TIDMPHP
RNS Number : 9858N
Primary Health Properties PLC
27 February 2009
Primary Health Properties PLC
Audited results extracted from the Annual Financial Report for the year ended 31
December 2008
Primary Healthcare Properties PLC, one of the UK's largest providers of modern
primary healthcare facilities, is pleased to announce its audited results for
the year ended 31 December 2008.
Group Financial Highlights
* Operating profit after financing costs of GBP5.6m * increased by 133% (2007:
GBP2.4m)*
* Total cash dividend of 16.5p paid increased by 10% (2007: 15.0p)
* EPRA net asset value 320.3p per share (2007: 373.5p)
* New banking facilities of GBP65m secured taking total facilities to GBP265m
Group Operational Highlights
* Acquisition of GBP53.3m of completed and let assets
* Increase in the portfolio from 107 to 113 medical centres including commitments
totalling GBP34.0m
* Portfolio owned, leased and committed increased by 9% to GBP354.2m (2007:
GBP324.7m)
* Rental increases of GBP0.47m per annum on completed rent reviews
* before revaluation result, fair value loss on derivatives and UK-REIT charges
Harry Hyman, Managing Director, commented:
"The period under review has been a challenging one for the commercial property
sector as a whole and I am delighted to report a year of strong trading and
significant achievements. I am particularly pleased to announce an operating
profit of GBP5.6m * which allows us to once again increase our overall dividend.
Our NAV of GBP3.20 per share has declined far less than those of companies in
other sectors and to have achieved the reported overall increase in rental
income is a notable gain. This is against general trends in the sector where
dividends are being cut, yields are moving out and rents are in decline.
"PHP operates in the most resilient of commercial property sectors where we
benefit from long lease lengths, nil voids, growing tenant demand and
government-backed covenant strength. The Group has manageable debt with ample
headroom and there is no squeeze on loan to value ratios. We have ambitions to
grow the business and believe there are buying opportunities in today's market
at historically low valuations. We look forward to the future with confidence."
- ends -
Enquiries:
Bell Pottinger Corporate and Financial
David Rydell / Victoria Geoghegan
Tel: 020 7861 3232
Primary Health Properties PLC
Harry Hyman
Managing Director
Tel: 020 7451 7050
Chairman's Statement
The economic outlook for the world has changed markedly since the last audited
figures and indeed since the interims announced mid August. Despite the
worsening economic environment, the Group has continued to grow its rent roll
and underlying cashflow, notwithstanding the difficulties in the banking sector
and the economy generally.
The primary care market continues to be underpinned by good fundamentals with
tenant demand for modern purpose built primary care facilities remaining high.
The Group remains a leader in its niche market with secure cashflows and a
strong pipeline of potential deals. In addition, the available yields on new
purchases and the much reduced levels of LIBOR interest rates should offset the
higher margins that will be associated with new borrowings.
Achievements during the year include:
* Acquisition of GBP53.3m of assets
* Increase in the portfolio from 107 to 113 medical centres including commitments
totalling GBP34.0m
* EPRA net asset value of GBP3.20 per share
* Rental increases of GBP0.47m per annum on completed rent reviews
* New term facilities of GBP65m secured in the year taking total facilities to
GBP265m
* Cash dividends of 16.5p per share paid
Results
Group financial highlights
+-----------------+-----------+-----------+-----------+
| | Year | Eighteen | Year |
| | to | months | to |
| | 31 | to | 31 |
| | December | 31 | December |
| | 2008 | December | 2007 |
| | | 2007 | |
+-----------------+-----------+-----------+-----------+
| Passing | GBP | GBP16.2m | GBP16.2m |
| rent* | 19.6m | | |
+-----------------+-----------+-----------+-----------+
| | | | |
+-----------------+-----------+-----------+-----------+
| Operating | 14.7 | 14.3 | 10.0 |
| profit | | | |
| before | | | |
| revaluation | | | |
| result, | | | |
| financing | | | |
| and UK-REIT | | | |
| charges | | | |
+-----------------+-----------+-----------+-----------+
| Net | (9.1) | (10.8) | (7.6) |
| financing | | | |
| costs | | | |
+-----------------+-----------+-----------+-----------+
| | | | |
+-----------------+-----------+-----------+-----------+
| Operating | 5.6 | 3.5 | 2.4 |
| profit | | | |
| before | | | |
| revaluation | | | |
| result, | | | |
| fair value | | | |
| loss on | | | |
| derivatives | | | |
| and UK-REIT | | | |
| charges | | | |
+-----------------+-----------+-----------+-----------+
| Fair | (10.7) | (2.8) | (2.8) |
| value | | | |
| loss | | | |
| on | | | |
| derivatives | | | |
+-----------------+-----------+-----------+-----------+
| UK-REIT | (0.2) | (5.6) | - |
| charges | | | |
+-----------------+-----------+-----------+-----------+
| | | | |
+-----------------+-----------+-----------+-----------+
| | (5.3) | (4.9) | (0.4) |
+-----------------+-----------+-----------+-----------+
| Revaluation | (17.7) | 1.2 | (12.3) |
| (loss)/gain | | | |
| including | | | |
| write downs | | | |
+-----------------+-----------+-----------+-----------+
| Loss | (23.0) | (3.7) | (12.7) |
| before | | | |
| tax | | | |
+-----------------+-----------+-----------+-----------+
| | | | |
+-----------------+-----------+-----------+-----------+
| Dividends | 5.5 | 6.0 | 4.3 |
| paid | | | |
+-----------------+-----------+-----------+-----------+
| | | | |
+-----------------+-----------+-----------+-----------+
| (Loss)/earnings | (68.5p) | 59.4p | (43.9p) |
| per share: | | | |
| basic | | | |
+-----------------+-----------+-----------+-----------+
| Earnings | 18.8p | 8.2p | 15.3p |
| per | | | |
| share: | | | |
| adjusted** | | | |
+-----------------+-----------+-----------+-----------+
| Dividends | 16.50p | 21.75p | 15.00p |
| paid | | | |
| during | | | |
| the | | | |
| period | | | |
+-----------------+-----------+-----------+-----------+
| Net | GBP79.2m | GBP124.1 | GBP124.1 |
| assets | | m | m |
+-----------------+-----------+-----------+-----------+
| EPRA | 320.3p | 373.5p | 373.5p |
| net | | | |
| asset | | | |
| value*** | | | |
+-----------------+-----------+-----------+-----------+
| Net | 235.8p | 369.4p | 369.4p |
| asset | | | |
| value | | | |
| per | | | |
| share | | | |
+-----------------+-----------+-----------+-----------+
| Portfolio | GBP319.9m | GBP288.3m | GBP288.3m |
| owned and | | | |
| leased | | | |
+-----------------+-----------+-----------+-----------+
| Portfolio | GBP34.3m | GBP36.4m | GBP36.4m |
| commitments | | | |
| inc. | | | |
| development | | | |
| loans & | | | |
| deposits | | | |
+-----------------+-----------+-----------+-----------+
| Portfolio | GBP354.2m | GBP324.7m | GBP324.7m |
| owned | | | |
| leased | | | |
| and | | | |
| committed | | | |
+-----------------+-----------+-----------+-----------+
* Passing rent represents the annualised rent roll
** Adjusted for large one-off items and movements in fair value
*** EPRA net asset value is calculated as balance sheet net assets including the
valuation result on trading properties, excluding fair value adjustments for
debt and related derivatives ("EPRA" is the European Public Real Estate
Association).
Property valuation
Asset valuations in the commercial property market have declined during the year
and primary care property was no exception, although the strength of tenant
covenant, little or no over supply and the length of our leases have mitigated
the value reductions experienced. During the second half of the year, there was
a further weakening of yields. At the year end, the initial yield on the
portfolio was 5.97% and the expected reversionary yield was 6.16%. This resulted
in an unrealised loss on revaluation of GBP13m in the second half which, when
added to the unrealised loss in the first half, totalled GBP17.7m for the year
as a whole. There has been no material change to the property valuation since 31
December 2008, being the date the property valuation was prepared.
Discounted cashflow property valuation
In addition to the open market valuation exercise performed by Lambert Smith
Hampton ("LSH"), the Board monitors the value of the Group's completed
investment portfolio based on a discounted cash flow analysis. On this basis,
the valuation at 31 December 2008 was GBP367m compared with a market valuation
of GBP317m. The difference is GBP50m, which amounts to GBP1.49 of net asset
value per share. The assumptions used in the discounted cash flow analysis are a
discount rate of 7%; an average increase of 3% per annum in the property rents
at their respective review dates through the life of the lease and capital
growth in residual values of 1% per annum.
Borrowings and finance
During the year, the Group secured additional facilities of GBP65m - GBP50m in
March 2008 and GBP15m in September 2008, resulting in total facilities of
GBP265m at 31 December 2008, including GBP10m of overdraft. The term facilities
mature in January 2013. Taking into account existing debt at the year end of
GBP206m and further commitments of GBP34m, this leaves GBP25m of committed
headroom available to the Group to continue with its acquisition policies.
Total borrowings at 31 December 2008 were GBP206m. The Group had GBP193m of
fixed rate cover including GBP88m of callable swaps. The loan to value ratio at
the period end was 65% compared to a covenant level of 75% (open market value
divided by gross borrowings). This gives a fall to breach percentage margin of
approximately 14% at 31 December 2008.
Interest cover - as defined in the loan facility agreements as gross rental
income divided by consolidated net interest payable - was 2.2 times compared to
a covenant level of 1.3 times.
The future ability of the Group to borrow on acceptable terms has been affected
by the contraction of available credit lines in the market generally and its
re-pricing. The Group will restrict its gearing to 70% loan to value, which is a
requirement of its existing credit facilities from October 2009. Until the
availability of banking finance improves, gearing will be harder and more
expensive to source and the Group will keep a prudent level of gearing.
Financial instruments
The large reduction in medium term interest rates that occurred in late 2008,
whilst generally beneficial to the Group in so far as it reduces the future cost
of borrowings and reduces the servicing cost of those parts of the Group's
borrowings that are variable, does result in the reduction in the mark to market
("MTM") value of the Group's interest rate swaps. The valuation of the callable
swaps is also impacted by the fall in interest rates and the amount of
volatility in the market place at the valuation date of 31 December 2008. The
amount of the MTM adjustment at the balance sheet date in relation to all of
these swaps is a charge of GBP27m (2007: GBP1.4m) (reversed to the extent of
GBP6m at 24 February 2009) of which GBP10.6m (2007: GBP2.8m), relating to swaps
which are ineffective in IAS39 terms, passes through the Group Income Statement
even though it is an unrealised loss. This reduction in the value of the swaps
has been caused by the significant recent decline in interest rates which are
now at extremely and historically low levels. As and when interest rates return
to a range that is less abnormal the carrying value of the Group's interest rate
swaps will increase.
EPRA NAV
Because of the materiality and the non-cash nature of the MTM adjustment of the
financial instruments as required by IFRS, the Group is also disclosing (in line
with many other property companies) the EPRA NAV, which adds back to the IFRS
NAV the unrealised losses relating to financial instruments. The NAV per share
on this basis is GBP3.20 (31 December 2007: GBP3.74).
Dividends
The Group paid an ordinary cash interim dividend of 8.25p per Ordinary Share on
28 March 2008 and a further interim cash dividend of 8.25p per Ordinary Share on
20 November 2008. The Board proposes to pay an interim cash dividend of 8.5p per
Ordinary Share payable on 15 April 2009 to Shareholders on the register on 13
March 2009.
Rental growth
Although the process for agreeing rental increases on GP occupied space has been
slower than the Board would have liked, the achieved increase on those leases
agreed in the year to 31 December 2008 was 12.4% over three years compared to
11% reported in 2007.
Revenues, administration expenses and net asset value
At a trading level, revenues for the year ended 31 December 2008 rose to
GBP19.7m as a result of new deliveries and favourable rent reviews. Operating
profit before revaluation result, fair value loss on derivatives and UK-REIT
charges was GBP5.6m. On a pro rata basis, total administration expenses are
down, principally due to the absence of a Performance Incentive Fee and reduced
goodwill impairment charges. During the year the net asset value fell from
369.4p to 235.8p. On an EPRA basis the net asset value per share fell from
373.5p to 320.3p and on a discounted cashflow basis this net asset value fell
from 471.8p to 384.2p.
Performance Incentive Fee
Given the reduction in net asset value over the year there is no Performance
Incentive Fee payable for the year and, under the terms of the scheme, the
deficit in total return has to be made up before any fee is payable in future
years.
Portfolio
During the year the Group has taken delivery of GBP53.3m of completed and let
properties at locations set out in the Managing Director's Report and also
entered into new commitments of GBP32.8m.
The table below sets out the portfolio as at 31 December 2008.
+-------------+---------------+---------------+
| | 31 | 31 |
| | December 2008 | December 2007 |
| | GBPm | GBPm |
+-------------+---------------+---------------+
| Investment | 314.4 | 281.7 |
| properties | | |
+-------------+---------------+---------------+
| Properties | 2.5 | 3.6 |
| in the | | |
| course of | | |
| development | | |
+-------------+---------------+---------------+
| | | |
+-------------+---------------+---------------+
| Total | 316.9 | 285.3 |
| properties | | |
+-------------+---------------+---------------+
| Finance | 3.0 | 3.0 |
| leases | | |
+-------------+---------------+---------------+
| | | |
+-------------+---------------+---------------+
| Total | 319.9 | 288.3 |
| owned | | |
| and | | |
| leased | | |
+-------------+---------------+---------------+
| Development | 0.3 | 0.7 |
| loans | | |
+-------------+---------------+---------------+
| | | |
+-------------+---------------+---------------+
| Total | 320.2 | 289.0 |
| owned | | |
| and | | |
| leased | | |
| (including | | |
| development | | |
| loans) | | |
+-------------+---------------+---------------+
| Committed | 34.0 | 35.7 |
+-------------+---------------+---------------+
| Total | 354.2 | 324.7 |
| owned, | | |
| leased | | |
| and | | |
| committed | | |
+-------------+---------------+---------------+
| Closing | 19.6 | 16.2 |
| annualised | | |
| rent roll | | |
| (on | | |
| completed | | |
| properties) | | |
+-------------+---------------+---------------+
The Group's portfolio of 113 properties, including five contracted schemes, is
almost 100% (99.9%) let with an average outstanding lease length of 18.0 years.
90% of the rent roll of GBP19.6m is paid for directly or indirectly by the NHS
and almost all of the balance is let to pharmacy operators. The closing rent
roll at 31 December 2008 was GBP19.6m compared to GBP16.2m at the beginning of
the year. 85% of the increase related to new deliveries and 15% to rental
increases secured during the period.
Financing
The Group has received indicative terms for a new 20 year secured facility of
GBP50m and is also in discussion with existing and other lenders regarding
obtaining additional facilities.
Other matters
The share plan allowing investors to purchase the Company's Ordinary Shares by
lump sum or regular payment currently has 44 members holding 124,544 Ordinary
Shares. Further details can be found on the website www.phpgroup.co.uk and
www.capitaregistrars.com/php.
The notice of the Annual General Meeting, explanatory circular and proxy card
for the Annual General Meeting to be held on 29 April 2009 at 10.30am will be
posted separately.
The Board has appointed a third Independent Director, Mark Creedy, who joined
the Board on 1 November 2008 and brings significant additional property
experience to the Group.
Outlook
The primary care market continues to be underpinned by good fundamentals with
tenant demand for modern purpose built primary care facilities remaining high.
The primary care market has the advantage that the Government acts as the
ultimate payer/effective guarantor of the rent for the accommodation used for
providing approved NHS services, which in PHP's portfolio accounts for 90% of
the total portfolio, with the balance almost all let to pharmacy operators.
At 31 December 2008, the Group had GBP34m of commitments, all of which are
expected to be delivered by March 2010. All of the commitments can be funded out
of current committed facilities. At the date of this Statement, there has been
no change in the Group's commitment position since the year end.
Although the property and MTM adjustments to net asset value are material,
neither affects the cashflow of the Group and PHP enjoys strong cashflow. As
previously stated, the Board considers that cashflow and the cash returned to
Shareholders via dividends represent tangible measures of the success of the
Group.
The Group remains a leader in its niche market with secure cashflows and a
strong pipeline of potential deals. Although, in these uncertain times, the
Board has decided to adopt a prudent upper limit for gearing of 70% loan to
value, further growth is anticipated through rental increases and further
purchases. The higher available yields on new purchases and the much reduced
levels of LIBOR interest rates should offset the higher margins that will be
associated with new borrowings.
The Group will continue to apply a prudent growth strategy.
G A Elliot
Chairman
26 February 2009
Managing Director's Report
Property portfolio
The table in the Chairman's Statement sets out the development of our portfolio
during the year under review. We took delivery of five new developments and
entered into five commitments on developments in the course of construction at
the year end. At the year end the portfolio, when commitments are included,
reached GBP354.2m.
Portfolio purchases during the year
The Group completed the purchases of a number of properties during the year
ended 31 December 2008, details of which are set out below:
+-------------------------+------------------+--------------+
| Property | Acquisition cost | Occupational |
| | (GBPm) | tenants |
+-------------------------+------------------+--------------+
| Northwich, | 3.0 | Doctors' |
| Firdale | | practice |
| Medical | | and |
| Centre* | | pharmacy |
+-------------------------+------------------+--------------+
| Shavington, | 5.0 | Doctors' |
| Rope Green | | practice |
| Medical | | and |
| Centre* | | pharmacy |
+-------------------------+------------------+--------------+
| Paisley, | 3.0 | Doctors' |
| Anchor | | practice |
| Mill | | and |
| Medical | | pharmacy |
| Centre | | |
+-------------------------+------------------+--------------+
| Loudwater, | 1.7 | Doctors' |
| Cherrymead | | practice |
| Surgery | | |
+-------------------------+------------------+--------------+
| Lossiemouth, | 6.7 | Two |
| Moray Coast | | doctors' |
| Health | | practices, |
| Centre | | HM |
| | | Government, |
| | | PCT and |
| | | pharmacy |
+-------------------------+------------------+--------------+
| Kirkintilloch, | 3.0 | Doctors' |
| Regent Gardens | | practice |
| Surgery | | |
+-------------------------+------------------+--------------+
| Kettering, | 11.4 | Doctors' |
| Prospect | | practice |
| House | | and |
| | | pharmacy |
+-------------------------+------------------+--------------+
| Cullompton, Culm Valley | 7.9 | Doctors' |
| Health Centre | | practice, |
| | | PCT and |
| | | pharmacy |
+-------------------------+------------------+--------------+
| Morriston | 2.2 | Doctors' |
| , | | practice |
| Strawberry | | and |
| Place | | pharmacy |
| Surgery | | |
+-------------------------+------------------+--------------+
| Belper, | 4.4 | Doctors' |
| Whitemoor | | practice |
| Medical | | and |
| Centre | | pharmacy |
+-------------------------+------------------+--------------+
| Sheerness, | 5.0 | PCT |
| Central | | for |
| Sheerness | | doctors' |
| Medical | | practice |
| Centre | | and |
| | | pharmacy |
+-------------------------+------------------+--------------+
| Total** | 53.3 | |
+-------------------------+------------------+--------------+
* Acquired by company purchase (note 9)
** Total purchases will differ to the acquisitions in note 9 due to the fact
that some of the properties were acquired in the previous year.
Property disposals during the year
There were no property disposals during the year.
Revaluation
Notwithstanding the attractions of the primary care property market as an asset
class, the sector has not been immune from declines driven by wider issues in
the commercial property market and the increased cost of debt. As reported in
the Chairman's Statement, the property valuation has resulted in a deficit for
the year which has been incorporated into the Group Balance Sheet, giving a
closing investment property valuation of GBP314.4m excluding properties in the
course of development and investment in finance leases (2007:GBP281.7m) and
GBP319.9m including properties in the course of development and investments in
finance leases (2007: GBP288.2m).
The decrease of GBP17.7m in valuations amounted to 52.7p per Ordinary Share.
Portfolio rental levels
+------------+---------+-----------+----------+----------+-----------+
| | Tenant | Area | Rent | Rent | % of |
| | area | (sqft) | (GBPpsm) | (GBPpsf) | portfolio |
| | (sqm) | | | | |
+------------+---------+-----------+----------+----------+-----------+
| NHS | 105,772 | 1,138,538 | 164 | 15 | 93.2 |
| Activities | | | | | |
+------------+---------+-----------+----------+----------+-----------+
| Pharmacy | 6,651 | 71,592 | 255 | 24 | 5.9 |
+------------+---------+-----------+----------+----------+-----------+
| Other | 1,101 | 11,850 | 154 | 14 | 0.9 |
+------------+---------+-----------+----------+----------+-----------+
| Total | 113,524 | 1,221,978 | 170 | 16 | 100.0 |
+------------+---------+-----------+----------+----------+-----------+
Tenancy split by floor area
The table below indicates tenancy split by floor area (psm).
