TIDMPHP
RNS Number : 5689M
Primary Health Properties PLC
18 August 2011
Primary Health Properties PLC
Half year report for the period ended 30 June 2011
Primary Health Properties PLC, one of the UK's largest providers
of modern primary healthcare facilities, is pleased to announce its
half year report for the six months ended 30 June 2011.
GROUP FINANCIAL HIGHLIGHTS
-- Increased interim dividend of 9.0p for the period ended 30
June 2011 (30 June 2010: 8.75p)
-- Underlying profit for the interim period before revaluation
gain, change in fair value movement on interest rate swaps and
profit on sale of investment rose by 35% to GBP5.4million (30 June
2010: GBP4.0million)
-- Loan to value ratio 55.6% at 30 June 2011 against covenant of
70% (31 December 2010: 57.6%)
-- Basic net asset value increased by 5% to 275.8p per share (31
December 2010: 262.3p)
-- EPRA net asset value increased by 2% to 317.8p per share (31
December 2010: 311.5p)
-- Adjusted EPS increased by 30% to 8.3p (30 June 2010:
6.4p)
-- Interest cover of 2.1 times compared to a covenant
requirement of 1.3 times (31 December 2010: 2.1 times)
-- GBP16.1million gross proceeds from share placing in April to
finance future acquisitions (approximately GBP15.7million net)
GROUP OPERATIONAL HIGHLIGHTS
-- Real estate portfolio (including commitments) rose to
GBP514million from GBP504million at 31 December 2010, reflecting an
initial yield of 5.75% as at 30 June 2011
-- Property revaluation gain for six month period of
GBP5.2million, an increase of 1.1% (30 June 2010: GBP17.8million -
3.8%)
-- Rent roll at 30 June 2011 of GBP29.0million (31 December
2010: GBP28.0million)
-- Annualised rental growth on rent reviews agreed in the period
of approximately 3.4% (year to 31 December 2010: 3.2%)
-- Portfolio 100% let
-- New GBP50million interest only debt facility closed with
Clydesdale
-- Offer received for a new seven year GBP75million facility
with Aviva
Harry Hyman, Managing Director of Primary Health Properties,
commented:
"I am pleased to report another excellent set of results. During
the period, the Group has increased its dividend, increased
underlying profit and achieved a greater net asset value per
share.
The fundamentals of the primary care market remain very
attractive due to the protection in income flow it provides and the
solid foundations of full occupancy means PHP's portfolio delivers
consistently strong returns and rental growth. Whilst the ultimate
outcome of the Health and Social Care Bill is still unclear, the
key position of primary care in the provision of health care
services has been reinforced.
PHP remains focused on further, selective acquisitions, where
they meet the Group's investment criteria, in order to increase
shareholder cash flows and values. The Group remains ideally
positioned to take advantage of further opportunities."
Enquiries:
Pelham Bell Pottinger
David Rydell / Victoria Geoghegan / Elizabeth Snow
Tel: 020 7861 3232
Primary Health Properties
Harry Hyman
Managing Director
Tel: 020 7451 7050
OPERATING AND FINANCIAL REVIEW
Overview
The first half of 2011 has been a period of consolidation for
the Group following a very active 2010. We have continued to
experience a stable environment for medical centre property that
emerged in the second half of 2010 and investment yields have
tightened marginally during the period. Meanwhile, investors
continue to look for good quality, secure income returns which PHP
provides. In April the Group executed a small share placing,
issuing 5.28million shares for a gross consideration of
GBP16.1million. The proceeds will be used to fund acquisitions to
be contracted in the second half of the year.
The Government engaged in a period of consultation to conduct a
listening exercise in relation to the proposed Health and Social
Care Bill, taking on the views of stakeholders following the
response to the initial draft. This has caused a degree of
uncertainty within the sector and decision making regarding
premises within the NHS has been affected. What is clear is that
primary care will remain at the forefront of healthcare provision
in the UK. Whilst there will be a delay until the precise impact of
the legislation on the management of primary care will be known, we
believe that once it has been passed, the prospects for primary
care properties will be enhanced. We have however received written
confirmation from the Department of Health that the system of
reimbursement of GPs' rent costs etc. will not be impacted by the
proposed transfer of responsibility for such costs away from PCTs
to the NHS Commissioning Board.
