REG - Primary Health Props - Interim Results
24/07/2024 07:00
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RNS Number : 5421X Primary Health Properties PLC 24 July 2024
Primary Health Properties PLC
Interim results for the six months ended 30 June 2024
28-year track record of dividend growth set to continue as new Government
commits to increased investment in primary and community care
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 2024 (the "period").
Mark Davies, Chief Executive Officer ("CEO") of PHP, commented:
"Following my appointment as CEO earlier in the year, I am delighted to be
able to announce PHP's interim results for 2024. This is another period of
robust operational and financial performance and we are encouraged by the
continued improvement in open market value rental growth, together with a
strong control on costs resulting in one of the lowest EPRA cost ratios in the
REIT sector and with the vast majority of PHP's debt either fixed or hedged
for a weighted average period of six years. It's clear that PHP's competitive
advantage is built on these strong fundamentals and leading position in the
UK, combined with our large exposure in Ireland.
"As PHP approaches its 30-year anniversary of continuous dividend growth in
2026, the management team appreciates the importance of driving further
earnings growth in the future and this continues to be an important focus of
the Group's business model.
"We welcome the new Labour Government's commitment to the NHS and,
specifically in the first few days of taking power, the Health Secretary's
identification of increased investment in primary care. As reported in the
media, there are commitments to reform GP services and wider community care in
order to expand service delivery in these settings, relieving the pressures on
the NHS. PHP is extremely well placed to facilitate and benefit from these
objectives, creating new and modern facilities to deliver services with huge
social impact.
"I will also take this opportunity to thank my predecessor, Harry Hyman, for
his long and successful leadership of the Company. I look forward to working
with Harry in the future, in his new role as Non-executive Chair, providing
both continuity and the benefit of his unrivaled experience in the sector."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Income statement and financial metrics Six months to 30 June 2024 Six months to 30 June 2023
Change
Net rental income(1) £76.2m £75.5m +0.9%
Adjusted earnings(1,2) £46.3m £45.9m +0.9%
Adjusted earnings per share(1,2) 3.5p 3.4p +2.9%
IFRS profit for the period £3.6m £39.5m
IFRS earnings per share(2) 0.3p 3.0p
Dividends
Dividend per share(5) 3.45p 3.35p +3.0%
Dividends paid(5) £46.1m £44.8m +2.9%
Dividend cover(1) 100% 102%
Balance sheet and operational metrics 30 June 31 December
2024 2023 Change
Adjusted NTA per share(1,3) 105.0p 108.0p -2.8%
IFRS NTA per share(1,3) 103.5p 106.5p -2.8%
Property portfolio
Investment portfolio valuation(4) £2.750bn £2.779bn -1.4%
Net initial yield ("NIY") (1) 5.18% 5.05% +13bps
Contracted rent roll (annualised)(1,7) £152.6m £150.8m +1.2%
Weighted average unexpired lease term ("WAULT")(1) 9.8 years 10.2 years
Occupancy 99.2% 99.3%
Rent-roll funded by government bodies(1) 89% 89%
Debt
Average cost of debt 3.3% 3.3%
Loan to value ratio ("LTV")(1) 48.0% 47.0%
Weighted average debt maturity - drawn facilities 6.0 years 6.6 years
Total undrawn loan facilities and cash(6) £307.8m £321.2m
1 Items marked with this footnote are alternative performance measures. Refer
to the Glossary of Terms for a description of these measures and a
reconciliation to the nearest statutory metric where appropriate.
2 See note 7, earnings per share, to the financial statements.
3 See note 7, net asset value per share, to the financial statements.
Adjusted net tangible assets, EPRA net tangible assets ("NTA"), EPRA net
disposal value ("NDV") and EPRA net reinstatement value ("NRV") are considered
to be alternative performance measures. The Group has determined that adjusted
net tangible assets is the most relevant measure.
4 Percentage valuation movement during the period based on the difference
between opening and closing valuations of properties after allowing for
acquisition costs and capital expenditure.
5 See note 8, dividends, to the financial statements.
(6) Pro-forma after deducting the remaining cost to complete contracted
acquisitions, properties under development and asset management projects.
(7) Percentage contracted rent roll increase during the period is based on the
annualised uplift achieved from all completed rent reviews and asset
management projects.
EARNINGS AND DIVIDEND GROWTH
· Adjusted earnings per share up 2.9% at 3.5p (30 June 2023: 3.4p)
· IFRS earnings per share decreased by 90.0% to 0.3p (30 June 2023: 3.0p)
reflecting non-cashflow losses arising on the valuation of the Group's
property portfolio, convertible bond and interest rate derivatives
· Contracted annualised rent roll increased by 1.2% to £152.6 million
(31 December 2023: £150.8 million)
· Additional annualised rental income on a like-for-like basis of £1.8
million or 1.2% from rent reviews and asset management projects (H1 2023:
£2.2 million or 1.5%; FY 2023: £4.3 million or 3.0%)
· EPRA cost ratio 10.0% (FY 2023: 10.1%) excluding PHP Axis overheads and
direct vacancy costs, representing one of the lowest in the UK REIT sector,
and which is expected to improve further from 2025 as a result of cost savings
enacted post period end, primarily relating to reductions in staff headcount,
totalling c. £1.0 million
· First three quarterly dividends totalling 5.175 pence per share
distributed or declared in the year-to-date, equivalent to 6.9 pence per share
on an annualised basis, a 3.0% increase over 2023 (6.7 pence per share) and
marking the Company's 28(th) consecutive year of dividend growth
· The Company intends to maintain its strategy of paying a progressive
dividend, fully covered by Adjusted earnings
NET ASSET VALUE AND PORTFOLIO MANAGEMENT
· The portfolio's metrics continue to reflect the Group's secure,
long-term and predictable income stream with occupancy at 99.2% (31 December
2023: 99.3%), 89% (31 December 2023: 89%) of income funded by government
bodies and a WAULT of 9.8 years (31 December 2023: 10.2 years)
· Adjusted Net Tangible Assets ("NTA") per share decreased by 2.8% to
105.0 pence (31 December 2023: 108.0 pence)
· Property portfolio valued at £2.750 billion (31 December 2023: £2.779
billion) reflecting a net initial yield of 5.18% (31 December 2023: 5.05%)
· Revaluation deficit in the period of £40.0 million (30 June 2023:
deficit £11.9 million), representing a decline of -1.4% (30 June 2023:
-0.4%), comprising a £73 million decline driven by NIY widening of 13bps
partially offset by gains of £33 million arising from rental growth and asset
management projects
· Pipeline of 23 asset management projects and lease regears planned over
next two years, investing £15.3 million, creating additional rental income of
£0.7 million per annum and extending the weighted average unexpired lease
term (WAULT) back to over 19 years on these properties
· Opportunistic acquisition of one standing let investment at Basingstoke
for £4.5 million and commenced work on the Group's second development at
South Kilburn, London for £3.3 million
· Portfolio in Ireland comprises 21 assets, valued at £244 million
(€288 million) (31 December 2023: £245 million / €282 million). The
portfolio in Ireland represents 9% (31 December 2023: 9%) of the total
portfolio and Ireland continues to represent a core part of the Group's
strategy and preferred area of future growth
FINANCIAL MANAGEMENT
· Significant liquidity headroom with cash and collateralised
undrawn loan facilities totaling £307.8 million (31 December 2023: £321.2
million) after capital commitments providing the business with both the
flexibility to execute its strategy and address any refinancing falling due in
2025
· Agreed terms or in advanced discussions to refinance and extend
£320 million of revolving credit facilities mitigating the refinancing risk
of debt maturities falling due in 2025
· 96% (31 December 2023: 97%) of net debt fixed or hedged for a
weighted average period of six years
· LTV ratio 48.0% (31 December 2023: 47.0%) within the Group's
targeted range of between 40% to 50%
· Weighted average debt maturity 6.0 years (31 December 2023: 6.6
years)
RELATIVE TOTAL RETURNS
Six months ended Six months ended Year ended
30 June 2024 30 June 2023 31 December 2023
Adjusted NTA return 0.4% 1.6% 1.9%
Income return 2.8% 2.7% 5.3%
Capital return (1.4%) (0.4%) (1.8%)
Total property return(1) 1.4% 2.3% 3.5%
1 The definition for total property return is set out in the Glossary of
Terms.
RESPONSIBLE BUSINESS AND ESG
· Continued progress made on Net Zero Carbon ("NZC") Framework with
the five key steps to achieve the Group's ambitious target of being NZC by
2030 for all of PHP's operational, development and asset management activities
· Completed PHP's first NZC asset management project at Long
Stratton, Norfolk
· Ongoing construction of PHP's first NZC development in West Sussex
expected to achieve practical completion in Q4 2024 and commenced fit-out
works on PHP's second NZC development at South Kilburn, London due to achieve
practical completion in Q2 2025
· Continuedimprovement in the portfolio's EPC rating with 46% and
86% (31 December 2023: 42% and 85%) rated A-B and A-C respectively driven by
the asset management programme
Presentation and webcast:
An in-person presentation for analysts will be held today, 24 July 2024 at
10.00am (11.00am SAST) at the offices of Burson Buchanan, 107 Cheapside,
London EC2V 6DN and for those who cannot attend in person, the meeting will be
accessible via live video webcast and conference call facility. Following the
presentation there will be a managed questions and answers session.
The presentation will be accessible via live video webcast and live conference
call facility:
Webcast: https://stream.brrmedia.co.uk/broadcast/6656fff0173fd460b8116b1e
(https://stream.brrmedia.co.uk/broadcast/6656fff0173fd460b8116b1e)
Telephone UK: +44 (0) 33 0551 0200
Telephone South Africa: toll free 0800 980 512
Password (if prompted): Quote "PHP half year results" when prompted by the
operator.
If you would like to register your interest in attending the meeting please
contact Burson Buchanan via php@buchanan.uk.com (mailto:php@buchanan.uk.com) .
A recording of the webcast will be made available from c.12.00pm (1.00pm SAST)
on the PHP website, https://www.phpgroup.co.uk/ (https://www.phpgroup.co.uk/)
For further information contact:
Mark Davies Richard Howell
Chief Executive Officer Chief Financial Officer
Primary Health Properties PLC Primary Health Properties PLC
T: +44 (0) 7968 122448 T: +44 (0) 7766 072272
E: mark.davies@phpgroup.co.uk (mailto:mark.davies@phpgroup.co.uk) E: richard.howell@phpgroup.co.uk (mailto:richard.howell@phpgroup.co.uk)
David Rydell/Stephanie Whitmore/Verity Parker
Burson Buchanan
T: +44 (0) 20 7466 5066
E: php@buchanan.uk.com (mailto:php@buchanan.uk.com)
EXECUTIVE REVIEW
PHP has continued to deliver on its 28-year track record of continuous
dividend growth underpinned by another period of robust operational and
financial performance in the first half of 2024. The performance in the period
is a testament to the quality of PHP's business model, portfolio, management
team and people against the backdrop of an uncertain interest rate environment
which continues to weigh heavily on the real estate sector.
The Group's operational resilience throughout the period reflects the security
and longevity of our income which are important drivers of our predictable
income stream and underpin our progressive dividend policy. We have maintained
our strong operational property metrics, with high occupancy at 99.2% (31
December 2023: 99.3%), 89% (31 December 2023: 89%) of our rent being securely
funded directly or indirectly by the UK and Irish Governments and a long
weighted average unexpired lease term ("WAULT") of 9.8 years (31 December
2023: 10.2 years).
The value of the property portfolio remains broadly unchanged and currently
stands at just under £2.8 billion (31 December 2023: £2.8 billion) across
516 assets (31 December 2023: 514 assets), including 21 assets in Ireland,
with a rent roll of £152.6 million (31 December 2023: £150.8 million).
Notwithstanding the fall in values in the period the portfolio's average lot
size is £5.3 million (31 December 2023: £5.4 million).
We continue to focus on driving rental growth from both rent reviews and asset
management activities which is a critical factor in the Group's business model
and underpins both the earnings and dividend outlook. Importantly, we have
continued to see open market value ("OMV") growth improving with reviews
completed in the six months ended 30 June 2024 generating an extra £0.6
million (six months ended 30 June 2023: £0.7 million) an uplift of 6.5%
(2023: 5.4%) over the previous passing rent equivalent to 2.1% (2023: 1.8%) on
an annualised basis. This continues the positive trend in growth seen over the
last couple of years. The improving rental growth outlook has also been
reflected in the valuation of the portfolio with the independent valuers'
assessment of estimated rental values ("ERV") increasing by 1.7% in the six
months ended 30 June 2024 (six months ended 30 June 2023: 1.4%; year ended 31
December 2023: 2.5%).
The significant increases in construction costs, together with historically
suppressed levels of open market rental growth in the sector, will be
significant pull factors to future growth and we are starting to see positive
movement in some locations where the NHS need for investments in new buildings
is strongest. We have recently commenced work on PHP's second development at
South Kilburn, London which is an example of an Integrated Care Board ("ICB")
and local authority stepping in with a capital contribution where the District
Valuer's ("DV") proposals have prevented much needed schemes from progressing.
This, along with the use of "top-up" rents and capital contributions, is
starting to allow certain schemes to progress viably and we anticipate this
will continue to accelerate.
We welcome the new Labour Government's commitment to the NHS together with its manifesto pledge to reform primary care along with a continuation of the shift of services out of hospitals and into the community and more information can be found in the statement below. Primary care will face challenges in meeting the new objectives set, with the capacity of existing facilities creating a significant obstacle to implementing the new government's policies aimed at expanding service delivery within general practice. Many of our primary care facilities and occupiers will need to deal with future reforms along with addressing the large backlog of procedures that has built up over recent 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 Health Service Executive ("HSE"), Ireland's national health service provider, evolve and deal with the ever-increasing pressures being placed on them.
