surplus of GBP66.9
million or 2.6% (30 June 2020: GBP10.5 million or 0.4%). The
valuation surplus was driven by net initial yield compression in
the UK together with rental growth from rent reviews and asset
management projects completed in the period.
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 11 bp in
the period to 4.70% (31 December 2020: 4.81%). The true equivalent
yield reduced to 4.81% at 30 June 2021, declining from 4.84% at 31
December 2020. The NIY on our portfolio continues to represent a
substantial premium over both the 10-year and 15-year UK gilts
which traded at 0.84% and 1.03% respectively at 30 June 2021.
At 30 June 2021, the portfolio in Ireland comprised 19 assets,
including two assets currently under development, valued at
GBP200.1 million or EUR233.5 million (31 December 2020: 18
assets/GBP197.7 million or EUR221.1 million). The costs to complete
the developments are GBP16.8 million (EUR19.6 million) and once
complete the assets in Ireland will be valued at approximately
GBP217 million (EUR253 million).
The portfolio's average lot size has increased to GBP5.2 million
(31 December 2020: GBP5.0 million) and 85.4% 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 50 748.6 28.2 15.0
GBP5m - GBP10m 126 892.4 33.7 7.1
GBP3m - GBP5m 157 622.5 23.5 4.0
GBP1m - GBP3m 176 382.4 14.4 2.2
< GBP1m (including
land GBP1.5m) 5 4.8 0.2 0.7
-------------------- ----------- ---------- ------ ---------
Total(1) 514 2,650.7 100.0 5.2
-------------------- ----------- ---------- ------ ---------
(1) Excludes the GBP4.5m impact of IFRS 16 Leases with ground
rents recognised as finance leases.
The underlying valuation uplift of GBP66.9 million, combined
with the portfolio's growing income, helped to deliver a total
property return of 5.2% in the six months to 30 June 2021 (30 June
2020: 3.1%).
Six months ended Six months ended Year ended
30 June 2021 30 June 2020 31 December 2020
---------------- ----------------- ----------------- ------------------
Income return 2.6% 2.6% 5.2%
Capital return 2.6% 0.5% 2.2%
---------------- ----------------- ----------------- ------------------
Total return 5.2% 3.1% 7.4%
---------------- ----------------- ----------------- ------------------
FINANCIAL REVIEW
PHP's Adjusted earnings increased by GBP4.7 million or 13.1% to
GBP40.7 million in the six months to 30 June 2021, compared to 30
June 2020 Adjusted earnings of GBP36.0 million. The increase in the
period reflects six months of cost saving synergies arising from
the acquisition of Nexus and internalisation of the management
structure at the start of the year, strong organic rental growth
from rent reviews and asset management projects together with a
reduction in the Group's cost of finance.
Using the weighted average number of shares in issue in the
period the Adjusted earnings per share increased to 3.1p (30 June
2020: 3.0p), an increase of 3.3%.
A revaluation surplus of GBP66.9 million (30 June 2020: GBP10.5
million) was generated in the period from the portfolio driven
predominantly by yield compression in the UK together with rental
growth from rent reviews and asset management projects.
The acquisition of Nexus during the period resulted in an
exceptional termination payment and impairment of goodwill
totalling GBP35.3 million and represents the fair value of the
consideration paid of GBP34.1 million plus the fair value of the
net liabilities acquired of GBP1.2 million. In addition,
acquisition costs totalling GBP1.7 million have been expensed.
A loss on the fair value of interest rate derivatives and
convertible bonds of GBP0.2 million (30 June 2020 loss: GBP8.4
million) together with a gain on the amortisation of the fair value
adjustment on the MedicX fixed rate debt at acquisition of GBP1.6
million (30 June 2020 gain: GBP1.5 million) contributed to the
profit before tax as reported under IFRS of GBP72.0 million (30
June 2020: profit of GBP39.6 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 30 June 2020
2021 2020
GBPm GBPm GBPm
------------------------------------------------ ----------- ----------- -------------
Net rental income 67.7 64.8 131.2
Administrative expenses (4.3) (5.7) (11.6)
Performance incentive fee ("PIF") (0.7) (0.8) (1.6)
------------------------------------------------ ----------- ----------- -------------
Operating profit before revaluation gain
and net financing costs 62.7 58.3 118.0
Net financing costs (22.0) (22.3) (44.9)
------------------------------------------------ ----------- ----------- -------------
Adjusted earnings 40.7 36.0 73.1
Revaluation surplus on property portfolio
and profit on sales 66.9 10.5 51.4
Termination payment and impairment of (35.3) - -
goodwill on acquisition of Nexus
Nexus acquisition costs (1.7) - -
Fair value loss on interest rate derivatives
and convertible bond (0.2) (8.4) (15.2)
------------------------------------------------ ----------- ----------- -------------
Adjusted profit excluding MedicX merger
adjustments 70.4 38.1 109.3
Amortisation of MedicX debt MtM at acquisition 1.6 1.5 3.1
------------------------------------------------ ----------- ----------- -------------
IFRS profit before tax 72.0 39.6 112.4
Corporation tax - - (0.1)
Deferred tax provision (0.6) (0.1) (0.3)
------------------------------------------------ ----------- ----------- -------------
IFRS profit after tax 71.4 39.5 112.0
------------------------------------------------ ----------- ----------- -------------
Net rental income receivable in the six months to 30 June 2021
increased by 4.5% or GBP2.9 million to GBP67.7 million (30 June
2020: GBP64.8 million).
Following the internalisation of the management structure
operational costs have continued to be managed closely and
effectively. Overall property and administrative costs, excluding
service charge costs recoverable, have fallen by GBP1.5 million or
19.5% to GBP6.2 million (30 June 2020: GBP7.7 million). The Group's
EPRA cost ratio is now the lowest in the sector at 9.0% for the
period, a decrease against the 11.9% incurred during the 2020
financial year reflecting the cost savings of approximately GBP4.0
million p.a. expected to arise from the internalisation of the
management structure.
EPRA cost ratio Six months Six months Year ended
ended ended 31 December
30 June 2021 30 June 2020 2020
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- -------------
Gross rent less ground rent and
service charge income 69.1 66.2 134.6
-------------------------------------- -------------- -------------- -------------
Direct property expense 4.0 3.2 7.8
Administrative expenses 4.3 5.7 11.6
Performance incentive fee ("PIF") 0.7 0.8 1.6
Less: service charge costs (2.4) (1.7) (4.3)
Less: ground rent (0.2) (0.1) (0.2)
Less: other operating income (0.2) (0.2) (0.4)
EPRA costs (including direct vacancy
costs) 6.2 7.7 16.1
-------------------------------------- -------------- -------------- -------------
EPRA cost ratio 9.0% 11.6% 11.9%
-------------------------------------- -------------- -------------- -------------
Total expense ratio - administrative
expenses as a percentage of gross
asset value (annualised) 0.4% 0.5% 0.5%
-------------------------------------- -------------- -------------- -------------
Net finance costs in the period decreased to GBP22.0 million (30
June 2020: GBP22.3 million) reflecting a full six-month of savings
from various refinancing initiatives completed in 2020.
Performance incentive fee ("PIF")
As part of the internalisation of the Group's management it was
agreed that the historic PIF arrangements would carry on for
another two years until 31 December 2022. Consequently, another
period of strong performance in both 2020 and the first half of
2021 is likely to result in a PIF being payable for the year as a
whole and consequently a GBP0.7 million provision has been provided
in the period (six months ended 30 June 2020: GBP0.8 million; year
ended 31 December 2020: GBP1.6 million).
Shareholder value
The Adjusted Net Tangible Assets (NTA), per share increased by
2.5 pence or 2.2% to 115.4 pence (31 December 2020: 112.9 pence per
share) during the period with the revaluation surplus of GBP66.9
million or 5.0 pence per share being the main reason for the
increase although this was partially offset by the GBP37.0 million
cost of the Nexus acquisition and internalisation of the management
structure equivalent to 2.4 pence per share. Dividends distributed
in the period were materially covered by recurring Adjusted
earnings with no material impact on NTA.
