TIDMPHP
RNS Number : 3926U
Primary Health Properties PLC
29 July 2020
Primary Health Properties PLC
Interim results for the six months ended 30 June 2020
Strong operational and financial performance notwithstanding the
COVID-19 pandemic
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
2020.
Harry Hyman , Managing Director of PHP, commented:
"The COVID-19 pandemic has highlighted the demands on health
systems around the world, not least the NHS in the UK and HSE in
Ireland, where the underlying demand for healthcare is increasingly
driven by growing and ageing populations. The need for modern,
integrated, local primary healthcare facilities is becoming ever
more pressing in order to relieve the pressures being placed on
hospitals and A&E departments.
"As a result of the COVID-19 pandemic, we see strong demand for
extra space to help alleviate the backlog of consultations that has
arisen as a result of the coronavirus, while facilitating the
movement of activity out of hospitals and the continued care of
patients that have suffered from COVID-19.
"The successful equity placing on 9 July raised GBP140m of
proceeds and was upsized from GBP120m due to strong investor
demand. The funds raised will help further accelerate our growth by
funding near-term portfolio expansion, forward funded developments
and asset management projects."
"PHP looks forward to delivering further earnings and dividend
growth and remains confident of its future outlook."
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Six months Six months
to to
Income statement metrics 30 June 2020 30 June 2019 Change
------------- -------------
Net rental income(1) GBP64.8m GBP53.8m +20.4%
Adjusted EPRA earnings(1,2) GBP36.0m GBP27.9m +29.0%
Adjusted EPRA earnings per share(1,2) 3.0p 2.8p +7.1%
IFRS profit before tax excluding MedicX GBP38.1m GBP41.5m
exceptional adjustments(1,5)
IFRS profit/(loss) for the period (2019 GBP39.5m (GBP106.5m)
includes GBP123.9m of non-cash losses)(9)
IFRS earnings/(loss) per share(2) 3.2p (10.7p)
Dividends
Dividend per share(6) 2.95p 2.8p +5.4%
Dividends paid(6) GBP35.9m GBP26.7m +34.5%
Dividend cover(1) 100% 104%
------------------------------------------- ------------- ------------- --------
30 June 31 December
Balance sheet and operational metrics 2020 2019 Change
------------------------------------------- ------------- ------------- --------
Adjusted EPRA NTA (NAV) per share(1,3) 109.1p 107.9p +1.1%
IFRS NAV per share(1,3) 101.8p 101.0p +0.8%
Property portfolio
Investment portfolio valuation(4) GBP2.514bn GBP2.413bn +0.4%
Net initial yield ("NIY") (1) 4.86% 4.86%
Contracted rent roll (annualised)(1,8) GBP133.3m GBP127.7m +0.7%
Weighted average unexpired lease 12.5 years 12.8 years
term ("WAULT")(1)
Occupancy 99.5% 99.5%
Rent-roll funded by government bodies(1) 90% 90%
Debt
Average cost of debt 3.5% 3.5%
Loan to value ratio(1) 45.8% 44.2%
Pro-forma loan to value ratio 40.3% n/a
post equity raise(10)
Weighted average debt maturity 6.7 years 7.2 years
Total undrawn loan facilities and GBP403.6m GBP356.6m
cash(7,10)
------------------------------------------- ------------- ------------- --------
(1) Definitions for net rental income, adjusted EPRA earnings,
adjusted EPRA earnings per share, earnings per share ("EPS"),
dividend cover, loan to value ("LTV"), IFRS profit before tax
excluding MedicX exceptional adjustments, net tangible assets
("NTA"), net disposal value ("NDV"), rent roll, NIY, WAULT and net
asset value ("NAV") are set out in the Glossary of Terms.
(2) See note 7, earnings per share, to the financial
statements.
(3) See note 16, net asset value per share, to the financial
statements. From 1 January 2020 Adjusted EPRA NAV, EPRA NAV and
EPRA NNNAV have been replaced with four new metrics: adjusted EPRA
net tangible assets, EPRA net tangible assets ("NTA"), EPRA net
disposal value ("NDV") and EPRA net reinstatement value ("NRV")
which are considered to be alternative performance measures. The
Group has determined that adjusted EPRA net tangible assets is the
most relevant measure and hence is now reported in place of
adjusted EPRA NAV.
(4) Percentage valuation movement during the period based on the
difference between opening and closing valuations of properties
after allowing for acquisition costs and capital expenditure.
(5) The IFRS profit before tax excluding MedicX exceptional
adjustments is set-out in detail in the summarised results table on
page 12.
(6) See note 8, dividends, to the financial statements.
(7) After deducting the remaining cost to complete contracted
acquisitions, properties under development and asset management
projects.
(8) Percentage contracted rent roll increase during the period
is based on the annualised uplift achieved from all completed rent
reviews and asset management projects.
(9) GBP123.9m of non-cash losses are composed of GBP138.4m
exceptional revaluation loss arising on the merger with MedicX less
the GBP14.5m exceptional transactions costs.
(10) Including the GBP136.9m net proceeds from the equity raise
completed post period end
DELIVERING EARNINGS AND DIVID GROWTH
-- Adjusted EPRA earnings per share increased by 7.1% to 3.0p (30 June 2019: 2.8p)
-- Average uplift of 2.2% per annum on rent reviews completed in
the period, continuing the positive trend in rental growth (FY
2019: 1.9%; FY 2018: 1.4%)
-- Additional annualised rental income on a like-for-like basis
of GBP0.9 million or 0.7%, from rent reviews and asset management
projects (FY 2019: GBP1.9 million or 1.5%; FY 2018: GBP1.3 million
or 1.8%)
-- Contracted annualised rent roll increased by 4.4% to GBP133.3
million (31 December 2019: GBP127.7 million)
-- Portfolio of 22 purpose-built medical centres acquired, one
of which was acquired on 1 July 2020, for GBP54 million with good
asset management opportunities
-- Three forward funded developments acquired in the period with
a net development cost of GBP23.0 million at Arklow, Ireland,
Epsom, Surrey and Llanbradach, Wales
-- Two quarterly dividends totalling 2.95p per share distributed
in the period and third quarterly dividend of 1.475p per share
declared, payable on 21 August 2020, equivalent to 5.9p on an
annualised basis. This represents a 5.4% increase over the 2019
dividend per share and will mark the Company's 24(th) consecutive
year of dividend growth
-- The Company intends to make a further dividend payment in
November 2020 and maintain its strategy of paying a progressive
dividend, in equal quarterly instalments, covered by underlying
earnings in each financial year
DELIVERING NET ASSET VALUE GROWTH
-- Adjusted EPRA Net Tangible Assets (NTA) per share increased
by 1.1% to 109.1 pence (31 December 2019: 107.9 pence)
-- Property portfolio at 30 June 2020 valued at GBP2.514 billion
(31 December 2019: GBP2.413 billion) reflecting a net initial yield
of 4.86% (31 December 2019: 4.86%). A revaluation surplus was
generated in the period of GBP10.5 million (30 June 2019: GBP17.7
million), representing growth of 0.4% (30 June 2019: 0.8%)
-- Portfolio in Ireland now comprises 17 assets, valued at
GBP194 million (EUR214 million), including two forward funded
developments currently under construction which, if valued as
complete, increases the total asset value to approximately GBP211
million (EUR233 million)
-- The Group completed the forward funded developments at Athy,
Bray and Rialto in Ireland during the period and has six
developments currently on site with a net development cost of
GBP41.5 million. All sites in the UK and Ireland remain open and
construction continues to progress
-- Strong pipeline of targeted acquisitions and asset management
projects with a value of approximately GBP128 million, of which
GBP44 million is currently under offer
-- Progression of asset management projects with 12 either
completed or currently on-site, investing GBP4.1 million, creating
additional rental income GBP0.12 million per annum and extending
the weighted average unexpired lease term (WAULT) back to 21
years
-- The Group has a strong pipeline of over 80 incremental asset
management projects which have either been approved by the Board or
are in advanced negotiations. The pipeline of projects equates to
investing approximately GBP36 million in 2020 and 2021 generating
GBP1.1 million of additional income and extending the WAULT on
those leases back to 21 years
-- Only GBP3.0m or 2.3% of annualised rent roll expiring in the
next three years of which GBP2.6m is subject to either a planned
asset management initiative or terms having been agreed to renew
the lease
-- The portfolio's metrics continue to reflect the secure,
long-term and predictable income stream with occupancy at 99.5% (31
December 2019: 99.5%) and a WAULT of 12.5 years (31 December 2019:
12.8 years)
DELIVERING FINANCIAL MANAGEMENT
-- Post period end GBP140.0m (GBP136.9m net of expenses)
over-subscribed equity placing at 145p per share or 32.9% premium
to reported Adjusted EPRA NTA of 109.1p as at 30 June 2020
-- Following the equity placing the Company lowered the upper
range for the Group's loan to value ("LTV") ratio from 55% to
50%
-- At 30 June 2020 the Group's net debt stood at GBP1,150.3
million (31 December 2019: GBP1,067.3 million) and the LTV ratio
was 45.8% (31 December 2019: 44.2%) falling to 40.3% on a pro-forma
basis post equity placing
-- Post the equity placing and after capital commitments the
Group has undrawn loan facilities and cash on deposit totalling
GBP403.6 million (31 December 2019: GBP356.6 million) providing
significant liquidity headroom. Cash on deposit totals GBP201.0
million
-- Significant headroom in LTV and interest cover covenants in
the Group's various borrowing facilities
DELIVERING ROBUST RENTAL COLLECTION
-- Of PHP's contracted rental income, 90% is paid either
directly or indirectly by the UK and Irish governments, with the
balance mainly coming from pharmacies co-located at our
properties
-- Rental collections continue to remain robust and as at 27
July 2020 96% had been collected in both the UK and Ireland for the
third quarter of 2020 and ahead of the collection rates experienced
for the second quarter of the year which now stand at over 99% for
both countries. The balance of rent due for the third quarter of
2020 is expected to be received shortly
-- The Group has allowed GBP1.1 million of quarterly rents,
predominantly pharmacies, to be paid by monthly instalments, given
short-term rent deferrals of GBP0.3 million and concessions of
GBP0.2 million
DELIVERING STRONG TOTAL RETURNS
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
-------------------------------- -------------- -------------- -------------
Increase in Adjusted EPRA NTA
plus dividends paid 3.8% 2.8% 8.0%
Income return 2.6% 2.7% 5.2%
Capital return 0.5% 0.9% 2.5%
-------------------------------- -------------- -------------- -------------
Total property return(1) 3.1% 3.6% 7.7%
MSCI UK Monthly Property Index -3.5% 1.2% 2.2%
-------------------------------- -------------- -------------- -------------
Out performance over MSCI 6.6% 2.4% 5.5%
-------------------------------- -------------- -------------- -------------
(1) The de finitions for total property return is set out in the
Glossary of Terms.
Presentation and webcast:
A virtual briefing for analysts will be held today, 29 July 2020
at 09.30am, via a live webcast and conference call facility.
The presentation will be accessible via a live conference
call:
UK Toll Free: 0800 358 9473
UK Toll: 0333 300 0804
International dial in numbers:
http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
Participant PIN code: 81298303#
A live webcast of the presentation will also be available via
this link.
If you would like to join the briefing, please contact Buchanan
via php@buchanan.uk.com to confirm your place.
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/Steph Watson/Tilly Abraham
Buchanan
T +44 (0) 20 7466 5066
--------------------------------------- --------------------------------
EXECUTIVE REVIEW
Notwithstanding the uncertain and unprecedented times in the UK
and around the world caused by the COVID-19 pandemic, we delivered
a strong and robust operational and financial performance over the
first six months of 2020.
The Group's portfolio continues to demonstrate good resilience
despite the uncertainty caused by COVID-19. During the pandemic,
PHP has been actively working with the NHS in the UK, HSE in
Ireland, and its GP tenants in both markets to help them better
utilise the Group's properties for deployment in the front line of
the current global health crisis.
As lockdown measures in the UK and Ireland are eased further, we
continue to maintain relationships with our key stakeholders and GP
partners to ensure we are best placed to help the NHS and HSE, and
in particular primary care, as the 'new normal' is established.
The team of over 50 staff who work on behalf of PHP are working
successfully from home during the pandemic and the Group's disaster
recovery plan has and continues to operate as expected with systems
and communications maintained with none of these staff having been
furloughed. The Group has not taken advantage of any Government
loan or incentive scheme introduced during the pandemic and has
continued to pay all taxes due on the normal due date. The Board is
grateful for the team's commitment and dedication during these
difficult times.
Over the last nine months we have successfully deployed the
GBP100m proceeds from the September 2019 equity raise across 23
standing investments, 6 forward funded developments and 12 asset
management projects totalling GBP107m.
The Group continues to have a strong, active pipeline of
potential acquisitions both in the UK and Ireland totalling
approximately GBP128m including GBP44m under offer and
consequently, post period end, we successfully completed an
over-subscribed equity placing raising GBP140.0m (GBP136.9m net of
expenses). The Group now has a market capitalisation of around GBP2
billion and the property portfolio now stands at over GBP2.5
billion across 510 assets, including 17 in Ireland.
The net proceeds from the equity placing further improve the
Group's already robust capital position providing significant
levels of liquidity and loan covenant headroom with GBP403.6m of
undrawn loan facilities and cash, helping to maintain an
appropriate loan to value ("LTV") ratio at 40.3% on a pro-forma
basis. As previously announced with the equity placing, the Company
lowered the upper range LTV ratio from 55% to 50%.
Rental collections have continued to remain robust and as at 27
July 2020 96% had been collected in the UK and Ireland for the
third quarter of 2020 and ahead of the collection rates experienced
for the second quarter of the year which now stand at over 99% for
both countries.
Two quarterly dividends totalling 2.95p per share were
distributed in the period and a third quarterly dividend of 1.475p
per share declared, payable on 21 August 2020, equivalent to 5.9p
on an annualised basis. This represents a 5.4% increase over the
2019 dividend per share and will mark the Company's 24(th)
consecutive year of dividend growth. The Company intends to make a
further dividend payment in November 2020 and maintain its strategy
of paying a progressive dividend, in equal quarterly instalments,
covered by underlying earnings in each financial year.
