TIDMPHP
RNS Number : 2156M
Primary Health Properties PLC
27 July 2017
Primary Health Properties PLC
Interim results
Continued momentum driving shareholder value
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
2017.
FINANCIAL HIGHLIGHTS
-- EPRA Earnings(1, 4) increased by 22.2% to GBP15.4m (30 June 2016:
GBP12.6m)
-- EPRA Earnings(1, 4) per share increased by 8.3% to 2.6p (30 June
2016: 2.4p)
-- Net rental income increased by 8.1% to GBP34.8m (30 June 2016:
GBP32.2m)
-- IFRS profit before tax increased by 73.7% to GBP44.3m (30 June
2016: GBP25.5m)
-- EPRA Net Asset Value per share(2, 4) increased by 5.5% to 96.1p
(31 December 2016: 91.1p)
-- IFRS Net Asset Value per share(2) increased by 6.1% to 88.6p (31
December 2016: 83.5p)
-- Total dividends of 2.62p per share distributed in the period (30
June 2016: 2.5625p), the 21(st) successive year of dividend growth
-- Third quarterly dividend of 1.31p per share payable on 25 August
2017
OPERATIONAL HIGHLIGHTS
-- Surplus on property valuation of GBP29.9m (30 June 2016:
GBP15.5m), underlying like-for-like growth of 2.4%; portfolio
net initial valuation yield of 5.04% (31 December 2016: 5.17%)
-- Total portfolio, including development properties, valued
at GBP1.27bn as at 30 June 2017 (31 December 2016: GBP1.22bn)
-- Four properties acquired, including two developments currently
on site, in period for GBP18.6m adding GBP1.1m to the contracted
rent roll
-- Three properties acquired post period end for GBP35.5m increasing
the contracted rent roll by a further GBP1.7m from GBP69.3m
to GBP71.0m
-- Average annualised uplift of 1.6% on rent reviews agreed
in the period resulting in an annualised uplift in rent of
GBP0.4m (year ended 31 December 2016: 0.9% with an uplift
of GBP0.3m)
-- Portfolio 99.7% let with 13.3 years weighted average unexpired
lease term (including commitments) (31 December 2016: 13.7
years)
-- Loan to Value reduced to 53.0% (31 December 2016: 53.7%)
-- New long-term financing with PHP's first transaction in the
private placement market raising GBP100m, ten year, senior
secured notes at 2.83%. The proceeds have been partially
applied to refinance the GBP115m "club" facility with RBS
and Santander with a new GBP50m bilateral facility with RBS
-- Following successful refinancing the average loan maturity
increased to 5.8 years (31 December 2016: 5.1 years)
-- Group's average cost of debt reduced by 39bp to 4.26% (31
December 2016: 4.65%) including the impact of a GBP20m, 4.76%
fixed rate swap cancelled, post period end, for a one-off
payment of GBP6.2m. Total interest savings of GBP0.8m p.a.
(1) (See note 6, earnings per share, to the financial statements) .
(2) (See note 14, net asset value, to the financial statements.)
(3) (See note 12, derivative and other financial instruments, to the financial statements.)
(4) (The Company uses a number of alternative performance
measures in this interim statement. See page 17, Business
Review.)
Harry Hyman, Managing Director of PHP, commented:
"Notwithstanding the uncertainties in the current political and
economic landscapes, the demand for modern, purpose built
accommodation in primary care is undoubted. The delivery of the NHS
Five Year Forward View depends upon many things but investment in
primary care is essential for their success. We are committed to
investing in growing our portfolio to support the modernisation
agenda both in the UK and Ireland.
In addition to growing the portfolio, we will also continue to
invest in the improvement of our assets, growing rents and
extending lease terms. At a time of continued very low interest
rates PHP's robust, low risk business model means we are well
placed to deliver on our progressive dividend policy, underpinned
by our secure and long term income."
Presentation and webcast:
A presentation for analysts will be held on 27 July 2017 at
10.45am at the offices of CMS, Cannon Place, 78 Cannon Street,
London EC4N 6AF. A webcast and conference call facility will also
be available via this link.
For further information contact:
Harry Hyman Richard Howell
Primary Health Properties PLC Primary Health Properties PLC
T +44 (0) 20 7451 7050 T +44 (0) 20 7104 2004
harry.hyman@nexusgroup.co.uk richard.howell@nexusgroup.co.uk
---------------------------------- ---------------------------------
David Rydell/ Elizabeth Snow/ Eve
Kirmatzis
Bell Pottinger
T +44 (0) 20 3772 2582
---------------------------------- ---------------------------------
FINANCIAL HIGHLIGHTS
Six months Six months Year ended
ended ended
30 June 30 June 31 December
2017 2016 2016
(unaudited) (unaudited) (audited)
----------------------- ------------- ------------- -------------
Investment portfolio GBP1.27bn GBP1.19bn GBP1.22bn
Net rental income GBP34.8m GBP32.2m GBP66.6m
Weighted average
unexpired lease
term (WAULT) 13.3 years 14.1 years 13.7 years
Contracted rent
roll (annualised) GBP69.3m GBP66.9m GBP68.0m
EPRA results
EPRA Earnings GBP15.4m GBP12.6m GBP26.8m
EPRA Earnings per
share 2.6p 2.4p 4.8p
EPRA Net Asset Value GBP575.4m GBP539.9m GBP545.0m
EPRA NAV per share 96.1p 90.4p 91.1p
EPRA Cost Ratio 11.9% 11.5% 11.5%
Dividends
Dividend per share(1) 2.62p 2.5625p 5.125p
Dividend cover 98% 110% 100%
Reported results
IFRS profit for
the period GBP44.3m GBP25.5m GBP43.7m
Diluted earnings
per share 6.7p 4.5p 7.3p
Total equity GBP530.6m GBP492.4m GBP499.2m
IFRS net asset value
per share 88.6p 82.5p 83.5p
----------------------- ------------- ------------- -------------
(1) See note 7, dividends, to the financial statements.
Performance
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2016
2017 2016
------------------ ----------- ----------- -------------
Total EPRA NAV
return 8.4% 6.0% 9.7%
Income return 2.8% 2.8% 5.6%
Capital return 2.5% 1.4% 2.3%
------------------ ----------- ----------- -------------
Total property
return 5.3% 4.2% 7.9%
IPD All Property
return(1) 4.7% 2.5% 3.6%
Outperformance
over IPD 0.6% 1.7% 4.3%
------------------ ----------- ----------- -------------
(1) IPD Monthly All Property, All Assets index to June 2017.
EXECUTIVE REVIEW
The Group has had an active and successful start to the year. We
have made continued progress in growing the portfolio, reaching a
milestone of 300 primary health properties. We have maintained
earnings growth, strengthened the balance sheet, reduced the cost
of debt and continued to deliver value to shareholders with our
21(st) successive year of dividend growth.
Overview of results
PHP's disciplined approach to investment and asset management
has delivered another set of strong results in the first six months
of the year with EPRA earnings up 22.2% to GBP15.4m (30 June 2016:
GBP12.6m) and EPRA earnings per share up 8.3% to 2.6p (30 June
2016: 2.4p). The Group's portfolio was valued at just under
GBP1.27bn which generated a revaluation surplus of GBP29.9m (30
June 2016: GBP15.5m) after allowing for costs associated with
acquisitions and capital expenditure.
The Group has continued to grow its portfolio in the period,
adding four assets, including continued momentum in Ireland with
our second acquisition. The acquisitions both in 2016 and in the
first half of 2017 have helped to increase our net rental income by
8.1% to GBP34.8m (30 June 2016: GBP32.2m). Post period end, a
further three assets have been acquired for a total consideration
of GBP35.5m and we have a strong pipeline of potential acquisitions
both in the UK and Ireland.
The EPRA earnings, revaluation surplus, a gain on the mark to
market valuation of our derivative portfolio of GBP0.4m and a loss
on the convertible bond of GBP1.4m resulted in an IFRS profit of
GBP44.3m (30 June 2016: GBP25.5m), an increase of 73.7%.
Continued investor demand for long dated, secure income and
limited supply in the sector have resulted in 13bp of yield
compression taking the portfolio's net initial yield to 5.04% (31
December 2016: 5.17%). More importantly, strong asset management
activity including annualised rental growth of 1.6% achieved on
rent reviews, compared to 0.9% achieved in the whole of 2016, and
further asset management projects have helped to create additional
value. We have invested time and resource to initiate further
quality projects that are likely to commence shortly.
Dividends
The Company distributed a total of 2.62p per share in the six
months to 30 June 2017, an increase of 2.2% over that distributed
in the first half of 2016 of 2.5625p per share.
Dividends of 1.31p per share were distributed in February and
May 2017 and the Company is to pay its third quarterly dividend,
also of 1.31p per share, on 25 August 2017 to shareholders on the
register as at 14 July 2017. The dividend will comprise a PID of
0.76p and an ordinary dividend of 0.55p per share. The dividends
are equivalent to 5.25p on an annualised basis and represent the
Company's 21(st) successive year of dividend growth. A further
dividend payment is planned to be made in November 2017.
The Company expects the dividends distributed to be fully
covered by earnings for the year as a whole and intends to maintain
its strategy of paying a progressive dividend that is fully covered
by earnings in each financial year.
The Company's share price started the year at 111.5p per share
and closed on 30 June 2017 at 113.75p, an increase of 2.0%.
Including dividends, those shareholders who held the Company's
shares throughout the period achieved a Total Shareholder Return of
4.4% (30 June 2016: 0.5%).