Overview of results
PHP's Adjusted earnings increased by £0.4 million or 0.9% to £46.3 million
(30 June 2023: £45.9 million) in the six months to 30 June 2024, driven by
organic rental growth from rent reviews and asset management projects, plus
increased profit generated by PHP Axis, our Irish property management
business, partially offset by higher interest costs on the Group's increased
variable rate debt. Using the weighted average number of shares in issue in
the period the Adjusted earnings per share increased by 2.9% at 3.5 pence (30
June 2023: 3.4 pence).
A revaluation deficit of £40.0 million (30 June 2023: deficit £11.9 million)
was generated in the period from the portfolio, equivalent to -3.0 pence per
share. The valuation deficit was driven by net initial yield ("NIY") widening
of 13 bps in the period, equivalent to a valuation reduction of around £73
million, albeit this was partially offset by gains equivalent to £33 million
arising from rental growth and asset management projects.
A combined loss of £1.8 million (30 June 2023: gain of £4.8 million) from
the fair value movements of interest rate derivatives and convertible bonds,
the amortisation of the fair value adjustment on the MedicX fixed rate debt at
acquisition and the amortisation of the intangible asset arising on the
acquisition of PHP Axis in 2023 resulted in a profit before tax as reported
under IFRS of £4.5 million (30 June 2023: £38.8 million).
The Group's balance sheet remains robust with significant liquidity headroom
with cash and collateralised undrawn loan facilities, after capital
commitments, totalling £307.8 million (31 December 2023: £321.2 million).
The loan to value ratio of 48.0% (31 December 2023: 47.0%) is in line with the
targeted range of between 40% and 50% with significant valuation headroom
across the various loan facilities with values needing to fall by around £1.0
billion or 38% before the loan to value covenants are impacted.
Dividends
The Company distributed a total of 3.45 pence per share in the six months to
30 June 2024, equivalent to 6.9 pence on an annualised basis, which represents
an increase of 3.0% over the dividend per share distributed in 2023 of 6.7
pence. This will mark the 28(th) year of consecutive dividend growth for PHP.
A third quarterly interim dividend of 1.725 pence per share was declared on 27
June 2024. The dividend will be paid on 16 August 2024 to shareholders who
were on the register at the close of business on 5 July 2024. The dividend
will comprise a Property Income Distribution of 1.45 pence per share and a
normal dividend of 0.275 pence. The Company intends to maintain its strategy
of paying a progressive dividend, which is paid in equal quarterly
instalments, and covered by underlying earnings in each financial year. A
further interim dividend payment is planned to be made in November 2024, which
is expected to comprise a mixture of both Property Income Distribution and
normal dividend.
The total value of dividends distributed in the period increased by 2.9% to
£46.1 million (30 June 2023: £44.8 million), which were fully covered by
Adjusted earnings. As previously reported, we suspended the scrip dividend
scheme in light of the ongoing weakness in the share price and a dividend
re-investment plan is being offered in its place.
Total shareholder returns
The Company's share price started the year at 103.8 pence per share and closed
on 30 June 2024 at 91.75 pence, a decrease of 11.6%. Including dividends,
those shareholders who held the Company's shares throughout the period
achieved a Total Shareholder Return of -8.3% (30 June 2023: -10.8%).
Board changes
As previously reported, Mark Davies took over from Harry Hyman as Chief
Executive Officer ("CEO") with effect from the conclusion of the 2024 Annual
General Meeting ("AGM") on 24 April 2024. At the same time, Steven Owen
retired from the Board as Non-executive Chairman and Harry was appointed as
Non-executive Chair.
The Board believes that Harry's appointment as Chair is in the best interests
of the Group and its stakeholders, particularly as Harry's knowledge and
expertise gained over nearly 30 years in the primary care property sector,
which is a niche sub-sector of the real estate market, will continue to be
invaluable and highly relevant to the Group's future success. Harry founded
PHP in 1996 and has served on the Board as Managing Director/CEO since that
time until he stood down as CEO with effect from the end of the AGM. His track
record in the listed real estate sector is outstanding and he has been the key
driver in PHP's success since its inception.
Following Harry's appointment as Non-executive Chair and in order to ensure
that the Board consists of a majority of independent Non-executive Directors
and is therefore compliant with the UK Corporate Governance Code 2024, Dr
Bandhana (Bina) Rawal was appointed as a fourth independent Non-executive
director of the Company with effect from 27 February 2024 and the Board has
increased in size from six to seven. Dr Rawal brings a wealth of experience
from senior executive and non-executive roles across healthcare, including in
strategy, partnerships, governance and risk management.
The Board is grateful to Steven for his commitment and dedication to the
Company since his appointment as a Non-executive director in 2014 and for
subsequently Chairing the Company from 2018 to 2024, a period of
transformational growth and change particularly following the merger with
MedicX, the process of internalising the management function and establishing
PHP as a key member of the FTSE 250 Index.
Secondary Listing
On the 24 October 2023 the Company completed a secondary listing of PHP shares
on the Johannesburg Stock Exchange ("JSE"). The Board of PHP believes that the
secondary listing will contribute to liquidity in the Group's shares as a
result of the growing interest in the Company and its increased profile in the
South African market, where a number of investors have shown strong interest
in the unique healthcare property investment opportunity. Since listing on
the JSE approximately six million shares, across 225 shareholders, have been
transferred to date and we continue to help potential South African investors
acquire PHP shares and provide further liquidity on the JSE with the objective
of increasing the number of shares listed there to between 5% to 10% of the
Group's total issued share capital.
Environmental, Social and Governance ("ESG")
PHP has a strong commitment to responsible business. ESG matters are at the forefront of the Board's and our various stakeholders' considerations and the Group has committed to transitioning to net zero carbon ("NZC"). PHP published, at the start of 2022, a NZC Framework setting out the five key steps we are taking to achieve an ambitious target of being NZC by 2030 for all of PHP's operational, development and asset management activities.
We continue to make good progress on the delivery of our NZC framework commitments and achieved our first milestone of net zero operations in both 2022 and 2023 one year ahead of target. Additionally, the Group's first NZC development at Croft, West Sussex is due to achieve practical completion later in Q4 2024 and we have recently commenced work on a second NZC development at South Kilburn, London.
We continue to modernise existing buildings and improve the environmental
credentials of our portfolio through the asset management programme and have
completed two projects in the period all of which saw an improvement in the
EPC ratings to a B. In the period, we also completed PHP's first net zero
asset management project at Long Stratton, Norfolk where oil fired heating was
replaced with air sourced heating, solar PV was installed and the residual
carbon incurred was offset. A further seven projects are currently on site or
committed with an advanced pipeline of additional schemes where we continue to
evaluate options for energy efficiency, renewables and net zero asset
management projects.
As at 30 June 2024, 46% of assets have an EPC rating of A or B (31 December
2023: 42%) and 86% at A to C (31 December 2023: 85%).
As part of establishing the wider carbon impact of the buildings and improve
our access to energy performance data we have partnered with arbnco, the
award-winning PropTech company addressing climate change, to increase and move
towards 100% energy data coverage across the portfolio allowing us to
proactively engage with and support tenants on improving their energy
performance.
As a leading provider of modern primary care premises, we aim to create a
lasting positive social impact, particularly in the health outcomes and
wellbeing for the communities where we are invested.
Further details on our progress in the year, objectives for the future and approach to responsible business can be found in the 2023 Annual Report and on our website.
Market update and outlook
We welcome the new Labour Government's continued commitment to the NHS and its
manifesto pledge to reform primary care along with three key proposals for
change, in particular:
· Change so that more people can get care at home in their community;
· Changes so that the NHS has the workforce of the future, with the
technology they need; and
· Changes so the focus is on prevention to reduce pressures on the NHS
Labour's policy includes a continuation of the shift of services out of
hospitals and into the community with healthcare close to home and there for
individuals when they need it. As part of this commitment Labour acknowledge
there needs to be a reform of primary care with patients needing new and more
varied opportunities to access healthcare unlocking earlier diagnosis of
progressive health conditions. Amongst the proposals for primary care are:
· Improve GP access;
· Bring back the family doctor;
· Join up community health and social care services;
· Open new referral routes;
· Further expand the role of community pharmacy;
· Free-up GP appointments by boosting mental health support; and
· Create a Neighbourhood NHS Workforce
Primary care will continue to face challenges in meeting the above objectives.
The growing demand for healthcare services alongside the capacity constraints
of existing facilities represent a significant obstacle to implementing the
new government's policies aimed at expanding service delivery within general
practice and local communities. The need for additional space is compounded by
a population that is growing, ageing and suffering from increased chronic
illnesses, which is placing a greater burden on healthcare systems in both the
UK and Ireland. The extent of the NHS backlog also remains a significant
concern, with the number of patients waiting for treatment reaching record
highs and hospitals struggling to meet objectives. All these factors make more
urgent the need for improved and increased primary healthcare infrastructure
with approximately one-third of the UK's current primary care estate in need
of modernisation or replacement.
PHP stands ready to support the new Labour Government's ambition of building
an NHS fit for the future but declining rents in real terms have made
investing in the transformation of GP facilities less appealing. Construction
costs have risen significantly over the past decade, surpassing the growth in
primary care rents, driven by material and labour costs and increasing
sustainability requirements, all of which have been compounded by Brexit, the
COVID-19 pandemic and the volatile fiscal policy outlook.
PHP's mission is to support the NHS, the HSE and other healthcare providers,
by being a leading investor in modern, primary care premises. We will continue
to actively engage with government bodies, the NHS, the HSE in Ireland and
other key stakeholders to establish, enact (where we can), support and help
alleviate increased pressures and burdens currently being placed on healthcare
networks.
Primary health and investment market update
The commercial property market continues to be impacted by economic turbulence
and the uncertainty of interest rates continues to weigh on the real estate
sector. This is severely impacting liquidity across the wider real estate
market especially those sub-sectors impacted by changing behaviours such as
offices and retail. Conversely, structurally supported sectors such as
healthcare and distribution where income security and rental growth are more
assured are starting to see pricing stabilise.
We believe healthcare and in particular primary care real estate, remains a
structurally supported sector and benefits from the demographic tailwinds of a
population that is growing, ageing and suffering from increased chronic
illnesses, which is placing a greater burden on healthcare systems in both the
UK and Ireland which in turn compounds the need for both fit-for-purpose and
additional space. However, future developments will now need a significant
shift of between 20% to 30% in rental values to make them economically viable
and we continue to actively engage with both the NHS, ICB and DV for higher
rent settlements. Despite these negotiations typically becoming protracted, we
are starting to see positive movement in some locations where the health
system's need for investment in new buildings is strongest such as our recent
development at South Kilburn, London.
Primary care asset values have continued to perform well relative to
mainstream commercial property due to recognition of the security of their
government backed income, crucial role in providing sustainable healthcare
infrastructure and more importantly a stronger rental growth outlook enabling
attractive reversion over the course of long leases.
The continued lack of recent transactions in the year has resulted in valuers
continuing to place reliance primarily on sentiment to arrive at fair values.
Yields adopted by the Group's valuers have moved out by 13bps to 5.18% as at
30 June 2024 (31 December 2023: 5.05%) to reflect perceived market sentiment
for the sector. We believe further significant reductions in primary care
values are likely to be limited with a stronger rental growth outlook
offsetting the impact of any further yield expansion.
PHP Outlook
Growth in the immediate future will continue to be focused on increasing
income from our existing portfolio and we are encouraged by the firmer tone of
rental growth experienced over the last couple of years. We believe the
dynamics of inflation in recent years, including significantly increased build
costs combined with demand for new primary care facilities and the need to
modernise the estate will continue to drive future rental settlements.
We are currently on site with just two developments with costs to complete of
£3.3 million and consequently have very limited exposure to higher
construction cost pressures and supply chain delays. In our immediate pipeline
we have one development and 23 asset management projects with a total expected
cost of £15.3 million and will continue to evaluate these, together with a
wider medium-term pipeline at various stages of progress and seek to negotiate
rents with the NHS at the level required to deliver an acceptable return.
With an improving rental growth outlook, a strong control on costs resulting
in one of the lowest EPRA cost ratios in the sector and the vast majority of
the Group's debt either fixed or hedged for a weighted average period of six
years we are well positioned for the future. These factors, along with the
encouraging Labour Government commitments to increased investment in primary
and community care, enable us to look forward to the rest of 2024 with
confidence.
Harry Hyman Mark Davies
Chair
Chief Executive Officer
23 July 2024
BUSINESS REVIEW
Rental growth
PHP's sector-leading metrics remain robust and we continue to focus on delivering the organic rental growth that can be derived from our existing assets. This growth arises mainly from rent reviews and asset management projects (extensions, refurbishments and lease re-gears) which provide an important opportunity to increase income, extend lease terms and avoid obsolescence whilst ensuring that our properties continue to meet their communities' healthcare needs and improve their ESG credentials.
In the first half of 2024 we have continued to see strong organic rental growth from our existing portfolio with income increasing by £1.8 million or 1.2% (six months ended 30 June 2023: £2.2 million or 1.5%; years ended 31 December 2023 and 2022: £4.3 million or 3.0% and £3.3 million or 2.4% respectively) on a like-for-like basis. The progress continues the improving rental growth outlook seen over the last couple of years and it should be noted that most of the increase comes from rent reviews arising primarily in the periods prior to 2022, a period when rental growth was muted and not reflecting the higher levels of construction cost and general inflation experienced in recent periods.
We have also seen the improving rental growth outlook reflected in the valuation of the portfolio with the independent valuers' assessment of estimated rental values ("ERV") increasing by 1.7% in the six months ended 30 June 2024 (six months ended 30 June 2023: 1.4%; years ended 31 December 2023 and 2022: 2.5% and 2.2% respectively).
Rent review performance
The Group completed 165 (six months ended 30 June 2023: 172; year ended 31
December 2023: 331) rent reviews with a combined rental value of £20.1
million (six months ended 30 June 2023: £22.4 million; year ended 31 December
2023: £42.4 million), adding £1.6 million and delivering an average uplift
of 7.8% against the previous passing rent (six months ended 30 June 2023:
£2.2 million / 9.9%; year ended 31 December 2023: £3.6 million / 8.5%).