Overview of results
PHP's recurring Adjusted EPRA earnings increased by GBP8.1m or
29.0% to GBP36.0m in the six months to 30 June 2020 driven by the
merger with MedicX in March 2019, acquisitions, an improving rental
growth outlook from our asset management activities and reductions
in the average cost of finance in both 2019 and the first half of
2020 compared with the first half of 2019. Using the weighted
average number of shares in issue in the period the Adjusted EPRA
earnings per share increased to 3.0p (Six months to 31 December
2019: 2.8p), an increase of 7.1%.
A revaluation surplus of GBP10.5m (30 June 2019: GBP17.7m) was
generated in the period from the portfolio equivalent to 0.9p per
share. The valuation surplus was driven entirely by rental growth
and asset management activity in the UK and some net initial yield
("NIY") compression in Ireland.
The Group has continued to selectively grow its portfolio in the
period, adding 22 assets, one of which was acquired on 1 July 2020,
and three forward funded developments.
Rent reviews and asset management projects completed in the
period added GBP0.9m or 0.7% (FY 2019: GBP1.9m or 1.5%) to the
contracted rent roll and the continued positive momentum on rent
reviews has seen annualised rental growth improve to 2.2% compared
to 1.9% and 1.4% achieved in FY 2019 and FY 2018 respectively.
The portfolio's average lot size remains at GBP4.9m and we are
maintaining our very strong metrics, with a long weighted average
unexpired lease term ("WAULT") of 12.5 years, high occupancy at
99.5% and only 2.3% of our rent due to expire in the next three
years.
Dividends and total shareholder return
The Company distributed a total of 2.95p per share in the six
months to 30 June 2020, an increase of 5.4% over that distributed
in the first half of 2019 of 2.8p per share. The total value of
dividends distributed in the period increased by 34.5% to GBP35.9m
(30 June 2019: GBP26.7m), which were fully covered by Adjusted EPRA
earnings, reflecting the additional shares issued in 2019 on the
merger with MedicX, conversion of the remaining convertible bonds
and equity raise in 2019. Dividends totalling GBP2.2m were
satisfied through the issuance of shares via the scrip dividend
scheme.
The Company's share price started the year at 160.0p per share
and closed on 30 June 2020 at 156.6p, a decrease of 2.1%. Including
dividends, those shareholders who held the Company's shares
throughout the period achieved a Total Shareholder Return of -0.3%
(30 June 2019: 22.7%). This compares to the total return delivered
by UK real estate equities (FTSE EPRA Nareit UK Index) of -28.5%
and the wider UK equity sector (FTSE All-Share Index) of -17.9% in
the period.
Market update and outlook
Healthcare provision in the UK has been transformed in the first
six months of 2020, as the NHS has responded to the requirements of
dealing with the COVID-19 pandemic. The resultant backlog of non
COVID-19 treatments that have been suspended will need to be
addressed, with many services expected to move away from hospitals
and into primary care facilities. This trend will undoubtedly
require substantial investment into other areas, most notably
primary care that will be able to take on the non-urgent and
periphery procedures. We will continue to actively engage with
government bodies, the NHS, HSE in Ireland and other key
stakeholders to establish and enact where we can support and help
alleviate increased pressures and burdens currently being placed on
healthcare networks.
In addition to the COVID-19 pandemic, the final outcome and
consequences of Brexit for the UK are unlikely to have a direct
impact on the primary health centres we invest in, which perform a
vital role in the provision of healthcare across the UK and
Ireland. Demand for our properties is driven by demographics and in
particular populations that are growing, ageing and suffering from
more instances of chronic illness.
Despite the continued volatility in the economic and political
environment and the prolonged era of low interest rates, there
continues to be an unrelenting search for secure and reliable
income. Primary healthcare, with its strong fundamental
characteristics and government-backed income, has been a
significant beneficiary. The UK market for primary healthcare
property investment continues to be highly competitive with strong
yields and prices being paid by investors for assets in the sector
with yields maintained during the first half of 2020.
We believe that our activities benefit not only our shareholders
but also our other stakeholders, including our occupiers, patients,
the NHS and HSE, suppliers, lenders and the wider communities in
both the UK and Ireland.
As the UK and Ireland prepare for the 'new normal' and how this
impacts the NHS and HSE respectively and those reliant on them, we
are ideally placed to support their needs, with the financial
strength, sector expertise and knowledge to enable them to succeed,
as well as deliver long term value to shareholders and wider
stakeholders. Despite the unprecedented level of uncertainty in the
UK and around the world, the Board continues to look forward with
confidence to the future.
Board changes
In November 2019 it was announced that, following the successful
merger and integration of the MedicX portfolio and team, Helen Mahy
would retire from the Board at the Company's Annual General Meeting
("AGM") on 1 April 2020.
In January 2020 it was announced that, following a review of the
skills, experience and knowledge of the Board and the consideration
of its size and composition as part of the Nomination Committee's
annual evaluation process, a Board of six, consisting of four
independent non-executive directors and two executive directors is
the appropriate size for the Group going forward, given the
relative simplicity of the business model. Accordingly, a
replacement for Helen Mahy was not made and Dr Stephen Kell also
retired from the Board at the AGM.
Following the completion of the AGM Ian Krieger became the
Senior Independent Director and Peter Cole became Chairman of the
Remuneration Committee.
The Board is grateful to Helen and Stephen for their commitment
and dedication to the Company during their service, and for their
contribution to and support for the merger with MedicX in 2019.
Steven Owen Harry Hyman
Chairman Managing Director
28 July 2020
BUSINESS REVIEW
Investment and development activity
The majority of the investment activity in the period came from
the portfolio of 22 assets acquired in the UK, one of which was
acquired on 1 July 2020, for GBP54m as well as three forward funded
developments acquired. The three forward funding developments
consist of one in Ireland and two in the UK and add to the existing
three forward funding developments at the start of the period.
Investment pipeline
PHP continues to have a strong active pipeline of potential
acquisitions both in the UK and Ireland totalling approximately
GBP128m including GBP44m currently under offer .
Developments
During the period the developments at Athy, County Kildare,
Bray, County Wicklow and Rialto, Dublin all in Ireland were
completed on time with a net development cost of GBP43.8m
(EUR48.3m).
The Group has six forward funded developments currently on site
with a net development cost of GBP41.5m:
Anticipated Area Net development Costs to
Asset PC date (Sq. m) cost complete
------------------------ ------------ --------- ------------------ --------------------
Ireland
Banagher, County Offaly Q4 2020 1,628 GBP4.5m (EUR5.1m) GBP2.7m (EUR3.0m)
Arklow, County Wicklow Q1 2022 6,265 GBP16.9m GBP14.5m (EUR16.0m)
(EUR18.7m)
UK
Mountain Ash, Wales Q1 2021 1,253 GBP4.9m GBP3.2m
Llanbradach, Wales Q1 2021 831 GBP2.8m GBP2.1m
Eastbourne, East Sussex Q2 2021 1,976 GBP8.4m GBP5.2m
Epsom, Surrey Q2 2021 667 GBP4.0m GBP3.2m
------------------------ ------------ --------- ------------------ --------------------
Total 12,620 GBP41.5m GBP30.9m
------------------------ ------------ --------- ------------------ --------------------
All sites in the UK and Ireland remain open and construction
continues to progress. The Group will continue to adopt a policy of
not undertaking any developments on a speculative basis.
Asset management
PHP's sector leading metrics continue to remain strong and we
continue to focus on delivering the organic rental growth that can
be derived from our existing assets. This growth arises mainly from
rent reviews and asset management projects (extensions,
refurbishments and lease re-gears) which provide an important
opportunity to increase income, extend lease terms and avoid
obsolescence whilst ensuring that our premises meet the
communities' healthcare needs.
Rent reviews
During the six months to 30 June 2020, the Group concluded and
documented 127 rent reviews with a combined rental value of
GBP16.7m resulting in an uplift of GBP0.8m per annum or 4.8% which
equates to 2.2% per annum. This continues the positive trend in
rental growth over the last two years (year ended 31 December 2019:
1.9% per annum with an uplift of GBP1.6m; year ended 31 December
2018: 1.4% per annum with an uplift of GBP1.1m) .
In the period, 1.6% per annum was achieved on 44 open market
reviews including 20 reviews where no uplift was achieved. Uplifts
of 2.7% per annum were achieved on RPI-based reviews and 2.9% per
annum on fixed uplift reviews. In addition, a further 134 open
market reviews were agreed in principle, which will add another
GBP0.8m to the contracted rent roll when concluded and represent an
uplift of 1.4% per annum.
69% of our rents are reviewed on an open market basis, typically
every three years and are impacted by land and construction
inflation. Over recent years, there have been significant increases
in these costs which is expected to result in further rental growth
in the future. The balance of the PHP portfolio has either
indexed/RPI (25%) or fixed uplift (6%) based reviews which also
provide an element of certainty to future rental growth within the
portfolio.
At 30 June 2020, the rent at 708 tenancies, representing
GBP95.1m of passing rent, was under negotiation and the large
number of outstanding reviews reflects the requirement for all
awards to be agreed with the District Valuer. A great deal of
evidence to support open market reviews comes from the delivery of
new properties into the sector and we continue to see positive
momentum in the demand, commencement and delivery for new,
purpose-built premises which are being supported by NHS initiatives
to modernise the primary care estate. We expect the COVID-19
pandemic will increase the future provision of health services and
continued re-focusing of services away from over-burdened hospital
settings. As technology continues to drive digital consulting and
triage in the future, the crisis has highlighted the important role
primary healthcare must play and we continue to see more new
properties being approved.
Asset Management Projects
We have continued to make good progress in the six months to 30
June 2020 to enhance and extend existing assets within the
portfolio with 12 projects either completed or currently on-site.
The projects require the investment of GBP4.1m and will generate
GBP0.12m of additional rental income but, just as importantly, will
extend the WAULT on those premises back to an average 21 years.
PHP continues to work closely with its tenants and has a strong
pipeline of over 80 projects either Board approved or are in
advanced negotiations. The pipeline of projects will require the
investment of approximately GBP36 million, generating an additional
GBP1.1m of rental income and extend the WAULT on those premises
back to an average 21 years.
The Company will continue to invest capital in a range of
physical extensions or refurbishments through asset management
projects which help avoid obsolescence and are key to maintaining
the longevity and security of our income through long-term tenant
retention, increased rental income and extended occupational lease
terms, adding to both earnings and capital values.
Sector leading portfolio metrics
The portfolio's annualised contracted rent roll at 30 June 2020
was GBP133.3m, an increase of GBP5.6m or 4.4% in the period (31
December 2019: GBP127.7m) driven predominantly by the acquisition
of a portfolio of 22 UK assets that contributed GBP2.9m. New
forward funded developments at Arklow, Ireland, Epsom, Surrey and
Llanbradach, Wales added a further GBP1.2m to the contracted rent
roll. The security and longevity of our income are important
drivers of our secure, long term predictable income stream and
enable our progressive dividend policy.
Security: PHP continues to benefit from secure, long term cash
flows with 90% of its rent roll funded directly or indirectly by
the NHS in the UK or HSE in Ireland. The portfolio also benefits
from an occupancy rate of 99.5%.
Longevity: The portfolio's WAULT at 30 June 2020 was 12.5 years
(31 December 2019: 12.8 years). Only GBP3.0m or 2.3% of our income
expires over the next three years of which GBP2.6m is either
subject to a planned asset management initiative or terms have been
agreed to renew the lease. GBP79.8m or 59.8% expires in over 10
years. The table below sets out the current lease expiry profile of
our income:
Income subject to GBPm %
expiry
------------------- ------ -------
< 3 years 3.0 2.3%
4 - 5 years 10.0 7.5%
5 - 10 years 40.5 30.4%
10 - 15 years 42.3 31.7%
15 - 20 years 20.6 15.4%
> 20 years 16.9 12.7%
------------------- ------ -------
Total 133.3 100.0%
------------------- ------ -------
Valuation and returns
At 30 June 2020, the Group's portfolio comprised 510 assets
independently valued at GBP2.514bn (31 December 2019: GBP2.413bn).
After allowing for acquisition costs and capital expenditure on
forward funded developments and asset management projects, the
portfolio generated a valuation surplus of GBP10.5m or 0.4% (30
June 2019: GBP17.7m or 0.9%). The valuation surplus was driven by
rental growth from rent reviews and asset management projects in
the UK and some NIY compression in Ireland.
Despite some yield contraction in Ireland the Group's portfolio
NIY remained unchanged at 4.86% (31 December 2019: 4.86%). The true
equivalent yield reduced to 5.02% at 30 June 2020, declining from
5.04% at 31 December 2019.
At 30 June 2020, the portfolio in Ireland comprised 17 assets,
including two assets currently under development, valued at
GBP194.1m or EUR214.3m (31 December 2019: 16 assets/GBP160.0m or
EUR189.2m). The costs to complete the developments are GBP17.2m
(EUR19.0m) and once complete the assets in Ireland will be valued
at approximately GBP211m (EUR233m).
The portfolio's average lot size has remained unchanged at
GBP4.9m (31 December 2019: GBP4.9m) and 83.1% of the portfolio is
valued at over GBP3.0m. The Group only has seven assets valued at
less than GBP1.0m.
Number of Valuation Average
Properties GBPm lot size
% (GBPm)
-------------------- ----------- ---------- ------ ---------
> GBP10m 48 705.2 28.1 14.7
GBP5m - GBP10m 108 758.3 30.2 7.0
GBP3m - GBP5m 161 623.2 24.8 3.9
GBP1m - GBP3m 186 415.6 16.6 2.2
< GBP1m (including
land GBP1.6m) 7 7.5 0.3 0.8
-------------------- ----------- ---------- ------ ---------
Total(1) 510 2,509.8 100.0 4.9
-------------------- ----------- ---------- ------ ---------
(1) Excludes the GBP4.5m impact of IFRS 16 Leases with ground
rents recognised as finance leases.
The underlying valuation uplift of GBP10.5m, combined with the
portfolio's growing income, helped to deliver a total property
return of 3.1% in the six months to 30 June 2020 (30 June 2019:
3.6%) outperforming the MSCI UK Monthly Property Index by
660bp.