The total NAV return per share, including dividends distributed,
in the six months ended 30 June 2021 was 5.6 pence or 5.0% (30 June
2020: 4.2 pence or 3.9%).
The table below sets out the movements in the Adjusted EPRA NTA
and EPRA Net Disposal Value (NDV) per share over the period under
review.
Adjusted Net Tangible Asset 30 June 2021 30 June 2020 31 December
(NTA) per share pence per pence per 2020 pence
share share per share
----------------------------------------- ------------- ------------- ------------
Opening Adjusted NTA per share 112.9 107.9 107.9
Adjusted earnings for the period 3.1 3.0 5.8
Dividends paid (3.1) (2.9) (5.9)
Revaluation of property portfolio 5.0 0.9 3.9
Net impact of Nexus acquisition (2.4) - -
Shares issued 0.1 0.2 2.7
Foreign exchange movements (0.2) - -
Interest rate derivative cancellation - - (1.5)
Closing Adjusted NTA per share 115.4 109.1 112.9
Fixed rate debt and swap mark-to-market
value ( 6.8) (12.7) (9.9)
Convertible bond fair value
adjustment (1.9) (1.9) (1.9)
Deferred tax (0.3) (0.3) (0.3)
----------------------------------------- ------------- ------------- ------------
Closing EPRA NDV per share 106.4 94.2 100.8
----------------------------------------- ------------- ------------- ------------
Financing
As at 30 June 2021, total available loan facilities were
GBP1,449.1 million (31 December 2020: GBP1,456.8 million) of which
GBP1,157.7 million (31 December 2020: GBP1,159.3 million) had been
drawn. Cash balances of GBP72.5 million (31 December 2020: GBP103.6
million) resulted in Group net debt of GBP1,085.2 million (31
December 2020: GBP1,055.7 million). Contracted capital commitments
at the balance sheet date totalled GBP28.9 million (31 December
2020: GBP39.6 million) and result in headroom available to the
Group of GBP335.0 million (31 December 2020: GBP361.5 million).
Capital commitments comprise forward funded development
expenditure of GBP18.3 million and asset management projects on
site of GBP10.6 million.
Debt metrics
30 June 2021 31 December
2020
------------------------------------ --------------- --------------
Average cost of debt - fully drawn 3.1% 3.1%
Average cost of debt - drawn 3.4% 3.5%
Loan to value 40.9% 41.0%
Interest cover 3.2 times 2.9 times
Weighted average debt maturity 7.0 years 7.6 years
- drawn facilities
Weighted average debt maturity 6.0 years 6.5 years
- all facilities
Total drawn secured debt GBP1,007.7m GBP1,009.3m
Total drawn unsecured debt GBP150.0m GBP150.0m
Total undrawn facilities and cash GBP335.0m GBP361.5m
available to the Group(1)
Unfettered assets GBP110.5m GBP88.4m
------------------------------------- --------------- --------------
(1) After deducting capital commitments.
Average cost of debt
The Group's marginal cost of debt on its revolving credit
facilities is now just 1.7%. As the Group's undrawn loan facilities
are drawn, following the deployment of the cash proceeds from the
equity raise in July 2020, the Group's average cost of drawn debt
will continue to fall from the current 3.4% to 3.1%, assuming fully
drawn. We continue to look at other opportunities to reduce the
Group's average cost of debt and deliver further finance
cost-saving synergies.
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 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 145.21 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
5.7% from 40.9% to 35.2% and result in the issue of 103.3 million
new Ordinary Shares.
Interest rate and currency exposure
The analysis of the Group's exposure to interest rate risk in
its debt portfolio as at 30 June 2021 is as follows:
Facilities Drawn
GBPm % GBPm %
------------------------------- --------------- ----------- ----------- -------
Fixed rate debt 993.5 68.6 993.5 85.8
Hedged by fixed rate interest
rate swaps 188.0 13.0 188.0 16.2
Floating rate debt - unhedged 267.6 18.4 (23.8) (2.0)
------------------------------- --------------- ----------- ----------- -------
Total 1,449.1 100.0 1,157.7 100.0
------------------------------- --------------- ----------- ----------- -------
The Group's drawn loan facilities are 100% fixed.
The Group now owns EUR233.5 million or GBP200.1 million (31
December 2020: EUR221.1 million/GBP197.7 million) of Euro
denominated assets in Ireland as at 30 June 2021 and the value of
these assets and rental income represented just 7.5% 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.
Euro rental receipts are used to first finance Euro interest and
administrative costs and surpluses are used to fund further
portfolio expansion.
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 2021 there was a gain of GBP1.4 million (30 June 2020: loss
GBP6.4 million) on the fair value movement of the Group's interest
rate derivatives due primarily to reductions 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 GBP1.3 million (31 December 2020 liability: GBP0.1 million)
equivalent to 0.1 pence per share.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 30 June 2021 was
GBP91.2 million (31 December 2020: GBP130.3 million) equivalent to
6.9 pence per share (31 December 2020: 9.9 pence). The large
reduction in the MtM during the period is due primarily to
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.
Alternative Performance Measures ("APMs")
PHP uses Adjusted earnings, Adjusted net tangible assets and
Adjusted profit excluding MedicX merger adjustments 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 8 on pages 31 to
35. 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 2020
Annual Report.
Related party transactions
Related party transactions are disclosed in note 17 to the
condensed financial statements. On 5 January 2021 the Group
completed the acquisition of Nexus and internalised the management
arrangements and consequently no further amounts are payable in
relation to related party transactions described in the 2020 Annual
Report.
Harry Hyman Richard Howell
Chief Executive Chief Financial Officer
27 July 2021
Principal risks and uncertainties
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
ensure that these risks are managed to minimise exposure and ensure
that appropriate returns are generated for the accepted risk. The
Group aims to operate in a low-risk environment, appropriate for
its strategic objective of generating progressive returns for
shareholders. Key elements of maintaining this low-risk approach
are:
-- investment focuses on the primary health real estate sector
which is traditionally much less cyclical than other real estate
sectors;
-- the majority of the Group's rental income is received
directly or indirectly from government bodies in the UK and
Ireland;
-- the Group benefits from long initial lease terms, largely
with upwards-only review terms, providing clear visibility of
income;
-- the Group has a very small (GBP0.3m) exposure as a direct
developer of real estate, which means that the Group is not
materially exposed to risks that are inherent in property
development;
-- the Board funds its operations so as to maintain an appropriate mix of debt and equity; and
-- debt funding is procured from a range of providers,
maintaining a spread of maturities and a mix of terms so as to fix
or hedge the majority of interest costs.
The structure of the Group's operations includes rigorous,
regular review of risks and how these are mitigated and managed
across all areas of the Group's activities. The Group faces a
variety of risks that have the potential to impact on its
performance, position and 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
and 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 2021 Interim Results
Announcements. Despite the impact to the business remaining low,
with strong rent collection seen in FY2020 and in the six-month
period of 2021, the risks of a prolonged, severe economic downturn
from COVID-19 still exist. It has therefore been concluded that
COVID-19 should continue as a principal risk factor.
COVID-19
The outbreak of COVID-19 during the last financial year had had
far reaching consequences across the UK and Ireland. The Company
however remained resilient and relatively unaffected; properties
held being regarded as critical infrastructure in the response to
the outbreak.
The Directors have again assessed the impact of the current
uncertainty around COVID-19 on all major aspects of the business,
focussing specifically on operations and cash flows of the Group.
The event has been considered and a bad debt provision of GBP0.3m
has been provided in the financial statements in respect of
annualised rents totalling GBP1.1m currently on some form of rent
payment concession and reflected in the balance sheet as at 30 June
2021. We continue to carefully monitor the impact on property
valuations and the recoverability of our debtor balances.
