Interim Management Statement


 

TIDMPHP 
 
RNS Number : 7375C 
Primary Health Properties PLC 
19 November 2009 
 

PRIMARY HEALTH PROPERTIES PLC 
A specialist provider of Primary Care accommodation for the NHS 
Interim Management Statement 
 
 
Primary Health Properties PLC ("PHP", 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 July 2009 to 18 November 
2009. 
 
 
Financial Highlights 
  *  Successful firm placing and placing and open offer to raise GBP57.5m net of 
  expenses 
  *  Progressive dividend policy sustained - interim cash dividend of 8.5p per 
  ordinary share to be paid on 20 November 2009 
  *  Strong funding position - well positioned in current economic environment; 
  existing facilities not due for renewal until 2013 
 
 
 
Operational Highlights 
  *  Primary care property market continues to be underpinned by strong fundamentals 
  *  Continued stabilisation of yields in the market place 
  *  Rental growth continues - the achieved increase in rent on those leases reviewed 
  in the period to 18 November 2009 was a weighted average rate of 3.16% per annum 
 
 
 
The market 
 
 
The demand for modern primary care facilities remains high as NHS policy 
continues to move services out of secondary care into primary care. The market 
is underpinned by the Government's 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. Although Government 
spending overall is likely to be curtailed, the Company's view is that this will 
focus more resources on providing primary care solutions. 
 
 
The primary care market has the advantage that the Government acts 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 as at 18 November 2009 with the balance almost exclusively to 
pharmacies. Market demand means that PHP has no rental voids within its 
portfolio. In addition PHP benefits from long lease lengths upon which it 
continues to achieve rental increases. 
 
 
 
 
Investment activity, future commitments and portfolio management 
 
 
During the period, the Group took delivery of the fully let 59,000 square foot 
Port Talbot Resource Centre, which is let to the Local Health Board, four GP 
practices and a pharmacy. As announced on 9 October 2009, the Group entered into 
purchase and funding agreements for the acquisition of a new GBP2.9m medical 
centre in Sheffield. The building will be let for occupation to a GP practice 
and a pharmacy and is expected to be completed in March 2010. 
 
 
The Group has adequate bank facilities to cover all of the future deliveries 
included in its commitments as at 30 June 2009. The Group reviews its portfolio 
regularly and is committed to acquiring a greater number of the new larger 
multi-practice medical centres where property management efficiencies can be 
realised.  The Group believes that there will be attractive acquisition 
opportunities over the coming months and currently the Group is working on the 
acquisition of a number of substantial fully let investment properties. 
 
 
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 as at 31 December 2009. On 18 
September 2009, the Directors confirmed, on the basis of advice from Lambert 
Smith Hampton, that there had not been any material change to the valuation 
prepared as at 30 June 2009. The Directors believe that the long unexpired lease 
length across the portfolio, the excellence of the tenant covenants, 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 
 
 
Following the successful High Court result previously reported on 31 March 2009, 
the test case at Bourne was settled during the period with a 6.6% rental 
increase (approximately 2.2% per annum.) effective from 29 April 2004 rather 
than the nil increase originally proposed. 
 
 
Rental growth 
 
 
Although the process for agreeing rental increases in the period has been slower 
than the Group would have liked, the achieved increase in rent on those leases 
reviewed in the period to 18 November 2009 was a portfolio weighted average rate 
of 3.16% per annum. 
 
Firm Placing and Placing and Open 0ffer 
 
 
On 7 October 2009, PHP issued 26,086,956 new ordinary shares by way of a Firm 
Placing and Placing and Open Offer raising approximately GBP57.5m net of 
expenses.  The net proceeds of the fundraising have been used to reduce the 
Group's net indebtedness in the short term. 
The Group intends to make selected acquisitions of medical properties to expand 
its property portfolio which will be funded, in part, by redrawing on the 
Group's existing bank facilities. 
 
 
Borrowings and Banking facilities 
 
 
At 31 October 2009, following receipt of the net proceeds of the fundraising, 
Group borrowings totaled GBP172.9m. As at 18 November 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 Group 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 GBP183m as at 
18 November 2009 included GBP88m of callable swaps which are reviewed on a 
quarterly basis. As at 11 November 2009, being the last call date, the callable 
swaps have not been called and remain in place. The next possible call date is 
on 11 February 2010. 
 
 
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. 
The valuation has no impact on the Group's cash flow. 
 
 
As at 30 June 2009, as a result of the unprecedented fall in interest rates 
during the previous year, and subsequent movements, the Group's derivative 
portfolio was valued at a liability of GBP(16.3)m. At 31 October 2009 (the 
latest practicable date), as a result of further falls in interest rates since 
30 June 2009, the valuation was a net liability of GBP(21.7)m, reflecting the 
decrease in longer term interest rates between the two dates. 
 
 
IPD Healthcare Index 
 
 
Leading property investment analysts IPD have launched a new Healthcare Index, 
to which the Group contributes data, that identifies the strong relative 
performance of the Healthcare Sector during 2007 and 2008, when compared to the 
overall UK market. The Group believes that the creation of this annual index is 
an important step towards institutional recognition of the benefits of this 
sector. 
 
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 
Tel: +44(0)20 7451 7050 
Mob: +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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