Six months ended Six months ended Year ended
30 June 2020 30 June 2019 31 December 2019
---------------- ----------------- ----------------- ------------------
Income return 2.6% 2.7% 5.2%
Capital return 0.5% 0.9% 2.5%
---------------- ----------------- ----------------- ------------------
Total return 3.1% 3.6% 7.7%
---------------- ----------------- ----------------- ------------------
FINANCIAL REVIEW
PHP's Adjusted EPRA earnings increased by GBP8.1m or 29.0% to
GBP36.0m in the six months to 30 June 2020, compared to 30 June
2019 Adjusted EPRA earnings of GBP27.9m. The increase in the period
reflects a full six-month contribution from the merger with MedicX
in March 2019 which contributed GBP4.1m with the balance driven by
rental growth and reduction in the Group's cost of finance.
Using the weighted average number of shares in issue in the
period the Adjusted EPRA earnings per share increased to 3.0p (30
June 2019: 2.8p), an increase of 7.1%.
A revaluation surplus of GBP10.5m was generated in the period
from the portfolio driven by rental growth from rent reviews and
asset management projects in the UK, and yield contraction of core
HSE income in the Republic of Ireland.
A loss on the fair value of interest rate derivatives and
convertible bonds together with the amortisation of the fair value
adjustment on the MedicX fixed rate debt at acquisition of GBP6.9m
(30 June 2019: loss of GBP151.7m) contributed to the profit before
tax as reported under IFRS of GBP39.6m (30 June 2019: loss
GBP106.1m).
The financial results for the Group are summarised as
follows:
Summarised results
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2019
2020 2019
GBPm GBPm GBPm
------------------------------------- ----------- ----------- -------------
Net rental income 64.8 53.8 115.7
Administrative expenses (5.7) (5.0) (10.5)
Performance incentive fee
("PIF") (0.8) (0.9) (1.8)
--------------------------------------- ----------- ----------- -------------
Operating profit before revaluation
gain and
net financing costs 58.3 47.9 103.4
Net financing costs (22.3) (20.0) (43.7)
--------------------------------------- ----------- ----------- -------------
Adjusted EPRA earnings 36.0 27.9 59.7
Revaluation surplus on property
portfolio and profit on sales 10.5 17.7 49.8
Fair value (loss)/gain on
interest rate derivatives
and convertible bond (8.4) (4.1) (33.6)
--------------------------------------- ----------- ----------- -------------
Adjusted IFRS Profit excluding
MedicX merger adjustments 38.1 41.5 75.9
Amortisation of MedicX debt
MtM at acquisition 1.5 1.0 2.5
Exceptional revaluation loss
arising on merger with MedicX - (138.4) (138.4)
Exceptional item - contract
termination fee arising on
merger with MedicX - (10.2) (10.2)
IFRS profit/(loss) before
tax 39.6 (106.1) (70.2)
Deferred tax provision (0.1) (0.4) (1.1)
--------------------------------------- ----------- ----------- -------------
IFRS profit/(loss) after tax 39.5 (106.5) (71.3)
--------------------------------------- ----------- ----------- -------------
Net rental income receivable in the six months to 30 June 2020
increased by 20.4% or GBP11.0m to GBP64.8m (30 June 2019:
GBP53.8m).
Operational costs have continued to be managed closely and
effectively. Overall administrative costs, excluding the
Performance Incentive Fee ("PIF"), have risen by GBP0.7m or 14.0%
to GBP5.7m (30 June 2019: GBP5.0m) reflecting the annualised effect
of the larger Group following the merger with MedicX. The Group's
EPRA cost ratio continues to be amongst the lowest in the sector at
11.6% for the period, a decrease against the 12.0% incurred during
the 2019 financial year reflecting the annualised effect of the
GBP4.0m cost saving synergies arising from the merger with
MedicX.
EPRA cost ratio Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
GBPm GBPm GBPm
-------------------------------------- -------------- -------------- -------------
Gross rent less ground rent and
service charge income 66.2 55.0 118.3
-------------------------------------- -------------- -------------- -------------
Direct property expense 3.2 2.6 5.6
Administrative expenses 5.7 5.0 10.5
Performance incentive fee ("PIF") 0.8 0.9 1.8
Less: service charge costs (1.7) (1.3) (2.8)
Less: ground rent (0.1) (0.1) (0.2)
Less: other operating income (0.2) (0.4) (0.7)
EPRA costs (including direct vacancy
costs) 7.7 6.7 14.2
-------------------------------------- -------------- -------------- -------------
EPRA cost ratio 11.6% 12.2% 12.0%
-------------------------------------- -------------- -------------- -------------
EPRA cost ratio excluding PIF 10.4% 10.5% 10.5%
-------------------------------------- -------------- -------------- -------------
Total expense ratio - administrative
expenses as a percentage of gross
asset value (annualised) 0.5% 0.5% 0.4%
-------------------------------------- -------------- -------------- -------------
Net finance costs in the period increased to GBP22.3m (30 June
2019: GBP20.0m) reflecting a full six-month charge of the debt
acquired with the merger with MedicX, offset by the reductions in
the average cost of debt achieved from various refinancing
initiatives and conversion of the convertible bond during 2019.
Performance incentive fee ("PIF")
Another period of strong performance in both 2019 and the first
half of 2020 is likely to result in a PIF being earned by the
Adviser, Nexus, for the year as a whole and consequently a GBP0.8m
provision has been provided in the period (six months ended 30 June
2019: GBP0.9m; year ended 31 December 2019: GBP1.8m).
Nexus is entitled to 11.25% of the "total return" above a hurdle
rate of 8.0%, based on the change in Adjusted EPRA Net Tangible
Assets (formerly Adjusted EPRA Net Asset Value) plus dividends paid
less equity raised, net of non-cash adjustments, which is credited
to a notional cumulative account. If the hurdle is not achieved a
sum equal to 11.25% of the underperformance is deducted from the
notional cumulative account.
Controls are in place so that the PIF eligible for payment in
respect of any year is restricted to the lower of:
-- Half of the fee earned in respect of that year, unless it is
a shortfall in which case the full amount is applied, together with
the notional cumulative account balance (both positive and
negative) on the earned but unpaid PIF brought forward from
previous years;
-- 20% of the property management fee paid to Nexus in the year; and
-- GBP2.0m.
Half of any PIF payable is deferred to the following year in the
notional cumulative account, with performance against the hurdle
rate calculated each year and any payment subject to the account
being in a surplus position.
A PIF of GBP1.3m was paid to Nexus in the period in respect of
2019 and at 30 June 2020 the balance on the notional cumulative PIF
account was GBP4.6m (31 December 2019: GBP7.0m) of which GBP0.8m
(31 December 2019: GBP1.3m) has been provided for in the financial
statements with the balance conditional on performance in future
years and the restrictions noted above. No payment in respect of
2020 will be made until the audited financial results and total
returns for the year have been agreed and approved by the Board in
2021.
Equity raise
Post period end in July 2020, the Group successfully completed
an over-subscribed equity issue raising GBP140.0m (GBP136.9m net of
expenses). The new ordinary shares were issued at 145p per share or
a 32.9% premium to reported Adjusted EPRA Net Tangible Assets
(NTA), formerly Adjusted EPRA NAV, of 109.1p as at 30 June 2020.
The placing price of 145p per Ordinary Share represented a discount
of 1.9 per cent to the intra-day price on the day the placing price
was agreed.
The net proceeds from the equity raise are being used to finance
the Group's pipeline of acquisitions and asset management projects
both in the UK and Ireland.
Shareholder value
The Adjusted EPRA Net Tangible Assets (NTA), formerly Adjusted
EPRA NAV, per share increased by 1.2p or 1.1% to 109.1p (31
December 2019: 107.9p per share) during the period with the
revaluation surplus of GBP10.5m or 0.9p per share being the main
driver of the increase. Dividends distributed in the period were
fully covered by recurring EPRA earnings with no material impact on
EPRA NAV.
The total NAV return per share, including dividends distributed,
in the six months ended 30 June 2020 was 4.2p or 3.9% (30 June
2019: 2.9p or 2.8%).
The table below sets out the movements in the Adjusted EPRA NTA
and EPRA Net Disposal Value (NDV) per share over the period under
review.
Adjusted EPRA Net Tangible 30 June 2020 30 June 2019 31 December
Asset (NTA) per share pence per pence per 2019 pence
share share per share
----------------------------------------- ------------- ------------- ------------
Opening Adjusted EPRA NTA per
share 107.9 105.1 105.1
Adjusted EPRA earnings for
the period 3.0 2.8 5.5
Dividends paid (2.9) (2.8) (5.5)
Revaluation of property portfolio 0.9 1.6 4.1
Net impact of MedicX merger
(see analysis below) - (1.4) (1.4)
Shares issued 0.2 (0.1) 0.8
Interest rate derivative cancellation - - (0.7)
Closing Adjusted EPRA NTA per
share 109.1 105.2 107.9
Fixed rate debt and swap mark-to-market
value (12.7) (10.5) (8.8)
Convertible bond fair value
adjustment (1.9) - (1.8)
Deferred tax (0.3) (0.2) (0.3)
----------------------------------------- ------------- ------------- ------------
Closing EPRA NDV per share 94.2 94.5 97.0
----------------------------------------- ------------- ------------- ------------
Financing
As at 30 June 2020, total available loan facilities were
GBP1,456.3m (31 December 2019: GBP1,452.0m) of which GBP1,214.3m
(31 December 2019: GBP1,210.4m) had been drawn. Cash balances of
GBP64.0m (31 December 2019: GBP143.1m) resulted in Group net debt
of GBP1,150.3m (31 December 2019: GBP1,067.3m). Contracted capital
commitments at the balance sheet date totalled GBP39.3m (31
December 2019: GBP28.1m) and result in headroom available to the
Group of GBP266.7m (31 December 2019: GBP356.6m).
Capital commitments comprise forward funded development
expenditure of GBP30.9m, acquisitions of GBP3.8m and asset
management projects on site of GBP4.6m.
Debt metrics
30 June 2020 31 December
2019
---------------------------------------- --------------- --------------
Average cost of debt 3.5% 3.5%
Loan to value 45.8% 44.2%
Pro-forma loan to value post equity 40.3% n/a
raise(1)
Interest cover 2.9 times 2.7 times
Weighted average debt maturity 6.7 years 7.2 years
Total drawn secured debt GBP1,064.3m GBP1,060.4m
Total drawn unsecured debt GBP150.0m GBP150.0m
Total undrawn facilities and available GBP403.6m GBP356.6m
to the Group(1,2)
Unfettered assets GBP89.0m GBP32.3m
----------------------------------------- --------------- --------------
(1) - Includes the impact of GBP140m (GBP136.9m net of expenses)
equity raise completed post period end.
(2) - After deducting capital commitments.
Convertible bonds
In July 2019, the Group issued for a six-year term new unsecured
convertible bonds with a nominal value of GBP150m and a coupon of
2.875% per annum. Subject to certain conditions, the new bonds will
be convertible into fully paid Ordinary Shares of the Company and
the initial exchange price was set at 153.25p per Ordinary Share.
The exchange price will be subject to adjustment if dividends paid
per share exceed 2.8p per annum and in accordance with the dividend
protection provisions the conversion price has been adjusted to
149.39p per Ordinary Share.
The conversion of the GBP150m convertible bond into new Ordinary
Shares would reduce the Group's loan to value ratio by 6.0% from
40.3% to 34.3% on a pro-forma basis following the equity raise post
period end and result in the issue of 100.4 million new Ordinary
Shares.
Interest rate and currency exposure
The analysis of the Group's exposure to interest rate risk in
its debt portfolio as at 30 June 2020 is as follows:
Facilities Drawn
GBPm % GBPm %
------------------------------- --------------- ----------- ----------- -------
Fixed rate debt 1,005.7 69.1 1,005.7 82.8
Hedged by fixed rate interest
rate swaps 208.0 14.3 208.0 17.1
Floating rate debt - unhedged 242.6 16.6 0.6 0.1
------------------------------- --------------- ----------- ----------- -------
Total 1,456.3 100.0 1,214.3 100.0
------------------------------- --------------- ----------- ----------- -------
The above analysis excludes the impact of GBP50m forward
starting swaps commencing in July 2020.
The Group's drawn loan facilities are over 99% fixed or hedged
and there is little exposure to future possible increases in
interest rates.
The Group now owns EUR214.3m or GBP194.1m (2019:
EUR189.2m/GBP160.0m) of Euro denominated assets in Ireland as at 30
June 2020 and the value of these assets and rental income
represented just 8% of the Group's total portfolio. In order to
hedge the risk associated with exchange rates, the Group has chosen
to fund its investment in Irish assets through the use of Euro
denominated debt, providing a natural asset to liability hedge,
within the overall Group loan to value limits set by the Board.
Euro rental receipts are used to first finance Euro interest and
administrative costs and surpluses are used to fund further
portfolio expansion.
Interest rate swap contracts
Accounting standards require PHP to mark its interest rate swaps
to market at each balance sheet date. During the six months to 30
June 2020 there was a loss of GBP6.4m (30 June 2019: loss GBP3.2m)
on the fair value movement of the Group's interest rate derivatives
due primarily to reductions in interest rates assumed in the
forward yield curves used to value the interest rate swaps. This
increased the mark-to-market ("MtM") liability of the swap
portfolio to GBP19.3m (31 December 2019: GBP13.5m) equivalent to
1.6p per share.
Fixed rate debt mark-to-market ("MtM")
The MtM of the Group's fixed rate debt as at 30 June 2020 was
GBP135.9m (31 December 2019: GBP94.5m) equivalent to 11.2p per
share (31 December 2019: 7.8p). The large increase in the MtM
during the period is due primarily to the historical reductions in
interest rates assumed in the forward yield curves used to value
the debt in the period. The Group has no committed intention of
cancelling and repaying any of its fixed rate loan facilities and
the MtM valuation is sensitive to movements in interest rates
assumed in forward yield curves.