Market update and outlook
Primary healthcare provides a critical function, forming a key
part of the NHS's Five Year Forward View ("FYFV"), operating as
most patients' first point of call when unwell. Despite the
increasing demand, the proportion of the NHS budget for primary
healthcare has decreased every year since 2005/06 while patient
demand has increased significantly. During the same period, the
primary care estate has also faced underinvestment, with
approximately 50% of the 8,000 GP surgeries in England & Wales
considered by medical professionals to be unfit for purpose.
The FYFV, published in October 2014, emphasised the need to
shift more care away from the acute sector towards primary and
community settings, meaning the demand for appropriate facilities
will grow further. The recent follow-up 'Next Steps on the Five
Year Forward View', published in March 2017, reiterated that shift,
setting out targets for growth in the primary care workforce,
expansion of access to general practice and the need for improved
primary care premises.
Towards the end of 2016, Sustainability and Transformation Plans
("STPs") were published for the 44 STP areas in England, including
estate plans for primary care premises that are required to deliver
these care objectives. STPs comprise a plan of how local services
will evolve over the next five years to create long term,
sustainable and fundable integrated care systems for an area.
In March 2017, the independent report on NHS Property and
Estates by Sir Robert Naylor was published, highlighting the
importance of primary care premises and making a number of
recommendations. The report highlights the importance of the
recently created NHS Property Board in supporting the visions of
the FYFV and STPs in helping to create affordable and efficient
estates and the importance of the private sector in delivering
these objectives.
PHP's specialist sector knowledge as an investor, manager and
developer of primary health care properties means we are well
placed to assist in the delivery of the these plans. PHP continues
to actively engage with both GPs and the NHS in the UK and the
Health Service Executive ("HSE") in Ireland to identify and deliver
mutually beneficial opportunities with tenants to enlarge,
modernise and update the specification of their properties.
The market fundamentals supporting the primary health care
sector has translated into continued investor demand and limited
supply resulting in further yield compression during the last six
months. With a continued lack of new supply in the short to medium
term and continued demand we expect yields will continue to
compress further. However, PHP will continue to remain disciplined
in its approach to investment; maintaining a strict selection
criteria and pricing approach to ensure additions are high quality,
accretive to net earnings and offer the opportunity for future
growth.
Board changes
As previously reported, Richard Howell replaced Phil Holland as
Finance Director at the end of March 2017 and has settled in well.
Richard joined us from his position as Finance Director, Joint
Ventures with LondonMetric Property Plc.
Outlook
We have strengthened our balance sheet and have significant
headroom to selectively invest further in both the UK and Ireland.
The demand for healthcare is driven by demographics and is
supported on a cross party basis. We look forward to helping
deliver the modernisation of the primary care estate by actively
pursuing attractive investment opportunities of both existing
assets and developments.
Alun Jones Harry Hyman
Chairman Managing Director
26 July 2017
BUSINESS REVIEW
Investment activity
The UK market for primary health care property investment
continues to be very competitive with record yields and prices
being paid by investors for assets in the sector. In this
environment, PHP has maintained its disciplined approach to
investment with the acquisition of four assets for GBP18.6m in the
six months to 30 June 2017 (six months to 30 June 2016: 19 assets
for GBP53.8m; six months to 31 December 2016: five assets for
GBP20.4m).
Area GP patient
(Sq. Acquisition WAULT list and
Asset m) price (years) key tenants
------------------ ------------- ------ ------------ --------- -------------
Cove Bay,
Aberdeen Investment 983 GBP4.6m 15.3 12,500
Pitmedden,
Aberdeen Investment 710 GBP2.6m 13.0 5,300
Carrigaline,
County Cork, GBP6.4m 20,000+HSE
Ireland Development 2,900 (EUR7.3m) 25.0 +pharmacy
Churchdown, 13,500
Gloucestershire Development 1,184 GBP5.0m 20.0 +pharmacy
------------------ ------------- ------ ------------ --------- -------------
Total 5,777 GBP18.6m 20.0
--------------------------------- ------ ------------ --------- -------------
The above acquisitions enhanced the quality of our portfolio and
added GBP1.1m to the contracted rent roll at 30 June 2017.
Cove Bay Medical Centre and Pitmedden Medical Centre, two
modern, purpose built healthcare facilities located close to
Aberdeen were acquired in January 2017 for a total consideration of
GBP7.2m. The properties benefit from long unexpired terms of 15.3
years and 13.0 years respectively.
Carrigaline, County Cork was PHP's second acquisition in
Ireland, contracting to provide development funding for the
construction of a new primary care centre for a total cost of
GBP6.4m (EUR7.3m). The centre comprises circa 2,900m(2) and will be
fully let for 25 years from completion. Over three quarters of the
rent roll is contracted to the Irish Government's HSE with the
remainder derived from a group of GPs and a pharmacy operator. The
development is on schedule to complete in August 2017.
Churchdown, Gloucestershire was acquired in May 2017 with PHP
contracting to provide development funding for the construction of
the property for a total cost of GBP5.0m. The property will
comprise an area of 1,184m(2) to be fully let for 20 years from
completion to a GP surgery with a patient list of over 13,500, in
addition to a pharmacy. The development is currently on site and
scheduled to complete in March 2018.
Despite the record yields and resulting high prices being paid
by competitors in the market, PHP will continue to remain
disciplined in its approach to investment; maintaining a strict
selection criteria and pricing approach to ensure additions are
high quality, accretive to net earnings and offer the opportunity
for future growth. The completed acquisitions increased PHP's
portfolio to 300 assets, valued at GBP1,266m at 30 June 2017,
including the two developments currently on site.
Developments
The development at Swindon, acquired in 2016, successfully
completed on time and within budget, opening to patients in May
2017. The asset is a purpose built health care centre developed in
the town centre of Swindon and comprises 2,454m(2) of space fully
let to NHS Property Services Limited for 20 years. The property is
occupied by two GP practices serving over 20,000 patients, with an
onsite pharmacy. In addition, a number of additional services are
being relocated to the centre including same day urgent clinics,
dental, podiatry, diabetic, dietician and sexual health services.
The property was developed for a net consideration of GBP10.0m.
As noted above, during the first six months of 2017, a further
two forward funded developments were acquired with a net
development cost of GBP11.4m and both are currently on site:
Area
Anticipated (Sq. Net development Spent Future
Asset PC date m) cost to date costs
----------------- ------------ ------ ---------------- ----------- -----------
Carrigaline, August 2,900 GBP6.4m GBP3.1m GBP3.3m
County Cork, 2017 (EUR7.3m) (EUR3.5m) (EUR3.8m)
Ireland
Churchdown, March 1,184 GBP5.0m GBP0.8m GBP4.2m
Gloucestershire 2018
----------------- ------------ ------ ---------------- ----------- -----------
Total 4,084 GBP11.4m GBP3.9m GBP7.5m
----------------- ------------ ------ ---------------- ----------- -----------
In a competitive investment market, development opportunities
present an attractive alternative to acquiring new, long, weighted
average unexpired lease term (WAULT), purpose built primary care
facilities. PHP will continue to work with experienced development
partners, healthcare bodies and professionals to procure assets
that meet our strict criteria of pre-let, de-risked and short cycle
developments. PHP will not undertake any developments on a
speculative basis.
Investment and development pipeline
Since the period end, in July, PHP has acquired three further
primary health properties for GBP35.5m, increasing the Group's
contracted rent roll by GBP1.7m to GBP71.0m.
Area Acquisition WAULT GP patient
(Sq. price (years) list
m) and key
Asset tenants
------------------------- ------------ ------ ------------ --------- -----------
22,000+NHS
Low Grange, +pharmacy
Middlesborough Investment 5,800 GBP25.4m 17.3 +optician
Evenwood,
Bishop Auckland Investment 465 GBP1.7m 13.0 2,500
Syston Medical 23,000+NHS
Centre, Leicestershire Investment 2,575 GBP8.4m 16.1 +pharmacy
Total 8,840 GBP35.5m 16.8
--------------------------------------- ------ ------------ --------- -----------
PHP continues to have a strong pipeline of potential
acquisitions both in the UK and Ireland.
Asset management
PHP's sector leading metrics continue to remain strong and we
remain focused on 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.
Rent reviews
During the six months to 30 June 2017, PHP agreed 107 rent
reviews with a combined rental value of GBP13.0m resulting in an
uplift of GBP0.4m or 3.0% which equates to 1.6% per annum. The
rental growth achieved represents a significant increase over the
0.9% achieved in both the first and second halves of 2016.
75% of our rent reviews are on an open market basis, reviewed
typically every three years and are impacted by land and
construction inflation. Over recent years, there have been
significant increases in these costs which will eventually result
in further rental growth in the future. The balance of the PHP
portfolio has either fixed 6% or RPI 19% based reviews which also
provide an element of certainty to future rental growth within the
portfolio.
At 30 June 2017, the rent at 208 tenancies, representing
GBP27.7m of passing rent, was under negotiation and the large
number of outstanding reviews reflects the requirement for all
awards to be agreed with the District Valuer. A great deal of
evidence to support open market reviews comes from the delivery of
new properties into the sector. Whilst underlying land and
construction costs have increased in recent years, the lower number
of new schemes approved by the NHS has restricted the ability to
capture the growth in new rental values. However, the demand for
new, purpose built premises continues and is now being supported by
NHS initiatives to modernise the primary care estate.
Projects
Work has continued to enhance and extend existing assets within
the portfolio and a further four projects were committed in the six
months to June 2017. The projects require the investment of GBP1.3m
and will generate GBP34,000 of additional rental income but, just
as importantly, will extend the WAULT on those premises back to an
average 20 years.