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 of the Group's assets or extenuating
economic circumstances impacts investment values - valuation
parameter stress tested to provide for a one-off 10%/GBP269m fall
in December 2021 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 2021, 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 2021 level, 6.2p 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
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 2021 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 21. We
have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, 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.
As disclosed in note 1, the annual financial statements of the
group will be prepared in accordance with United Kingdom adopted
International Financial Reporting 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".
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 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.
Conclusion
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 2021 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.
Use of our report
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 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
27 July 2021
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2021
Six months Six months Year
ended ended ended 31
30 June 30 June December
2021 2020 2020
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ ----------
Rental income 2 71.7 68.0 139.0
Direct property expenses (4.0) (3.2) (7.8)
---------------------------------------------- ---- ------------ ------------ ----------
Net rental income 67.7 64.8 131.2
Administrative expenses 3 (5.0) (6.5) (13.2)
Revaluation gain on property portfolio 10 66.9 10.5 51.3
Profit on sale of land - - 0.1
Total revaluation gain 66.9 10.5 51.4
Operating profit 129.6 68.8 169.4
Finance income 4 0.4 0.8 1.2
Finance costs 5 (20.8) (21.6) (43.0)
Termination payment and goodwill
impairment on acquisition of Nexus 6 (35.3) - -
Exceptional Nexus acquisition costs 6 (1.7) - -
Fair value loss on derivative interest
rate swaps and amortisation of cash
flow hedging reserve 5 (0.7) (8.1) (12.9)
Fair value gain/(loss) on convertible
bond 5 0.5 (0.3) (2.3)
---------------------------------------------- ---- ------------ ------------ ----------
Profit before taxation 72.0 39.6 112.4
Taxation charge 7 (0.6) (0.1) (0.4)
---------------------------------------------- ---- ------------ ------------ ----------
Profit after taxation for the period/year
(1) 71.4 39.5 112.0
Other comprehensive income:
Items that may be reclassified subsequently
to profit and loss:
Fair value gain on interest rate swaps
treated as cash
flow hedges and amortisation of hedging
reserve 2.2 1.7 4.0
Exchange (loss)/gain on translation
of foreign balances (2.3) 3.0 2.2
Other comprehensive (loss)/income
for the period net of tax(1) (0.1) 4.7 6.2
---------------------------------------------- ---- ------------ ------------ ----------
Total comprehensive income for the
period net of tax(1) 71.3 44.2 118.2
---------------------------------------------- ---- ------------ ------------ ----------
IFRS earnings per share
Basic 8 5.4p 3.2p 8.8p
Diluted 8 5.1p 3.2p 8.7p
Adjusted earnings per share(2)
Basic 8 3.1p 3.0p 5.8p
Diluted 8 3.0p 2.9p 5.7p
---------------------------------------------- ---- ------------ ------------ ----------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC
(2) See Glossary of Terms on pages 48-50.
The above relates wholly to continuing operations.
Condensed Group Balance Sheet
As at 30 June 2021
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
--------------------------------- ------ ------------ ------------ ------------
Non-current assets
Investment properties 10 2,655.2 2,514.3 2,576.1
Derivative interest rate 15,
swaps 16 1.3 - -
Fixed assets 0.1 - -
2,656.6 2,514.3 2,576.1
Current assets
Trade and other receivables 14.9 14.4 17.4
Cash and cash equivalents 11 72.5 64.0 103.6
--------------------------------- ------ ------------ ------------ ------------
87.4 78.4 121.0
--------------------------------- ------ ------------ ------------ ------------
Total assets 2,744.0 2,592.7 2,697.1
--------------------------------- ------ ------------ ------------ ------------
Current liabilities
Deferred rental income (27.9) (26.2) (27.0)
Trade and other payables (31.1) (32.7) (34.7)
Borrowings: term loans
and overdraft 12 (73.1) (91.3) (6.4)
(132.1) (150.2) (68.1)
--------------------------------- ------ ------------ ------------ ------------
Non-current liabilities
Borrowings: term loans
and overdraft 12 (558.8) (594.0) (623.6)
Borrowings: bonds 13 (577.8) (582.4) (582.9)
Derivative interest rate 15,
swaps 16 - (19.3) (0.1)
Head lease liabilities 14 (4.5) (4.5) (4.5)
Deferred tax liability (3.9) (3.3) (3.5)
--------------------------------- ------ ------------ ------------ ------------
(1,145.0) (1,203.5) (1,214.6)
--------------------------------- ------ ------------ ------------ ------------
Total liabilities (1,277.1) (1,353.7) (1,282.7)
--------------------------------- ------ ------------ ------------ ------------
Net assets 1,466.9 1,239.0 1,414.4
--------------------------------- ------ ------------ ------------ ------------
Equity
Share capital 18 166.3 152.2 164.4
Share premium account 470.9 340.1 466.7
Merger and other reserves 19 414.6 401.6 400.8
Special reserve 20 - 29.5 -
Hedging reserve (17.9) (22.4) (20.1)
Retained earnings 433.0 338.0 402.6
Total equity (1) 1,466.9 1,239.0 1,414.4
--------------------------------- ------ ------------ ------------ ------------
Basic net asset value per
share
IFRS net assets - basic
and diluted 8 110.3 101.8p 107.5p
Adjusted net tangible assets(2)
- basic 8 115.4 109.1p 112.9p
Adjusted net tangible assets(2)
- diluted 8 117.5 112.2p 115.4p
--------------------------------- ------ ------------ ------------ ------------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) See Glossary of Terms on pages 48-50.
Condensed Group Cash Flow Statement
For the six months ended 30 June 2021
Six months Six months Year ended
ended ended 31 December
30 June 2021 30 June 2020 2020
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
----------------------------------------- ------ -------------- -------------------- -------------
Operating activities
Profit on ordinary activities after
tax 71.4 39.5 112.0
Taxation charge 7 0.6 0.1 0.4
Finance income 4 (0.4) (1.5) (1.9)
Finance costs 5 20.8 22.3 43.7
Termination payment and goodwill
impairment on acquisition of Nexus 6 35.3 - -
Exceptional Nexus acquisition costs 6 1.7 - -
Fair value loss on derivatives 0.7 8.1 12.9
Fair value loss on convertible
bond (0.5) 0.3 2.3
----------------------------------------- ------ -------------- -------------------- -------------
Operating profit before financing
costs 129.6 68.8 169.4
Adjustments to reconcile Group
operating profit to
net cash flows from operating
activities:
Revaluation gain on property portfolio 10 (66.9) (10.5) (51.3)
Profit on sale of land and property - - (0.1)
Long term incentive plan (LTIP) 0.1 - -
Effect of exchange rate fluctuations
on operations - - (0.3)
Fixed rent uplift (0.6) (0.8) (1.5)
Tax paid (0.1) - (0.2)
Decrease/(Increase) in trade and
other receivables 2.8 0.3 (1.3)
Increase/(decrease) in trade and
other payables (0.5) 1.4 4.2
Cash generated from operations 64.4 59.2 118.9
----------------------------------------- ------ -------------- -------------------- -------------
Net cash flow from operating activities 64.4 59.2 118.9
----------------------------------------- ------ -------------- -------------------- -------------
Investing activities
Payments to acquire and improve
properties and fixed assets (23.6) (79.6) (102.9)
Receipts from disposal of properties - - 0.1
Cash paid for acquisition of Nexus,
including fees 6 (18.2) - -
Interest received on development
loans 0.3 1.8 1.9
Net cash flow used in investing
activities (41.5) (77.8) (100.9)
----------------------------------------- ------ -------------- -------------------- -------------
Financing activities
Proceeds from issue of shares 18 - - 140.0
Costs of share issues (0.1) (0.1) (3.2)
Term bank loan drawdowns 8.2 11.8 17.8
Term bank loan repayments (3.6) (17.1) (76.2)
Loan arrangement fees (0.7) (0.1) (2.0)
Termination of derivative financial
instruments - - (21.8)
Swap interest paid - - (0.1)
Non-utilisation fees (0.9) (0.8) (1.9)
Interest paid (20.0) (21.2) (42.0)
Bank interest received - 0.3 0.4
Equity dividends paid net of scrip
dividend 9 (36.4) (33.7) (69.1)
----------------------------------------- ------ -------------- -------------------- -------------
Net cash flow used in financing
activities (53.5) (60.9) (58.1)
