TIDMPHP
RNS Number : 5057K
Primary Health Properties PLC
22 August 2012
Primary Health Properties PLC
Half year report for the period ending 30 June 2012
Primary Health Properties PLC ("PHP", the "Group" or the
"Company"), 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 2012.
Group Financial Highlights
-- Increased interim dividend of 9.25p for the period ended 30 June 2012 (30 June 2011: 9.0p)
-- Operating profit before revaluation gain up 6.5% to GBP13.4
million (30 June 2011: GBP12.6 million)
-- Rental income increased by 6.3% to GBP16.21 million (30 June
2011: GBP15.25 million), fuelled by acquisitions and rent reviews
completed in the period
-- Acquisition of four properties in H1 for a total consideration of GBP11.5 million
-- Core debt facilities of GBP175 million refinanced by a new
four year, interest only "Club" Bank Facility
-- GBP18 million equity fundraising in May 2012
-- 90% of the rent roll is directly or indirectly received from the NHS
-- Average remaining lease term in portfolio of 16 years
Group Operational Highlights
-- A further asset purchase in July 2012 for GBP3.9 million
brings the Group's property portfolio to 165 assets
-- Total portfolio including recent commitments increased by
2.4% to GBP552.5 million (December 2011: GBP539.7 million)
-- Total annualised rent roll including commitments up 2.8% to
GBP33.2 million (December 2011: GBP32.3 million)
-- Terms agreed for the purchase of a further GBP49 million of
high quality medical centre assets
-- A significant pipeline of acquisition opportunities
-- Successfully completed a GBP75 million, seven year 5.375% retail bond issue on 23 July 2012
Outlook
-- Underlying property portfolio producing benchmark beating returns
-- Strengthened balance sheet gives PHP significant resources to
take advantage of opportunities to expand its portfolio
-- Demand for new, modern facilities to be driven by the Health
Act 2012 and the shift of the commissioning of primary care service
into the hands of GPs
Harry Hyman, Managing Director of Primary Health Properties,
commented:
"I am delighted to announce a 16(th) year of successive dividend
growth, underpinned by increases in rental income. The acquisitions
completed during the period will add value to our portfolio which
now comprises 165 properties and help to drive further income
growth in the future.
"We have an attractive pipeline of potential acquisitions and
our highly successful GBP75 million retail bond issue has provided
us with additional capability to pursue further income-generating
opportunities."
-Ends-
For media enquiries please contact:
Primary Health Properties PLC
Harry Hyman / Phil Holland 020 7451 7050
Pelham Bell Pottinger
David Rydell / Victoria Geoghegan / Elizabeth Snow 020 7861 3925
CHAIRMAN'S STATEMENT
I am delighted to present the Group's half year report for the
six months ended 30 June 2012.
The period under review has seen a number of successful
transactions completed which enhance the Group's portfolio and the
ability to increase shareholder return. Further assets have been
acquired and asset management projects undertaken which add to the
contracted rent roll and income surplus that funds the continuing
dividend payment.
Our core banking facilities have been renewed, a small equity
issue was completed and on 23 July 2012 PHP became the first UK
REIT to issue a retail bond. All of this strengthens the capital
and resource base of the Group and provides firepower to finance a
strong pipeline of acquisition opportunities currently being
documented or negotiated by our management team.
The long awaited Health and Social Care Act (the "Act") entered
into statute on 27 March 2012 and further information emerged about
the establishment of NHS Property Services Limited and the
management of the NHS's Primary Care Estate. The Act brings major
structural changes to the delivery of health care in England,
transferring the commissioning of care to more localised Clinical
Commissioning Groups. This supports a UK wide drive to deliver an
increasing number of healthcare services within local communities.
To do this efficiently and effectively, an increasing number of
high quality primary care facilities will need to be provided. The
Group is well placed to provide this investment and continues to
deliver consistent market leading returns to its shareholders.
Performance
Rental income in the period increased by 6.3% to GBP16.21
million (30 June 2011:GBP15.25 million), due to acquisitions and
rent reviews that were completed. The Group continues to achieve
satisfactory growth on rent reviews, although the overall rate of
increase has fallen slightly. Increases averaged 2.7% per annum on
reviews completed in the six month period, down slightly from 3.0%
achieved during 2011.
Costs were once again tightly controlled within the Group, aided
by its external management model. Operating profit before finance
costs, the revaluation of investment properties and derivatives
increased by 6.5% to GBP13.4 million (30 June 2011: GBP12.6
million).Deducting debt costs, that include the increased margin
since the refinance of the Group's core debt, adjusted earnings per
share for the period were 6.1 pence (30 June 2011: 8.3 pence).
Property Portfolio
Four investment properties were acquired in the first half of
the year for a total consideration of GBP11.5 million. The Group's
investment property portfolio as at 30 June 2012 was independently
valued at GBP545.2 million including commitments, providing a
revaluation surplus of GBP0.63 million. Investment yields remained
stable with an initial yield of 5.74% (31 December 2011:
5.74%).