Alternative Performance Measures ("APMs")
PHP uses Adjusted EPRA earnings, Adjusted EPRA net tangible
assets (formerly Adjusted EPRA NAV) and IFRS profit before tax
excluding MedicX exceptional adjustments amongst other APMs to
highlight the recurring performance of the property portfolio and
business. The APMs are in addition to the statutory measures from
the condensed financial statements. The measures are defined and
reconciled to amounts presented in the financial statements within
this interim statement at notes 7 and 16 and on page 14. The
Company has used EPRA earnings and EPRA net tangible assets to
measure performance and will continue to do so. However, these APMs
have also been adjusted to remove the impact of the adjustments
arising from the MtM on fixed debt acquired on completion of the
merger with MedicX in 2019. The reasons for the Company's use of
these APMs are set out in the Glossary and 2019 Annual Report.
Related party transactions
Related party transactions are disclosed in note 17 to the
condensed financial statements. There have been no material changes
in the related party transactions described in the 2019 Annual
Report.
Harry Hyman Richard Howell
Managing Director Finance Director
28 July 2020
Principal risks and uncertainties
Effective risk management is a key element of the Board's
operational processes. Risk is inherent in any business, and the
Board has determined the Group's risk appetite, which is reviewed
on an annual basis. Group operations have been structured in order
to accept risks within the Group's overall risk appetite, and to
ensure that these risks are managed to minimise exposure and ensure
that appropriate returns are generated for the accepted risk. The
Group aims to operate in a low risk environment, appropriate for
its strategic objective of generating progressive returns for
shareholders. Key elements of maintaining this low risk approach
are:
-- investment focuses on the primary health real estate sector
which is traditionally much less cyclical than other real estate
sectors;
-- the majority of the Group's rental income is received
directly or indirectly from government bodies in the UK and
Ireland;
-- the Group benefits from long initial lease terms, largely
with upwards-only review terms, providing clear visibility of
income;
-- the Group is not a direct developer of real estate, which
means that the Group is not exposed to risks that are inherent in
property development;
-- the Board funds its operations so as to maintain an appropriate mix of debt and equity; and
-- debt funding is procured from a range of providers,
maintaining a spread of maturities and a mix of terms so as to fix
or hedge the majority of interest costs.
The structure of the Group's operations includes rigorous,
regular review of risks and how these are mitigated and managed
across all areas of the Group's activities. The Group faces a
variety of risks that have the potential to impact on its
performance, position and its longer-term viability. These include
external factors that may arise from the markets in which the Group
operates, government and fiscal policy, general economic conditions
and internal risks that arise from how the Group is managed and
chooses to structure its operations. During March and April the
Risk Committee met on a weekly basis in light of the outbreak of
COVID-19.
Principal risks and changes in risk factors
The Board has considered the impact of COVID-19 on the Group's
principal risk factors and this is reported in more detail below.
The disruption from COVID-19 and the risks of a prolonged, severe
economic downturn is such that this risk is inextricably
interlinked with and likely to exacerbate the other principal risks
and uncertainties faced by the Group. Full disclosure of risks and
uncertainties faced by the Company are set out within the 2019
Annual Report.
COVID-19
The outbreak of COVID-19 during the year has had far reaching
consequences across the UK and Ireland. The Company has been
relatively unaffected, properties held being regarded as critical
infrastructure in the response to the outbreak.
The Directors have assessed the impact of the current
uncertainty around COVID-19 on all major aspects of the business,
focussing specifically on operations and cash flows of the Group.
The event has been considered and a bad debt provision of GBP0.2m
(31 December 2019: GBP0.1m) has been provided in the financial
statements in respect of rents totalling GBP0.5m currently on some
form of rent payment concession and reflected in the balance sheet
as at 30 June 2020. We continue to carefully monitor the impact on
property valuations and the recoverability of our debtor
balances.
The team of over 50 staff who work on behalf of PHP have
continued to successfully work from home during the pandemic and
the Group's disaster recovery plan has and continues to operate as
expected with systems and communications maintained and no staff
having been furloughed. The Group has not taken advantage of any
Government loan or incentive scheme introduced during the pandemic
and has continued to pay all taxes due on the normal due date.
Going concern analysis
The Group's financial review and budgetary processes are based
on an integrated model that projects performance, cash flows,
position and other key performance indicators including earnings
per share, leverage rates, net asset values per share and REIT
compliance over the review period. In addition, the forecast model
looks at the funding of the Group's activities and its compliance
with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its
forecasts that reflect the Group's strategy, operating processes
and the Board's expectation of market developments in the review
period. In undertaking its financial review, these parameters have
been flexed to reflect severe, but realistic, scenarios both
individually and collectively. Sensitivities applied are derived
from the principal risks faced by the Group that could affect
solvency or liquidity and are as follows :
-- declining attractiveness of the Group's assets or extenuating
economic circumstances impacts investment values - valuation
parameter stress tested to provide for a one-off 10%/GBP253m fall
in July 2020;
-- 10% tenant default rate;
-- rental growth assumptions amended to see nil uplifts on open market reviews;
-- variable rate interest rates rise by an immediate 2% effective from July 2020; and
-- tightly controlled NHS scheme approval restricts investment
opportunity - investment quantum flexed to remove non-committed
transactions.
A number of specific assumptions have been made that overlay the
financial parameters used in the Group's models. It has been
assumed that the Group will be able to refinance or replace other
debt facilities that mature within the review period in advance of
their maturity and on terms similar to those at present. It also
assumes that the services of Nexus Tradeco Limited, the Adviser,
are available throughout the period.
Further details on going concern are set out in note 1 to the
Financial Statements.
Brexit
On 31 January 2020, the United Kingdom left the European Union
("EU") but a substantial amount of uncertainty still remains
regarding any future trade deal with the EU ("Brexit"). The Board
continues to monitor the negotiations which will set out the UK's
future relationship with the EU and until these negotiations are
finalised it is too early to fully understand the impact Brexit
will have on our business and our sector. The main impact of Brexit
is the potential negative impact on the macro-economic environment,
potentially leading to political uncertainty and volatility in
interest and exchange rates, but it could also impact our
investment and occupier market, our ability to execute our
investment strategy and our income sustainability in the long
term.
INDEPENT REVIEW REPORT TO PRIMARY HEALTH PROPERTIES PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2020 which comprises the Condensed Group
Statement of Comprehensive Income, the Condensed Group Balance
Sheet, the Condensed Group Cash Flow Statement, the Condensed Group
Statement of Changes in Equity and related notes 1 to 21. We have
read the other information contained in the half-yearly financial
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly 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 half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
28 July 2020
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2020
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ -------------
Rental income 2 68.0 56.4 121.3
Direct property expenses (3.2) (2.6) (5.6)
---------------------------------------------- ---- ------------ ------------ -------------
Net rental income 64.8 53.8 115.7
Administrative expenses 3 (6.5) (5.9) (12.3)
Exceptional item - contract termination
fee - (10.2) (10.2)
------------ ------------ -------------
Revaluation gain on property portfolio 9 10.5 17.7 48.4
Profit on sale of land - - 1.4
Exceptional revaluation loss arising
on merger with
MedicX 9 - (138.4) (138.4)
------------ ------------ -------------
Total revaluation gain/(loss) 10.5 (120.7) (88.6)
------------ ------------ -------------
Operating profit/(loss) 68.8 (83.0) 4.6
Finance income 4 0.8 0.6 1.4
Finance costs 5 (21.6) (19.6) (42.6)
Fair value (loss) on derivative
interest rate swaps and
amortisation of cash flow hedging
reserve 5 (8.1) (2.3) (5.4)
Fair value (loss) on convertible
bond 5 (0.3) (1.8) (28.2)
---------------------------------------------- ---- ------------ ------------ -------------
Profit/(loss) before taxation 39.6 (106.1) (70.2)
Taxation charge 6 (0.1) (0.4) (1.1)
---------------------------------------------- ---- ------------ ------------ -------------
Profit/(loss) for the period (1) 39.5 (106.5) (71.3)
Other comprehensive income:
Items that may be reclassified subsequently
to profit and loss:
Fair value gain/(loss) on interest
rate swaps treated as cash
flow hedges and amortisation of hedging
reserve 1.7 (0.9) 1.7
Exchange gain/(loss) on translation
of foreign balances 3.0 - (1.9)
Other comprehensive income for the
period net of tax 4.7 (0.9) (0.2)
---------------------------------------------- ---- ------------ ------------ -------------
Total comprehensive income for the
period net of tax 44.2 (107.4) (71.5)
---------------------------------------------- ---- ------------ ------------ -------------
IFRS earnings/(loss) per share
Basic 7 3.2p (10.7p) (6.5p)
Diluted 7 3.2p (10.7p) (6.5p)
EPRA earnings per share
Basic 7 3.1p 1.9p 4.8p
Diluted 7 3.0p 1.9p 4.7p
Adjusted EPRA(2) earnings per share
Basic 7 3.0p 2.8p 5.5p
Diluted 7 2.9p 2.8p 5.4p
---------------------------------------------- ---- ------------ ------------ -------------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC
(2) See Glossary of Terms on pages 49-52.
The above relates wholly to continuing operations.
Condensed Group Balance Sheet
As at 30 June 2020
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
-------------------------------------- ------ ------------ ------------ ------------
Non-current assets
2,3 51
Investment properties 9 2,514.3 .5 2,413.1
Derivative interest rate swaps 14,15 - - 0.5
2 ,351
2,514.3 .5 2,413.6
Current assets
Trade and other receivables 14.4 1 3 .5 16.7
Cash and cash equivalents 10 64.0 13.8 143.1
-------------------------------------- ------ ------------ ------------ ------------
78.4 27.3 159.8
-------------------------------------- ------ ------------ ------------ ------------
Total assets 2,592.7 2,378.8 2,573.4
-------------------------------------- ------ ------------ ------------ ------------
Current liabilities
Deferred rental income (26.2) (25.8) (25.2)
Trade and other payables (32.7) (30.1) (34.7)
Borrowings: term loans and overdraft 11 (91.3) (3.9) (6.1)
Borrowings: bonds 12 - (75.0) -
(150.2) (134.8) (66.0)
-------------------------------------- ------ ------------ ------------ ------------
Non-current liabilities
Borrowings: term loans and overdraft 11 (594.0) (751.7) (682.7)
Borrowings: bonds 12 (582.4) (339.6) (575.1)
14,
Derivative interest rate swaps 15 (19.3) (20.5) (13.5)
Head lease liabilities 13 (4.5) (4.4) (4.5)
Deferred tax liability (3.3) (2.4) (3.1)
-------------------------------------- ------ ------------ ------------ ------------
(1,203.5) (1,118.6) (1,278.9)
-------------------------------------- ------ ------------ ------------ ------------
Total liabilities (1,353.7) (1,253.4) (1,344.9)
-------------------------------------- ------ ------------ ------------ ------------
Net assets 1,239.0 1,125.4 1,228.5
-------------------------------------- ------ ------------ ------------ ------------
Equity
Share capital 18 152.2 142.0 152.0
Share premium account 340.1 247.9 338.1
Merger and other reserves 19 401.6 400.8 398.6
Special reserve 20 29.5 98.1 65.4
Hedging reserve (22.4) (26.7) (24.1)
Retained earnings 338.0 263.3 298.5
Total equity (1) 1,239.0 1,125.4 1,228.5
-------------------------------------- ------ ------------ ------------ ------------
Basic net asset value per share
IFRS net assets(3) 16 101.8p 99.1p 101.0p
Basic EPRA net tangible assets(2,3) 16 105.5p 101.1p 104.2p
Basic adjusted EPRA net tangible
assets(2,3) 16 109.1p 105.2p 107.9p
Basic EPRA net reinstatement
value(2,3) 16 119.4p 114.4p 117.4p
Basic EPRA net disposal value(2,3) 16 94.2p 94.5p 97.0p
-------------------------------------- ------ ------------ ------------ ------------
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) The new EPRA Best Practice Recommendations Guidelines as
issued in October 2019, effective for periods beginning 1 January
2020, have been adopted including diluted net asset values per
share which are detailed in note 16.
(3) See Glossary of Terms on pages 49-52.