+------------------------------------+------------------------------------+
| GPs | 81% |
+------------------------------------+------------------------------------+
| HM Government | 3% |
+------------------------------------+------------------------------------+
| PCTs | 9% |
+------------------------------------+------------------------------------+
| Pharmacy | 6% |
+------------------------------------+------------------------------------+
| Other | 1% |
+------------------------------------+------------------------------------+
| | |
+------------------------------------+------------------------------------+
| Total | 100% |
+------------------------------------+------------------------------------+
Rent reviews
The Group completed a number of rent reviews during the period and there are a
number of reviews outstanding that we expect to be resolved during the coming
year. The results of the reviews completed during the period added GBP473k to
our rent roll. There are further reviews due from the past year which amount to
some GBP5.6m of rent passing. We have accounted for the majority of this based
on expected outcomes.
The table below shows the timing of reviews across the portfolio. The average
increase in rent as a percentage of passing rent over the three year review
process has been 12.35% (2007: 11.00%) equating to 3.96% p.a. (2007: 3.39%p.a.).
PHP rent review performance against inflation
The table compares average levels of review for four recent periods against the
RPI index for the same periods. Overall the four periods have seen an
out-performance against RPI of some 0.85% p.a.
+------------------------+------------------------+------------------------+
| | RPI | Rents |
+------------------------+------------------------+------------------------+
| Year to 30 June 2005 | 2.89% | 3.85% |
+------------------------+------------------------+------------------------+
| Year to 30 June 2006 | 3.28% | 3.39% |
+------------------------+------------------------+------------------------+
| Year to 31 December | 4.05% | 3.39% |
| 2007 | | |
+------------------------+------------------------+------------------------+
| Year to 31 December | 0.95% | 3.95% |
| 2008 | | |
+------------------------+------------------------+------------------------+
| Average of four | 2.79% | 3.65% |
| periods | | |
+------------------------+------------------------+------------------------+
Finance and interest rate hedging
Bank borrowings increased from GBP159.9m to GBP205.6m during the year of which
the amounts shown in the tables below have been hedged at an average weighted
cost rate of 4.79% (2007: 4.78%) excluding the lenders' margins which equate to
approximately 0.76%.
The Group has also taken out basis rate swaps under which the Group has swapped
the right to receive one month LIBOR plus a margin for the right to pay three
month LIBOR.
The amounts outstanding in respect of all swaps are illustrated below:
Finance and interest rate hedging (assuming callable swaps are not called)
The table shows the level of bank borrowings economically hedged by interest
rate swaps
for each financial year to 31 December 2027.
+------------------------------------+------------------------------------+
| Year | Swaps (GBPm)* |
+------------------------------------+------------------------------------+
| 2008 | 181 |
+------------------------------------+------------------------------------+
| 2009 | 188 |
+------------------------------------+------------------------------------+
| 2010 | 202 |
+------------------------------------+------------------------------------+
| 2011 | 208 |
+------------------------------------+------------------------------------+
| 2012 | 212 |
+------------------------------------+------------------------------------+
| 2013 | 190 |
+------------------------------------+------------------------------------+
| 2014 | 178 |
+------------------------------------+------------------------------------+
| 2015 | 180 |
+------------------------------------+------------------------------------+
| 2016 | 164 |
+------------------------------------+------------------------------------+
| 2017 | 158 |
+------------------------------------+------------------------------------+
| 2018 | 168 |
+------------------------------------+------------------------------------+
| 2019 | 168 |
+------------------------------------+------------------------------------+
| 2020 | 168 |
+------------------------------------+------------------------------------+
| 2021 | 131 |
+------------------------------------+------------------------------------+
| 2022 | 80 |
+------------------------------------+------------------------------------+
| 2023 | 80 |
+------------------------------------+------------------------------------+
| 2024 | 80 |
+------------------------------------+------------------------------------+
| 2025 | 80 |
+------------------------------------+------------------------------------+
| 2026 | 50 |
+------------------------------------+------------------------------------+
| 2027 | 20 |
+------------------------------------+------------------------------------+
Finance and interest rate hedging
The table shows the level of bank borrowings covered by effective hedges for
each financial year to 31 December 2027.
+------------------------------------+------------------------------------+
| Year | Swaps (GBPm)* |
+------------------------------------+------------------------------------+
| 2008 | 181 |
+------------------------------------+------------------------------------+
| 2009 | 107 |
+------------------------------------+------------------------------------+
| 2010 | 114 |
+------------------------------------+------------------------------------+
| 2011 | 120 |
+------------------------------------+------------------------------------+
| 2012 | 124 |
+------------------------------------+------------------------------------+
| 2013 | 102 |
+------------------------------------+------------------------------------+
| 2014 | 90 |
+------------------------------------+------------------------------------+
| 2015 | 92 |
+------------------------------------+------------------------------------+
| 2016 | 76 |
+------------------------------------+------------------------------------+
| 2017 | 70 |
+------------------------------------+------------------------------------+
| 2018 | 80 |
+------------------------------------+------------------------------------+
| 2019 | 80 |
+------------------------------------+------------------------------------+
| 2020 | 80 |
+------------------------------------+------------------------------------+
| 2021 | 80 |
+------------------------------------+------------------------------------+
| 2022 | 80 |
+------------------------------------+------------------------------------+
| 2023 | 80 |
+------------------------------------+------------------------------------+
| 2024 | 80 |
+------------------------------------+------------------------------------+
| 2025 | 80 |
+------------------------------------+------------------------------------+
| 2026 | 50 |
+------------------------------------+------------------------------------+
| 2027 | 20 |
+------------------------------------+------------------------------------+
* The tables above show the weighted average amount hedged throughout each
financial year for the period to 31 December 2027. The tables assume that the
term loans which the Group holds which expire in 2013 are highly likely to be
renegotiated.
Portfolio characteristics
Covenant analysis by annual rent
The table shows the percentage of our portfolio by rent roll derived from each
of our major tenant classes; GPs, PCTs, Health Authorities, pharmacy operators
and others. Some 99% of our rent comes directly or indirectly from GPs, PCTs,
Health Authorities and pharmacy operators.
+------------------------------------+------------------------------------+
| GPs | 78% |
+------------------------------------+------------------------------------+
| HM Govt | 3% |
+------------------------------------+------------------------------------+
| PCTs | 9% |
+------------------------------------+------------------------------------+
| Pharmacy | 9% |
+------------------------------------+------------------------------------+
| Other | 1% |
+------------------------------------+------------------------------------+
| Total; | 100% |
+------------------------------------+------------------------------------+
Length of leases
The table below shows the analysis of rent by expiry term. The second table
reflects security of income by term certain. The first table indicates that some
80% (2007: 84%) of the lease income has more than 15 years unexpired whilst the
security of the income by term certain table shows the rental cash flow as a
percentage of the year end rent roll, ignoring any subsequent increases and
lease renewals during the subsequent periods. This shows that in year 10 the
Group is still receiving 97% of its current income, without further action.
Analysis of annual rent by unexpired lease term
+------------------------------------+------------------------------------+
| Less than 5 years | 1% |
+------------------------------------+------------------------------------+
| 6-15 years | 19% |
+------------------------------------+------------------------------------+
| 15-20 years | 51% |
+------------------------------------+------------------------------------+
| More than 20 years | 29% |
+------------------------------------+------------------------------------+
| Total | 100% |
+------------------------------------+------------------------------------+
Security of income by term certain
+------------------------------------+------------------------------------+
| Year | % of passing rent |
+------------------------------------+------------------------------------+
| 1 | 100% |
+------------------------------------+------------------------------------+
| 5 | 99% |
+------------------------------------+------------------------------------+
| 10 | 97% |
+------------------------------------+------------------------------------+
| 15 | 79% |
+------------------------------------+------------------------------------+
Geographical spread
Annual rent by region
The table shows the percentage of the portfolio by rent roll derived from each
of the NHS regions.
+------------------------------------+------------------------------------+
| East Anglia | 2% |
+------------------------------------+------------------------------------+
| East Midlands | 12% |
+------------------------------------+------------------------------------+
| West Midlands | 13% |
+------------------------------------+------------------------------------+
| North West | 10% |
+------------------------------------+------------------------------------+
| Yorkshire & Humberside | 9% |
+------------------------------------+------------------------------------+
| North | 3% |
+------------------------------------+------------------------------------+
| Scotland | 8% |
+------------------------------------+------------------------------------+
| Wales | 3% |
+------------------------------------+------------------------------------+
| London | 7% |
+------------------------------------+------------------------------------+
| South West | 5% |
+------------------------------------+------------------------------------+
| South East | 28% |
+------------------------------------+------------------------------------+
| Total | 100% |
+------------------------------------+------------------------------------+
Forthcoming rent reviews
The table shows the annual amount of rent (GBP19.6m) falling due for review in
each of the next three years. GBP1m of rent is reviewed on a longer pattern and
GBP0.5m is reviewed annually.
+------------------------------------+------------------------------------+
| Year | Rent (GBPm) |
+------------------------------------+------------------------------------+
| 2009 | 5.723 |
+------------------------------------+------------------------------------+
| 2010 | 5.494 |
+------------------------------------+------------------------------------+
| 2011 | 7.359 |
+------------------------------------+------------------------------------+
| Longer pattern | 0.995 |
+------------------------------------+------------------------------------+
Primary care property market
The primary care property market, although weakening during 2008, has not
suffered the dramatic falls seen elsewhere in commercial property. Our own
property portfolio saw yields soften from 5.5% at the start of the year to 5.9%
at the end, a valuation reduction of almost 10%. Long leases, undoubted
covenants and little or no oversupply are the principal reasons - in our view -
why yields have remained relatively resilient. The dramatic falls in base rate
and LIBOR seen during the last few months of the year have widened the gap
between the yields on the property portfolio and the funding costs. Although
margins have increased and there is less available finance, this widening yield
gap has yet to have its influence on the property market generally and on
primary care as well.
Adding value
Our portfolio now stands at some 113 properties.
The three year rent review pattern ensures that there is a large percentage of
leases where rent reviews are under way at any time. We have challenged the
appeals process procedure at judicial review. We are awaiting the outcome of our
case which asks for a more transparent and independent process.
We have identified a number of situations in the portfolio where there are
opportunities to extend the existing let space, extend leases and add pharmacies
or build on adjacent land. We are working up these projects which, subject to
contract and planning, will be undertaken as and when appropriate.
We have also been involved in talks with IPD, and other substantial investors in
the sector, about the possibility of creating a specific Annual UK Healthcare
Index during 2009.
Future prospects
We believe that investment in the primary care property market will generate
solid returns on a medium term basis. The high quality of the income, the
enduring social requirement for medical facilities and the emphasis put by the
Government and the NHS on renewing primary care stock and relocating more
secondary care procedures into the primary care arena bode well for the medium
term future of the sector. In the short term, price weakness could be seen as a
good buying opportunity.
Harry Hyman
Managing Director
26 February 2009
Extract from the Group Directors' Report
The Directors present their report to Shareholders for the year ended 31
December 2008. The Group's last statutory accounting period was for the eighteen
months ended 31 December 2007, but for ease of comparison, the results for the
twelve months ended 31 December 2007 are also presented in the beginning of this
statement.
Principal activity
The principal activity of the Group is the generation of rental income and
capital growth through investment in primary health care property in the United
Kingdom leased principally to GPs, Primary Care Trusts ("PCTs"), health
authorities and other associated health care users.
Real estate
The Group became a Real Estate Investment Trust ("UK-REIT") on 1 January 2007.
In the opinion of the Directors, the Group has conducted its affairs so as to be
able to continue as a UK-REIT.
Results
The loss after tax for the year ended 31 December 2008 amounted to GBP23.0m
(eighteen months ended 31 December 2007: profit GBP16.8m; twelve months to 31
December 2007: loss GBP12.7m). An analysis of the results is shown in the
Chairman's Statement.
Business review for the year ended 31 December 2008
The Group's investment policy is to acquire the freehold and long leaseholds of
modern, purpose built primary healthcare properties. Each property considered
for purchase by the Group is first evaluated for its income and asset value
growth potential and impact on the environment. A review of the performance and
the development of the Group's business during the year (as required by section
417 of the Companies Act 2006) is included in the Chairman's Statement
incorporated into this Report by reference. The key performance indicators
("KPIs") comprise net assets, number of properties and rent roll. . The KPIs,
the position at the year end and prospects are set out on in the Chairman's
Statement and the Managing Director's Report. Due to the nature of the business,
the KPIs are financial rather than non-financial. A description of the principal
risks and uncertainties facing the Group and how they can be mitigated is
detailed below. The Group has no employees and accordingly this business review
does not contain any information regarding employees. The Board is not aware of
any material environmental issues affecting the Group's utilisation of its
assets. The Board has appointed an environmental consultant and considers the
social, community and environmental issues of all of its properties.
During the year, the Group entered into a GBP65m secured debt facility agreement
with Abbey National Treasury Services plc to add to its existing facilities of
GBP200m, making total debt facilities available to the Group of GBP265m.
On 4 January 2008, the Group acquired the issued share capital and debt of two
property companies, SPCD (Shavington) Limited and SPCD (Northwich) Limited(see
note 9). The two properties acquired as a result were Rope Green Medical Centre,
Shavington and Firdale Medical Centre, Northwich.
During the year, the Group took delivery of three completed fully let investment
properties at Morriston, Sheerness and Belper. The Group also entered into
purchase and funding agreements for the acquisition of a new medical centre in
Connah's Quay, Clwyd, North Wales, for approximately GBP9.7m.
The building, which is scheduled for completion in February 2010, will be let
for occupation by three GP practices and the North East Wales NHS Trust. In
December, the Group entered into purchase and funding agreements for the
acquisition of a new medical centre at Treharris, Mid Glamorgan, South Wales,
for approximately GBP4.4m. The building will be let to two local NHS trusts for
occupation by GP practices and to Treharris Communities First, a?pharmacy and
the Rhondda Cynontaff Local Health Board and is expected to be completed in
Spring 2010.
Details on the portfolio, capital and funding are given in the Chairman's
Statement, Managing Director's Report and notes 9, 16, 17 and 18 to the
financial statements. On 24 December 2008 the investment properties held by
subsidiaries were transferred to the main subsidiary, Primary Health Investment
Properties Limited, for administrative convenience and to reduce costs.
The Report contains forward looking statements relating to the Group's outlook.
By their nature, forward looking statements involve risk and uncertainty because
they relate to future events and circumstances. These statements reflect the
knowledge and information available at the time of the preparation and
publication of the Annual Report. Nothing in this Report should be construed as
a profit forecast.
Valuation of the property portfolio
A valuation of the Group's property portfolio at 31 December 2008 was carried
out by Lambert Smith Hampton Ltd, Chartered Surveyors and Valuers, on the basis
of market value. Details are given in the Chairman's Statement.
Dividends
Interim dividends per Ordinary Share were paid during the year ended 31 December
2008 on 28 March 2008 (8.25p) and 20 November 2008 (8.25p). In order to
accelerate dividend payments to Shareholders, the Board proposes to pay a
further interim cash dividend of 8.5p per ordinary share in respect of the year
ended 31 December 2008 to Shareholders on the register of members on 13 March
2009 for payment on 15 April 2009 instead of a final dividend. The Group's
policy is to pay a minimum of 90% of the profits of its tax exempt business in
dividends and in accordance with UK-REIT legislation.
Use of financial instruments
The Group's treasury operations are co-ordinated and managed in accordance with
policies and procedures approved by the Board. They are designed to mitigate the
financial risks faced by the Group as detailed below. The Group continues to
monitor its exposure to interest rates and the Group's policy is to enter into
interest rate swaps as necessary to hedge cashflow risk on bank borrowing
requirements, over the long term.
The Group's financial instruments comprise bank borrowings, interest rate swaps,
investments in financial leases, development loans and trade related debtors and
creditors that arise directly from its property holding operations.
All swaps are taken out to mitigate exposure to interest rate rises, but under
accounting rules only certain swaps qualify as "effective" hedges. The mark to
market movement ("MTM") on these swaps is taken directly to reserves. The MTM
movement on other swaps, not deemed to be effective hedges, is taken through the
Group Income Statement, although the economic benefit of the hedges is not
affected.
During the year, as part of its continuing liability management programme, the
Group entered into the following swap agreements:
* GBP10m interest rate swap at 4.895% covering the period from March 2008 to March
2013.
* GBP10m interest rate swap at 4.8925% covering the period from March 2008 to
March 2013.
* GBP15m interest rate swap at 4.915% covering the period September 2010 to
September 2013.
The above swaps all qualify as effective hedges under IAS39.
The Group has also entered into a number of basis rate swaps, the MTM movement
of which, together with the existing callable swaps (further detail is given in
note 17 of this Report), were accounted for at fair value through the profit or
loss within the Group Income Statement.
The callable swaps are cancellable by the counterparty bank on any of the future
quarter dates at no cost to the Group. If not called, the swaps run to 11 August
2021. Whilst not qualifying for hedge accounting under IAS39, the instruments
significantly stabilise the Group's cash interest costs. The revaluation profit
or loss on the callable swap contracts, should they not be cancelled, is taken
through the Group Income Statement and this year amounted to a loss of GBP10.7m.
The swaps were not cancelled by the Bank during the year ended 31 December 2008
nor in the period to the date of signing of this Annual Report.
Principal risks and uncertainties
The principal risks and uncertainties of the Group are summarised below. The
Board has reviewed and agreed policies for managing each of the risks:
(i) Interest rate risk
The Group finances its operations through called up share capital, retained
profits and bank borrowings. The Group borrows monies on a variable rate basis
from its banks and generally enters into interest rate swaps and other
instruments to mitigate its exposure to interest rate risk. At 31 December 2008,
88% of the Group's facilities were at fixed rates after taking account of
interest rate swaps (see note 17 of the financial statements). All of the
Group's financial instruments are in sterling.
(ii) Liquidity risk
The Board approves an annual plan which sets out the Group's expected financing
requirements for the following twelve months. At 31 December 2008, the maturity
analysis of the Group's facilities was as follows:
+------------+------------+----------+
| | Amount GBP | Maturity |
+------------+------------+----------+
| Bank | | |
| borrowings | | |
+------------+------------+----------+
| Long | 255m | 2013 |
| term | | |
+------------+------------+----------+
| Short | 10m | 364 |
| term | | days |
+------------+------------+----------+
| Total | 265m | |
+------------+------------+----------+
As at 31 December 2008, there was a total of GBP205.6m drawn under the long term
bank facilities. In 2008, the Group added secured debt facilities of GBP65m with
Abbey National Treasury Services plc, maturing in 2013, to its existing GBP200m
long term liabilities.
The Group's objective is to maintain a balance between continuity of funding and
flexibility in its use of bank loans. The Group's policy is to have a majority
of borrowings maturing in more than twelve months.
(iii) Borrowings, security, gearing and covenants
The Banks' borrowings are secured by fixed and floating charges over the
properties owned by the Group. The principal covenants are summarised below.
* Gearing The maximum gearing currently available to the Group permitted under
the Articles of Association is 75% of gross assets. The bank facilities limit is
75% (based on open market value), reducing to 70% in October 2009 in accordance
with the AIB facility agreement and March 2010 in respect of the other banking
facility agreements. As at 31 December 2008, gearing was 65% of gross assets and
was a maximum of 65% during the year.
* Interest cover The Group's banking facilities have covenants that require the
Group to maintain an interest cover ratio (rents/interest charge) of 1.3/1. The
ratio was 2.15 at 31 December 2008 and is regularly monitored.
* For the purposes of the UK-REIT legislation, the Group is required to satisfy a
separate interest cover ratio (exempt profits/finance costs) of 1.25/1. For the
year ended 31 December 2008 the cover was 1.76 (eighteen months to 31 December
2007: 1.34).
(iv) Property risks
The leases entered into by the Group's tenants are predominantly on terms such
that the tenant is responsible for fully repairing and insuring the buildings,
and, through regular inspections, the Group monitors its exposure to the risk of
deterioration of the properties. Where the Group retains responsibility for the
maintenance of the structure of the buildings, or has service charge
responsibilities, it additionally retains experienced and qualified managing
agents to fulfil these obligations on its behalf. In all cases, the Group
maintains adequate insurance covering the usual risks of accidental damage and
any resultant loss of rent.
(v) Industry specific risks
The Directors consider these to include the following:
* Availability of suitable property on favourable terms and conditions to enable
expansion.
* Uncertainty over valuations and possible downturns in the primary care market.
* The availability of funding to finance the asset portfolio and particularly
expansion in the future.
(vi) Specific risks relating to the Group
The Directors consider these to include the following:
* Loss of UK-REIT status. The Group cannot guarantee continued compliance with all
of the UK-REIT conditions. There is a risk that the UK-REIT regime may cease to
apply in some circumstances and the Group could lose its status by the action of
third parties. The ability of the Group to pay property income distributions
("PIDs") and/or non PIDs on the Ordinary Shares is dependent on the availability
of distributable reserves and upon receipt by it of dividends and other
distributable reserves from its subsidiaries.
* Inability to control the Government's primary care initiative and policies.
* Retention of the Joint Managers. The Group has no employees and is highly
dependent on its Directors and the Joint Managers and may be adversely affected,
at least in the short term, if their services or the respective services of any
of their key employees cease to be available to the Group.