68% of our rents are reviewed on an open market basis, which typically takes
place every three years. The balance of the PHP portfolio has either indexed
(27%) or fixed uplift (5%) based reviews which also provide an element of
certainty to future rental growth within the portfolio. Approximately
one-third of index linked reviews in the UK are subject to caps and collars
which typically range from 6% to 12% over a three-year review cycle.
In Ireland, we concluded seven (six months ended 30 June 2023: 13; year ended
31 December 2023: 18) index-based reviews, adding a further £0.1 million /
€0.1 million (six months ended 30 June 2023: £0.3 million / €0.3 million;
year ended 31 December 2023: £0.4 million / €0.4 million), an uplift of
14.4% (year ended 31 December 2023: 15.2%) against the previous passing rent.
In Ireland, all reviews are linked to the Irish Consumer Price Index, upwards
and downwards, with reviews typically every five years. Leases to the HSE and
other government bodies, which comprise 79% of the income in Ireland, have
increases and decreases capped and collared at 25% over a five-year review
cycle.
The growth from reviews completed in the period, noted above, is summarised
below:
Number Previous rent Rent increase Total Annualised
(per annum) (per annum) increase increase
£ million £ million % %
UK - open market(1) 74 9.6 0.6 6.5 2.1
UK - indexed 78 7.1 0.7 9.8 4.8
UK - fixed 6 2.7 0.2 5.5 2.8
UK - total 158 19.4 1.5 7.6 3.2
Ireland - indexed 7 0.7 0.1 14.4 4.6
Total - all reviews 165 20.1 1.6 7.8 3.2
(1) includes 24 reviews where no uplift was achieved.
At 30 June 2024 589 (31 December 2023: 585) open market rent reviews representing £86.7 million (31 December 2023: £84.9 million) of passing rent, were outstanding out of which 302 (31 December 2023: 334) have been triggered to date and are expected to add another £2.1 million (31 December 2023: £2.2 million) to the contracted rent roll when concluded and represent an uplift of 4.8% (31 December 2023: 4.5%) against the previous passing rent. The balance of the outstanding reviews will be actioned when there is further comparative evidence to support the estimated rental values.
The large number of outstanding reviews reflects the requirement for all awards to be agreed with the District Valuer. A great deal of evidence to support open market reviews comes from the completion of historical rent reviews and the rents set on delivery of new properties into the sector. NHS initiatives to modernise the primary care estate will result in previously agreed rental values having to be renegotiated to make a number of these projects viable in the current economic environment.
Asset Management Projects
In the UK, we exchanged on three new asset management projects, seven lease
re-gears and three lettings during the six months ended 30 June 2024. These
initiatives will increase rental income by £0.2 million investing £4.3
million and extending the leases back to 18 years.
In the period, £0.3 million of income was lost to voids following the
insolvency of Lloyds pharmacy at three units in the UK and the surrender of
two pharmacy leases in Ireland where the space is to be relet to the HSE in
the future as part of an asset management initiative.
PHP continues to work closely with its occupiers and has a strong pipeline of
23 similar asset management projects which are currently in legal due
diligence and are being progressed to further increase rental income and
extend unexpired occupational lease terms. The immediate asset management
pipeline will require the investment of approximately £15.3 million,
generating an additional £0.7 million of rental income and extending the
WAULT on those premises back to an average of 19 years. Additionally, we
continue to progress an advanced pipeline of further asset management
initiatives across 18 projects.
The Company will continue to invest capital in a range of physical extensions
or refurbishments through asset management projects which help avoid
obsolescence, including improving energy efficiency, and which are key to
maintaining the longevity and security of our income through long term
occupier retention, increased rental income and extended occupational lease
terms, adding to both earnings and capital values.
Robust portfolio metrics
The portfolio's annualised contracted rent roll at 30 June 2024 was £152.6
million (31 December 2023: £150.8 million), an increase of £1.8 million or
+1.2% in the period driven by organic growth from rent reviews and asset
management projects of £1.8 million (six months ended 30 June 2023 £2.2
million). The acquisition of Basingstoke and the development at South Kilburn,
London added a further £0.5 million of income although these gains were
offset by the loss of income arising from foreign exchange movements of £0.2
million on our portfolio in Ireland and UK lease surrenders and voids of £0.3
million.
The security and longevity of our income are important drivers of our secure,
long term predictable income stream and enable our progressive dividend
policy.
Security:PHP continues to benefit from secure, long term cash flows with 89%
(31 December 2023: 89%) of its rent roll funded directly or indirectly by the
NHS in the UK or HSE in Ireland. The portfolio also benefits from an occupancy
rate of 99.2% (31 December 2023: 99.3%).
Rental collections: These continue to remain robust and as at 23 July 2023 93%
had been collected in both the UK and Ireland for the first three quarters of
2024. This is in line with collection rates experienced in both 2023 and 2022
which now stand at over 99% for both countries. The balance of rent due for
the third quarter of 2024 is expected to be received shortly.
Longevity: The portfolio's WAULT at 30 June 2024 was 9.8 years (31 December
2023: 10.2 years). £19.8 million or 13.0% of our income is currently holding
over expires over the next three years of which c. 70% have agreed terms or
are in advanced discussions to renew their lease. £62.7 million or 41.0%
expires in over 10 years. The table below sets out the current lease expiry
profile of our income:
Income subject to expiry £m %
Holding over 6.6 4.3%
< 3 years 13.2 8.7%
4 - 5 years 18.7 12.3%
5 - 10 years 51.4 33.7%
10 - 15 years 29.5 19.3%
15 - 20 years 21.5 14.1%
> 20 years 11.7 7.6%
Total 152.6 100.0%
Investment and pipeline
In the first half of 2024, the Group selectively completed the opportunistic
acquisition of one primary health centre at Basingstoke for a total
consideration of £4.5 million. The property is fully let to a GP practice,
pharmacy and dentist and benefits from a long WAULT of 17 years and
three-yearly open market value rent reviews.
We continue to monitor a number of potential standing investments, direct and
forward funded developments and asset management projects with an advanced
pipeline across a number of opportunities in both the UK and Ireland but will
only be progressed if accretive to earnings.
The immediate pipeline of opportunities in legal due diligence continues to be
focused predominantly on PHP's existing portfolio through asset management
projects.
Pipeline In legal due diligence Advanced pipeline
Number Cost Number Cost
UK - asset management 23 £15.3m 18 £16.9m
Ireland - asset management - - 1 0 (€0m)
UK - direct development - - 1 £4.1m
Ireland - forward funded development - - 2 £42.4m (€50.0m)
Total pipeline 23 £15.3m 22 £63.4m
Developments
At 30 June 2024, the Group had limited development exposure with two projects
on site and £3.3 million of expenditure required to complete them.
· Croft Primary Care Centre, West Sussex, being built to NZC standards
and due to complete later in Q4 2024 with £1.4 million of expenditure
required to complete the project
· In July 2024 the Group also commenced work on a second development
scheme at South Kilburn, London where we have worked with both the local
council and ICB, each contributing £0.5 million, to make the scheme
economically viable. The scheme comprises the fit-out of a shell unit, being
constructed to NZC standards, for a total cost of £3.3 million net of the
£1.0 million capital contribution which equates to a 26% uplift in the rent
originally set by the DV. The scheme is expected to achieve practical
completion in Q2 2025 with £1.9 million of expenditure remaining.
The Group has currently paused any further direct development activity whilst
negotiations with the NHS, ICBs and DVs continue in order to increase rental
levels to make schemes economically viable with rental values needing to
increase by around 20%-30%. Without these necessary increases in rent primary
care development will remain paralysed in the UK.
We currently do not have any forward funded developments on-site in Ireland
although continue to progress a near-term pipeline with an estimated gross
development value of approximately €50m.
PHP expects that all future direct developments will be constructed to NZC
standards.
Valuation and returns
As at 30 June 2024, the Group's portfolio comprised 516 (31 December 2023:
514) assets independently valued at £2.750 billion (31 December 2023: £2.779
billion). After allowing for acquisition costs and capital expenditure on
developments and asset management projects, the portfolio generated a
valuation deficit of £40.0 million or -1.4% (Six months ended 30 June 2023:
deficit of £11.9 million or -0.4%).
The valuation deficit of £40.0 million in the period was driven primarily by
a loss arising from yield expansion of approximately £73 million partially
offset by gains of approximately £33 million arising from an improving rental
growth outlook and asset management projects.
During the period the Group's portfolio NIY has expanded by 13 bps to 5.18%
(31 December 2023: 5.05%) and the reversionary yield increased to 5.5% at 30
June 2024 (31 December 2023: 5.4%).
At 30 June 2024, the portfolio in Ireland comprised 21 standing and fully let
properties with no developments currently on site, valued at £244.4 million
or €288.5 million (31 December 2023: 21 assets/£244.6 million or €282.2
million). The portfolio in Ireland has been valued at a NIY of 5.3% (31
December 2023: 5.4%).
The portfolio's average lot size fell slightly to £5.3 million (31 December
2023: £5.4 million), reflecting the fall in values in the period, however 87%
(31 December 2023: 87%) of the portfolio continues to be valued at over £3.0
million. The Group only has five assets valued at less than £1.0 million.
Number of Valuation Average
properties £ million % lot size (£ million)
> £10m 58 883.0 32 15.2
£5m - £10m 127 856.6 31 6.7
£3m - £5m 165 652.2 24 4.0
£1m - £3m 161 350.0 13 2.2
< £1m (including land £1.3m) 5 4.7 0 0.7
Total(1) 516 2,746.5 100 5.3
(1) Excludes the £3.0 million impact of IFRS 16 Leases with ground rents
recognised as finance leases.
The valuation deficit combined with the portfolio's growing income, resulted
in a total property return of +1.4% for the period (six months ended 30 June
2023: +2.3%). The total property return in the period compares with the MSCI
UK Monthly Property Index of +2.2% for the first six months of 2024 (six
months ended 30 June 2023: +1.1%, year ended 31 December 2023: -0.5%).
Six months ended Six months ended Year ended
30 June 2024 30 June 2023 31 December 2023
Income return 2.8% 2.7% 5.3%
Capital return (1.4%) (0.4%) (1.8%)
Total return 1.4% 2.3% 3.5%
FINANCIAL REVIEW
PHP's Adjusted earnings increased by £0.4 million or 0.9% to £46.3 million
in the six months to 30 June 2024 (30 June 2023: £45.9 million). The increase
in the period reflects the improving organic rental growth from rent reviews
and asset management projects in both 2023 and the first half of 2024, along
with increased earnings from PHP Axis's activities in Ireland and a small
reduction in PHP's administrative expenses partially offset by increased
interest costs on the Group's variable rate debt.
Using the weighted average number of shares in issue in the period the
Adjusted earnings per share increased by 2.9% to 3.5 pence (30 June 2023: 3.4
pence).
The financial results for the Group are summarised as follows:
Six months Six months Year ended 31 December
ended ended 2023
30 June 2024 30 June 2023
£m £m £m
Net rental income 76.2 75.5 149.3
PHP Axis contribution net of overheads 0.7 0.5 1.1
Administrative expenses(1) (5.9) (6.1) (11.6)
Operating profit before revaluation and net financing costs 71.0 69.9 138.8
Net financing costs (24.7) (24.0) (48.1)
Adjusted earnings 46.3 45.9 90.7
Revaluation deficit on property portfolio (40.0) (11.9) (53.0)
Fair value gain on interest rate derivatives and convertible bond (2.8) 3.9 (13.2)
Amortisation of MedicX debt MtM at acquisition 1.5 1.5 3.0
PHP Axis amortisation of intangible asset (0.5) (0.4) (0.9)
PHP Axis acquisition and JSE listing costs - (0.2) (0.5)
IFRS profit before tax 4.5 38.8 26.1
Corporation tax (0.1) - (0.1)
Deferred tax provision (0.8) 0.7 1.3
IFRS profit after tax 3.6 39.5 27.3
(1) Excludes amortisation of intangible asset and costs arising on the
acquisition of PHP Axis.
Adjusted earnings increased by £0.4 million or 0.9% in the six months to June
2023 to £46.3 million (30 June 2023: £45.9 million) and the movement can be
summarised as follows:
£m
Six months ended 30 June 2023 45.9
Net rental income 0.7
PHP Axis contribution 0.2
Administrative expenses 0.2
Net financing costs (0.7)
Six months ended 30 June 2024 46.3
Net rental income received in the six months to 30 June 2024 increased by 0.9%
or £0.7 million to £76.2 million (30 June 2023: £75.5 million) reflecting
£1.0 million of additional income from completed rent reviews and asset
management projects and £0.5m of rent arising from the acquisition of
Ballincollig in Ireland in December 2023 offset by a £0.8 million increase in
non-recoverable property costs which relates primarily to the write-off of
development work in progress for a scheme at Colliers Wood, Merton of £0.5
million which is no longer progressing.
Administration expenses continue to be tightly controlled and the Group's EPRA
cost ratio remains one of the lowest in the sector at 10.0% (30 June 2023:
10.1%) excluding PHP Axis and direct vacancy costs. The £0.2 million
reduction in administration costs in the period is due primarily to the
benefit of a voluntary redundancy programme completed in 2023 net of the
additional staff costs arising from annual pay increases. Post period end, we
have put measures in place to reduce administrative expenses by a further
£1.0 million, primarily relating to reductions in staff headcount, and the
benefit of these savings will begin in 2025.