Condensed Group Cash Flow Statement
For the six months ended 30 June 2020
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
Notes (unaudited) (unaudited) (audited)
--------------------------------------- ------ -------------------- ------------ -------------
Operating activities
Profit/(loss) on ordinary activities
after tax 39.5 (106.5) (71.3)
Taxation charge 6 0.1 0.4 1.1
Finance income 4 (1.5) (0.6) (1.4)
Finance costs 5 22.3 19.6 42.6
Fair value loss on derivatives 8.1 2.3 5.4
Fair value loss on convertible
bond 0.3 1.8 28.2
--------------------------------------- ------ -------------------- ------------ -------------
Operating profit/(loss) before
financing costs 68.8 (83.0) 4.6
Adjustments to reconcile Group
operating profit to
net cash flows from operating
activities:
Revaluation gain on property
portfolio 9 (10.5) (17.7) (48.4)
Profit on sale of land and property - - (1.4)
Exceptional revaluation loss
on merger with MedicX - 138.4 138.4
Fixed rent uplift (0.8) (1.0) (1.7)
Tax paid - - (0.1)
Decrease/(Increase) in trade
and other receivables 0.3 (3.8) (5.2)
Increase in trade and other
payables 1.4 14.6 7.8
Cash generated from operations 59.2 47.5 94.0
--------------------------------------- ------ -------------------- ------------ -------------
Net cash flow from operating
activities 59.2 47.5 94.0
--------------------------------------- ------ -------------------- ------------ -------------
Investing activities
Payments to acquire and improve
properties (79.6) (20.0) (49.9)
Receipts from disposal of properties - - 2.5
MedicX merger transaction costs - (14.5) (14.5)
Cash acquired as a part of MedicX
merger - 5.8 5.8
Interest received on development
loans 1.8 0.4 0.3
Net cash flow used in investing
activities (77.8) (28.3) (55.8)
--------------------------------------- ------ -------------------- ------------ -------------
Financing activities
Proceeds from issue of shares 18 - - 100.0
Costs of share issues (0.1) (0.3) (2.4)
Term bank loan drawdowns 11.8 113.8 132.8
Term bank loan repayments (17.1) (83.2) (160.5)
Proceeds from bond issue - - 213.2
Bond repayment (0.1) (75.0)
Termination of derivative financial
instruments - - (8.0)
Swap interest paid - (0.5) (0.9)
Non-utilisation fees (0.8) (0.9) (1.7)
Loan arrangement fees (0.1) (0.4) (5.7)
Interest paid (21.2) (16.2) (36.9)
Bank interest received 0.3 - 0.2
Equity dividends paid net of
scrip dividend 8 (33.7) (24.3) (54.4)
--------------------------------------- ------ -------------------- ------------ -------------
Net cash flow (used in)/from
financing activities (60.9) (12.1) 100.7
--------------------------------------- ------ -------------------- ------------ -------------
Increase in cash and cash equivalents (79.5) 7.1 138.9
Effect of exchange rate fluctuations
on Euro denominated loans and
cash equivalents 0.4 0.8 (1.7)
Cash and cash equivalents at
start of period/year 143.1 5.9 5.9
--------------------------------------- ------ -------------------- ------------ -------------
Cash and cash equivalents at
end of period 10 64.0 13.8 143.1
--------------------------------------- ------ -------------------- ------------ -------------
Condensed Group Statement of Changes in Equity
For the six months ended 30 June 2020 (unaudited)
Six months ended 30 June 2020 (unaudited)
Merger
Share Share & other Special Hedging Retained
capital premium reserves reserve reserve earnings Total
-------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
1 January 2020 152.0 338.1 398.6 65.4 (24.1) 298.5 1,228.5
Profit for the period - - - - - 39.5 39.5
Other comprehensive
income
Exchange gain on
translation of foreign
balances - - 3.0 - - - 3.0
Amortisation of hedging
reserve - - - - 1.7 - 1.7
Total comprehensive
income - - 3.0 - 1.7 39.5 44.2
Share issue expenses - - - - - - -
Dividends paid - - - (33.7) - - (33.7)
Scrip dividend in
lieu of cash 0.2 2.0 - (2.2) - - -
30 June 2020 152.2 340.1 401.6 29.5 (22.4) 338.0 1,239.0
------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
Six months ended 30 June 2019 (unaudited)
Merger
Share Share & other Special Hedging Retained
capital premium reserves reserve reserve earnings Total
----------------------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
1 January 2019 96.1 220.6 2.5 124.8 (25.8) 369.8 788.0
Loss for the period - - - - - (106.5) (106.5)
Other comprehensive
income
Fair value movement
on interest rate
swaps - - - - (1.2) - (1.2)
Amortisation of hedging
reserve - - - - 0.3 - 0.3
Total comprehensive
income - - - - (0.9) (106.5) (107.4)
Shares issued on
conversion of convertible
bonds 3.0 25.4 - - - - 28.4
Shares issued as
part of MedicX merger 42.6 - 398.0 - - - 440.6
Share issue expenses - (0.2) - - - - (0.2)
Dividends paid - - - (24.3) - - (24.3)
Scrip dividend in
lieu of cash 0.3 2.1 - (2.4) - - -
Exchange gain on
translation of foreign
balances - - 0.3 - - 0.3
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
30 June 2019 142.0 247.9 400.8 98.1 (26.7) 263.3 1,125.4
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------- --------
Condensed Group Statement of Changes in Equity (continued)
Year ended 31 December 2019 (audited)
Merger
Share Share and other Special Hedging Retained
capital premium reserve reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ------- ------- --------- ------- ------- -------- -------
1 January 2019 96.1 220.6 2.5 124.8 (25.8) 369.8 788.0
Profit for the year - - - - - (71.3) (71.3)
Other comprehensive income
Fair value movement on interest
rate swaps - - - - (1.3) - (1.3)
Reclassification to profit
and loss - amortisation
of hedging reserve - - - - 3.0 - 3.0
Exchange loss on translation
of foreign balances - - (1.9) - - (1.9)
-------------------------------- ------- ------- --------- ------- ------- -------- -------
Total comprehensive income - - (1.9) - 1.7 (71.3) (71.5)
Shares issued on conversion
of convertible bonds 3.0 25.4 - - - - 28.4
Shares issued as part of
MedicX merger 42.6 - 398.0 - - - 440.6
Shares issued as part of
capital raise 9.8 90.2 - - - - 100.0
Share issue expenses - (2.6) - - - - (2.6)
Dividends paid - - - (54.4) - - (54.4)
Scrip dividend in lieu of
cash 0.5 4.5 - (5.0) - - -
-------------------------------- ------- ------- --------- ------- ------- -------- -------
31 December 2019 152.0 338.1 398.6 65.4 (24.1) 298.5 1,228.5
-------------------------------- ------- ------- --------- ------- ------- -------- -------
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 2019 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 2020 were approved and authorised
for issue by the Board on 28 July 2020.
Basis of preparation/statement of compliance
The condensed consolidated interim financial statements for the
six months ended 30 June 2020 have been prepared in accordance with
IAS 34 'Interim Financial Reporting' and which were prepared in
accordance with IFRS as adopted by the European Union (see
Accounting policies section below).
The condensed consolidated interim financial statements do not
include all the information and disclosures required in the
statutory financial statements and should be read in conjunction
with the Group's financial statements as at 31 December 2019.
Convention
The condensed interim financial statements are presented in
Sterling, rounded to the nearest million.
Segmental reporting
The Directors are of the opinion that the Group currently has
one operating and reportable segment, being the acquisition and
development of property in the United Kingdom and Ireland leased
principally to GPs, Government and Healthcare organisations and
other associated healthcare users.
Going concern
The directors are required to assess the Group's ability to
continue as a going concern for a period of at least the next 12
months. In assessing the appropriateness of the going concern basis
used in preparing the interim report, the directors have performed
a review of the Group's financial performance and position,
continued access to borrowing facilities and the ability to
continue to operate the Group's facilities within its financial
covenants, as well the Group's budgetary model.
The Group's financial review and budgetary processes are based
on an integrated model that projects performance, cash flows,
position and other key performance indicators including earnings
per share, leverage rates, net asset values per share and REIT
compliance over the review period. In addition, the forecast model
looks at the funding of the Group's activities and its compliance
with the financial covenant requirements of its debt facilities.
The model uses a number of key parameters in generating its
forecasts that reflect the Group's strategy, operating processes
and the Board's expectation of market developments in the review
period. In undertaking its financial review, these parameters have
been flexed to reflect severe,
Notes to the condensed financial statements (continued)
but realistic, scenarios both individually and collectively.
Sensitivities applied are derived from the principal risks faced by
the Group that could affect solvency or liquidity and are as
follows:
-- declining attractiveness of the Group's assets or extenuating
economic circumstances impacts investment values - valuation
parameter stress tested to provide for a one-off 10%/GBP253m fall
in July 2020;
-- 10% tenant default rate;
-- rental growth assumptions amended to see nil uplifts on open market reviews;
-- variable rate interest rates rise by an immediate 2% effective from July 2020; and
-- tightly controlled NHS scheme approval restricts investment
opportunity - investment quantum flexed to remove non-committed
transactions.
The Group's property portfolio is let on long leases to tenants
with strong covenants and the business is substantially cash
generative. The Group's loan to-value ratio at 30 June 2020 was
45.8% and the Group's interest cover for the period under review
was 2.9 times, well above the minimum Group banking covenant of 1.3
times. Whilst the Company has net current liabilities of GBP72m at
30 June 2020, driven by GBP91m of expiring debt facilities that are
all currently being negotiated and deferred income of GBP26m, the
Company successfully raised GBP136.9m net proceeds from an
oversubscribed equity raise in July 2020, as well as having GBP242m
of undrawn debt facilities which can be used to settle the Group's
liabilities.
The COVID-19 pandemic has not had a direct impact on the primary
health centres we invest in because of the sector we invest in, as
well as the fact the business is affected more by demographics than
economics.
Taking these and others factors into account, the Directors are
satisfied that the Group has sufficient resources to continue in
operation for a period of not less than twelve months from the date
of this report. Accordingly, they continue to adopt the going
concern basis in preparing the condensed consolidated interim
financial statements.
Accounting policies
The accounting policies adopted are consistent with those of the
previous financial year as set out in the Annual Report.
Notes to the condensed financial statements (continued)
2. Rental and related income
Revenue comprises rental income receivable on property
investments in the UK and Ireland, which is exclusive of VAT.
Revenue is derived from one reportable operating segment.
3. Administrative expenses
Administrative expenses as a proportion of rental income were
9.5% (30 June 2019: 10.5% excluding exceptional contract
termination fee). The Group's EPRA cost ratio has decreased to
11.6%, compared to 12.2% for the same period in 2019.
Details of the Performance Incentive Fee ("PIF") payable to the
Adviser for the period ended 30 June 2020 are contained in the
Financial Review on pages 12-18 and in note 17.
4. Finance income
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2019
2020 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
Interest income on financial assets
Bank interest 0.3 - 0.2
Development loan interest 0.5 0.6 1 .2
0.8 0.6 1.4
------------------------------------- ------------ ------------ -------------
Notes to the condensed financial statements (continued)
5. Finance costs
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2019
2020 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
--------------------------------------------------- ------------ ------------ -------------
Interest expense and similar charges on financial
liabilities
(i) Interest
Bank loan interest 12.1 12.8 27.0
Swap interest 0.2 0.7 0.8
Bond interest 9.3 5.0 12.1
Bank facility non utilisation fees 0.9 1.0 1.8
Bank charges and loan arrangement
fees 1.3 1.1 3.4
23.8 20.6 45.1
Interest capitalised (0.7) - -
--------------------------------------------------- ------------ ------------ -------------
23.1 20.6 45.1
Amortisation of MedicX debt MtM
at acquisition (1.5) (1.0) (2.5)
--------------------------------------------------- ------------ ------------ -------------
21.6 19.6 42.6
--------------------------------------------------- ------------ ------------ -------------
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2019
2020 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------- ------------ ------------ -------------
(ii) Derivatives
Net fair value (loss) on interest
rate swaps (5.9) (2.1) (2.4)
Amortisation of cash flow hedging
reserve (2.2) (0.2) (3.0)
----------------------------------- ------------ ------------ -------------
(8.1) (2.3) (5.4)
----------------------------------- ------------ ------------ -------------
The fair value loss on derivatives recognised in the Condensed
Group Statement of Comprehensive Income has arisen from the
interest rate swaps for which the Group has elected not to apply
hedge accounting. A fair value loss on derivatives which meet the
hedge effectiveness criteria under IFRS 9 of GBPNil (30 June 2019:
loss of GBP1.2m), (31 December 2019: loss of GBP1.3m) is accounted
for directly in equity.
An amount of GBP2.2m (30 June 2019: GBP0.2m), (31 December 2019:
GBP3.0m) has been amortised from the cash flow hedging reserve in
the period.
Notes to the condensed financial statements (continued)
5. Finance costs (continued)
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2019
2020 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
(iii) Convertible Bond
Fair value (loss) on Convertible
Bond (0.3) (1.8) (1.8)
Fair value loss on convertible bond
issued in the year - - (22.7)
Convertible bond issue costs - - (3.7)
------------------------------------- ------------ ------------ -------------
(0.3) (1.8) (28.2)
------------------------------------- ------------ ------------ -------------
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 basic and adjusted
EPRA earnings and basic and adjusted EPRA NTA(1) (replacing EPRA
NAV). Refer to note 12 for further details about the Convertible
Bond.
(1) The new EPRA measures have been adopted, see Note 16.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2019
2020 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------ ------------ ------------ -------------
Finance income (Note 4) 0.8 0.6 1.4
Finance costs (Note 5 (i)) (23.1) (20.6) (45.1)
------------------------------------ ------------ ------------ -------------
(22.3) (20.0) (43.7)
Amortisation of MedicX debt MtM on
acquisition 1.5 1.0 2.5
------------------------------------ ------------ ------------ -------------
Net finance costs (20.8) (19.0) (41.2)
------------------------------------ ------------ ------------ -------------
Notes to the condensed financial statements (continued)
6. Taxation
The Group elected to be treated as a UK-REIT with effect from 1
January 2007. The UK-REIT rules exempt the profits of the Group's
property rental business from corporation tax. Gains on properties
are also exempt from tax, provided they are not held for trading or
sold in the three years post completion of development. The Group
will otherwise be subject to corporation tax at 19% (2019:
19%).
Acquired companies are effectively converted to UK-REIT status
from the date on which they become a member of the Group.
As a UK-REIT, the Company is required to pay Property Income
Distributions ("PIDs") equal to at least 90% of the Group's rental
profit calculated by reference to tax rules rather than accounting
standards.
To remain as a UK-REIT there are a number of conditions to be
met in respect of the principal company of the Group, the Group's
qualifying activities and the balance of its business. The Group
remains compliant as at 30 June 2020.
The Group's activities in Ireland are conducted via Irish
companies or an Irish Collective Asset Vehicle ("ICAV"). The Irish
companies pay Irish Corporation Tax on trading activities and
deferred tax is calculated on the increase in capital values. The
ICAV does not pay any Irish Corporation Tax on its trading or
capital profits but a 20% withholding tax is paid on distributions
to owners.