Going concern
The Group's business activities together with the factors likely to affect its
future development, performance and position are set out in the Managing
Director's Report. The financial position of the Group, its cash flow liquidity
position and borrowing facilities including the covenants are described in the
Chairman's Statement. In addition, note 17 to the financial statements sets out
the Group's financial risk objectives, and includes details of its hedging
instruments and hedging activities and its exposure to credit and liquidity
risk.
The Group's principal facilities, which mature in 2013, are more than sufficient
to cover existing liabilities and all current commitments and the Directors do
not foresee difficulty in replacing those facilities in due course. The
revaluation result and the mark to market losses disclosed for the Group's
derivatives are unrealised losses and the latter have reduced since the year
end. The Group's properties are almost 100% let with a weighted average
outstanding lease length of 18 years and some 91% of the rent roll is reimbursed
or paid for by the NHS. The Group is cashflow positive at the operational level.
As a consequence the Directors believe that the Group is well placed to manage
its business risks successfully despite the current uncertain economic outlook
Having reviewed the Group's current position and cashflow projections,
facilities and covenant cover, the Directors have a reasonable expectation that
the Company and the Group have adequate resources to continue with current
operations and its selective policy of acquiring appropriate properties for the
foreseeable future. Accordingly, they continue to adopt the going concern basis
in preparing this Annual Report.
Responsibility Statement required by Disclosure and Transparency Rule (DTR)
4.1.12.
(i) To the best of our knowledge and belief the financial statements for the
year ended 31 December 2008, prepared in accordance with the International
Financial Reporting Standards adopted by the European Union ("IFRS"), give a
true and fair view of the assets, liabilities, financial position, result of the
issuer and the undertaking included in the consolidated figures taken as a
whole; and
(ii) the management report includes a fair review of the development and
performance of the business and position of the issuer and its undertakings
included in the consolidation taken as a whole together with a description of
the principal risks and uncertainties that they face.
For and on behalf of the Board of Primary Health Properties PLC
G A Elliot
Chairman
26 February 2009
Group Income Statement
for the year ended 31 December 2008
+---------------------+--------+---------------+--------------------------+
| | Notes | Year ended 31 | Eighteen months ended 31 |
| | | December 2008 | December 2007 |
| | | GBP000 | GBP000 |
+---------------------+--------+---------------+--------------------------+
| Rental | | 19,312 | 21,301 |
| income | | | |
+---------------------+--------+---------------+--------------------------+
| Finance | | 379 | 908 |
| lease | | | |
| income | | | |
+---------------------+--------+---------------+--------------------------+
| Rental | 2 | 19,691 | 22,209 |
| and | | | |
| related | | | |
| income | | | |
+---------------------+--------+---------------+--------------------------+
| Net | 9 | (17,707) | 4,857 |
| valuation | | | |
| (loss)/gain | | | |
| on property | | | |
| portfolio | | | |
+---------------------+--------+---------------+--------------------------+
| Impairment | 9 | - | (3,750) |
| loss | | | |
+---------------------+--------+---------------+--------------------------+
| Net | 9 | - | 44 |
| gain | | | |
| on | | | |
| disposal | | | |
| of | | | |
| property | | | |
+---------------------+--------+---------------+--------------------------+
| Administrative | 3 | (4,229) | (7,646) |
| expenses: | | | |
| recurring | | | |
+---------------------+--------+---------------+--------------------------+
| Administrative | 3 | (794) | (5,746) |
| expenses: | | | |
| non-recurring | | | |
+---------------------+--------+---------------+--------------------------+
| Operating | 3 | (3,039) | 9,968 |
| (loss)/profit | | | |
| before | | | |
| financing | | | |
| costs | | | |
+---------------------+--------+---------------+--------------------------+
| Finance | 4 | 2,919 | 2,178 |
| income | | | |
+---------------------+--------+---------------+--------------------------+
| Finance | 5 | (12,069) | (13,022) |
| costs | | | |
+---------------------+--------+---------------+--------------------------+
| Fair | 5 | (10,655) | (2,808) |
| value | | | |
| loss | | | |
| on | | | |
| derivatives | | | |
+---------------------+--------+---------------+--------------------------+
| | | | |
+---------------------+--------+---------------+--------------------------+
| Loss | | (22,844) | (3,684) |
| on | | | |
| ordinary | | | |
| activities | | | |
| before | | | |
| taxation | | | |
+---------------------+--------+---------------+--------------------------+
| Current | 6 | - | (100) |
| taxation | | | |
+---------------------+--------+---------------+--------------------------+
| Conversion | 6 | (160) | (5,157) |
| to UK-REIT | | | |
| charge | | | |
+---------------------+--------+---------------+--------------------------+
| Deferred | 6 | - | (3,880) |
| taxation | | | |
| charge | | | |
| for the | | | |
| period | | | |
+---------------------+--------+---------------+--------------------------+
| Deferred | 6 | (160) | 29,622 |
| taxation | | | |
| release | | | |
| on | | | |
| conversion | | | |
| to UK-REIT | | | |
+---------------------+--------+---------------+--------------------------+
| Taxation | | - | 20,485 |
| (charge)/ | | | |
| credit | | | |
+---------------------+--------+---------------+--------------------------+
| | | | |
+---------------------+--------+---------------+--------------------------+
| (Loss)/profit | | (23,004) | 16,801 |
| for the | | | |
| year/period | | | |
+---------------------+--------+---------------+--------------------------+
| (Loss)/earnings | 7 | (68.5p) | 59.4p |
| per share | | | |
| (basic and | | | |
| diluted) | | | |
+---------------------+--------+---------------+--------------------------+
| Adjusted | 7 | 18.8p | 8.2p |
| earnings | | | |
| per | | | |
| share | | | |
| (basic | | | |
| and | | | |
| diluted)* | | | |
+---------------------+--------+---------------+--------------------------+
| (Decrease)/increase | 23 | (133.7p) | 54.9p |
| in net asset value | | | |
| per share since 31 | | | |
| December 2007 (30 | | | |
| June 2006) | | | |
+---------------------+--------+---------------+--------------------------+
| Total | 24 | (117.2p) | 76.7p |
| return | | | |
| per | | | |
| share | | | |
| (basic | | | |
| and | | | |
| diluted) | | | |
+---------------------+--------+---------------+--------------------------+
| Dividends | 8 | 16.5p | 21.75p |
| paid in | | | |
| the | | | |
| year/period | | | |
| per share | | | |
+---------------------+--------+---------------+--------------------------+
The above relates wholly to continuing operations.
* Adjusted for large one-off items and movements in fair value (see note 7).
Group Balance Sheet
as at 31 December 2008
+-------------+--------+--------------+-----------+
| | Notes | 31 | 31 |
| | | December2008 | December |
| | | GBP000 | 2007 |
| | | | GBP000 |
+-------------+--------+--------------+-----------+
| Non | | | |
| current | | | |
| assets | | | |
+-------------+--------+--------------+-----------+
| Investment | | 316,862 | 285,348 |
| properties | | | |
+-------------+--------+--------------+-----------+
| Development | | 282 | 722 |
| loans | | | |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| | 9 | 317,144 | 286,070 |
+-------------+--------+--------------+-----------+
| Net | 11 | 2,989 | 2,914 |
| investment | | | |
| in finance | | | |
| leases | | | |
+-------------+--------+--------------+-----------+
| Derivative | 17 | - | 1,651 |
| interest | | | |
| rate swaps | | | |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| | | 320,133 | 290,635 |
+-------------+--------+--------------+-----------+
| Current | | | |
| assets | | | |
+-------------+--------+--------------+-----------+
| Derivative | 17 | 454 | - |
| interest | | | |
| rate swaps | | | |
+-------------+--------+--------------+-----------+
| Trade | 12 | 1,808 | 3,646 |
| and | | | |
| other | | | |
| receivables | | | |
+-------------+--------+--------------+-----------+
| Net | 11 | 50 | 53 |
| investment | | | |
| in finance | | | |
| leases | | | |
+-------------+--------+--------------+-----------+
| Cash | 13 | 675 | 3,862 |
| and | | | |
| cash | | | |
| equivalents | | | |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| | | 2,987 | 7,561 |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| Total | | 323,120 | 298,196 |
| assets | | | |
+-------------+--------+--------------+-----------+
| Current | | | |
| liabilities | | | |
+-------------+--------+--------------+-----------+
| Derivative | 17 | (13,917) | (2,808) |
| interest | | | |
| rate swaps | | | |
+-------------+--------+--------------+-----------+
| Corporation | 14 | (29) | (29) |
| tax payable | | | |
+-------------+--------+--------------+-----------+
| UK-REIT | 15 | (1,559) | (1,208) |
| conversion | | | |
| charge | | | |
| payable | | | |
+-------------+--------+--------------+-----------+
| Deferred | 15 | (4,275) | (3,660) |
| rental | | | |
| income | | | |
+-------------+--------+--------------+-----------+
| Trade | 15 | (2,922) | (3,576) |
| and | | | |
| other | | | |
| payables | | | |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| | | (22,702) | (11,281) |
+-------------+--------+--------------+-----------+
| Non | | | |
| current | | | |
| liabilities | | | |
+-------------+--------+--------------+-----------+
| Term | 16 | (204,088) | (159,219) |
| loans | | | |
+-------------+--------+--------------+-----------+
| Derivative | 17 | (14,923) | (224) |
| interest | | | |
| rate swaps | | | |
+-------------+--------+--------------+-----------+
| UK-REIT | 15 | (2,226) | (3,395) |
| conversion | | | |
| charge | | | |
| payable | | | |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| | | (221,237) | (162,838) |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| Total | | (243,939) | (174,119) |
| liabilities | | | |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| Net | | 79,181 | 124,077 |
| assets | | | |
+-------------+--------+--------------+-----------+
| Equity | | | |
+-------------+--------+--------------+-----------+
| Share | 18 | 16,794 | 16,794 |
| capital | | | |
+-------------+--------+--------------+-----------+
| Share | 19 | 48,009 | 48,009 |
| premium | | | |
+-------------+--------+--------------+-----------+
| Capital | 20 | 1,618 | 1,618 |
| reserve | | | |
+-------------+--------+--------------+-----------+
| Cash | 21 | (14,923) | 1,427 |
| flow | | | |
| hedging | | | |
| reserve | | | |
+-------------+--------+--------------+-----------+
| Retained | 22 | 27,683 | 56,229 |
| earnings | | | |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| Total | | 79,181 | 124,077 |
| equity* | | | |
+-------------+--------+--------------+-----------+
| | | | |
+-------------+--------+--------------+-----------+
| Net | 23 | 235.75p | 369.42p |
| asset | | | |
| value | | | |
| per | | | |
| share | | | |
+-------------+--------+--------------+-----------+
| EPRA | 23 | 320.26p | 373.53p |
| net | | | |
| asset | | | |
| value | | | |
| per | | | |
| share** | | | |
+-------------+--------+--------------+-----------+
These financial statements were approved by the Board of Directors on 26
February 2009 and signed on its behalf by:
G A Elliot
Chairman
* Wholly attributable to equity Shareholders of Primary Health Properties PLC.
** Defined in the Chairman's Statement.
Group Statement of Changes in Equity
for the year ended 31 December 2008
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| | Share | Share premium | Capital reserve | Cashflow hedging reserve | Retained earnings | Total |
| | capital | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 | GBP000 |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| 1 | 16,794 | 48,009 | 1,618 | 1,427 | 56,229 | 124,077 |
| January | | | | | | |
| 2008 | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Loss | - | - | - | - | (23,004) | (23,004) |
| for | | | | | | |
| the | | | | | | |
| period | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Transfer | - | - | - | (2,430) | - | (2,430) |
| to Group | | | | | | |
| Income | | | | | | |
| Statement | | | | | | |
| on cashflow | | | | | | |
| hedges | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Income | | | | | | |
| and | | | | | | |
| expense | | | | | | |
| recognised directly | | | | | | |
| in equity: | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Fair | - | - | - | (13,920) | - | (13,920) |
| value | | | | | | |
| losses | | | | | | |
| on | | | | | | |
| cashflow | | | | | | |
| hedges taken | | | | | | |
| to equity | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Total | - | - | - | (16,350) | (23,004) | (39,354) |
| recognised | | | | | | |
| income | | | | | | |
| and expense | | | | | | |
| for the | | | | | | |
| year | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Dividends | | | | | | |
| paid: | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Third | - | - | - | - | (2,771) | (2,771) |
| dividend | | | | | | |
| for the | | | | | | |
| period ended | | | | | | |
| 31 December | | | | | | |
| 2007 (8.25p) | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| First | - | - | - | - | (2,771) | (2,771) |
| interim | | | | | | |
| dividend | | | | | | |
| for the | | | | | | |
| year ended | | | | | | |
| 31 | | | | | | |
| December | | | | | | |
| 2008 | | | | | | |
| (8.25p) | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| 31 | 16,794 | 48,009 | 1,618 | (14,923) | 27,683 | 79,181 |
| December | | | | | | |
| 2008 | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| 1 July | 11,339 | 12,022 | 1,618 | 939 | 45,407 | 71,325 |
| 2006 | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Profit | - | - | - | - | 16,801 | 16,801 |
| for | | | | | | |
| the | | | | | | |
| period | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Transfer | - | - | - | (1,231) | - | (1,231) |
| to Group | | | | | | |
| Income | | | | | | |
| Statement | | | | | | |
| on cashflow | | | | | | |
| hedges | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Income | | | | | | |
| and | | | | | | |
| expense | | | | | | |
| recognised directly | | | | | | |
| in equity: | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Fair | - | - | - | 1,317 | - | 1,317 |
| value | | | | | | |
| gains | | | | | | |
| on | | | | | | |
| cashflow | | | | | | |
| hedges taken | | | | | | |
| to equity | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Deferred | - | - | - | 402 | - | 402 |
| tax on | | | | | | |
| cashflow | | | | | | |
| hedges | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Total | - | - | - | 488 | 16,801 | 17,289 |
| recognised | | | | | | |
| income | | | | | | |
| and expense | | | | | | |
| for the | | | | | | |
| period | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Issue | 5,455 | 35,987 | - | - | - | 41,442 |
| of | | | | | | |
| shares | | | | | | |
| (net | | | | | | |
| of | | | | | | |
| expenses) | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Dividends | | | | | | |
| paid: | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Final | - | - | - | - | (1,639) | (1,639) |
| dividend | | | | | | |
| for the | | | | | | |
| year ended | | | | | | |
| 30 June | | | | | | |
| 2006 | | | | | | |
| (6.75p) | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| First | - | - | - | - | (1,821) | (1,821) |
| interim | | | | | | |
| dividend | | | | | | |
| for the | | | | | | |
| period ended | | | | | | |
| 31 December | | | | | | |
| 2007 (7.5p) | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| Second | - | - | - | - | (2,519) | (2,519) |
| interim | | | | | | |
| dividend | | | | | | |
| for the | | | | | | |
| period ended | | | | | | |
| 31 December | | | | | | |
| 2007 (7.5p) | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
| 31 | 16,794 | 48,009 | 1,618 | 1,427 | 56,229 | 124,077 |
| December | | | | | | |
| 2007 | | | | | | |
+---------------------+---------+---------------+-----------------+--------------------------+-------------------+----------+
Group Cashflow Statement
for the year ended 31 December 2008
+---------------------+--------+---------------+--------------------------+
| | Notes | Year ended 31 | Eighteen months ended 31 |
| | | December 2008 | December 2007 |
| | | GBP000 | GBP000 |
+---------------------+--------+---------------+--------------------------+
| Operating | | | |
| activities | | | |
+---------------------+--------+---------------+--------------------------+
| Loss | | (23,004) | (3,684) |
| before | | | |
| tax | | | |
+---------------------+--------+---------------+--------------------------+
| Less: | | (2,919) | (2,178) |
| Finance | | | |
| income | | | |
+---------------------+--------+---------------+--------------------------+
| Plus: | | 12,069 | 13,022 |
| Finance | | | |
| costs | | | |
+---------------------+--------+---------------+--------------------------+
| Plus: | | 10,655 | 2,808 |
| Fair | | | |
| value | | | |
| loss | | | |
| on | | | |
| derivatives | | | |
+---------------------+--------+---------------+--------------------------+
| Operating | | (3,199) | 9,968 |
| (loss)/profit | | | |
| before | | | |
| financing | | | |
+---------------------+--------+---------------+--------------------------+
| Adjustments | | | |
| to | | | |
| reconcile | | | |
| Group | | | |
| operating | | | |
| (loss)/profit to | | | |
| net cashflows | | | |
| from operating | | | |
| activities: | | | |
+---------------------+--------+---------------+--------------------------+
| Revaluation | | 17,707 | (4,857) |
| loss/(gain) | | | |
| on property | | | |
+---------------------+--------+---------------+--------------------------+
| Less: | 9 | - | (44) |
| Gains | | | |
| on | | | |
| disposal | | | |
| of | | | |
| property | | | |
+---------------------+--------+---------------+--------------------------+
| Plus: | | 90 | 5,551 |
| Goodwill | | | |
| impairment | | | |
+---------------------+--------+---------------+--------------------------+
| Plus: | 9 | - | 3,750 |
| Impairment | | | |
| loss | | | |
+---------------------+--------+---------------+--------------------------+
| Decrease/(increase) | | 1,577 | (1,177) |
| in trade and other | | | |
| receivables | | | |
+---------------------+--------+---------------+--------------------------+
| Increase/(decrease) | | 51 | (448) |
| in trade and other | | | |
| payables | | | |
+---------------------+--------+---------------+--------------------------+
| Cash | | 16,226 | 12,743 |
| generated | | | |
| from | | | |
| operations | | | |
+---------------------+--------+---------------+--------------------------+
| UK-REIT | | (1,322) | (554) |
| conversion | | | |
| charge | | | |
| instalment | | | |
+---------------------+--------+---------------+--------------------------+
| Taxation | | - | (272) |
| paid | | | |
+---------------------+--------+---------------+--------------------------+
| | | | |
+---------------------+--------+---------------+--------------------------+
| Net | | 14,904 | 11,917 |
| cashflow | | | |
| from | | | |
| operating | | | |
| activities | | | |
+---------------------+--------+---------------+--------------------------+
| Investing | | | |
| activities | | | |
+---------------------+--------+---------------+--------------------------+
| Receipts | | - | 464 |
| from | | | |
| disposal | | | |
| of | | | |
| investment | | | |
| properties | | | |
+---------------------+--------+---------------+--------------------------+
| Payments | | (41,465) | (48,972) |
| to | | | |
| acquire | | | |
| investment | | | |
| properties | | | |
+---------------------+--------+---------------+--------------------------+
| Development | | - | (2,671) |
| loans | | | |
| advanced | | | |
+---------------------+--------+---------------+--------------------------+
| Interest | | 262 | 281 |
| received | | | |
| on | | | |
| developments | | | |
+---------------------+--------+---------------+--------------------------+
| Bank | | 160 | 83 |
| interest | | | |
| received | | | |
+---------------------+--------+---------------+--------------------------+
| Other | | 20 | - |
| interest | | | |
+---------------------+--------+---------------+--------------------------+
| Acquisition | 9 | - | (30,924) |
| of | | | |
| Cathedral | | | |
+---------------------+--------+---------------+--------------------------+
| Cash | | - | 174 |
| acquired | | | |
| on | | | |
| acquisition | | | |
| of | | | |
| Cathedral | | | |
+---------------------+--------+---------------+--------------------------+
| Acquisition | 9 | (7,846) | - |
| of SPCD | | | |
| companies | | | |
+---------------------+--------+---------------+--------------------------+
| Net | | (48,869) | (81,565) |
| cashflow | | | |
| used in | | | |
| investing | | | |
| activities | | | |
+---------------------+--------+---------------+--------------------------+
| Financing | | | |
| activities | | | |
+---------------------+--------+---------------+--------------------------+
| Proceeds | | - | 41,443 |
| from | | | |
| issue of | | | |
| Shares | | | |
| (net of | | | |
| expenses) | | | |
+---------------------+--------+---------------+--------------------------+
| Term | | 45,750 | 47,050 |
| bank | | | |
| loan | | | |
| drawdowns | | | |
+---------------------+--------+---------------+--------------------------+
| Swap | | 2,730 | - |
| interest | | | |
| received | | | |
+---------------------+--------+---------------+--------------------------+
| Interest | | (12,160) | (12,977) |
| paid | | | |
+---------------------+--------+---------------+--------------------------+
| Equity | | (5,542) | (5,979) |
| dividends | | | |
| paid | | | |
+---------------------+--------+---------------+--------------------------+
| Net | | 30,778 | 69,537 |
| cashflow | | | |
| from | | | |
| financing | | | |
| activities | | | |
+---------------------+--------+---------------+--------------------------+
| Decrease | | (3,187) | (111) |
| in cash | | | |
| and cash | | | |
| equivalents | | | |
| for the | | | |
| year/period | | | |
+---------------------+--------+---------------+--------------------------+
| Cash | | 3,862 | 3,973 |
| and | | | |
| cash | | | |
| equivalents | | | |
| at start of | | | |
| year/period | | | |
+---------------------+--------+---------------+--------------------------+
| Cash | | 675 | 3,862 |
| and | | | |
| cash | | | |
| equivalents | | | |
| at end of | | | |
| year/period | | | |
| (note 13) | | | |
+---------------------+--------+---------------+--------------------------+
Notes to the Financial Statements
1 Accounting policies
Basis of preparation and statement of compliance
The Group's financial statements for the year ended 31 December 2008 were
approved by the Board of the Directors on 26 February 2009 and the Balance Sheet
were signed on the Board's behalf by the Chairman, G A Elliot. Primary Health
Properties PLC is a public limited company incorporated and domiciled in England
& Wales. The Company's Ordinary Shares are admitted to the Official List of the
UK Listing Authority, a division of the Financial Services Authority and traded
on the London Stock Exchange.