EPRA cost ratio Six months ended Six months ended Year ended
30 June 2024 30 June 2023 31 December 2023
£m £m £m
Gross rent less ground rent and service charge income 80.0 78.2 155.8
Direct property expense 8.7 7.9 18.2
Less: service charge and recoverable costs (5.9) (5.7) (13.3)
Non-recoverable property costs 2.8 2.2 4.9
Administrative expenses including PHP Axis 6.3 6.1 11.6
Less: ground rent (0.1) (0.1) (0.2)
Less: other operating income (0.3) (0.3) (0.5)
EPRA costs (including direct vacancy costs) 8.7 7.9 16.6
EPRA cost ratio 10.9% 10.1% 10.7%
EPRA cost ratio excluding PHP Axis overheads and direct vacancy costs 10.0% 9.7% 10.1%
Total expense ratio - administrative expenses as a percentage of gross asset
value (annualised)
0.3% 0.4% 0.4%
Net finance costs in the period increased by £0.7 million to £24.7 million
(30 June 2023: £24.0 million) because of a £11.8 million increase in the
Group's net debt since June 2023, the impact of increased in interest rates on
the Group's unhedged debt and the loss of interest receivable on forward
funded developments which completed in H1 2023, now income producing and
accounted for as rent.
Shareholder value
The Adjusted Net Tangible Assets (NTA), per share decreased by 3.0 pence or
2.8% to 105.0 pence (31 December 2023: 108.0 pence per share) during the
period with the revaluation deficit of £40.0 million being the reason for the
decrease.
The adjusted NTA return per share, including dividends distributed, in the six
months ended 30 June 2024 was 0.5 pence or -0.4% (30 June 2023: 1.9 pence or
1.6%).
The table below sets out the movements in the Adjusted NTA and EPRA Net
Disposal Value (NDV) per share over the period under review.
Adjusted Net Tangible Asset (NTA) per share 30 June 2024 pence per share 30 June 2023 pence per share 31 December 2023 pence per share
Opening Adjusted NTA per share 108.0 112.6 112.6
Adjusted earnings for the period 3.5 3.4 6.8
Dividends paid (3.5) (3.4) (6.7)
Revaluation of property portfolio and profit on sales (3.0) (0.9) (4.0)
PHP Axis acquisition costs - (0.5) (0.5)
Foreign exchange and other movements - (0.1) (0.2)
Closing Adjusted NTA per share 105.0 111.1 108.0
Fixed rate debt and swap mark-to-market value 9.4 12.6 8.2
Convertible bond fair value adjustment 0.2 0.4 (0.4)
Deferred tax (0.3) 0.1 0.1
Intangible assets 0.4 0.5 0.5
Closing EPRA NDV per share 114.7 124.7 116.4
Financing
In the period, the Group has addressed the refinancing risk of the debt
maturities falling due in 2025 by agreeing terms or is in advanced discussions
to extend and increase the amount of three revolving credit facilities with
Barclays, Lloyds and Santander totaling £320 million. The new facilities
provide the Group with sufficient headroom to repay both the £150 million
convertible bond and £70 million variable rate bonds at or ahead of maturity
in 2025. Once the new facilities have been completed in the second half of the
year the next significant refinancings fall due in 2027.
The Group's balance sheet and financing position remains strong with cash and
committed undrawn facilities totalling £307.8 million (31 December 2023:
£321.2 million) after contracted capital commitments of £10.3 million (31
December 2023: £14.6 million).
At 30 June 2024, total available loan facilities were £1,636.6 million (31
December 2023: £1,642.5 million) of which £1,322.6 million (31 December
2023: £1,309.9 million) had been drawn. Cash balances of £4.1 million (31
December 2023: £3.2 million) resulted in Group net debt of £1,318.5 million
(31 December 2023: £1,306.7 million). Contracted capital commitments at the
balance sheet date totalled £10.3 million (31 December 2023: £14.6 million)
and comprise asset management projects of £7.0 million and development
expenditure across two schemes of £3.3 million.
The Group's key debt metrics are summarised in the table below:
Debt metrics 30 June 2024 31 December 2023
Average cost of debt - drawn 3.3% 3.3%
Average cost of debt - fully drawn 4.1% 4.1%
Loan to value 48.0% 47.0%
Loan to value - excluding convertible bond 42.5% 41.6%
Total net debt fixed or hedged 95.7% 97.2%
Net rental income to net interest cover 3.1 times 3.1 times
Net debt / EBITDA (annualised) 9.3 times 9.4 times
Weighted average debt maturity - drawn facilities 6.0 years 6.6 years
Weighted average debt maturity - all facilities 5.2 years 5.7 years
Total drawn secured debt £1,172.6m £1,159.9m
Total drawn unsecured debt £150.0m £150.0m
Total undrawn facilities and cash available to the Group(1) £307.8m £321.2m
Unfettered assets £46.6m £37.0m
(1) Pro-forma after deducting capital commitments.
Average cost of debt
The Group's average cost of debt has remained unchanged at 3.3% (31 December
2023: 3.3%) reflecting the protection from the proportion of the Group's net
debt that is either fixed or hedged at 95.7% (31 December 2023: 97.2%).
Assuming the refinancings noted above were refinanced then the Group's average
cost of debt is expected to increase by around 20 bps to 3.5% in 2025.
Interest rate exposure
The analysis of the Group's exposure to interest rate risk in its debt
portfolio as at 30 June 2024 is as follows:
Facilities Drawn
£ million % £ million %
Fixed rate debt 1,111.6 67.9 1,111.6 84.3
Hedged by fixed rate interest rate swaps 100.0 6.1 100.0 7.6
Hedged by fixed to floating rate interest rate swaps (200.0) (12.2) (200.0) (15.2)
Total fixed rate debt 1,011.6 61.8 1,011.6 76.7
Hedged by interest rate caps 250.8 15.3 250.8 19.0
Floating rate debt - unhedged 374.2 22.9 56.1 4.3
Total 1,636.6 100.0 1,318.5 100.0
Interest rate derivative contracts
During the period the Group did not enter into any new fixed rate debt or
hedging arrangements.
Accounting standards require PHP to mark its interest rate derivatives to
market at each balance sheet date. During the six months to 30 June 2024 there
was a decrease of £2.0 million (30 June 2023: increase of £2.1 million) on
the fair value movement of the Group's interest rate derivatives due primarily
due to effluxion of time along with increases in interest rates assumed in the
forward yield curves used to value the interest rate swaps. The net
mark-to-market ("MtM") asset value of the interest rate derivatives is £2.7
million (31 December 2023: asset £4.7 million).
Currency exposure
The Group owns €288.4 million or £244.4 million (31 December 2023: €282.2
million / £244.6 million) of Euro denominated assets in Ireland as at 30 June
2024 and the value of these assets and rental income represented 9% (31
December 2023: 9%) of the Group's total portfolio. In order to hedge the risk
associated with exchange rates, the Group has chosen to fund its investment in
Irish assets through the use of Euro denominated debt, providing a natural
asset to liability hedge, within the overall Group loan to value limits set by
the Board. At 30 June 2024, the Group had €278.0 million (31 December 2023:
€281.0 million) of drawn euro denominated debt.
Euro rental receipts are used to first finance Euro interest and administrative costs and surpluses are used to fund further portfolio expansion. Given the large Euro to Sterling fluctuations seen in recent years and continued uncertainty in the interest rate market the Group has a nil-cost FX collar hedge (between €1.1675 and €1.1022: £1) maturing in July 2024 to cover the approximate Euro denominated net annual income of €10 million per annum, minimising the downside risk of the Euro gaining in value above €1.1675: £1. The Group expects to renew these hedging arrangements in Q3 2024.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 30 June 2024 was an asset of
£125.1 million (31 December 2023: asset £106.2 million) equivalent to 9.4
pence per share (31 December 2023: asset of 7.9 pence per share). The movement
in the period is due primarily to movements in interest rates assumed in the
forward yield curves used to value the debt along with the effluxion of time.
The MtM valuation is sensitive to movements in interest rates assumed in
forward yield curves.
Convertible bonds
The Group currently has an unsecured convertible bond with a nominal value of
£150 million and a fixed coupon of 2.875% per annum that matures in July
2025. The convertible bond has a current exchange price of 127.82 pence per
Ordinary Share and based on the share price of 93.5 pence, as at 23 July 2024,
conversion of the existing bond into new Ordinary Shares is not expected to
happen. Consequently, the Group continues to consider options to refinance the
existing bond including repayment at maturity from the Group's existing
undrawn loan facilities totalling £307.8 million.
Alternative Performance Measures ("APMs")
PHP uses Adjusted earnings and adjusted net tangible assets amongst other APMs
to highlight the recurring performance of the property portfolio and business.
The APMs are in addition to the statutory measures from the condensed
financial statements. The measures are defined and reconciled to amounts
presented in the financial statements within this interim statement at note 7.
The Company has used EPRA earnings and EPRA net tangible assets to measure
performance and will continue to do so. However, these APMs have also been
adjusted to remove the impact of the adjustments arising from the MtM on fixed
debt acquired on completion of the merger with MedicX in 2019. The reasons for
the Company's use of these APMs are set out in the Glossary and 2023 Annual
Report.
Related party transactions
Related party transactions are disclosed in note 16 to the condensed financial
statements.
Mark Davies Richard Howell
Chief Executive
Officer
Chief Financial Officer
23 July 2024
Principal risks and uncertainties Risk management overview
Effective risk management is a key element of the Board's operational
processes. Risk is inherent in any business, and the Board has determined the
Group's risk appetite, which is reviewed on an annual basis. Group operations
have been structured in order to accept risks within the Group's overall risk
appetite, and to oversee the management of these risks to minimise exposure
and optimise the returns generated for the accepted risk. The Group aims to
operate in a low-risk environment, appropriate for its strategic objective of
generating progressive returns for shareholders. Key elements of maintaining
this low-risk approach are:
· investment focuses on the primary health real estate sector which is
traditionally much less cyclical than other real estate sectors;
· the majority of the Group's rental income is received directly or
indirectly from government bodies in the UK and Ireland;
· the Group benefits from long initial lease terms, largely with
upwards-only review terms, providing clear visibility of income;
· debt funding is procured from a range of providers, maintaining a
spread of maturities and a mix of terms, with interest costs either fixed or
hedged across the majority of debt drawn;
· the Board funds its operations to maintain an appropriate mix of debt
and equity; and
· the Group has a very small (£3.3m) 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 structure of the Group's operations includes rigorous, regular review of
risks and how these are mitigated and managed across all areas of the Group's
activities. The Group faces a variety of risks that have the potential to
impact on its performance, position and its longer-term viability. These
include external factors that may arise from the markets in which the Group
operates, government and fiscal policy, general economic conditions including
interest rates and inflation together with internal risks that arise from how
the Group is managed and chooses to structure its operations.
Principal risks and changes in risk factors
The Board has concluded that there should be no further principal risks to be
presented in the 2024 Interim Results Announcement, and that the principal
risks presented in the 2023 Annual Report remain relevant for this period.
Monitoring of identified and emerging risks
The Board has continued to undertake a robust assessment of identified,
emerging and increasing risks and their potential impact on the Group. The way
we have addressed the challenges of the last few years has demonstrated the
resilience of the Group's business model and our robust risk management
approach to protect our business through periods of uncertainty and adapt to a
rapidly changing environment.
Since the release of our 2023 full-year results, global economic uncertainty
has continued to persist and remains volatile and uncertain. Within the UK,
one of the main challenge facing the economy has been continued elevated
interest rates which have remained at levels higher than expected at the start
of the year notwithstanding inflation in the UK having fallen to levels
broadly in line with the long-term target rate of 2% per annum. The ongoing
adverse impact of higher interest rates on our business includes reduced
demand for our assets impacting property values in the investment market, the
ability for us to continue to execute our acquisition and development strategy
and increased financing costs, which could impact our rental income and
earnings. The Board and key Committees have continued to oversee the Group's
response to the impact of these challenges on our business and the wider
economic influences throughout the period.
Going concern analysis
The Group's financial review and budgetary processes are based on an
integrated model that projects performance, cash flows, position and other key
performance indicators including earnings per share, leverage rates, net asset
values per share and REIT compliance over the review period. In addition, the
forecast model looks at the funding of the Group's activities and its
compliance with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its forecasts that
reflect the Group's strategy, operating processes and the Board's expectation
of market developments in the review period. In undertaking its financial
review, these parameters have been flexed to reflect severe, but realistic,
scenarios both individually and collectively. Sensitivities applied are
derived from the principal risks faced by the Group that could affect solvency
or liquidity and are as follows:
· Declining attractiveness / possible obsolescence of the Group's
assets as a result of ESG initiatives or otherwise or deteriorating economic
circumstances impact investment values - valuation parameter stress tested to
provide for a one-off 10%/£275 million fall in the December 2024 valuation.
· We have applied a 15% tenant default rate.
· Rental growth rate assumptions have been amended to see no further
uplifts on open market reviews.
· Variable rate interest rates rise by an immediate 2% effective from 1
July 2024, 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 2024 level, 6.9 pence per share.
Several specific assumptions have been made that overlay the financial
parameters used in the Group's models. We have assumed the £150m convertible,
that matures in July 2025, will be repaid at expiry from existing headroom
within the Group's revolving credit facilities given the current depressed
share price is currently restricting the Group's ability to refinance the
convertible bond on sensible commercial terms.
Further details on going concern are set out in note 1 to the Financial
Statements.