----------------------------------------- ------ -------------- -------------------- -------------
Increase in cash and cash equivalents (30.6) (79.5) (40.1)
Effect of exchange rate fluctuations
on Euro denominated loans and cash
equivalents (0.5) 0.4 0.6
Cash and cash equivalents at start
of period/year 103.6 143.1 143.1
----------------------------------------- ------ -------------- -------------------- -------------
Cash and cash equivalents at end
of period/year 11 72.5 64.0 103.6
----------------------------------------- ------ -------------- -------------------- -------------
Condensed Group Statement of Changes in Equity
For the six months ended 30 June 2021 (unaudited)
Six months ended 30 June 2021 (unaudited)
Merger
Share Share & other Special Hedging Retained
capital premium reserves reserve reserve earnings Total
-------------------------
GBPm 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
------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
Six months ended 30 June 2020 (unaudited)
Merger
Share Share & other Special Hedging Retained
capital premium reserves reserve reserve earnings Total
-------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
1 January 2020 152.0 338.1 398.6 65.4 (24.1) 298.5 1,228.5
Profit for the period - - - - - 39.5 39.5
Other comprehensive
income
Exchange gain on
translation of foreign
balances - - 3.0 - - - 3.0
Amortisation of hedging
reserve - - - - 1.7 - 1.7
Total comprehensive
income - - 3.0 - 1.7 39.5 44.2
Share issue expenses - - - - - - -
Dividends paid - - - (33.7) - - (33.7)
Scrip dividend in
lieu of cash 0.2 2.0 - (2.2) - - -
30 June 2020 152.2 340.1 401.6 29.5 (22.4) 338.0 1,239.0
------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
Condensed Group Statement of Changes in Equity (continued)
Year ended 31 December 2020 (audited)
Merger
Share Share & other Special Hedging Retained
capital premium reserves reserve reserve earnings Total
-------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
1 January 2020 152.0 338.1 398.6 65.4 (24.1) 298.5 1,228.5
Profit for the period - - - - - 112.0 112.0
Other comprehensive
income
Exchange gain on
translation of foreign
balances - - 2.2 - - - 2.2
Amortisation of hedging
reserve - - - - 4.0 - 4.0
Total comprehensive
income - - 2.2 - 4.0 112.0 118.2
Shares issued as
part of capital raise 12.1 127.9 - - - - 140.0
Share issue expenses - (3.2) - - - - (3.2)
Dividends paid - - - (61.2) - (7.9) (69.1)
Scrip dividend in
lieu of cash 0.3 3.9 - (4.2) - - -
31 December 2020 164.4 466.7 400.8 - (20.1) 402.6 1,414.4
------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
Notes to the 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 2020 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 18-19. These
condensed consolidated interim financial statements of the Group
for the six months ended 30 June 2021 were approved and authorised
for issue by the Board on 27 July 2021.
Basis of preparation/statement of compliance
The condensed consolidated interim financial statements for the
six months ended 30 June 2021 have been prepared in accordance with
IAS 34 'Interim Financial Reporting' and which were prepared in
accordance with IFRS as adopted by the European Union (see
Accounting policies section below).
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 2020.
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 of the Group's assets or extenuating
economic circumstances impacts investment values - valuation
parameter stress tested to provide for a one-off 10%/GBP269m fall
in December 2021 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 2021, 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 2021 level, 6.2p 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 2021 was
40.9% and the Group's interest cover for the period under review
was 3.2 times, well above the minimum Group banking covenant of 1.3
times.
The COVID-19 pandemic has not had a direct impact on the primary
health centres we invest in because of the sector we invest in, as
well as the fact the business is affected more by demographics than
economics.
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.
Accounting policies
The accounting policies adopted are consistent with those of the
previous financial year as set out in the Annual Report.
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.
Notes to the condensed financial statements (continued)
3. Administrative expenses
Administrative expenses as a proportion of rental income were
7.0% (30 June 2020: 9.5% excluding exceptional contract termination
payment). The Group's EPRA cost ratio has decreased to 9.0%,
compared to 11.6% for the same period in 2020.
Administrative expenses include staff costs of GBP2.5m (30 June
2020: GBPNIL).
Details of the Performance Incentive Fee ("PIF") payable to
senior management for the period ended 30 June 2021 are contained
in the Financial Review on pages 11-15.
4. Finance income
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
Interest income on financial assets
Bank interest - 0.3 0.4
Development loan interest 0.4 0.5 0.8
0.4 0.8 1.2
------------------------------------- ------------ ------------ -------------
5. Finance costs
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ -------------
Interest expense and similar charges on financial
liabilities
(i) Interest
Bank loan interest 12.3 12.1 26.1
Swap interest - 0.2 0.1
Bond interest 7.6 9.3 16.0
Bank facility non utilisation fees 1.1 0.9 1.9
Bank charges and loan arrangement
fees 1.4 1.3 2.7
22.4 23.8 46.8
Interest capitalised - (0.7) (0.7)
--------------------------------------------------- ------------ ------------ -------------
22.4 23.1 46.1
Amortisation of MedicX debt MtM
at acquisition (1.6) (1.5) (3.1)
--------------------------------------------------- ------------ ------------ -------------
20.8 21.6 43.0
--------------------------------------------------- ------------ ------------ -------------
Notes to the condensed financial statements (continued)
5. Finance costs (continued)
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ -------------
(ii) Derivatives
Net fair value gain/(loss) on interest
rate swaps 1.5 (5.9) (8.5)
Amortisation of cash flow hedging
reserve (2.2) (2.2) (4.4)
---------------------------------------- ------------ ------------ -------------
(0.7) (8.1) (12.9)
---------------------------------------- ------------ ------------ -------------
The fair value loss on derivatives recognised in the Condensed
Group Statement of Comprehensive Income has arisen from the
interest rate swaps for which hedge accounting does not apply. A
fair value loss on derivatives which meet the hedge effectiveness
criteria under IFRS 9 of GBPNIL (30 June 2020: GBPNIL), (31
December 2020: loss of GBP0.4m) is accounted for directly in
equity.
An amount of GBP2.2m (30 June 2020: GBP2.2m), (31 December 2020:
GBP4.4m) has been amortised from the cash flow hedging reserve in
the period.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------- ------------ ------------ -------------
(iii) Convertible Bond
Fair value gain/(loss) on Convertible
Bond 0.5 (0.3) (2.3)
0.5 (0.3) (2.3)
--------------------------------------- ------------ ------------ -------------
The fair value movement in the convertible bonds is recognised
in the Group Statement of Comprehensive Income within profit before
taxation and is excluded from the calculation of EPRA earnings and
EPRA NTA (replacing EPRA
NAV). Refer to note 13 for further details about the Convertible Bond.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------ ------------ ------------ -------------
Finance income (Note 4) 0.4 0.8 1.2
Finance costs (Note 5 (i)) (22.4) (23.1) (46.8)
------------------------------------ ------------ ------------ -------------
(45 .6
(22.0) (22.3) )
Interest capitalised - - 0.7
(22.0) (22.3) (44.9)
Amortisation of MedicX debt MtM on
acquisition 1.6 1.5 3.1
------------------------------------ ------------ ------------ -------------
Net finance costs (20.4) (20.8) (41.8)
------------------------------------ ------------ ------------ -------------
Notes to the condensed financial statements (continued)
6. Business combination
On 5 January 2021 the Group's management function was
internalised by acquiring PHP Tradeco Holdings Limited (formerly
Nexus Tradeco Holdings Limited) which is the holding company of its
longstanding external property adviser PHP Tradeco Limited
(formerly Nexus Tradeco Limited) and certain subsidiaries,
including the primary care development business ("Nexus"). Primary
Health Properties PLC acquired the entire issued ordinary share
capital of PHP Tradeco Holdings Limited at a total cost of GBP34.1
million, including a termination payment of GBP29.0m.