The Group prepares consolidated financial statements under 'International
Financial Reporting Standards' ("IFRS") as adopted by the European Union and
applied in accordance with the Companies Act 1985.
Convention
The financial statements are presented in Sterling rounded to the nearest
thousand.
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business and one geographical segment, being investment in property in the
United Kingdom leased principally to GPs, Primary Care Trusts, Health
Authorities and other associated health care users.
Change of accounting reference date
The Group changed its accounting reference date to 31 December with effect from
1 January 2007. The prior period's accounting reference period, which commenced
on 1 July 2006, therefore comprises 18 months ended 31 December 2007.
Basis of consolidation
The Group's financial statements consolidate the financial statements of Primary
Health Properties PLC and its wholly owned subsidiary undertakings. Subsidiaries
are consolidated from the date of their acquisition, being the date on which the
Group obtained control and continue to be consolidated until the date that such
control ceases. Control comprises the power to govern the financial and
operating policies of the investee so as to obtain benefit from its activities
and is achieved through direct or indirect ownership of voting rights; currently
exercisable or convertible potential voting rights; or by way of contractual
agreement. The financial statements of the subsidiary undertakings are prepared
for the accounting reference period ending 31 December each year using
consistent accounting policies. All intercompany balances and transactions,
including unrealised profits arising from them, are eliminated.
Investment properties
The Group's completed properties are held for long-term investment. Initially,
investment properties are measured at cost including transaction costs.
Subsequent to initial recognition, investment properties are stated at fair
value based on a professional valuation made as of each reporting date. The fair
value of investment property does not reflect future capital expenditure that
will improve or enhance the property and does not reflect future benefits from
this future expenditure.
Gains or losses arising from changes in the fair value of investment properties
are included in the Group Income Statement in the year in which they arise.
Investment properties cease to be recognised for accounting purposes when they
have been disposed of. Any gains and losses arising are recognised in the Group
Income Statement in the year of disposal.
Properties held for, or in the course of, development
Properties held for, or in the course of, development are included in the Group
Balance Sheet at cost or, on redevelopment if originally held as an investment
property, at the previous valuation together with subsequent costs.
Provision for impairment is made, if necessary, to reduce the carrying value of
properties held for development and in the course of development to the
recoverable amount.
Development loans
The Group has entered into development loan agreements with third party
developers in respect of certain properties under development. These loans are
repayable at the option of the developer at any time. The Group has entered into
contracts to purchase the properties under development when they are completed
in accordance with the terms of the contracts. The loans are repayable by the
developers in the event that the building work is not completed in accordance
with the purchase contracts. Interest is charged under the terms detailed in the
respective development agreements and taken to the Group Income Statement in the
year in which it accrues.
Goodwill arising from acquisition
Goodwill on acquisitions comprises the excess of the fair value of the
consideration plus any associated costs of investments in subsidiaries over the
fair value of the identifiable net assets acquired. Since the Group's typical
acquisitions relate solely to investment properties it is the Group's policy to
write off any goodwill as it arises.
Impairment of assets
The Group assesses, at each reporting date, whether there is an indication that
an asset may be impaired. If any such indication exists, or when annual
impairment testing for an asset is required, the Group makes an estimate of the
asset's recoverable amount. An asset's recoverable amount is the higher of an
asset's, or cash-generating unit's, fair value less costs to sell and its value
in use and is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from other assets or
groups of assets. Where the carrying amount of an asset exceeds its recoverable
amount, the asset is considered impaired and is written down to its recoverable
amount. In assessing value in use, the estimated future cashflows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset. Impairment losses of continuing operations are recognised in the Group
Income Statement.
An assessment is made at each reporting date as to whether there is any
indication that previously recognised impairment losses may no longer exist or
may have decreased. If such indication exists, the recoverable amount is
estimated. A previously recognised impairment loss is reversed only if there has
been a change in the estimates used to determine the asset's recoverable amount
since the last impairment loss was recognised. If that is the case the carrying
amount of the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been determined, had no
impairment loss been recognised for the asset in prior years. Such reversal is
recognised in the Group Income Statement.
Income
Revenue is recognised to the extent that it is probable that the benefits will
flow to the Group and the revenue can be reliably measured. Revenue is measured
at the fair value of the consideration received, excluding discounts, rebates,
VAT and other sales taxes or duty. The following criteria must also be met
before revenue is recognised.
Rental income
Rental income arising from operating leases on investment properties is
accounted for on a straight-line basis over the lease term.
Interest income
Revenue is recognised as interest accrues (using the effective interest method,
that is the rate that exactly discounts estimated future cash receipts through
the expected life of the financial instrument to the net carrying amount of the
financial asset).
Trade and other receivables
Trade receivables, which generally have a 30-90 day term, are recognised and
carried at the lower of their original invoiced value and recoverable amount.
Where the time value of money is material, receivables are carried at amortised
cost. Provision is made when there is objective evidence that the Group will not
be able to recover balances in full. Balances are written off when the
probability of recovery is assessed as being remote.
Cash and cash equivalents
Cash and cash equivalents are defined as cash and short term deposits with an
original maturity of three months or less.
Trade and other payables
Trade payables, which generally have a term of 15-30 days, are recognised and
carried at their invoiced value inclusive of any VAT that may be applicable.
Bank loans and borrowings
All loans and borrowings are initially measured at fair value less directly
attributable transaction costs. After initial recognition, all interest-bearing
loans and borrowings are subsequently measured at amortised cost, using the
effective interest method.
Borrowing costs
Borrowing costs are recognised as an expense when incurred.
Conversion to UK-REIT
The Group's conversion to UK-REIT status was effective from 1 January 2007.
Conversion to a UK-REIT results in, subject to continuing relevant UK-REIT
criteria being met, the Group's property profits, both income and gains, being
exempt from UK taxation from 1 January 2007. On conversion to a UK-REIT, the
Group was subject to a one off taxation charge based on the value of the
properties as at the date of conversion, amounting to GBP5.2m. This amount is
payable over four years.
Taxation
Taxation on the profit or loss for the period not exempt under UK-REIT
regulations comprises current and deferred tax. Taxation is recognised in the
Group Income Statement except to the extent that it relates to items recognised
as direct movements in equity, in which case it is also recognised as a direct
movement in equity.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates enacted or substantively enacted at the balance sheet date, and
any adjustment to tax payable in respect of previous years.
Financial instruments
Financial assets at fair value through profit or loss
Financial assets classified as held for trading are included in the category
'financial assets at fair value through profit or loss'. Financial assets are
classified as held for trading if they are acquired for the purpose of selling
in the near term. Derivatives are also classified as held for trading unless
they are designated and effective hedging instruments. Gains and losses on
financial instruments held for trading are recognised in the Group Income
Statement.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted on an active market. Such assets are
carried at amortised cost using the effective interest method. Gains and losses
are recognised in the Group Income Statement when the loans and receivables are
derecognised or impaired, as well as through the amortisation process.
De-recognition of financial assets and liabilities
Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a
Group of similar financial assets) is de-recognised where:
* the rights to receive cashflows from the asset have expired;
* the Group retains the right to receive cashflows from the asset, but has assumed
an obligation to pay them in full without material delay to a third party under
a 'pass-though' arrangement; or
* the Group has transferred its right to receive cashflows from the asset and
either (a) has transferred substantially all the risks and rewards of the asset,
or (b) has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
Where the Group has transferred its rights to receive cashflows from an asset
and has neither transferred nor retained substantially all the risks and rewards
of the asset nor transferred control of the asset, the asset is recognised to
the extent of the Group's continuing involvement in the asset. Continuing
involvement that takes the form of a guarantee over the transferred asset is
measured at the lower of the original carrying amount of the asset and the
maximum amount of consideration that the Group could be required to repay.
Financial liabilities
A financial liability is de-recognised when the obligation under the liability
is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as a
de-recognition of the original liability and the recognition of a new liability,
and the difference in the respective carrying amounts is recognised in profit or
loss.
Derivative financial instruments (derivatives) and hedge accounting
The Group uses interest rate swaps to help manage its interest rate risk.
The Group documents at the inception of the transaction the relationship between
hedging instruments and hedged items, as well as its risk management objectives
and strategy for undertaking various hedging transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items.
All derivatives are initially recognised at fair value at the date the
derivative is entered into and are subsequently remeasured at fair value. The
fair values of the Group's interest rate swaps are calculated by J.C. Rathbone
Associates Limited, an independent specialist which provides Treasury Management
Services to the Group.
The method of recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument.
* Cash Flow hedges: Where a derivative is designated as a hedge of the variability
of a highly probable forecast transaction i.e. an interest payment, the element
of the gain or loss on the derivative that is an effective hedge is recognised
directly in equity. When the forecast transaction subsequently results in the
recognition of a Financial asset or a Financial liability, the associated gains
or losses that were recognised directly in equity are reclassified into the
income statement in the same period or periods during which the asset acquired
or liability assumed affects the income statement i.e. when interest income or
expense is recognised.
* Derivatives that do not qualify for hedge accounting: The gain or loss on
derivatives that do not qualify for hedge accounting, and the non-qualifying
element of derivatives that do qualify for hedge accounting, are recognised in
the income statement immediately.
Dividends payable to Shareholders
Dividends proposed by the Board of Directors and unpaid at the period end are
not recognised in the financial statements as they are appropriations of income.
Furthermore, any final dividends would not be recognised until they have been
approved by Shareholders at the Annual General Meeting.
The individual financial statements of Primary Health Properties PLC and each of
its subsidiary undertakings will continue to be prepared under UK GAAP and the
use of IFRS at Group level does not affect the distributable reserves available
to the Group.
Leases - Group as a lessor
Assets leased out under operating leases are included within investment
properties and rental income, including the effect of lease incentives, is
recognised on a straight line basis over the lease term.
Where the Group transfers substantially all the risks and benefits of ownership
of the asset, the arrangement is classified as a finance lease and a receivable
is recognised for the initial direct costs of the lease and the present value of
the minimum lease payments. Finance income is recognised in the Group Income
Statement so as to achieve a constant rate of return on the remaining net
investment in the lease. Interest income on finance leases is restricted to the
amount of interest actually received.
The Group determines whether an arrangement is or contains a lease based on the
substance of the arrangement. In making this determination the Group assesses
whether fulfilment of the arrangements is dependent on the use of a specific
asset and whether the arrangement conveys a right to use the asset.
New standards and interpretations, which are applicable to the Group
During the year, the IASB and IFRIC have issued the following standards and
interpretations which are specifically relevant to the Group with an effective
date after the date of these financial statements, which have not been applied:
+-----------------+--------------------+
| |
+--------------------------------------+
| | Accounting |
| | periods commencing |
| | after (Effective |
| | date) |
+-----------------+--------------------+
| International | |
| Accounting | |
| Standards | |
| (IAS / IFRS) | |
+-----------------+--------------------+
| IFRS | 1 July |
| 1: | 2009 |
| First-time | |
| Adoption | |
| of | |
| International | |
| Financial | |
| Reporting | |
| Standards - | |
| Cost of an | |
| Investment in | |
| a Subsidiary, | |
| Jointly | |
| Controlled | |
| Entity or | |
| Associate | |
+-----------------+--------------------+
| IFRS | 1 |
| 8: | January |
| Operating | 2009 |
| Segments | |
+-----------------+--------------------+
| IFRS | 1 July |
| 3R: | 2009 |
| Business | |
| Combinations | |
| (revised | |
| January | |
| 2008) | |
+-----------------+--------------------+
| IAS | 1 July |
| 27R: | 2009 |
| Consolidated | |
| and Separate | |
| Financial | |
| Statements | |
| (revised | |
| January | |
| 2008) | |
+-----------------+--------------------+
| IAS 1 | 1 |
| Revised: | January |
| Presentation | 2009 |
| of Financial | |
| Statement | |
| (revised | |
| September | |
| 2007) | |
+-----------------+--------------------+
| IAS | 1 |
| 23: | January |
| Borrowing | 2009 |
| Costs | |
| (revised | |
| March | |
| 2007) | |
+-----------------+--------------------+
| IAS | 1 |
| 40: | January |
| Investment | 2009 |
| Property | |
+-----------------+--------------------+
| International | |
| Financial | |
| Reporting | |
| Interpretations | |
| Committee | |
| (IFRIC) | |
+-----------------+--------------------+
| IFRIC | 1 |
| 15: | January |
| Agreements | 2009 |
| for the | |
| Construction | |
| of Real | |
| Estate | |
+-----------------+--------------------+
| IAS | 1 July |
| 39: | 2009 |
| Financial | |
| Instruments: | |
| Recognitions | |
| and | |
| Measurement | |
| - Eligible | |
| hedged items | |
| (Amendment) | |
+-----------------+--------------------+
IFRS 8 Operating Segments
IFRS 8 replaces IAS 14 Segment Reporting upon its effective date of 1 January
2009 and requires a direct link between the segment disclosures in the financial
statements and the information reported to the board of directors or chief
operating decision maker. The Group has a non-complex structure of business
activities and therefore, the Directors consider that the operating segment
determined in accordance with IFRS 8 is likely to be the same as the business
segment currently identified under IAS 14.
IFRS 3R Business Combinations and IAS 27R Consolidated and Separate Financial
Statements
These revised standards are effective for financial years beginning on or after
1 July 2009. IFRS 3R introduces a number of changes in the accounting for
business combinations occurring after this date that will impact the amount of
any goodwill recognised, the reported results in the period that an acquisition
occurs, and future reported results. IAS 27R requires that a change in the
ownership interest of a subsidiary (without loss of control) is accounted for as
an equity transaction. Therefore, such transactions will no longer give rise to
goodwill, nor will it give rise to a gain or loss. Furthermore, the amended
standard changes the accounting for losses incurred by the subsidiary as well as
the loss of control of a subsidiary. The changes in IFRS 3R and IAS 27R will
affect future acquisitions, transactions involving loss of control and
transactions with minority interests.
IAS 1 Revised Presentation of Financial Statements
The revised standard becomes effective for financial years beginning on or after
1 January 2009. The standard separates owner and non-owner changes in equity.
The statement of changes in equity will include only details of transactions
with owners, with non-owner changes in equity presented as a single line. In
addition, the standard introduces the statement of comprehensive income: it
presents all items of recognised income and expense, either in one single
statement, or in two linked statements. The Group is still evaluating whether it
will have one or two statements.
IFRIC 15 Agreement for the Construction of Real Estate
IFRIC 15 becomes effective for financial years beginning on or after 1 January
2009. The interpretation is to be applied retrospectively. It clarifies when and
how revenue and related expenses from the sale of a real estate unit should be
recognised if an agreement between a developer and a buyer is reached before the
construction of the real estate is completed. Furthermore, the interpretation
provides guidance on how to determine whether an agreement is within the scope
of IAS 11 or IAS 18. IFRIC 15 will not have an immediate impact on the financial
statements because the Group does not currently conduct such activity.
Scope of IAS 40 Investment Property
For financial years beginning on or after 1 January 2009 the scope of IAS 40
will change such that property under construction or development for future use
as an investment property is classified as investment property. Therefore, to be
consistent with the Group's policy in respect of investment property, such
assets would be measured at fair value. The Group does not presently have any
investment property under construction and so there will be no immediate impact
on the financial statements.
IAS 23 Borrowing Costs (Revised)
The revised IAS 23 is effective for accounting periods beginning on or after 1
January 2009 and requires capitalisation of borrowing costs that are directly
attributable to the acquisition, construction or production of a qualifying
assets (such as investment property under construction) if that asset is not
held at fair value. This will have no immediate impact on the Group as it is not
currently constructing any property.
The adoption of these standards and interpretations will have no material impact
upon the Group's financial statements in the period of initial application. The
Group will adopt the above, to the extent applicable, on the relevant effective
date.
Significant accounting estimates and judgements
The preparation of the Group financial statements requires management to make a
number of estimates and judgements. These estimates and judgements affect the
reported amounts of assets and liabilities. Estimates and assumptions may differ
from future actual results. The estimates and assumptions that are considered
most critical and that have a significant inherent risk of causing a material
adjustment to the carrying amounts of assets and liabilities are:
a) Estimates
Fair value of investment properties
The market value of a property is deemed, by the independent property valuers,
to be the estimated amount for which a property should exchange, on the date of
valuation, in an arm's length transaction. Properties have been valued on an
individual basis, envisaging that they will be sold individually over time.
Allowances are made to reflect the purchaser's costs of professional fees and
stamp duty.
In accordance with Appraisal and Valuation Standards, factors taken into account
are current market conditions, annual rentals, state of repair, ground
stability, contamination issues and fire, health and safety legislations.
Fair value of derivatives
In accordance with IAS39, the Group values its derivative financial instruments
at fair value. Fair value is calculated by J.C Rathbone Associates Limited, an
independent specialist which provides Treasury Management Services to the Group.
The calculation uses a number of assumptions based upon market rates and
discounted future cashflows. The derivative financial instruments have been
valued by reference to the mid point of the yield curve prevailing on 31
December 2008. In this way, the valuations are neutral as to buyer or seller.
The fair value represents the net present value of the difference between the
cash flows produced by the contracted rate and the valuation rate.
b) Judgements
Leases
The Group has entered into commercial property leases on its investment property
portfolio. The Group has determined that it retains all the significant risks
and rewards of ownership of these properties, which are leased out on operating
leases. In addition, the Group has entered into a number of finance lease
arrangements where it has determined that it has transferred substantially all
the risks and rewards incidental to ownership.
Hedge effectiveness
The Group has a number of interest rate swaps that mature after the Group's bank
facilities are due to expire in 2013. In accordance with IAS39, in order to
apply hedge accounting in relation to the interest rate swaps, the Group has
determined that it is highly probable that the bank facilities will be
re-negotiated on expiry in 2013.
2 Rental and related income
Turnover comprises rental income and finance lease income receivable on property
investments in the UK, which is exclusive of VAT. Turnover is derived from one
business segment. Details of the lease income is given below.
Group as a lessor
a) The future minimum lease payments under non-cancellable operating leases
receivable by the Group are as follows:
+----------+---------+---------+---------+----------+---------+---------+---------+
| Year ended 31 December 2008 | Eighteen months ended 31 December |
| | 2007 |
+----------------------------------------+----------------------------------------+
| Less | 1-5 | More | Total | Less | 1-5 | More | Total |
| than one | years | than 5 | GBP000s | than one | years | than 5 | GBP000s |
| year | GBP000s | years | | year | GBP000s | years | |
| GBP000s | | GBP000s | | GBP000s | | GBP000s | |
+----------+---------+---------+---------+----------+---------+---------+---------+
| 19,905 | 89,702 | 747,001 | 856,608 | 16,897 | 72,810 | 635,684 | 725,391 |
+----------+---------+---------+---------+----------+---------+---------+---------+
b) There were no contingent rents recognised as income in the period.
The rental income earned on operating leases is recognised on a straight line
basis over the lease term.