INDEPENDENT REVIEW REPORT TO PRIMARY HEALTH PROPERTIES PLC
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2024 which comprises the condensed group statement of comprehensive
income, the condensed group balance sheet, the condensed group statement of
changes in equity, the condensed group cash flow statement and related notes 1
to 19.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2024 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, United Kingdom
23 July 2024
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2024
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2024 2023 2023
£m £m £m
Notes (unaudited) (unaudited) (audited)
Rental and related income 2 91.9 83.9 169.8
Direct property expenses (14.6) (7.9) (18.8)
Net rental and related income 77.3 76.0 151.0
Administrative expenses (6.3) (6.1) (12.3)
Amortisation of intangible assets (0.5) (0.4) (0.9)
Axis acquisition costs and JSE listing fees - (0.2) (0.5)
Total administrative expenses 3 (6.8) (6.7) (13.7)
Revaluation (deficit)/ gain on property portfolio 9 (40.0) (11.9) (53.0)
Profit on sale of land and properties - - -
Total revaluation (deficit)/ gain (40.0) (11.9) (53.0)
Operating profit 3 30.5 57.4 84.3
Finance income 4 - - 0.2
Finance costs 5 (23.2) (22.5) (45.2)
Fair value loss on derivative interest rate swaps and
amortisation of cash flow hedging reserve 5 (3.3) (1.7) (8.4)
Fair value gain/(loss) on convertible bond 5 0.5 5.6 (4.8)
Profit before taxation 4.5 38.8 26.1
Taxation (charge)/credit 6 (0.9) 0.7 1.2
Profit after taxation for the period/year(1) 3.6 39.5 27.3
Other comprehensive income:
Items that may be reclassified subsequently to profit and loss:
Fair value gain on interest rate swaps treated as cash flow hedges and
amortisation of hedging reserve
1.3 1.9 4.1
Exchange gain /(loss) on translation of foreign balances 0.1 (0.1) (0.3)
Other comprehensive income for the period net of tax(1) 1.4 1.8 3.8
Total comprehensive income for the period net of tax(1) 5.0 41.3 31.1
IFRS earnings per share
Basic 7 0.3p 3.0p 2.0p
Diluted 7 0.3p 2.5p 2.0p
Adjusted earnings per share(2)
Basic 7 3.5p 3.4p 6.8p
Diluted 7 3.3p 3.3p 6.6p
(1) Wholly attributable to equity shareholders of Primary Health Properties
PLC
(2) See Glossary of Terms on pages 53 to 55.
The above relates wholly to continuing operations.
Condensed Group Balance Sheet As at 30 June 2024
30 June 30 June 31 December
2024 2023 2023
£m £m £m
Notes (unaudited) (unaudited) (audited)
Non-current assets
Investment properties 9 2,749.5 2,783.4 2,779.3
Derivative interest rate swaps 14 0.9 22.6 0.9
Intangible assets 5.8 6.6 6.2
Property, plant & equipment 0.5 0.6 0.5
2,756.7 2,813.2 2,786.9
Current assets
Trade and other receivables 27.4 22.6 24.9
Cash and cash equivalents 10 4.1 2.4 3.2
Derivative interest rate swaps 14 5.2 - 10.5
Development work in progress 0.8 1.4 1.4
37.5 26.4 40.0
Total assets 2,794.2 2,839.6 2,826.9
Current liabilities
Deferred rental income (31.2) (30.3) (30.4)
Trade and other payables (30.4) (34.1) (31.7)
Borrowings: term loans and overdraft 11 (2.5) (2.3) (2.4)
Derivative interest rate swaps 14 (3.4) - (6.7)
(67.5) (66.7) (71.2)
Non-current liabilities
Borrowings: term loans and overdraft 11 (681.2) (669.5) (664.5)
Borrowings: bonds 12 (651.2) (603.8) (656.4)
Derivative interest rate swaps 14 - (13.4) -
Head lease liabilities 13 (3.0) (3.0) (3.0)
Trade and other payables (4.1) - (4.1)
Deferred tax liability (4.1) (4.5) (3.8)
(1,343.6) (1,294.2) (1,331.8)
Total liabilities (1,411.1) (1,360.9) (1,403.0)
Net assets 1,383.1 1,478.7 1,423.9
Equity
Share capital 17 167.1 167.1 167.1
Share premium account 479.4 479.4 479.4
Merger and other reserves 18 415.4 416.6 415.3
Hedging reserve (5.7) (9.2) (7.0)
Retained earnings 326.9 424.8 369.1
Total equity(1) 1,383.1 1,478.7 1,423.9
Basic net asset value per share
IFRS net assets - basic 7 103.5 110.6 106.5p
IFRS net assets - diluted 7 105.6 112.7 108.5p
Adjusted net tangible assets(2) - basic 7 105.0 111.1 108.0p
Adjusted net tangible assets(2) - diluted 7 107.0 113.1 109.8p
(1) Wholly attributable to equity shareholders of Primary Health Properties
PLC.
(2) See Glossary of Terms on pages 53 to 55.
Condensed Group Cash Flow Statement For the six months ended 30 June 2024
Six months ended 30 June 2024 Six months ended 30 June 2023 Year ended 31 December 2023
£m £m £m
Notes (unaudited) (unaudited) (audited)
Operating activities
Profit on ordinary activities after tax 3.6 39.5 27.3
Taxation (credit) / charge 6 0.9 (0.7) (1.2)
Finance income 4 - - (0.2)
Finance costs 5 23.2 22.5 45.2
Fair value loss on derivatives and amortisation of hedging reserve 3.3 1.7 8.4
Fair value gain on convertible bond (0.5) (5.6) 4.8
Operating profit before financing costs 30.5 57.4 84.3
Adjustments to reconcile Group operating profit to net cash flows from
operating activities:
Revaluation deficit / (gain) on property portfolio 9 40.0 11.9 53.0
Axis acquisition costs and JSE listings fees - - 0.5
Amortisation of intangible assets 0.5 0.4 0.9
Effect of exchange rate fluctuations on operations - (0.1) -
Fixed rent uplift (0.3) (0.4) (0.7)
Tax (paid) / received (0.2) (0.1) (0.3)
(Increase) / decrease in trade and other receivables (2.7) (4.5) (7.1)
(Decrease) / increase in trade and other payables (0.4) 1.7 3.0
Cash generated from operations 67.4 66.3 133.6
Net cash flow from operating activities 67.4 66.3 133.6
Investing activities
Payments to acquire and improve properties and fixed assets (14.8) (5.6) (39.5)
Cash paid for acquisition of Axis - (5.2) (5.1)
Net cash flow used in investing activities (14.8) (10.8) (44.6)
Financing activities
Term bank loan drawdowns 64.5 126.8 282.4
Term bank loan repayments (46.4) (138.7) (300.0)
Proceeds from bond issue - - 41.2
Loan arrangement fees (0.8) (0.9) (1.8)
Premium paid on derivatives financial instruments - (1.9) (1.9)
Non-utilisation fees (1.1) (1.1) (2.2)
Interest paid (24.6) (22.8) (47.0)
Swap interest received 2.8 1.4 3.9
Equity dividends paid net of scrip dividend 8 (46.1) (44.8) (89.5)
Net cash flow used in financing activities (51.7) (82.0) (114.9)
Increase/(decrease) in cash and cash equivalents 0.9 (26.5) (25.9)
Effect of exchange rate fluctuations on Euro denominated loans and cash
equivalents
- (0.2) -
Cash and cash equivalents at start of period / year 3.2 29.1 29.1
Cash and cash equivalents at end of period / year 10 4.1 2.4 3.2
Condensed Group Statement of Changes in Equity For the six months ended 30 June 2024 (unaudited)
Six months ended 30 June 2024 (unaudited)
Merger &
Share capital Share premium other Hedging reserve Retained earnings
reserves Total
£m £m £m £m £m £m
1 January 2024 167.1 479.4 415.3 (7.0) 369.1 1,423.9
Profit for the period - - - - 3.6 3.6
Other comprehensive income
Exchange gain/(loss) on translation of foreign balances - - 0.1 - - 0.1
Amortisation of hedging reserve - - - 1.3 - 1.3
Total comprehensive income - - 0.1 1.3 3.6 5.0
Shares based awards (LTIP) - - - - 0.3 0.3
Dividends paid - - - - (46.1) (46.1)
30 June 2024 167.1 479.4 415.4 (5.7) 326.9 1,383.1
Six months ended 30 June 2023 (unaudited)
Merger &
Share capital Share premium other Hedging reserve Retained earnings
reserves Total
£m £m £m £m £m £m
1 January 2023 167.1 479.4 416.7 (11.1) 430.1 1,482.2
Profit for the period - - - - 39.5 39.5
Other comprehensive income
Exchange gain/(loss) on translation of foreign balances - - (0.1) - - (0.1)
Amortisation of hedging reserve - - - 1.9 - 1.9
Total comprehensive income - - (0.1) 1.9 39.5 41.3
Shares based awards (LTIP) - - - - - -
Dividends paid - - - - (44.8) (44.8)
30 June 2023 167.1 479.4 416.6 (9.2) 424.8 1,478.7
Condensed Group Statement of Changes in Equity (continued)
Year ended 31 December 2023 (audited)
Merger &
Share capital Share premium other Hedging reserve Retained earnings
reserves Total
£m £m £m £m £m £m
1 January 2023 167.1 479.4 416.7 (11.1) 430.1 1,482.2
Profit for the year - - - - 27.3 27.3
Other comprehensive income
Exchange gain/(loss) on translation of foreign balances - - (1.4) - 1.1 (0.3)
Amortisation of hedging - - - 4.1 - 4.1
reserve
Total comprehensive income - - (1.4) 4.1 28.4 31.1
Share issue expenses - - - - - -
Share-based awards ("LTIP") - - - - 0.1 0.1
Dividends paid - - - - (89.5) (89.5)
31 December 2023 167.1 479.4 415.3 (7.0) 369.1 1,423.9
Notes to the condensed financial statements
1. Accounting policies General information
The financial information set out in this report does not constitute statutory
accounts as defined in Section 434 of the Companies Act 2006. The Group's
statutory financial statements for the year ended 31 December 2023 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 23 to 24. These condensed consolidated interim
financial statements of the Group for the six months ended 30 June 2024 were
approved and authorised for issue by the Board on 23 July 2024.
Basis of preparation/statement of compliance
The condensed consolidated interim financial statements for the six months
ended 30 June 2024 have been prepared in accordance with IAS 34 'Interim
Financial Reporting'. The annual financial statements of the Group will be
prepared in accordance with United Kingdom adopted international accounting
standards.
The condensed consolidated interim financial statements do not include all the
information and disclosures required in the statutory financial statements and
should be read in conjunction with the Group's financial statements as at 31
December 2023.
Convention
The condensed interim financial statements are presented in Sterling, rounded
to the nearest million.
Segmental reporting
The Directors are of the opinion that the Group currently has one operating
and reportable segment, being the acquisition and development of property in
the United Kingdom and Ireland leased principally to GPs, Government and
Healthcare organisations and other associated healthcare users.
Going concern
The directors are required to assess the Group's ability to continue as a
going concern for a period of at least the next 12 months. In assessing the
appropriateness of the going concern basis used in preparing the interim
report, the directors have performed a review of the Group's financial
performance and position, continued access to borrowing facilities and the
ability to continue to operate the Group's facilities within its financial
covenants, as well the Group's budgetary model.
Notes to the condensed financial statements (continued) Going concern (continued)
The Group's financial review and budgetary processes are based on an
integrated model that projects performance, cash flows, position and other key
performance indicators including earnings per share, leverage rates, net asset
values per share and REIT compliance over the review period. In addition, the
forecast model looks at the funding of the Group's activities and its
compliance with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its forecasts that
reflect the Group's strategy, operating processes and the Board's expectation
of market developments in the review period. In undertaking its financial
review, these parameters have been flexed to reflect severe, but realistic,
scenarios both individually and collectively. Sensitivities applied are
derived from the principal risks faced by the Group that could affect solvency
or liquidity and are as follows:
· Declining attractiveness / possible obsolescence of the Group's
assets as a result of ESG initiatives or otherwise, or deteriorating economic
circumstances impacts investment values - valuation parameter stress tested to
provide for a one-off 10%/£275m fall in December 2023 valuations.
· We have applied a 15% tenant default rate.
· Rental growth rate assumptions have been amended to see no further
uplifts on open market reviews.
· Variable rate interest rates rise by an immediate 2% effective from 1
July 2024, 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 2024 level, 6.9p 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 2024 was 48.0% (30 June 2023: 45.6%) and the Group's
interest cover for the period under review was 3.1 times (30 June 2023: 3.1),
well above the minimum Group banking covenant of 1.3 times (30 June 2023:
1.3).
Several specific assumptions have been made that overlay the financial
parameters used in the Group's models. We have assumed the £150m convertible,
that matures in July 2025, will be repaid at expiry from existing headroom
within the Group's revolving credit facilities given the current depressed
share price is currently restricting the Group's ability to refinance the
convertible bond on sensible commercial terms.
The Board has continued to undertake a robust assessment of emerging and
increasing risks faced by the Group.
Since the release of our 2023 full-year results, global economic uncertainty
has continued to persist and remains volatile and uncertain, compounded with
an ever changing global political landscape and most importantly in the UK
with a new Labour government. Whilst we welcome the new Labour government's
commitment to the NHS, together with its pledge to increase NHS funding to pay
for reform of primary care facilities, within the UK, one of the main
challenges facing the economy has been continued elevated interest rates,
notwithstanding inflation in the UK having fallen to levels broadly in line
with the long-term target rate of 2% per annum. The ongoing adverse impact
of higher interest rates on our business includes reduced demand for our
assets impacting property values in the investment market, the ability for us
to
Notes to the condensed financial statements (continued) Going concern (continued)
continue to execute our acquisition and development strategy and increased
financing costs, which could impact our rental income and earnings. The Board
and key Committees have continued to oversee the Group's response to the
impact of these challenges on our business and the wider economic influences
to deliver robust operational and financial performance throughout the period
and look forward to the rest of 2024 with confidence. 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. There has not been any new
accounting policy adopted during the period.
2. Rental and related income
Revenue comprises rental income receivable on property investments in the UK
and Ireland, which is exclusive of VAT, plus facilities and properties
management income. Revenue is derived from one reportable operating segment.
3. Operating profit
Operating profit is stated after charging administrative expense of £6.3m and
amortisation of intangible assets of £0.5m. Administrative expenses as a
proportion of rental and related income were 6.9% (30 June 2023: 7.3%). The
Group's EPRA cost ratio has increased to 10.9%, compared to 10.1% for the same
period in 2023.
Administrative expenses include staff costs of £3.8m (30 June 2023: £3.4m).