The total cost was met by GBP16.5m payment in cash, and GBP17.6m
satisfied by the issue of 1 1,485,080 new ordinary shares of 12.5
pence each in the share capital of PHP at a price on completion of
152.8 pence per share.
The acquisition of PHP Tradeco Holdings Limited, for a total
fair value of consideration of GBP5.1m resulted in the transfer of
certain assets and liabilities and the fair value of the net
liabilities acquired was GBP1.2m resulting in a goodwill on
acquisition of GBP6.3m.
The goodwill on acquisition of GBP6.3 million has been
immediately impaired and together with the termination payment,
GBP35.3 million has been recognised as an expense in the half year.
Acquisition costs of GBP1.7 million have been recognised as an
exceptional acquisition expense.
Book Adjustments Total
value to fair value fair value
GBPm GBPm GBPm
Cash consideration 16.5 - 16.5
Equity instruments 17.6 - 17.6
----------------------------------- ------- --------------- ------------
Total cost 34.1 - 34.1
Less: Termination payment - - (29.0)
----------------------------------- ------- --------------- ------------
Fair value of consideration
paid - - 5.1
Fair value of net assets acquired
Tangible fixed assets 0.1 - 0.1
Cash and cash equivalents 0.4 - 0.4
Trade and other debtors 1.2 - 1.2
----------------------------------- ------- --------------- ------------
Total assets 1.7 - 1.7
Trade creditors and other
creditors (1.4) (1.1) (2.5)
Amounts due to HMRC (0.4) - (0.4)
----------------------------------- ------- --------------- ------------
Total liabilities (1.8) (1.1) (2.9)
----------------------------------- ------- --------------- ------------
Fair value of net assets acquired (0.1) (1.1) (1.2)
Termination payment and goodwill
arising on acquisition 35.3
----------------------------------- ------- --------------- ------------
Notes to the condensed financial statements (continued)
7. Taxation
The Group elected to be treated as a UK-REIT with effect from 1
January 2007. The UK-REIT rules exempt the profits of the Group's
property rental business from corporation tax. Gains on properties
are also exempt from tax, provided they are not held for trading or
sold in the three years post completion of development. The Group
will otherwise be subject to corporation tax at 19% (2020:
19%).
Acquired companies are effectively converted to UK-REIT status
from the date on which they become a member of the Group.
As a UK-REIT, the Company is required to pay Property Income
Distributions ("PIDs") equal to at least 90% of the Group's rental
profit calculated by reference to tax rules rather than accounting
standards.
To remain as a UK-REIT there are a number of conditions to be
met in respect of the principal company of the Group, the Group's
qualifying activities and the balance of its business. The Group
remains compliant as at 30 June 2021.
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 ended 31 December
30 June 30 June 2020
2021 2020
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 charge - - (0.1)
Deferred tax on Irish activities (0.6) (0.1) (0.3)
Taxation charge in the Condensed
Group Statement of Comprehensive
Income (0.6) (0.1) (0.4)
------------------------------------------- ------------ ------------ -------------
Notes to the condensed financial statements (continued)
8. 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 2021 30 June 2020
(unaudited) (unaudited)
-------------------------------- ----------------------------------
IFRS Adjusted EPRA IFRS Adjusted EPRA
earnings earnings earnings earnings earnings earnings
GBPm GBPm GBPm GBPm GBPm GBPm
-------------- --------- --------- ---------- --------- --------- ----------
Profit after
taxation 71.4 71.4 71.4 39.5 39.5 39.5
Adjustments
to remove:
Revaluation
gain on
property
portfolio - (66.9) (66.9) - (10.5) (10.5)
Profit on
sale of land
and
property - - -
Fair value
movement on
derivatives - 0.7 0.7 - 8.1 8.1
Fair value
movement and
issue costs
on
convertible
bond - (0.5) (0.5) - 0.3 0.3
Taxation
charge - 0.6 0.6 - 0.1 0.1
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 - (1.6) - - (1.5) -
-------------- --------- --------- ---------- --------- --------- ----------
Basic
earnings 71.4 40.7 13.3 39.5 36.0 37.5
Dilutive
effect of
convertible
bond 1.6 2.1 2.1 2.1 2.1 2.1
-------------- --------- --------- ---------- --------- --------- ----------
Diluted
earnings 73.0 42.8 15.4 41.6 38.1 39.6
-------------- --------- --------- ---------- --------- --------- ----------
Number of shares million million million million million million
-------------------------- -------- -------- -------- -------- -------- --------
Ordinary Shares 1,328.7 1,328.7 1,328.7 1,217.1 1,217.1 1,217.1
Dilutive effect of
convertible
bond 103.3 103.3 103.3 100.4 100.4 100.4
-------------------------- -------- -------- -------- -------- -------- --------
Diluted Ordinary Shares 1,432.0 1,432.0 1,432.0 1,317.5 1,317.5 1,317.5
-------------------------- -------- -------- -------- -------- -------- --------
Profit per share attributable to shareholders: IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
--------- ------- --------- ------- ------- --------- -------
Basic 5.4 3.1 1.0 3.2 3.0 3.1
Diluted 5.1 3.0 1.1 3.2 2.9 3.0
--------- ------- --------- ------- ------- --------- -------
Notes to the condensed financial statements (continued)
8. Earnings per share (continued)
Earnings per share 31 December 2020
(audited)
IFRS Adjusted EPRA
earnings earnings earnings
GBPm GBPm GBPm
-------------------------------- ---------- ---------- ----------
Profit after taxation 112.0 112.0 112.0
Adjustments to remove:
Revaluation gain on property
portfolio - (51.3) (51.3)
Profit on the sale of land - (0.1) (0.1)
Fair value movement on
derivatives - 12.9 12.9
Fair value movement and
issue costs on convertible
bond - 2.3 2.3
Taxation charge - 0.4 0.4
Amortisation of MtM loss
on debt acquired - (3.1) -
-------------------------------- ---------- ---------- ----------
Basic earnings 112.0 73.1 76.2
Dilutive effect of convertible
bond 6.6 4.3 4.3
-------------------------------- ---------- ---------- ----------
Diluted earnings 118.6 77.4 80.5
-------------------------------- ---------- ---------- ----------
Number of shares million million million
-------------------------------- -------- -------- --------
Ordinary Shares 1,266.4 1,266.4 1,266.4
Dilutive effect of convertible
bond 102.0 102.0 102.0
-------------------------------- -------- -------- --------
Diluted Ordinary Shares 1,368.4 1,368.4 1,368.4
-------------------------------- -------- -------- --------
Profit per share attributable to shareholders: IFRS Adjusted EPRA
pence pence pence
--------- ------- --------- -------
Basic 8.8 5.8 6.0
Diluted 8.7 5.7 5.9
--------- ------- --------- -------
Notes to the condensed financial statements (continued)
8. Earnings per share (continued)
Net assets per share 30 June 2021 30 June 2020
(unaudited) (unaudited)
---------------------- ----------------------------- -----------------------------
IFRS Adjusted EPRA IFRS Adjusted EPRA
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- --------- -------- -------- --------- --------
Net assets
attributable
to shareholders 1,466.9 1,466.9 1,466.9 1,239.0 1,239.0 1,239.0
Derivative interest
rate
swaps liability (1.3) (1.3) 19.3 19.3
Deferred tax 3.9 3.9 3.3 3.3
Cumulative
convertible
bond fair value
movement 24.5 24.5 23.0 23.0
MtM on MedicX loans
net
of amortisation 40.7 - 43.9 -
---------------------- -------- --------- -------- -------- --------- --------
Net tangible assets
("NTA") 1,534.7 1,494.0 1,328.5 1,284.6
Real estate transfer
taxes 182.9 168.9
---------------------- -------- --------- -------- -------- --------- --------
Net reinstatement
value
("NRV") 1,676.9 1,453.5
Fixed rate debt and
swap
mark-to-market value (49.6) (111.3)
Deferred tax (3.9) (3.3)
Cumulative
convertible
bond fair value
movement (24.5) (23.0)
Real estate transfer
taxes (182.9) (168.9)
---------------------- -------- --------- -------- -------- --------- --------
Net disposal value
("NDV") 1,416.0 1,147.0
---------------------- -------- --------- -------- -------- --------- --------
Ordinary shares million million million million million million
------------------------- -------- -------- -------- -------- -------- --------
Diluted Ordinary Shares 1,330.2 1,330.2 1,330.2 1,217.7 1,217.7 1,217.7
------------------------- -------- -------- -------- -------- -------- --------
Basic net asset value per share(1) IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
---------------------------- ------- --------- ------- ------- --------- -------
Net tangible assets ("NTA") 110.3 115.4 112.3 101.8 109.1 105.5
Net reinstatement value
("NRV") 126.1 119.4
Net disposal value ("NDV") 106.4 94.2
---------------------------- ------- --------- ------- ------- --------- -------
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") 110.3 117.5 114.7 101.8 112.2 108.8
Net reinstatement value
("NRV") 127.4 121.7
Net disposal value ("NDV") 109.2 100.1
---------------------------- ------- --------- ------- ------- --------- -------
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 145.21 pence (30 June 2020: 149.39
pence) (31 December 2020: 147.10 pence) .