3 Group operating (loss)/profit is stated after charging
+-----------------+---------------+-----------------+
| | Year | Eighteen months |
| | ended 31 | ended 31 |
| | December 2008 | December 2007 |
| | GBP000 | GBP000 |
+-----------------+---------------+-----------------+
| Administration | | |
| expenses: | | |
| recurring | | |
+-----------------+---------------+-----------------+
| Management | 2,543 | 3,167 |
| fees (i) | | |
+-----------------+---------------+-----------------+
| Performance | - | 2,591 |
| incentive | | |
| fee (ii) | | |
+-----------------+---------------+-----------------+
| Directors' | 116 | 134 |
| fees (iii) | | |
+-----------------+---------------+-----------------+
| Property | 93 | 109 |
| management | | |
| fees & | | |
| other | | |
| services | | |
| payable to | | |
| Nexus PHP | | |
| Management | | |
| Limited | | |
+-----------------+---------------+-----------------+
| Bank | 151 | 190 |
| facility | | |
| non-utilisation | | |
| fees | | |
+-----------------+---------------+-----------------+
| Bank | 306 | 92 |
| charges | | |
| and | | |
| loan | | |
| commitment | | |
| fees | | |
+-----------------+---------------+-----------------+
| Auditors' | | |
| remuneration | | |
| for | | |
+-----------------+---------------+-----------------+
| * audit | 146 | 119 |
| of the | | |
| Financial | | |
| Statements | | |
+-----------------+---------------+-----------------+
| * audit | 14 | 56 |
| of | | |
| accounts | | |
| of | | |
| subsidiaries | | |
| of the | | |
| Company | | |
| pursuant to | | |
| legislation | | |
+-----------------+---------------+-----------------+
| * taxation | 71 | 239 |
| services | | |
+-----------------+---------------+-----------------+
| * transaction | - | 185 |
| advisory | | |
| services | | |
+-----------------+---------------+-----------------+
| * other | - | 58 |
| services | | |
+-----------------+---------------+-----------------+
| Other | 183 | 152 |
| professional | | |
| fees | | |
+-----------------+---------------+-----------------+
| Property | - | 2 |
| expenses | | |
| in | | |
| connection | | |
| with | | |
| vacant | | |
| properties | | |
+-----------------+---------------+-----------------+
| Direct | 250 | 341 |
| operating | | |
| expenses | | |
| arising | | |
| from | | |
| investment | | |
| property | | |
| that | | |
| generated | | |
| rental | | |
| income | | |
+-----------------+---------------+-----------------+
| Other | 356 | 211 |
| expenses | | |
+-----------------+---------------+-----------------+
| Total | 4,229 | 7,646 |
+-----------------+---------------+-----------------+
| Administration | | |
| expenses: | | |
| non-recurring | | |
+-----------------+---------------+-----------------+
| Goodwill | 90 | 5,551 |
| impairment | | |
| (note 9) | | |
+-----------------+---------------+-----------------+
| UK-REIT | - | 195 |
| conversion | | |
| costs | | |
+-----------------+---------------+-----------------+
| Expenses | 597 | - |
| incurred | | |
| in prior | | |
| periods | | |
| not | | |
| previously | | |
| recognised* | | |
+-----------------+---------------+-----------------+
| VAT | 107 | - |
| incurred | | |
| in prior | | |
| periods | | |
| not | | |
| previously | | |
| recognised** | | |
+-----------------+---------------+-----------------+
| | | |
+-----------------+---------------+-----------------+
| | | |
+-----------------+---------------+-----------------+
| | 794 | 5,746 |
+-----------------+---------------+-----------------+
* The majority of this charge relates to rental premiums recognised on receipt
in 2007 that should have been spread over the rental period. The non-recurring
adjustment is considered immaterial for a prior year adjustment (PYA) so is
reflected within the current year.
** During 2008, it was recognised that some of the balance on the VAT control
account related to disallowed VAT from prior periods as a result of the Group's
partial exemption status. This had not previously been expensed in the Group
Income Statement and has been corrected.
JOHCML, a wholly owned subsidiary of J O Hambro Capital Management Group
Limited, and Nexus, a subsidiary of Nexus Structured Finance Limited, are Joint
Managers to the Company. Combined management fees (as per the Management
Agreement) are 1% of the first GBP50m of the property assets of the Group and
0.75% thereafter, measured on a monthly basis.
The management fee calculated and payable for the period to 31 December was as
follows:
+-----------------------------------------+----------------+---------------+
| | Year ended 31 | Eighteen |
| | December 2008 | months |
| | GBP000 | ended 31 |
| | | December 2007 |
| | | GBP000 |
+-----------------------------------------+----------------+---------------+
| Nexus PHP Management Limited ("Nexus") | 1,394 | 1,734 |
+-----------------------------------------+----------------+---------------+
| J O Hambro Capital Management Limited | 1,149 | 1,433 |
| ("JOHCML") | | |
+-----------------------------------------+----------------+---------------+
| | 2,543 | 3,167 |
+-----------------------------------------+----------------+---------------+
JOHCML is also Company Secretary.
As at 31 December 2008, GBP116,000 of management fees payable to JOHCML were
outstanding (2007: GBP190,000), and GBP31,000 was payable to Nexus (2007:
GBP39,000).
(ii) Performance Incentive Fee ("PIF"):
Following the expiry of the management share option agreement, on 16 November
2006, Shareholders approved the amendments to the Management Agreement whereby
the Joint Managers are entitled to a performance incentive fee of 15% of any
performance in excess of an 8% per annum increase in the Company's "Total
Return" as derived from the audited financial statements for the respective
financial period in respect of the accounting period of the Company immediately
preceding the proposed date of payment. In the event the Total Return is less
than 8%, any deficit in the Total Return has to be made up in subsequent years
before any PIF is payable.
The Total Return is determined by comparing the variation in the stated net
asset value per Ordinary Share (on a fully diluted basis, adjusting for deferred
tax and the REIT conversion charge and adding back gross dividends paid or
declared in such period) against the fully diluted net asset value per Ordinary
Share from the previous period's audited accounts.
The PIF was initially calculated on an annual basis ending 30 June. However,
following the Group's conversion to a UK-REIT and change in its accounting
reference date to 31 December, it was necessary to calculate the fee based on
the interim accounts for the prior period. From 1 January 2008, the fee is
calculated on an annual basis, using the audited financial statements for the
respective financial period. Included in the Group Income Statement for the
eighteen month period ended 31 December 2007 is a performance fee of
GBP2,591,000. There is no PIF payable for the year ended 31 December 2008.
(iii) Remuneration of Directors:
+------------+---------------+-----------------+
| | Year | Eighteen months |
| | ended 31 | ended 31 |
| | December 2008 | December 2007 |
| | GBP | GBP |
+------------+---------------+-----------------+
| Mr G A | 22,500 | 30,000 |
| Elliot | | |
| (Chairman) | | |
+------------+---------------+-----------------+
| Mr H A | 17,500 | 22,500 |
| Hyman | | |
| (Managing | | |
| Director) | | |
+------------+---------------+-----------------+
| Mr A R | 18,750 | 10,000 |
| Jones | | |
| SID | | |
| (appointed | | |
| 1 May | | |
| 2007) | | |
+------------+---------------+-----------------+
| Mr J D | 17,500 | 22,500 |
| Hambro | | |
+------------+---------------+-----------------+
| Mr M J | 17,500 | 22,500 |
| Gilbert | | |
+------------+---------------+-----------------+
| Mr P | - | 3,750 |
| Sandford | | |
| (resigned | | |
| 27 July | | |
| 2006) | | |
+------------+---------------+-----------------+
| Dr I P | 17,500 | 22,500 |
| Rutter | | |
+------------+---------------+-----------------+
| Mr M P | 5,000 | |
| Creedy | | |
| (appointed | | |
| 1 November | | |
| 2008) | | |
+------------+---------------+-----------------+
| Total | 116,250 | 133,750 |
| fees | | |
+------------+---------------+-----------------+
| | | |
+------------+---------------+-----------------+
There were no employee costs, other than for the Directors listed above.
The Director's fees for Mr H A Hyman were paid to Nexus. Mr Hyman's family
interests are the controlling shareholder of Nexus. The Company also paid to
Nexus GBP73,000 (2007: GBP109,000) property management fees.
The Director's fees for Mr J D Hambro were paid to JOHCML. Mr J D Hambro is also
Chairman of J O Hambro Capital Management Group Limited and an indirect
shareholder of JOHCML.
The Director's fees for Mr M J Gilbert are paid to Aberdeen Asset Management
PLC.
Details of the Joint Managers Management Agreement is given in the Directors'
Remuneration Report and Group Directors Report.
4 Finance income
+-------------+----------+----------+
| | Year | Eighteen |
| | ended | months |
| | 31 | ended 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+-------------+----------+----------+
| Interest | | |
| income | | |
| on | | |
| financial | | |
| assets | | |
+-------------+----------+----------+
| Not at | | |
| fair | | |
| value | | |
| through | | |
| profit | | |
| or loss | | |
+-------------+----------+----------+
| Bank | 164 | 80 |
| interest | | |
+-------------+----------+----------+
| Development | 262 | 867 |
| loan | | |
| interest | | |
+-------------+----------+----------+
| | | |
+-------------+----------+----------+
| Other | 63 | - |
| interest | | |
+-------------+----------+----------+
| At | | |
| fair | | |
| value | | |
| through | | |
| profit | | |
| or loss | | |
+-------------+----------+----------+
| Bank | 2,430 | 1,231 |
| swap | | |
| interest | | |
+-------------+----------+----------+
| | | |
+-------------+----------+----------+
| | 2,919 | 2,178 |
+-------------+----------+----------+
5 Finance costs
+-------------+---------------+-----------------+
| | Year | Eighteen months |
| | ended 31 | ended 31 |
| | December 2008 | December 2007 |
| | GBP000 | GBP000 |
+-------------+---------------+-----------------+
| Interest | | |
| expense | | |
| on | | |
| financial | | |
| assets | | |
+-------------+---------------+-----------------+
| (i) | | |
| Interest | | |
| paid | | |
+-------------+---------------+-----------------+
| Bank | 11,874 | 13,018 |
| loan | | |
| interest | | |
| paid | | |
+-------------+---------------+-----------------+
| Other | 44 | 4 |
| interest | | |
| paid | | |
+-------------+---------------+-----------------+
| Notional | 151 | - |
| UK-REIT | | |
| interest | | |
+-------------+---------------+-----------------+
| Interest | 12,069 | 13,022 |
| expense | | |
| on | | |
| financial | | |
| liabilities | | |
| not at fair | | |
| value | | |
+-------------+---------------+-----------------+
| | | |
+-------------+---------------+-----------------+
| (ii) | | |
| Derivatives | | |
+-------------+---------------+-----------------+
| Net | 10,655 | 2,808 |
| fair | | |
| value | | |
| loss | | |
| on | | |
| derivatives | | |
+-------------+---------------+-----------------+
| | 10,655 | 2,808 |
+-------------+---------------+-----------------+
The fair value loss on derivatives recognised in the Group Income Statement has
arisen from the interest rate swaps for which hedge accounting does not apply. A
further fair value loss on hedges which meet the effectiveness criteria under
IAS39 of GBP16.3m is charged directly against Equity.
6 Taxation
(a) Tax expense/(credit) in the Group Income Statement
The tax expense/(credit) is made up as follows:
+------------------+---------------+---------------+
| | Year | Eighteen |
| | ended 31 | months |
| | December 2008 | ended 31 |
| | GBP000 | December 2007 |
| | | GBP000 |
+------------------+---------------+---------------+
| Current | | |
| tax | | |
+------------------+---------------+---------------+
| UK | - | 27 |
| corporation | | |
| tax | | |
+------------------+---------------+---------------+
| Adjustments | - | 73 |
| in respect | | |
| of prior | | |
| period/year | | |
+------------------+---------------+---------------+
| | - | 100 |
+------------------+---------------+---------------+
| Charge | 160 | 5,157 |
| on | | |
| conversion | | |
| to UK-REIT | | |
| status| | | |
+------------------+---------------+---------------+
| | 160 | 5,257 |
+------------------+---------------+---------------+
| Deferred | | |
| tax | | |
+------------------+---------------+---------------+
| Deferred | - | 3,880 |
| tax | | |
| charge | | |
| for the | | |
| 6 months | | |
| to 31 | | |
| December | | |
| 2006 | | |
+------------------+---------------+---------------+
| Deferred | - | (29,622) |
| tax | | |
| release | | |
| on | | |
| conversion | | |
| to UK-REIT | | |
| status| | | |
+------------------+---------------+---------------+
| | - | (25,742) |
+------------------+---------------+---------------+
| Tax | 160 | (20,485) |
| expense/(credit) | | |
| in the Group | | |
| Income Statement | | |
+------------------+---------------+---------------+
| Tax | | |
| charge | | |
| in | | |
| equity | | |
+------------------+---------------+---------------+
| Deferred | | |
| tax | | |
+------------------+---------------+---------------+
| Opening | - | 402 |
| balance | | |
| at | | |
| beginning | | |
| of | | |
| period/year | | |
+------------------+---------------+---------------+
| Deferred | - | (402) |
| tax | | |
| release | | |
| on | | |
| conversion | | |
| to UK-REIT | | |
| status| | | |
+------------------+---------------+---------------+
| Tax | - | - |
| charge | | |
| in | | |
| equity | | |
+------------------+---------------+---------------+
| Following conversion to a UK-REIT the Group is no longer subject to UK
corporation tax on its property related income. This enabled the Group to
release its deferred tax liabilities in the prior period at the expense of
suffering a conversion charge (GBP5.2m) plus additional legal costs (GBP0.2m).
(b) Factors affecting tax charge for the year/period
The comparative figures below show why the tax assessed for the eighteen months
to 31 December 2007, during which time the Company became a UK-REIT, is lower
than the standard rate of corporation tax in the UK.
+---------------------+---------------+-----------------+
| | Year | Eighteen months |
| | ended 31 | ended 31 |
| | December 2008 | December 2007 |
| | GBP000 | GBP000 |
+---------------------+---------------+-----------------+
| Loss | (23,004) | (3,684) |
| before | | |
| taxation | | |
+---------------------+---------------+-----------------+
| Loss | (6,556) | (1,105) |
| multiplied | | |
| by the | | |
| standard | | |
| rate * of | | |
| corporation | | |
| tax in the | | |
| UK of 28.5% | | |
| (2007: 30%) | | |
+---------------------+---------------+-----------------+
| Effects | | |
| of: | | |
+---------------------+---------------+-----------------+
| | | |
+---------------------+---------------+-----------------+
| Adjustment | - | 73 |
| in respect | | |
| of current | | |
| tax of | | |
| prior year | | |
+---------------------+---------------+-----------------+
| | | |
+---------------------+---------------+-----------------+
| Revaluation | - | 5,712 |
| gains/(losses) | | |
| on disposal | | |
+---------------------+---------------+-----------------+
| Other | - | 27 |
| differences | | |
+---------------------+---------------+-----------------+
| Losses | (32) | - |
| utilised | | |
+---------------------+---------------+-----------------+
| Charge | 160 | 5,157 |
| on | | |
| conversion | | |
| to UK-REIT | | |
| status | | |
+---------------------+---------------+-----------------+
| Exempt | 6,610 | (727) |
| REIT | | |
| expense/(income) | | |
+---------------------+---------------+-----------------+
| Release | - | (29,622) |
| of | | |
| deferred | | |
| tax on | | |
| conversion | | |
| to UK-REIT | | |
+---------------------+---------------+-----------------+
| Finance | (21) | - |
| lease | | |
| adjustment | | |
+---------------------+---------------+-----------------+
| Capital | (1) | - |
| allowances | | |
+---------------------+---------------+-----------------+
| Total | 160 | (20,485) |
| tax | | |
| expensed/(credited) | | |
| for the period | | |
| reported in the | | |
| Group Income | | |
| Statement | | |
+---------------------+---------------+-----------------+
(c) Deferred tax
Following the conversion to UK-REIT on 1 January 2007, the Group is no longer
subject to UK?corporation tax and therefore its deferred tax liability was
released on conversion. The deferred tax included in the Group Income Statement
for the prior period is as follows:
+---------------------+---------------+---------------+
| | Year | Eighteen |
| | ended | months |
| | 31 | ended 31 |
| | December 2008 | December 2007 |
| | GBP000 | GBP000 |
+---------------------+---------------+---------------+
| Revaluation | - | 3,880 |
| gains on | | |
| investment | | |
| properties | | |
+---------------------+---------------+---------------+
| Release | - | (29,622) |
| of | | |
| deferred | | |
| tax on | | |
| conversion | | |
| to UK-REIT | | |
| status | | |
+---------------------+---------------+---------------+
| Provision/(credit) | - | (25,742) |
| for deferred tax | | |
+---------------------+---------------+---------------+
| Deferred | | |
| tax | | |
| reconciliation: | | |
+---------------------+---------------+---------------+
| Balance | - | 21,193 |
| at | | |
| beginning | | |
| of the | | |
| period/year | | |
+---------------------+---------------+---------------+
| Charge | - | 3,880 |
| for | | |
| the | | |
| period | | |
+---------------------+---------------+---------------+
| Deferred | - | 4,951 |
| tax | | |
| liability | | |
| on | | |
| acquisition | | |
| of | | |
| Cathedral | | |
| Healthcare Holdings | | |
| Limited | | |
+---------------------+---------------+---------------+
| Deferred | - | (402) |
| tax on | | |
| cash | | |
| flow | | |
| hedge | | |
+---------------------+---------------+---------------+
| Deferred | - | (29,622) |
| tax | | |
| release | | |
| on | | |
| conversion | | |
| to UK-REIT | | |
| status | | |
+---------------------+---------------+---------------+
| Balance | - | - |
| at end | | |
| of | | |
| year/period | | |
+---------------------+---------------+---------------+
* With effect from 1 April 2008 the rate of UK?Corporation tax was reduced from
30% to 28%. The computation above assumes an average rate of 28.5%.
7 (Loss)/earnings per share
The calculation of basic and diluted earnings per share is based on the
following:
+----------+---------------------+-------------+---------+---------------------+-------------+---------+
| | Year to 31 December 2008 | Eighteen months to 31 |
| | | December 2007 |
+----------+---------------------------------------------+---------------------------------------------+
| | Net | Ordinary | Per | Net | Ordinary | Per |
| | profit attributable | Shares | Share | profit attributable | Shares | Share |
| | to Ordinary | (number) | (pence) | to Ordinary | (number) | (pence) |
| | Shareholders | | | Shareholders | | |
| | GBP000 | | | GBP000 | | |
+----------+---------------------+-------------+---------+---------------------+-------------+---------+
| Basic | (23,004) | 33,587,094| | (68.5) | 16,801 | 28,297,852| | 59.4 |
| and | | | | | | |
| diluted | | | | | | |
| earnings | | | | | | |
| per | | | | | | |
| share | | | | | | |
+----------+---------------------+-------------+---------+---------------------+-------------+---------+
| Weighted average number of Ordinary Shares in issue during the period.
Adjusted earnings per share:
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| | Year to 31 December 2008 | Eighteen months |
| | | to 31 December 2007 |
+----------------+------------------------------------------------+------------------------------------------------+
| | Net | Ordinary | Per | Net | Ordinary | Per |
| | loss | Shares (number) | Share (pence) | profit | Shares (number) | Share (pence) |
| | attributable | | | attributable | | |
| | to Ordinary | | | to Ordinary | | |
| | Shareholders | | | Shareholders | | |
| | GBP000 | | | GBP000 | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Basic | (23,004) | 33,587,094| | (68.5) | 16,801 | 28,297,852| | 59.4 |
| earnings | | | | | | |
| per | | | | | | |
| share | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Adjustments | | | | | | |
| to remove: | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Performance | - | | | 2,591 | | |
| incentive | | | | | | |
| fee# | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Goodwill | 90 | | | 5,551 | | |
| impairment | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| UK-REIT | 160 | | | 5,157 | | |
| conversion | | | | | | |
| charge | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Other | 704 | | | - | | |
| non-recurring | | | | | | |
| items | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Deferred | - | | | 3,880 | | |
| tax | | | | | | |
| charge | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Deferred | - | | | (29,622) | | |
| tax | | | | | | |
| release | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Net | 17,707 | | | (4,857) | | |
| valuation | | | | | | |
| losses/(gains) | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Fair | 10,655 | | | 2,808 | | |
| value | | | | | | |
| loss | | | | | | |
| on | | | | | | |
| derivatives** | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
| Adjusted | 6,312 | 33,587,094 | 18.8 | 2,309 | 28,297,852 | 8.2 |
| basic | | | | | | |
| earnings | | | | | | |
| per | | | | | | |
| share | | | | | | |
+----------------+--------------+-----------------+---------------+--------------+-----------------+---------------+
+---------------+-------------+
| | Fair |
| | value |
| | loss on |
| | derivatives |
| | GBP000 |
+---------------+-------------+
| Loss | 11,109 |
| on | |
| "ineffective" | |
| interest rate | |
| swaps | |
+---------------+-------------+
| Gain | (454) |
| on | |
| basis | |
| rate | |
| swap | |
+---------------+-------------+
| Fair | 10,655 |
| value | |
| loss | |
| on | |
| derivatives, | |
| as above | |
+---------------+-------------+
| Weighted average number of Ordinary Shares in issue during the period.
# The Performance Incentive Fee depends primarily on revaluation gains, which
are eliminated in calculating adjusted earnings per share. No fee was payable in
respect of 2008.
** In view of the continuing volatility in the mark to market adjustment in
respect of the period end valuation of derivatives that flows through the Group
Income Statement, the Directors now believe that it is appropriate to remove the
gain or loss in the calculation of adjusted results and the comparatives have
been restated accordingly.
The adjusted earnings per share are adjusted for the large/one-off capital items
affecting earnings per share during the year/period.