In 2023 PHP acquired Axis, an Irish property management business. In the
period Axis contributed £7.0m (30 June 2023: £1.3m) of related income and
incurred direct property expenses of £5.9m (30 June 2023: £0.8m),
contributing £1.1m (30 June 2023: £0.5m) of net related income. After the
deduction of £0.4m (30 June 2023: £0.2m) administrative expenses Axis
generated an operating profit of £0.7m (30 June 2023: £0.3m).
Notes to the condensed financial statements (continued)
4. Finance income
Six months Six months Year ended 31 December
ended 30 June 2024 ended 30 June 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
Interest income on financial assets
Development loan interest - - 0.2
- - 0.2
5. Finance costs
Six months Six months Year ended 31 December
ended ended 2023
30 June 2024 30 June 2023
£m £m £m
(unaudited) (unaudited) (audited)
Interest expense and similar charges on financial liabilities
(i) Interest
Bank loan interest 14.0 13.4 27.4
Swap interest (2.8) (1.8) (4.6)
Bond interest 11.1 9.8 20.0
Bank facility non utilisation fees 1.1 1.1 2.2
Bank charges and loan arrangement fees 1.6 1.6 3.3
25.0 24.1 48.3
Interest capitalised (0.3) (0.1) (0.1)
Amortisation of MedicX debt MtM at acquisition (1.5) (1.5) (3.0)
23.2 22.5 45.2
Six months Six months Year ended 31 December
ended 30 June 2024 ended 30 June 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
(ii) Derivatives
Net fair value (gain)/loss on interest rate swaps 2.0 (0.2) 4.3
Amortisation of cash flow hedging reserve 1.3 1.9 4.1
3.3 1.7 8.4
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.
Notes to the condensed financial statements (continued)
5. Finance costs (continued)
Six months Six months Year ended 31 December
ended ended 2023
30 June 2024 30 June 2023
£m £m £m
(unaudited) (unaudited) (audited)
(iii) Convertible bond
Fair value (gain)/loss on convertible bond (0.5) (5.6) 4.8
(0.5) (5.6) 4.8
The fair value movement in the convertible bonds is recognised in the Group
Statement of Comprehensive Income within profit before taxation and is
excluded from the calculation of EPRA earnings and EPRA NTA (replacing EPRA
NAV). Refer to note 12 for further details about the convertible bonds.
Six months Six months Year ended 31 December
ended ended 2023
30 June 2024 30 June 2023
£m £m £m
(unaudited) (unaudited) (audited)
Finance income (Note 4) - - 0.2
Finance costs (Note 5 (i)) (25.0) (24.1) (48.3)
(25.0) (24.1) (48.1)
Interest capitalised 0.3 0.1 0.1
Amortisation of MedicX debt MtM on acquisition 1.5 1.5 3.0
Net finance costs (23.2) (22.5) (45.0)
Notes to the condensed financial statements (continued)
6. Taxation
The Group elected to be treated as a UK-REIT with effect from 1 January 2007.
The UK-REIT rules exempt the profits of the Group's property rental business
from corporation tax. Gains on properties are also exempt from tax, provided
they are not held for trading or sold in the three years post completion of
development. The Group will otherwise be subject to corporation tax at 25%
(2023: 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 2024.
The Group's activities in Ireland are conducted via Irish companies or an
Irish Collective Asset Vehicle ("ICAV"). The Irish companies pay Irish
Corporation Tax on trading activities and deferred tax is calculated on the
increase in capital values. The ICAV does not pay any Irish Corporation Tax on
its trading or capital profits but a 20% withholding tax is paid on
distributions to owners.
Six months Six months Year ended 31 December
ended 30 June 2024 ended 30 June 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
Taxation in the Condensed Group Statement of Comprehensive Income:
Current tax
UK corporation tax charge on non-property income - - -
Irish corporation tax charge/(credit) - - 0.1
Deferred tax on Irish activities 0.9 (0.7) (1.3)
Taxation charge/(credit) in the Condensed Group Statement of
Comprehensive Income 0.9 (0.7) (1.2)
Notes to the condensed financial statements (continued)
7. Earnings per share
Performance measures
In the tables below, we present earnings per share and net assets per share
calculated in accordance with IFRS, together with our own adjusted measure and
certain measures defined by the European Public Real Estate Association
("EPRA"), which have been included to assist comparison between European
property companies. Two of the Group's key financial performance measures are
Adjusted earnings per share and adjusted net tangible assets per share.
Adjusted earnings, which is a tax adjusted measure of revenue profit, is the
basis for the calculation of Adjusted earnings per share. We believe Adjusted
earnings and Adjusted earnings per share provide further insight into the
results of the Group's operational performance to stakeholders as they focus
on the net rental income performance of the business and exclude capital and
other items which can vary significantly from year to year.
Earnings per share
30 June 2024 30 June 2023
(unaudited)
(unaudited)
IFRS Adjusted earnings EPRA IFRS Adjusted earnings EPRA
earnings £m earnings earnings £m earnings
£m £m £m £m
Profit after taxation 3.6 3.6 3.6 39.5 39.5 39.5
Adjustments to remove:
Revaluation deficit/ (gain) on property portfolio - 40.0 40.0 - 11.9 11.9
Fair value movement on derivatives - 3.3 3.3 - 1.7 1.7
Fair value movement and issue costs on
convertible bond - (0.5) (0.5) - (5.6) (5.6)
Taxation charge/ (credit) - 0.9 0.9 - (0.7) (0.7)
Amortisation of intangible assets 0.5 0.5 0.4 0.4
Axis acquisition costs - - - - 0.2 0.2
Amortisation of MtM loss on debt acquired - (1.5) - - (1.5) -
Basic earnings 3.6 46.3 47.8 39.5 45.9 47.4
Dilutive effect of convertible bond - 2.2 2.2 (3.5) 2.1 2.1
Diluted earnings 3.6 48.5 50.0 36.0 48.0 49.5
Number of
shares
million million million million million million
Ordinary Shares 1,336.5 1,336.5 1,336.5 1,336.5 1,336.5 1,336.5
Dilutive effect of convertible bond - 115.2 115.2 108.9 108.9 108.9
Diluted Ordinary Shares 1,336.5 1,451.7 1,451.7 1,445.4 1,445.4 1,445.4
Profit per share attributable to
shareholders:
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Basic 0.3 3.5 3.6 3.0 3.4 3.5
Diluted 0.3 3.3 3.4 2.5 3.3 3.4
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Earnings per share
31 December 2023
(audited)
IFRS Adjusted earnings EPRA
earnings £m earnings
£m £m
Profit after taxation 27.3 27.3 27.3
Adjustments to remove:
Revaluation deficit/ (gain) on property portfolio - 53.0 53.0
Profit on the sale of land - - -
Fair value movement on derivatives - 8.4 8.4
Fair value movement and issue costs on
convertible bond - 4.8 4.8
Taxation (credit)/ charge - (1.2) (1.2)
JSE listing fees - 0.2 0.2
Amortisation of intangible assets - 0.9 0.9
Axis acquisition costs - 0.3 0.3
Amortisation of MtM loss on debt -
acquired (3.0) -
Basic earnings 27.3 90.7 93.7
Dilutive effect of convertible bond - 4.3 4.3
Diluted earnings 27.3 95.0 98.0
Number of shares
million million million
Ordinary Shares 1,336.5 1,336.5 1,336.5
Dilutive effect of convertible bond - 113.9 113.9
Diluted Ordinary Shares 1,336.5 1,450.4 1,450.4
Profit per share attributable to
shareholders:
IFRS Adjusted EPRA
pence pence pence
Basic 2.0 6.8 7.0
Diluted 2.0 6.6 6.8
In the period ended 30 June 2024 and year ended 31 December 2023 the effect of
the convertible bond had been excluded from the diluted profit and weighted
average diluted number of shares when calculating IFRS diluted profit per
share because they are anti-dilutive.
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net assets per share
30 June 2024 30 June 2023
(unaudited)
(unaudited)
IFRS Adjusted EPRA IFRS Adjusted EPRA
£m £m £m £m £m £m
Net assets attributable to shareholders 1,383.1 1,383.1 1,383.1 1,478.7 1,478.7 1,478.7
Derivative interest rate swaps liability - (2.7) (2.7) - (9.2) (9.2)
Deferred tax - 4.1 4.1 - 4.5 4.5
Intangible assets - (5.8) (5.8) - (6.6) (6.6)
Cumulative convertible bond fair value - (2.8) (2.8) - (12.7) (12.7)
movement
MtM on MedicX loans net of - 27.0 - - 30.0 -
amortisation
Net tangible assets ("NTA") 1,383.1 1,402.9 1,375.9 1,478.7 1,484.7 1,454.7
Intangible assets - - 5.8 - - 6.6
Real estate transfer taxes - - 177.9 - - 194.4
Net reinstatement value ("NRV") 1,383.1 1,402.9 1,559.6 1,478.7 1,484.7 1,655.7
Fixed rate debt and swap mark-to- - - - -
market value 152.0 197.5
Deferred tax - - (4.1) - - (4.5)
Cumulative convertible bond fair value - - 2.8 - - 12.7
movement
Real estate transfer taxes - - (177.9) - - (194.4)
Net disposal value ("NDV") 1,383.1 1,402.9 1,532.4 1,478.7 1,484.7 1,667.0
Number of
shares
million million million million million million
Ordinary Shares 1,336.5 1,336.5 1,336.5 1,336.5 1,336.5 1,336.5
Dilutive effect of convertible bond 115.2 115.2 115.2 108.9 108.9 108.9
Diluted Ordinary Shares 1,451.7 1,451.7 1,451.7 1,445.4 1,445.4 1,445.4
Basic net asset value per share(1)
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 103.5 105.0 103.0 110.6 111.1 108.8
Net reinstatement value ("NRV") - - 116.7 - - 123.9
Net disposal value ("NDV") - - 114.7 - - 124.7
1 The above are calculated on a "basic" basis without the adjustment for
the impact of the convertible bond which is shown in the diluted basis table
below.
Diluted net asset value per share(2)
IFRS Adjusted EPRA IFRS Adjusted EPRA
pence pence pence pence pence pence
Net tangible assets ("NTA") 105.6 107.0 103.0 112.7 113.1 111.0
Net reinstatement value ("NRV") - - 116.7 - - 124.9
Net disposal value ("NDV") - - 114.7 - - 125.7
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 130.25 pence (30 June 2023: 137.69 pence) (31
December 2023: 131.72 pence).
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net assets per share
31 December 2023
(audited)
IFRS Adjusted EPRA
£m £m £m
Net assets attributable to shareholders 1,423.9 1,423.9 1,423.9
Derivative interest rate swaps liability - (4.7) (4.7)
Deferred tax - 3.8 3.8
Intangible assets - (6.2) (6.2)
Cumulative convertible bond fair value -
movement (2.3) (2.3)
MtM on MedicX loans net of -
amortisation 28.5 -
Net tangible assets ("NTA") 1,423.9 1,443.0 1,414.5
Intangible assets - - 6.2
Real estate transfer taxes - - 184.4
Net reinstatement value ("NRV") 1,423.9 1,443.0 1,605.1
Fixed rate debt and swap mark-to- - -
market value 137.0
Deferred tax - - (3.8)
Cumulative convertible bond fair value - -
movement 2.3
Real estate transfer taxes - - (184.4)
Net disposal value ("NDV") 1,423.9 1,443.0 1,556.2
Ordinary
shares
million million million
Issued share capital 1,336.5 1,336.5 1,336.5
Basic net asset value per share(1)
IFRS Adjusted EPRA
pence pence pence
Net tangible assets ("NTA") 106.5 108.0 105.8
Net reinstatement value ("NRV") - - 120.1
Net disposal value ("NDV") - - 116.4
1 The above are calculated on a "basic" basis without the adjustment for
the impact of the convertible bond which is shown in the diluted basis table
below.
Diluted net asset value per share(2)
IFRS Adjusted EPRA
pence pence pence
Net tangible assets ("NTA") 108.5 109.8 105.8
Net reinstatement value ("NRV") - - 120.1
Net disposal value ("NDV") - - 116.4
2 The Company assesses the dilutive impact of the unsecured convertible
bond, issued by the Group on 15 July 2019, on its net asset value per share
with a current exchange price of 130.25 pence (30 June 2023: 137.69 pence) (31
December 2023: 131.72 pence).
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Conversion of the convertible bond would result in the issue of 115.2 million
(31 December 2023: 113.9 million) new Ordinary Shares. The IFRS net asset
value and EPRA NDV would increase by £147.2 million (31 December 2023:
£147.7 million) and the EPRA NTA, Adjusted NTA and EPRA NRV would increase by
£150.0 million (31 December 2023: £150.0 million). The resulting diluted net
asset values per share are anti-dilutive to all measures and therefore basic
IFRS net assets value per share are presented above.
Headline earnings per share
The JSE listing conditions require the calculation of headline earnings
(calculated in accordance with Circular 1/2021 - Headline Earnings as issued
by the South African Institute of Chartered Accountants) and disclosure of a
detailed reconciliation of headline earnings to the earnings numbers used in
the calculation of basic earnings per share in accordance with the
requirements of IAS 33 Earnings per share. Disclosure of headline earnings is
not a requirement of IFRS.