Trading performance
An analysis of the trading performance for the six months ended
30 June 2011 is set out below:
Six months Six months Year
to 30 to 30 to 31
June June Dec
2011 2010 2010
GBPm GBPm GBPm
Rental and related income 15.2 12.0 26.9
Expenses (2.6) (2.2) (5.0)
Operating profit before revaluation
gain and financing 12.6 9.8 21.9
Net financing costs (7.2) (5.8) (12.8)
Underlying profit before revaluation gain,
fair value movement on interest rate
swaps and profit on sale of investment 5.4 4.0 9.1
Fair value gain/(loss) on interest rate
swaps (1) 1.0 (5.0) (4.7)
Profit on sale of AHMP shares (see Note
4) 0.3 - -
Revaluation gain on property portfolio 5.2 17.8 22.8
Profit before tax 11.9 16.8 27.2
Dividends paid 5.7 5.4 10.8
(1) The interest rate swaps portfolio is revalued on a
mark-to-model basis as opposed to mark-to-market, as there is no
secondary market in interest rate swaps.
The underlying profit attributable to the business before the
revaluation gain and the fair value movement on derivatives was
GBP5.4million (30 June 2010: GBP4.0million) an increase of 35%. As
the portfolio has grown, administrative expenses as a proportion of
income have fallen to 16.1% (year to 31 December 2010: 17.3%).
The results of the Group for the six months ended 30 June 2011
show a profit before taxation of GBP11.9million compared with
GBP16.8million for the comparable period to 30 June 2010. This is
after a revaluation gain of GBP5.2million as compared to a larger
gain of GBP17.8million in the corresponding period of 2010, when
investment yields moved significantly as real estate markets
recovered from the financial crisis. The results also include a
mark-to-model gain on derivatives of GBP1.0million (30 June 2010:
loss of GBP5.0million) and a profit of GBP0.3million arising from
the sale of the Group's minority investment in AHMP shares. The
property and derivative revaluation results are unrealised and do
not affect the operating cash flow of the business.
Rental growth
Thirty four rent reviews have been completed in the period under
review. These have produced an overall uplift of 10.6% (year to 31
December 2010: 10.0%) which equates to an annualised increase of
3.4% (2010: 3.2%). The contracted rent roll as at 30 June 2011
stood at GBP29.0million (31 December 2010: GBP28.0million)
Rent reviews continue to show a correlation to underlying rates
of inflation that has been evident in recent years, a feature that
we expect to continue and which is supported by the expanding
specification of newer buildings leading to higher replacement
costs and associated rents.
The average duration of the remaining lease terms across the
Group's portfolio is 16.5 years, with 90% of rent being received
from GPs, PCTs or other government backed sources and the remainder
from pharmacies.
Portfolio activity and valuations
The Company has taken delivery of a number of forward funded
developments during the period. The projects at Cowbridge and
Shefford were delivered on time in February and March respectively
at a total cost of GBP12million. This has added GBP0.8million to
the annualised rent roll.
The investment portfolio performed well in the period. The
primary care property market has continued to be stable and
investment yields firmed marginally in the first six months of the
year. The portfolio as at 30 June 2011 was valued at
GBP513.5million representing an initial yield of 5.75% and a true
equivalent yield of 5.99%. The independent open market valuation by
Lambert Smith Hampton gave rise to a property revaluation gain of
GBP5.2million for the six months, compared to GBP17.8million for
the period ended 30 June 2010.
30 June 2011 31 December 2010
GBPm GBPm
Investment properties 479.9 462.1
Properties in the course of
development 9.6 7.2
Total properties 489.5 469.3
Finance leases 3.1 3.1
Total owned and leased 492.6 472.4
Committed as at period end 20.9 31.2
Total owned, leased and
committed 513.5 503.6
Closing annualised rent roll
(on completed properties) 29.0 28.0
The IPD Healthcare index for 2010 was published in May 2011.
This showed that the Group's property portfolio outperformed the
IPD healthcare sector benchmark in the financial year, delivering a
total return of 13% against a benchmark return of 11%. This
outperformance also extends to the prior three year period, where
the Group delivered an average total return of 6% compared to the
sector benchmark return of 5%.
IPD data for the last five years shows that healthcare real
estate generated total returns in excess of 5% adjusted for RPI,
whereas general commercial property showed negative returns of over
2%. We believe that this highlights the security offered by
healthcare real estate.
As previously reported, the Board also evaluates the portfolio
with reference to its future cash flows. Using a discounted cash
flow method ('DCF') to value the assumed future income flows from
the Group's portfolio, both completed and committed, would show a
DCF value of GBP565.2million as compared to the open market
valuation as at 30 June 2011 of GBP513.5million. This would
represent an additional 76 pence per share of shareholder
value.