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2019
2020 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------------- ------------ ------------ -------------
Taxation in the Condensed Group Statement
of Comprehensive Income:
Current tax
UK corporation tax charge on non-property - - -
income
Irish corporation tax charge - - -
Deferred tax on Irish activities (0.1) 0.4 1.1
Taxation charge in the Condensed
Group Statement of Comprehensive
Income (0.1) 0.4 1.1
------------------------------------------- ------------ ------------ -------------
Notes to the condensed financial statements (continued)
7. Earnings per share
The calculation of earnings per share is based on the
following:
Ordinary
Net profit attributable Shares
to Ordinary Shareholders (number - Per share
GBPm millions)(1) (pence)
Six months ended 30 June 2020
(unaudited)
Basic earnings per share 39.5 1,217.1 3.2
Dilutive effect of convertible bond 2.1 100.4
------------------------------------------ ------- -------------- ----------
Diluted earnings per share 41.6 1,317.5 3.2
------------------------------------------ ------- -------------- ----------
EPRA and Adjusted EPRA earnings
Basic earnings 39.5
Adjustments to remove:
Revaluation gain on property portfolio
(Note 9) (10.5)
Fair value movement on derivatives 8.1
Fair value movement on Convertible
Bond 0.3
Taxation charge 0.1
------------------------------------------ ------- -------------- ----------
EPRA basic earnings per share 37.5 1,217.1 3.1
Dilutive effect of convertible bond 2.1 100.4
------------------------------------------ ------- -------------- ----------
EPRA diluted earnings per share 39.6 1,317.5 3.0
------------------------------------------ ------- -------------- ----------
Adjusted EPRA and diluted earnings
EPRA basic earnings 37.5
Exceptional items - Amortisation
of MtM loss on debt acquired (1.5)
------------------------------------------ ------- -------------- ----------
Adjusted EPRA earnings per share 36.0 1,217.1 3.0
Dilutive effect of convertible bond 2.1 100.4
------------------------------------------ ------- -------------- ----------
Diluted adjusted EPRA earnings per
share 38.1 1,317.5 2.9
------------------------------------------ ------- -------------- ----------
(1) Weighted average number of shares in issue during the
period
Net profit attributable Ordinary
to Ordinary Shares
Shareholders (number - Per share
GBPm millions)(1) (pence)
Six months ended 30 June 2019
(unaudited)
Basic and diluted earnings per
share (106.5) 993.7 (10.7)
------------------------------------------ -------- -------------- ----------
EPRA and Adjusted EPRA earnings
Basic and diluted earnings (106.5)
Adjustments to remove:
Revaluation gain on property portfolio
(Note 9) (17.7)
Exceptional revaluation loss arising
on acquisition of
MedicX 138.4
Fair value movement on derivatives 2.3
Fair value movement on Convertible
Bond 1.8
Taxation charge 0.4
------------------------------------------ -------- -------------- ----------
Basic and diluted EPRA earnings
per share 18.7 993.7 1.9
Exceptional item - contract termination
fee 10.2
Amortisation of MtM loss on debt
acquired (1.0)
------------------------------------------ -------- -------------- ----------
Basic and diluted adjusted EPRA
earnings per share 27.9 993.7 2.8
------------------------------------------ -------- -------------- ----------
(1) Weighted average number of shares in issue during the
period
Notes to the condensed financial statements (continued)
7. Earnings per share (continued)
Net profit attributable Ordinary Shares
to Ordinary Shareholders (number - Per share
GBPm millions)(1) (pence)
----------------------------------------- ------------------------- --------------- ---------
Year ended 31 December 2019 (audited)
Basic and diluted loss (71.3) 1,092.0 (6.5)
----------------------------------------- ------------------------- --------------- ---------
EPRA basic and diluted earnings
Basic and diluted loss (71.3)
Adjustments to remove:
Net result on property (Note 9) (48.4)
Profit on sale of properties (1.4)
Exceptional revaluation loss arising
on acquisition of MedicX 138.4
Fair value loss on derivatives 5.4
Fair value movement and issue costs
on convertible bond 28.2
Taxation charge 1.1
----------------------------------------- ------------------------- --------------- ---------
EPRA basic earnings 52.0 1,092.0 4.8
Dilutive effect of convertible bond 2.0 46.5
----------------------------------------- ------------------------- --------------- ---------
EPRA diluted earnings per share 54.0 1,138.5 4.7
----------------------------------------- ------------------------- --------------- ---------
Adjusted EPRA and diluted earnings
EPRA basic earnings 52.0
Exceptional items - contract termination
fee 10.2
Amortisation of MtM loss on debt
acquired (2.5)
----------------------------------------- ------------------------- --------------- ---------
Adjusted EPRA earnings per share 59.7 1,092.0 5.5
----------------------------------------- ------------------------- --------------- ---------
Dilutive effect of convertible bond 2.0 46.5
----------------------------------------- ------------------------- --------------- ---------
Diluted adjusted EPRA earnings per
share 61.7 1,138.5 5.4
----------------------------------------- ------------------------- --------------- ---------
(1) Weighted average number of shares in issue during the
period
On 15 July 2019, the Group issued GBP150m of unsecured
Convertible Bonds (refer to note 12 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. There was a minor
dilutive effect arising from the Convertible Bond in the 6 months
to 30 June 2020.
Notes to the condensed financial statements (continued)
8. Dividends
Six months Six months Year ended
ended ended 31 December
30 June 30 June 2019
2020 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ -------------
Quarterly interim dividend paid
22 February 2020 16.9 - -
Scrip dividend in lieu of quarterly 1.0 - -
cash dividend 22 February 2020
Quarterly interim dividend paid 16.8
24 May 2020 - -
Scrip dividend in lieu of quarterly 1.2 - -
cash dividend 24 May 2020
Quarterly interim dividend paid
22 February 2019 - 9.9 9.9
Scrip dividend in lieu of quarterly
cash dividend 22 February 2019 - 0.9 0.9
Quarterly interim dividend paid
24 May 2019 - 14.4 14.4
Scrip dividend in lieu of quarterly
cash dividend 24 May 2019 - 1.5 1.5
Quarterly interim dividend paid
23 August 2019 - - 15.8
Scrip dividend in lieu of quarterly
cash dividend 23 August 2019 - - 0.1
Quarterly interim dividend paid
22 November 2019 - - 14.3
Scrip dividend in lieu of quarterly
cash dividend 22 November 2019 - - 2.5
Total dividends distributed 35.9 26.7 59.4
------------------------------------- ------------ ------------ -------------
Per share 2.95p 2.8p 5.6p
------------------------------------- ------------ ------------ -------------
The Company will pay a third interim dividend of 1.475 pence per
Ordinary Share for the year ending 31 December 2020, payable on 21
August 2020. This dividend will comprise a Property Income
Distribution ("PID") of 0.65p and ordinary dividend of 0.75p per
share.
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under construction
Investment
Investment Investment properties
properties long under construction
freehold(1) leasehold Total
GBPm GBPm GBPm GBPm
As at 1 January 2020 (audited) 1,902.2 476.9 34.0 2,413.1
Property additions 39.6 15.5 22.1 77.2
Transfer from properties
in the course of development 46.7 - (46.7) -
Impact of lease incentive
adjustment 0.5 0.3 - 0.8
Interest capitalised(2) - - 0.7 0.7
Foreign exchange movements 9.0 1.0 2.0 12.0
-------------------------------- -------------- ------------- -------------------- --------
1,998.0 493.7 12.1 2,503.8
Revaluations for the period 7.2 3.7 (0.4) 10.5
-------------------------------- -------------- ------------- -------------------- --------
As at 30 June 2020 (unaudited) 2,005.2 497.4 11.7 2,514.3
-------------------------------- -------------- ------------- -------------------- --------
(1) Includes development land held at GBP1.6m (31 December 2019:
GBP1.6m)
(2) Interest capitalised in the period to 30 June 2020 (31
December 2019: NIL)
Total
GBPm
Fair value per LSH UK valuation 1,523.0
Fair value of JLL UK valuation 792.6
Fair value of CBRE Ireland valuation 194.2
--------------------------------------------- --------
2,509.8
Ground rents recognised as finance leases 4.5
--------------------------------------------- --------
Fair value 30 June 2020
(unaudited) 2,514.3
---------------------------------------------- --------
Notes to the condensed financial statements (continued)
9. Investment properties and investment properties under construction (continued)
The investment properties have been independently valued at fair
value by Lambert Smith Hampton ("LSH"), Jones Lang LaSalle ("JLL")
and CBRE Chartered Surveyors and Valuers ("CBRE"), as at the
balance sheet date in accordance with accounting standards. The
valuers have confirmed that they have valued the properties in
accordance with the Practice Statements in the RICS Valuation
Global Standards 2017 ("Red Book"). There were no changes to the
valuation techniques during the period. The valuers are
appropriately qualified and have sufficient market knowledge and
relevant experience of the location and category of investment
property and have had full regard to market evidence when
determining the values.
The COVID-19 pandemic has led to a heightened degree of
uncertainty surrounding the valuation of certain property
sub-sectors. In the UK, the valuers have not included any material
uncertainty clauses in their valuation reports. However, CBRE who
value the portfolio in Ireland have included a material uncertainty
clause in the valuation report which is in line with the Society of
Chartered Surveyors Ireland guidance.
The properties are 99.5% let (31 December 2019: 99.5%). The
valuations reflected a 4.86% net initial yield (31 December 2019:
4.86%). Where properties have outstanding rent reviews, an estimate
is made of the likely rent on review in line with market
expectations and the knowledge of the valuer.
In accordance with IAS 40, investment properties under
construction have also been valued at fair value by the independent
valuers. In determining the fair value, the valuer is required to
value development property as if complete, deduct the costs
remaining to be paid to complete the development and consider the
significant risks which are relevant to the development process
including, but not limited to, construction and letting risks and
the impact they may have on fair value. In the case of the Group's
portfolio under construction, where the sites are pre-let and
construction risk remains with the builder/developer, the valuer
has deemed that the residual risk to the Group is minimal. As
required by the Red Book, the valuers have deducted the outstanding
cost to the Group through to the completion of construction of
GBP30.9m (31 December 2019: GBP25.4m) in arriving at the fair value
to be included in the financial statements.
In addition to the above, capital commitments have been entered
into amounting to GBP8.4m (30 June 2019: GBP1.1m; 31 December 2019:
GBP2.7m) which have not been provided for in the financial
statements.
Right-of-use-assets
In accordance with IFRS 16 Leases, the Group has recognised a
GBP4.5m head lease liability and an equal and opposite ground rents
recognised as finance leases asset which is included in non-current
assets.
Fair value hierarchy
All of the Group's properties are level 3, as defined by IFRS
13, in the fair value hierarchy as at 30 June 2020 and 31 December
2019. There were no transfers between levels during the period or
during 2019. Level 3 inputs used in valuing the properties are
those which are unobservable, as opposed to level 1 (inputs from
quoted prices) and level 2 (observable inputs either directly, i.e.
as prices, or indirectly, i.e. derived from prices).
Notes to the condensed financial statements (continued)
10. Cash and cash equivalents
30 June 2020 31 December 2019
GBPm GBPm
(unaudited) (audited)
------------------- ------------- -----------------
Cash held at bank 64.0 143.1
------------------- ------------- -----------------
11. Borrowings: term loans and overdrafts
The table indicates amounts drawn and undrawn from each
individual facility:
Expiry Facility Amounts drawn Undrawn
date
--------------- ----------- ---------------------- ---------------------- ----------------------
30 June 31 December 30 June 31 December 30 June 31 December
2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- -------- ------------ -------- ------------ -------- ------------
Current
RBS Overdraft Jun 2021 5.0 5.0 - - 5.0 5.0
Aviva HIL
loan Jan 2032 1.0 0.9 1.0 0.9 - -
Aviva loan(1) Sep 2033 2.0 2.0 2.0 2.0 - -
Aviva loan(1) Jun 2040 0.7 0.6 0.7 0.6 - -
Aviva loan Aug 2029 2. 6 2.6 2. 6 2.6
Barclays/AIB
loan Jan 2021 115.0 - 55.0 - 60.0 -
Lloyds loan Dec 2020 30.0 - 30.0 - - -
156.3 11.1 91.3 6.1 65.0 5.0
Non-current
Aviva HIL
loan Jan 2032 19.9 20.4 19.9 20.4 - -
Aviva loan Dec 2022 25.0 25.0 25.0 25.0 - -
Aviva loan Nov 2028 75.0 75.0 75.0 75.0 - -
Aviva loan Aug 2024 50.0 50.0 50.0 50.0 - -
Aviva loan Aug 2029 58.7 60.0 58.7 60.0 - -
Barclays/AIB
loan Jan 2021 - 115.0 - 55.0 - 60.0
HSBC loan Nov 2022 100.0 100.0 - - 100.0 100.0
Lloyds loan Dec 2020 - 30.0 - 28.3 - 1.7
RBS loan Mar 2022 100.0 100.0 53.6 55.7 46.4 44.3
Santander
loan Jul 2021 30.6 30.6 - - 30.6 30.6
Aviva loan(1) Sep 2033 228.5 229.4 228.5 229.4 - -
Aviva loan(1) Sep 2028 30.8 30.8 30.8 30.8 - -
Aviva loan(1) Jun 2040 24.4 24.8 24.4 24.8 - -
742.9 891.0 565.9 654.4 177.0 236.6
----------- -------- ------------ -------- ------------ -------- ------------
Total 899.2 902.1 657.2 660.5 242.0 241.6
---------------- ---------- -------- ------------ -------- ------------ -------- ------------
(1) Acquired as part of the merger with MedicX.
Notes to the condensed financial statements (continued)
11. Borrowings: term loans and overdrafts (continued)
At 30 June 2020, total facilities of GBP1,456.3m (31 December
2019: GBP1,452.0m) were available to the Group. This included term
loan facilities and the bonds in note 12. Of these facilities, as
at 30 June 2020, GBP1,214.3m was drawn (31 December 2019:
GBP1,210.4m).
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
2020 2019
GBPm GBPm
(unaudited) (audited)
------------------------------------------ ------------ ------------
Term loans drawn: due within one year 91.3 6.1
Term loans drawn: due in greater than
one year 565.9 654.4
------------------------------------------ ------------ ------------
Total term loans drawn 657.2 660.5
Plus: MtM on loans net of amortisation 37.7 38.9
Less: unamortised borrowing costs (9.6) (10.6)
Total term loans per the Condensed Group
Balance Sheet 685.3 688.8
------------------------------------------ ------------ ------------
The Group has been in compliance with all the applicable
financial covenants of the above facilities through the period.