8 Dividends paid and declared
Dividends paid in the period are as follows:
+----------+----------------------+---------------+---------------+
| | Number of | Year | Eighteen |
| | shares dividend paid | ended 31 | months |
| | upon | December 2008 | to 31 |
| | | GBP000 | December 2007 |
| | | | GBP000 |
+----------+----------------------+---------------+---------------+
| First | | | |
| interim | | | |
| dividend | | | |
| for the | | | |
| period | | | |
| ended | | | |
+----------+----------------------+---------------+---------------+
| 31 | 33,587,094 | 2,771 | - |
| December | | | |
| 2008 | | | |
| (8.25p) | | | |
| paid 20 | | | |
| November | | | |
| 2008 | | | |
+----------+----------------------+---------------+---------------+
| Third | 33,587,094 | 2,771 | - |
| dividend | | | |
| for the | | | |
| period | | | |
| ended 31 | | | |
| December | | | |
| 2007 | | | |
| (8.25p) | | | |
| paid 28 | | | |
| March | | | |
| 2008 | | | |
+----------+----------------------+---------------+---------------+
| Second | 33,587,094 | - | 2,519 |
| interim | | | |
| dividend | | | |
| for the | | | |
| period | | | |
| ended 31 | | | |
| December | | | |
| 2007 | | | |
| (7.5p) | | | |
+----------+----------------------+---------------+---------------+
| First | 24,277,718 | - | 1,821 |
| interim | | | |
| dividend | | | |
| for the | | | |
| period | | | |
| ended 31 | | | |
| December | | | |
| 2007 | | | |
| (7.5p) | | | |
+----------+----------------------+---------------+---------------+
| Final | 24,277,718 | - | 1,639 |
| dividend | | | |
| for the | | | |
| year | | | |
| ended 30 | | | |
| June | | | |
| 2006 | | | |
| (6.75p) | | | |
+----------+----------------------+---------------+---------------+
| | | 5,542 | 5,979 |
+----------+----------------------+---------------+---------------+
| Per | | 16.5p | 21.75p |
| share | | | |
+----------+----------------------+---------------+---------------+
9 Investment properties, properties in the course of development and development
loans
As at 31 December 2008
+--------------+----------------+------------+-------------+----------+-----------+
| | | Investment | Properties | Develop- | Total |
| | Investment | properties | in the | ment | GBP000 |
| | properties | long | course of | loans | |
| | freeholdGBP000 | leasehold | development | GBP000 | |
| | | GBP000 | GBP000 | | |
+--------------+----------------+------------+-------------+----------+-----------+
| As at | 235,529 | 46,195 | 3,624 | 722 | 286,070 |
| 1 | | | | | |
| January | | | | | |
| 2008 | | | | | |
+--------------+----------------+------------+-------------+----------+-----------+
| Additions | 12,496 | 4 | 28,594 | - | 41,094 |
+--------------+----------------+------------+-------------+----------+-----------+
| Properties | 8,127 | - | - | - | 8,127 |
| acquired | | | | | |
| during the | | | | | |
| year | | | | | |
| through | | | | | |
| Northwich | | | | | |
| and | | | | | |
| Shavington | | | | | |
| acquisitions | | | | | |
+--------------+----------------+------------+-------------+----------+-----------+
| Transfer | 25,666 | - | (25,666) | - | - |
| from | | | | | |
| properties | | | | | |
| in | | | | | |
| the course | | | | | |
| of | | | | | |
| development | | | | | |
| upon | | | | | |
| completion | | | | | |
+--------------+----------------+------------+-------------+----------+-----------+
| Transfer | 4,049 | - | (4,049) | - | - |
| from | | | | | |
| development | | | | | |
| properties | | | | | |
| upon | | | | | |
| completion | | | | | |
+--------------+----------------+------------+-------------+----------+-----------+
| Development | - | - | - | 262 | 262 |
| loan | | | | | |
| interest | | | | | |
| charged | | | | | |
+--------------+----------------+------------+-------------+----------+-----------+
| Interest | - | - | - | (702) | (702) |
| payments | | | | | |
| received | | | | | |
+--------------+----------------+------------+-------------+----------+-----------+
| Revaluation | (13,987) | (3,720) | - | - | (17,707) |
| for the | | | | | |
| year | | | | | |
+--------------+----------------+------------+-------------+----------+-----------+
| As at | 271,880 | 42,479 | 2,503 | 282 | 317,144 |
| 31 | | | | | |
| December | | | | | |
| 2008 | | | | | |
+--------------+----------------+------------+-------------+----------+-----------+
As at 31 December 2007
+-------------+------------+------------+---------------+----------+---------+
| | | Investment | Properties | Develop- | Total |
| | Investment | properties | in the | ment | GBP000 |
| | properties | long | course of | loans | |
| | freehold | leasehold | development** | GBP000 | |
| | GBP000 | GBP000 | GBP000 | | |
+-------------+------------+------------+---------------+----------+---------+
| As at | 171,783 | 25,660 | 2,126 | 1,712 | 201,281 |
| 1 July | | | | | |
| 2006 | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| Additions | 5,073 | 15,251 | 29,422 | 2,998 | 52,744 |
+-------------+------------+------------+---------------+----------+---------+
| Properties | 21,300 | | 9,525 | | 30,825 |
| acquired | | | | | |
| during the | | | | | |
| period | | | | | |
| through | | | | | |
| Cathedral | | | | | |
| acquisition | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| Disposals | (427) | - | - | - | (427) |
+-------------+------------+------------+---------------+----------+---------+
| Transfer | 21,841 | - | (21,841) | - | - |
| from | | | | | |
| properties | | | | | |
| in | | | | | |
| the course | | | | | |
| of | | | | | |
| development | | | | | |
| upon | | | | | |
| completion | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| Transfer | 8,576 | 3,282 | (11,858) | - | - |
| from | | | | | |
| development | | | | | |
| properties | | | | | |
| upon | | | | | |
| completion | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| Transfer | 2,907 | 1,621 | - | (4,528) | - |
| from | | | | | |
| development | | | | | |
| loans upon | | | | | |
| completion | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| Development | - | - | - | 867 | 867 |
| loan | | | | | |
| interest | | | | | |
| Charged | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| Interest | - | - | - | (327) | (327) |
| payments | | | | | |
| received | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| Impairment | - | - | (3,750) | | (3,750) |
| loss* | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| Revaluation | 4,476 | 381 | - | - | 4,857 |
| for the | | | | | |
| period | | | | | |
+-------------+------------+------------+---------------+----------+---------+
| As at | 235,529 | 46,195 | 3,624 | 722 | 286,070 |
| 31 | | | | | |
| December | | | | | |
| 2007 | | | | | |
+-------------+------------+------------+---------------+----------+---------+
* The impairment reflects the difference between the estimated market value of
properties in the course of development at the period-end and their contracted
development cost. The estimated market value is determined by reference to the
contracted rental income for each property and market yields at the period end
as advised by Lambert Smith Hampton, Chartered Surveyors. The impairment has
been reflected as an impairment provision against the capitalised cost of
property.
** Development properties in the course of development have been included with
against development properties. In the prior year the amounts were separated out
as they were held in different subsidiaries. Development properties of
GBP2,853k have been merged with properties in the course of development of
GBP771k as at 31 December 2007.
Development loans include accrued interest amounting to GBP60,000 (2007:
GBP182,000). Interest is charged between 1.1% and 1.5% above Bank of England
Base Rate on development loans, and charged at 1% over LIBOR compounded every
quarter on the development properties that were acquired on 22 December 2006
through the acquisition of Cathedral.
Properties have been independently valued at fair value by Lambert Smith Hampton
('LSH'), Chartered Surveyors and Valuers, as at the Balance Sheet date in
accordance with IAS 40: Investment Property. LSH confirm that they have valued
the properties in accordance with the Practice Statements in the RICS Appraisal
and Valuation Standards (Red Book). 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 historical cost of properties held by the Group, including properties in the
course of development, was GBP268.3m (2007: GBP219.1m).
Investment additions
On 4 January 2008, the Group acquired 100% of the Ordinary Share capital of SPCD
(Shavington) Limited and SPCD (Northwich) Limited from Sapphire Property Care
Developments Limited ("SPCD") for a cash consideration of GBP4.8m and GBP3.0m
respectively, SPCD (Shavington) owns Rope Green Medical Centre, Shavington and
SPCD (Northwich) owns Firdale Medical Centre, Northwich.
The net assets acquired amounted to GBP7.8m and consisted of properties. There
were no fair value adjustments and the post acquisition profits generated by the
companies amounted to GBP403k. The annual rent roll from the two properties is
GBP443k.
Book and fair values of the net assets at date of acquisition were as follows:
+-------------+-----------+------------+--------+
| | SPCD | SPCD | Total |
| | Northwich | Shavington | GBP000 |
| | Limited | Limited | |
| | GBP000 | GBP000 | |
+-------------+-----------+------------+--------+
| Investment | 3,130 | 4,997 | 8,127 |
| properties | | | |
+-------------+-----------+------------+--------+
| Trade | 17 | - | 17 |
| receivables | | | |
+-------------+-----------+------------+--------+
| Trade | (170) | (218) | (388) |
| payables | | | |
+-------------+-----------+------------+--------+
| Net | 2,977 | 4,779 | 7,756 |
| assets | | | |
+-------------+-----------+------------+--------+
| Goodwill | 35 | 55 | 90 |
| arising | | | |
| on | | | |
| acquisition | | | |
| (note 3) | | | |
+-------------+-----------+------------+--------+
| | 3,012 | 4,834 | 7,846 |
+-------------+-----------+------------+--------+
The goodwill arising on acquisition has been written off in the Group Income
Statement in line with the accounting policy. It relates to transaction costs
and has been expensed in the year.
On 22 December 2006, the Company acquired 100% of the Ordinary Shares of
Cathedral Healthcare Holdings Ltd ("CHH") for a consideration at book value of
GBP31.0m equivalent to the fair value of the assets obtained. Post acquisition
profits generated by the companies.
Post acquisition profits generated by the companies amounted to GBP3,843k,
including realised revaluation gains of GBP2,153k. Pro forma turnover for the 18
month period to 31 December 2007 was GBP1,737k and pro forma profits for the
same period were GBP130k.
CHH was the holding company of a group of companies that owned nine primary
healthcare facilities across the UK which have been incorporated into the
Group's portfolio.
Consideration of GBP30.9m was paid upon completion with a further balance of
GBP0.1m paid in April 2007. Cash acquired upon acquisition of CHH amounted to
GBP0.2m.
The total gross assets acquired once fully developed are expected to amount to
GBP39.2m. These assets are expected to generate a total annual rental income of
approximately GBP2.0m, reflecting an initial yield of approximately 5%.
As the Company paid consideration equal to the assessed value of the acquired
properties, goodwill arose in respect of the other net liabilities acquired,
principally a deferred tax liability of GBP4.9m. However, on conversion to
UK-REIT, the deferred tax liability was eliminated, resulting in an impairment
of goodwill arising on acquisition.
Pro forma turnover for the 18 month period to 31 December 2007 was GBP1,773k and
pro forma profits for the same period were GBP130k.
Book and fair values of the net assets of Cathedral at date of acquisition were
as follows:
+-------------+---------+
| | GBP000 |
+-------------+---------+
| Investment | 21,300 |
| properties | |
+-------------+---------+
| Development | 9,525 |
| properties | |
+-------------+---------+
| Trade | 810 |
| receivables | |
+-------------+---------+
| Cash | 173 |
+-------------+---------+
| Trade | (1,346) |
| payables | |
+-------------+---------+
| Deferred | (4,951) |
| tax | |
| liabilities | |
+-------------+---------+
| Net | 25,511 |
| assets | |
| acquired | |
+-------------+---------+
| Goodwill | 5,551 |
| arising | |
| on | |
| acquisition | |
| (note 3) | |
+-------------+---------+
| | 31,062 |
+-------------+---------+
Property disposals during the year/period
+----------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+----------+----------+----------+
| Net | - | 471 |
| proceeds | | |
| of sale | | |
+----------+----------+----------+
| Less: | - | (427) |
| carrying | | |
| value | | |
+----------+----------+----------+
| Realised | - | 44 |
| gain on | | |
| disposal | | |
| of | | |
| property | | |
+----------+----------+----------+
10 Investments
The subsidiaries of the Company are stated below:
+---------------+------------+------------+
| Subsidiary | Principal | Proportion |
| | activity | of |
| | | voting |
| | | rights |
| | | and shares |
| | | held |
+---------------+------------+------------+
| Primary | Property | 100% |
| Health | investment | |
| Investment | | |
| Properties | | |
| Limited | | |
| (PHIP)| | | |
+---------------+------------+------------+
| Primary | Property | 100% |
| Health | investment | |
| Investment | | |
| Properties | | |
| (No. 2) | | |
| Limited | | |
| (PHIP No. | | |
| 2)| | | |
+---------------+------------+------------+
| Primary | Property | 100% |
| Health | investment | |
| Investment | | |
| Properties | | |
| (No. 3) | | |
| Limited | | |
| (PHIP No. | | |
| 3)| | | |
+---------------+------------+------------+
| PHIP | Property | 100% |
| CHH | investment | |
| Limited| | | |
+---------------+------------+------------+
| PHIP | Property | 100% |
| CH | investment | |
| Limited* | | |
+---------------+------------+------------+
| PHIP | Property | 100% |
| (RHL) | investment | |
| Limited* | | |
+---------------+------------+------------+
| PHIP | Property | 100% |
| (SSG | investment | |
| Norwich) | | |
| Limited* | | |
+---------------+------------+------------+
| PHIP | Property | 100% |
| (Hetherington | investment | |
| Road) | | |
| Limited* | | |
+---------------+------------+------------+
| PHIP | Property | 100% |
| (Hoddesdon) | investment | |
| Limited* | | |
+---------------+------------+------------+
| PHIP | Property | 100% |
| (Milton | investment | |
| Keynes) | | |
| Limited* | | |
+---------------+------------+------------+
| PHIP | Property | 100% |
| (Sheerness) | investment | |
| Limited* | | |
+---------------+------------+------------+
| AHG | Property | 100% |
| (2006) | investment | |
| Limited | | |
+---------------+------------+------------+
| SPCD | Property | 100% |
| (Shavington) | investment | |
| Limited* | | |
+---------------+------------+------------+
| SPCD | Property | 100% |
| (Northwich) | investment | |
| Limited* | | |
+---------------+------------+------------+
| Subsidiaries directly held by the Company.
* On 24 December 2008, investment properties held by various subsidiaries were
transferred at market value to PHIP (the main trading subsidiary) for
administrative convenience and to reduce costs.
11 Net investment in finance leases
+---------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+---------+----------+----------+
| Amounts | 2,842 | 2,736 |
| due in | | |
| more | | |
| than | | |
| five | | |
| years | | |
+---------+----------+----------+
| Amounts | 147 | 178 |
| due | | |
| between | | |
| one and | | |
| five | | |
| years | | |
+---------+----------+----------+
| | 2,989 | 2,914 |
+---------+----------+----------+
| Amounts | 50 | 53 |
| due in | | |
| less | | |
| than | | |
| one | | |
| year | | |
+---------+----------+----------+
| | 3,039 | 2,967 |
+---------+----------+----------+
There were no additions to finance leases during the year ended 31 December 2008
nor the period ended 31 December 2007.
+-------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+-------------+----------+----------+
| Gross | 10,085 | 10,345 |
| investment | | |
| in finance | | |
| leases | | |
+-------------+----------+----------+
| Less: | (7.046) | (7,378) |
| unearned | | |
| financial | | |
| revenues | | |
+-------------+----------+----------+
| Present | 3,039 | 2,967 |
| value | | |
| of | | |
| future | | |
| minimum | | |
| lease | | |
| payment | | |
| receivables | | |
+-------------+----------+----------+
12 Trade and other receivables
+-------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+-------------+----------+----------+
| Trade | 405 | 865 |
| receivables | | |
+-------------+----------+----------+
| VAT | - | 1,320 |
| recoverable | | |
+-------------+----------+----------+
| Prepayments | 1,403 | 1,461 |
+-------------+----------+----------+
| | 1,808 | 3,646 |
+-------------+----------+----------+
13 Cash and cash equivalents
+--------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+--------+----------+----------+
| Cash | 675 | 3,862 |
| held | | |
| at | | |
| bank | | |
+--------+----------+----------+
There is a GBP10m overdraft facility in place, unutilised as at 31 December
2008.
Bank interest is earned at floating rates depending upon the bank deposit rate.
Short term deposits may be made for varying periods of between one day and one
month dependent upon available cash and the forthcoming cash requirements of the
Group. These deposits earn interest at various short term deposit rates.
14 Tax payable
+-------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+-------------+----------+----------+
| Corporation | 29 | 29 |
| tax payable | | |
+-------------+----------+----------+
15 Trade and other payables
+------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+------------+----------+----------+
| UK-REIT | 1,559 | 1,208 |
| Conversion | | |
| charge | | |
+------------+----------+----------+
| Rents | 4,275 | 3,660 |
| received | | |
| in | | |
| advance: | | |
| deferred | | |
| rental | | |
| income | | |
+------------+----------+----------+
| | | |
+------------+----------+----------+
| Trade | 2,372 | 3,576 |
| and | | |
| other | | |
| payables | | |
+------------+----------+----------+
| VAT | 550 | - |
+------------+----------+----------+
| | 2,922 | 3,576 |
+------------+----------+----------+
| | | |
+------------+----------+----------+
| | 8,756 | 8,444 |
+------------+----------+----------+
The UK-REIT conversion charge totalled GBP5.2m, of which GBP1.3m has been paid,
GBP1.5m is payable within the next twelve months and the balance of GBP2.2m in
instalments over the next
two years (2007: GBP3.4m over the next three years).
16 Term loans
On 14 March 2008 the Group entered into a facility of GBP50m with Abbey National
Treasury Services plc, increased to GBP65m in September 2008. This facility
matures in 2013. At 31 December 2008, total facilities of GBP265m (2007:
GBP200m) were available. Of these facilities, as at 31 December 2008, GBP206m
was drawn (2007: GBP160m) and secured by an unlimited guarantee from each
subsidiary and a first fixed charge over the ownership of each property.
Interest is payable on the loan at a fixed percentage rate above LIBOR and
interest payable has fluctuated in the period between 3% and 6.81% (2007: 5.48%
and 7.51%), including lenders' margins and costs (excluding margins and costs
2.3% and 6.1% (2007: 4.72% and 6.75%). However, the Group has entered into
interest rate swaps to manage its exposure to interest rate fluctuations. These
are set out in note 17.
Interest on floating rate loans is payable over 3 months using underlying
reference rates (e.g. LIBOR plus margin plus costs). The fixed rate margin above
LIBOR is 0.76% (including lenders' costs of 0.06%).
The table below indicates amounts drawn and undrawn from each individual
facility.
+-------------+---------+---------+---------+---------+--------+---------+
| | Facility | Amounts drawn | Undrawn |
+-------------+-------------------+-------------------+------------------+
| | 31 Dec | 31 | 31 Dec | 31 | 31 Dec | 31 |
| | 2008 | Dec | 2008 | Dec | 2008 | Dec |
| | GBP000 | 2007 | GBP000 | 2007 | GBP000 | 2007 |
| | | GBP000 | | GBP000 | | GBP000 |
+-------------+---------+---------+---------+---------+--------+---------+
| Current | | | | | | |
+-------------+---------+---------+---------+---------+--------+---------+
| 364 | 10,000 | 10,000 | - | - | 10,000 | 10,000 |
| day | | | | | | |
| revolving* | | | | | | |
+-------------+---------+---------+---------+---------+--------+---------+
| Non-current | | | | | | |
+-------------+---------+---------+---------+---------+--------+---------+
| Term | 140,000 | 140,000 | 129,000 | 132,050 | 11,000 | 7,950 |
| to | | | | | | |
| January | | | | | | |
| 2013* | | | | | | |
+-------------+---------+---------+---------+---------+--------+---------+
| Term | 50,000 | 50,000 | 44,100 | 27,800 | 5,900 | 22,200 |
| to | | | | | | |
| January | | | | | | |
| 2013** | | | | | | |
+-------------+---------+---------+---------+---------+--------+---------+
| Term | 65,000 | - | 32,500 | - | 32,500 | - |
| to | | | | | | |
| January | | | | | | |
| 2013*** | | | | | | |
+-------------+---------+---------+---------+---------+--------+---------+
| | 265,000 | 200,000 | 205,600 | 159,850 | 59,400 | 40,150 |
+-------------+---------+---------+---------+---------+--------+---------+
Provider:
* The Royal Bank of Scotland plc.
** Allied Irish Banks, p.l.c.
*** Abbey National Treasury Services plc
Since the term loan facilities have been in existence, the Group has suffered
costs in association with the arrangement of the facilities including legal
advice and loan arrangement fees. These costs are amortised over the remaining
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:
+-------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+-------------+----------+----------+
| Term | 205,600 | 159,850 |
| loan | | |
| drawn | | |
+-------------+----------+----------+
| Less: | (1,512) | (631) |
| Unamortised | | |
| borrowing | | |
| costs | | |
+-------------+----------+----------+
| Term | 204,088 | 159,219 |
| loan | | |
| per | | |
| Group | | |
| Balance | | |
| Sheet | | |
+-------------+----------+----------+
17 Derivatives and other financial instruments
An explanation of the Group's financial risk management objectives, policies and
strategy can be found in the Group Directors' Report. All of the Group's
financial instruments are Sterling denominated.
a) Financial statements
The maturity profile of interest bearing financial assets and liabilities is as
follows:
2008 Fixed rate assets and liabilities
+---------------------------+----------+--------+--------+---------+--------+----------+----------+-----------+
| | | 1 - 2 | 2 - 3 | 3 - 4 | 4 - 5 | More | Total | Effective |
| | Within | years | years | years | years | than | GBP000 | interest |
| | 1 year | GBP000 | GBP000 | GBP000 | GBP000 | 5 | | rate |
| | GBP000 | | | | | years | | % |
| | | | | | | GBP000 | | |
+---------------------------+----------+--------+--------+---------+--------+----------+----------+-----------+
| Finance | 50 | 50 | 47 | 29 | 21 | 2,842 | 3,039 | 11.1 |
| leases | | | | | | | | |
+---------------------------+----------+--------+--------+---------+--------+----------+----------+-----------+
| Interest | (13,463) | - | - | - | - | (14,923) | (28,384) | 4.8 |
| rate | * | | | | | | | |
| swap (liabilities)/assets | | | | | | | | |
+---------------------------+----------+--------+--------+---------+--------+----------+----------+-----------+
| Total | (13,413) | 50 | 47 | 29 | 21 | (12,081) | (25,347) | |
+---------------------------+----------+--------+--------+---------+--------+----------+----------+-----------+
* This may be analysed into a current liability of GBP13,917k offset by an asset
of GBP454k, as disclosed in the Group Balance Sheet.