Six months Six months Year ended 31 December
ended ended 2023
30 June 2024 30 June 2023
£m £m £m
(unaudited) (unaudited) (audited)
Reconciliation of profit in the period to headline earnings
Basic earnings 3.6 39.5 27.3
Adjustments to calculate headline earnings:
JSE listing fees & Axis acquisition costs - 0.2 0.5
Amortisation of intangible assets 0.5 0.4 0.9
Revaluation deficit/(surplus) 40.0 11.9 53.0
Deferred tax on Irish activities 0.8 (0.7) (1.3)
Headline earnings 44.9 51.3 80.4
Corporation tax 0.1 - 0.1
Fair value loss/(gain) on derivative financial instruments and convertible 2.8 (3.9) 13.2
bond
Non-recurring items (1.5) (1.5) (3.0)
Adjusted earnings (after tax) 46.3 45.9 90.7
Diluted basic earnings 5.3 36.1 36.4
Diluted headline earnings 46.6 47.8 89.5
Basic earnings per share 0.3 3.0 2.0
Headline earnings per share 3.4 3.8 6.0
Adjusted earnings per share 3.5 3.4 6.8
Diluted basic earnings per share 0.3 2.5 2.0
Diluted headline earnings per share 3.2 3.3 6.2
Number of shares 1,336.5 1,366.5 1,366.5
Weighted average number of Ordinary Shares for the purpose of headline, basic 1,336.5 1,366.5 1,366.5
and adjusted earnings per share
Weighted average number of Ordinary Shares for the purpose of diluted basic 1,451.7 1,445.4 1,450.4
and headline earnings per share
Notes to the condensed financial statements (continued)
8. Dividends
Six months Six months Year ended 31 December
ended 30 June 2024 ended 30 June 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
Quarterly interim dividend paid 23 February 2023 - 22.4 22.4
Quarterly interim dividend paid 19 May 2023 - 22.4 22.4
Quarterly interim dividend paid 18 August 2023 - - 22.3
Quarterly interim dividend paid 24 November 2023 - - 22.4
Quarterly interim dividend paid 23 February 2024 23.1 - -
Quarterly interim dividend paid 17 May 2024 23.0 - -
Total dividends distributed 46.1 44.8 89.5
Per share 3.45p 3.35p 6.7p
The Company will pay a third interim dividend of 1.725 pence per Ordinary
Share for the year ending 31 December 2024, payable on 16 August 2024. The
dividend will comprise a Property Income Distribution ("PID") of 1.450 pence
per share and an ordinary dividend of 0.275 pence per share. The scrip
dividend scheme was suspended in light of the falls in the share price in 2023
and first half of 2024 and the company continues to offer a dividend
reinvestment plan in its place.
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under
construction
Investment properties
Investment properties freehold(1) Investment under construction
long leasehold
Total
£m £m £m £m
As at 1 January 2024 (audited) 2,195.1 583.2 1.0 2,779.3
Property additions 9.1 0.2 5.6 14.9
Impact of lease incentive adjustment 0.2 0.6 - 0.8
Lease ground rent adjustment - - - -
Foreign exchange movements (4.1) (1.4) - (5.5)
Revaluations for the period (37.4) (2.7) 0.1 (40.0)
As at 30 June 2024 (unaudited) 2,162.9 579.9 6.7 2,749.5
(1) Includes development land held at £0.9m (31 December 2023: £0.7m)
Total
£m
Fair value per AY UK valuation 1,178.6
Fair value of JLL UK valuation 1,323.5
Fair value of CBRE Ireland valuation 244.4
2,746.5
Ground rents recognised as finance leases 3.0
Fair value 30 June 2024 (unaudited) 2,749.5
The investment properties have been independently valued at fair value by
Avison Young ("AY"), Jones Lang LaSalle ("JLL") and CBRE Chartered Surveyors
and Valuers ("CBRE"), as at the balance sheet date in accordance with
accounting standards. The valuers have confirmed that they have valued the
properties in accordance with the Practice Statements in the RICS Valuation
Global Standards 2022 ("Red Book"). There were no changes to the valuation
techniques during the period. The valuers are appropriately qualified and have
sufficient market knowledge and relevant experience of the location and
category of investment property and have had full regard to market evidence
when determining the values.
The properties are 99.2% let (31 December 2023: 99.3%). The valuations
reflected a 5.18% net initial yield (31 December 2023: 5.05%). Where
properties have outstanding rent reviews, an estimate is made of the likely
rent on review in line with market expectations and the knowledge of the
valuer.
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under construction
(continued)
In accordance with IAS 40, investment properties under construction have also
been valued at fair value by the independent valuers. In determining the fair
value, the valuer is required to value development property as if complete,
deduct the costs remaining to be paid to complete the development and consider
the significant risks which are relevant to the development process including,
but not limited to, construction and letting risks and the impact they may
have on fair value. In the case of the Group's portfolio under construction,
where the sites are pre-let and construction risk remains with the
builder/developer, the valuer has deemed that the residual risk to the Group
is minimal. As required by the Red Book, the valuers have deducted the
outstanding cost to the Group through to the completion of construction of
£3.3m (31 December 2023: £5.4m) in arriving at the fair value to be included
in the financial statements.
In addition to the above, capital commitments have been entered into amounting
to £7.0m (30 June 2023:
£9.2m; 31 December 2023: £7.1m) which have not been provided for in the
financial statements.
Right-of-use-assets
In accordance with IFRS 16 Leases, the Group has recognised a £3.0m head
lease liability and an equal and opposite finance lease asset which is
included in non-current assets.
Fair value hierarchy
All of the Group's properties are level 3, as defined by IFRS 13, in the fair
value hierarchy as at 30 June 2024 and 31 December 2023. There were no
transfers between levels during the period or during 2023. Level 3 inputs used
in valuing the properties are those which are unobservable, as opposed to
level 1 (inputs from quoted prices) and level 2 (observable inputs either
directly, i.e. as prices, or indirectly, i.e. derived from prices).
10. Cash and cash equivalents
30 June 2024 31 December 2023
£m £m
(unaudited) (audited)
Cash held at bank 4.1 3.2
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts
The table indicates amounts drawn and undrawn from each individual facility:
Expiry date Facility Amounts drawn Undrawn
30 June 31 December 30 June 31 December 30 June 31 December
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Current
RBS Overdraft Jun 2025 5.0 5.0 - - 5.0 5.0
Aviva loan1 Sep 2033 2.5 2.4 2.5 2.4 - -
7.5 7.4 2.5 2.4 5.0 5.0
Non-current
Aviva AV Lending Oct 2036 200.0 200.0 200.0 200.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Barclays loan Sep 2026 100.0 100.0 - - 100.0 100.0
HSBC loan Dec 2026 100.0 100.0 59.0 64.4 41.0 35.6
Lloyds loan Dec 2025 100.0 100.0 13.6 1.8 86.4 98.2
NatWest loan Oct 2024 100.0 100.0 44.0 31.8 56.0 68.2
Santander loan Jan 2026 50.0 50.0 24.4 24.4 25.6 25.6
Aviva loan1 Sep 2033 219.2 220.5 219.2 220.5 - -
Aviva loan1 Sep 2028 30.8 30.8 30.8 30.8 - -
975.0 976.3 666.0 648.7 309.0 327.6
Total 982.5 983.7 668.5 651.1 314.0 332.6
1 Acquired as part of the merger with MedicX.
At 30 June 2024, total facilities of £1,636.6m (31 December 2023: £1,642.5m)
were available to the Group. This included term loan facilities and the bonds
in note 12. Of these facilities, as at 30 June 2024, £1,322.6m was drawn (31
December 2023: £1,309.9m).
Costs associated with the arrangement of the facilities, including legal
advice and loan arrangement fees, are amortised using the effective interest
rate.
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts (continued)
Any amounts unamortised as at the period end are offset against amounts drawn
on the facilities as shown in the table below:
30 June 31 December
2024 2023
£m £m
(unaudited) (audited)
Term loans drawn: due within one year 2.5 2.4
Term loans drawn: due in greater than one year 666.0 648.7
Total term loans drawn 668.5 651.1
Plus: MtM on loans net of amortisation 23.8 24.9
Less: unamortised borrowing costs (8.6) (9.1)
Total term loans per the Condensed Group Balance Sheet 683.7 666.9
The Group has been in compliance with all the applicable financial covenants
of the above facilities through the period.
12. Borrowings: Bonds
30 June 31 December
2024 2023
£m £m
(unaudited) (audited)
Unsecured
Convertible bond July 2025 at fair value 147.2 147.7
Total unsecured bonds 147.2 147.7
Secured
Secured Bond December 2025 70.0 70.0
Secured Bond March 2027 100.0 100.0
€51m Secured Bond (Euro private placement) December 2028/30 43.2 44.2
€70 million secured bond (Euro private placement) September 2031 59.3 60.7
€75 million secured bond (Euro private placement) February 2034 63.6 65.0
€47.8 million secured bond (Euro private placement) December 2033 40.5 41.4
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised issue costs (3.3) (3.6)
Plus: MtM on loans net of amortisation 3.2 3.5
Total secured bonds 504.0 508.7
Total bonds 651.2 656.4
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Secured Bonds
On 18 December 2013, PHP successfully listed the floating rate guaranteed
secured bonds issued on 4 November 2013 (the "Secured Bonds") on the London
Stock Exchange. The Secured Bonds have a nominal value of £70m and mature on
or about 30 December 2025. The Secured Bonds incur interest at an annualised
rate of 220bps plus a credit spread adjustment of 28bps above six-month SONIA,
payable semi-annually in arrears.
On 21 March 2017, a £100m Secured Bond was issued for a 10-year term at a
fixed coupon of 2.83% that matures on 21 March 2027. Interest is paid
semi-annually in arrears.
On 20 December 2018, senior secured notes for a total of €51 million (£43.2
million) were issued at a blended fixed rate of 2.4793% and a weighted average
maturity of 10.4 years. Interest is paid semi-annually in arrears. The notes
represent PHP's first Euro-denominated transaction in the private placement
market. The secured notes were placed with UK and Irish institutional
investors in two tranches:
· €40 million 2.46% senior notes due December 2028.
· €11 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior secured notes for a total of €70 million
(£59.3 million) were issued at a fixed rate of 1.509% and a maturity of
twelve years. Interest is paid semi-annually in arrears. The secured notes are
guaranteed by the Company and were placed with UK and Irish institutional
investors.
On 11 February 2022, the Group issued a new €75.0 million (£63.6 million)
secured private placement loan note to MetLife for a 12-year term at a fixed
rate of 1.64%. The loan notes have the option to be increased by a further
€75 million to €150 million over the next three years at the Metlife's
discretion.
On 19 December 2023, new senior secured notes for a total of €47.8 million
(£40.5 million) were issued at a fixed rate of 4.195% and a maturity of
ten-years. Interest is paid semi-annually in arrears. The secured notes are
guaranteed by the Company and were placed with UK and Canadian institutional
investors.
Ignis and Standard Life loan notes
On 14 March 2019, the loan notes were added to the portfolio as a part of the
MedicX acquisition. The Ignis loan note incurs a fixed coupon of 3.99% payable
semi-annually in arrears and matures on 1 December 2028.
The Standard Life loan note matures on 30 September 2028 and is split into two
tranches, £50m and £27.5m at fixed coupon rates of 3.84% and 3.00%
respectively. Interest is payable semi-annually in arrears.
Convertible bond
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the "Issuer"), a wholly
owned subsidiary of the Group, issued £150 million of 2.875% convertible
bonds (the "Bonds") for a six-year term and if not previously converted,
redeemed or purchased and cancelled, the Bonds will be redeemed at par on
maturity in July 2025. The net proceeds were partially used to repay the
Company's £75 million, 5.375% senior unsecured retail bonds at maturity and
otherwise for general corporate purposes.
Subject to certain conditions, the bonds will be convertible into fully paid
Ordinary Shares of the Company and the initial exchange price was set at
153.25 pence, a premium of 15% above the volume weighted average price of the
Company's shares on 18 June 2019, being 133.26 pence. Under the terms of the
Bonds, the Company will have the right to elect to settle exercise of any
conversion rights entirely in shares or cash, or with a combination of shares
and cash. The exchange price is subject to adjustment if dividends paid per
share exceed 2.8 pence per annum and other certain circumstances and
consequently the exchange price was adjusted to 127.82 pence on 4 July 2024
(31 December 2023: 131.72 pence).
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Convertible Bond
30 June 31 December
2024 2023
(unaudited) (audited)
£m £m
Opening balance - fair value 147.7 142.9
Cumulative fair value movement in convertible bond (0.5) 4.8
Closing balance - fair value 147.2 147.7
The fair value of the convertible bond at 30 June 2024 was established by
obtaining quoted market prices. The fair value movement is recognised in the
Group Statement of Comprehensive Income within profit before taxation and is
excluded from the calculation of EPRA earnings and EPRA NTA (replacing EPRA
NAV).
13. Head lease liabilities
The Group holds certain long leasehold properties which are classified as
investment properties. The head leases are accounted for as finance leases.
These leases typically have lease terms between 25 years and perpetuity and
fixed rentals.
30 June 31 December
2024 2023
(unaudited) (audited)
£m £m
Due within one year 0.1 0.1
Due after one year 2.9 2.9
Closing balance - fair value 3.0 3.0
Notes to the condensed financial statements (continued)
14. Derivatives and other financial instruments
It is Group policy to maintain the proportion of floating rate interest
exposure at between 20% and 40% of total debt. The Group uses interest rate
swaps to mitigate its remaining exposure to interest-rate risk in line with
this policy. The fair value of these contracts is recorded in the balance
sheet and is determined by discounting future cash flows at the prevailing
market rates at the balance sheet date.
The table below sets out the movements in the value of the Group's interest
rate swaps during the period:
30 June 31 December
2024 2023
(unaudited) (audited)
£m £m
Fair value of interest rate swaps not qualifying as cash flow hedges under IAS
39:
Current assets
5.2 10.5
Non-current assets
0.9 0.9
Current liabilities
(3.4) (6.7)
Non-current liabilities - -
Closing balance - fair value 2.7 4.7
Notes to the condensed financial statements (continued)
15. Financial risk management
Set out below is a comparison by class of the carrying amount and fair values
of the Group's financial instruments that are carried in the financial
statements.
Book value Fair value Book value Fair value
30 June 2024 30 June 2024 31 December 2023 31 December 2023
(unaudited) (unaudited) (audited) (audited)
£m £m £m £m
Financial assets
Trade and other receivables 20.0 20.0 18.4 18.4
Interest rate swaps 6.1 6.1 11.4 11.4
Cash and short-term deposits 4.1 4.1 3.2 3.2
Financial liabilities
Interest-bearing loans and
borrowings (1,334.9) (1,197.5) (1,323.3) (1,203.8)
Interest rate swaps (3.4) (3.4) (6.7) (6.7)
Trade and other payables (26.7) (26.7) (27.8) (27.8)
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 financial instruments at fair value at 30 June 2024. The Group
has no financial instruments with fair values that are determined by reference
to significant unobservable inputs, i.e. those that would be classified as
level 3 in the fair value hierarchy, nor have there been any transfers of
assets or liabilities between levels of the fair value hierarchy. There are no
non-recurring fair value measurements.