The assumptions used in the DCF analysis are:
-- A discount rate of 7% (2010: 7%)
-- An average annual increase in the individual property rents
at review of 2.5% (2010: 2.5%)
-- Capital growth in residual values of 1% per annum (2010:
1%)
Asset management
The active management of the Group's portfolio is an important
element in generating additional value for shareholders. In the
first six months of the year, we delivered a new pharmacy let to
Lloyds at Burton Latimer, Northamptonshire adding GBP30,000 per
annum to the rent roll. We also commenced on site at our centre in
Consett, County Durham to provide a pharmacy extension for Boots.
Completion is expected during August 2011.
The Board has approved nine further projects which are at
various stages in the development process. These projects have an
expected cost of GBP5million, at attractive returns on capital.
Commitments
As at 30 June 2011, the Group had six forward purchase
commitments as follows, all of which were in progress, 100% pre-let
and scheduled to complete as planned:
Total
commitment Outstanding
Scheme GBPm GBPm Details
1,442 sqm medical centre
(six GP practice and NHS
Trust), constructed in
South Queensferry 4.3 4.3 2002
1,802 sqm medical centre
(eight GPs in two
practices and PCT) and
Chesham 5.6 4.6 130 sqm pharmacy
3,750 sqm medical centre
(four GP practice and
PCT) with 804 sqm
expansion space and 75
Oswestry 8.8 2.3 sqm retail unit
1,493 sqm medical centre
(six GP practice and PCT)
Blackpool 4.1 4.0 and 120 sqm pharmacy
795 sqm medical centre
(five GP practice) with
294 sqm expansion space
Allesley 2.8 1.4 and 154 sqm pharmacy
1,275 sqm medical centre
(11 GP practice) and 159
Newark 4.3 4.3 sqm pharmacy
Total new commitments 29.9 20.9
The acquisition of the South Queensferry asset was completed on
11 August 2011. The developments at Oswestry and Blackpool were
completed in the first weeks of August and at both sites the GPs
and tenants are now in occupation and operating from these
premises.
Whilst a slow down in approvals for new premises has been
observed due to delays in the passing of the Health and Social Care
Bill, the Group has continued to seek out appropriate new
investment opportunities. Terms have been agreed on acquisitions
and forward commitments totalling GBP43million, which are in
solicitors' hands and at various stages of contract completion.
Net assets and EPRA NAV
30 June 30 June 31 Dec
2011 2010 2010
Net assets GBP188.0m GBP157.3m GBP164.7m
Net asset value per share 275.8p 251.4p 262.3p
EPRA net asset value per share (1) 317.8p 304.2p 311.5p
(1) 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).
Financing
On 12 April 2011, the Group completed a small share placing at a
price of 305 pence per share that represented a discount of 2.1% to
2010 year end EPRA NAV and 5.3% to the closing share price on the
day prior to the issue. 5,284,041 shares were issued generating net
cash proceeds of GBP15.7million. The cash will be used to finance
future acquisitions.
The loan to value ratio as at 30 June 2011 was 55.6% (30 June
2010: 55.9%) compared to a covenant requirement of 70%. Interest
cover was 2.1 times, (30 June 2010: 2.1 times) compared to a
covenant requirement of 1.3 times.
As reported at the year end, the Group made it a priority to
start the process of re-financing its current debt facilities to
diversify lenders and provide a range of maturities and additional
resources to allow it to add to its portfolio as suitable
acquisition opportunities arise.
This process started with the completion of a GBP50million,
three year, interest only revolving credit facility with Clydesdale
Bank. The facility was closed on 29 July 2011 and was used to
partly finance the closing of the South Queensferry
acquisition.
In addition to this, the Group has received an offer of a new
GBP75million, seven year, interest only facility from Aviva which
has full credit committee approval from Aviva. The release of the
requisite security from the current bi-lateral loans is underway
and documentation on the facility has commenced.
Discussions have started with the Group's main lenders to renew
and extend the current bi-lateral facilities which expire in
January 2013.
Interest rate hedging
There has been no change during the period in the amount of
fixed rate cover that the Group holds. As at 30 June 2011, a total
of GBP208million of interest rate derivatives were in place,
including GBP88million of callable swaps (2010: GBP88million). In
light of current market conditions the Board does not expect these
to be called in the near future.
The mark-to-model liability of the Group's "effective" interest
rate swaps decreased by GBP1.2million in the period to 30 June 2011
(six months to 30 June 2010: increase of GBP7.8million), as medium
term interest rates were lower at that point in time than previous
measurement dates. This masks the considerable volatility in
interest rate markets that has been experienced across 2011 to
date, some of which is currently being driven by European sovereign
debt concerns. The value of the mark-to-model swap portfolio was a
liability of GBP29.8million at 30 June 2011 (31 December 2010: a
liability of GBP31.3million), including swaps regarded as
ineffective for accounting purposes.