On 19 July 2012, PHP contracted to buy a fully let investment in
Luton for GBP3.9 million. Including this and a property held under
a finance lease, the Group now holds 165 assets with a total value
of GBP552.5 million.
Terms have been agreed for the purchase of a further GBP49.4
million of high quality medical centre assets and these
acquisitions are currently being documented. In addition to this, a
further significant pipeline of asset purchases is being
negotiated, which we hope to secure in the second half of the
year.
Funding and capital value
The Group completed the refinance of its main bi-lateral debt
facilities on 2 April 2012, resulting in a new GBP175 million, four
year interest only debt facility with the Group's main lenders
Royal Bank of Scotland and Santander. There was no requirement to
redeem the pre-existing interest rate swaps and incur any value
eroding breakage fees. The Group now has a well-diversified group
of lenders with a wide range of maturity dates.
The Company successfully completed a small share issue in May,
issuing 6.2 million shares at 305 pence per share, a discount of
6.2% to the then share price, raising a net GBP18.4 million to
provide equity for further acquisitions. The small dilution
contributed to a slight reduction in the EPRA* net asset value per
share ("EPRA NAV") at 30 June 2012 standing at 314.9 pence, a fall
of 1.2% from 318.7 pence as at 31 December 2011.
PHP recently announced the completion of a retail bond issue,
the first issue of its kind by a UK REIT, raising GBP75 million
from a new investor base. The bond was issued for a seven year term
on an unsecured basis giving maximum flexibility to the Group as to
how the funds are invested. These proceeds will be used alongside
the banking facility headroom and new equity proceeds to fund
further acquisitions through the coming months. The issue will pay
a coupon of 5.375% per annum on a semi-annual basis.
Dividends
The Company paid a second interim dividend of 9.25 pence per
share in respect of 2011 to shareholders on 5 April 2012. The Board
has approved the payment of a first interim dividend for 2012 of
9.25 pence per share, payable on 26 October 2012 to shareholders on
the register on 28 September 2012. This will make a total of 18.5
pence per share paid in dividends to shareholders in 2012, the 16th
successive year of dividend growth for the Company.
Outlook
The Group has further strengthened its balance sheet in 2012.
Its underlying property portfolio is producing benchmark beating
returns and the Group has significant resources available to take
advantage of opportunities to expand its portfolio through the
remainder of 2012.
The Board is confident in the ability of the property portfolio
and its management team to generate further growth from rent review
and asset management projects. With the Act in place and work
continuing to move the commissioning of primary care services into
the hands of GPs, we are confident that the demand for new, modern
facilities will increase and that we are ideally placed to satisfy
this demand.
I look forward to another positive period for the remainder of
2012.
Graeme Elliot, Chairman
21 August 2012
*European Public Real Estate Association
MANAGING DIRECTOR'S REVIEW
Overview
Royal Assent of the Act introduces wide reaching structural
changes to the delivery of healthcare services in England, the
largest of the four UK NHS organisations. From April 2013, Primary
Care Trusts ("PCTs") will be abolished and replaced by Clinical
Commissioning Groups, whose management will mainly comprise of GPs.
This will strengthen the drive to provide services within the local
community and place further emphasis on primary care as the gateway
to wider NHS facilities.
Although the commissioning of care is being transferred into GP
management, there will be no change to the reimbursement of GP rent
and property costs. This will be the responsibility of the newly
formed National Commissioning Board which will carry the status of
a Special Health Authority, so providing a continuing strong
covenant to underpin the funding of the Group's rent roll. The
precise structure of this body between national and regional
operations is as yet unknown. During the period under review, the
NHS Property Services Limited has also been formed to take on the
ownership and management of the NHS's primary care estate when the
PCTs are abolished.
We feel that all of the above combines to strengthen the need
for the development of further purpose built modern primary care
facilities from which a greater variety of healthcare services can
be provided within the local community.
We have worked extremely hard in the first half of 2012 to
ensure that the Group's leading position within the primary care
premises sector is maintained and to position PHP to be a
significant participant in future developments.
Portfolio
The Group's portfolio has grown in the six months under review
as further property acquisitions have been completed and a number
of asset management projects from within the owned portfolio have
been undertaken.
Four acquisitions were completed in the period for a total of
GBP11.5 million. As detailed below, these were spread across the
United Kingdom, and were all high quality, modern premises with
income contracted for terms longer than the Weighted Average
Unexpired Lease Term ("WAULT") of the existing portfolio, helping
to maintain the longevity of the Group's rental income.
Assets Acquired m2 GBPm* Occupational tenants
Conan Doyle Medical Centre,
Edinburgh 1,144 3.8 7 GP practice
Pharmacy Unit, Connahs Pharmacy at existing
Quay 310 1.0 PHP site
Watton Medical Practice,
Norfolk 924 2.8 6 GP practice
Nantgarw Road Medical 1,250 3.9 3 GP practice, Health
Centre, Board and pharmacy
Caerphilly, South Wales 11.5
*including legal expenses
Asset management projects were completed at three sites in the
period incurring capital expenditure of GBP0.5 million, but adding
GBP0.03 million to rent roll with an average additional lease
period secured of over 14 years.