Notes to the condensed financial statements (continued)
15. Financial risk management (continued)
Fair value measurements at 30 June 2024 are as follows:
Level 1(1) Level 2(2) Level 3(3) Total
Recurring fair value measurements £m £m £m £m
Financial assets
Derivative interest rate swaps - 6.1 - 6.1
Financial liabilities
Derivative interest rate swaps - (3.4) - (3.4)
Convertible bond (147.2) - - (147.2)
Fixed rate debt - (986.5) - (986.5)
Fair value measurements at 31 December 2023 were as follows:
Recurring fair value measurements Level 1(1) Level 2(2) Level 3(3) Total
£m £m £m £m
Financial assets
Derivative interest rate swaps - 11.4 - 11.4
Financial liabilities
Derivative interest rate swaps - (6.7) - (6.7)
Convertible bond (147.7) - - (147.7)
Fixed rate debt - (1,011.4) - (1,011.4)
(1) Valuation is based on unadjusted quoted prices in active markets for
identical financial assets and liabilities
(2) Valuation is based on inputs (other than quoted prices included in Level
1) that are observable for the financial asset or liability, either directly
(i.e. as unquoted prices) or indirectly (i.e. derived from prices)
(3) Valuation is based on inputs that are not based on observable market data
The interest rate swaps whose fair values include the use of level 2 inputs
are valued by discounting expected future cash flows using market interest
rates and yield curves over the remaining term of the instrument. The
following inputs are used in arriving at the valuation:
• Interest rates;
• Yield curves;
• Swaption volatility;
• Observable credit spreads;
• Credit default swap curve; and
• Observable market data.
Notes to the condensed financial statements (continued)
16. Related party transactions
Harry Hyman, Chair, is a Director and the ultimate beneficial owner of a
number of Nexus entities and is considered to be a related party. Following
the acquisition of certain Nexus entities on the internalisation of management
structure on 5 January 2021, the Group has continued to share certain
operational services with Nexus.
Amounts paid during the period in relation to shared services totalled
£11,306 (30 June 2023: £17,100; 31 December 2023: £38,700).
As at 30 June 2024, outstanding fees payable to Nexus totalled £nil (31
December 2023: £nil; 30 June 2023: £nil).
17. Share capital
30 June 30 June 31 December
2024 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
Issued and fully paid Ordinary Shares at 12.5p each 167.1 167.1 167.1
At beginning of year 167.1 167.1 167.1
Scrip issues in lieu of cash dividends - - -
167.1 167.1 167.1
18. Merger and other reserves
30 June 30 June 31 December
2024 2023 2023
£m £m £m
(unaudited) (unaudited) (audited)
At beginning of year 415.3 416.7 416.7
Exchange gain on translation of foreign balances 0.1 (0.1) (1.4)
415.4 416.6 415.3
19. Subsequent events
There have been no significant events affecting the Company since the period
ended 30 June 2024.
Notes to the condensed financial statements (continued) DI
RECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this condensed
consolidated set of interim financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the United
Kingdom and that the operating and financial review herein includes a fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R of the
Disclosure and Transparency rules of the United Kingdom's Financial Services
Authority namely:
• an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
consolidated interim financial statements and a description of the principal
risks and uncertainties for the remaining six months of the financial year;
and
• material related party transactions in the first six months and any
material changes in the related party transactions described in the last
Annual Report.
Shareholder information is as disclosed in the Annual Report and is also
available on the PHP website, www.phpgroup.co.uk (http://www.phpgroup.co.uk/)
.
By order of the Board
Harry Hyman Chair
23 July 2024
Glossary of terms
Adjusted earnings is EPRA earnings excluding the exceptional contract
termination payment and amortisation of MtM adjustments for fixed rate debt
acquired on the merger with MedicX.
Adjusted earnings per share is Adjusted earnings divided by the weighted
average number of shares in issue during the year.
Adjusted net tangible assets ("adjusted NTA") (which has replaced the former
adjusted EPRA net asset value alternative performance measure) is EPRA net
tangible asset value excluding the MtM adjustment of the fixed rate debt, net
of amortisation, acquired on the merger with MedicX. The objective of the
adjusted NTA measure is to highlight the value of net assets on a long-term
basis and excludes assets and liabilities that are not expected to crystallise
in normal circumstances and continues to be used as a measure to determine the
PIF payment.
Adjusted NTA per share is adjusted NTA divided by the number of shares in
issue at the balance sheet date.
Annualised rental income on a like-for-like basis is the contracted rent on a
per annum basis assuming a consistent number of properties between each year.
Average cost of debt is the total interest cost of drawn debt and swaps,
divided by the amount of drawn debt.
Axis is Axis Technical Services Limited.
Building Research Establishment Environmental Assessment Method ("BREEAM")
assesses the sustainability of buildings against a range of criteria.
Clinical Commissioning Groups ("CCGs") are the groups of GPs and other
healthcare professionals that are responsible for designing local health
services in England with effect from 1 April 2013.
Company and/or Parent is Primary Health Properties PLC ("PHP").
Direct property costs comprise ground rents payable under head leases, void
costs, other direct irrecoverable property expenses, rent review fees and
valuation fees.
District Valuer ("DV") is the District Valuer Service, being the commercial
arm of the Valuation Office Agency ("VOA"). It provides professional property
advice across the public sector and in respect of primary healthcare
represents NHS bodies on matters of valuation, rent reviews and initial rents
on new developments.
Dividend cover is the number of times the dividend payable (on an annual
basis) is covered by Adjusted earnings.
Earnings per Ordinary Share from continuing operations ("EPS") is the profit
attributable to equity holders of the Parent divided by the weighted average
number of shares in issue during the year.
EBITDA is operating profit excluding amortisation of intangibles, Axis
acquisition costs and investment property revaluations.
EPC is an Energy Performance certificate.
European Public Real Estate Association ("EPRA") is a real estate industry
body, which has issued Best Practice
Recommendations in order to provide consistency and transparency in real
estate reporting across Europe.
EPRA cost ratio is the ratio of net overheads and operating expenses against
gross rental income (with both amounts excluding ground rents payable). Net
overheads and operating expenses relate to all administrative and operating
expenses, net of any service fees, recharges or other income specifically
intended to cover overhead and property expenses.
EPRA earnings is the profit after taxation excluding investment and
development property revaluations, gains/losses on disposals, changes in the
fair value of financial instruments, associated close-out costs and their
related taxation, and amortisation of non-monetary items such as intangible
assets.
EPRA net assets ("EPRA NAV") are the balance sheet net assets excluding own
shares held, the MtM value of derivative financial instruments and the
convertible bond fair value movement and intangible assets.
EPRA NAV per share is the balance sheet net assets excluding own shares held,
the MtM value of derivative financial instruments, the convertible bond fair
value movement and intangible assets, divided by the number of shares in issue
at the balance sheet date.
EPRA NNNAV is adjusted EPRA NAV including the MtM value of fixed rate debt and
derivatives.
EPRA net reinstatement value ("EPRA NRV") is the balance sheet net assets
including real estate transfer taxes but excluding the MtM value of derivative
financial instruments, deferred tax and the convertible bond fair value
movement. The aim of the metric is to reflect the value that would be required
to recreate the Company through the investment markets based on its current
capital and financing structure. Refer to Note 7.
EPRA NRV per share is the EPRA net reinstatement value divided by the number
of shares in issue at the balance sheet date. Refer to Note 7.
EPRA net disposal value "EPRA NDV" (replacing EPRA NNNAV) is EPRA NRV
including deferred tax and the MtM value of fixed rate debt and derivatives.
The aim of the metric is to reflect the value that would be realised under a
disposal scenario. Refer to Note 7.
EPRA net tangible assets ("NTA") (which has replaced the former EPRA net asset
value alternative performance measure) is the balance sheet net assets but
excluding the MtM value of derivative financial instruments, deferred tax,
intangible assets and the convertible bond fair value movement. The aim of the
metric is to reflect the fair value of the assets and liabilities of the Group
that it intends to hold and does not intend in the long run to sell. Refer to
Note 7.
EPRA NTA per share is the EPRA net tangible assets divided by the number of
shares in issue at the balance sheet date. Refer to Note 7.
EPRA vacancy rate is, as a percentage, the ERV of vacant space Glossary of
terms (continued)
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.
Headline earnings is the profit after taxation excluding
investment and development property revaluations, gains/
losses on disposals and their related taxation.
HSE or the Health Service Executiveis the executive agency of the Irish
government responsible for health and social services for people living in
Ireland.
IASs are International Accounting Standards as adopted by the United Kingdom.
IFRS is International Financial Reporting Standards as adopted by the European
Union.
IFRS or Basic net asset value per share ("IFRS NAV")are the balance sheet net
assets, excluding own shares held, divided by the number of shares in issue at
the balance sheet date.
Interest cover is the number of times net interest payable is covered by net
rental income.
Interest rate swap is a contract to exchange fixed payments for floating
payments linked to an interest rate, and is generally used to manage exposure
to fluctuations in interest rates.
JSE is Johannesburg Stock Exchange, the largest stock
exchange in Africa.
Like for like compares prior year to current year excluding acquisitions,
disposals and developments.
London Interbank Offered Rate ("LIBOR") is the interest rate charged by one
bank to another for lending money.
Loan to value ("LTV") is the ratio of net debt to the total value of property
and assets.
Mark to market ("MTM") is the difference between the book value of an asset or
liability and its market value.
MedicX is MXF Fund Limited and its subsidiaries.
MSCI (IPD) provides performance analysis for most types of real estate and
produces an independent benchmark of property returns.
MSCI (IPD) Healthcare is the UK Annual Healthcare Property Index.
MSCI (IPD) Total Return is calculated as the change in capital value, less any
capital expenditure incurred, plus net income, expressed as a percentage of
capital employed over the period, as calculated by MSCI (IPD).
Net asset value ("NAV") is the value of the Group's assets
minus the value of its liabilities.
Net debt is total drawn debt, less cash and cash equivalents
Net initial yield ("NIY") is the annualised rents generated by an asset, after
the deduction of an estimate of annual recurring irrecoverable property
outgoings, expressed as a percentage of the asset valuation (after notional
purchasers' costs).
Net related income is the Related income after the payment of direct property
costs that include service charge payments.
Net rental and related income is the sum of Net rental income and Net related
income.
Net rental income is the rental income receivable in the period after payment
of direct property costs. Net rental income is quoted on an accounting basis.
Net zero carbon refers to the point at which a process, activity, system etc.
produces net zero carbon emissions, through emissions reduction, use of low or
zero carbon energy and removal or offsetting of residual emissions. In the
context of buildings and activities associated with the construction,
refurbishment, maintenance and operation of buildings, PHP refers to the UK
Green Building Council "Net zero carbon, a framework definition".
NHSPS is NHS Property Services Limited, the company wholly owned and funded by
the Department of Health, which, as of 1 April 2013, has taken on all property
obligations formerly borne by Primary Care Trusts.
Occupancy is the level of units occupied, after deducting the ERV vacancy
rate.
Parity value is calculated based on dividing the convertible bond value by the
exchange price.
Progressive returns is where it is expected to continue to rise each year.
Progressive dividends is where it is expected to continue to rise each year on
a per share basis.
Property Income Distribution ("PID") is the required distribution of income as
dividends under the REIT regime. It is calculated as 90% of exempted net
income.
Real Estate Investment Trust ("REIT") is a listed property company which
qualifies for and has elected into a tax regime, which exempts qualifying UK
profits, arising from property rental income and gains on investment property
disposals, from corporation tax, but which has a number of specific
requirements.
Related income is the property and service charge income generated from the
Axis business.
Rent reviews take place at intervals agreed in the lease and their purpose is
usually to adjust the rent to the current market level at the review date.
Rent roll is the passing rent, being the total of all the contracted rents
reserved under the leases.
Reversionary yield is the anticipated yield which the initial yield will rise
to once the rent reaches the ERV and when the property is fully let. It is
calculated by dividing the ERV by the valuation.
Retail Price Index ("RPI") is the official measure of the Glossary of terms
(continued)
general level of inflation as reflected in the retail price of a basket of
goods and services such as energy, food, petrol, housing, household goods,
travelling fare, etc. RPI is commonly computed on a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews
which are linked to changes in the RPI.
Special reserve is a distributable reserve.
Sterling Overnight Interbank Average Rate ("SONIA") is
the effective overnight interest rate paid by banks for
unsecured transactions in the British Sterling market.
Total expense ratio ("TER") is calculated as total administrative costs for
the year divided by the average total asset value during the year.
Total property return is the overall return generated by properties on a
debt-free basis. It is calculated as the net rental income generated by the
portfolio plus the change in market values, divided by opening property assets
plus additions
£m
Net rental and related income (A) 77.3
Revaluation surplus and profit on sales (B) (40.0)
Total return (C) 37.3
Opening property assets 2,779.3
Weighted additions in the period 4.5
Impact of foreign exchange movements (2.8)
Total weighted average closing property assets (D) 2,781.0
Income return (A/D) 2.8%
Capital return (B/D) (1.4%)
Total property return (C/D) 1.4%
Total adjusted NTA return is calculated as the movement in adjusted net
tangible asset value for the period plus the dividends paid, divided by
opening EPRA net tangible asset value.
At 31 December 2023 108.0p
At 30 June 2024 105.0p
Increase / (decrease) (3.0)p
Add: Dividends paid
23/02/2024 Q1 interim 1.725p
17/05/2024 Q2 interim 1.725p
Total return 3.45p
Total adjusted NTA return 0.42%
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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