Dividend
The Group has continued to pay regular and progressive dividends
to shareholders funded by its secure underlying rent roll where 90%
of the Group's income is paid directly or indirectly by HM
Government. On 31 March 2011, the Group paid an ordinary cash
dividend of 9.0p per Ordinary Share in respect of the six months
ended 31 December 2010. The Board proposes to pay an interim
dividend of 9.0p per share payable to Ordinary Shareholders on the
register at 7 October 2011 on 28 October 2011 in respect of the six
months ended 30 June 2011 (six months ended 30 June 2010: 8.75p).
This interim distribution will not be a property income
distribution ("PID").
Principal risks and uncertainties
Other than the uncertainty surrounding the Health and Social
Care Bill referred to in the overview, there have been no changes
to the principal risks and uncertainties of the Group which remain
as disclosed on page 10 of the Annual Financial Report for the year
ended 31 December 2010.
Outlook
The Group has continued its strategy of focusing purely on
investment in primary care premises and in generating secure,
growing returns to shareholders. The progress made during the
period in widening the equity base and in restructuring and
extending the debt facilities available to the Group, means that we
are well positioned to take advantage of opportunities to acquire
suitable investment properties or fund newly developed assets as
they arise.
We continue to believe that the primary care market remains
attractive due to the inherent protection in income flow. Our
existing portfolio produces consistently strong returns with rental
growth continuing to be obtained against a backdrop of full
occupancy. This will be enhanced as the acquisition of further high
quality stock, that is in solicitors' hands, is delivered.
Graeme Elliot Harry Hyman
Chairman Managing Director
17 August 2011
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2011
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
Rental income 15,079 11,829 26,574
Finance lease income 171 170 341
Rental and related income 15,250 11,999 26,915
Direct property expenses (182) (203) (398)
Administrative expenses (2,450) (2,037) (4,646)
Operating profit before net valuation
gain on property portfolio 12,618 9,759 21,871
Profit on sale of AFS
investment 4 312 - -
Net valuation gain on
property portfolio 2 5,219 17,821 22,790
Operating profit before
financing costs 18,149 27,580 44,661
Finance income 6 212 46 160
Finance costs 7 (7,451) (5,848) (12,882)
Fair value gain/(loss) on
derivatives 7 1,041 (5,037) (4,714)
Profit on ordinary activities
before tax 11,951 16,741 27,225
Current taxation credit 8 2 29 36
Conversion to UK-REIT charge 8 - (1,586) (1,586)
Taxation credit/(expense) 2 (1,557) (1,550)
Profit for the period (1) 11,953 15,184 25,675
Fair value movement on interest rate
swaps treated as cash flow hedges 1,165 (7,773) (6,013)
(Recycling of previously unrealised
gain)/unrealised
gain on current asset
investment (73) 128 79
Other comprehensive
income/(loss) 1,092 (7,645) (5,934)
Total comprehensive income
for the period
net of tax 13,045 7,539 19,741
Earnings per share -- basic 5 18.3p 24.7p 41.3p
and diluted (2)
Adjusted earnings per share
(3) -- basic and diluted
5 8.3p 6.4p 14.7p
The above relates wholly to continuing operations.
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) There is no difference between basic and fully diluted
EPS.
(3) Adjusted for large one-off items and movements in fair value
of properties and derivatives. See note 5.