12. Borrowings: Bonds
30 June 31 December
2020 2019
GBPm GBPm
(unaudited) (audited)
---------------------------------------------- ------------ ------------
Secured
Secured Bond December 2025 70.0 70.0
Secured Bond March 2027 100.0 100.0
EUR51m Secured Bond (Euro private placement)
December 2028/30 46.2 43.2
EUR70 million secured bond (Euro private
placement) September 2031 63.4 59.2
Ignis loan note December 2028 50.0 50.0
Standard Life loan note September 2028 77.5 77.5
Less: unamortised issue costs (3.9) (4.0)
Plus: MtM on loans net of amortisation 6.2 6.5
Total secured bonds 409.4 402.4
---------------------------------------------- ------------ ------------
Unsecured
Convertible bond July 2025 at fair value 173.0 172.7
Total unsecured bonds 173.0 172.7
---------------------------------------------- ------------ ------------
Total bonds 582.4 575.1
---------------------------------------------- ------------ ------------
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Secured Bonds
On 18 December 2013, PHP successfully listed the floating rate
guaranteed secured bonds issued on 4 November 2013 (the "Secured
Bonds") on the London Stock Exchange. The Secured Bonds have a
nominal value of GBP70m and mature on or about 30 December 2025.
The Secured Bonds incur interest on the paid-up amount at an
annualised rate of 220 basis points above six-month LIBOR, payable
semi-annually in arrears.
On 21 March 2017, a GBP100m Secured Bond was issued for a
10-year term at a fixed coupon of 2.83% that matures on 21 March
2027. Interest is paid semi-annually in arrears.
On 20 December 2018, senior secured notes for a total of EUR51
million (GBP43.1 million) were issued at a blended fixed rate of
2.4793% and a weighted average maturity of 10.4 years. Interest is
paid semi-annually in arrears. The notes represent PHP's first
Euro-denominated transaction in the private placement market. The
secured notes were placed with UK and Irish institutional investors
in two tranches:
-- EUR40 million 2.46% senior notes due December 2028.
-- EUR11 million 2.633% senior notes due December 2030.
On 16 September 2019, new senior secured notes for a total of
EUR70 million (GBP59.2 million) were issued at a fixed rate of
1.509% and a maturity of twelve years. Interest is paid
semi-annually in arrears. The secured notes are guaranteed by the
Company and were placed with UK and Irish institutional
investors.
Ignis and Standard Life loan notes
On 14 March 2019, the loan notes were added to the portfolio as
a part of the MedicX acquisition. The Ignis loan note incurs a
fixed coupon of 3.99% payable semi-annually in arrears and matures
on 1 December 2028.
The Standard Life loan note matures on 30 September 2028 and is
split into two tranches, GBP50m and GBP27.5m at fixed coupon rates
of 3.84% and 3.00% respectively. Interest is payable semi-annually
in arrears.
Convertible Bond
On 15 July 2019, PHP Finance (Jersey No.2) Limited (the
"Issuer"), a wholly owned subsidiary of the Group, issued GBP150
million of 2.875% convertible bonds (the "Bonds") for a six-year
term and if not previously converted, redeemed or purchased and
cancelled, the Bonds will be redeemed at par on maturity in July
2025. The net proceeds were partially used to repay the Company's
GBP75 million, 5.375% senior unsecured retail bonds at maturity and
otherwise for general corporate purposes.
Subject to certain conditions, the bonds will be convertible
into fully paid Ordinary Shares of the Company and the initial
exchange price was set at 153.25 pence, a premium of 15% above the
volume weighted average price of the Company's shares on 18 June
2019, being 133.26 pence. Under the terms of the Bonds, the Company
will have the right to elect to settle exercise of any conversion
rights entirely in shares or cash, or with a combination of shares
and cash. The exchange price is subject to adjustment if dividends
paid per share exceed 2.8 pence per annum and other certain
circumstances and consequently the exchange price was adjusted to
149.39 pence as at 31 December 2019. There have been no further
changes to the exchange price as at 30 June 2020.
Notes to the condensed financial statements (continued)
12. Borrowings: Bonds (continued)
Convertible Bond
30 June 31 December
2020 2019
GBPm GBPm
----------------------------------------------- -------- ------------
Opening balance - fair value 172.7 150.0
Cumulative fair value movement in Convertible
Bond 0.3 22.7
----------------------------------------------- -------- ------------
Closing balance - fair value 173.0 172.7
----------------------------------------------- -------- ------------
The fair value of the Convertible Bond at 30 June 2020 was
established by obtaining quoted market prices. The fair value
movement is recognised in the Group Statement of Comprehensive
Income within profit before taxation and is excluded from the
calculation of EPRA earnings and EPRA NTA (replacing EPRA NAV).
13. Head lease liabilities
The Company has adopted IFRS 16 Leases from 1 January 2019. The
Group holds certain long leasehold properties which are classified
as investment properties. The head leases are accounted for as
finance leases. These leases typically have lease terms between 32
years and perpetuity and fixed rentals.
30 June 31 December
2020 2019
GBPm GBPm
------------------------------ -------- ------------
Due within one year 0.1 0.1
Due after one year 4.4 4.4
Closing balance - fair value 4.5 4.5
------------------------------ -------- ------------
Notes to the condensed financial statements (continued)
14. Derivatives and other financial instruments
It is Group policy to maintain the proportion of floating rate
interest exposure at between 20% and 40% of total debt. The Group
uses interest rate swaps to mitigate its remaining exposure to
interest-rate risk in line with this policy. The fair value of
these contracts is recorded in the balance sheet and is determined
by discounting future cash flows at the prevailing market rates at
the balance sheet date.
The table below sets out the movements in the value of the
Group's interest rate swaps during the period:
Interest rate swaps
not hedge accounted
for Total
GBPm GBPm
------------------------------ --------------------- --------
Assets
As at 1 January 2020 0.5 0.5
Fair value movement in the
period (0.5) (0.5)
------------------------------ --------------------- --------
As at 30 June 2020 - -
------------------------------ --------------------- --------
Liabilities
As at 1 January 2020 (13.5) (13.5)
Fair value movement in the
period (5.8) (5.8)
------------------------------ --------------------- --------
As at 30 June 2020 (19.3) (19.3)
------------------------------ --------------------- --------
Total - derivative financial
instruments
As at 1 January 2020 (13.0) (13.0)
Fair value movement in the
period (6.3) (6.3)
------------------------------ --------------------- --------
As at 30 June 2020 (19.3) (19.3)
------------------------------ --------------------- --------
Notes to the condensed financial statements (continued)
15. Financial risk management
Set out below is a comparison by class of the carrying amount
and fair values of the Group's financial instruments that are
carried in the financial statements.
Book value Fair value Book value Fair value
30 June 30 June 31 December 31 December
2020 2020 2019 2019
GBPm GBPm GBPm GBPm
------------------------------ ----------- ----------- ------------ ------------
Financial assets
Trade and other receivables 14.4 14.4 16.7 16.7
Interest rate swaps - - 0.5 0.5
Cash and short-term deposits 64.0 64.0 143.1 143.1
------------------------------ ----------- ----------- ------------ ------------
Financial liabilities
Interest-bearing loans
and borrowings (1,214.3) (1,373.2) (1,210.4) (1,327.5)
Interest rate swaps (19.3) (19.3) (13.5) (13.5)
Trade and other payables (32.7) (32.7) (34.7) (34.7)
------------------------------ ----------- ----------- ------------ ------------
The fair value of the financial assets and liabilities is
included as an estimate of the amount at which the instruments
could be transferred in a current transaction between willing
parties, other than a forced sale. The following methods and
assumptions were used to estimate fair values:
-- The fair values of the Group's cash and cash equivalents and
trade payables and receivables are not materially different from
those at which they are carried in the financial statements due to
the short-term nature of these instruments.
-- The fair value of floating rate borrowings is estimated by
discounting future cash flows using rates currently available for
instruments with similar terms and remaining maturities. The fair
value approximates their carrying values, gross of unamortised
transaction costs.
-- The fair values of the derivative interest rate swap
contracts are estimated by discounting expected future cash flows
using market interest rates and yield curves over the remaining
term of the instrument.
The Group held the following financial instruments at fair value
at 30 June 2020. The Group has no financial instruments with fair
values that are determined by reference to significant unobservable
inputs, i.e. those that would be classified as level 3 in the fair
value hierarchy, nor have there been any transfers of assets or
liabilities between levels of the fair value hierarchy. There are
no non-recurring fair value measurements.
Notes to the condensed financial statements (continued)
15. Financial risk management (continued)
Fair value measurements at 30 June 2020 are as follows:
Level 1(1) Level 2(2) Level 3(3) Total
Recurring fair value GBPm GBPm GBPm GBPm
measurements
----------------------- ----------- ----------- ----------- --------
Financial assets
Derivative interest - - - -
rate swaps
----------------------- ----------- ----------- ----------- --------
Financial liabilities
Derivative interest
rate swaps - (19.3) - (19.3)
Convertible Bond (173.0) - - (173.0)
Fixed rate debt - (991.6) - (991.6)
----------------------- ----------- ----------- ----------- --------
Fair value measurements at 31 December 2019 were as follows:
Recurring fair value Level 1(1) Level 2(2) Level 3(3) Total
measurements
GBPm GBPm GBPm GBPm
----------------------- ----------- ----------- ----------- --------
Financial assets
Derivative interest
rate swaps - 0.5 - 0.5
----------------------- ----------- ----------- ----------- --------
Financial liabilities
Derivative interest
rate swaps - (13.5) - (13.5)
Convertible Bond (172.7) - - (172.7)
Fixed rate debt - (945.9) - (945.9)
----------------------- ----------- ----------- ----------- --------
(1) Valuation is based on unadjusted quoted prices in active
markets for identical financial assets and liabilities
(2) Valuation is based on inputs (other than quoted prices
included in Level 1) that are observable for the financial asset or
liability, either directly (i.e. as unquoted prices) or indirectly
(i.e. derived from prices)
(3) Valuation is based on inputs that are not based on
observable market data
The interest rate swaps whose fair values include the use of
level 2 inputs are valued by discounting expected future cash flows
using market interest rates and yield curves over the remaining
term of the instrument. The following inputs are used in arriving
at the valuation:
-- Interest rates;
-- Yield curves;
-- Swaption volatility;
-- Observable credit spreads;
-- Credit default swap curve; and
-- Observable market data.
Notes to the condensed financial statements (continued)
16. Net asset value per share
Net asset values have been calculated as follows:
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------------------------- ------------ ------------ ------------
Net assets
IFRS net assets 1,239.0 1,125.4 1,228.5
Derivative interest rate swaps
liability (net) 19.3 20.5 13.0
Deferred tax 3.3 2.4 3.1
Cumulative Convertible Bond fair
value movement 23.0 - 22.7
----------------------------------------- ------------ ------------ ------------
Basic EPRA net tangible assets
("NTA")(1) 1,284.6 1,148.3 1,267.3
MtM on MedicX loans net of amortisation 43.9 47.0 45.5
----------------------------------------- ------------ ------------ ------------
B asic adjusted EPRA net tangible
assets(1) 1,328.5 1,195.3 1,312.8
MtM on MedicX loans net of amortisation (43.9) (47.0) (45.5)
Real estate transfer taxes 168.9 151.2 160.4
----------------------------------------- ------------ ------------ ------------
Basic EPRA net reinstatement
value ("NRV")(1) 1,453.5 1,299.5 1,427.7
Fixed rate debt and swap mark-to-market
value (111.3) (72.4) (62.0)
Deferred tax (3.3) (2.4) (3.1)
Cumulative Convertible Bond fair
value movement (23.0) - (22.7)
Real estate transfer taxes (168.9) (151.2) (160.4)
----------------------------------------- ------------ ------------ ------------
Basic EPRA net disposal value
("NDV")(1) 1,147.0 1,073.5 1,179.5
----------------------------------------- ------------ ------------ ------------
Number Number Number of
of shares of shares shares
Millions Millions Millions
----------------------------------------- ------------ ------------ ------------
Ordinary Shares:
Issued share capital 1,217.7 1,136.2 1,216.3
Basic net asset value per share 30 June 30 June 31 December
(pence)(1) 2020 2019 2019
(unaudited) (unaudited) (audited)
----------------------------------------- ------------ ------------ ------------
IFRS net asset value per share 101.8p 99.1p 101.0p
EPRA NTA value per share 105.5p 101.1p 104.2p
Adjusted EPRA NTA per share 109.1p 105.2p 107.9p
EPRA NRV per share 119.4p 114.4p 117.4p
EPRA NDV per share 94.2p 94.5p 97.0p
----------------------------------------- ------------ ------------ ------------
(1) The above are calculated on a 'basic' basis without the
adjustment for the impact of the convertible bond which is shown in
the diluted basis table below.
A bridge between the two measures is shown below.
Bridge to previous EPRA measures 30 June 30 June 31 December
2020 2019 2019
(unaudited) (unaudited) (audited)
Basic EPRA NTA 1,284.6 1,148.3 1,267.3
MtM on MedicX loans net of amortisation 43.9 47.0 45.5
----------------------------------------- ------------ ------------ ------------
Adjusted EPRA NAV 1,328.5 1,195.3 1,312.8
----------------------------------------- ------------ ------------ ------------
Adjusted EPRA NAV per share 109.1p 105.2p 107.9p
----------------------------------------- ------------ ------------ ------------
Notes to the condensed financial statements (continued)
16. Net asset value per share (continued)
As detailed in Note 7, the Company assesses the dilutive impact
of the unsecured convertible bond, issued by the Group on 15 July
2019, on its net asset value per share with a current exchange
price of 149.39 pence (31 December 2019: 149.39p).
Conversion of the convertible bond would result in the issue of
100.4m (30 June 2019: nil; 31 December 2019: 100.4m) new Ordinary
Shares. The IFRS net asset value and EPRA NDV would increase by
GBP173.0m (30 June 2019: GBPnil; 31 December 2019: GBP172.7m) and
the EPRA NTA, Adjusted EPRA NTA and EPRA NRV would increase by
GBP150.0m (30 June 2019: GBPnil; 31 December 2019: GBP150.0m)
The resulting diluted net asset values per share are set out in
the table below:
Diluted net asset value per share 30 June 30 June 31 December
(pence) 2020 2019 2019
(unaudited) (unaudited) (audited)
----------------------------------- ------------ ------------ ------------
EPRA NTA value per share 108.8p 101.1p 107.6p
Adjusted EPRA NTA per share 112.2p 105.2p 111.1p
EPRA NRV per share 121.7p 114.4p 119.8p
EPRA NDV per share 100.1p 94.5p 102.7p
----------------------------------- ------------ ------------ ------------
During the period the Group has adopted the new EPRA Best
Practice Recommendations Guidelines as issued by EPRA in October
2019, effective for periods beginning 1 January 2020. The Best
Practice Recommendations have replaced the previous EPRA NAV and
EPRA NNNAV metrics with three new metrics, EPRA NTA, EPRA NDV and
EPRA NRV and refer to the Glossary Terms of pages 49-52 for further
details.