The Group's portfolio produces continuing growth from rent
reviews with a total of GBP0.21 million of rental income added to
contracted rent roll from the completed review of GBP3.07 million
of rent in the period. This gives an average annualised increase of
2.7% (2011: 3.0%).
At the start of the year, the Group had committed to forward
fund the development of four further centres. One of these, a 795
square metre centre in Allesley, Coventry will be delivered and
rent will commence in the coming weeks. The three other forward
commitments are progressing as planned and are scheduled to be
delivered on time.
The investment portfolio was independently valued as at 30 June
2012 at open market value by Lambert Smith Hampton Chartered
Surveyors and Valuers at a total of GBP545.2 million. Including
properties held under finance leases and some expansion land, the
aggregate value of the Group's property assets at the balance sheet
date was GBP548.6 million. Whilst commercial property values have
generally fallen in 2012, the longevity of contracted income and
strength of the underlying NHS covenant has led to investment
yields for the Group's portfolio being stable across the period,
reflecting an initial yield of 5.74% (31 December 2011: 5.74%).
Number of 30 June 2012 31 Dec 2011
properties GBPm GBPm
Investment properties 159 533.7 521.2
Properties in the course
of development 4 5.5 4.4
Total properties 163 539.2 525.6
Finance leases and expansion
land 1 3.1 3.1
Total owned and leased 164 542.3 528.7
Balance of purchases
committed at the period
end
Total owned, leased and - 6.3 11.0
committed at the balance
sheet date
Purchases committed after
the period end
Total owned, leased and 164 548.6 539.7
committed
1 3.9
165 552.5
The Group has continued to acquire assets since the balance
sheet date with a standing let investment in Luton being acquired
for GBP3.9 million on 19 July 2012.
Assets committed m2 Occupational tenants
Kingsway Health Centre, Luton 1,281 Wholly let to PCT
Following this recent activity, the Group's portfolio numbers
165 assets with a total value of some GBP552.5 million. Annualised
rent roll stands at GBP33.2 million including commitments and the
WAULT of the portfolio stands at 16.0 years (31 December 2011: 16.3
years).
Valuing the portfolio held at 30 June 2012 using a discounted
cash flow ("DCF") methodology, to reflect the long term stable cash
flow from the occupational leases, produces a value of GBP595.1
million. Compared to the LSH valuation of GBP548.6 million, the
difference in value represents 63 pence per share in net asset
value terms.
In the DCF valuation, cash flows from the assets are discounted
at 7%. This is based on a margin of 250 basis points over an
historic long term gilt yield of 4.5%. At current gilt yields, this
would actually be a margin of approximately 470 basis points over
the 16 year gilt.
In my 2011 year-end report, I set out how the Group benchmarks
its real estate performance against the IPD Healthcare Property
Index. This index was published in May 2012 and confirmed that the
Group's assets had outperformed the Index in 2011. PHP's portfolio
delivered a total return in 2011 of 10.1% against the primary care
property element of the Index of 9.4%.
For the 12 month period to 30 June 2012, the Group's property
portfolio has shown an annualised total return of 7.19%, compared
to the IPD All Property Index for the same period that showed
4.4%.
PHP has a strong pipeline of potential investment purchases and
opportunities to forward fund the development of new centres. At
the time of writing this review, we have agreed terms to acquire
over GBP49.4 million of standing let investments and forward funded
developments and these transactions are currently being documented.
A further sizeable tranche of acquisitions is also being negotiated
with all transactions continuing to apply the Group's prudent
acquisition policies that target assets that contribute immediately
to profitability but also have potential for future growth.
Operations
Six months Six months Year
to 30 June to 30 June to 31 Dec
2012 2011 2011
GBPm GBPm GBPm
Rental and related income 16.2 15.2 30.7
Expenses (2.8) (2.6) (5.6)
Operating profit before revaluation gain
and financing 13.4 12.6 25.1
Net financing costs (9.0) (7.2) (15.4)
Profit on sale of AHMP shares - 0.3 0.3
Underlying profit before revaluation gain,
fair value movement on interest rate swaps
and profit on sale of investment 4.4 5.7 10.0
Fair value (loss)/gain on interest rate
swaps (0.8) 1.0 (8.0)
Revaluation gain on property portfolio 0.6 5.2 10.6
Profit before tax 4.2 11.9 12.6
The asset purchases, property enhancements and rent review
uplifts detailed above have combined to increase rents received in
the period to GBP16.2 million, an increase of 6.6% over the same
period last year.
Fees paid to the joint managers were stable at 0.77% of gross
assets (2011: 0.77%), but this proportion will reduce through the
remainder of the year as the sliding scale fee rate, introduced in
2011, has an impact as gross assets increase further above GBP500
million. Profits before financing and revaluations increased by
6.4% to GBP13.4 million (six months to 30 June 2011: GBP12.6
million).