CONDENSED GROUP BALANCE SHEET
at 30 June 2011
At At At
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
Non current assets
Investment properties 2,3 489,516 460,815 469,290
Net investment in finance
leases 3,052 3,025 3,036
Interest rate swaps 1,196 21 413
493,764 463,861 472,739
Current assets
Current asset investment 4 - 605 555
Trade and other receivables 3,045 2,709 2,582
Net investment in finance
leases 39 48 48
Cash and cash equivalents 915 1,068 370
3,999 4,430 3,555
Total assets 497,763 468,291 476,294
Current liabilities
Interest rate swaps (15,818) (17,182) (16,859)
Corporation tax payable - (69) (48)
UK-REIT conversion charge
payable - (1,866) (1,998)
Deferred rental income (6,144) (6,335) (5,942)
Trade and other payables (4,875) (11,443) (4,837)
Term loans - - (3,000)
(26,837) (36,895) (32,684)
Non-current liabilities
Term loans 11 (268,874) (256,792) (264,445)
UK-REIT conversion charge
payable - (1,422) -
Interest rate swaps (14,019) (15,873) (14,419)
(282,893) (274,087) (278,864)
Total liabilities (309,730) (310,982) (311,548)
Net assets 188,033 157,309 164,746
Equity
Share capital 34,088 31,286 31,401
Share premium 54,178 53,339 53,934
Capital reserve 1,618 1,618 1,618
Special reserve 57,405 44,442 44,442
Cash flow hedging reserve (12,114) (15,039) (13,279)
Retained earnings 52,858 41,663 46,630
Total equity (1) 188,033 157,309 164,746
Net asset value per share
-- basic 12 275.8p 251.4p 262.3p
-- EPRA net asset value per 12 317.8p 304.2p 311.5p
share
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
CONDENSED GROUP CASH FLOW STATEMENT
for the six months ended 30 June 2011
Six Six
months months Year
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Operating activities
Profit before tax 11,953 16,741 27,225
Less: Finance income (212) (46) (160)
Plus: Finance costs 7,451 5,848 12,882
Plus: Fair value (gain)/loss on
derivatives (1,041) 5,037 4,714
Operating profit before financing 18,151 27,580 44,661
Adjustments to reconcile Group operating profit to
net cash flows from operating activities:
Revaluation gain on property
portfolio (5,219) (17,821) (22,790)
Profit on sale of AFS investment (312) - -
Increase in trade and other
receivables (504) (678) (946)
Increase in trade and other payables 39 2,065 4,003
Cash generated from operations 12,155 11,146 24,928
UK REIT conversion charge instalment (1,998) (637) (1,934)
Taxation paid (1) (48) (193) (193)
Net cash flow from operating
activities 10,109 10,316 22,801
Investing activities
Payments to acquire investment
properties (15,007) (12,612) (25,234)
Disposal/(acquisition) of shares in
AH Medical Properties PLC 788 (476) (476)
Payments to acquire Anchor Meadow
Limited - (5,498) (5,498)
Payments to acquire Sinclair Montrose
Properties Limited - (23,842) (23,842)
Payments to acquire Abstract
Integrated Healthcare Limited - (1,856) (1,856)
Payments to acquire Charter Medinvest
Limited - (6,787) (6,787)
Payments to acquire Health
Investments Limited - (7,214) (7,214)
Interest received on developments 58 41 134
Bank interest received 25 2 4
Other interest received - 3 8
Net cash flow used in investing
activities (14,136) (58,239) (70,761)
Financing activities
Proceeds from issue of shares (net of
expenses) 15,605 - -
Term bank loan drawdowns 18,250 61,450 85,700
Term bank loan repayments (3,274) (2,250) (15,924)
Temporary offset of proceeds of share
issue
against revolving bank loan (13,450) - -
Net swap interest paid (4,457) (4,043) (8,461)
Loan arrangement fees (54) - (176)
Interest paid (2,685) (1,317) (3,211)
Dividends received - - 15
Equity dividends paid (5,363) (5,061) (9,825)
Net cash flow from financing
activities 4,572 48,779 48,118
Increase in cash and cash equivalents
for the period 545 856 158
Cash and cash equivalents at start of
period 370 212 212
Cash and cash equivalents at end of
period 915 1,068 370
(1) Taxation was paid in the period in order to settle the
outstanding liabilities in the acquired companies. All amounts
payable were included in the consideration calculation.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Cash
flow
Share Share Capital Special hedging Retained
capital premium reserve reserve reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Six months ended
30 June 2011
(unaudited)
1 January 2011 31,401 53,934 1,618 44,442 (13,279) 46,630 164,746
Profit for the
period - - - - - 11,953 11,953
Income and expense
recognised
directly in
equity:
Fair value
movement on
interest rate
swaps treated as
cash flow hedges - - - - 1,165 - 1,165
Recycling of
previously
unrealised gain
(1) - - - - - (73) (73)
Total
Comprehensive
Income - - - - 1,165 11,880 13,045
Proceeds from
capital raisings 2,642 - - 13,474 - - 16,116
Expenses of
capital raisings - - - (511) - - (511)
Dividends paid:
Second interim
dividend for
period ended
31.12.10 (9.00p) - - - - - (5,363) (5,363)