Additional
Total investment rental income WAULT
Asset (GBPm) (GBP000) (years)
----------------------- ----------------- --------------- ---------
Woolston, Southampton 0.6 15 24
Belmont Surgery,
Uxbridge 0.3 - 20
Lloyds Pharmacy,
Seaton Hirst 0.1 19 8
South Queensferry,
Edinburgh 0.3 - 20
----------------------- ----------------- --------------- ---------
Total 1.3 34 20
----------------------- ----------------- --------------- ---------
PHP continues to work closely with its tenants and there are a
further seven projects that have been approved by the NHS that are
either being documented or currently in the process of obtaining
planning permission. PHP will invest a further GBP3.6m in these
projects, once contracted, generating GBP0.2m of additional rental
income and extending the WAULT on these premises back to 19 years.
PHP also has a strong pipeline of potential projects and will
continue to invest capital in a range of physical extensions or
refurbishments.
Asset management projects are key to maintaining the longevity
and security of our income through long-term tenant retention,
increased rental income and extended occupational lease terms,
adding to both earnings and capital values.
PHP has also supported its tenants to develop and submit 23
applications for funding from the NHS Estates and Technology
Transformation Fund ("ETTF") and eight of these projects have
received approval. We are working closely with the relevant
Clinical Commissioning Groups ("CCG") to progress these projects
further.
Sector leading portfolio metrics
Including development properties as complete, the portfolio's
annualised contracted rent roll at 30 June 2017 was GBP69.3m, an
increase of 1.9% in the period (31 December 2016: GBP68.0m). 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 91% of its rent roll funded directly or indirectly by
the NHS in the UK or HSE in Ireland. The portfolio also benefits
from an occupancy rate of 99.7%.
Longevity: The portfolio's WAULT at 30 June 2017 was 13.3 years
(31 December 2016: 13.7 years). Only GBP0.3m or 0.4% of our income
expires over the next three years and GBP22.2m or 72.3% expires in
over 10 years. The table below sets out the current lease expiry
profile of our income:
Income subject GBPm %
to expiry
---------------- ----- -------
< 3 years 0.3 0.4%
4 - 5 years 1.3 1.9%
5 - 10 years 17.6 25.4%
10 - 15 years 27.9 40.3%
15 - 20 years 14.7 21.2%
20+ years 7.5 10.8%
---------------- ----- -------
Total 69.3 100.0%
---------------- ----- -------
Valuation and returns
Despite the continued political and economic uncertainty,
primary healthcare is increasingly being seen as a highly desirable
real estate sector as evidenced by the increasing competition for
investment opportunities, record yields and prices currently being
paid. The primary health sector is underpinned by sound demographic
fundamentals and government backed income.
At 30 June 2017, the portfolio comprised 300 assets, including
two developments, independently valued at GBP1.266bn (31 December
2016: GBP1.220bn). The strong investment market together with our
sector leading portfolio metrics and asset management initiatives
resulted in a valuation surplus of GBP29.9m or 2.4%, after allowing
for capital expenditure, in the six months to 30 June 2017 (six
months to 30 June 2016: GBP15.5m or 1.3%). The surplus was
generated predominantly by a 13bp reduction in the net initial
yield (NIY) to 5.04% (31 December 2016: 5.17%) with the true
equivalent yield reducing to 5.23% (31 December 2016: 5.38%). The
contraction in the NIY accounted for approximately 90% of the
surplus whilst rent reviews and asset management projects added a
further 10%.
The portfolio was independently valued by Lambert Smith Hampton
at 30 June 2017, as follows:
Number UK Ireland Total
of
properties GBPm GBPm GBPm
-------------- ----------- -------- -------- --------
Investments 298 1,255.5 6.2 1,261.7
Developments 2 0.9 3.3 4.2
-------------- ----------- -------- -------- --------
Total 300 1,256.4 9.5 1,265.9
-------------- ----------- -------- -------- --------
The valuation uplift, combined with the portfolio's growing
income, helped to deliver a total property return of 5.3% in the
six months to 30 June 2017 (30 June 2016: 4.2%) out-performing the
IPD Monthly All Property, All Asset Index by 60bp.
Six months Six months Year ended
ended ended 30 June 31 December
30 June 2017 2016 2016
---------------- -------------- --------------- -------------
Income return 2.8% 2.8% 5.6%
Capital return 2.5% 1.4% 2.3%
---------------- -------------- --------------- -------------
Total return 5.3% 4.2% 7.9%
---------------- -------------- --------------- -------------
Cladding
Following the tragic events at Grenfell Tower, London a detailed
review of the Group's entire portfolio has been undertaken and
there are no properties that have cladding considered to be a
significant safety risk. Nevertheless, we are committed to ensuring
that there is no potential safety risk and we have written to
tenants reminding them of their health and safety responsibilities
especially with regard to fire. The portfolio is insured for full
reinstatement, loss of rent and property owner's liability.
FINANCIAL REVIEW
Management's actions both in 2016 and the first six months of
2017 have delivered earnings growth and we have significantly
strengthened and diversified our sources of finance.
Recurring EPRA earnings increased by GBP2.8m or 22.2% to
GBP15.4m in the six months to 30 June 2017 (30 June 2016: GBP12.6m)
which using the weighted average number of shares in issue in the
period, equates to EPRA earnings per share of 2.6p (30 June 2016:
2.4p), an increase of 8.3%.
A revaluation surplus of GBP29.9m less a net loss on the fair
value of interest rate derivatives and convertible bond of GBP1.0m
(30 June 2016: loss of GBP2.6m) contributed to increase the profit
as reported under IFRS by 73.7% to GBP44.3m (30 June 2016:
GBP25.5m).
The financial results for the Group are summarised as
follows:
Summarised results
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
GBPm GBPm GBPm
------------------------------- ----------- ----------- -------------
Net rental income 34.8 32.2 66.6
Administrative expenses (3.9) (3.5) (7.3)
------------------------------- ----------- ----------- -------------
Operating profit before
revaluation gain and
net financing costs 30.9 28.7 59.3
Net financing costs (15.5) (16.1) (32.5)
------------------------------- ----------- ----------- -------------
EPRA earnings 15.4 12.6 26.8
Net result on property
portfolio 29.9 15.5 20.7
Fair value gain/(loss)
on interest rate derivatives 0.4 (4.5) (2.2)
Fair value (loss)/gain
on convertible bond (1.4) 1.9 (1.6)
------------------------------- ----------- ----------- -------------
IFRS profit before
tax 44.3 25.5 43.7
------------------------------- ----------- ----------- -------------
Net rental income receivable in the six months to 30 June 2017
increased by 8.1% or GBP2.6m to GBP34.8m (30 June 2016: GBP32.2m).
Acquisitions in 2016 and the first six months of 2017 contributed
GBP1.8m to this increase, with developments completed in 2016
adding a further GBP0.5m. Completed rent reviews contributed a
further GBP0.3m.
Operational costs have continued to be managed closely and
effectively. Overall administrative costs have risen by 11.4% to
GBP3.9m (30 June 2016: GBP3.5m) reflecting the increased size of
the portfolio and costs related to the Irish portfolio. The Group's
EPRA cost ratio continues to be amongst the lowest in the sector at
11.9% for the period, a slight increase over the 11.5% incurred
during the 2016 financial year.
EPRA cost ratio Six months Six months
ended ended Year ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
------------------------- ----------- ----------- -------------
Gross rent less ground
rent 35.2 32.4 66.9
------------------------- ----------- ----------- -------------
Direct property expense 0.5 0.4 0.8
Administrative expenses 3.9 3.5 7.3
Less: ground rent (0.1) - (0.1)
Less: other operating
income (0.1) (0.2) (0.3)
EPRA costs (including
direct vacancy costs) 4.2 3.7 7.7
------------------------- ----------- ----------- -------------
EPRA cost ratio 11.9% 11.5% 11.5%
------------------------- ----------- ----------- -------------
Net finance costs decreased in the period by 3.7% to GBP15.5m
(30 June 2016: GBP16.1m). This is primarily as a result of
application of the proceeds of the equity issue in 2016 less debt
drawn to finance acquisitions, but also due to the lower cost of
debt secured from both the swap restructuring undertaken in 2016
and the new 2.83% GBP100m secured bond issued in March 2017. The
average cost of debt fell further in the period to 4.39% (six
months ended 30 June 2016: 4.49%; year ended 31 December 2016:
4.65%).
Revised advisory agreement terms
In April 2017, revised terms to the Advisory Agreement between
PHP and the property adviser, Nexus Tradeco Limited (Nexus) were
agreed. The fee payable for the management of PHP's property
portfolio has been amended to incorporate additional lower fee
increments as PHP continues to add scale. The fee payable for gross
assets above GBP1.5bn, previously 0.3%, has been reduced to 0.275%
for gross assets between GBP1.5bn and GBP1.75bn and 0.25% for gross
assets between GBP1.75bn and GBP2.0bn.
In addition, the terms under which Nexus is entitled to a
performance incentive fee (PIF) have been amended. Nexus will
continue to be entitled to 11.25% of the 'total return' above a
hurdle rate of 8.0%, but this will now be based on the change in
EPRA net asset value (NAV) plus dividends paid, rather than the
change in IFRS NAV plus dividends paid. Changes in IFRS NAV include
the impact of changes in the mark to market valuation of the
company's derivatives and convertible bonds, which do not reflect
the performance of the underlying property portfolio.
New controls on the PIF have been introduced. The PIF in respect
of any year is now capped at the lower of 20% of the management fee
payable to Nexus in that year or GBP2.0m. Half of any PIF payment
will be deferred to the following year, with performance against
the hurdle rate (both positive and negative) carried forward in a
notional cumulative account with any future payment subject to the
account being in a surplus position. Furthermore, for the three
years from 1 January 2017, the payment of any PIF is restricted if
it would otherwise cause PHP's dividend cover to fall below 98%.