Net finance costs increased for the six month period, as
acquisitions and the increased cost of the Group's bank finance
impacted results. This will be less in future periods due to income
from upcoming rent reviews and further property acquisitions.
Earnings per share, excluding property revaluation and the
change in the Mark to Model of the Group's interest rate
derivatives, were 6.1 pence (six months to 30 June 2011: 8.3
pence).
Dividends and increase in capital base
The dividend announced with this statement brings cash dividends
to date in 2012 to a total of 18.5 pence per share, an increase of
2.8% over that paid in 2011. This will be the 16th consecutive year
of dividend growth. Once again, no portion of this dividend
represents a Property Income Distribution ("PID").
In May 2012, the Company undertook a small capital raising,
issuing a total of 6,229,509 shares at a price of 305 pence per
share, a small discount to the then share price and a discount of
4.3% to the 31 December 2011 EPRA NAV. The net proceeds of the
issue of GBP18.4 million have been used to fund property
acquisitions and amounts paid towards commitments in the period and
since the balance sheet date. A further 107,332 shares have been
issued in the period to satisfy the scrip alternative to the cash
dividend paid in April.
EPRA NAV excludes fair value adjustments of debt and associated
derivatives. As a result of the activities detailed above, EPRA NAV
per share has fallen by 1.2% in the period to 314.9 pence (31
December 2011: 318.7 pence).
Debt finance
The management team has worked diligently to secure the Group's
underlying banking facilities and to expand the range of providers
of debt and facility maturities to spread any refinance risk. The
largest part of this exercise was completed on 2 April 2012, when
the Group completed the refinance of its core GBP175 million
bi-lateral loans into a new four year, interest only, "Club"
facility provided by Royal Bank of Scotland plc and Santander
Banking Group.
The Allied Irish Banks plc ("AIB") facility was reduced to GBP27
million and will run to its planned maturity in January 2013. Total
facilities available to the Group as at 30 June 2012 were GBP384
million, for an average term of 5.2 years. As at the balance sheet
date, GBP301 million was drawn, leaving headroom for additional
asset purchases and the refinance of the AIB debt. Group LTV stood
at 56.4% (31 December 2011: 57.8%). The average margin on the
Group's floating rate debt reflecting the refinance detailed above
stands at 230 basis points (31 December 2011: 80 basis points).
On 23 July 2012, the Company issued a GBP75 million, seven year
retail bond with an annual coupon of 5.375%, payable semi-annually.
The bond is unrated and was issued on an unsecured basis, giving
total flexibility over the use of the proceeds. These funds will be
used to satisfy asset acquisitions and invested at the earliest
opportunity. Pending this, the funds have been used to pay down the
revolving elements of the banking facilities which are available to
be drawn as and when needed.
The Group's underlying long term, strong covenanted income
streams and well managed portfolio, demonstrating consistent
returns and growth potential, combined to present a compelling
investment case for fixed income investors such that the offer
period for the issue had to be closed a week earlier than planned
as PHP quickly reached its target maximum issue size of GBP75
million. The bond issue, afirst for a UK REIT, provides additional
resource for investment to grow the portfolio and increase
shareholder returns.
Interest rate hedging
Another achievement of the debt refinance outlined above was
that it was secured without the requirement to break any of the
Group's interest rate swap agreements. This avoided crystallising
large, breakage costs associated with cancelling interest rate
derivatives and the capital value erosion that would entail. The
Mark to Model liability of the Group's derivative portfolio stood
at GBP49.3 million at the balance sheet date (31 December 2011 -
GBP49.5 million).
Going concern
Set out above and in the financial statements are details of the
Group's business activities, and development, performance and
position including its cash flows, liquidity position and borrowing
facilities. The Directors believe that the Group is well placed to
manage its business risks successfully, despite the continuing
uncertain general economic outlook. Having reviewed the Group's
current position and cash flow projections, actual and prospective
debt 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. The Directors
continue to adopt the going concern basis of accounting in
preparing the financial statements.
Prospects
The Group's business is underpinned by long term occupational
leases in a sector where demand is consistent and no over supply
exists. 90% of the rent roll is directly or indirectly received
from the NHS with leases having an average remaining term of 16
years. 93% of today's contracted income will still be received in
10 years' time.
I am confident that we will see numerous opportunities to
increase assets under management as new modern premises are
demanded to provide the infrastructure from which modern day
primary care services are delivered. The changes to the management
and commissioning of care in England are now being implemented,
removing considerable uncertainty from the market and showing signs
of a return to a more normal volume of new centre approvals.
The outlook for the Group is positive as the funds that have
been secured are invested in assets that will enhance returns to
shareholders.
Harry Hyman
Managing Director
21 August 2012
Principal Risks
The 2011 Annual Report includes details of the Group's principal
financial risks which may be summarised as follows:
-- The valuation of property and property-related assets is
inherently subjective and is subject to uncertainty. There is no
assurance that the valuations of the properties reflect actual sale
prices.