2008 Floating rate assets and liabilities
+-------------+--------+-----------+--------+------------+-----------+
| | | 1 - 5 | More | Total | Effective |
| | Within | years | than | GBP000 | interest |
| | 1 year | GBP000 | 5 | | rate |
| | GBP000 | | years | | % |
| | | | GBP000 | | |
+-------------+--------+-----------+--------+------------+-----------+
| Cash | 675 | - | - | 675 | 1.0 |
+-------------+--------+-----------+--------+------------+-----------+
| Development | 282 | - | - | 282 | 3.1 |
| loans | | | | | |
+-------------+--------+-----------+--------+------------+-----------+
| Term | - | (204,088) | - | (204,088) | 2.8 |
| loan | | | | | |
+-------------+--------+-----------+--------+------------+-----------+
| Total | 957 | (204,088) | - | (203,131) | |
+-------------+--------+-----------+--------+------------+-----------+
2007 Fixed rate assets and liabilities
+----------------------+---------+--------+--------+--------+--------+---------+---------+-----------+
| | Within | 1 - | 2 - | 3 - | 4 - | More | Total | Effective |
| | 1 year | 2 | 3 | 4 | 5 | than | GBP000 | interest |
| | GBP000 | years | years | years | years | 5 | | rate |
| | | GBP000 | GBP000 | GBP000 | GBP000 | years | | % |
| | | | | | | GBP000 | | |
+----------------------+---------+--------+--------+--------+--------+---------+---------+-----------+
| Finance | 53 | 52 | 49 | 48 | 29 | 2,736 | 2,967 | 11.3 |
| leases | | | | | | | | |
+----------------------+---------+--------+--------+--------+--------+---------+---------+-----------+
| Interest | (2,808) | - | - | - | - | 1,427* | (1,381) | 4.8 |
| rate swap | | | | | | | | |
| (liabilities)/assets | | | | | | | | |
+----------------------+---------+--------+--------+--------+--------+---------+---------+-----------+
| Total | (2,755) | 52 | 49 | 48 | 29 | 4,163 | 1,586 | |
+----------------------+---------+--------+--------+--------+--------+---------+---------+-----------+
* net of GBP1,651k and (GBP224k) per the Group Balance Sheet.
2007 Floating rate assets and liabilities
+-------------+--------+--------+-----------+-----------+-----------+
| | Within | 1 - 5 | More | Total | Effective |
| | 1 year | years | than | GBP000 | interest |
| | GBP000 | GBP000 | 5 | | rate |
| | | | years | | % |
| | | | GBP000 | | |
+-------------+--------+--------+-----------+-----------+-----------+
| Cash | 3,862 | - | - | 3,862 | 4 |
+-------------+--------+--------+-----------+-----------+-----------+
| Development | - | 722 | - | 722 | 6.6 |
| loans | | | | | |
+-------------+--------+--------+-----------+-----------+-----------+
| Term | - | - | (159,219) | (159,219) | 7.3 |
| loan | | | | | |
+-------------+--------+--------+-----------+-----------+-----------+
| Total | 3,862 | 722 | (159,219) | (154,635) | |
+-------------+--------+--------+-----------+-----------+-----------+
Fair values of financial assets and financial liabilities
A comparison of the fair value of the Group's financial assets and financial
liabilities is set out below. The fair value of derivatives and borrowings has
been calculated by discounting the expected future cashflows at prevailing
interest rates and the fair value of the net investment in finance leases has
been determined by discounting the future receipts from those leases at the
Group's current cost of capital.
+-------------+-----------+-----------+-----------+-----------+
| | Book | Fair | Book | Fair |
| | value | value | value | value |
| | 2008 | 2008 | 2007 | 2007 |
| | GBP000 | GBP000 | GBP000 | GBP000 |
+-------------+-----------+-----------+-----------+-----------+
| Trade | 405 | 405 | 865 | 865 |
| and | | | | |
| other | | | | |
| receivables | | | | |
+-------------+-----------+-----------+-----------+-----------+
| Trade | (2,372) | (2,372) | (3,576) | (3,576) |
| and | | | | |
| other | | | | |
| payables* | | | | |
+-------------+-----------+-----------+-----------+-----------+
| Term | (204,375) | (204,375) | (159,792) | (159,792) |
| loan | | | | |
+-------------+-----------+-----------+-----------+-----------+
| Finance | | | | |
| leases: | | | | |
+-------------+-----------+-----------+-----------+-----------+
| due | 50 | 50 | 53 | 53 |
| within | | | | |
| one | | | | |
| year | | | | |
+-------------+-----------+-----------+-----------+-----------+
| due in | 2,989 | 5,924 | 2,914 | 4,008 |
| more | | | | |
| than | | | | |
| one | | | | |
| year | | | | |
+-------------+-----------+-----------+-----------+-----------+
| Cash | 675 | 675 | 3,862 | 3,862 |
+-------------+-----------+-----------+-----------+-----------+
| Development | 282 | 282 | 722 | 722 |
| loan | | | | |
| interest | | | | |
| accrued | | | | |
+-------------+-----------+-----------+-----------+-----------+
| Interest | (28,386) | (28,386) | (1,381) | (1,381) |
| rate | | | | |
| swap net | | | | |
| liabilities | | | | |
+-------------+-----------+-----------+-----------+-----------+
* Included within trade and other payables is GBP287k (2007: GBP573k) of term
loan interest.
The Group's borrowings have financial covenants. If these covenants were to be
breached, the borrowings would become repayable immediately. These covenants
require the Group to disclose gearing and interest cover to the lender on a
quarterly basis.
The 364 day revolving credit facility remained unchanged and in existence
throughout the period.
The actual borrowings (not inclusive of any unamortised borrowing costs) of
GBP205.6m (2007: GBP159.9m) are secured unamortised on investment properties
held.
Details of the undrawn facilities of the term loan are provided in note 16.
Hedging activities
The Group's treasury policies are reviewed periodically by the Board. The
policies have the objective to manage the financial risk of investing and
borrowing in relation to the business needs of the Group.
The Group's policy is to enter into interest rate swaps as necessary to hedge
cashflow risk on bank borrowing requirements over the long term. These hedges
are entered into to avoid excessive concentrations of interest rate risk.
Floating to fixed rate interest rate swaps that were effective at the
period-ends were as follows:
+-----------+---------+----------+----------+
| Contract | Start | Maturity | |
| value | date | | Fixed |
| | | | interest |
| | | | per |
| | | | annum % |
+-----------+---------+----------+----------+
| 2008 | | | |
+-----------+---------+----------+----------+
| GBP50 | August | February | 4.835 |
| million | 2007 | 2009 | |
| callable* | | | |
+-----------+---------+----------+----------+
| GBP38 | August | February | 4.740 |
| million | 2007 | 2009 | |
| callable* | | | |
+-----------+---------+----------+----------+
| GBP65 | January | July | 4.805 |
| million | 2007 | 2009 | |
+-----------+---------+----------+----------+
| GBP10 | August | August | 4.530 |
| million | 2005 | 2015 | |
+-----------+---------+----------+----------+
| GBP10 | March | March | 4.895 |
| million | 2008 | 2013 | |
+-----------+---------+----------+----------+
| GBP10 | March | March | 4.8925 |
| million | 2008 | 2013 | |
+-----------+---------+----------+----------+
| GBP10 | June | June | 4.810 |
| million | 2006 | 2026 | |
+-----------+---------+----------+----------+
| GBP193 | | | |
| million | | | |
+-----------+---------+----------+----------+
| 2007 | | | |
+-----------+---------+----------+----------+
| GBP70 | January | July | 4.805 |
| million | 2007 | 2008 | |
+-----------+---------+----------+----------+
| GBP30 | August | February | 4.835 |
| million | 2007 | 2008 | |
+-----------+---------+----------+----------+
| GBP25 | August | May | 4.74 |
| million | 2007 | 2008 | |
+-----------+---------+----------+----------+
| GBP10 | August | August | 4.530 |
| million | 2005 | 2015 | |
+-----------+---------+----------+----------+
| GBP10 | June | June | 4.810 |
| million | 2006 | 2026 | |
+-----------+---------+----------+----------+
| GBP145 | | | |
| million | | | |
+-----------+---------+----------+----------+
Floating to fixed interest rate swaps that are effective after the period-ends
are as follows:
+-----------+----------+-----------+----------+
| Contract | Start | Maturity | Fixed |
| value | date | | interest |
| | | | per |
| | | | annum % |
+-----------+----------+-----------+----------+
| 2007 | | | |
+-----------+----------+-----------+----------+
| GBP40 | February | May | 4.835 |
| million | 2008 | 2008 | |
| callable* | | | |
+-----------+----------+-----------+----------+
| GBP33 | May | August | 4.740 |
| million | 2008 | 2008 | |
| callable* | | | |
+-----------+----------+-----------+----------+
| GBP65 | July | July | 4.805 |
| million | 2008 | 2009 | |
+-----------+----------+-----------+----------+
| GBP55 | July | January | 4.805 |
| million | 2009 | 2010 | |
+-----------+----------+-----------+----------+
| GBP75 | January | July | 4.805 |
| million | 2010 | 2010 | |
+-----------+----------+-----------+----------+
| GBP65 | July | July | 4.805 |
| million | 2010 | 2012 | |
+-----------+----------+-----------+----------+
| GBP73.3 | July | April | 4.805 |
| million | 2012 | 2013 | |
+-----------+----------+-----------+----------+
| GBP63.3 | April | July | 4.805 |
| million | 2013 | 2013 | |
+-----------+----------+-----------+----------+
| GBP70 | July | July | 4.805 |
| million | 2013 | 2015 | |
+-----------+----------+-----------+----------+
| GBP80 | July | July | 4.805 |
| million | 2015 | 2016 | |
+-----------+----------+-----------+----------+
| GBP10 | June | June | 4.510 |
| million | 2016 | 2026 | |
+-----------+----------+-----------+----------+
| GBP10 | July | July | 4.400 |
| million | 2016 | 2026 | |
+-----------+----------+-----------+----------+
| GBP10 | July | July | 4.475 |
| million | 2016 | 2026 | |
+-----------+----------+-----------+----------+
| GBP10 | July | July | 4.455 |
| million | 2016 | 2026 | |
+-----------+----------+-----------+----------+
| GBP10 | July | July | 4.47875 |
| million | 2016 | 2026 | |
+-----------+----------+-----------+----------+
| GBP20 | July | July | 4.760 |
| million | 2017 | 2027 | |
+-----------+----------+-----------+----------+
+----------+-----------+-----------+----------+
| Contract | Start | Maturity | Fixed |
| value | date | | interest |
| | | | per |
| | | | annum % |
+----------+-----------+-----------+----------+
| 2008 | | | |
+----------+-----------+-----------+----------+
| GBP55 | July | January | 4.805 |
| million | 2009 | 2010 | |
+----------+-----------+-----------+----------+
| GBP75 | January | July | 4.805 |
| million | 2010 | 2010 | |
+----------+-----------+-----------+----------+
| GBP65 | July | July | 4.805 |
| million | 2010 | 2012 | |
+----------+-----------+-----------+----------+
| GBP73.3 | July | April | 4.805 |
| million | 2012 | 2013 | |
+----------+-----------+-----------+----------+
| GBP63.3 | April | July | 4.805 |
| million | 2013 | 2013 | |
+----------+-----------+-----------+----------+
| GBP15 | September | September | 4.915 |
| million | 2010 | 2013 | |
+----------+-----------+-----------+----------+
| GBP70 | July | July | 4.805 |
| million | 2013 | 2015 | |
+----------+-----------+-----------+----------+
| GBP80 | July | July | 4.805 |
| million | 2015 | 2016 | |
+----------+-----------+-----------+----------+
| GBP10 | June | June | 4.510 |
| million | 2016 | 2026 | |
+----------+-----------+-----------+----------+
| GBP10 | July | July | 4.400 |
| million | 2016 | 2026 | |
+----------+-----------+-----------+----------+
| GBP10 | July | July | 4.475 |
| million | 2016 | 2026 | |
+----------+-----------+-----------+----------+
| GBP10 | July | July | 4.455 |
| million | 2016 | 2026 | |
+----------+-----------+-----------+----------+
| GBP10 | July | July | 4.47875 |
| million | 2016 | 2026 | |
+----------+-----------+-----------+----------+
| GBP20 | July | July | 4.760 |
| million | 2017 | 2027 | |
+----------+-----------+-----------+----------+
* Callable swaps can be exercised at the bank's option on a set date each
quarter at zero cost to the Group. As the Terms do not reflect those of the
underlying debt facility, they cannot be considered as part of the Group's
overall hedging strategy and therefore hedge accounting cannot be applied.
In addition to the above, the Group entered into a number of basis rate swaps as
follows:
+----------+----------+----------+---------------+
| Contract | Start | Maturity | Interest rate |
| value | date | | % |
+----------+----------+----------+---------------+
| GBP200 | May | February | LIBOR |
| million | 2009 | 2010 | + 0.18% |
+----------+----------+----------+---------------+
| GBP50 | November | May | LIBOR |
| million | 2008 | 2009 | + 0.26% |
+----------+----------+----------+---------------+
| GBP150 | November | May | LIBOR |
| million | 2008 | 2009 | + 0.26% |
+----------+----------+----------+---------------+
The Group has taken advantage of short-term pricing anomalies in the interbank
market by entering into basis rate swaps, whereby 3m LIBOR has been swapped into
1m LIBOR plus a margin, which generates a relatively low risk revenue return.
The primary aim is to generate additional revenue and, as such, the basis swaps
cannot be included as part of the Group's overall hedging strategy and therefore
hedge accounting is not applied. Income of GBP280k was generated on these swaps
during the year (2007: GBPnil).
b) Risk management policies and procedures
In pursuing its investment objective, the Group is exposed to a variety of risks
that could result in either a reduction in net assets or distributable profits.
The Group's exposure to risk and the Directors' approach to risk management is
set out below. The Joint Managers, in close cooperation with the Board,
coordinate the Group's risk management.
The objectives, policies and processes for managing the risks and the methods
used to measure the risks, that are set out below, have not changed from the
previous accounting period.
Market risk
The fair value or future cash flows of a financial instrument held by the Group
may fluctuate because of changes in market prices. This market risk comprises
two elements - interest rate risk and other price risk. The Joint Managers
assess the exposure to market risk when making each investment decision and
monitor the overall level of market risk on the investment property portfolio on
an ongoing basis.
Interest rate risk
Interest rate movements may affect:
* the level of income receivable on cash deposits;
* the interest payable on the Group's variable rate borrowings;
* fair value of interest rate swaps.
Management of risks
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment
decisions and borrowing under the loan facility.
The Group, generally, does not hold significant cash balances, with short-term
borrowings being used when required. However, when rents are received on the
rent quarter days, higher levels of cash may be held until utilised. The Group
finances part of its activities through borrowings at levels approved and
monitored by the Board.
Interest rate exposure is managed within limits agreed by the Board and, as
stipulated in the Articles of Association, gearing should not exceed 75% of
gross assets. The Group aims to hedge its exposure to interest rate risk on the
term loans by entering into interest rate swaps. At 31 December 2008, the fair
value of the interest rate swaps was a liability of (GBP28.4m) (2007: (GBP1.4m)
and these will impact upon cashflows up to July 2027.
After taking account of interest rate swap cover at 31 December 2008, GBP193m
(94%) (2007: GBP145m (91%)) of actual borrowings were at fixed rates and GBP13m
(6%) (2007: GBP14m (9%)) were at variable rates.
Borrowings subject to swap arrangements had a weighted average interest rate,
including the lenders' margin of 3.6%.
Interest rate exposure
The exposure at 31 December 2008 of financial assets and financial liabilities
to interest rate risk is shown by reference to the interest rate profile of the
Group and is set out in section a) of this note.
Interest receivable and finance costs are at the following rates:
* Interest received on cash balances is at a margin of 1.0% below (2007: 1.0%
below) the Bank of England base rate. The weighted average effective interest
rate on these investments was 3.7% (2007: 2.1%).
* Interest paid on borrowings under the loan facility is at a margin of 0.76% over
LIBOR (including costs) (see note 16 for details of interest rates).
The above period end amounts are representative of the risks managed during the
year, because the level of exposure changes as borrowings are drawn down and
repaid and the mix of borrowings between floating interest rates and fixed
interest rates changes.
Interest rate sensitivity
The group has used a sensitivity analysis technique that measures the estimated
change to the fair value of the Group's financial instruments, to the income
statement and to equity of either an instantaneous increase or decrease of 0.5%
(50 basis points) in market interest rates, from the rates applicable at 31
December 2008, for each class of financial instrument, with all other variables
remaining constant. The analysis is for illustrative purposes only as, in
practice, market rates rarely change in isolation.
The sensitivity analysis is based on the following:
* Fair value of derivative financial instruments which are not hedge accounted and
which are reflected in the Group Income Statement.
* Changes in market interest rates only affect interest income or expense in
relation to financial instruments with fixed interest rates if these are
recognised at their fair value.
* Changes in interest rates affect the fair value of derivative financial
instruments designated as hedging instruments and all interest rate hedges are
expected to be highly effective. Such changes in fair value impact on equity in
the sensitivity analysis.
* Changes in the fair values of derivative financial instruments and other
financial assets and liabilities are estimated by discounting the future cash
flows to net present value using appropriate market rates prevailing at the year
end.
Sensitivity analysis table
+---------------------+----------+---------------+
| | 0.5% | 0.5% increase |
| | decrease | in interest |
| | in | rates |
| | interest | GBP000 |
| | rates | |
| | GBP000 | |
+---------------------+----------+---------------+
| At 31 | | |
| December | | |
| 2008 | | |
+---------------------+----------+---------------+
| (Decrease)/increase | (10,061) | 10,061 |
| in fair value of | | |
| financial | | |
| instruments | | |
+---------------------+----------+---------------+
| Impact | (2,942) | 2,942 |
| on | | |
| income | | |
| statement: | | |
| (loss)/gain | | |
+---------------------+----------+---------------+
| Impact | (9,606) | 9,606 |
| on | | |
| equity: | | |
| (loss)/gain | | |
+---------------------+----------+---------------+
| At 31 | | |
| December | | |
| 2007 | | |
+---------------------+----------+---------------+
| (Decrease)/increase | (11,100) | 11,100 |
| in fair value of | | |
| financial | | |
| instruments | | |
+---------------------+----------+---------------+
| Impact | (4,932) | 4,932 |
| on | | |
| income | | |
| statement: | | |
| (loss)/gain | | |
+---------------------+----------+---------------+
| Impact | (9,982) | 9,982 |
| on | | |
| equity: | | |
| (loss)/gain | | |
+---------------------+----------+---------------+
The above analysis considers the fair value impact of all financial instruments
including financial derivatives, cash and cash equivalents, borrowings and other
financial assets and liabilities.
Liquidity risk
This is the risk that the Group will encounter difficulty in meeting obligations
associated with financial liabilities. The Group's assets are property
investments and are therefore not readily realisable; should the lenders recall
the term loans the Group would be exposed to liquidity risk. The Group has also
entered into two callable swaps.
Management of the risk
The Group has borrowing facilities in place, expiring in 2013, as stated in note
16, on which it can readily draw upon at any time. At 31 December 2008, it had
total loan facilities of GBP265m (2007: GBP200m), of which GBP59.4m were undrawn
(2007: GBP40.2m).
The Group regularly monitors compliance with financial covenants (including
future compliance) connected with the term loans. No breaches have been noted to
date or are expected.