The Nexus team working on PHP's account, other than Harry Hyman,
will receive 25% of any PIF paid, to aid staff motivation and
retention. No PIF has been paid to Nexus since 2007 and the
notional cumulative PIF deficit of GBP12.1m at the end of 2016,
entirely attributable to the aforementioned IFRS mark to market
adjustments, has been eliminated.
Shareholder value
The table below sets out the movements in EPRA net asset value
per share over the period under review.
EPRA Net Asset Value 30 June 30 June 31 December
per share 2017 pence 2016 pence 2016 pence
per share per share per share
-------------------------- ------------ ------------ ------------
Opening EPRA NAV
per share 91.1 87.7 87.7
EPRA earnings for
the period 2.6 2.4 4.8
Dividend paid (2.6) (2.2) (4.8)
Net result on property
portfolio 5.0 2.6 3.5
Share issue - 2.3 2.2
Interest rate derivative
rate re-coupon - (2.4) (2.3)
Closing EPRA NAV
per share 96.1 90.4 91.1
-------------------------- ------------ ------------ ------------
The revaluation surplus of GBP29.9m in the six months to 30 June
2017, equivalent to 5.0p per share is the reason for the increase
in EPRA NAV per share. Dividends distributed in the period were
materially covered by recurring EPRA earnings with no impact on
EPRA net asset value per share.
The 5.0p or 5.5% increase in EPRA NAV per share to 96.1p (31
December 2016: 91.1p per share) together with the dividends
distributed in the period resulted in a total NAV return per share
of 7.62p per share or 8.4% in the six months ended 30 June 2017 (30
June 2016: 5.625p or 6.0%).
Financing
Gross debt drawn as at 30 June 2017 totalled GBP678.8m (31
December 2016: GBP660.8m) and cash balances were GBP8.1m (31
December 2016: GBP5.1m) resulting in Group net debt of GBP670.7m
(31 December 2016: GBP655.7m). The total remaining cost of
development work and asset management projects on site at the
balance sheet date was GBP7.5m and GBP1.3m respectively (31
December 2016: GBP3.3m), resulting in headroom of GBP96.5m (31
December 2016: GBP90.5m) from existing facilities available to the
Group.
Debt metrics 30 June 31 December
2017 2016
-------------------------------- ----------- ------------
Loan to Value 53.0% 53.7%
Interest cover 2.25 times 2.05 times
Weighted average debt maturity 5.8 years 5.1 years
Total drawn secured debt GBP521.3m GBP503.3m
Total drawn unsecured debt GBP157.5m GBP157.5m
Total undrawn facilities GBP96.5m GBP90.5m
available to the Group(1,2)
-------------------------------- ----------- ------------
(1) - After deducting the remaining cost to complete properties
under development and asset management projects.
(2) - Excludes option to increase RBS loan facility by a further
GBP50m to a maximum total of GBP100m.
New long-term financing
In March 2017, a new, senior, secured ten year GBP100m bond was
issued at a fixed coupon of 2.83%. The issuance represented PHP's
first transaction in the private placement market and demonstrated
its ability to source funding from a broad range of alternative
providers at attractive rates.
The proceeds of the issue have been partially applied to
refinance PHP's GBP115m club facility with The Royal Bank of
Scotland plc ("RBS") and Santander Corporate Banking. The club
facility, which was due to mature in August 2017, was replaced by a
new GBP50m bilateral term loan with RBS. The new RBS facility is
for an initial four year term and PHP retains an option to both
extend the term by a further year and increase the loan facility to
a maximum total of GBP100m with the agreement of RBS.
These debt transactions extended the average weighted maturity
of PHP's debt facilities to 5.8 years (31 December 2016: 5.1
years).
Interest rate swap contracts
Accounting standards require PHP to mark its interest rate swaps
to market at each balance sheet date. During the six months to 30
June 2017 there was a gain of GBP2.4m (30 June 2016: loss GBP3.1m)
on the fair value movement of the Group's interest rate derivatives
due primarily to increases in interest rates assumed in the forward
yield curves used to value the interest rate swaps. This reduced
the mark-to-market ("MtM") liability of the swap portfolio to
GBP30.9m (31 December 2016: GBP33.3m).
The analysis of the Group's exposure interest rate risk in its
debt portfolio as at 30 June 2017 is as follows:
Facilities Drawn
GBPm % GBPm %
--------------------- -------- ------- -------- -------
Fixed rate debt 494.1 63.0 494.1 72.8
Hedged by fixed
rate interest rate
swaps 178.0 22.7 178.0 26.2
Floating rate debt
- unhedged 112.0 14.3 6.7 1.0
--------------------- -------- ------- -------- -------
Total 784.1 100.0 678.8 100.0
--------------------- -------- ------- -------- -------
Post period end, a 4.76% fixed rate swap with a nominal value of
GBP20m, effective until July 2027, was cancelled for a one-off
payment of GBP6.2m equivalent to 1p per share on an EPRA net asset
value basis. The cancellation results in total interest savings of
GBP0.8m p.a. and reduces the Group's average cost of debt by 13bp
to 4.26% (30 June 2017: 4.39%). The MtM of the cancelled derivative
was reflected in the financial statements as at 30 June 2017.
Alternative Performance Measures ("APMs")
PHP uses EPRA earnings and EPRA net assets as APMs which are
widely used by public real estate companies to highlight the
underlying and recurring performance of the property portfolio. 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. The APMs used by the Company are consistent with those
used in the 2016 Annual Report and the reasons for the Company's
use of these APMs are set out therein.
Related party transactions
Related party transactions are disclosed in note 15 to the
condensed financial statements. There have been no material changes
in the related party transactions described in the 2016 Annual
Report other than those noted above under revised advisory
agreement terms.
Harry Hyman Richard Howell
Managing Director Finance Director
26 July 2017
Principal risks and uncertainties
Effective risk management is a key element of the Board's
operational processes. The Group faces a variety of risks, both
within its business and external factors that have the potential to
impact on its performance, position and longer-term viability.
The principal risks and uncertainties include:
-- The Group's investment in a niche asset sector, where changes
in healthcare policy may adversely affect the portfolio;
-- the bespoke nature of the Group's assets could lead to limited alternative use; and
-- currency risk in respect of the Group's assets in Ireland,
where investments are denominated in Euros and may be unfavourably
affected by currency fluctuations.
Operations are structured to allow the Group to operate in a low
risk environment and in order to minimise the Group's residual
exposure to risks that it may face, but also to ensure that risks
that are accepted are appropriate to the returns they may generate
and within the overall risk appetite of the Board. The Board
regularly conducts a rigorous review of risks and how these are
mitigated and managed across all areas of the Group's
activities.
The Board has concluded that there have been no significant
changes to the principal risks and uncertainties faced by the
Group, nor do they anticipate any significant changes during the
remaining six months to 31 December 2017. Full disclosure of risks
and uncertainties faced by the Company are set out within the 2016
Annual Report.
INDEPENT REVIEW REPORT TO PRIMARY HEALTH PROPERTIES PLC
We have been engaged by the company to review the condensed set
of financial statements in the interim financial report for the six
months ended 30 June 2017 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 18. We
have read the other information contained in the interim financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. 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.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the interim financial report in accordance with the
Disclosure and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this interim financial report has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the six months ended 30 June
2017 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
26 July 2017
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2017
Six months Six months
ended ended Year
30 June 30 June ended
2017 2016 31
December
2016
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Rental income 35.3 32.6 67.4
Direct property expense (0.5) (0.4) (0.8)
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Net rental income 34.8 32.2 66.6
Administrative expenses 2 (3.9) (3.5) (7.3)
Net result on property
portfolio 29.9 15.5 20.7
Operating profit 60.8 44.2 80.0
Finance income 3 0.3 0.3 0.5
Finance costs 4 (15.8) (16.4) (33.0)
Fair value gain / (loss)
on derivative interest
rate swaps and amortisation
of cash flow hedging reserve 4 0.4 (4.5) (2.2)
Fair value (loss) / gain
on convertible bond 4 (1.4) 1.9 (1.6)
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Profit before taxation 44.3 25.5 43.7
Taxation charge 5 - - -
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Profit for the period(1) 44.3 25.5 43.7
Other comprehensive income
/ (loss):
Items that may be reclassified
subsequently to profit
and loss:
Fair value gain / (loss)
on interest rate swaps
treated as cash flow hedges 2.0 (13.1) (10.4)
Other comprehensive income
/ (loss) for the period
net of tax 2.0 (13.1) (10.4)
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Total comprehensive income
for the period net of tax 46.3 12.4 33.3
----------------------------------------------------------------------- ------ ------------ ------------ ----------
Earnings per share - basic 6 7.4p 4.9p 7.8p
-
diluted 6 6.7p 4.5p 7.3p
EPRA earnings per share
- basic 6 2.6p 2.4p 4.8p
-
diluted 6 2.5p 2.4p 4.7p
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
The above relates wholly to continuing operations.