Notes to the condensed financial statements (continued)
8. Earnings per share (continued)
Net assets per share 31 December 2020
(audited)
----------------------------- -----------------------------
IFRS Adjusted EPRA
GBPm GBPm GBPm
----------------------------- -------- --------- --------
Net assets attributable
to shareholders 1,414.4 1,414.4 1,414.4
Derivative interest rate
swaps liability 0.1 0.1
Deferred tax 3.5 3.5
Cumulative convertible
bond fair value movement 25.0 25.0
MtM on MedicX loans net
of amortisation 42.3 -
----------------------------- -------- --------- --------
Net tangible assets ("NTA") 1,485.3 1,443.0
Real estate transfer taxes 174.7
----------------------------- -------- --------- --------
Net reinstatement value
("NRV") 1,617.7
Fixed rate debt and swap
mark-to-market value (88.0)
Deferred tax (3.5)
Cumulative convertible
bond fair value movement (25.0)
Real estate transfer taxes (174.7)
----------------------------- -------- --------- --------
Net disposal value ("NDV") 1,326.5
----------------------------- -------- --------- --------
Ordinary shares million million million
------------------------- -------- -------- --------
Diluted Ordinary Shares 1,315.6 1,315.6 1,315.6
------------------------- -------- -------- --------
Basic net asset value per share(1) IFRS Adjusted EPRA
pence pence pence
----------------------------- ------- --------- -------
Net tangible assets ("NTA") 107.5 112.9 109.7
Net reinstatement value
("NRV") 123.0
Net disposal value ("NDV") 100.8
----------------------------- ------- --------- -------
1 The above are calculated on a "basic" basis without the adjustment
for the impact of the convertible bond which is shown in the diluted
basis table below.
Diluted net asset value per share(2) IFRS Adjusted EPRA
pence pence pence
----------------------------- ------- --------- -------
Net tangible assets ("NTA") 107.5 115.4 112.4
Net reinstatement value
("NRV") 124.7
Net disposal value ("NDV") 104.2
----------------------------- ------- --------- -------
2 The Company assesses the dilutive impact of the unsecured convertible
bond, issued by the Group on 15 July 2019, on its net asset value per
share with a current exchange price of 145.21 pence (30 June 2020: 149.39
pence) (31 December 2020: 147.10 pence) .
Notes to the condensed financial statements (continued)
8. Earnings per share (continued)
Conversion of the convertible bond would result in the issue of
103.3 million (31 December 2020: 102.0 million) new Ordinary
Shares. The IFRS net asset value and EPRA NDV would increase by
GBP174.4 million (31 December 2020: GBP175.0 million) and the EPRA
NTA, Adjusted NTA and EPRA NRV would increase by GBP150.0 million
(31 December 2020: GBP150.0 million). The resulting diluted net
asset values per share are anti-dilutive to all measures and are
set out in the table above.
9. Dividends
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
Quarterly interim dividend paid 18.6 - -
26 February 2021
Scrip dividend in lieu of quarterly 1.9 - -
cash dividend 26 February 2021
Quarterly interim dividend paid 17.8 - -
21 May 2021
Scrip dividend in lieu of quarterly 2.8 - -
cash dividend 21 May 2021
Quarterly interim dividend paid
22 February 2020 - 16.9 -
Scrip dividend in lieu of quarterly - 1.0 -
cash dividend 22 February 2020
Quarterly interim dividend paid - 16.8
24 May 2020 -
Scrip dividend in lieu of quarterly - 1.2 -
cash dividend 24 May 2020
Quarterly interim dividend paid
21 February 2020 - - 16.9
Scrip dividend in lieu of quarterly
cash dividend 21 February 2020 - - 1.0
Quarterly interim dividend paid
22 May 2020 - - 16.9
Scrip dividend in lieu of quarterly
cash dividend 22 May 2020 - - 1.1
Quarterly interim dividend paid
21 August 2020 - - 16.4
Scrip dividend in lieu of quarterly
cash dividend 21 August 2020 - - 1.5
Quarterly interim dividend paid
20 November 2020 - - 18.9
Scrip dividend in lieu of quarterly
cash dividend 20 November 2020 - - 0.6
Total dividends distributed 41.1 35.9 73.3
------------------------------------- ------------ ------------ -------------
Per share 3.1p 2.95p 5.9p
------------------------------------- ------------ ------------ -------------
The Company will pay a third interim dividend of 1.55 pence per
Ordinary Share for the year ending 31 December 2021, payable on 20
August 2021. This dividend will comprise wholly of a Property
Income Distribution ("PID") of 1.55 pence and no ordinary
dividend.
Notes to the condensed financial statements (continued)
10. 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 2021 (audited) 2,061.3 491.4 23.4 2,576.1
Property additions 6.1 0.8 13.0 19.9
Transfer from properties
in the course of development 14.1 - (14.1) -
Impact of lease incentive
adjustment 0.8 0.2 (0.4) 0.6
Foreign exchange movements (6.4) (1.6) (0.3) (8.3)
-------------------------------- -------------- ----------------- -------------------- --------
Revaluations for the period 46.6 19.1 1.2 66.9
-------------------------------- -------------- ----------------- -------------------- --------
As at 30 June 2021 (unaudited) 2,122.5 509.9 22.8 2,655.2
-------------------------------- -------------- ----------------- -------------------- --------
(1) Includes development land held at GBP0.9m (31 December 2020:
GBP0.9m)
Total
GBPm
Fair value per LSH UK valuation 1,308.6
Fair value of JLL UK valuation 1,142.0
Fair value of CBRE Ireland valuation 200.1
--------------------------------------------- --------
2,650.7
Ground rents recognized as finance leases 4.5
--------------------------------------------- --------
Fair value 30 June 2021
(unaudited) 2,655.2
---------------------------------------------- --------
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 COVID-19 pandemic has led to a heightened degree of
uncertainty surrounding the valuation of certain property
sub-sectors. In the UK and Ireland, the valuers have not included
any material uncertainty clauses in their valuation reports.
The properties are 99.7% let (31 December 2020: 99.6%). The
valuations reflected a 4.70% net initial yield (31 December 2020:
4.81%). 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)
10. 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
GBP18.3m (31 December 2020: GBP32.1m) 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 GBP10.7m (30 June 2020: GBP8.4m; 31 December
2020: GBP7.5m) 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 2021 and 31 December
2020. There were no transfers between levels during the period or
during 2020. Level 3 inputs used in valuing the properties are
those which are unobservable, as opposed to level 1 (inputs from
quoted prices) and level 2 (observable inputs either directly, i.e.
as prices, or indirectly, i.e. derived from prices).