Liquidity risk exposure
The contractual maturities of the financial liabilities at the period-end, based
on the earliest date on which payment can be required were as follows:
+------------+---------+------------+--------+---------+--------+--------+---------+---------+
| | 31 December 2008 | | 31 December 2007 | |
| | | | | |
+------------+-------------------------------+---------+---------------------------+---------+
| GBP000 | Less | 1 - 5 | More | Total | Less | 1 - | More | Total |
| | than | years | than | GBP000 | than | 5 | than | |
| | one | GBP000 | 5 | | one | years | 5 | |
| | year | | years | | year | GBP000 | years | |
| | GBP000 | | GBP000 | | GBP000 | | GBP000 | |
+------------+---------+------------+--------+---------+--------+--------+---------+---------+
| Trade | 2,372 | - | - | 2,372 | 3,003 | - | - | 3,003 |
| and | | | | | | | | |
| other | | | | | | | | |
| payables | | | | | | | | |
+------------+---------+------------+--------+---------+--------+--------+---------+---------+
| Interest | 13,463 | - | 14,923 | 28,386 | 2,808 | - | - | 2,808 |
| rates | | | | | | | | |
| swaps | | | | | | | | |
+------------+---------+------------+--------+---------+--------+--------+---------+---------+
| UK-REIT | 1,671 | 2,305 | - | 3,976 | 1,322 | 3,770 | - | 5,092 |
| conversion | | | | | | | | |
| charge | | | | | | | | |
+------------+---------+------------+--------+---------+--------+--------+---------+---------+
| Term | 4,318 | 222,870 | - | 227,188 | 11,690 | 46,760 | 160,824 | 219,274 |
| loans | | | | | | | | |
+------------+---------+------------+--------+---------+--------+--------+---------+---------+
| Total | 21,824 | 225,175 | 14,923 | 261,922 | 18,823 | 50,530 | 160,824 | 230,177 |
+------------+---------+------------+--------+---------+--------+--------+---------+---------+
Credit risk
The Group trades with credit worthy third parties and all receivable balances
are monitored on an ongoing basis.
Maximum exposure to credit risk within the Group is equal to the carrying value
of financial assets; such assets include cash and cash equivalents, interest
rate swap assets and trade debtors.
The failure of the counterparty to a transaction to meet its obligations under
that transaction could result in the Group suffering a financial loss.
Management of risks
This risk is managed as follows:
* Transactions involving derivatives are entered into only with reputable banks,
the credit rating of which are taken into account so as to minimise the risk to
the Group of default
* Where investment transactions are entered into, the Group utilises a limited
number of specialist advisors
* Cash at bank is held only with reputable banks with high quality external credit
ratings
* The Group monitors trade receivables for impairment on a case-by-case basis
* A legally binding contract in existence for each tenant occupying rented
properties.
Credit risk exposure
The maximum exposure to credit risk during the year ending 31 December 2008 and
the period ending 31 December 2007 was as follows:
+-------------+--------+----------+--------+----------+
| | 31 December | 31 December |
| | 2008 | 2007 |
+-------------+-------------------+-------------------+
| | Period | Maximum | Period | Maximum |
| | end | exposure | end | exposure |
| | GBP000 | GBP000 | GBP000 | GBP000 |
+-------------+--------+----------+--------+----------+
| Trade | 405 | 405 | 865 | 865 |
| receivables | | | | |
+-------------+--------+----------+--------+----------+
| Cash | 675 | 675 | 3,862 | 3,862 |
| at | | | | |
| bank | | | | |
+-------------+--------+----------+--------+----------+
| Finance | 3,039 | 3,039 | 2,967 | 2,967 |
| leases | | | | |
| receivable | | | | |
+-------------+--------+----------+--------+----------+
| Derivative | 454 | 454 | 1,651 | 1,651 |
| financial | | | | |
| assets | | | | |
+-------------+--------+----------+--------+----------+
| Development | 282 | 282 | 722 | 722 |
| property | | | | |
| interest | | | | |
+-------------+--------+----------+--------+----------+
| | | | | |
+-------------+--------+----------+--------+----------+
| | 4,855 | 4,855 | 10,067 | 9,404 |
+-------------+--------+----------+--------+----------+
None of the Group's financial assets were impaired. The Group monitors
receivables for impairment on a case-by-case basis.
Credit quality of receivables
+-------------+----------+----------+--------+---------+---------+---------+--------+
| | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| | Carrying | Of | Of | | between | between | more |
| | amount | which | less | between | 61 and | 91 and | than |
| | GBP000 | neither | than | 30 and | 90 days | 180 | 180 |
| | | impaired | 30 | 60 days | GBP000 | days 18 | days |
| | | nor past | days | GBP000 | | GBP000 | GBP000 |
| | | due | GBP000 | | | | |
| | | GBP000 | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| As of | | | | | | | |
| 31 | | | | | | | |
| December | | | | | | | |
| 2008 | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Trade | 405 | 256 | 21 | 8 | 6 | 6 | 108 |
| receivables | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Cash | 675 | 675 | - | - | - | - | - |
| at | | | | | | | |
| bank | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Finance | 3,039 | 3,039 | - | - | - | - | - |
| leases | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Development | 282 | 282 | - | - | - | - | - |
| property | | | | | | | |
| interest | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Derivative | 454 | 454 | - | - | - | - | - |
| financial | | | | | | | |
| assets | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| | 4,855 | 4,706 | 21 | 8 | 6 | 6 | 108 |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| As of | | | | | | | |
| 31 | | | | | | | |
| December | | | | | | | |
| 2007 | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Trade | 865 | 202 | 390 | - | - | 272 | 1 |
| receivables | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Cash | 3,862 | 3,862 | - | - | - | - | - |
| at | | | | | | | |
| bank | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Finance | 2,967 | 2,967 | - | - | - | - | - |
| leases | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Development | 722 | 722 | - | - | - | - | - |
| property | | | | | | | |
| interest | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| Derivative | 1,651 | 1,651 | - | - | - | - | - |
| financial | | | | | | | |
| assets | | | | | | | |
+-------------+----------+----------+--------+---------+---------+---------+--------+
| | 10,067 | 10,067 | 390 | - | - | 272 | 1 |
+-------------+----------+----------+--------+---------+---------+---------+--------+
Since the period end, GBP16k of the past dues as at 31 December 2008 have been
collected, with the remainder being monitored. The Group is certain these past
dues will be collected in full.
Summary of financial assets and financial liabilities by category
The carrying amounts of the Group's financial assets and financial liabilities
as recognised at the Group Balance Sheet date of the reporting periods under
review are categorised as follows. The accounting policies explain how the
category of financial instruments affects their subsequent measurement.
+--------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+--------------+----------+----------+
| Financial | | |
| assets | | |
+--------------+----------+----------+
| Loans | | |
| and | | |
| receivables: | | |
+--------------+----------+----------+
| Cash | 675 | 3,862 |
| at | | |
| bank | | |
+--------------+----------+----------+
| Trade | 405 | 865 |
| and | | |
| other | | |
| receivables | | |
+--------------+----------+----------+
| Development | 282 | 722 |
| property | | |
| interest | | |
+--------------+----------+----------+
| Finance | 3,039 | 2,967 |
| leases | | |
+--------------+----------+----------+
| Financial | | |
| assets at | | |
| fair | | |
| value | | |
| through | | |
| profit or | | |
| loss: | | |
+--------------+----------+----------+
| Basis | 454 | - |
| swaps | | |
+--------------+----------+----------+
| Hedge | | |
| accounted | | |
| derivatives: | | |
+--------------+----------+----------+
| Derivative | - | 1,651 |
| interest | | |
| rate swaps | | |
+--------------+----------+----------+
| | 4,855 | 10,067 |
+--------------+----------+----------+
All financial assets were designated as above on initial recognition. This
designation is based upon the criteria in IAS39.
+--------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+--------------+----------+----------+
| Financial | | |
| liabilities | | |
+--------------+----------+----------+
| Measured | | |
| at | | |
| amortised | | |
| cost: | | |
+--------------+----------+----------+
| Trade | 2,372 | 3,576 |
| and | | |
| other | | |
| payables | | |
+--------------+----------+----------+
| Borrowings | 204,088 | 159,219 |
| under the | | |
| term loan | | |
| facility | | |
+--------------+----------+----------+
| Financial | | |
| liabilities | | |
| at fair | | |
| value | | |
| through | | |
| profit or | | |
| loss: | | |
+--------------+----------+----------+
| Derivative | 13,917 | 2,808 |
| interest | | |
| rate swaps | | |
| (note 17a) | | |
+--------------+----------+----------+
| Hedge | | |
| accounted | | |
| derivatives: | | |
+--------------+----------+----------+
| Derivative | 14,923 | 224 |
| interest | | |
| rate swaps | | |
| (note 17a) | | |
+--------------+----------+----------+
| | 28,840 | 3,032 |
+--------------+----------+----------+
| | 235,300 | 165,827 |
+--------------+----------+----------+
Capital management policies and procedures
The Group's capital management objectives are:
* to ensure that the Group will be able to continue as a going concern, and
* to maximise the income and capital return to its equity shareholders.
The Group aims to achieve this through an appropriate balance of equity capital
and debt, as shown below.
The Group's capital at the period-end comprises:
+----------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+----------+----------+----------+
| Assets | | |
+----------+----------+----------+
| Total | 323,120 | 298,196 |
| assets | | |
+----------+----------+----------+
| Debt | | |
+----------+----------+----------+
| Term | 204,088 | 159,219 |
| loans | | |
+----------+----------+----------+
| Equity | | |
+----------+----------+----------+
| Equity | 16,794 | 16,794 |
| share | | |
| capital | | |
+----------+----------+----------+
| Retained | 62,387 | 107,283 |
| earnings | | |
| and | | |
| other | | |
| reserves | | |
+----------+----------+----------+
| | 79,181 | 124,077 |
+----------+----------+----------+
| Total | 283,269 | 283,296 |
| capital | | |
+----------+----------+----------+
| Debt | 72.0% | 56.2% |
| as a % | | |
| of | | |
| total | | |
| capital | | |
+----------+----------+----------+
| Debt | 63.1% | 53.4% |
| as a % | | |
| of | | |
| total | | |
| assets | | |
+----------+----------+----------+
The Board, with the assistance of the Joint Managers, monitors and reviews the
broad structure of the Group's capital on an ongoing basis. This review
includes:
* the planned level of gearing, which takes account of the Joint Managers' views
on the market;
* the opportunity to buy back equity shares for cancellation, which takes account
of the difference between the net asset value per share and the share price
(i.e. the level of share price discount or premium);
* the potential need for new issues of equity shares; and
* the extent to which profit in excess of that which is required to be distributed
should be retained.
The Group is subject to several capital requirements, including those relating
to its status as a UK-REIT.
* The bank borrowings under the loan facilities are not to exceed 75% of gross
assets, reducing to 70% in March 2010, with the exception of AIB which reduces
to 70% in October 2009.
* Rental income must exceed borrowing costs by the ratio 1.3:1.
* UK-REIT compliance tests. These include loan to property value and gearing
tests. The Group must satisfy these tests in order to continue trading as a
UK-REIT. This is also an internal requirement imposed by the Articles of
Association.
The Group has complied with all known requirements.
18 Called up share capital
+---------------+------------+----------+------------+----------+
| | 31 | 31 | 31 | 31 |
| | December | December | December | December |
| | 2008 | 2008 | 2007 | 2007 |
| | Number | GBP000 | Number | GBP000 |
+---------------+------------+----------+------------+----------+
| Authorised: | | | | |
+---------------+------------+----------+------------+----------+
| Ordinary | 50,000,000 | 25,000 | 50,000,000 | 25,000 |
| Shares | | | | |
| of 50p | | | | |
| each | | | | |
+---------------+------------+----------+------------+----------+
| Issued | 33,587,094 | 16,794 | 33,587,094 | 16,794 |
| and | | | | |
| fully | | | | |
| paid at | | | | |
| 50p each | | | | |
+---------------+------------+----------+------------+----------+
| At | 33,587,094 | 16,794 | 22,677,718 | 11,339 |
| beginning | | | | |
| of | | | | |
| year/period | | | | |
+---------------+------------+----------+------------+----------+
| Issued | - | - | 1,600,000 | 800 |
| on | | | | |
| exercise | | | | |
| of | | | | |
| Management | | | | |
| Options | | | | |
+---------------+------------+----------+------------+----------+
| Issued | - | - | 9,309,376 | 4,655 |
| following | | | | |
| placing | | | | |
| participation | | | | |
+---------------+------------+----------+------------+----------+
| At end | 33,587,094 | 16,794 | 33,587,094 | 16,794 |
| of | | | | |
| year/period | | | | |
+---------------+------------+----------+------------+----------+
No Ordinary Shares were issued during the year ended 31 December 2008. On the
same date the Shareholders approved an increase to the authorised share capital
of the Group of 10m Ordinary Shares of 50p each (GBP5m). During the previous
accounting period, on 11 April 2007, 9,309,376 Ordinary shares of 50 pence each
were issued arising in respect of a Placing and Open Offer, raising GBP38.7m net
of expenses.
Options to subscribe for Ordinary Shares of 50p each
On 21 September 2006, the Joint Managers exercised their Options to acquire 1.6m
Ordinary Shares at GBP1.71 per share pursuant to the Management Option Agreement
dated 17 September 2003. At 31 December 2007 there were no Options outstanding.
19 Share premium
+---------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+---------------+----------+----------+
| Balance | 48,009 | 12,022 |
| at | | |
| beginning | | |
| of | | |
| year/period | | |
+---------------+----------+----------+
| Premium | - | 35,376 |
| on | | |
| issue | | |
| of 50p | | |
| Ordinary | | |
| Shares | | |
| following | | |
| placing | | |
| and open | | |
| offer | | |
| participation | | |
+---------------+----------+----------+
| Premium | - | 1,936 |
| on | | |
| issue | | |
| of 50p | | |
| Ordinary | | |
| Shares | | |
| on | | |
| exercise | | |
| of | | |
| Management | | |
| Options | | |
+---------------+----------+----------+
| Premium | - | - |
| on | | |
| issue | | |
| of 50p | | |
| Ordinary | | |
| Shares | | |
| in lieu | | |
| of cash | | |
| dividend | | |
+---------------+----------+----------+
| Issue | - | (1,325) |
| expenses | | |
+---------------+----------+----------+
| Balance | 48,009 | 48,009 |
| at end | | |
| of | | |
| year/period | | |
+---------------+----------+----------+
Company law restricts the applicability of the Share Premium account and in
respect of the Company it may only be applied in paying unissued shares of the
Company in respect of capitalisation issues and in writing off the expenses of,
or the commission paid or discount allowed on, any issue of shares or debentures
of the Company.
20 Capital reserve
The Capital reserve is held to finance any proposed repurchases of Ordinary
Shares, following approval of the High Court in 1998.
+-------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+-------------+----------+----------+
| Balance | 1,618 | 1,618 |
| at end | | |
| of | | |
| year/period | | |
+-------------+----------+----------+
21 Cashflow hedging reserve
The interest rate swap derivatives disclosed above are designated as hedges
against the term loan with the exception of the following swaps:
* 4.835% for principal amounts GBP20m from August 2007 to November 2007, GBP30m
from November 2007 to February 2008, GBP40m from February 2008 to May 2008 and
GBP50m thereafter. Hedge accounting will not apply for this swap, as it is
callable upon at each quarterly anniversary at the counterparty bank's option.
* 4.74% for principal amounts GBP25m from August 2007 to May 2008, GBP33m from May
2008 to August 2008 and GBP38m thereafter. Hedge accounting will not apply for
this swap, as it is callable at each quarterly anniversary at the counterparty
bank's option.
The swaps designated as hedges against the term loan are wholly effective hedges
and therefore the gain or loss on each instrument is recognised directly in
equity.
+-------------+----------+----------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+-------------+----------+----------+
| Balance | 1,427 | 939 |
| at | | |
| beginning | | |
| of | | |
| year/period | | |
+-------------+----------+----------+
| Transfer | - | (1,231) |
| (to)/from | | |
| Group | | |
| Income | | |
| Statement | | |
+-------------+----------+----------+
| (Loss)/gain | (16,350) | 1,317 |
| on cashflow | | |
| hedge taken | | |
| to equity | | |
+-------------+----------+----------+
| Deferred | - | 402 |
| tax | | |
| movement | | |
+-------------+----------+----------+
| Balance | (14,923) | 1,427 |
| at end | | |
| of | | |
| year/period | | |
+-------------+----------+----------+
| Being: | | |
+-------------+----------+----------+
| Valuation | (14,923) | 1,427 |
| at end of | | |
| year/period | | |
+-------------+----------+----------+
| Deferred | - | - |
| tax | | |
| thereon | | |
| recognised | | |
| in equity | | |
+-------------+----------+----------+
| Recognised | (14,923) | 1,427 |
| in equity | | |
| at end of | | |
| year/period | | |
+-------------+----------+----------+
22 Retained earnings
+---------------+----------+----------+
| | 31 | 31 |
| | December | December |
+---------------+----------+----------+
| | 2008 | 2007 |
+---------------+----------+----------+
| | GBP000 | GBP000 |
+---------------+----------+----------+
| Balance | 56,229 | 45,407 |
| at | | |
| beginning | | |
| of | | |
| year/period | | |
+---------------+----------+----------+
| Retained | (23,004) | 16,801 |
| (loss)/profit | | |
| for the | | |
| year/period | | |
+---------------+----------+----------+
| Third | (2,771) | (1,639) |
| interim | | |
| dividend | | |
| for the | | |
| previous | | |
| period | | |
| ended 31 | | |
| December | | |
| 2007 | | |
| (2007: | | |
| 30 June | | |
| 2006) | | |
+---------------+----------+----------+
| First | (2,771) | (1,821) |
| interim | | |
| dividend | | |
| for the | | |
| current | | |
| year | | |
| ended 31 | | |
| December | | |
| 2008 | | |
| (2007: | | |
| 31 | | |
| December | | |
| 2007) | | |
+---------------+----------+----------+
| Second | - | (2,519) |
| interim | | |
| dividend | | |
| for the | | |
| period | | |
| ended 31 | | |
| December | | |
| 2007 | | |
+---------------+----------+----------+
| Balance | 27,683 | 56,229 |
| at end | | |
| of | | |
| year/period | | |
+---------------+----------+----------+
23 Net asset value per share
There is no difference between the normal and adjusted net asset values as at 31
December 2008 and 31 December 2007, due to the release of all deferred tax
liabilities on conversion to UK-REIT status.
Following the exercise of the Management Options by the Joint Managers on 21
September 2006, there is no dilution and therefore no difference between
adjusted basic and diluted net asset values as at 31 December 2008 and 31
December 2007.
Net asset values have been calculated as follows:
+------------+------------+------------+
| | 31 | 31 |
| | December | December |
| | 2008 | 2007 |
| | GBP000 | GBP000 |
+------------+------------+------------+
| Net | 79,181 | 124,077 |
| assets | | |
| per | | |
| Group | | |
| Balance | | |
| Sheet | | |
+------------+------------+------------+
| Derivative | 28,840 | 1,381 |
| interest | (454) | - |
| rate swaps | | |
| (net) | | |
| Basis | | |
| swaps | | |
+------------+------------+------------+
| EPRA | 107,567 | 125,458 |
| NAV | | |
+------------+------------+------------+
| | Number | Number |
| | of | of |
| | shares | shares |
+------------+------------+------------+
| Ordinary | 33,587,094 | 33,587,094 |
| Shares: | | |
| Issued | | |
| share | | |
| capital | | |
+------------+------------+------------+
| Net | 235.75p | 369.42p |
| asset | | |
| value | | |
| per | | |
| Share | | |
+------------+------------+------------+
| EPRA | 320.26p | 373.53p |
| NAV | | |
+------------+------------+------------+
EPRA NAV is calculated as Balance Sheet net assets including the valuation
result on trading properties, excluding fair value adjustments for debt and
related derivatives.
24 Total return per share
The total return per share in a period is calculated as the increase in net
asset value per share (as defined in note 23) plus the dividend per share paid.
+------------------------------------+------------------------------------+
| Decrease in Net Asset Value per | (133.67p) |
| share (note 23) | |
+------------------------------------+------------------------------------+
| Plus dividend paid per Share | 16.5p |
+------------------------------------+------------------------------------+
| | (117.17p) |
+------------------------------------+------------------------------------+
25 Capital commitments
Primary Health Investment Properties Limited, a wholly owned subsidiary of the
Company, has entered into separate development agreements with third parties for
the purchase of primary health developments; these agreements are conditional on
the completion of certain building development work at a consideration of GBP34m
plus VAT (2007: GBP35.7m plus VAT).
26 Related party transactions
As shown in note 3, the Joint Managers of the Group, Nexus and JOHCML, receive a
management fee, calculated at a combined 1% of the first GBP50m of the property
assets of the Group and 0.75% thereafter, subject to a minimum of GBP120,000 per
annum, the first GBP100,000 of which is paid to Nexus. Nexus also receives a
property management fee and a fee for the preparation of the tax provisions
based on a reimbursement of the costs of services of Nexus employees engaged
directly on the Group's activities of GBP93k (2007: GBP109k). Amounts owing to
these related parties are shown in note 3.
On 16 November 2006, Shareholders approved the amendments to the Management
Agreement whereby the Joint Managers are entitled to a Performance Incentive Fee
of 15% of any performance in excess of an 8% per annum increase in the Company's
"Total Return" as derived from the audited financial statements for the
respective financial period.
Amounts owing to these related parties are shown in note 3.
The Total Return is determined by comparing the variation in the stated net
asset value per share (on a fully diluted basis, adjusting for deferred tax and
the REIT conversion charge and adding back gross dividends paid in such period)
against the fully diluted net asset value per share from the previous period's
audited accounts. No performance incentive fee was payable in respect of 2008
(2007: GBP2.6m).
Details of the amounts paid in relation to related party transactions are
provided in note 3.
There are no employees other than the Directors.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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