Scrip dividends in
lieu of interim
cash dividends 45 244 - - - (289) -
30 June 2011 34,088 54,178 1,618 57,405 (12,114) 52,858 188,033
Six months ended
30 June 2010
(unaudited)
1 January 2010 30,729 50,664 1,618 44,442 (7,266) 31,728 151,915
Profit for the
period - - - - - 15,184 15,184
Income and expense
recognised
directly in
equity:
Fair value
movement on
interest rate
swaps treated as
cash flow hedges - - - - (7,773) - (7,773)
Unrealised gains
on current asset
investment - - - - - 128 128
Total
Comprehensive
Income - - - - (7,773) 15,312 7,539
Dividends paid:
Second interim
dividend for
period ended
31.12.09 (8.75p) - - - - - (5,061) (5,061)
Scrip dividends in
lieu of interim
cash dividends 54 262 - - - (316) -
Share
consideration for
the HI
acquisition 503 2,413 - - - - 2,916
30 June 2010 31,286 53,339 1,618 44,442 (15,039) 41,663 157,309
Year ended 31
December 2010
(audited)
1 January 2010 30,729 50,664 1,618 44,442 (7,266) 31,728 151,915
Profit for the
year - - - - - 25,675 25,675
Income and expense
recognised
directly in
equity:
Fair value
movement on
interest rate
swaps treated as
cash flow
hedges - - - - (6,013) - (6,013)
Unrealised gains
on current asset
investment - - - - - 79 79
Total
Comprehensive
Income - - - - (6,013) 25,754 19,741
Dividends paid:
Second interim
dividend for
period ended
31.12.09 (8.75p) - - - - - (5,061) (5,061)
First interim
dividend for year
ended
31.12.10 (8.75p) - - - - - (4,764) (4,764)
Scrip dividends in
lieu of interim
cash dividend
(net of expenses) 54 262 - - - (316) -
Scrip issue in
lieu of second
interim dividend
(net of expenses) 116 595 - - - (711) -
Share
consideration for
the HI
acquisition 502 2,413 - - - - 2,915
31 December 2010 31,401 53,934 1,618 44,442 (13,279) 46,630 164,746
(1) Previously unrealised gain recycled through Statement of
Comprehensive Income on disposal of investment.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Accounting policies
General information
The financial information set out in this report does not
constitute statutory accounts as defined in Section 434 of the
Companies Act 2006. The Group's statutory financial statements for
the year ended 31 December 2010 have been filed with the Registrar
of Companies. The auditors' report on these financial statements
was unqualified and did not contain a statement under section
498(2) of the Companies Act 2006.
Basis of preparation/Statement of compliance
The half year report for the six months ended 30 June 2011 has
been prepared in accordance with IAS 34 'Interim Financial
Reporting' and reflects the accounting policies set out in the
Group's financial statements at 31 December 2010 which have been
prepared in accordance with IFRS as adopted by the European
Union.
The half year report does not include all the information and
disclosures required in the statutory financial statements and
should be read in conjunction with the Group's financial statements
as at 31 December 2010.
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, being investment in property in the
United Kingdom leased principally to GPs, NHS organisations and
other associated health care users.
Going concern
The Group's property portfolio is 100% let to tenants with
strong covenants. The majority of the Group's borrowing facilities
are due for renewal in 2013. Some facilities beyond this date have
been secured and positive discussions have commenced with all
parties to agree the extension of the Group's bi-lateral loans by
the end of the current year. The loan to value ratio is currently
55.6%, well below the banking covenant of 70%. The pipeline of
properties is strong. Having reviewed the Group's current position,
cash flow projections, existing and prospective loan facilities and
covenant cover, the Directors have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to adopt a
going concern basis in preparing the financial statements.
2. Investment and investment properties under construction
Properties have been independently valued at fair value by
Lambert Smith Hampton, Chartered Surveyors and Valuers, as at 30
June 2011 in accordance with IAS 40: Investment Property.
The revaluation gain for the six months ended 30 June 2011
amounted to GBP5.2million. The revaluation gain for the year ended
31 December 2010 amounted to GBP22.8million and the gain for the
six months ended 30 June 2010 amounted to GBP17.8million.
Property additions for the six months ended 30 June 2011
amounted to GBP15.0million. There were no properties disposed of in
the six months to 30 June 2011. Commitments at 30 June 2011
amounted to GBP20.9million (31 December 2010: GBP31.2million).
Property additions for the 12 months ended 31 December 2010 and
the six months ended 30 June 2010 amounted to GBP102.6million and
GBP101.1million respectively. There were no property disposals
during these periods.