Condensed Group Balance Sheet
As at 30 June 2017
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
----------------------------- ------ ------------ ------------ ------------
Non-current assets
Investment properties 8 1,265.9 1,187.0 1,220.2
Derivative interest rate
swaps 12 0.2 - -
----------------------------- ------ ------------ ------------ ------------
1,266.1 1,187.0 1,220.2
Current assets
Trade and other receivables 4.3 4.0 3.3
Cash and cash equivalents 9 8.1 6.1 5.1
----------------------------- ------ ------------ ------------ ------------
12.4 10.1 8.4
----------------------------- ------ ------------ ------------ ------------
Total assets 1,278.5 1,197.1 1,228.6
----------------------------- ------ ------------ ------------ ------------
Current liabilities
Derivative interest rate 12,
swaps 13 (4.1) (4.4) (3.8)
Corporation tax payable - - -
Deferred rental income (14.6) (14.0) (14.1)
Trade and other payables (14.8) (14.0) (13.6)
Borrowings: term loans
and overdraft 10 (0.8) (0.8) (0.8)
(34.3) (33.2) (32.3)
----------------------------- ------ ------------ ------------ ------------
Non-current liabilities
Borrowings: term loans
and overdraft 10 (348.0) (402.8) (429.4)
Borrowings: bonds 11 (338.6) (234.7) (238.2)
Derivative interest rate 12,
swaps 13 (27.0) (34.0) (29.5)
----------------------------- ------ ------------ ------------ ------------
(713.6) (671.5) (697.1)
----------------------------- ------ ------------ ------------ ------------
Total liabilities (747.9) (704.7) (729.4)
----------------------------- ------ ------------ ------------ ------------
Net assets 530.6 492.4 499.2
----------------------------- ------ ------------ ------------ ------------
Equity
Share capital 16 74.9 74.6 74.8
Share premium account 59.8 58.2 59.1
Capital reserve 1.6 1.6 1.6
Special reserve 17 177.1 208.2 192.8
Hedging reserve (30.7) (35.5) (32.7)
Retained earnings 247.9 185.3 203.6
Total equity(1) 530.6 492.4 499.2
----------------------------- ------ ------------ ------------ ------------
Net asset value per share
Basic and diluted 14 88.6 82.5p 83.5p
EPRA net asset value
per share 14 96.1 90.4p 91.1p
----------------------------- ------ ------------ ------------ ------------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
Condensed Group Cash Flow Statement
For the six months ended 30 June 2017
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
---------------------------------- ------ ------------ ------------ -------------
Operating activities
Profit on ordinary activities
before tax 44.3 25.4 43.7
Finance income (0.3) (0.3) (0.5)
Finance costs 15.8 16.5 33.0
Fair value (gain) / loss
on derivatives (0.4) 4.5 2.2
Fair value loss / (gain)
on convertible bond 1.4 (1.9) 1.6
---------------------------------- ------ ------------ ------------ -------------
Operating profit before
financing costs 60.8 44.2 80.0
Adjustments to reconcile
Group operating profit
to net cash flows from
operating activities:
Net result on property
portfolio (29.9) (15.5) (20.7)
Fixed rent uplift (0.6) (0.8) (1.5)
(Increase) / decrease
in trade and other receivables (0.9) 0.1 0.6
Increase / (decrease)
in trade and other payables 1.2 (0.8) (1.6)
---------------------------------- ------ ------------ ------------ -------------
Cash generated from operations 30.6 27.2 56.8
Net cash flow from operating
activities 30.6 27.2 56.8
---------------------------------- ------ ------------ ------------ -------------
Investing activities
Payments to acquire and
develop investment properties (15.2) (70.1) (97.4)
Interest received on development
loans 0.3 0.2 0.7
Net cash flow used in
investing activities (14.9) (69.9) (96.7)
---------------------------------- ------ ------------ ------------ -------------
Financing activities
Gross proceeds of share
issue - 150.0 150.0
Costs of share issue - (4.8) (4.8)
Term bank loan drawdowns 58.5 31.6 68.5
Term bank loan repayments (140.6) (89.5) (100.3)
Proceeds of Bond issue 100.0 - -
Bond issue costs (1.0) - -
Termination of derivative
financial instruments - (14.5) (14.5)
Swap interest paid (1.7) (2.1) (5.0)
Non-utilisation fees (0.4) (0.5) (0.9)
Loan arrangement fees (1.3) (0.7) (0.9)
Interest paid (11.3) (13.1) (25.3)
Equity dividends paid
(net of scrip dividend) 7 (14.9) (10.5) (24.7)
---------------------------------- ------ ------------ ------------ -------------
Net cash flow (used in)
/ from financing activities (12.7) 45.9 42.1
---------------------------------- ------ ------------ ------------ -------------
Increase in cash and cash
equivalents for the period 3.0 3.2 2.2
Cash and cash equivalents
at start of period 5.1 2.9 2.9
---------------------------------- ------ ------------ ------------ -------------
Cash and cash equivalents
at end of period 9 8.1 6.1 5.1
---------------------------------- ------ ------------ ------------ -------------
(1) Acquisition of Cove Bay and Pitmedden Property.
Condensed Group Statement of Changes in Equity
For the six months ended 30 June 2017 (unaudited)
Share Share Capital Special Hedging Retained
capital premium reserve reserve reserve earnings Total
----------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- --------- --------- --------- --------- --------- ---------- --------
Six months ended 30 June
2017 (unaudited)
1 January 2017 74.8 59.1 1.6 192.8 (32.7) 203.6 499.2
Profit for the
period - - - - - 44.3 44.3
Other comprehensive income:
Fair value movement
on interest rate
swaps - - - - 2.0 - 2.0
Total comprehensive
income - - - - 2.0 44.3 46.3
Dividends paid - - - (14.9) - - (14.9)
Scrip dividend
in lieu of cash 0.1 0.7 - (0.8) - - -
---------------------- --------- --------- --------- --------- --------- ---------- --------
30 June 2017 74.9 59.8 1.6 177.1 (30.7) 247.9 530.6
---------------------- --------- --------- --------- --------- --------- ---------- --------
Six months ended 30 June
2016 (unaudited)
1 January 2016 55.8 57.4 1.6 93.0 (22.4) 159.9 345.3
Profit for the
period - - - - - 25.4 25.4
Other comprehensive income:
Fair value movement
on interest rate
swaps - - - - (14.7) - (14.7)
Amortisation
of hedging reserve - - - - 1.6 - 1.6
Total comprehensive
income - - - - (13.1) 25.4 12.3
Shares issued
as part of capital
raise 18.7 131.3 - - 150.0
Share issue expenses - - - (4.7) - - (4.7)
Dividends paid - - - (10.5) - - (10.5)
Scrip dividend
in lieu of cash 0.1 0.8 - (0.9) - - -
30 June 2016 74.6 58.2 1.6 208.2 (35.5) 185.3 492.4
---------------------- --------- --------- --------- --------- --------- ---------- --------
Condensed Group Statement of Changes in Equity (continued)
Share Share Capital Special Hedging Retained
capital premium reserve Reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- --------- --------- --------- --------- --------- ---------- --------
Year ended 31 December 2016
(audited)
1 January 2016 55.8 57.4 1.6 93.0 (22.4) 159.9 345.3
Profit for the
year - - - - - 43.7 43.7
Other comprehensive income:
Fair value movement
on interest rate
swaps - - - - (11.9) - (11.9)
Amortisation
of cash flow
hedging reserve - - - - 1.6 - 1.6
Total comprehensive
income - - - - (10.3) 43.7 33.4
Shares issued 18.7 - - 131.3 - - 150.0
Share issue expenses - (0.1) - (4.7) - - (4.8)
Dividends paid - - - (24.7) - - (24.7)
Scrip dividend
in lieu of cash 0.3 1.8 - (2.1) - - -
---------------------- --------- --------- --------- --------- --------- ---------- --------
31 December 2016 74.8 59.1 1.6 192.8 (32.7) 203.6 499.2
---------------------- --------- --------- --------- --------- --------- ---------- --------
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 2016 have been filed with the Registrar
of Companies. The Auditor's Report on these financial statements
was unqualified and did not contain a statement under Sections
498(2) or 498(3) of the Companies Act 2006.
The condensed consolidated interim financial statements of the
Group are unaudited but have been formally reviewed by the auditor
and its report to the Company is included on pages 19-20. These
condensed consolidated interim financial statements of the Group
for the six months ended 30 June 2017 were approved and authorised
for issue by the Board on 26 July 2017.
Basis of preparation/Statement of compliance
The condensed consolidated interim financial statements for the
six months ended 30 June 2017 have been prepared in accordance with
IAS 34 'Interim Financial Reporting' and reflect consistent
accounting policies as set out in the Group's financial statements
at 31 December 2016 which were prepared in accordance with IFRS as
adopted by the European Union.
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 2016.
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 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 is currently 53.0% and
the Group's interest cover for the period under review was 2.25
times, well above the minimum Group banking covenant of 1.30 times.
Taking these and others factors into account, the Directors are
therefore 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. Amendments
to IFRSs effective for the financial year ending 31 December 2017
are not expected to have a material impact on the Group.
2. Administrative expenses
Administrative expenses as a proportion of rental income were
11.0% (30 June 2016: 10.7%). The Group's EPRA cost ratio has
increased to 11.9%, compared to 11.5% for the same period in
2016.
No performance incentive fee is payable to the Adviser for the
period ended 30 June 2017 (six months to 30 June 2016: GBPnil; year
ended 31 December 2016: GBPnil).
3. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------ ------------ ------------ -------------
Interest income on financial
assets
Development loan interest 0.3 0.3 0.5
0.3 0.3 0.5
------------------------------ ------------ ------------ -------------
4. Finance costs
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2016
2017 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
-------------------------------------- ------------ ------------ -------------
Interest expense and similar charges
on financial liabilities
(i) Interest
Bank loan interest 7.2 8.1 15.6
Swap interest 1.7 2.1 5.1
Bond interest 5.5 4.8 9.6
Bank facility non utilisation
fees 0.5 0.5 0.9
Bank charges and loan arrangement
fees 0.9 0.9 1.8
-------------------------------------- ------------ ------------ -------------
15.8 16.4 33.0
-------------------------------------- ------------ ------------ -------------
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2016
2017 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------- ------------ ------------ -------------
(ii) Derivatives
Net fair value gain /(loss)
on interest rate swaps 0.4 (2.9) (0.6)
Amortisation of cash flow
hedging reserve - (1.6) (1.6)
----------------------------- ------------ ------------ -------------
0.4 (4.5) (2.2)
----------------------------- ------------ ------------ -------------
The fair value gain on derivatives recognised in the Condensed
Group Statement of Comprehensive Income has arisen from the
interest rate swaps for which hedge accounting does not apply. A
fair value loss on derivatives which meet the hedge effectiveness
criteria under IAS 39 of GBP2.0m (30 June 2016: gain of GBP14.7m),
(31 Dec 2016: GBP11.9m) is accounted for directly in equity.
There has been no amortisation from the cash flow hedging
reserve in the period (30 June 2016: GBP1.6m), (31 Dec 2016:
GBP1.6m). The early termination of an effective swap contract in
July 2015 was fully amortised at 2 July 2016, the original maturity
date.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2016
2017 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
-------------------------- ------------ ------------ -------------
(iii) Convertible Bond
Fair value (loss) / gain
on Convertible Bond (1.4) 1.9 (1.6)
-------------------------- ------------ ------------ -------------
The fair value movement in the Convertible Bond is recognised in
the Group Statement of Comprehensive Income within profit before
taxation but is excluded from the calculation of EPRA earnings and
EPRA NAV. Refer to note 11 for further details about the
Convertible Bond.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------- ------------ ------------ -------------
Finance income (Note 3) (0.3) (0.3) (0.5)
Finance costs (Note 4 (i)) 15.8 16.4 33.0
---------------------------- ------------ ------------ -------------
Net finance costs 15.5 16.1 32.5
---------------------------- ------------ ------------ -------------
5. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------- ------------ ------------ -------------
Taxation in the Condensed
Group Statement of Comprehensive
Income:
Current tax
UK corporation tax charge - - -
on non-property income
---------------------------------- ------------ ------------ -------------
Taxation credit in the Condensed - - -
Group Statement of Comprehensive
Income
---------------------------------- ------------ ------------ -------------
6. Earnings per share
The calculation of basic and diluted earnings per share is based
on the following:
Net profit
attributable Ordinary
to Ordinary Shares Per
Shareholders (number share
GBPm - millions)(1) (pence)
Six months ended 30 June
2017 (unaudited)
Basic and diluted earnings
Basic earnings 44.3 598.5 7.4
Dilutive effect of Convertible
Bond 1.8 84.6
------------------------------------- -------------- ---------------- ---------
Diluted earnings 46.1 683.1 6.7
------------------------------------- -------------- ---------------- ---------
EPRA basic and diluted earnings
Basic earnings 44.3
Adjustments to remove:
Net result on property (Note
8) (29.9)
Fair value movement on derivatives (0.4)
Fair value movement on Convertible
Bond 1.4
EPRA basic earnings per share 15.4 598.5 2.6
------------------------------------- -------------- ---------------- ---------
Dilutive effect of Convertible
Bond 1.8 84.6
------------------------------------- -------------- ---------------- ---------
EPRA diluted earnings per
share 17.2 683.1 2.5
------------------------------------- -------------- ---------------- ---------
Six months ended 30 June
2016 (unaudited)
Basic and diluted earnings
Basic earnings 25.5 521.8 4.9
Dilutive effect of Convertible
Bond 1.7 84.6
------------------------------------- -------------- ---------------- ---------
Diluted earnings 27.2 606.4 4.5
EPRA basic and diluted earnings
Basic and diluted earnings 25.5
Adjustments to remove:
Net result on property (15.5)
Fair value movement on derivatives 4.5
Fair value movement on Convertible
Bond (1.9)
EPRA basic earnings per share 12.6 521.8 2.4
------------------------------------- -------------- ---------------- ---------
Dilutive effect of Convertible
Bond 1.7 84.6
------------------------------------- -------------- ---------------- ---------
EPRA diluted earnings per
share 14.3 606.4 2.4
------------------------------------- -------------- ---------------- ---------
(1) Weighted average number of shares in issue during the
period
Net profit
attributable Ordinary
to Ordinary Shares Per
Shareholders (number share
GBPm - millions)(1) (pence)
Year ended 31 December 2016
(audited)
Basic and diluted earnings
Basic earnings 43.7 560.0 7.8
Dilutive effect of Convertible
Bond 3.5 84.6
------------------------------------ -------------- ---------------- ---------
Diluted earnings 47.2 644.6 7.3
EPRA basic and diluted earnings
Basic and diluted earnings 43.7
Adjustments to remove:
Net result on property (20.7)
Fair value movement on derivatives 2.2
Fair value movement on Convertible
Bond 1.6
EPRA basic earnings per
share 26.8 560.0 4.8
------------------------------------ -------------- ---------------- ---------
Dilutive effect of Convertible
Bond 3.5 84.6
------------------------------------ -------------- ---------------- ---------
EPRA diluted earnings per
share 30.3 644.6 4.7
------------------------------------ -------------- ---------------- ---------
On 20 May 2014, the Group issued GBP82.5m of unsecured
Convertible Bonds (refer to note 11 for further details). In
accordance with IAS 33 'Earnings per share' the Company is required
to assess and disclose the dilutive impact of the contingently
issuable shares within the Convertible Bond. The impact is not
recognised where it is anti-dilutive.
The dilutive impact to basic EPS of Convertible Bonds is
represented by the accrued bond coupon which has been included in
the results of each period. The number of dilutive shares is
calculated as if the contingently issuable shares within the
Convertible Bond had been in issue for the period from issuance of
the bonds to the end of each reporting period.
7. Dividends
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2016
2017 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------- ------------ ------------ -------------
Quarterly interim dividend
paid 24 February 2017 7.7 - -
Scrip dividend in lieu
of quarterly cash dividend
24 February 2017 0.1 - -
Quarterly interim dividend
paid 26 May 2017 7.2 - -
Scrip dividend in lieu
of quarterly cash dividend
26 May 2017 0.7 - -
Quarterly interim dividend
paid 26 February 2016 - 5.4 5.4
Scrip dividend in lieu
of quarterly cash dividend
26 February 2016 - 0.3 0.4
Quarterly interim dividend
paid 27 May 2016 - 5.1 5.1
Scrip dividend in lieu
of quarterly cash dividend
27 May 2016 - 0.6 0.6
Quarterly interim dividend
paid 26 August 2016 - - 6.8
Scrip dividend in lieu
of quarterly cash dividend
26 August 2016 - - 0.8
Quarterly interim dividend
paid 25 November 2016 - - 7.4
Scrip dividend in lieu
of quarterly cash dividend
25 November 2016 - - 0.3
Total dividends distributed 15.7 11.4 26.8
----------------------------- ------------ ------------ -------------
Per share 2.62p 2.5625p 5.125p
----------------------------- ------------ ------------ -------------
The Company will pay a third interim dividend of 1.31 pence per
Ordinary Share for the year ending 31 December 2017, payable on 25
August 2017, to shareholders on the register as at 14 July 2017.
This dividend will comprise a Property Income Distribution ("PID")
of 0.76p and ordinary dividend of 0.55p per share.
8. Investment properties and investment properties under construction
Investment properties have been independently valued at fair
value by Lambert Smith Hampton, Chartered Surveyors and Valuers, as
at 30 June 2017 in accordance with IAS 40: Investment Property.
The revaluation surplus for the six months ended 30 June 2017
amounted to GBP29.9m (30 June 2016: GBP15.5m; 31 December 2016:
GBP20.7m).
Property additions, including acquisitions, for the six months
ended 30 June 2017 amounted to GBP15.2m (30 June 2016: GBP70.1m; 31
December 2016: GBP97.4m). There were no property disposals in the
six months ended 30 June 2017 (30 June 2016: GBPnil; 31 December
2016: GBPnil).
Investment
Investment Investment properties
properties long leasehold under
freehold(1) construction Total
GBPm GBPm GBPm GBPm
(unaudited) (unaudited) (unaudited) (unaudited)
-------------------------- -------------- ----------------- -------------- ------------
As at 1 January
2017 987.1 225.7 7.4 1,220.2
Property additions 7.9 - 7.3 15.2
Impact of lease
incentive adjustment 0.2 0.4 - 0.6
Transfer from properties
in the course of
development - 10.8 (10.8) -
-------------------------- -------------- ----------------- -------------- ------------
995.2 236.9 3.9 1,236.0
Revaluations for
the period 24.0 5.6 0.3 29.9
-------------------------- -------------- ----------------- -------------- ------------
As at 30 June 2017 1,019.2 242.5 4.2 1,265.9
-------------------------- -------------- ----------------- -------------- ------------
(1) Includes development land held at GBP0.9m (31 December 2016:
GBP0.5m)
The valuations have been prepared in accordance with the RICS
Valuation - Professional Standards 2014 on the basis of fair value.
Fair value represents the price that would be received to sell an
asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date. There has been
no change in the valuation technique in the period. The total fees
earned by Lambert Smith Hampton from the Company represent less
than 5% of their total UK revenues. Lambert Smith Hampton have
continuously been the signatory of valuations for the Company since
1996.
Capital commitments have been entered into amounting to GBP8.8m
(30 June 2016: GBP11.2m; 31 December 2016: GBP3.3m) which have not
been provided for in the financial statements.
