Interim Management Statement


 

TIDMPHP 
 
RNS Number : 3284R 
Primary Health Properties PLC 
29 April 2009 
 

 
 
 
 
PRIMARY HEALTH PROPERTIES PLC 
A specialist provider of Primary Care accommodation for the NHS 
Interim Management Statement 
 
 
Primary Health Properties PLC ("PHP" or the "Group" or the "Company"), one of 
the UK's largest providers of modern primary healthcare facilities, today issues 
its Interim Management Statement for the period from 1 January 2009 to 28 April 
2009. 
 
 
Highlights 
 
 
  *  Primary care property market continues to be underpinned by strong fundamentals 
  *  Rental growth continues 
  *  Progressive dividend policy sustained - interim cash dividend of 8.5p per 
  Ordinary Share paid on 15 April 2009 
  *  Strong funding position - well positioned in current economic environment, 
  facilities not due for renewal until 2013 
  *  Placing of 1,679,354 new ordinary shares raised GBP3.3m (net of expenses) for 
  general working capital purposes 
  *  The Company has successfully established in the High Court the need for an 
  independent appointment in determining rent review disputes 
  *  Management continue to be optimistic regarding the Group's future growth 
  prospects 
 
 
 
The market 
 
 
Tenant demand for modern primary care facilities remains high. The primary care 
market has the advantage of the Government acting as the ultimate 
payer/guarantor of the rent of the accommodation used for providing NHS 
services, which in PHP's portfolio amounts to approximately 91% of the total 
rent roll and means that PHP has no rental voids within its portfolio.  PHP also 
benefits from tight supply in the market and long lease lengths upon which it 
continues to achieve rental increases. The market is further underpinned by the 
Government's multi-billion pound commitment over the medium term to renewing 
primary care stock and ensuring that primary care is delivered from modern 
purpose built accommodation that is fit for purpose. 
 
 
Investment activity, future commitments and portfolio management 
 
 
During the period, the Group took delivery of a GBP2.7m.fully let investment 
medical centre property at Hugglescote, Leicestershire. As announced on 6 April 
2009, the Group entered into purchase and funding agreements for the acquisition 
of a GBP6.6m new medical centre in Cowbridge, Vale of Glamorgan. 
 
 
The Group has adequate existing committed facilities to cover all of the future 
deliveries included in its commitments as at 31 December 2008 and the new 
Cowbridge commitment. The Group regularly reviews its portfolio and is committed 
to owning a greater number of larger multi-practice medical centres where 
property management efficiencies can be realised.  As interest rates have 
declined and property yields increased, the Board believes that there will be 
attractive acquisition opportunities over the coming months. 
 
 
Property valuation 
 
 
Every six months the freehold, leasehold and development properties of the Group 
are independently valued at fair value by Lambert Smith Hampton, Chartered 
Surveyors and Valuers. The next valuation is due at 30 June 2009. On 27 February 
2009, the Directors confirmed, on the basis of advice from Lambert Smith 
Hampton, that there had not been any material change to the valuation as at that 
date. The Directors believe that the long unexpired lease length across the 
portfolio, the excellence of the covenant, the achievement of continuing rental 
growth and lack of voids in the sector continue to underpin the valuation of 
PHP's portfolio. 
High Court Verdict 
 
 
On 31 March 2009, the Group announced that in a landmark judgment in the High 
Court, it had made a successful challenge to the dispute resolution procedures 
to be followed when determining the level of rent to be reimbursed by the 
Department of Health for GP's leasehold premises. PHP hopes that if the judgment 
is properly acted upon by the NHS a fairer, more robust and more transparent 
system for reviewing rent will be implemented with the effect that, at least in 
some cases, the rent determined on appeal may be higher than would otherwise 
have been the case under the previous system. An improvement in the level of 
reimbursed rent should have positive revenue implications for PHP. 
 
 
 
 
Rental growth 
 
 
Rental growth achieved on rent reviews concluded in 2008 averages approximately 
12% over the 3 year rent review cycle, an annualised rate approaching 4%. The 
Board is pleased to report that the actual rental growth rate achieved in the 
first quarter of 2009 has not been materially different from that experienced in 
2008. The greater independence and transparency in determining rent review 
disputes as a result of the High Court decision is likely to improve both the 
process and rental growth prospects over time. 
 
 
Dividend Policy 
 
 
The Group's policy remains to pay an increasing dividend out of distributable 
profits. As disclosed in the Group's Annual Financial Report, the Group paid an 
interim cash dividend of 8.5p per Ordinary Share on 15 April 2009 to 
shareholders on the Register of Members on 13 March 2009. 
 
 
Placing 
 
 
As announced on 23 March 2009, the Group raised approximately GBP3.3 million, 
net of expenses, by way of a Placing of 1,679,354 new ordinary shares of 50 
pence each at a price of 220 pence per Placing Share (the "Placing"). The 
Placing was taken up by institutional and other investors, including Nexus Group 
Holdings Ltd, the parent company of Nexus PHP Management Limited and J O Hambro 
Capital Management Limited who together are the Joint Managers of the Company 
("Joint Managers") as well as several Directors of the Company and Directors of 
the Joint Managers. The Placing was underwritten by KBC Peel Hunt Ltd ("KBC"). 
The net proceeds of the Placing are being used for general working capital 
purposes. 
 
 
Borrowings and Banking facilities 
 
 
At 31 March 2009, Group borrowings totalled GBP203 million. As at 28 April 2009, 
aggregate facilities were GBP265m of which GBP255m was on a term basis and 
GBP10m was on overdraft. The term facilities are not due for renewal/repayment 
until 2013. The Board is satisfied with the pricing and term of its existing 
facilities. 
Interest rate hedging 
 
 
PHP remains committed to keeping a relatively high level of cover against its 
variable interest rate borrowings. The Group's fixed rate cover of GBP193m 
included GBP88m of callable swaps which are reviewed on a quarterly basis. As at 
28 April 2009, the callable swaps have not been called and remain in place until 
the next call date on 11 May 2009. 
All swaps are taken out in order to mitigate exposure to interest rate risk, but 
under accounting rules, only certain swaps qualify as "effective" hedges. The 
mark to market movement ("MTM") on these swaps is matched against the hedged 
liability in the Group's Balance Sheet. The MTM movement on other swaps, which 
still provide an economic hedge, is taken through the Group's income statement. 
 
 
As at 31 December 2008, as a result of the unprecedented fall in interest rates 
during the year, the Group's derivative portfolio was valued at GBP(29m). At 31 
March 2009, the valuation was a net liability of GBP(26)m, reflecting the 
increase in longer term interest rates between the two dates. 
 
 
This Interim Management Statement may contain forward looking statements. 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 at the time of the 
release of this Interim Management Statement. Nothing in this Interim Management 
Statement should be construed as a profit forecast. 
 
 
Apart from the information contained in this Interim Management Statement there 
have been no material events or transactions affecting the Group during the 
period. 
 
 
 
 
-Ends- 
 
 
For further information contact: 
 
 
Harry Hyman 
Primary Health Properties PLC 
T +44(0)20 7451 7050 
M+44 (0)7973 344768 
harry.hyman@nexusgroup.co.uk 
 
 
Bell Pottinger Corporate and Financial 
David Rydell/Victoria Geoghegan 
Tel +44(0) 20 7861 3232 
 
 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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