3. Property acquisitions
Investment Investment
Investment properties properties
properties long under
freehold leasehold construction Total
GBP000 GBP000 GBP000 GBP000
As at 1st January 2011 383,223 78,860 7,207 469,290
Additions 431 1 14,575 15,007
Transfer from properties
in the course
of development 12,492 - (12,492) -
Revaluation for the period 4,533 399 287 5,219
As at 30 June 2011 400,679 79,260 9,577 489,516
4. Current asset investment
This represents the acquisition in 2010 of 1,970,500 ordinary
shares in A H Medical Property PLC ("AHMP"). In accordance with
IAS39 it was treated as an Available For Sale ("AFS") asset. On 19
January 2011, the Group accepted the cash alternative offer for the
shares from Assura Group Limited, resulting in a realised gain of
GBP312,000.
5. Earnings per share
The purpose of calculating an adjusted earnings per share is to
provide a better indication of dividend cover for the period by
excluding large one-off items affecting earnings per share during
the period.
Net profit attributable Number of Ordinary Shares
to Ordinary Shareholders (1) Pence per share
Six Six Six Six Six Six
months months Year months months Year months months Year
ended ended ended ended ended ended ended ended ended
30 June 30 June 31 Dec 30 June 30 June 31 Dec 30 June 30 June 31 Dec
2011 2010 2010 2011 2010 2010 2011 2010 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited) (unaudited) (unaudited) (audited)
Basic
profit 11,953 15,184 25,675 65,157,643 61,561,192 62,162,797 18.3 24.7 41.3
Adjusted
profit
Adjustments
to remove:
Net gain on
revaluation
of
property (5,219) (17,821) (22,790)
Fair value
(gain)/loss
on
derivatives
(2) (1,041) 5,037 4,714
UK REIT
conversion
charge - 1,586 1,586
Profit
on sale
of AFS
investment (312) - -
Taxation (2) (29) (36)
Adjusted
basic
and diluted
earnings
(3) 5,379 3,957 9,149 65,157,643 61,561,192 62,162,797 8.3 6.4 14.7
(1) Weighted average number of Ordinary Shares in issue during
the period. In April 2011 the Group issued 5.3million New Shares by
way of a Placing.
(2) In view of the continuing volatility in the mark to model
adjustment in respect of the period end valuation of derivatives
that flows through the Condensed Group Statement of Comprehensive
Income, the Directors believe that it is appropriate to remove the
(gain)/loss in the calculation of adjusted earnings.
(3) There is no difference between basic and fully diluted
EPS.
6. Finance income
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Interest income on financial
assets
Not at fair value through
profit or loss
Bank interest 33 2 3
Development loan interest 177 41 134
Other interest 2 3 8
Dividend income received - - 15
212 46 160
7. Finance costs
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Interest expense on financial
liabilities
Not at fair value through
profit or loss
(i) Interest paid
Bank loan interest paid 2,690 1,292 3,812
Bank swap interest paid 4,438 4,259 8,518
Other interest paid 13 4 15
Notional UK-REIT interest 5 28 36
Bank facility non utilisation
fees 60 65 105
Bank charges and loan commitment
fees 245 200 396
7,451 5,848 12,882
At fair value through profit
or loss
(ii) Derivatives
Net fair value gain/(loss)
on interest rate swaps 1,041 (5,037) (4,714)
The fair value gain on derivatives recognised in the Condensed
Group Statement of Comprehensive Income has arisen from the
interest rate swaps for which hedge accounting does not apply. A
further fair value gain on hedges which meet the hedge
effectiveness criteria under IAS39 of GBP1.2million (31 December
2010: loss of GBP7.8million) is accounted for directly in
equity.
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Total net finance costs 7,239 5,802 12,722
Weighted average finance cost
% 4.64 4.8 4.57
8. Taxation
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Taxation in the Condensed
Group Statement of Comprehensive
Income:
Current tax
UK Corporation tax credit
on non property income (2) (29) (36)
Charge on conversion to UK-REIT
status - 1,586 1,586
Taxation (credit)/expense
in the Condensed Group Statement
of Comprehensive Income (2) 1,557 1,550
The UK REIT charge of GBP1.6million arose on the conversion of
the companies acquired during the six months ended 30 June 2010 to
UK-REIT status based on the values of the individual properties
held.
9. Dividends paid
Six months Six months Year
ended ended ended
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Second interim dividend for
the period
ended 31 December 2010 (9.00p)
paid 31 March 2011 (2010:
8.75p) 5,363 5,061 5,061
Scrip dividend in lieu of
second interim cash dividend 289 316 316
First interim dividend for
the period
ended 31 December 2010: (8.75p)
paid 29 October 2010 (2009:
8.50p) - - 4,764
Scrip dividend in lieu of
first interim cash dividend - - 711
5,652 5,377 10,852
Per share 9.00p 8.75p 17.50p
The Board proposes to pay an interim cash dividend of 9.0p per
Ordinary Share for the six months to 30 June 2011, payable on 28
October 2011. This dividend will not be a PID.