9. Cash and cash equivalents
30 June 2017 31 December 2016
GBPm GBPm
(unaudited) (audited)
------------------- ------------- -----------------
Cash held at bank 8.1 4.9
Restricted cash - 0.2
------------------- ------------- -----------------
8.1 5.1
------------------- ------------- -----------------
10. Bank and other borrowings reconciliation
The table indicates amounts drawn and undrawn from each
individual facility:
Facility Amounts drawn Undrawn
------------------- ---------------------- ---------------------- ----------------------
30 June 31 December 30 June 31 December 30 June 31 December
2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------- ------------ -------- ------------ -------- ------------
Current
Overdraft
facility
(1) 5.0 5.0 - - 5.0 5.0
Fixed rate
term loan
(2) 0.8 0.8 0.8 0.8 - -
5.8 5.8 0.8 0.8 5.0 5.0
Non-current
Term loan
to August
2017 (3) - 115.0 - 115.0 - -
Term loan
to March
2021 (4) 50.0 - 50.0 - - -
Fixed rate
term loan
(2) 22.8 23.1 22.8 23.1 - -
Fixed rate
term to December
2022 (5) 25.0 25.0 25.0 25.0 - -
Term to July
2020 (6) 50.0 50.0 9.7 6.4 40.3 43.6
Fixed rate
term to November
2018 (7) 75.0 75.0 75.0 75.0 - -
Term to August
2019 (8) 115.0 115.0 55.0 75.0 60.0 40.0
Fixed rate
term to August
2024 (9) 50.0 50.0 50.0 50.0 - -
Fixed rate
term to August
2029(9) 63.0 63.0 63.0 63.0 - -
450.8 516.1 350.5 432.5 100.3 83.6
------------------- -------- ------------ -------- ------------ -------- ------------
Total 456.6 521.9 351.3 433.3 105.3 88.6
------------------- -------- ------------ -------- ------------ -------- ------------
Providers:
(1) The Royal Bank of Scotland PLC.
(2) Aviva facility repayable in tranches to 31 January 2032.
(3) The Royal Bank of Scotland plc ("RBS") and Abbey National
Treasury Services plc (branded Santander from January 2010) ("The
Club facility").
(4) The Royal Bank of Scotland plc ("RBS").
(5) Aviva GPFC facility.
(6) HSBC Bank facility.
(7) Aviva facility.
(8) Barclays Bank facility.
(9) Aviva facility.
At 30 June 2017, total facilities of GBP784.1m (31 December
2016: GBP749.4m) were available to the Group. This included a
GBP75m Unsecured Retail Bond, a GBP70m Secured Bond, a GBP82.5m
Convertible Bond, a GBP100m Secured Bond, and a GBP5m overdraft
facility. Of these facilities, as at 30 June 2017, GBP678.8m was
drawn (31 December 2016: GBP660.8m).
On 21 March 2017, a new GBP100m Secured Bond was issued for a
10-year term at a fixed coupon of 2.83%. GBP65m of the proceeds
have been used to refinance the RBS/Santander Club facility solely
with RBS, reducing the available facility from GBP115m to GBP50m.
The remaining GBP35m was used to pay down the Barclays / AIB
revolving facility and remains available for PHP to draw when
needed.
Costs associated with the arrangement of the facilities,
including legal advice and loan arrangement fees, are amortised
over the life of the related facility.
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
2017 2016
GBPm GBPm
(unaudited) (audited)
------------------------------------ ------------ ------------
Term loans drawn: due within
one year 0.8 0.8
Term loans drawn: due in greater
than one year 350.5 432.5
------------------------------------ ------------ ------------
Total term loans drawn 351.3 433.3
Less: unamortised borrowing
costs (2.5) (3.1)
------------------------------------ ------------ ------------
Total term loans per the Condensed
Group Balance Sheet 348.8 430.2
------------------------------------ ------------ ------------
The Group has been in compliance with all the financial
covenants of the above facilities applicable through the
period.
11. Borrowings: Bonds
30 June 31 December
2017 2016
GBPm GBPm
(unaudited) (audited)
------------------------------- ------------ ------------
Secured
Secured Bond December 2025 70.0 70.0
Secured Bond March 2027 100.0 -
Unsecured
Retail Bond July 2019 75.0 75.0
Convertible Bond May 2019 at
fair value 96.4 95.0
Less: unamortised issue costs (2.8) (1.8)
------------------------------- ------------ ------------
338.6 238.2
------------------------------- ------------ ------------
Secured Bonds
On 18 December 2013, PHP successfully listed the floating rate
guaranteed secured bonds issued on 4 November 2013 (the "Secured
Bonds") on the London Stock Exchange. The Secured Bonds have a
nominal value of GBP70m and mature on or about 30 December 2025.
GBP60m was paid up on the issue of the Secured Bonds with the
remaining GBP10m being received on 30 June 2014 following the
completion of the construction of four further secured assets. The
Secured Bonds incur interest on the paid-up amount at an annualised
rate of 220 basis points above six month LIBOR, payable
semi-annually in arrears.
On 21 March 2017, a new GBP100m Secured Bond was issued for a
10-year term at a fixed coupon of 2.83% that matures on 21 March
2027. Interest is paid semi-annually in arrears.
Retail Bond
On 23 July 2012, PHP announced that it had become the first UK
REIT to issue a Retail Bond following the issue of a GBP75m,
unsecured, seven-year bond, to retail investors with an annual
interest rate of 5.375% paid semi-annually in arrears. The Retail
Bond issue costs are being amortised on a straight line basis over
seven years.
Convertible Bond
On 20 May 2014, PHP Finance (Jersey) Limited (the "Issuer"), a
wholly owned subsidiary of the Group, issued GBP82.5m of 4.25%
Convertible Bonds due 2019 (the "Bonds") at par. The Company has
guaranteed the due and punctual performance by the Issuer of all of
its obligations (including payments) in respect of the Bonds.
Subject to certain conditions, the Bonds are convertible into
preference shares of the Issuer which will be automatically and
mandatorily exchangeable into fully paid Ordinary Shares of the
Company (the "Shares"). The initial conversion price was set at 390
pence per Share (the "Exchange Price") which has subsequently been
revised to 97.5 pence following the Company's four-for-one Share
sub-division undertaken in November 2015. Under the terms of the
Bonds, the Company will have the right to settle any conversion
rights entirely in Shares, in cash or with a combination of Shares
and cash.
The bondholders had the right to convert the Bonds up until 20
May 2017 only where the Parity Value (as defined in the Bond's
terms) was greater than the Exchange Price.
After 20 May 2017, the Bonds may be redeemed at par at the
Company's option subject to the Parity Value equalling or exceeding
GBP130,000, for Bonds with a nominal value of GBP100,000. If not
previously converted, redeemed or purchased and cancelled, the
Bonds will be redeemed at par on the maturity date.
Convertible Bond
30 June 31 December
2017 2016
GBPm GBPm
------------------------------------ -------- ------------
Opening balance - fair value 95.0 93.4
Fair value movement in Convertible
Bond 1.4 1.6
------------------------------------ -------- ------------
Closing balance - fair value 96.4 95.0
------------------------------------ -------- ------------
The fair value of the Convertible Bond at 30 June 2017 and 31
December 2016 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 NAV.
12. 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:
Effective Ineffective
interest interest
rate swaps rate swaps Total
GBPm GBPm GBPm
------------------------------ ------------ ------------ --------
Assets
As at 1 January 2017 - - -
Fair value movement
in the period - 0.2 0.2
------------------------------ ------------ ------------ --------
As at 30 June 2017 - 0.2 0.2
------------------------------ ------------ ------------ --------
Liabilities
As at 1 January 2017 (33.3) - (33.3)
Fair value movement
in the period 2.2 - 2.2
------------------------------ ------------ ------------ --------
As at 30 June 2017 (31.1) - (31.1)
------------------------------ ------------ ------------ --------
Total - derivative financial
instruments
As at 1 January 2017 (33.3) - (33.3)
Fair value movement
in the period 2.2 0.2 2.4
------------------------------ ------------ ------------ --------
As at 30 June 2017 (31.1) 0.2 (30.9)
------------------------------ ------------ ------------ --------
On 4 July 2017, a 4.76% fixed rate interest swap for notional
amount of GBP20m was terminated. The termination cost totalled
GBP6.2m and will be accounted for in the second half of 2017.
13. 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 Fair Book value Fair value
value value
30 June 30 June 31 December 31 December
2017 2017 2016 2016
GBPm GBPm GBPm GBPm
----------------------------- -------- -------- ------------ ------------
Financial assets
Trade and other receivables 4.3 4.3 2.0 2.0
Effective interest
rate swaps 0.2 0.2 - -
Cash and short-term
deposits 8.1 8.1 5.1 5.1
----------------------------- -------- -------- ------------ ------------
Financial liabilities
Interest-bearing
loans and borrowings (674.0) (724.3) (660.8) (708.5)
Effective interest
rate swaps (30.7) (30.7) (32.7) (32.7)
Ineffective interest
rate swaps (0.4) (0.4) (0.6) (0.6)
Trade and other payables (15.5) (15.5) (13.1) (13.1)
----------------------------- -------- -------- ------------ ------------
The fair value of the financial assets and liabilities is
included as an estimate of the amount at which the instruments
could be transferred in a current transaction between willing
parties, other than a forced sale. The following methods and
assumptions were used to estimate fair values:
-- The fair values of the Group's cash and cash equivalents and
trade payables and receivables are not materially different from
those at which they are carried in the financial statements due to
the short term nature of these instruments.
-- The fair value of floating rate borrowings is estimated by
discounting future cash flows using rates currently available for
instruments with similar terms and remaining maturities. The fair
value approximates their carrying values, gross of unamortised
transaction costs.