-- The Group uses leverage to acquire its property assets.
Without confirmed debt facilities in the future, PHP may be unable
to meet commitments or repay or refinance debt facilities as they
become due.
-- The Group's debt facilities include a number of covenant
requirements, all of which are in compliance and expected to remain
so for the foreseeable future. Should the Group be unable to meet
these covenants it could result in possible default and/or
penalties being levied.
-- The Group intends to continue its strategy of investing
solely in primary care premises. The Group has no influence over
the future direction of primary care initiatives in the public
sector and there can be no assurance that the UK government's
primary care budget will not decline or that growth will stay at
present levels. A change in policy, moving resources away from the
primary care market, could materially and adversely affect the
Group's prospects for continued profitability and rental
growth.
-- The majority of the Group's occupational lease counterparties
are GP practices who benefit from rental and premises costs
reimbursement under the National Health Services (General Medical
Services Premises Costs) Direction 2004. Cuts in the funding
available for the renting of medical centres or changes to future
rental reimbursement mechanisms may reduce funds available to meet
the costs of accommodation provided by the Group or impact on the
underlying covenant strength in future.
-- A breach of REIT requirements may lead to the Group losing
its REIT status and the taxation benefits that this affords.
-- The Group has no employees and depends on services supplied
by third parties for the efficient operation and management of the
Group. The termination of the Joint Managers' contract could
adversely affect the Group's ability to effectively manage its
operations.
-- A large proportion of the Group's debt facilities are exposed
to movements in underlying interest rates.
-- The mark to model valuation of the Group's interest rate
derivative portfolio is based on underlying market interest rates.
Changes to market rates could give rise to volatility in mark to
model values.
Further details of how the Audit Committee monitors risks and
how these are mitigated can be found Group's 2011 Annual
Report.
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 June 2012
Six Six
months months Year
ended ended ended
30-Jun 30-Jun 31-Dec
2012 2011 2011
GBP000 GBP000 GBP000
Notes (unaudited) (unaudited) (audited)
Rental income 16,038 15,079 30,333
Finance lease income 172 171 343
Rental and related income 16,210 15,250 30,676
Direct property expenses (175) (182) (436)
Administrative expenses 9 (2,592) (2,450) (5,123)
Operating profit before net valuation gain
on property portfolio 13,443 12,618 25,117
Profit on sale of available for sale
("AFS") investment - 312 312
Net valuation gain on property portfolio 3 631 5,219 10,584
Operating profit before financing
costs 14,074 18,149 36,013
Finance income 5 175 212 414
Finance costs 6 (9,308) (7,451) (15,831)
Fair value (loss)/gain on derivative
interest rate swaps and amortisation
of cash flow hedging reserve 6 (785) 1,041 (7,947)
Profit on ordinary activities before
tax 4,156 11,951 12,649
Current taxation credit - 2 5
Profit for the period (1) 4,156 11,953 12,654
Fair value movement on interest rate
swaps treated as cash flow hedges 982 1,165 (13,613)
Recycling of previously unrealised
gain on current asset investment - (73) (73)
Other comprehensive income/(loss) 982 1,092 (13,686)
Total comprehensive income/(loss) for the
period net of tax 5,138 13,045 (1,032)
Earnings per share
-- basic and diluted (2) 4 5.9p 18.3p 19.0p
Adjusted earnings per share (3)
-- basic and diluted (2) 4 6.1p 8.3p 14.5p
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 4.
CONDENSED GROUP BALANCE SHEET
at 30 June 2012
At At At
30-Jun 30-Jun 31-Dec
2012 2011 2011
GBP000 GBP000 GBP000
restated
(3)
Notes (unaudited) (unaudited) (audited)
Non current assets
Investment properties 2,3 539,154 489,516 525,586
Net investment in finance leases 3,084 3,052 3,069
Derivative interest rate swaps 8 1,196 24
542,246 493,764 528,679
Current assets
Trade and other receivables 3,116 3,045 2,633
Net investment in finance leases 25 39 30
Cash and cash equivalents 964 915 77
4,105 3,999 2,740
Total assets 546,351 497,763 531,419
Current liabilities
Term loans 10 (27,610) (574) (592)
Derivative interest rate swaps (7,126) (15,818) (23,866)
Trade and other payables (6,975) (4,875) (5,831)
Deferred rental income (6,848) (6,144) (6,624)
(48,559) (27,411) (36,913)
Non current liabilities
Term loans 10 (269,956) (268,300) (300,747)
Derivative interest rate swaps (42,148) (14,019) (25,639)
(312,104) (282,319) (326,386)
Total liabilities (360,663) (309,730) (363,299)
Net assets 185,688 188,033 168,120
Equity
Share capital 37,305 34,088 34,136
Share premium account 54,722 54,178 54,430
Capital reserve 1,618 1,618 1,618
Special reserve 72,689 57,405 57,405
Cash flow hedging reserve (25,910) (12,114) (26,892)
Retained earnings 45,264 52,858 47,423
Total equity (1) 185,688 188,033 168,120
Net asset value per share
-- basic 11 248.9p 275.8p 246.3p
-- EPRA (2) net asset value per
share 11 314.9p 317.8p 318.7p
(1) Wholly attributable to equity shareholders of Primary Health
Properties PLC.