11. Cash and cash equivalents
30 June 2021 31 December 2020
GBPm GBPm
(unaudited) (audited)
------------------- ------------- -----------------
Cash held at bank 72.5 103.6
------------------- ------------- -----------------
Notes to the condensed financial statements (continued)
12. 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
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- -------- ------------ -------- ------------ -------- ------------
Current
RBS Overdraft Jun 2021 5.0 5.0 - - 5.0 5.0
RBS loan Mar 2022 100.0 - 66.6 - 33.4 -
Santander Jul 2021 30.6 30.6 - - 30.6 30.6
Aviva HIL
loan Jan 2032 1.0 1.0 1.0 1.0 - -
Aviva loan(1) Sep 2033 2.1 2.0 2.1 2.0 - -
Aviva loan(1) Jun 2040 0.7 0.7 0.7 0.7 - -
Aviva loan Aug 2029 2 .7 2.7 2 .7 2.7 - -
142.1 42.0 73.1 6.4 69.0 35.6
Non-current
Aviva HIL
loan Jan 2032 18.9 19.4 18.9 19.4 - -
Aviva loan Dec 2022 25.0 25.0 25.0 25.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Aviva loan Aug 2024 50.0 50.0 50.0 50.0 - -
Aviva loan Aug 2029 56.0 57.3 56.0 57.3 - -
Barclays
loan Dec 2023 100.0 100.0 - - 100.0 100.0
HSBC loan Nov 2022 100.0 100.0 - - 100.0 100.0
Lloyds loan Oct 2023 50.0 50.0 27.6 28.8 22.4 21.2
RBS loan Mar 2022 - 100.0 -- 59.4 - 40.7
Santander Jul 2021 - - -
loan - - -
Aviva loan(1) Sep 2033 226.3 227.4 226.3 227.4 - -
Aviva loan(1) Sep 2028 30.8 30.8 30.8 30.8 - -
Aviva loan(1) Jun 2040 23.8 24.1 23.8 24.1 - -
755.8 859.0 533.4 597.2 222.4 261.9
----------- -------- ------------ -------- ------------ -------- ------------
Total 897.9 901.0 606.5 603.6 291.4 297.5
---------------- ---------- -------- ------------ -------- ------------ -------- ------------
(1) Acquired as part of the merger with MedicX.
At 30 June 2021, total facilities of GBP1,449.1m (31 December
2020: GBP1,456.8m) were available to the Group. This included term
loan facilities and the bonds in note 13. Of these facilities, as
at 30 June 2021, GBP1,157.7m was drawn (31 December 2020:
GBP1,159.3m).
Costs associated with the arrangement of the facilities,
including legal advice and loan arrangement fees, are amortised
over the life of the related facility.
Notes to the condensed financial statements (continued)
12. 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 2021 31 December
2020
GBPm GBPm
(unaudited) (audited)
------------------------------------------ ------------- ------------
Term loans drawn: due within one year 6.5 6.4
Term loans drawn: due in greater than
one year 600.0 597.2
------------------------------------------ ------------- ------------
Total term loans drawn 606.5 603.6
Plus: MtM on loans net of amortisation 35.3 36.6
Less: unamortised borrowing costs (9.9) (10.2)
Total term loans per the Condensed Group
Balance Sheet 631.9 630.0
------------------------------------------ ------------- ------------
The Group has been in compliance with all the applicable
financial covenants of the above facilities through the period.
13. Borrowings: Bonds
30 June 2021 31 December
2020
GBPm GBPm
(unaudited) (audited)
---------------------------------------------- ------------- ------------
Unsecured
Convertible bond July 2025 at fair value 174.4 175.0
Less: unamortised costs - -
Total unsecured bonds 174.4 175.0
---------------------------------------------- ------------- ------------
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 43.7 45.6
EUR70 million secured bond (Euro private
placement) September 2031 60.0 62.6
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised issue costs (3.3) (3.6)
Plus: MtM on loans net of amortization 5.5 5.8
Total secured bonds 403.4 407.9
---------------------------------------------- ------------- ------------
Total bonds 577.8 582.9
---------------------------------------------- ------------- ------------
Notes to the condensed financial statements (continued)
13. 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 (GBP43.7 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 (GBP60.0 million) were issued at a fixed rate of
1.509% and a maturity of twelve years. Interest is paid
semi-annually in arrears. The secured notes are guaranteed by the
Company and were placed with UK and Irish institutional
investors.
Ignis and Standard Life loan notes
On 14 March 2019, the loan notes were added to the portfolio as
a part of the MedicX acquisition. The Ignis loan note 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
145.21 pence as at 30 June 2021.
Notes to the condensed financial statements (continued)
13. Borrowings: Bonds (continued)
Convertible Bond
30 June 2021 31 December
2020
(unaudited) (audited)
GBPm GBPm
----------------------------------------------- ------------- ------------
Opening balance - fair value 175.0 172.7
Cumulative fair value movement in Convertible
Bond (0.6) 2.3
----------------------------------------------- ------------- ------------
Closing balance - fair value 174.4 175.0
----------------------------------------------- ------------- ------------
The fair value of the Convertible Bond at 30 June 2021 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).
14. 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 2021 31 December
2020
(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)
15. 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 Total
GBPm GBPm
-------------------------------- --------------------- --------
Assets
As at 1 January 2021 (audited) - -
Fair value movement in the
period 1.3 1.3
-------------------------------- --------------------- --------
As at 30 June 2021 (unaudited) 1.3 1.3
-------------------------------- --------------------- --------
Liabilities
As at 1 January 2021 (audited) (0.1) (0.1)
Fair value movement in the
period 0.1 0.1
-------------------------------- --------------------- --------
As at 30 June 2021 (unaudited) - -
-------------------------------- --------------------- --------
Total - derivative financial
instruments
As at 1 January 2021 (audited) (0.1) (0.1)
Fair value movement in the
period 1.4 1.4
-------------------------------- --------------------- --------
As at 30 June 2021 (unaudited) 1.3 1.3
-------------------------------- --------------------- --------
Notes to the condensed financial statements (continued)
16. 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 2021 30 June 2021 31 December 31 December
2020 2020
(unaudited) (unaudited) (audited) (audited)
GBPm GBPm GBPm GBPm
----------------------------- ------------- ------------- ------------ ------------
Financial assets
Trade and other receivables 14.9 14.9 17.4 17.4
Effective interest rate - -
swaps - -
Ineffective interest
rate swaps 1.3 1.3 - -
Cash and short-term
deposits 72.5 72.5 103.6 103.6
----------------------------- ------------- ------------- ------------ ------------
Financial liabilities
Interest-bearing loans
and borrowings (1,157.7) (1,209.7) (1,159.3) (1,212.8)
Effective interest rate
swaps - - - -
Ineffective interest
rate swaps (net) - - (0.1) (0.1)
Trade and other payables (31.1) (31.1) (34.7) (34.7)
----------------------------- ------------- ------------- ------------ ------------
The fair value of the financial assets and liabilities is
included as an estimate of the amount at which the instruments
could be 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 2021. 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)
16. Financial risk management (continued)
Fair value measurements at 30 June 2021 are as follows:
Level 1(1) Level 2(2) Level 3(3) Total
Recurring fair value GBPm GBPm GBPm GBPm
measurements
----------------------- ----------- ----------- ----------- --------
Financial assets
Derivative interest
rate swaps - 1.3 - 1.3
----------------------- ----------- ----------- ----------- --------
Financial liabilities
Derivative interest - - - -
rate swaps
Convertible Bond (174.4) - - (174.4)
Fixed rate debt - (935.2) - (935.2)
----------------------- ----------- ----------- ----------- --------
Fair value measurements at 31 December 2020 were as follows:
Recurring fair value Level 1(1) Level 2(2) Level 3(3) Total
measurements
GBPm GBPm GBPm GBPm
----------------------- ----------- ----------- ----------- --------
Financial assets
Derivative interest - - - -
rate swaps
----------------------- ----------- ----------- ----------- --------
Financial liabilities
Derivative interest
rate swaps - (0.1) - (0.1)
Convertible Bond (175.0) - - (175.0)
Fixed rate debt - (981.5) - (981.5)
----------------------- ----------- ----------- ----------- --------
(1) Valuation is based on unadjusted quoted prices in active
markets for identical financial assets and liabilities
(2) Valuation is based on inputs (other than quoted prices
included in Level 1) that are observable for the financial asset or
liability, either directly (i.e. as unquoted prices) or indirectly
(i.e. derived from prices)
(3) Valuation is based on inputs that are not based on
observable market data
The interest rate swaps whose fair values include the use of
level 2 inputs are valued by discounting expected future cash flows
using market interest rates and yield curves over the remaining
term of the instrument. The following inputs are used in arriving
at the valuation:
-- Interest rates;
-- Yield curves;
-- Swaption volatility;
-- Observable credit spreads;
-- Credit default swap curve; and
-- Observable market data.