10. Administrative expenses
As the portfolio has grown, administrative expenses as a
proportion of rental and related income fell to 16.1% (year ended
31 December 2010: 17.3%). This equates to an annualised rate of 1%
of gross real estate assets (year ended 31 December 2010:
1.5%).
No performance incentive fee is payable to the Joint Managers
for the period ended 30 June 2011(six months to 30 June 2010 and
year ended 31 December 2010: GBPnil). Under the terms of the
management agreement there is a deficit of some GBP41million to be
made up in the net asset value before any further performance
incentive fee becomes payable.
11. Bank borrowings reconciliation
Drawn Total
down Headroom facility
GBP000 GBP000 GBP000
As at 1 January 2011 268,340 53,150 321,490
Net of prepaid loan arrangement
fees (895) - (895)
267,445 53,150 320,595
Term bank drawdowns 18,250 (18,250) -
Temporary offset of proceeds
of share issue against revolving
bank facility (13,450) 13,450 -
Repayment of Aviva mortgage (274) - (274)
4,526 (4,800) (274)
271,971 48,350 320,321
Aviva accrued interest (282) - (282)
Repayment of Natwest Bank
loan (3,000) (350) (3,350)
Movement in prepaid loan arrangement
fees 185 - 185
Total term loans 268,874 48,000 316,874
12. Net asset value calculations
Net asset values have been calculated as follows:
30 June 30 June 31 Dec
2011 2010 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Net assets per Condensed Group
Balance Sheet 188,033 157,309 164,746
Derivative interest rate swaps
liability (net) 28,641 33,034 30,865
EPRA net asset value 216,674 190,343 195,611
Number Number Number
of shares of shares of shares
Ordinary Shares:
Issued share capital 68,175,990 62,571,174 62,802,333
Basic net asset value per 275.8p 251.4p 262.3p
share
EPRA net asset value per share 317.8p 304.2p 311.5p
13. Related party transactions
The only change to the related party arrangements relates to the
changes to the Management Agreement as reported in the statutory
Annual Financial Report for the year ended 31 December 2010.
Management fees payable were:
30 June 30 June
2011 2010 31 Dec 2010
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Nexus PHP Management Limited 1,105 842 1,844
J O Hambro Capital Management
Limited 782 694 1,520
14. Post balance sheet events
On 29 July 2011, the Group entered into a new GBP50million,
three year, interest only revolving debt facility with Clydesdale
Bank PLC. In addition, an offer has been received for the provision
of a GBP75million seven year, fixed rate interest only facility
from Aviva.
On 11 August 2011, the Group completed the purchase of a medical
centre in South Queensferry, Scotland at a cost of GBP4.3million.
Forward development commitments at Blackpool and Oswestry were
completed on 1 August and 12 August respectively. The total cost of
these assets was GBP12million. These completions were funded from
debt facilities that had been used to underwrite the contractual
commitment.
INDEPENDENT REVIEW REPORT TO PRIMARY HEALTH PROPERTIES PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2011 which comprises the Condensed Group
Statement of Comprehensive Income, Condensed Group Balance Sheet,
Condensed Group Cash Flow Statement, Condensed Group Statement of
Changes in Equity and the related notes 1 to 14. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" ("ISRE 2410")
issued by the Auditing Practices Board. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company, for our work, for this report, or
for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority. As disclosed in note 1, the annual
financial statements of the Group are prepared in accordance with
International Financial Reporting Standards "IFRS" as adopted by
the European Union. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
Scope of review
We conducted our review in accordance with ISRE 2410 (UKand
Ireland) issued by the Auditing Practices Board for use in the
United Kingdom. A review of interim financial information consists
of making enquiries primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2011 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Ernst & Young LLP
London
17 August 2011
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that this condensed set of financial
statements has been prepared in accordance with IAS 34 as adopted
by the European Union and that the operating and financial review
herein includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8 of the Disclosure and Transparency rules of the
United Kingdom's Financial Services Authority namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed financial
statements and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Financial Report.
The Directors of Primary Health Properties PLC are listed in the
Annual Financial Report for the year ended 31 December 2010.
Shareholder information is as disclosed in the Annual Financial
Report and is also available on the PHP website
www.phpgroup.co.uk.
Graeme Elliot
Chairman
17 August 2011
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGUQWRUPGGRM
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