(2) See definition of 'EPRA' above
(3) Principal repayments on Aviva fixed term loan of GBP0.6
million restated to current liabilities from non-current
liabilities. This reclassification has no effect on net assets.
CONDENSED GROUP CASH FLOW STATEMENT
for the six months ended 30 June 2012
Year ended
Six months Six months
ended ended 31 Dec
30 June 30 June
2012 2011 2011
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Operating activities
Profit before tax 4,156 11,951 12,649
Less: Finance income (175) (212) (414)
Plus: Finance costs 9,308 7,451 15,831
Plus: Fair value loss/(gain) on derivatives
and amortisation of cash flow hedging reserve 785 (1,041) 7,947
Operating profit before financing 14,074 18,149 36,013
Adjustments to reconcile Group operating
profit to net cash flows from operating
activities:
Revaluation gain on property portfolio (631) (5,219) (10,584)
Profit on sale of AFS investment - (312) (312)
Increase in trade and other receivables (488) (504) (146)
Increase in trade and other payables 634 41 1,095
Cash generated from operations 13,589 12,155 26,066
UK REIT conversion charge instalment - (1,998) (1,998)
Taxation paid - (48) (43)
Net cash flow from operating activities 13,589 10,109 24,025
Investing activities
Payments for investment properties (12,937) (15,007) (45,712)
Receipt from sale of shares in AFS investment - 788 788
Interest received on commitments - 58 296
Bank interest received 56 25 35
Other interest received - - 4
Net cash flow used in investing activities (12,881) (14,136) (44,589)
Financing activities
Proceeds from issue of shares (net of expenses) 18,399 15,605 15,605
Term bank loan drawdowns 36,335 18,250 145,953
Term bank loan repayments (19,792) (3,274) (111,007)
Temporary offset of proceeds of share issue
against revolving bank loan (18,399) (13,450) -
Swap interest payable (3,238) (4,457) (8,833)
Non utilisation fees (176) - (224)
Loan arrangement fees paid (2,280) (54) (1,690)
Interest paid (4,701) (2,685) (5,454)
Swap buy back costs - - (2,880)
Equity dividends paid (net of scrip dividend) (5,969) (5,363) (11,199)
Net cash flow from financing activities 179 4,572 20,271
Movement in cash and cash equivalents for
the period 887 545 (293)
Cash and cash equivalents at start of period 77 370 370
Cash and cash equivalents at end of period 964 915 77
Condensed Group Statement of Changes in Equity
Cash flow
Share Share Capital Special hedging Retained
capital premium reserve reserve(1) reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Six months ended 30 June 2012 (unaudited)
1 January 2012 34,136 54,430 1,618 57,405 (26,892) 47,423 168,120
Profit for the period - - - - - 4,156 4,156
Income and expense recognised
directly in equity:
Fair value movement on
interest rate swaps and
amortisation of cash flow
hedging reserve - - - - 982 - 982
Total comprehensive income - - - - 982 4,156 5,138
Proceeds from capital
raisings 3,115 - - 15,885 - - 19,000
Expenses of capital raisings - - - (601) - - (601)
Dividends paid:
Second interim dividend
for period ended 31.12.11
(9.25p) - - - - - (5,969) (5,969)
Scrip dividends in lieu
of interim cash dividends 54 292 - - - (346) -
30 June 2012 37,305 54,722 1,618 72,689 (25,910) 45,264 185,688
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 - - - - - (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
Year ended 31 December 2011 (audited)
1 January 2011 31,401 53,934 1,618 44,442 (13,279) 46,630 164,746
Profit for the year - - - - - 12,654 12,654
Income and expense recognised
directly in equity:
Fair value movement on
interest rate swaps and
amortisation of cash
flow hedging reserve - - - - (13,613) - (13,613)
Recycling of previously
unrealised gain - - - - - (73) (73)
Total comprehensive income - - - - (13,613) 12,581 (1,032)
Proceeds from capital
raisings 2,642 - - 13,474 - - 16,116
Expenses of capital raisings - - - (511) - - (511)
Dividends paid:
Second interim dividend
for the year ended 31
December 2010 (9.00p) - - - - - (5,363) (5,363)
Scrip dividends in lieu
of second interim cash
dividend (net of expenses) 45 244 - - - (289) -
First interim dividend
for the year ended 31
December 2011 (9.00p) - - - - - (5,836) (5,836)
Scrip dividends in lieu
of interim cash dividends
(net of expenses) 48 252 - - - (300) -
31 December 2011 34,136 54,430 1,618 57,405 (26,892) 47,423 168,120
(1) The Special Reserve is a distributable reserve
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 2011 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) or 498(3) of the Companies Act 2006.