Notes to the condensed financial statements (continued)
17. Related party transactions
On 5 January 2021 the Group completed the acquisition of Nexus
and internalised the management arrangements and consequently no
further amounts are payable in relation to related party
transactions described in the 2020 Annual Report. The fees payable
to Nexus in prior periods, included in administrative expenses, are
as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------- ------------ ------------ -------------
Nexus 0.1 5.6 9.1
------- ------------ ------------ -------------
As at 30 June 2021, outstanding advisory fees payable to Nexus
totalled GBPNIL (30 June 2020: GBP0.7m).
Further fees paid to Nexus in accordance with the Advisory
Agreement for the period to 30 June 2021 of GBPNIL (30 June 2020:
GBP0.1m) in respect of capital projects were capitalised in the
period.
Service charge management fees paid to Nexus Ltd in the period,
in connection with the Group's properties, totalled GBPNIL (30 June
2020: GBP0.2m).
Refer to Note 6 for further information on the Nexus
acquisition.
18. Share capital
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ ------------
Issued and fully paid Ordinary
Shares at 12.5p each 166.3 152.2 164.4
---------------------------------------- ------------ ------------ ------------
At beginning of year 164.4 152.0 152.0
Scrip issues in lieu of cash dividends 0.4 0.2 0.3
Shares issued 5 January 2021 1.5 - -
Shares issued 9 July 2020 - - 12.1
166.3 152.2 164.4
---------------------------------------- ------------ ------------ ------------
Notes to the condensed financial statements (continued)
19. Merger and other reserves
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------ ------------ ------------ ------------
At beginning of year 400.8 398.6 398.6
Premium on shares issued for Nexus 16.1 - -
acquisition
Exchange gain on translation of
foreign balances (2.3) 3.0 2.2
414.6 401.6 400.8
------------------------------------ ------------ ------------ ------------
20. Special reserve
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------ ------------- ------------ ------------
At beginning of year - 65.4 65.4
Dividends paid - (33.7) (61.2)
Scrip issues in lieu of cash
dividends - (2.2) (4.2)
- 29.5 -
-------------------------------------------- ------------ ------------
The special reserve has arisen on previous issues of the
Company's shares. It represents the share premium on the issue of
the shares, net of expenses, from issues effected by way of a cash
box mechanism.
A cash box raising is a mechanism for structuring a capital
raising whereby the cash proceeds from investors are invested in a
subsidiary company of the parent instead of the parent itself. Use
of a cash box mechanism has enabled the share premium arising from
the issue of shares to be deemed to be a distributable reserve and
has therefore been shown as a special reserve in these financial
statements. Any issue costs are also deducted from the special
reserve.
As the special reserve is a distributable reserve, the dividends
declared in previous periods were distributed from this
reserve.
21. Subsequent events
There have been no significant events affecting the Company
since the period ended 30 June 2021.
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 European Union 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
27 July 2021
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.
Adviser is Nexus.
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.
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 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 16.
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 16.
EPRA net disposal value "EPRA NDV" (replacing EPRA NNNAV) is
adjusted EPRA NRV including deferred tax and the MtM value of fixed
rate debt and derivatives. The aim of the metric is to reflect the
value that would be realised under a disposal scenario. Refer to
Note 16.
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 16.
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 16.
EPRA vacancy rate is, as a percentage, the ERV of vacant space
in the Group's property portfolio divided by ERV of the whole
portfolio.
Equivalent yield (true and nominal) is a weighted average of the
net initial yield and reversionary yield and represents the return
a property will produce based upon the timing of the income
received. The true equivalent yield assumes rents are received
quarterly in advance. The nominal equivalent assumes rents are
received annually in arrears.
Estimated rental value ("ERV") is the external valuer's opinion
as to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
Gross rental income is the gross accounting rent receivable.
Group is Primary Health Properties PLC ("PHP") and its
subsidiaries.
Glossary of terms (continued)
HSE or the Health Service Executive is the executive agency of
the Irish government responsible for health and social services for
people living in Ireland.
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.
JCRA is J.C. Rathbone Associates Limited (now part of
Chatham).
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 ("MedicX") 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.
NHSPS is NHS Property Services Limited, the company wholly owned
and funded by the Department of Health, which, as of 1 April 2013,
has taken on all property obligations formerly borne by Primary
Care Trusts.
Parity value is calculated based on dividing the convertible
bond value by the exchange price.
Property Income Distribution ("PID") is the required
distribution of income as dividends under the REIT regime. It is
calculated as 90% of exempted net income.
Real Estate Investment Trust ("REIT") is a listed property
company which qualifies for and has elected into a tax regime,
which exempts qualifying UK profits, arising from property rental
income and gains on investment property disposals, from corporation
tax, but which has a number of specific requirements.
Rent reviews take place at intervals agreed in the lease and
their purpose is usually to adjust the rent to the current market
level at the review date.
Rent roll is the passing rent, being the total of all the
contracted rents reserved under the leases.
Reversionary yield is the anticipated yield which the initial
yield will rise to once the rent reaches the ERV and when the
property is fully let. It is calculated by dividing the ERV by the
valuation.
Retail Price Index ("RPI") is the official measure of the
general level of inflation as reflected in the retail price of a
basket of goods and services such as energy, food, petrol, housing,
household goods, travelling fare, etc. RPI is commonly computed on
a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews which
are linked to changes in the RPI.
Special reserve is a distributable reserve.
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 67.7
Revaluation surplus 66.9
and profit on sales
------------------------ -------
134.6
------------------------ -------
Opening property assets 2,576.1
Weighted additions in
the period 11.3
======================== =======
2,587.4
------------------------ -------
Total property return 5.2%
------------------------ -------
Glossary of terms (continued)
Total NAV return is calculated as the movement in adjusted net
tangible asset value for the period plus the dividends paid,
divided by opening EPRA net tangible asset value.
NAV
----------------------- -----
At 31 December 2020 112.9
At 30 June 2021 115.4
----------------------- -----
Increase / (decrease) 2.5
Add: Dividends paid
22/02/2021 Q 1 interim 1.55
21/05/2021 Q 2 interim 1.55
Total shareholder
return 5.6
----------------------- -----
Total shareholder return is calculated as the movement in the
share price for the period plus the dividends paid, divided by the
opening share price.
Weighted average facility maturity is calculated by multiplying
each tranche of Group debt by the remaining period to its maturity
and dividing the result by total Group debt in issue at the year
end.
Weighted average unexpired lease term ("WAULT") is the average
lease term remaining to first break, or expiry, across the
portfolio weighted by contracted rental income.
Yield on cost is the estimated annual rent of a completed
development divided by the total cost of development, including
site value and finance costs expressed as a percentage return.
Yield shift is a movement (usually expressed in basis points) in
the yield of a property asset, or like-for-like portfolio over a
given period. Yield compression is a commonly used term for a
reduction in yields.
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