17. Related party transactions
The fees calculated and payable for the period to the Adviser,
included in administrative expenses, are as follows:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
----------------------- ------------ ------------ -------------
Nexus TradeCo Limited 5.6 4.8 8.3
----------------------- ------------ ------------ -------------
As at 30 June 2020, outstanding advisory fees payable to Nexus
totalled GBP0.7m (30 June 2019: GBP0.7m).
Further fees paid to Nexus in accordance with the Advisory
Agreement for the period to 30 June 2020 of GBP0.1m (30 June 2019:
GBP0.2m) in respect of capital projects were capitalised in the
period.
Service charge management fees paid to Nexus in the period, in
connection with the Group's properties, totalled GBP0.2m (30 June
2019: GBP0.1m).
Notes to the condensed financial statements (continued)
17. Related party transactions (continued)
Nexus is entitled to a PIF equivalent to 11.25% of the "total
return" above a hurdle rate of 8.0%, based on the change in
Adjusted EPRA NTA value plus dividends paid less equity raised
which is credited to a notional cumulative account. If the hurdle
is not achieved a sum equal to 11.25% of the underperformance is
deducted from the notional cumulative account.
A PIF of GBP1.3m was paid to Nexus in the period in respect of
2019. A provision of GBP0.8m has been provided in the period (six
months ended 30 June 2019: GBP0.9m; year ended 31 December 2019:
GBP1.8m). No payment in respect of 2020 will be made until the
audited financial results and total returns for the year have been
agreed in 2021.
18. Share capital
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
---------------------------------------- ------------ ------------ ------------
Issued and fully paid Ordinary
Shares at 12.5p each 152.2 142.0 152.0
---------------------------------------- ------------ ------------ ------------
At beginning of year 152.0 96.1 96.1
Scrip issues in lieu of cash dividends 0.2 0.3 0.5
Shares issued on bond conversions
in the period - 3.0 3.0
Shares issued on acquisition of
MedicX Fund Limited - 42.6 42.6
Shares issued 24 September 2019 - - 9.8
---------------------------------------- ------------ ------------ ------------
152.2 142.0 152.0
---------------------------------------- ------------ ------------ ------------
19. Merger and other reserves
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------------- ------------ ------------ ------------
At beginning of year 398.6 2.5 2.5
Premium on shares issued for MedicX
merger - 398.0 398.0
Exchange gain on translation of
foreign balances 3.0 0.3 (1.9)
401.6 400.8 398.6
------------------------------------- ------------ ------------ ------------
Notes to the condensed financial statements (continued)
20. Special reserve
30 June 30 June 31 December
2020 2019 2019
GBPm GBPm GBPm
(unaudited) (unaudited) (audited)
------------------------------ ------------ ------------ ------------
At beginning of year 65.4 124.8 124.8
Dividends paid (33.7) (24.3) (54.4)
Scrip issues in lieu of cash
dividends (2.2) (2.4) (5.0)
29.5 98.1 65.4
------------------------------ ------------ ------------ ------------
The special reserve has arisen on previous issues of the
Company's shares. It represents the share premium on the issue of
the shares, net of expenses, from issues effected by way of a cash
box mechanism.
A cash box raising is a mechanism for structuring a capital
raising whereby the cash proceeds from investors are invested in a
subsidiary company of the parent instead of the parent itself. Use
of a cash box mechanism has enabled the share premium arising from
the issue of shares to be deemed to be a distributable reserve and
has therefore been shown as a special reserve in these financial
statements. Any issue costs are also deducted from the special
reserve.
As the special reserve is a distributable reserve, the dividends
declared in the period have been distributed from this reserve.
21. Subsequent events
On 1 July 2020, the Group completed the acquisition of an
investment property for GBP3.6m.
On 9 July 2020, the Group announced the successful completion of
a placing to issue new ordinary shares. A total of 96,555,000 new
ordinary shares of 12.5 pence each have been placed at a price of
145 pence per Placing Share, with existing and new institutional
investors, raising gross proceeds of approximately GBP140 million.
Proceeds will be used to fund continued portfolio growth through
acquisition and forward funded developments and to finance asset
management projects. The Placing Shares represent approximately 7.9
per cent of the issued ordinary share capital of the Company prior
to the Placing.
On 9 July 2020, the Company announced that the scrip dividend
reference price for the third Quarterly Interim Dividend in 2020,
payable on 21 August 2020, is 154.2 pence.
Notes to the condensed financial statements (continued)
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge this
condensed consolidated set of interim financial statements has been
prepared in accordance with IAS 34 Interim Financial Reporting as
adopted by the European Union and that the operating and financial
review herein includes a fair review of the information required by
DTR 4.2.7R and DTR 4.2.8R of the Disclosure and Transparency rules
of the United Kingdom's Financial Services Authority namely:
-- an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed consolidated interim financial statements and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
-- material related party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
Shareholder information is as disclosed in the Annual Report and
is also available on the PHP website, www.phpgroup.co.uk .
By order of the Board
Steven Owen
Chairman
28 July 2020
Glossary of terms
Adjusted EPRA earnings is EPRA earnings excluding the
exceptional contract termination fee and amortisation of MtM
adjustments for fixed rate debt acquired on the merger with
MedicX.
Adjusted EPRA Net Tangible Assets "Adjusted EPRA NTA" ( which
has replaced the former Adjusted EPRA Net Asset Value alternative
performance measure ) is EPRA Net Tangible Asset value excluding
the MtM adjustment of the fixed rate debt, net of amortisation,
acquired on the merger with MedicX . The objective of the Adjusted
EPRA NTA measure is to highlight the value of net assets on a
long-term basis and excludes assets and liabilities that are not
expected to crystallise in normal circumstances and continues to be
used as a measure to determine the PIF payment.
Adviser is Nexus Tradeco Limited.
Annualised rental income on a like-for-like basis is the
contracted rent on a per annum basis assuming consistent number of
properties between each years
Building Research Establishment Environmental Assessment Method
("BREEAM") assesses the sustainability of buildings against a range
of criteria.
Clinical Commissioning Groups ("CCGs") are the groups of GPs and
other healthcare professionals that are responsible for designing
local health services in England with effect from 1 April 2013.
Company and/or Parent is Primary Health Properties PLC
("PHP").
Direct property costs comprise ground rents payable under head
leases, void costs, other direct irrecoverable property expenses,
rent review fees and valuation fees.
District Valuer ("DV") is the District Valuer Service being the
commercial arm of the Valuation Office Agency ("VOA"). It provides
professional property advice across the public sector and in
respect of primary healthcare represents NHS bodies on matters of
valuation, rent reviews and initial rents on new developments.
Dividend cover is the number of times the dividend payable (on
an annual basis) is covered by Adjusted 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 Practice
Recommendations in order to provide consistency and transparency in
real estate reporting across Europe.
EPRA cost ratio is the ratio of net overheads and operating
expenses against gross rental income (with both amounts excluding
ground rents payable). Net overheads and operating expenses relate
to all administrative and operating expenses, net of any service
fees, recharges or other income specifically intended to cover
overhead and property expenses.
EPRA earnings is the profit after taxation excluding investment
and development property revaluations, gains and 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 the MtM value of derivatives financial
instruments, deferred tax and the convertible bond fair value
movement
EPRA NNNAV is EPRA NAV including the MtM value of fixed rate
debt and derivatives
EPRA Net Reinstatement Value ("EPRA NRV") are the balance sheet
net assets including real estate transfer taxes but excluding the
MtM value of derivative financial instruments, deferred tax and the
convertible bond fair value movement. The aim of the metric is to
reflect the value that would be required to recreate the company
through the investment markets based on its current capital and
financing structure. Refer to Note 16.
EPRA NRV per share is the EPRA Net Reinstatement Value divided
by the number of shares in issue at the balance sheet date. Refer
to Note 16.
EPRA Net Disposal Value "EPRA NDV" (replacing EPRA NNNAV) is
Adjusted EPRA NRV including deferred tax and the MtM value of fixed
rate debt and derivatives. The aim of the metric is to reflect the
value that would be realised under a disposal scenario. Refer to
Note 16.
EPRA Net Tangible Assets ("NTA") (which has replaced the former
EPRA Net Asset Value alternative performance measure) are the
balance sheet net assets but excluding the MtM value of derivative
financial instruments, deferred tax and the convertible bond fair
value movement. The aim of the metric is to reflect the fair value
of the assets and liabilities of the Group that it intends to hold
and does not intend in the long run to sell. Refer to Note 16.
EPRA NTA per share is the EPRA Net Tangible Assets divided by
the number of shares in issue at the balance sheet date. Refer to
Note 16.
EPRA vacancy rate is, as a percentage, the ERV of vacant space
in the Group's property portfolio divided by ERV of the whole
portfolio.
Equivalent yield (true and nominal) is a weighted average of the
net initial yield and reversionary yield and represents the return
a property will produce based upon the timing of the income
received. The true equivalent yield assumes rents are received
quarterly in advance. The nominal equivalent assumes rents are
received annually in arrears.
Estimated rental value ("ERV") is the external valuer's opinion
as to the open market rent which, on the date of valuation, could
reasonably be expected to be obtained on a new letting or rent
review of a property.
Gross rental income is the gross accounting rent receivable.
Group is Primary Health Properties PLC ("PHP") and its
subsidiaries.
HSE or the Health Service Executive is the executive agency of
the Irish government responsible for health and social services for
people living in Ireland.
IFRS is International Financial Reporting Standards as adopted
by the European Union.
IFRS or Basic net asset value per share ("IFRS NAV") are the
balance sheet net assets, excluding own shares held, divided by the
number of shares in issue at the balance sheet date.
IFRS profit before tax excluding MedicX exceptional adjustments
is the IFRS profit/(loss) before tax adjusted for revaluation
losses, contract termination fees and amortisation of MtM relating
to the MedicX merger
Interest cover is the number of times net interest payable is covered by net rental income.
Interest rate swap is a contract to exchange fixed payments for
floating payments linked to an interest rate, and is generally used
to manage exposure to fluctuations in interest rates.
London Interbank Offered Rate ("LIBOR") is the interest rate
charged by one bank to another for lending money.
Loan to Value ("LTV") is the ratio of net debt to the total value of property and assets.
Mark to Market ("MtM") is the difference between the book value
of an asset or liability and its market value.
MedicX is MedicX Fund Limited ("MedicX") and its
subsidiaries.
MSCI (IPD) provides performance analysis for most types of real
estate and produces an independent benchmark of property
returns.
MSCI (IPD) Healthcare is the UK Annual Healthcare Property
Index.
MSCI (IPD) Total Return is calculated as the change in capital
value, less any capital expenditure incurred, plus net income,
expressed as a percentage of capital employed over the period, as
calculated by IPD.
Net asset value ("NAV") is the value of the Group's assets minus
the value of its liabilities.
Net initial yield ("NIY") is the annualised rents generated by
an asset, after the deduction of an estimate of annual recurring
irrecoverable property outgoings, expressed as a percentage of the
asset valuation (after notional 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.
Net Rental income to net borrowing costs ratio is also known as
Interest cover, see above, and reflects the number of times net
interest payable is covered by net rental income.
NHSPS is NHS Property Services Limited, the company wholly owned
and funded by the Department of Health, which, as of 1 April 2013,
has taken on all property obligations formerly borne by Primary
Care Trusts.
Parity value is calculated based on dividing the convertible
bond value by the Exchange Price.
Property Income Distribution ("PID") is the required
distribution of income as dividends under the REIT regime. It is
calculated as 90% of exempted net income.
Real Estate Investment Trust ("REIT") is a listed property
company which qualifies for and has elected into a tax regime,
which exempts qualifying UK profits, arising from property rental
income and gains on investment property disposals, from corporation
tax, but which has a number of specific requirements.
Rent reviews take place at intervals agreed in the lease and
their purpose is usually to adjust the rent to the current market
level at the review date.
Rent roll is the passing rent being the total of all the
contracted rents reserved under the leases as at the period
end.
Reversionary yield is the anticipated yield which the initial
yield will rise to once the rent reaches the ERV and when the
property is fully let. It is calculated by dividing the ERV by the
valuation.
Retail Price Index ("RPI") is the official measure of the
general level of inflation as reflected in the retail price of a
basket of goods and services such as energy, food, petrol, housing,
household goods, travelling fare, etc. RPI is commonly computed on
a monthly and annual basis.
RICS is the Royal Institution of Chartered Surveyors.
RPI linked leases are those leases which have rent reviews which
are linked to changes in the RPI.
Special reserve is a distributable reserve.
Total expense ratio ("TER") is calculated as total
administrative costs for the year divided by the average total
asset value during the year.
Total property return is the overall return generated by
properties on a debt-free basis. It is calculated as the net rental
income generated by the portfolio plus the change in market values,
divided by opening property assets plus additions.
GBPm
------------------------ -------
Net rental income 64.8
Revaluation surplus 10.5
------------------------ -------
75.3
------------------------ -------
Opening property assets 2,413.1
Weighted additions in
the period 29.1
======================== =======
2,442.2
------------------------ -------
Total property return 3.1%
------------------------ -------
Total NAV return is calculated as the movement in Adjusted EPRA
net tangible asset value for the period plus the dividends paid,
divided by opening EPRA net tangible asset value.
Adjusted EPRA
NTA (formerly
EPRA NAV)
(pence per share)
------------------------- ------------------
At 30 June 2020 109.1
At 31 December 2019 107.9
------------------------- ------------------
Increase / (decrease) 1.2
Add: Dividends paid
22/02/2020 Q 1 interim 1.475
24/05/2020 Q 2 interim 1.475
Total shareholder return 2.95
------------------------- ------------------
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR DVLFLBDLZBBE
(END) Dow Jones Newswires
July 29, 2020 02:00 ET (06:00 GMT)
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