The condensed consolidated interim financial statements of the
Group are unaudited but have been formally reviewed by the auditors
and their report to the Company is included below.
These condensed interim financial statements of the Group for
the six months ended 30 June 2012 were approved and authorised for
issue by the Board of Directors on 21 August 2012.
Basis of preparation/Statement of compliance
The half year report for the six months ended 30 June 2012 has
been prepared in accordance with IAS 34 'Interim Financial
Reporting' and reflects consistent accounting policies as set out
in the Group's financial statements at 31 December 2011 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 2011.
Convention
The financial statements are presented in Sterling rounded to
the nearest thousand.
Segmental reporting
The Directors are of the opinion that the Group has one
operating and reportable segment, 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 let to tenants with strong
covenants and the acquisition pipeline is strong. In the period the
Group has finalised the refinancing of GBP175 million of bank debt
facilities into a new four year interest only facility. This has
extended the average maturity of the Group's banking facilities to
over five years. The loan to value ratio is currently 56.4%, well
below the maximum Group banking covenant of 70%. The Group has
announced the issue of a GBP75 million, seven year unsecured retail
bond with an interest rate of 5.375%. For these reasons the
Directors' continue to adopt the going concern basis of accounting
in preparing the financial statements.
2. Investment properties and investment properties under
construction
Investment properties have been independently valued at fair
value by Lambert Smith Hampton, Chartered Surveyors and Valuers, as
at 30 June 2012 in accordance with IAS 40: Investment Property.
The revaluation gain for the six months ended 30 June 2012
amounted to GBP0.6 million. The revaluation gain for the year ended
31 December 2011 amounted to GBP10.6 million and the gain for the
six months ended 30 June 2011 amounted to GBP5.2 million.
Property additions, including acquisitions, for the six months
ended 30 June 2012 amounted to GBP12.9 million. No properties were
disposed of in the six months to 30 June 2012. Commitments
outstanding at 30 June 2012 amounted to GBP6.3 million (31 December
2011: GBP11.0 million).
Property additions for the 12 months ended 31 December 2011 and
the six months ended 30 June 2011 amounted to GBP45.7 million and
GBP15.0 million respectively. There were no property disposals
during these periods.
3. Property acquisitions
Investment
Investment Investment properties
properties
long leasehold
properties GBP000 under
construction
freehold (unaudited) GBP000 Total
GBP000 (unaudited) GBP000
(unaudited) (unaudited)
As at 1 January 2012 433,245 87,966 4,375 525,586
Acquisitions 10,528 957 - 11,485
Additions 373 21 1,058 1,452
Revaluation gain for the period 210 386 35 631
As at 30 June 2012 444,356 89,330 5,468 539,154
4. 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.
Six months Six months Year ended
ended ended
ended 30 June 2011 31 Dec 2011
30 June 2012 GBP000 GBP000
GBP000 (unaudited) (audited)
(unaudited)
Net profit attributable to Ordinary
Shareholders
Basic profit 4,156 11,953 12,654
Adjusted profit - Adjustments
to remove:
Net gain on revaluation of property (631) (5,219) (10,584)
Fair value loss/(gain) on derivatives
(1) 785 (1,041) 7,947
Profit on sales of AFS investment - (312) (312)
Taxation - (2) (5)
Adjusted basic and diluted earnings
(2) 4,310 5,379 9,700
Number of Ordinary Shares (3) 70,413,807 65,157,643 66,696,096
Earnings per share (2) 5.9p 18.3p 19.0p
Earnings per share - Adjusted
(1) 6.1p 8.3p 14.5p
1 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
loss/(gain) in the calculation of adjusted earnings.
2 There is no difference between basic and fully diluted
EPS.
3 Weighted average number of Ordinary Shares in issue during the
period. In April 2012, the Group issued 0.1 million Ordinary shares
following the scrip dividend issue and in May 2012 6.2 million
Ordinary Shares were issued by way of a Placing.
5. Finance income
Six months Six months Year ended
ended ended
30 June 2012 30 June 2011 31 Dec 2011
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Interest income on financial
assets not at fair value through
profit or loss
Bank interest 57 33 70
Development loan interest 65 177 249
Other interest 53 2 95
175 212 414
6. Finance costs
Six months ended Six months Year ended
ended
30 June 2012 30 June 2011 31 Dec 2011
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Interest expense on
financial liabilities
(i) Interest paid
Bank loan interest
paid 5,433 2,690 5,792
Bank swap interest
paid 3,219 4,438 8,768
Other interest
paid 10 13 -
Notional UK-REIT
interest - 5 5
Bank facility
non utilisation
fees 206 60 288
Bank charges and
loan commitment
fees 440 245 978
9,308 7,451 15,831
(ii) Derivatives
Net fair value loss/(gain)
on interest rate swaps 113 (1,041) 7,891
Amortisation of cash
flow hedging reserve 672 - 56
785 (1,041) 7,947
The fair value loss 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 fair value gain on derivatives which meets the hedge
effectiveness criteria under IAS39 of GBP0.3 million (30 June 2011:
gain of GBP1.2 million) is accounted for directly in equity,
together with amortisation of hedging reserve of GBP0.7 million (30
June 2011: GBP nil).