-- The fair values of the derivative interest rate swap
contracts are estimated by discounting expected future cash flows
using market interest rates and yield curves over the remaining
term of the instrument.
The Group held the following financial instruments at fair value
at 30 June 2017. 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.
Fair value measurements at 30 June 2017 are as follows:
Level Level Level Total
1(1) 2(2) 3(3)
Recurring fair GBPm GBPm GBPm GBPm
value measurements
----------------------- ------- ------- ------ -------
Financial assets
Derivative interest
rate swaps - 0.2 - 0.2
----------------------- ------- ------- ------ -------
Financial liabilities
Derivative interest
rate swaps - (31.1) - (31.1)
Convertible bond (96.4) - - (96.4)
----------------------- ------- ------- ------ -------
Fair value measurements at 31 December 2016 were as follows:
Recurring fair Level Level Level Total
value measurements 1(1) 2(2) 3(3)
GBPm GBPm GBPm GBPm
----------------------- ------- ------- ------ -------
Financial assets
Derivative interest - - - -
rate swaps
----------------------- ------- ------- ------ -------
Financial liabilities
Derivative interest
rate swaps - (33.3) - (33.3)
Convertible Bond (95.0) - - (95.0)
----------------------- ------- ------- ------ -------
(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.
14. Net asset value calculations
Net asset values have been calculated as follows:
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------- ------------ ------------ ------------
Net assets
Basic net assets 530.6 492.4 499.2
Derivative interest rate
swaps liability (net) 30.9 38.4 33.3
Cumulative Convertible
Bond fair value movement 13.9 9.1 12.5
--------------------------- ------------ ------------ ------------
EPRA net asset value 575.4 539.9 545.0
--------------------------- ------------ ------------ ------------
Number Number Number
of shares of shares of shares
millions millions millions
--------------------------- ------------ ------------ ------------
Ordinary Shares:
Issued share capital 598.9 597.2 598. 2
Net asset value per share
Basic net asset value
per share 88.6p 82.5p 83.5p
--------------------------- ------------ ------------ ------------
EPRA net asset value per
share 96.1p 90.4p 91.1p
--------------------------- ------------ ------------ ------------
EPRA NAV is calculated as balance sheet net assets including the
valuation result on investment properties but excluding fair value
adjustments for debt and related derivatives.
As detailed in note 6, the Company is required to assess the
dilutive impact of the unsecured Convertible Bond on its net asset
value per share, but only report any impact if it is dilutive. With
an initial conversion price of 97.5 pence (390 pence upon issue,
restated to reflect the Company's four-for-one share sub-division
undertaken in November 2015), the unsecured Convertible Bond issued
by the Group on 20 May 2014 is non-dilutive to all measures of net
asset value per share.
15. Related party transactions
The fees calculated and payable for the period to the Adviser,
included in administrative expenses, were as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------- ------------ ------------ -------------
Nexus TradeCo Limited 3.0 2.8 5.8
----------------------- ------------ ------------ -------------
As at 30 June 2017, outstanding advisory fees payable to Nexus
totalled GBP0.5m (31 December 2016: GBP0.5m).
Further fees paid to Nexus in accordance with the Advisory
Agreement for the period to 30 June 2017 of GBP0.1m (31 December
2016: GBP0.1m) in respect of capital projects were capitalised in
the period.
16. Called up share capital
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------- ------------ ------------ ------------
Issued and fully paid
Ordinary Shares at 12.5p
each 74.9 74.6 74.8
----------------------------- ------------ ------------ ------------
At beginning of year 74.8 55.8 55.8
Scrip issues in lieu of
cash dividends 0.1 0.1 0.3
Shares issued in the period - 18.7 18.7
----------------------------- ------------ ------------ ------------
74.9 74.6 74.8
----------------------------- ------------ ------------ ------------
On 13 April 2016, a general meeting of the Company approved the
issue of 150,000,000 new Ordinary Shares at a price of 100 pence
each. The shares were admitted to trading on the Main Market of the
London Stock Exchange on 14 April 2016.
17. Special reserve
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------- ------------ ------------ ------------
At beginning of year 192.8 93.0 93.0
Share issue: 14 April
2016 - 131.3 131.3
Dividends paid (14.9) (10.5) (24.7)
Scrip issues in lieu of
cash dividends (0.8) (0.9) (2.1)
Share issue expenses - (4.7) (4.7)
------------------------- ------------ ------------ ------------
177.1 208.2 192.8
------------------------- ------------ ------------ ------------
The special reserve has arisen on previous issues of the
Company's shares. It represents the share premium on the issue of
the shares, net of expenses, from issues effected by way of a cash
box mechanism. The issue of shares on 14 April 2016, referred to in
note 16, was effected by way of a cash box.
A cash box raising is a mechanism for structuring a capital
raising whereby the cash proceeds from investors are invested in a
subsidiary company of the parent instead of the parent itself. Use
of a cash box mechanism has enabled the share premium arising from
the issue of shares to be deemed to be a distributable reserve and
has therefore been shown as a special reserve in these financial
statements. Any issue costs are also deducted from the special
reserve.
As the special reserve is a distributable reserve, the dividends
declared in the period have been distributed from this reserve.
18. Subsequent events
On 4 July 2017, a 4.76% fixed rate interest swap for notional
amount of GBP20m was terminated. The termination cost totalled
GBP6.2m equivalent to 1p per share on an EPRA net asset value
basis. The MtM of the cancelled derivative was reflected in the
financial statements as at 30 June 2017.
On 21 July 2017, the Group exchanged and completed contracts to
acquire a Primary Health Care Centre in Syston, Leicestershire for
a consideration of GBP8.4m.
On 25 July 2017, the Group exchanged contracts to acquire
Ettrick Health Limited, which owns two Primary Healthcare Centres
located in Middlesborough and Bishop Auckland for a gross
consideration of GBP27.1m.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this
condensed set of interim financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union and that
the operating and financial review herein includes a fair review of
the information required by DTR 4.2.7 and DTR 4.2.8 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 interim financial statements and a description of the
principal risks and uncertainties for the remaining six months of
the financial year; and
-- material related party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
Shareholder information is as disclosed in the Annual Report and
is also available on the PHP website, www.phpgroup.co.uk.
By order of the Board
Alun Jones
Chairman
26 July 2017
Glossary of terms
Adviser is Nexus Tradeco 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.
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 total dividend paid in
the period (in cash or shares under the Scrip Dividend Scheme) is
covered by EPRA earnings.
Earnings per Ordinary Share from continuing operations ("EPS")
is the profit attributable to equity holders of the Parent divided
by the weighted average number of shares in issue during the
period.
European Public Real Estate Association ("EPRA") is a real
estate industry body, which has issued Best Practices
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 and gains/losses on
disposals, changes in the fair value of financial instruments and
associated close-out costs and their related taxation.
EPRA Net Asset Value ("EPRA NAV") is the balance sheet net
assets excluding own shares held and Mark to Market value of
derivative financial instruments and fair value adjustments on the
convertible bond.
EPRA Vacancy Rate is, as a percentage, the ERV of vacant space
in the Group's property portfolio divided by the 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.
Exchange Price is 116% of the share price at the date of
issue.
Gross rental income is the gross accounting rent receivable.
Group is Primary Health Properties PLC and its subsidiaries.
HSE or the Health Service Executive is the executive agency of
the Irish government responsible for health and social services for
people living in Ireland.
IFRS is International Financial Reporting Standards as adopted
by the European Union.
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.
IPD is the Investment Property Databank Limited which provides
performance analysis for most types of real estate and produces an
independent benchmark of property returns.
IPD Healthcare is the Investment Property Databank's UK Annual
Healthcare Property Index.
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 IPD.
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 assets.
Mark to Market ("MtM") is the difference between the book value
of an asset or liability and its market value.
Net initial yield 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 purchaser's costs).
Net rental income is the rental income receivable in the period
after payment of direct property costs. Net rental income is quoted
on an accounting basis.
NHSPS is NHS Property Services Limited and the company wholly
owned and funded by the Department of Health, which, as of 1 April
2013, has taken on all property obligations formerly borne by
Primary Care Trusts.
Parity Value is calculated based on dividing the Convertible
Bond value by the Exchange Price.
Property Income Distribution ("PID") is the required
distribution of income as dividends under the REIT regime. It is
calculated as 90% of exempted net income.
Real Estate Investment Trust ("REIT") is a listed property
company which qualifies for and has elected into a tax regime,
which exempts qualifying UK profits, arising from property rental
income and gains on investment property disposals, from corporation
tax, but which has a number of specific requirements.
Rent reviews take place at intervals agreed in the lease and
their purpose is usually to adjust the rent to the current market
level at the review date.
Rent roll is the passing rent being the total of all the
contracted rents reserved under the leases.
Reversionary yield is the anticipated yield which the initial
yield will rise to once the rent reaches the ERV and when the
property is fully let. It is calculated by dividing the ERV by the
valuation.
Retail Price Index ("RPI") is the official measure of the
general level of inflation as reflected in the retail price of a
basket of goods and services such as energy, food, petrol, housing,
household goods, travelling fare, etc. RPI is commonly computed on
a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews which
are linked to changes in the RPI.
Special reserve is a distributable reserve.
Total expense ratio ("TER") is calculated as total
administrative costs for the year divided by the average total
asset value during the year.
Total property return is the overall return generated by
properties on a debt-free basis. It is calculated as the net rental
income generated by the portfolio plus the change in market values,
divided by opening property assets plus capital expenditure, less
disposals.
Total NAV return is calculated as the movement in EPRA net
assets for the period plus the dividends paid, divided by opening
EPRA net assets.
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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DQLFLDDFLBBF
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