Net finance costs excluding fair value movements on derivatives
can be summarised as follows:
Six months Six months Year ended
ended ended
30 June 2012 30 June 2011 31 Dec 2011
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Net finance costs 9,133 7,239 15,417
7. Taxation
Six months Six months Year ended
ended ended
30 June 2012 30 June 2011 31 Dec 2011
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) (5)
Taxation credit in the Condensed
Group Statement of Comprehensive
Income - (2) (5)
8. Dividends paid
Six months Six months Year ended
ended ended
30 June 2012 30 June 2011 31 Dec 2011
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Second interim dividend for the
period ended 31 December 2011
(9.25p) paid 2 April 2012 (2011:
9.00p) 5,969 5,363 5,363
Scrip dividend in lieu of second
interim cash dividend 346 289 289
First interim dividend for the
period ended 31 December 2011:
(9.00p) paid 28 October 2011 - - 5,836
Scrip dividend in lieu of first
interim cash dividend - - 300
6,315 5,652 11,788
Per share 9.25p 9.00p 18.00p
The Board proposes to pay an interim cash dividend of 9.25p per
Ordinary Share for the six months to 30 June 2012, payable on 26
October 2012. This dividend will not be a Property Income
Distribution ("PID").
9. Administrative expenses
As the portfolio has grown, administrative expenses as a
proportion of rental and related income fell to 16.0% (30 June
2011:16.1%). This equates to an annualised rate of 1.0% of gross
real estate assets (30 June 2011: 1.0%). Management fees paid to
the Joint Managers are shown in note 12.
No performance incentive fee is payable to the Joint Managers
for the period ended 30 June 2012 (six months to 30 June 2011 and
year ended 31 December 2011: GBPnil). Under the terms of the
management agreement there is a a deficit of some GBP58.4 million
to be made up in the net asset value before any further performance
incentive fee becomes payable.
10. Bank borrowings reconciliation
Drawn down Headroom Total facility
GBP000 GBP000 GBP000
(unaudited) (unaudited) (unaudited)
As at 1 January 2012 303,005 89,297 392,302
Term bank drawdowns 36,335 (36,335) -
Term bank repayments (16,501) 16,501 -
Temporary offset of proceeds of
share issue against revolving bank
facility (18,399) 18,399 -
Repayment of Aviva mortgage (291) - (291)
1,144 (1,435) (291)
304,149 87,862 392,011
Repayment of and reduction in AIB
bank loan (3,000) - (3,000)
Reduction in RBS overdraft - (5,000) (5,000)
(3,000) (5,000) (8,000)
Total term loans as at 30 June
2012 301,149 82,862 384,011
Any bank facility arrangement fee amounts unamortised as at the
period end are offset against amounts drawn on the facillities as
shown in the table below:
30 June 2012
GBP000
(unaudited)
Term loans drawn: due within one
year 27,610
Term loans drawn: due in greater
than one year 273,539
Less: Unamortised borrowing costs (3,583)
Total term loans due in greater than
one year 269,956
Total term loans per Condensed Group
Balance Sheet 297,566
11. Net asset value calculations
Six months Six months Year ended
ended ended
30 June 2012 30 June 2011 31 Dec 2011
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Net assets per Condensed Group
Balance Sheet 185,688 188,033 168,120
Derivative interest rate swaps
liability (net) 49,266 28,641 49,481
EPRA net asset value 234,954 216,674 217,601
Number of Number of Number of shares
shares shares
Ordinary Shares:
Issued share capital 74,609,070 68,175,990 68,272,229
Basic net asset value per share 248.9p 275.8p 246.3p
EPRA net asset value per share 314.9p 317.8p 318.7p
12. Related party transactions
The management fee calculated and payable for the period was as
follows:
Six months Six months Year ended
ended ended
30 June 2012 30 June 2011 31 Dec 2011
GBP000 GBP000 GBP000
(unaudited) (unaudited) (audited)
Nexus TradeCo Limited 1,236 1,105 2,295
J O Hambro Capital Management
Limited 851 782 1,591
13. Post balance sheet events
On 19 July 2012, PHP announced that it had entered into a
conditional contract to acquire a modern, purpose built medical
centre in Luton, Bedfordshire for approximately GBP3.9 million.
On 23 July 2012, PHP announced that it had become the first UK
REIT to issue a Retail Bond following the issue of a GBP75 million,
7 year bond, to Retail Investors with an interest rate of 5.375%
paid semi-annually in arrears.
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
2012 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 13. 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 International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the 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 2012 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
21 August 2012
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm that to the best of their knowledge 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 of the financial year 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.
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
21 August 2012
This information is provided by RNS
The company news service from the London Stock Exchange
END
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